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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Investors Savings Bank Pension Plan (the Plan) [08/09/2002]

[PDF Version]

Volume 67, Number 154, Page 51877-51885

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10989, et al.]

 
Proposed Exemptions; Investors Savings Bank Pension Plan (the 
Plan)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESS: All written comments and requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ____, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
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 requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Investors Savings Bank Pension Plan (the Plan) Located in Milburn, 
New Jersey

[Application No. D-10989]

Proposed Exemption

    The Department is considering granting an 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, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 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 past sales by the Plan of certain 
securities (the Securities) to Investors Savings Bank (the Employer), a 
party in interest with respect to the Plan, provided that the following 
conditions were satisfied: (1) Each sale was a one-time transaction for 
cash; (2) the Plan paid no commissions nor other expenses relating to 
the sales; (3) for each Security that was publicly traded, the Plan 
received an amount equal to the highest, as of the date of the sale, of 
(a) the Plan's cost, (b) the book value, or (c) the fair market value 
of the Security, as determined by an independent, third-party market 
source; and (4) for each Security that was not publicly traded, the 
Plan received an amount equal to its cost for the Security, which was 
in excess of the fair market value of the Security on the date of the 
sale.

[[Page 51878]]


EFFECTIVE DATE: The proposed exemption, if granted, will be effective 
as of January 4, 1999.

Summary of Facts and Representations

    1. The Plan was a defined benefit plan sponsored by the Employer. 
As of January 4, 1999, the Plan had approximately 280 participants and 
340 beneficiaries. As of that date, the Plan had total assets of 
approximately $21,500,000. The trustees of the Plan were Patrick J. 
Grant, Stephen J. Szabatin, Doreen R. Byrnes, and Joseph H. Shepard 
III, who had responsibility for investment of the Plan's assets. The 
Plan was terminated in 1999 and its assets transferred to the multiple 
employer plan administered by the Pentegra Group (Pentegra).
    2. Among the assets of the Plan were the Securities. The trustees 
had purchased the Securities on the open market in the belief that the 
purchases were consistent with the Plan's investment objectives at the 
time.\1\
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    \1\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Securities by the Plan violated any 
of the provisions of Part 4 of Title I of the Act. However, the 
Department notes that section 404(a) of the Act requires, among 
other things, that a plan fiduciary act prudently and solely in the 
interest of the plan and its participants and beneficiaries when 
making investment decisions on behalf of the plan.
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    In 1999, the Employer terminated the Plan in the belief that 
Pentegra can provide more efficient administration at less cost than 
would be available with a single employer plan. According to the 
Employer, it purchased the Securities from the Plan in order to 
facilitate the transfer of the Plan's assets to Pentegra, which wanted 
the Plan's assets in cash. The Employer represents that the terms of 
each sale were at least as favorable to the Plan as terms the Plan 
could have obtained in an arm's length transaction with an unrelated 
party.
    3. The Securities purchased by the Employer from the Plan for cash 
during the period between January 4, 1999 and February 10, 1999, are 
listed in the chart below. The Plan's cost for the Securities, and the 
Employer's purchase price for the Securities, appear in the columns 
with the headings ``Cost'' and ``Purchase Price,'' respectively.

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                            Security                                   Cost       Purchase price       Yield
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Federal Nat'l Mortgage Ass'n Bonds..............................   $3,125,135.04   $4,500,426.98            6.91
Federal Home Loan Mortgage Corp. Bonds..........................      364,879.80      629,063.83            8.25
Gen'l Nat'l Mortgage Ass'n Certificates.........................      828,861.30      882,198.64           8.963
Money Store (2d Mortgages)......................................       97,099.22       97,099.22            9.65
U.S. Government Obligations.....................................      300,000.00      400,000.00           12.21
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    For the Securities that were publicly traded, the Employer paid an 
amount equal to the closing price for each Security on the previous 
day, as quoted by Paine Webber's Million Plus trading desk as fair 
market value for a ``whole lot'' (generally more than one million 
dollars remaining value). The fair market value was greater than the 
Plan's cost for these Securities, as demonstrated by the chart above.
    With respect to the Money Store Second Mortgages (the Second 
Mortgages), there was no established market for these Securities (due 
to the small dollar amount). Thus, the Employer paid an amount equal to 
the Plan's cost for the Second Mortgages. The Employer represents that 
KPMG, the Plan's independent auditor, had always carried the Second 
Mortgages on the Plan's balance sheet at cost, due to their lack of 
marketability. Further, the Employer represents that the Plan's cost 
for the Second Mortgages, i.e, $97,099, was the best possible price for 
the Plan, since the Second Mortgages had been repaid by approximately 
80 percent and had an outstanding balance that was significantly less 
than their face value.
    The Plan paid no commissions nor other expenses relating to the 
sales of the Securities, which represented a significant savings to the 
Plan in transaction costs. In addition, the Employer represents that 
the sales of the Securities were in the best interests of the Plan and 
of its participants and beneficiaries because they facilitated the 
transfer of Plan assets to the Pentegra multiple employer plan.
    4. In summary, the applicant represents that the subject 
transactions satisfied the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons: (1) Each sale of 
the Securities by the Plan to the Employer was a one-time transaction 
for cash; (2) the Plan paid no commissions nor other expenses relating 
to the sales; (3) for each Security that was publicly traded, the Plan 
received an amount equal to the highest, as of the date of the sale, of 
(a) the Plan's cost, (b) the book value, or (c) the fair market value 
of the Security, as determined by an independent, third-party market 
source; and (4) for each Security that was not publicly traded, the 
Plan received an amount equal to its cost for the Security, which was 
in excess of the fair market value of the Security on the date of the 
sale.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

Twin City Iron Workers Apprenticeship and Training Fund (the Trust 
Fund) Located in St. Paul, Minnesota

[Application No. L-10929]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
August 10, 1990). If the exemption is granted, the restrictions of 
sections 406(a), 406(b)(1) and (b)(2) of the Act shall not apply 
effective May 22, 2000 to the past purchase of a certain parcel of 
unimproved real property (the Property) by the Trust Fund from the Twin 
City Union No. 512 of Bridge, Structural and Ornamental Workers, Inc. 
(the Building Corporation), a party in interest with respect to the 
Trust Fund, provided that the following conditions are met:
    (a) The purchase of the Property by the Trust Fund was a one-time 
transaction for cash;
    (b) The Trust Fund paid no more than the lesser of: (i) $48,000; or 
(ii) the fair market value of the Property as determined at the time of 
the transaction;
    (c) The fair market value of the Property was established by an 
independent, qualified, real estate appraiser that was unrelated to the 
Building Corporation or any other party in interest with respect to the 
Trust Fund;
    (d) The Trust Fund did not pay any commissions or other expenses 
with respect to the transaction;
    (e) Standard Valuations, Inc. (SVI), acting as an independent, 
qualified fiduciary for the Trust Fund, determined that the transaction 
was in

[[Page 51879]]

the best interest of the Trust Fund and its participants and 
beneficiaries;
    (f) SVI monitored various aspects of the purchase of the Property 
until closing, including the environmental reports concerning the 
Property, and took whatever action was necessary to protect the 
interests of the Trust Fund; and
    (g) The purchase price paid by the Trust Fund for the Property 
represented no more than 25 percent of the Trust Fund's total assets at 
the time of the transaction.

Summary of Facts and Representations

    1. The Trust Fund is an apprenticeship training plan, the assets of 
which are subject to the fiduciary responsibility provisions of Part 4 
of Title I of the Act. The Trust Fund is also established and 
administered pursuant to the provisions of section 302 of the Labor 
Management Relations Act of 1947. Currently, there are approximately 
972 participants and beneficiaries covered by the Trust Fund. As of 
December 31, 1999, the Trust Fund had total assets of $715,108.76. The 
Building Corporation is a Minnesota non-profit corporation under the 
control and supervision of the Twin City Iron Workers Local Union No. 
512.
    2. The Property is a parcel of unimproved real property located at 
Lots 10 & 21, Block 5, Winter's Addition to St. Paul, Ramsey County, 
Minnesota.
    The Property is approximately 10,720 square feet. The dimensions of 
the site are 40 feet by 268 feet. The Property is rectangularly shaped 
and the topography of the property is generally level and at street 
grade.
    3. The Trust Fund decided to construct a training facility for use 
by Trust Fund members on a site consisting of several contiguous 
parcels of real estate owned by the Trust Fund. Certain adjoining lots, 
however, were owned by the Building Corporation. Construction of a 
training facility large enough to accommodate current needs of Trust 
Fund membership required a facility that is larger than that which 
could be constructed on the parcels of real estate currently owned by 
the Trust Fund. Economic conditions in the geographic area in which the 
Trust Fund operates indicated that the need for skilled workers would 
continue to multiply, thus, making it necessary for the Trust Fund to 
have a facility which would be able to accommodate current as well as 
future needs. For example, it was necessary that the Trust Fund secure 
a storage facility for purpose of housing supplies and equipment 
necessary for the Trust Fund's programs. To facilitate construction and 
ultimate management and use of the facility, the Trust Fund determined 
that all parcels should be owned by a single entity. Ownership by a 
single entity would encourage administrative efficiency in the 
construction process, as well as in the ultimate use and operation of 
the facility. Because the facility would be managed and operated by the 
Trust Fund, it was desirable that the Trust Fund holds title to the 
Property. Ownership of the parcels by the Trust Fund would give the 
Trust Fund full control of the buildings and grounds and would enable 
the Trust Fund to make improvements to the Property as needed.\2\
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    \2\ The Department expresses no opinion herein concerning the 
application of section 404 of the Act to the amount of expenditures 
and/or the need for construction of a training facility. In this 
regard, the Department notes that the fact that a transaction is the 
subject of an exemption under section 408(a) of the Act does not 
relieve a fiduciary or other party in interest from the general 
fiduciary responsibility provisions of section 404 of the Act. 
Section 404(a) (1)(A) and (B) of the Act requires, among other 
things, that a fiduciary discharge his duties with respect to a plan 
solely in the interest of the plan's participants and beneficiaries 
and in a prudent fashion. Accordingly, it is the responsibility of 
the Trust Fund's fiduciaries to determine the appropriateness of the 
construction of the facility.
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    4. The Property was appraised by Lisa I. Lang and R. David Lang, 
Minnesota licensed Certified General Real Property Appraisers of Lang & 
Associates (the Appraisers), a real estate appraisal firm located in 
Minnetonka, Minnesota. The Appraisers determined that the fair market 
value of the Property was approximately $48,000, as of January 10, 
2000.
    The Appraisers utilized a sales comparison methodology in valuing 
the Property. The Appraisers compared the Property with recent sales of 
three other industrial zoned properties, all within immediate and/or 
competitive market areas of the Property. In order to equate these 
three transactions with the Property, the Appraisers made adjustments 
for various comparative factors including appreciation/depreciation 
over time, location, zoning, frontage/access, off-site improvements, 
current easements and restrictions, physical characteristics, and size. 
After making the necessary adjustments, the Appraisers concluded that 
the unencumbered fee simple interest in the Property would have a fair 
market value of approximately $48,000. The Appraisers also concluded 
that an industrial complex, such as the Trust Fund's proposed training 
facility, would represent the highest and best use of the Property.
    5. The Building Corporation, on May 22, 2000, sold the Property to 
the Trust Fund for $48,000 in cash, subject to the review and approval 
of an independent fiduciary (see Paragraph 6 below). The parties 
obtained an updated appraisal of the Property from the Appraisers at 
the time of the proposed transaction to ensure that the appraised 
amount (i.e., $48,000) still reflected the fair market value of the 
Property at that time. The parties have agreed that the $48,000 paid by 
the Trust Fund represented the fair market value of the Property at the 
time of the transaction. In addition, the applicant states that the 
Trust Fund did not pay any commissions, transaction costs, or other 
expenses associated with the sale of the Property by the Building 
Corporation, other than the fees necessary for the services of the 
Trust Fund's independent fiduciary, SVI. Thus, the Building Corporation 
paid, among other things, the costs of the title search and title 
insurance premiums, the cost of recording the deeds conveying title to 
the Property to the Trust Fund, all sales and transfer taxes (including 
the conveyance tax), the escrow fees, and the cost of the appraisal.
    6. SVI was appointed by the Trust Fund Trustees to act as an 
independent fiduciary for the Trust Fund for the transaction. SVI 
represents that it is a company organized under the laws of Minnesota 
and that it exercises fiduciary powers similar to those of national 
banks. SVI stated that it is an experienced fiduciary in matters 
concerning Taft-Hartley funds subject to the Act and is also 
experienced with real estate transactions and investments. SVI 
acknowledged its duties, responsibilities and liabilities in acting as 
a fiduciary for the Trust Fund for purposes of the proposed 
transaction. SVI represents that it is an independent fiduciary and not 
an affiliate of, or related to, the entities involved in the subject 
transaction. In this regard, SVI certifies that: (i) Less than one (1) 
percent of its total deposits, or outstanding loans, are attributable 
to the deposits of, or loans to, the Building Corporation and its 
affiliates; and (ii) less than one (1) percent of its annual income 
(measured on the basis of the prior year's income) comes from business 
derived from The Building Corporation and its affiliates.
    7. SVI has reviewed all of the terms and conditions of the proposed 
purchase of the Property by the Trust Fund. SVI states that the 
Appraisers have considered all of the factors necessary to accurately 
determine the fair market value of the Property, including the 
applicable zoning restrictions for industrial usage, and the offsite 
improvements surrounding the Property. Based on this review and

[[Page 51880]]

analysis, SVI concluded that the transaction was in the best interests 
of the Trust Fund and its participants and beneficiaries. In this 
regard, SVI stated that the purchase of the Property was a prudent 
transaction taking into consideration that the Trust Fund will be using 
this site as a training facility. SVI stated that the agreed upon 
purchase price of $48,000, based on the Appraisers determination of 
value accurately reflected the fair market value of the Property at the 
time of the purchase.
    SVI stated further that it would monitor the Property and will take 
whatever actions are necessary to protect the interests of the Trust 
Fund's participants and beneficiaries with regard to the transaction. 
To this end, SVI represented that the current appraisal of the Property 
was updated at the time of the transaction and that the Trust Fund paid 
no more than the fair market value of the Property. SVI also ensured 
that the purchase price paid by the Trust Fund represents no more than 
25 percent of the Trust Fund's total assets at the time of the 
transaction.
    SVI represents that the Trust Fund will be able to meet all of its 
current expenses after the transaction and that the transaction has not 
adversely affected the Trust Fund's liquidity needs. By letter dated 
May 6, 2000, SVI states it reviewed the essential documents associated 
with the transaction and determined that the transaction was in the 
best interest of the Trust Fund and its participants and beneficiaries.
    8. In summary, the applicant states that the transaction has 
satisfied the statutory criteria of section 408(a) of the Act because: 
(a) The purchase of the Property by the Trust Fund was a one-time 
transaction for cash; (b) the Trust Fund did not pay more than the fair 
market value of the Property as determined at the time of the 
transaction; (c) the fair market value of the Property was established 
by an independent, qualified real estate appraiser; (d) the Trust Fund 
did not pay any commissions or other expenses with respect to the 
transaction, other than the services of an independent fiduciary (as 
described herein); (e) SVI, acting as the Trust Fund's independent 
fiduciary, determined that the proposed transaction was in the best 
interest of the Trust Fund and its participants and beneficiaries; and 
(f) the purchase price paid by the Trust Fund for the Property 
represented no more than 25 percent of the Trust Fund's total assets at 
the time of the transaction.

EFFECTIVE DATE: This exemption, if granted, is effective as of May 22, 
2000.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Mr. Khalif I. Ford of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

Child Health Corporation America (CHCA) Located in Shawnee Mission, 
KS

[Application No. L-10939]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of sections 406(a) and 406(b) of the Act shall not apply to the (1) 
purchase, by a welfare plan (the Plan), whose hospital sponsor (the 
Hospital) is a member of CHCA, of third party insurance, through CHCA, 
the broker of record and a party in interest with respect to such Plan; 
and (2) the receipt of an insurance sales commission by CHCA from the 
third party insurance company, in connection with the purchase of an 
insurance policy with the assets of the Plan attributed to participant 
(i.e., employee) contributions.
    This proposed exemption is subject to the following conditions:
    (a) The transactions are effected by CHCA in the ordinary course of 
its business.
    (b) Each Plan pays no more than adequate consideration for an 
insurance policy that is brokered by CHCA.
    (c) Prior to the execution of the transactions, CHCA provides each 
Hospital, which serves as the independent fiduciary of a Plan it 
sponsors, with the following written documentation:
    (1) A statement setting forth the insurance sales commissions, 
expressed as a percentage of the gross annual premium payments that 
will be paid by the insurance company to CHCA with respect to the 
purchase of the insurance policy;
    (2) A description of the charges, fees, discounts, penalties or 
adjustments which may be imposed under the insurance policy in 
connection with the purchase, holding, exchange, termination or sale of 
such policy; and
    (3) A full description of CHCA's procedure for offsetting a Plan's 
allocable portion of insurance sales commissions that are received by 
CHCA and which are attributable to Plan assets against the amounts 
otherwise payable by such Plan for future premium contributions (the 
Premium Adjustment; the Premium Adjustment Procedure).
    (d) Following the receipt of such information, the Hospital 
independent fiduciary acknowledges receipt of such information to CHCA, 
in writing, and approves the transactions on behalf of the respective 
Plan.
    (e) On an annual basis, CHCA discloses all direct expenses it has 
incurred to independent Plan fiduciaries of its member Hospitals, 
including any Premium Adjustments that have been made.
    (f) The transactions are on terms that are at least as favorable to 
a Plan as those available in arm's length transactions with an 
unrelated party.
    (g) The combined total of all fees, insurance sales commissions and 
other consideration received by CHCA in connection with the purchase of 
insurance policies issued by a third party insurer or the provision of 
services to a Plan is not in excess of ``reasonable compensation'' 
within the contemplation of section 408(b)(2) and 408(c)(2) of the Act.
    (h) There is no increased cost to a Plan nor any diminution in any 
benefit received by a Plan participant or beneficiary as a result of 
CHCA's receipt of insurance sales commissions.
    (i) The Plan receives a Premium Adjustment based upon the excess of 
insurance sales commissions over direct costs, if any, incurred by 
CHCA, in accordance with the Premium Adjustment Procedure, the steps of 
which are as follows:
    (1) At the end of each calendar year, CHCA separates the total 
premiums paid between each Hospital and its respective Plan.
    (2) CHCA calculates the commissions that are paid based on the 
premiums.
    (3) CHCA calculates the amount available for the patronage dividend 
by subtracting aggregate direct expenses incurred under its insurance 
program from the total commissions.
    (4) CHCA calculates a breakdown of the commissions on a percentage 
basis.
    (5) CHCA allocates the amounts available for the patronage dividend 
based upon the percentages determined above in paragraph (i)(4).
    (6) CHCA sends a check to the insurer with instructions to allocate 
such amount on a per Hospital basis to be

[[Page 51881]]

applied against a Plan participant's insurance rate schedule.
    (7) CHCA requests written confirmation from the insurer that the 
Premium Adjustment has been made.
    (j) CHCA establishes and maintains a system of internal and 
external accounting controls for the Premium Adjustment Procedure.
    (k) CHCA retains an independent auditor to audit, on an annual 
basis, the Premium Adjustments made to the affected Plans.
    (l) Within 90 days following the publication, in the Federal 
Register, of the notice granting the final exemption, CHCA makes full 
restitution to the participants of each affected Plan whose assets are 
attributed to CHCA's past fee arrangement with an independent broker 
(the Independent Broker) and its subsequent compensation arrangement 
with the UNUM Life Insurance Company (UNUM).
    (m) CHCA maintains for a period of six years, in a manner that is 
accessible for audit and examination, the records necessary to enable 
the persons described in paragraph (n) 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 CHCA, such 
records are lost or destroyed prior to the end of such six year period; 
and
    (2) No party in interest, other than CHCA, shall be subject to the 
civil penalty that may be assessed under section 502(i), or 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 (m).
    (n)(1) Except as provided in paragraph (n)(2) and notwithstanding 
anything to the contrary in sections 504(a)(2) and (b) of the Act, the 
records referred to in paragraph (m) are unconditionally available for 
examination during normal business hours by--
    (A) Any duly authorized employees or representatives of the 
Department or the Internal Revenue Service;
    (B) Any fiduciary of a Plan which has the authority to purchase an 
insurance policy by or on behalf of a Plan or any duly authorized 
employee or representative of such fiduciary; and
    (C) Any participant or beneficiary of a Plan or any duly authorized 
employee or representative of such participant or beneficiary.
    (2) None of the persons described above in paragraph (n)(1)(B) or 
(C) shall be authorized to examine the trade secrets of CHCA or 
commercial or financial information which is privileged or 
confidential.

Summary of Facts and Representations

    1. CHCA, a taxable cooperative organization located at 803 West 
64th Street, Shawnee Mission, Kansas, is owned by 38 different not-for-
profit hospitals. The Hospitals are located in various cities around 
the United States and they specialize in the medical treatment of 
children. Each member Hospital owns 2.63 percent of CHCA and no member 
Hospital is in a position to influence or control the actions of CHCA 
or the entire Hospital group.\3\ (A table showing the Hospitals 
participating under CHCA's insurance program, the Plans they sponsor 
and the respective participant totals is presented in the Appendix.)
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    \3\ CHCA is subject to the provisions of Subchapter T of the 
Code, specifically to Code sections 1381-1388 and section 521 which 
provides special exemptions for cooperative organizations from 
taxes.
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    2. As a cooperative organization, CHCA acts as a purchasing agent 
and makes products and services, including insurance, available to its 
member Hospitals at discounted rates. Each Hospital is, however, free 
to purchase any product or service elsewhere, if it desires. At the end 
of each year, if CHCA receives a ``profit,'' as confirmed by an 
independent auditor, it typically pays a patronage dividend to each 
Hospital.\4\ Under such circumstances, CHCA's eleven member Board of 
Directors, consisting of CHCA's Chief Executive Officer and the Chief 
Executive Officers of ten member Hospitals, will determine whether such 
dividend will be paid, the amount, the components (i.e., cash, retained 
surplus in CHCA, or equity interests in other entities that are 
associated with CHCA), and the percentage distribution of the dividend 
amount among the various components.\5\
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    \4\ The profitability or net income of CHCA is defined as 
revenues less expenses. CHCA represents that its financial records 
are presented in conformity with Generally-Accepted Accounting 
Principles.
    \5\ The Board of Directors also approves the third party 
insurer, the contract with such insurer and authorizes other 
business functions. Members of the Board of Directors are not 
compensated for their services.
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    3. Among the goods and services provided by CHCA are insurance 
policies, including property and casualty insurance, workers 
compensation, disability insurance and group life insurance. Many of 
CHCA's member Hospitals maintain disability plans provided through 
group disability insurance obtained through CHCA. These Hospitals also 
maintain group life insurance plans provided through life insurance 
obtained through CHCA.
    The insurance is obtained on a group basis. To allow the Hospitals 
the benefit of a group rate, CHCA is the master policy holder. Each 
Hospital is a participating employer in the policy. Thus, CHCA will 
make a recommendation to the Hospitals on who the ultimate insurance 
carrier will be and it will establish a relationship the Hospitals may 
access. The individual Hospitals will then have the sole discretion on 
whether or not to participate in CHCA's insurance program. CHCA will 
also exercise discretionary authority regarding the type of insurance 
to be purchased and made available to its membership.
    CHCA notes that the amount of insurance premiums paid by individual 
member Hospital may be different from that paid by other member 
Hospitals. In this regard, CHCA explains that some Hospitals may choose 
to pay all or most of the insurance costs for its employees while 
others may pass all or a significant portion of the insurance costs on 
to their employees. Still other Hospitals may choose not to provide any 
disability and/or life insurance coverage at all.
    4. Prior to May 1, 2000, member Hospitals participating in CHCA's 
insurance program placed insurance through an independent insurance 
broker with UNUM, a third party insurer.\6\ UNUM set the premiums for 
the insurance and negotiated the commissions to be paid to the 
Independent Broker. Under this arrangement with the Independent Broker, 
CHCA acted primarily as a liaison between the Hospitals, the 
Independent Broker and UNUM. In this regard, between 1998 and May 2000, 
CHCA received fees from the Independent Broker totaling $1,137,000 for 
the administrative and marketing services it performed while the 
Independent Broker received a 7 percent commission.
---------------------------------------------------------------------------

    \6\ UNUM's current financial strength ratings, as denoted by 
Moody's Standard and Poor's, A.M. Best, and Fitch/Duff & Phelps are 
ad follows: ``A2'' or ``Good Financial Security'' (Moody's); ``AA'' 
or ``Very Strong'' (Standard & Poor's); ``A'' or ``Excellent'' (A.M. 
Best); and ``AA/'' or ``Very Strong'' (Fitch/Duff & Phelps).
---------------------------------------------------------------------------

    5. CHCA has obtained a brokerage license to sell insurance and 
after May 2000, it became the broker of record. Rather than having the 
commissions paid by UNUM to the Independent Broker, CHCA has been 
retaining the commissions within the cooperative group in order to 
increase the cooperative's net profits as well as the amount of the 
patronage dividend. As a

[[Page 51882]]

consequence, the commissions previously paid to the Independent Broker 
are currently being paid to CHCA. The amount of the commissions payable 
to CHCA by UNUM represents 10 percent of the total premiums for 
disability insurance and 5 percent of the total premiums for life 
insurance. CHCA states that the commissions are negotiated on an arm's 
length basis with UNUM and are market-based. CHCA also does not expect 
that a Plan's costs will be increased by the present arrangement.
    6. To provide a direct benefit to Plan participants with respect to 
the distribution of patronage dividends, CHCA proposes to amend its 
policy of allocating net income to each of the member Hospitals. Under 
the contemplated arrangement, CHCA intends to take a portion of the net 
income attributable to the commissions paid by Plan participants and 
then transfer such commissions to each Plan in accordance with the 
Premium Adjustment Procedure described herein. In general, CHCA will 
make a payment to UNUM, or a successor third party insurance carrier, 
on behalf of Plan participants to ensure that the participants will 
benefit from its action. The amount of the Premium Adjustment will 
represent a pro rata portion of the commissions paid by the Plan 
participants to the commissions paid on the aggregate premium 
contribution.
    More specifically, during its normal year-end patronage dividend 
calculation, CHCA will make a special allocation for the commission 
dollars it has received from its current long-term disability and life 
insurance program (and possibly commission dollars derived from other 
health and welfare plans in the future). The calculation will then 
determine the net patronage dividend dollar that pertains to the 
commissions derived from Plan participant contributions to the overall 
commission dollars earned by CHCA. The dollar amount will then be paid 
directly to UNUM and applied as a direct reduction in the rate paid by 
the Plan participant for future insurance premium contributions.
    In effect, CHCA will implement its Premium Adjustment Procedure as 
follows:
     At the end of each calendar year, CHCA will separate the 
total premiums paid between each Hospital and its respective Plan.
     CHCA will calculate the commissions that are paid based 
upon the premiums.
     CHCA will calculate the amount available for the patronage 
dividend by subtracting the aggregate direct expenses incurred under 
its insurance program \7\ from the total commissions.
---------------------------------------------------------------------------

    \7\ CHCA represents that the ``direct expenses'' associated with 
its insurance program are those expenses which are unique to CHCA 
that would not be incurred if the program were not in place. 
Regulation section 29 CFR 2550.408c-2(b)(3) provides that an expense 
is not a direct expense to the extent it would have been sustained 
had the service not been provided or if it represents an allocable 
portion of overhead costs. Although CHCA represents that it intends 
to comply with the foregoing regulation, the Department is 
expressing no opinion herein on whether the expenses identified by 
CHCA in the operation of its insurance program are ``direct 
expenses'' as contemplated by the regulation.
---------------------------------------------------------------------------

     CHCA will calculate a breakdown of the commissions on a 
percentage basis.
     CHCA will allocate the amounts available for the patronage 
dividend based upon the percentages determined in the previous step.
     CHCA will send a check to UNUM (or a successor third party 
insurer) with instructions to allocate such amount on a per Hospital 
basis that will be applied against a Plan participant's insurance rate 
schedule.
     CHCA will request written confirmation from UNUM (or the 
successor third party insurer) that the Premium Adjustment has been 
made.
    (For a further explanation of CHCA's Premium Adjustment Procedure, 
refer to the example in the Appendix.)
    7. CHCA states that the payment of insurance commissions that are 
attributable to plan assets, the payment of patronage dividends and the 
Premium Adjustment Procedure may violate certain provisions of sections 
406(a) and 406(b) of the Act. In this regard, since a member Hospital 
will receive a patronage dividend which is derived, in part, from plan 
assets attributable to insurance commissions paid to CHCA, CHCA is of 
the view that the purchase of insurance for a Hospital-sponsored, 
disability or life insurance Plan may be construed as fiduciary self-
dealing both on the part of CHCA and a member Hospital in violation of 
section 406(b)(1) of the Act. In addition, CHCA observes that its 
actions may further result in the involvement of a member Hospital and 
thereby be construed as the Hospital's receiving consideration from a 
party (i.e., CHCA) which has been dealing with a participating Plan in 
connection with a transaction involving the assets of such Plan, in 
violation of section 406(b)(3) of the Act.
    Accordingly, CHCA requests an administrative exemption from the 
Department to permit (a) the purchase of third party insurance by a 
Plan through CHCA, as the broker of record; and (b) the receipt of 
insurance sales commissions by CHCA from UNUM in connection with such 
purchase. Further, CHCA represents that within 90 days of publication, 
in the Federal Register, of the notice granting the final exemption, it 
will make full restitution to the participants of each affected Plan 
whose assets are attributed to CHCA's past fee arrangement with the 
Independent Broker and its current insurance brokerage arrangement with 
UNUM.
    CHCA anticipates that the foregoing purchase and insurance 
brokerage transactions will recur on an annual basis. Although the 
basic parameters of the transactions will not change from year to year, 
the amount of the annual premium, the amount of the brokerage 
commissions and the amount of the patronage dividend are expected to 
differ.
    8. The proposed exemption is subject to a number of safeguards. In 
pertinent part,
     The transactions will be effected by CHCA in the ordinary 
course of its business.
     No Plan will pay more than adequate consideration for an 
insurance policy that is brokered by CHCA.
     Prior to the execution of the transactions covered by the 
exemption, CHCA will provide each Hospital, which serves as the 
independent fiduciary of a Plan it sponsors, with written disclosures 
describing the insurance sales commissions and fees, discounts, 
penalties or adjustments which may be imposed under the recommended 
insurance policy in connection with the purchase, holding, exchange, 
termination or sale of the insurance policy, as well as the Premium 
Adjustment Procedure.
     Following the receipt of such information, the Hospital 
fiduciary will acknowledge receipt of such information to CHCA in 
writing and approve the transactions on behalf of the Plan.
     On an annual basis, CHCA will disclose, in writing, the 
direct expenses it has incurred to independent Plan fiduciaries of its 
member Hospitals, including any Premium Adjustments that have been 
made.
     The transactions will be on terms that are at least as 
favorable to a Plan as those available in arm's length transactions 
with an unrelated party.
     The combined total of all fees, commissions and other 
consideration received by CHCA in connection with the purchase of 
insurance policies issued by a third party insurer or the provision of 
services to a Plan has not been and will not be in excess of 
``reasonable compensation'' within the

[[Page 51883]]

contemplation of section 408(b)(2) and 408(c)(2) of the Act.
    9. CHCA will establish a system of internal and external accounting 
controls with respect to the Premium Adjustment Procedure. In this 
regard, internal audit employees of CHCA will review appropriate 
records. In addition, CHCA will retain the services of Baird, Kurtz & 
Dobson, CPA, P.C., an independent accounting firm, to audit, on an 
annual basis, the Premium Adjustment Procedure. The audits will provide 
independent verification of the proper crediting of the insurance sales 
commissions attributed to the assets of the participating Plans. 
Specifically, the independent auditors will be instructed to (a) review 
and test compliance with the operational controls established by CHCA 
for purposes of implementing the Premium Adjustment Procedure; (b) 
verify, on a test basis, the Premium Adjustments that are made; and (c) 
recompute, on a test basis, the amounts adjusted at the discretion of 
the auditors. In the event any shortfalls are uncovered during the 
course of an audit as a result of errors it has made, CHCA will provide 
a cash payment to the Plan equal to the amount of the error plus market 
rate interest for the period of time of the error until the correction 
is made. Any excess Premium Adjustments will be corrected by 
corresponding future adjustments in the amount of the excess and will 
not require that the Plan pay any interest.
    10. In summary, it is represented that the transactions will 
satisfy the statutory criteria for an exemption under section 408(a) of 
the Act because:
    (a) The transactions will be effected by CHCA in the ordinary 
course of its business.
    (b) A Plan will pay no more than adequate consideration for an 
insurance policy that is brokered by CHCA.
    (c) Prior to the execution of the transactions, CHCA will provide 
each Hospital, serving as the independent fiduciary of the Plan it 
sponsors, with written disclosures describing the insurance sales 
commissions and fees, discounts, penalties or adjustments which may be 
imposed under the insurance policy, including a written description its 
Premium Adjustment Procedure. Such disclosures will also be approved by 
the independent Plan fiduciary.
    (d) On an annual basis, CHCA will provide independent Plan 
fiduciaries of its member Hospitals with written disclosures of the 
direct expenses CHCA has incurred, including any Premium Adjustments 
that have been made.
    (e) The transactions will be on terms that are at least as 
favorable to a Plan as those available in arm's length transactions 
with an unrelated party.
    (f) The combined total of all fees, commissions and other 
consideration received by CHCA in connection with the purchase of 
insurance policies issued by UNUM (or another third party insurer) or 
the provision of services to a Plan will not be in excess of 
``reasonable compensation'' within the contemplation of section 
408(b)(2) and 408(c)(2) of the Act.
    (g) There will be no increased cost to a Plan nor any diminution in 
any benefit received by a Plan participant or beneficiary since Plan 
participants and beneficiaries will receive the same insurance benefits 
regardless of whether the insurance sales commissions stay within the 
cooperative group and are used for the payment of patronage dividends 
to the member Hospitals.
    (h) The Plan will receive a Premium Adjustment based upon the 
excess of insurance commissions over direct costs, if any, incurred by 
CHCA, in accordance with CHCA's Premium Adjustment Procedure.
    (i) CHCA will maintain a system of internal accounting controls 
with respect to the Premium Adjustment Procedure, and will retain an 
independent auditor outside of the control of CHCA to audit, on an 
annual basis, the Premium Adjustments that are made on behalf of the 
affected Plans.
    (k) Within 90 days following the publication, in the Federal 
Register, of the notice granting the final exemption, CHCA will make 
full restitution to the participants of each affected Plan whose assets 
are attributed to CHCA's past and continuing compensation arrangements 
with the Independent Broker and UNUM.
    (l) CHCA will maintain, for a period of six years and in a manner 
that is accessible for audit and examination, written records of the 
transactions covered by this exemption to enable certain authorized 
persons to determine whether the conditions of the exemption have been 
met.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to participants 
and beneficiaries in each Plan sponsored by a member Hospital within 30 
days after publication of the notice of proposed exemption in the 
Federal Register. The notice will include a copy of the proposed 
exemption, as published in the Federal Register, and a supplemental 
statement, as required pursuant to 29 CFR 2570.43(b)(2), which shall 
inform interested persons of their right to comment on and/or to 
request a hearing with respect to the proposed exemption. Each member 
Hospital will give notice (a) to active participants in their 
respective Plans, by posting copies of the proposed exemption and 
supplemental statement on bulletin boards normally used for employee 
notices; and (b) to retirees, by forwarding copies of the proposed 
exemption and supplemental statement, by first-class mail. Comments 
regarding the proposed exemption will be due within 60 days of the 
publication of the notice of pendency in the Federal Register.

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

Appendix

A. Table Showing CHCA Hospitals, Plans and Participants Enrolled in 
CHCA's Insurance Program

------------------------------------------------------------------------
                                                               Total
            Hospital                   Name of plan        participants
------------------------------------------------------------------------
Children's Hospital Medical      Children's Hospital               6,315
 Center of Akron.                 Medical Center of
                                  Akron/Flexible
                                  Benefits Program.
Children's Healthcare of         Children's Healthcare            11,831
 Atlanta.                         of Atlanta Welfare
                                  Benefit Plan.
The Children's Hospital of       The Children's Hospital           7,704
 Alabama.                         of Alabama Group Life
                                  Insurance Plan.
Children's Hospital (Boston)...  Group Life, Optional             10,145
                                  Life, Dependent Life &
                                  Weekly Indemnity Plan.
                                 Children's Hospital               3,866
                                  Long Term Disability
                                  Plan.
The Children's Memorial          Children's Memorial               5,584
 Hospital (Chicago).              Hospital Life & LTD
                                  Plan.
Children's Hospital Medical      Children's Hospital               3,556
 Center (Cincinnati).             Medical Center Long
                                  Term Disability Plan.
Children's Hospital (Columbus).  Group Life Plan for               7,231
                                  Employees of
                                  Children's Hospital.
                                 Group Long Term                   1,834
                                  Disability Plan for
                                  Employees of
                                  Children's Hospital.

[[Page 51884]]


Driscoll Children's Hospital     R. Driscoll & J.                  6,658
 (Corpus Christi).                Driscoll & R.
                                  Driscoll, Jr.
                                  Foundation Plan.
Children's Medical Center of     Children's Group Life &           6,642
 Dallas.                          Health Insurance Plan.
The Children's Medical Center    Children's Medical                3,717
 (Dayton).                        Center Life & Add.
                                  Plan.
The Children's Hospital          The Children's Hospital           1,473
 (Denver).                        Long Term Disability
                                  Plan.
                                 The Children's Hospital           6,919
                                  Life Insurance Plan.
Cook Children's Medical Center   Cook Children's Health            7,968
 (Ft. worth).                     Care System Group LTD
                                  Plan.
Texas Children's Hospital        Texas Children's                 11,953
 (Houston).                       Hospital Match Plan.
Children's Hospital Los Angeles  Children's Hospital Los
                                  Angeles Long Term
                                  Disability and Group
                                  Life Insurance Plans.
St. Jude Children's Research     St. Jude Children's               1,739
 Hospital (Memphis).              Research Hospital--
                                  Employees' Group Long
                                  Term Disability
                                  Insurance Plan.
Miami Children's Hospital......  Miami Children's                  7,106
                                  Hospital Optional Life
                                  Plan.
Children's Hospital of           Children's Health                 3,795
 Wisconsin (Milwaukee).           System of Wisconsin,
                                  Inc. Benefits Plan.
Children's Hospital (New         Children's Hospital                 981
 Orleans).                        Long Term Disability
                                  Insurance Plan.
Children's Healthcare Services   Children's Hospital               2,354
 (Omaha).                         Employee Life
                                  Insurance Plan.
                                 Children's Hospital                 687
                                  Group Long Term
                                  Disability Plan.
                                 Children's Hospital               2,036
                                  Employee Life Plan.
                                 Children's Healthcare               124
                                  Services Short Term
                                  Disability Plan.
Phoenix Children's Hospital....  Phoenix Children's                1,489
                                  Hospital Benefits Plan.
All Children's Hospital (St.     All Children's Health
 Petersburg).                     System Life,
                                  Accidental Death and
                                  Dismemberment Plan.
Children's Hospital and Health   All Children's Health
 Center (San Diego).              System Long Term
                                  Disability Plan.
Children's National Medical      Children's Life & LTD             7,244
 Center (DC).                     Plan.
------------------------------------------------------------------------

B. Example Showing CHCA's Rebate Procedure Where the Plan Sponsors and 
the Participants Pay Their Proportionate Share of the Insurance 
Premiums

     Step 1--Separate total premiums paid by each employer 
Hospital and its respective Plan participants.

----------------------------------------------------------------------------------------------------------------
                                                         Hospital-paid premiums       Participant-paid premiums
                      Hospital                      ------------------------------------------------------------
                                                          Life             LTD            Life           LTD
----------------------------------------------------------------------------------------------------------------
A..................................................        $130,000              $0        $110,000           $0
B..................................................         350,000         280,000          60,000            0
C..................................................         250,000         450,000         490,000            0
D..................................................         250,000         300,000         250,000            0
E..................................................         400,000         800,000               0            0
                                                    ------------------------------------------------------------
                                                          1,380,000       1,830,000         910,000            0
----------------------------------------------------------------------------------------------------------------

     Step 2--Calculate the commissions paid to CHCA based on 
the premiums shown in Step 1. The commission rates are 5% for Life 
and 10% for LTD insurance.

----------------------------------------------------------------------------------------------------------------
                                                                Commissions based on      Commissions based on
                                                               hospital-paid premiums       participant-paid
                          Hospital                           --------------------------         premiums
                                                                                       -------------------------
                                                                  Life         LTD          Life         LTD
----------------------------------------------------------------------------------------------------------------
A...........................................................       $6,500           $0       $5,500           $0
B...........................................................       17,500       28,000        3,000            0
C...........................................................       12,500       45,000       24,500            0
D...........................................................       12,500       30,000       12,500            0
E...........................................................       20,000       80,000            0            0
                                                             ---------------------------------------------------
                                                                   69,000      183,000       45,500            0
----------------------------------------------------------------------------------------------------------------

     Step 3--Calculate the net contribution of the CHCA's 
Insurance Program.
    Total Commissions ($69,000 + $183,000 + $45,500) = $297,500 
Direct Expenses Unique to CHCA's Insurance Program = $75,000 
($297,500--$75,000) = $222,500. This is the amount available for the 
Patronage Dividend. (For purposes of this example, assume that the 
Patronage Dividend will be in cash and that the adjustment will be 
in cash.)
     Step 4--Calculate the breakdown of the commissions paid 
by each Hospital and Plan Participants on a percentage basis.

----------------------------------------------------------------------------------------------------------------
                                                               Commission percentages    Commission percentages
                                                               based on hospital-paid     based on participant-
                          Hospital                                   premiums %           paid paid premiums %
                                                             ---------------------------------------------------
                                                                  Life         LTD          Life         LTD
----------------------------------------------------------------------------------------------------------------
A...........................................................         2.18         0.00         1.85         0.00
B...........................................................         5.88         9.41         1.01         0.00
C...........................................................         4.20        15.13         8.24         0.00
D...........................................................         4.20        10.08         4.20         0.00
E...........................................................         6.72        26.89         0.00         0.00


[[Page 51885]]


                                                                    23.18        61.51        15.30         0.00
----------------------------------------------------------------------------------------------------------------

     Step 5--Allocate the amount available for the Patronage 
Dividend based upon the Step 4 percentages.

----------------------------------------------------------------------------------------------------------------
            Allocation of patronage dividends to hospital-paid premiums                Allocation of patronage
------------------------------------------------------------------------------------  dividends to participant-
                                                                                            paid premiums
                      Hospital                            Life             LTD      ----------------------------
                                                                                          Life           LTD
----------------------------------------------------------------------------------------------------------------
A..................................................          $4,851              $0          $4,116           $0
B..................................................          13,083          20,937           2,247            0
C..................................................           9,345          33,664          18,334            0
D..................................................           9,345          22,428           9,345            0
E..................................................          14,952          59,830               0            0
                                                    ------------------------------------------------------------
                                                             51,576         136,042          34,042            0
----------------------------------------------------------------------------------------------------------------

(To compute the Patronage Dividend amount that is attributable to 
Participant-Paid Premiums for Life Insurance, under Hospital A, the 
$5,500 commission attributable to Participant-Paid Premiums for Life 
Insurance is divided by the $297,500 Total Commission payable to 
CHCA. The quotient, 1.85%, is then multiplied by the $222,500 amount 
available for the Patronage Dividend to arrive at the product, 
$4,116. The amounts for Hospitals B-E are also similarly 
calculated.)
     Step 6--CHCA will send a check to the insurance carrier 
for $34,042 with instructions to allocate the amount on a per 
Hospital basis that will be applied against the employee 
Participants' premium rate schedule. CHCA will also request written 
confirmation from the insurer that the Premium Adjustment has been 
made.

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 of the Act and/or 
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, 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) Before an exemption may be granted under section 408(a) of 
the Act and/or section 4975(c)(2) of the Code, the Department must 
find that the exemption is administratively feasible, in the 
interests of the plan and of its participants and beneficiaries, and 
protective of the rights of participants and beneficiaries of the 
plan;
    (3) The proposed exemptions, if granted, will be supplemental 
to, and not in derogation of, any other provisions of the Act and/or 
the Code, including statutory or administrative exemptions and 
transitional 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
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations 
contained in each application are true and complete, and that each 
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. 02-20205 Filed 8-8-02; 8:45 am]
BILLING CODE 4510-29-P