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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; Twin City Iron Workers Apprenticeship and Training Fund (the Trust Fund) [11/18/2002]

[PDF Version]

Volume 67, Number 222, Page 69570-69573

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-49; Exemption Application No. L-
10929 et al.]

 
Grant of Individual Exemptions; Twin City Iron Workers 
Apprenticeship and Training Fund (the Trust Fund)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions 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

[[Page 69571]]

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 
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.

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

[Prohibited Transaction Exemption No. 2002-49; Exemption Application 
No. L-10929]

Exemption

    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. This exemption is conditioned 
upon the adherence to the material facts and representations described 
in the proposed exemption and upon the satisfaction of the following 
conditions:
    (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 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.
    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 August 9, 2002 at 67 FR 
51878.

FOR FURTHER INFORMATION CONTACT: Khalif 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

[Prohibited Transaction Exemption 2002-50; Exemption Application No. L-
10939]

Exemption

    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.
    This 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 participant (i.e., employee) 
contributions for welfare benefits paid through a Plan (the Participant 
Paid Premiums) 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 received that are attributable to 
Participant Paid Premiums over direct costs related to Participant Paid 
Premiums, if any, incurred by CHCA, in accordance with

[[Page 69572]]

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 and the 
Participant Paid Premium portion of each total.
    (2) CHCA calculates the commissions that are paid based on the 
Participant Paid 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 based upon the ratio of Hospital paid premiums to Participant 
Paid Premiums.
    (5) CHCA allocates the amounts available for the patronage dividend 
based upon the percentages determined above in subparagraph (i)(4).
    (6) CHCA sends a check to the insurer with instructions to allocate 
such amount of Premium Adjustments attributable to commissions paid on 
Participant Paid Premiums on a per Hospital basis to be 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 
and its subsequent compensation arrangement with the UNUM Life 
Insurance Company.
    (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 subparagraph (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 subparagraph (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.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this proposed exemption, 
refer to the notice of proposed exemption published on August 9, 2002 
at 67 FR 51880.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption and no requests for a public hearing. The written 
comment, which was submitted by CHCA, clarifies the operative language 
of the notice in the following areas:
    1. Deletion of the Phrase ``Attributed to Participant (i.e., 
Employee) Contributions.'' In describing the transactions that will be 
covered by the exemption, the initial paragraph of the proposal refers 
to CHCA's receipt of an insurance sales commission from a third party 
insurer, in connection with the purchase of an insurance policy with 
Plan assets that are ``attributed to participant (i.e., employee) 
contributions.'' CHCA suggests the deletion of the phrase ``attributed 
to participant (i.e., employee) contributions'' because it believes 
that the language implies that there are assets other than employee 
premium payments that will be subject to the exemption.
    2. Deletion of the Phrase ``Plan Assets'' and Substitution with the 
Phrase ``Participant Paid Premiums.'' In the general conditions section 
of the proposed exemption, subparagraph (c)(3) states, in part, that 
prior to the execution of the transactions covered by the exemption, 
CHCA will provide each Hospital, which serves as the independent 
fiduciary of the Plan that it sponsors, with a full description of 
CHCA's procedure for offsetting a Plan's allocable portion of insurance 
sales commissions that CHCA receives and which are attributable to 
``Plan assets'' against amounts otherwise payable by such Plan for 
future premium contributions.
    CHCA requests that subparagraph (c)(3) of the proposal be modified 
by deleting the term ``Plan assets'' and substituting language to 
denote that the reference is meant to include employee contributions 
(i.e., premiums) that are paid through each Hospital Plan. CHCA 
represents that it is important from its internal administrative 
perspective that individuals who perform the Premium Adjustment 
calculations can follow the exemption in detail and understand the type 
of information they should provide to insurance companies and to its 
member Hospitals.
    Therefore, CHCA suggests that subparagraph (c)(3) of the final 
exemption be revised to read as follows:

    (c)(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 participant (i.e., 
employee) contributions for welfare benefits paid through a Plan 
(the Participant Paid Premiums) against the amounts otherwise 
payable by such Plan for future premium contributions (the Premium 
Adjustment; the Premium Adjustment Procedure).

    3. Other Clarifications. In the proposal, paragraph (i) of the 
conditions states that a Plan will receive 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 also set forth therein. In order to 
clarify that this condition pertains to ``Participant Paid Premiums,'' 
CHCA recommends that paragraph (i) and subparagraphs (1), (4) and (6) 
of paragraph (i) be revised to read as follows:

    (i) The Plan receives a Premium Adjustment based upon the excess 
of insurance sales commissions received that are attributable to 
Participant Paid Premiums over direct costs related to Participant 
Paid Premiums, 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 and the

[[Page 69573]]

Participant Paid Premium portion of each total.
    (2) CHCA calculates the commissions that are paid based on the 
Participant Paid Premiums.
* * * * *
    (4) CHCA calculates a breakdown of the commissions on a 
percentage basis based upon the ratio of Hospital paid premiums to 
Participant Paid Premiums.
* * * * *
    (6) CHCA sends a check to the insurer with instructions to 
allocate such amount of Premium Adjustments attributable to 
commissions paid on Participant Paid Premiums on a per Hospital 
basis to be applied against a Plan participant's insurance rate 
schedule.
* * * * *

CHCA believes that without these changes, there would be room for 
misunderstanding.
    The Department concurs with the aforementioned clarifications to 
the proposal that have been provided by CHCA and it has made the 
suggested changes to the operative language of the final exemption. The 
Department also notes the corresponding changes to the Summary of Facts 
and Representations of the proposed exemption. Accordingly, after 
giving full consideration to the entire record, including CHCA's 
written comment, the Department has decided to grant the exemption 
subject to the modifications and clarifications described 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. L-10939) the 
Department is maintaining in this case. The complete application file, 
as well as 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 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 13th day of November, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-29196 Filed 11-15-02; 8:45 am]

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