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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Metropolitan Life Insurance Company (MetLife) [08/09/2002]

[PDF Version]

Volume 67, Number 154, Page 51885-51888

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-35; Exemption Application No. D-
10987]

 
Grant of Individual Exemptions; Metropolitan Life Insurance 
Company (MetLife)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemption.

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SUMMARY: This document contains an exemption issued by the Department 
of Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

[[Page 51886]]

the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Metropolitan Life Insurance Company (MetLife) Located in New York, 
NY

[Prohibited Transaction Exemption 2002-35; Exemption Application No. D-
10987]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) and 
section 407(a) of the Act (or ERISA) 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, effective 
January 20, 2000 until May 18, 2000, to (1) the holding, by MetLife 
Separate Account R.I. (the Separate Account), an index fund managed by 
MetLife which holds plan assets, of 523 shares of common stock (the 
Common Shares), issued by the Conning Corporation (Conning), an 
affiliate of MetLife; (2) the acquisition, by MetLife, of certain 
certificates, representing 523 shares of cancelled Conning Common 
Shares (the Cancelled Conning Shares), from the Separate Account, 
pursuant to the terms of a tender offer (the Tender Offer) and merger 
agreement; and (3) the delivery of the certificates representing the 
523 Cancelled Conning Shares to ChaseMellon Shareholder Services, LLC 
(the Disbursing Agent), in exchange for certain cash consideration.
    This exemption is subject to the following conditions:
    (a) The decision by a Plan to invest in the Separate Account was 
made by a Plan fiduciary which was independent of MetLife and its 
affiliates.
    (b) At all times, the Conning Common Shares represented less than 
one percent of the assets of the Separate Account and less than one 
percent of the value of the assets of the ERISA-covered Plans investing 
therein.
    (c) The exchange of the Cancelled Conning Shares by the Separate 
Account was a one-time transaction for cash.
    (d) The Separate Account and the Plans received the fair market 
value for each Cancelled Conning Share on the date of the exchange.
    (e) The consideration received by the Separate Account for its 
Cancelled Conning Shares was the same consideration that was received 
by (i) all shareholders who validly tendered their Conning Common 
Shares pursuant to a Tender Offer and (ii) all holders of Cancelled 
Conning Shares.
    (f) The Separate Account paid no commissions, fees or other 
expenses with respect to the exchange of the Cancelled Conning Shares 
for cash.
    (g) After the expiration of the Tender Offer and the consummation 
of the Merger, the Separate Account delivered certificates representing 
the Cancelled Conning Shares to the Disbursing Agent to exchange with 
MetLife and its affiliates for cash.
    (h) The terms of the exchange were no less favorable to the 
Separate Account and the Plans than those obtainable in an arm's length 
transaction engaged in by other similarly-situated holders of the 
Cancelled Conning Shares.

EFFECTIVE DATE: This exemption is effective from January 20, 2000 until 
May 18, 2000.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on May 22, 2002 at 67 FR 
36034.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

The Banc Funds Company, LLC (TBFC) Located in Chicago, IL

[Prohibited Transaction Exemption 2002-36; Exemption Application No. D-
11083]

Exemption

Section I. Covered Transactions

    The restrictions of sections 406(a) and 406(b) 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 (D) of the Code,\1\ shall 
not apply, effective June 19, 2002, to (1) the purchase or redemption 
of interests in the Banc Fund VI L.P. (the Partnership) by employee 
benefit plans (the Plans) investing in the Partnership, where TBFC, a 
party in interest with respect to the Plans, is the general partner of 
MidBanc VI, L.P., which is, in turn, the general partner (the General 
Partner) of the Partnership; (2) the sale, for cash or other 
consideration, by the Partnership of certain securities that are held 
as Partnership assets to a party in interest with respect to a Plan 
participating in the Partnership, where the party in interest proposes 
to acquire or merge with the portfolio company (the Portfolio Company) 
that issued such securities; and (3) the payment to the General 
Partner, by Plans participating in the Partnership, of an incentive fee 
(the Performance Fee) which is intended to reward the General Partner 
for the superior performance of investments in the Partnership.
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    \1\ For purposes of this exemption, references to the provisions 
of Title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
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    This exemption is subject to the following conditions as set forth 
below in Section II.

Section II. General Conditions

    (a) Prior to a Plan's investment in the Partnership, a Plan 
fiduciary which is independent of TBFC and its affiliates (the 
Independent Fiduciary) approves such investments on behalf of the Plan.
    (b) Each Plan investing in the Partnership has total assets that 
are in excess of $50 million.
    (c) No Plan may invest more than 10 percent of its assets in the 
Partnership, and the interests held by the Plan may not exceed 25 
percent of the assets of the Partnership.
    (d) No Plan may invest more than 25 percent of its assets in 
investment vehicles (i.e., collective investment funds or separate 
accounts) managed or sponsored by TBFC and/or its affiliates.
    (e) Prior to investing in the Partnership, each Independent 
Fiduciary contemplating investing therein receives a Private Placement 
Memorandum and its supplement containing descriptions of all material 
facts concerning the purpose, structure and the operation of the 
Partnership.
    (f) An Independent Fiduciary which expresses further interest in 
the Partnership receives a copy of the Partnership Agreement describing 
the organizational principles, investment objective and administration 
of the Partnership, the manner in which the Partnership interests may 
be redeemed, the manner in which Partnership assets are to be valued, 
the duties and responsibilities of the General Partner, the rate of 
remuneration of the General Partner, and the conditions under which the 
General Partner may be removed.
    (g) If accepted as an investor in the Partnership, the Independent 
Fiduciary is--
    (1) Furnished with the names and addresses of all other 
participating Plan and non-Plan investors in the Partnership;
    (2) Required to acknowledge, in writing, prior to purchasing an 
interest in the Partnership as a limited partner (the Limited Partner) 
that such Independent Fiduciary has received copies of such documents; 
and
    (3) Required to acknowledge, in writing, to the General Partner 
that such fiduciary is independent of TBFC and its affiliates, capable 
of making an

[[Page 51887]]

independent decision regarding the investment of Plan assets, 
knowledgeable with respect to the Plan in administrative matters and 
funding matters related thereto, and able to make an informed decision 
concerning participation in the Partnership.
    (h) Each Plan receives the following written disclosures from the 
General Partner with respect to its ongoing participation in the 
Partnership:
    (1) Within 90 days after the end of each fiscal year of the 
Partnership as well as at the time of termination, an annual financial 
report containing a balance sheet for the Partnership as of the end of 
such fiscal year and a statement of changes in the financial position 
for the fiscal year, as audited and reported upon by independent, 
certified public accountants. The annual reports will also disclose the 
remuneration that has accrued or is paid to the General Partner.
    (2) Within 60 days after the end of each quarter (except in the 
last quarter) of each fiscal year of the Partnership, an unaudited 
quarterly financial report consisting of at least a balance sheet for 
the Partnership as of the end of such quarter and a profit and loss 
statement for such quarter. The quarterly report will also specify the 
remuneration that is actually paid or accrued to the General Partner.
    (3) Such other written information as may be needed by the Plans 
(including copies of the proposed exemption and grant notice describing 
the exemptive relief provided herein).
    (i) At least annually, the General Partner will hold a meeting of 
the Partnership, at which time, the Independent Fiduciaries of the 
participating Plans will have the opportunity to decide on whether the 
Partnership and/or the General Partner should be terminated as well as 
discuss any aspect of the Partnership and the agreements promulgated 
thereunder with the General Partner.
    (j) During each year of the Partnership, representatives of the 
General Partner will be available to confer by telephone or in person 
with Independent Fiduciaries of participating Plans to discuss matters 
concerning the Partnership.
    (k) The terms of all transactions that are entered into on behalf 
of the Partnership remain at least as favorable to a Plan investing in 
the Partnership as those obtainable in arm's length transactions with 
unrelated parties. In this regard, the valuation of assets in the 
Partnership that is done in connection with the distribution of any 
part of the General Partner's Performance Fee will be based upon 
independent market quotations or (where the same are unavailable) 
determinations made by an independent appraiser.
    (l) In the case of the sale by the Partnership of Portfolio Company 
securities to a party in interest with respect to a participating Plan 
that occurs in connection with the acquisition of a Portfolio Company 
represented in the Partnership's portfolio, the party in interest may 
not be the General Partner, TBFC, any employer of a participating Plan, 
or any affiliate thereof, and the Partnership receives the same terms 
as is offered to other shareholders of a Portfolio Company.
    (m) As to each Plan, the total fees paid to the General Partner and 
its affiliates constitute no more than ``reasonable compensation'' 
within the meaning of section 408(b)(2) of the Act.
    (n) Any increase in the General Partner's Performance Fee is based 
upon a predetermined percentage of net realized gains minus net 
unrealized losses determined annually between the date the first 
contribution is made to the Partnership until the time the Partnership 
disposes of its last investment. In this regard,
    (1) Except as provided below in Section II(o), no part of the 
General Partner's Performance Fee may be withdrawn before December 31, 
2007, which represents the end of the Acquisition Phase for the 
Partnership, and not until Plans have received distributions equal to 
100 percent of their capital contributions made to the Partnership.
    (2) Prior to the termination of the Partnership, no more than 75 
percent of the Performance Fee credited to the General Partner may be 
withdrawn by the Partnership.
    (3) The debit account established for the General Partner to 
calculate the Performance Fee (the Performance Fee Account) is credited 
annually with a predetermined percentage of net realized gains minus 
net unrealized losses, minus Performance Fee distributions.
    (4) No portion of the Performance Fee may be withdrawn if the 
Performance Fee Account is in a deficit position.
    (5) The General Partner repays all deficits in its Performance Fee 
Account and it maintains a 25 percent cushion in such account prior to 
receiving any further distribution.
    (o) During the Acquisition Phase of the Partnership only,
    (1) The General Partner is entitled to take distributions with 
respect to the Performance Fee in the amount of any income tax 
liability it or its affiliates become subject to with respect to net 
capital gains of the Partnership, provided such gains are based upon 
the sale of Portfolio Company securities that is initiated by a third 
party in connection with a merger, tender offer or acquisition, and 
does not involve the exercise of discretion by the General Partner.
    (2) The tax distributions are deducted from the Performance Fee.
    (3) The General Partner repays to the Partnership any tax refund 
received to the extent a distribution has been made to such General 
Partner.
    (4) The General Partner provides the Plans with an annual report 
and accounting of all distributions and repayments attributable to 
income taxation of the General Partner and its affiliates, including 
written evidence that the distributions have been utilized exclusively 
to pay the income tax liability.
    (p) The General Partner maintains, for a period of six years, the 
records necessary to enable the persons described in paragraph (q) of 
this Section II to determine whether the conditions of this exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the General 
Partner, the records are lost or destroyed prior to the end of the six 
year period; and
    (2) No party in interest other than the General Partner 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 (q) below.
    (q)(1) Except as provided in section (q)(2) 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 (p) of this 
Section II shall be unconditionally available at their customary 
location during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any Independent Fiduciary of a participating Plan or any duly 
authorized representative of such Independent Fiduciary;
    (C) Any contributing employer to any participating Plan or any duly 
authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any participating Plan, or 
any duly authorized representative of such participant or beneficiary.

[[Page 51888]]

    (q)(2) None of the persons described above in subparagraphs (B)-(D) 
of this paragraph shall be authorized to examine the trade secrets of 
the General Partner or TBFC or commercial or financial information 
which is privileged or confidential.

Section III. Definitions

    For purposes of this exemption,
    (a) The term ``TBFC'' means The Banc Funds Company, LLC and any 
affiliate of TBFC as defined in paragraph (b) of Section III.
    (b) An ``affiliate'' of TBFC includes --
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with TBFC.
    (2) Any officer, director or partner in such person, and
    (3) Any corporation or partnership of which such person is an 
officer, director or a 5 percent partner or owner.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) An ``Independent Fiduciary'' is a Plan fiduciary which is 
independent of TBFC and its affiliates and is either a Plan 
administrator, trustee, named fiduciary, as the recordholder of the 
Limited Partner's interest in the Partnership or an investment manager.
    (e) The term ``Portfolio Companies'' include commercial banks and 
other depository institutions such as savings banks, savings and loan 
associations, holding companies controlling those entities, and 
companies providing financial services in the United States, which 
include, but are not limited to, consumer finance companies and 
demutualizing life insurance companies.
    (f) The term ``net realized gains'' refers to the excess of 
realized gains over realized losses.
    (g) The term ``net realized losses'' refers to the excess of 
realized losses over realized gains.
    (h) The term ``net unrealized losses'' refer to the excess of 
unrealized losses over unrealized gains.
    (i) The term ``net unrealized gains'' refers to the excess of 
unrealized gains over unrealized losses. For a gain or loss to be 
``realized,'' an asset of the Partnership must be sold for more than or 
less than its acquisition price. For a gain or loss to be 
``unrealized,'' the Partnership asset must increase or decrease in 
value but not be sold.

EFFECTIVE DATE: This exemption is effective as of June 19, 2002.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on June 6, 2002 at 67 FR 
39053.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption and no requests for a public hearing. The comment, 
which was submitted by TBFC, requests that the exemption be made 
effective as of June 19, 2002 since a preliminary closing occurred on 
that date. In response to the TBFC's comment, the Department has made 
the final exemption effective as of the June 19, 2002 closing date.
    Accordingly, after giving full consideration to the entire record, 
including the comment, the Department has determined to grant the 
exemption as modified above. For further information regarding the 
comment and other matters discussed herein, interested persons are 
encouraged to obtain copies of the exemption application file 
(Exemption Application No. D-11083) the Department is maintaining in 
this case. The complete application file, as well as the comment and 
all supplemental submissions received by the Department, are made 
available for public inspection in the Public Disclosure Room of the 
Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

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/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his 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 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. 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
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 6th day of August, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 02-20204 Filed 8-8-02; 8:45 am]
BILLING CODE 4510-29-P