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Notice of Proposed Individual Exemption To Amend Prohibited Transaction Exemption (PTE) 95-31 Involving the Financial Institutions Retirement Fund (the Fund) and the Financial Institutions Thrift Plan (the Thrift Plan) Located in White Plains, NY [07/03/2002]
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Volume 67, Number 128, Page 44643-44646
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-11039]
Notice of Proposed Individual Exemption To Amend Prohibited
Transaction Exemption (PTE) 95-31 Involving the Financial Institutions
Retirement Fund (the Fund) and the Financial Institutions Thrift Plan
(the Thrift Plan) Located in White Plains, NY
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Notice of proposed individual exemption to amend PTE 95-31.
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SUMMARY: This document contains a notice of pendency before the U.S.
Department of Labor (the Department) of a proposed individual exemption
which, if granted, would amend PTE 95-31 (60 FR 18619, April 12, 1995),
an exemption granted to the Fund and the Thrift Plan. PTE 95-31
involves the provision of certain services, and the receipt of
compensation for such services, by Pentegra Services, Inc. (Pentegra),
a wholly-owned, for-profit subsidiary corporation of the Fund, to:
Employers (the Employers) that participate in the Fund and the Thrift
Plan; and employee benefit plans (the Plans) sponsored by such
Employers.
If granted, the proposed exemption would incorporate, by reference,
certain of the facts, representations and conditions contained in PTE
95-31. However, the proposed exemption would expand the scope of PTE
95-31 by allowing for the provision of certain trust services, and the
receipt of compensation for such services, by Trustco, a wholly-owned
subsidiary of Pentegra, to the Plans, the Employers, the Thrift Plan,
and the individual retirement accounts (the IRAs) established by
certain employees, officers, directors and/or shareholders of the
Employers (the Individuals). In addition, the proposed exemption would
permit the provision of certain services, and the receipt of
compensation with respect to such services, by Pentegra to the Thrift
Plan and the IRAs.
Thus, the proposed exemption will affect the Fund, the Thrift Plan,
the Plans, the Employers, the IRAs, the Individuals, and, when
relevant, the participants and beneficiaries thereof.
DATES: Written comments and requests for a public hearing should be
received by the Department on or before September 16, 2002.
ADDRESSES: All written comments and requests for a public hearing
(preferably, three copies) should be sent to the Office of Exemption
Determinations, Pension and Welfare Benefits Administration, Room N-
5649, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, Attention: Application No. D-11039. Interested
persons are also invited to submit comments and/or hearing requests to
PWBA via email to moffittb@pwba.dol.gov or by fax to (202) 219-0204.
The application pertaining to the proposed exemption and the comments
received will be available for public inspection in the Public
Disclosure Room of the Pension and Welfare Benefits Administration,
U.S. Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Christopher Motta, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S.
Department of Labor, telephone (202) 693-8544. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption to amend PTE 95-31. PTE
95-31 provides an exemption from certain prohibited transaction
restrictions of section 406 of the Employee Retirement Income Security
Act of 1974 (the Act) and from the sanctions resulting from the
application of section 4975 of the Internal Revenue Code of 1986 (the
Code), as amended, by reason of section 4975(c)(1) of the Code.
The proposed exemption has been requested in an application filed
on behalf of the Fund and the Thrift Plan (together, the Applicants)
pursuant to section 408(a) of the Act and section 4975(c)(2) of the
Code, and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, August 10, 1990). Effective December 31,
1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713,
October 17, 1978) transferred the authority of the Secretary of the
Treasury to issue exemptions of the type requested to the Secretary of
Labor. Accordingly, the proposed exemption is being issued solely by
the Department.
PTE 95-31 provides that--
The restrictions of sections 406(a) and 406(b)(1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to the provision of certain services,
and the receipt of compensation for such services, by Pentegra
Services, Inc. (Pentegra), a wholly-owned, for-profit subsidiary
corporation of the Fund, to employee benefit plans (the Plans) and to
their sponsoring employers (the Employers) that participate in the Fund
and the Thrift Plan; provided that [certain] conditions are met.
As set forth in the Summary of Facts and Representations contained
in the proposed notice to PTE 95-31 (60 FR 5700 (January 30, 1995)),
the exemption provides relief for the provision of administrative
services by Pentegra to the Plans and the Employers, and the receipt of
compensation by Pentegra for such provision of services. The services
provided by Pentegra include document preparation, the procurement of
favorable determination letters from the Internal Revenue Service, the
maintenance of plan books, and other similar plan administration
services. At the time the exemption was granted, Pentegra did not offer
trust services to any of its clients, including the Plans and/or the
Employers.
The Applicants state that, to date, Pentegra has been successful in
providing services to 66 defined contribution plans, 72 employee stock
ownership plans, and 32 nonqualified plans. In addition, the Applicants
represent that, in building a large and diverse client base, the Fund
and the Thrift Plan complied with all of the conditions contained in
PTE 95-31. The Fund now intends to create Trustco, a for-profit,
limited purpose, national trust company as a means of providing trust
services to, among others, the Plans, the Employers, the Thrift Fund,
and the IRAs. The Applicants represent that the Fund seeks to create
Trustco primarily in response to requests by numerous of Pentegra's
current and prospective clients that Pentegra offer trust services to
complement its various other administrative services.
The Applicants state that, once established, Trustco will offer
trust services that are similar in nature to the services described in
PTE 95-31. In this regard, the Applicants state that Trustco will
provide only directed, non-discretionary trust services.\1\
Accordingly, the Applicants request that such provision of services be
subject to substantially the same conditions as those contained in PTE
95-31.
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\1\ In so doing, the applicant represents, Trustco, will not
participate in securities lending transactions or provide cash
management services.
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The Applicants state that the Fund, the Plans, the IRAs, and the
Thrift Plan will be adequately protected with respect to the receipt by
each such entity of services from Trustco. In this
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regard, with respect to the Fund, the Applicants state that the
provision of trust services by Trustco to the Thrift Plan, the Plans,
the IRAs and the Employers will be subject to, among other things, the
prior approval of an independent fiduciary. In addition, the financial
statements of Trustco will be subject to an annual audit conducted by
an independent certified accountant and an annual review conducted by
an independent fiduciary. With respect to the adequate protection of
the Plans and the IRAs, the Applicants state that, among other things,
the terms associated with any receipt of services by the Plans and the
IRAs from Trustco will be no less favorable to the Plans and the IRAs
than the terms contained in comparable agreements for services between
unrelated parties. With respect to the adequate protection of the
Thrift Plan, the Applicants state that, among other things, any
selection of Trustco as provider of trust services to the Thrift Plan
will be made by the Board of Directors of the Thrift Plan upon the
Thrift Plan Board's determination that the services are necessary and
the associated fees are reasonable.\2\
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\2\ In this regard, the Applicants state that the Thrift Plan's
Board of Directors will at all times be independent of the Fund's
Board of Directors, Trustco's Board of Directors, and Pentegra's
Board of Directors. Specifically, with respect to the provision of
services by Trustco (Pentegra) to the Thrift Plan, a majority of the
members of the Thrift Plan Board will not contemporaneously
participate as members of the Trustco Board (Pentegra Board).
Moreover, to the extent a Thrift Plan Board member does participate
as a member of the Trustco Board (Pentegra Board), such member: will
abstain from any discussions or deliberations involving the
provision of services by Trustco (Pentegra); and will not otherwise
exercise, with respect to such provision of services, any of the
authority, control or responsibility which makes him or her a
fiduciary.
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The Applicants additionally seek relief for the provision of
certain services by Pentegra to the Thrift Plan and the IRAs. The
Applicants state that such provision of services is important to the
continued success of Pentegra given that the employer market for
pension plan services appears to be declining. The Applicants state
that the proposed transactions involve services of the same nature and
type as those described in PTE 95-31 and request that the terms and
conditions applicable to this proposed provision of services be
substantially the same as the terms and conditions contained therein.
The Applicants state that the Thrift Plan will be adequately protected
since, among other things, any selection of Pentegra as provider of
trust services to Thrift Plan will be made by the Board of Directors of
the Thrift Plan, such Board being independent of Pentegra as described
in footnote 2, upon the Thrift Plan Board's determination that the
services are necessary and the associated fees are reasonable. The
Applicants additionally state that the IRAs will be adequately
protected since, among other things, the terms associated with any
receipt of services by the IRAs from Pentegra will be no less favorable
to the IRAs than the terms contained in comparable agreements for
services between unrelated parties.
Accordingly, this proposed exemption amends and revises the
operative language of PTE 95-31 through the addition of: (1) The
provision of non-discretionary, directed trust services by Trustco to
the Plans, the Employers, the IRAs, and the Thrift Plan; and (2) the
provision of certain services by Pentegra to the IRAs and the Thrift
Plan.
Notice to Interested Persons
Notice to Interested Persons: The applicant represents that notice
to interested persons will be made within forty-five (45) business days
following publication of this notice in the Federal Register. Comments
and requests for a hearing must be received by the Department not later
than seventy-five (75) days from the date of publication of this notice
of proposed exemption in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and the Code, including
any prohibited transaction provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which require, among other things, a fiduciary to
discharge his or her duties respecting the plan solely in the interest
of the participants and beneficiaries of the plan and in a prudent
fashion in accordance with section 404(a)(1)(B) of the Act; nor does it
affect the requirements of section 401(a) of the Code that the plan
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act and section
4975(c)(1)(F) of the Code;
(3) Before an exemption can be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the plan
and of its participants and beneficiaries and protective of the rights
of participants and beneficiaries of the plan;
(4) This proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(5) This proposed exemption, if granted, is subject to the express
condition that the facts and representations set forth in the notice of
proposed exemption relating to PTE 95-31 and this notice, accurately
describe, where relevant, the material terms of the transactions to be
consummated pursuant to this exemption.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemption to the address above,
within the time frame set forth above, after the publication of this
proposed exemption in the Federal Register. All comments will be made a
part of the record. Comments received will be available for public
inspection with the referenced applications at the address set forth
above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
exemption under the authority of section 408(a) of the Act and section
4975(c)(2) of the Code and in accordance with the procedures set forth
in 29 CFR Part 2570, Subpart B (55 FR 32836, August 10, 1990).
Section I. Covered Transactions
If the exemption is granted, the restrictions of sections 406(a)
and 406(b)(1) and (b)(2) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to the provision
of certain services, and the receipt of compensation for such services,
by Pentegra Services, Inc. (Pentegra), a wholly-owned, for-profit
subsidiary corporation of the Fund, and Trustco, a wholly-owned
subsidiary corporation of Pentegra (collectively, the Service
Providers), to: The Thrift Plan;
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employers that participate in the Fund and/or the Thrift Plan (the
Employers); employee benefit plans sponsored by the Employers (the
Plans); and the individual retirement accounts (the IRAs) established
by certain employees, officers, directors and/or shareholders of the
Employers (the Individuals); provided that the following conditions are
met:
(a) A qualified, independent fiduciary of the Fund determines that
the services provided by the Service Providers are in the best
interests of the Fund and are protective of the rights of the
participants and beneficiaries of the Fund;
(b) The terms associated with the provision of services by the
Service Providers to the Plans, the Thrift Fund, and the IRAs, at the
time such services are entered into, are not less favorable to all
parties to the transaction than the terms generally available in
comparable arm's-length transactions involving unrelated parties;
(c) The Service Providers receive reasonable compensation for the
provision of services, as determined by an independent fiduciary;
(d) Prior to the provision of services by the Service Providers,
the independent fiduciary will first review such services and will
determine that such services are reasonable and appropriate for the
Service Providers, taking into account such factors as: whether the
Service Providers have the capability to perform such services, whether
the fees to be charged reflect arm's-length terms, whether Service
Provider personnel have the qualifications to provide such services,
and whether such arrangements are reasonable based upon a comparison
with similarly qualified firms in the same or similar locales in which
the Service Providers propose to operate;
(e) No services will be provided by the Service Providers without
the prior review and approval of the independent fiduciary;
(f) Not less frequently than quarterly, the independent fiduciary
will perform periodic reviews to ensure that the services offered by
the Service Providers remain appropriate for the Service Providers and
that the fees charged by the Service Providers represent reasonable
compensation for such services;
(g) Not less frequently than annually, the Service Providers will
provide a written report to the board of directors of the Fund
describing in detail the services provided to the Plans, the Employers,
the IRAs, and the Thrift Plan, a detailed accounting of the fees
received for such services, and an estimate as to the amount of fees
the Service Providers expect to receive during the following year from
such Plans and Employers;
(h) Not less frequently than annually, the independent fiduciary
will conduct a detailed review of approximately 10 percent of all
transactions completed by the Service Providers which will include a
reasonable cross-section of all services performed; such transactions
will be reviewed for compliance with the terms and conditions of this
exemption;
(i) The financial statements of the Service Providers will be
audited each year by an independent certified public accountant, and
such audited statements will be reviewed by the independent fiduciary;
(j) The independent fiduciary shall have the authority to prohibit
the Service Providers from performing services that such fiduciary
deems inappropriate and not in the best interests of the Service
Providers and the Fund;
(k) Each Service Provider contract with an Employer, an IRA, the
Thrift Plan or a Plan will be subject to termination without penalty by
any of the parties to the contract for any reason upon reasonable
written notice;
(l) Trustco will act solely as a directed trustee and will not:
(1) Have any investment discretion with respect to the assets being
held in trust,
(2) engage in any securities lending transactions, and/or
(3) provide any cash management services; and
(m) A majority of the Board of Directors of the Thrift Plan will at
all times be independent of, and separate from, the Board of Directors
of the Fund, the Board of Directors of Pentegra, and the Board of
Directors of Trustco, and, with respect to the selection of Trustco
and/or Pentegra as provider(s) of services to the Thrift Plan:
(1) Such majority members alone will give prior approval upon
determining that such services are necessary and the associated fees
charged are reasonable; and
(2) Any member of the Board of Directors of the Thrift Plan
contemporaneously participating as a member of the Board of Directors
of Pentegra (Trustco) will remove himself or herself from all
consideration by the Thrift Plan regarding the provision of services by
Trustco (Pentegra) to the Thrift Plan and will not otherwise exercise,
with respect to such provision(s) of services, any of the authority,
control or responsibility which makes him or her a fiduciary.
Section II. Recordkeeping
(1) The independent fiduciary and the Fund will maintain, or cause
to be maintained, for a period of 6 years, the records necessary to
enable the persons described in paragraph (2) of this section to
determine whether the conditions of this exemption have been met,
except that: (a) A prohibited transaction will not be considered to
have occurred if, due to circumstances beyond the control of the
independent fiduciary and the Fund, or their agents, the records are
lost or destroyed before the end of the six year period; and (b) no
party in interest other than the independent fiduciary and the Board of
Directors of the Fund shall be subject to the civil penalty that may be
assessed under section 502(i) of the Act, or to the taxes imposed by
section 4975(a) and (b) of the Code, if the records are not maintained,
or are not available for examination as required by paragraph (2)
below.
(2)(a) Except as provided in section (b) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (1) of this
section shall be unconditionally available at their customary location
during normal business hours by:
(1) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(2) Any employer participating in the Fund and/or Thrift Plan or
any duly authorized employee or representative of such employer;
(3) Any participant or beneficiary of the Fund, Thrift Plan, or
Plan or any duly authorized representative of such participant or
beneficiary; and
(4) Any Individual.
(b) None of the persons described above in subparagraphs (a)(2) and
(a)(3) of this paragraph (2) shall be authorized to examine trade
secrets of the independent fiduciary or the Fund, or their affiliates,
or commercial or financial information which is privileged or
confidential.
(3) For purposes of this section, references to the Fund shall also
include the Service Providers.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations contained
in the application for exemption are true and complete and accurately
describe all material terms of the transactions. In the case of
continuing transactions, if any of the material facts or
representations described in the applications change, the exemption
will cease to apply as of
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the date of such change. In the event of any such change, an
application for a new exemption must be made to the Department.
For a more complete statement of the facts and representations
supporting the Department's decision to grant PTE 95-31, refer to the
proposed exemption and the grant notice which are cited above.
Signed at Washington, DC, this 28th day of June, 2002.
Ivan L. Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 02-16735 Filed 7-2-02; 8:45 am]
BILLING CODE 4510-29-P
