Grant of Individual Exemptions; Twin City Iron Workers
Apprenticeship and Training Fund (the Trust Fund) [11/18/2002]
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]
BILLING CODE 4510-29-P
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