Skip to page content
Secretary of Labor Thomas E. Perez

EBSA Federal Register Notice

Proposed Class Exemption For Release of Claims and Extensions of Credit in Connection With Litigation [02/11/2003]

[PDF Version]

Volume 68, Number 28, Page 6953-6958


=======================================================================
-----------------------------------------------------------------------


DEPARTMENT OF LABOR


Employee Benefits Security Administration


[Application No. D-11100]


 
Proposed Class Exemption For Release of Claims and Extensions of 
Credit in Connection With Litigation


AGENCY: Employee Benefits Security Administration, Department of Labor.


ACTION: Notice of proposed class exemption.


-----------------------------------------------------------------------


SUMMARY: This document contains a notice of a proposed class exemption 
from certain prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and from 
certain taxes imposed by the Internal Revenue Code of 1986, as amended 
(the Code). The proposed class exemption would apply to transactions 
engaged in by a plan in connection with the settlement of litigation. 
This exemption is being proposed in response to concerns raised by the 
pension community regarding the impact of ERISA's prohibited 
transaction provisions on the settlement of litigation by employee 
benefit plans with parties in interest. The proposed exemption, if 
granted, would affect all employee benefit plans, the participants and 
beneficiaries of such plans, and parties in interest with respect to 
those plans engaging in the described transactions.


DATES: Written comments and requests for a public hearing shall be 
submitted to the Department before March 28, 2003.


ADDRESSES: All written comments and requests for a public hearing 
(preferably 3 copies) should be sent to: U. S. Department of Labor, 
Employee Benefits Security Administration, Room N-5649, 200 
Constitution Avenue, NW., Washington, DC 20210, Attention: Plan 
Settlement Class Exemption Proposal. Comments may be sent by fax to 
(202) 219-0204 or by e-mail to moffittb@pwba.dol.gov. The application 
for exemption (Application Number D-11100), as well as all comments 
received, will be available for public inspection in the Public 
Documents Room, Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.


FOR FURTHER INFORMATION CONTACT: Andrea W. Selvaggio, Office of 
Exemption Determinations, Employee Benefits Security Administration, 
U.S. Department of Labor, Washington DC 20210 (202) 693-8540 (not a 
toll-free number).


SUPPLEMENTARY INFORMATION: This document contains a notice that the 
Department is proposing a class exemption from the restrictions of 
section 406(a)(1)(A), (B) and (D) of the Act and from the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A), (B) and (D) of the Code. The exemption 
described herein is being proposed by the Department on its own motion 
pursuant to section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, August 10, 1990).\1\
---------------------------------------------------------------------------


    \1\ Section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996) generally transferred the authority of the Secretary 
of the Treasury to issue exemptions under section 4975(c)(2) of the 
Code to the Secretary of Labor. For purposes of this exemption, 
references to specific provisions of Title I of the Act, unless 
otherwise specified, refer also to the corresponding provisions of 
the Code.
---------------------------------------------------------------------------


I. General Background


    Questions have been raised regarding whether a fiduciary that 
agrees to settle litigation or threatened litigation by releasing the 
plan's claims against a party in interest in exchange for consideration 
has engaged in a prohibited transaction. In this regard, the prohibited 
transaction provisions of the Act generally prohibit transactions 
between a plan and a party in interest (including a fiduciary) with 
respect to such plan. Specifically, section 406(a)(1)(A), (B) and (D) 
of the Act states that a fiduciary with respect to a plan shall not 
cause the plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect--
    (A) Sale or exchange, or leasing, of any property between the plan 
and a party in interest;
    (B) Lending of money or other extension of credit between the plan 
and a party in interest; or


[[Page 6954]]


    (D) Transfer to, or use by or for the benefit of, a party in 
interest, of any assets of the plan.
    As noted in the General Information section of the Preamble of this 
proposed class exemption, the fact that a transaction is subject to an 
administrative exemption is not dispositive of whether the transaction 
is in fact a prohibited transaction. Rather, the proposed exemption is 
being published in response to uncertainty expressed on the part of 
plan fiduciaries charged with the responsibility under ERISA for 
determining whether it is in the interests of a plan's participants and 
beneficiaries to enter into a settlement agreement with a party in 
interest. The Department believes that this exemption will remove the 
uncertainty surrounding this issue and allow plan fiduciaries to 
properly carry out their responsibilities under ERISA.


II. Discussion of the Proposed Exemption


    The Department is proposing this class exemption on its own motion 
in order to facilitate settlement of litigation by plans. Currently, 
two class exemptions provide limited relief for prohibited transactions 
that may arise as a result of the remedy proposed by the parties and/or 
the court in settlement of litigation or potential litigation where the 
Department or the Internal Revenue Service (the Service) is involved 
(the remedial transactions ). PTE 79-15 \2\ exempts certain remedial 
transactions or activities specifically authorized or required by a 
judicial order or a judicially approved settlement decree where the 
Department or the Service is a party to the litigation. PTE 79-15 
requires, among other things, that the transaction or activity be 
approved by the court prior to its occurrence. Similarly, PTE 94-71 \3\ 
exempts certain remedial transactions authorized, prior to the 
occurrence of such transactions, by the Department. PTE 94-71 is 
available only to settle issues arising out of a Department of Labor 
investigation of a plan. No relief is provided for the transactions 
originally cited as violations by the Department. Under PTE 94-71, 
relief is conditioned, among other things, on approval by the 
Department, a written settlement agreement and notice to affected 
participants and beneficiaries.
---------------------------------------------------------------------------


    \2\ 44 FR 26979 (5/8/79).
    \3\ 59 FR 51216 (10/7/94), as corrected 59 FR 60837 (11/28/94).
---------------------------------------------------------------------------


    PTEs 79-15 and 94-71 recognize that, in some situations, the most 
appropriate resolution for certain ERISA violations may be a remedy 
that would otherwise be prohibited. For example, a plan may have 
purchased property from a party in interest in violation of section 
406(a)(1)(A) of the Act. In attempting to resolve this prohibited 
transaction, the parties may find that another party in interest is the 
only person willing and able to purchase the property from the plan. 
However, without an exemption, this remedial transaction would also 
violate section 406(a)(1)(A) of the Act. It is this second transaction, 
the remedial transaction, that is the subject of relief under PTEs 79-
15 and 94-71, not the original transaction that led to the controversy.
    The current proposed class exemption is more limited than PTEs 79-
15 and 94-71. It covers the transaction that occurs when the plan 
exchanges or releases its cause of action in exchange for consideration 
from parties in interest \4\ in settlement of litigation or threatened 
litigation. It also covers certain limited extensions of credit 
incident to the settlement. Unlike PTEs 79-15 and 94-71, this proposed 
exemption does not provide relief for any remedial prohibited 
transactions that the parties or the court may consider in an effort to 
achieve a settlement. In the Department s view, it would not be 
sufficiently protective of the interests of participants and 
beneficiaries to permit such remedial prohibited transactions without 
any involvement by either the Department or the Service. Therefore, 
absent an applicable statutory, class, or individual exemption, 
remedial prohibited transactions may not be entered into as part of a 
settlement pursuant to this proposed exemption. However, the proposed 
exemption does cover the receipt of cash by a plan in exchange for the 
release by the plan of a claim against a party in interest in partial 
or complete settlement of such claim.
---------------------------------------------------------------------------


    \4\ Throughout this discussion we refer to consideration paid by 
or on behalf of a party in interest settling the case. This would 
include consideration paid by a third party, such as an insurance 
company, on behalf of the party in interest. It would also include 
consideration paid by another party in interest, including a 
fiduciary.
---------------------------------------------------------------------------


    The Department notes that many situations in which a plan settles 
litigation involve no question of a prohibited transaction triggering 
the need for an exemption. For example, if the parties in interest 
alleged to have committed prohibited transactions agreed to correct 
these transactions and this correction complies with section 4975 of 
the Code, the Department has taken the position that the correction 
itself will not result in a separate prohibited transaction under Title 
I of the Act.\5\
    Similarly, if a party in interest is willing to reimburse the plan 
for its losses without requiring a release of the plan's claims, no 
question of a prohibited transaction would arise because the plan, 
having not given up its claim, has not engaged in a transaction with a 
party in interest prohibited under section 406 of the Act. This may 
occur, for example, where the plan sponsor, concerned that it might be 
sued for breach of fiduciary duty, decides to make the plan whole for 
losses.\6\
    The Service recently confirmed its position that such a payment may 
be ``a restoration payment'' not a contribution.\7\
    Finally, the Department noted in AO 95-26A (October 17, 1995) that, 
where a service provider and the plan are settling a dispute related to 
the provision of services or incidental goods to the plan, the 
statutory exemption found in section 408(b)(2) of the Act may apply.
---------------------------------------------------------------------------


    \5\ It should be noted that the Department has no jurisdiction 
with respect to the meaning of the term correction under section 
53.4941(e)-1(c)(1) of the Foundation Excise Tax Regulations, which 
applies to correction of prohibited transactions under section 4975 
of the Code, by reason of Temporary Pension Excise Tax Regulation 
section 141.4975-13.
    \6\ For example, see PTE 97-32, 62 FR 31631 (6/10/97).
    \7\ Rev. Rul. 2002-45, 2002-29 IRB 116 (06/26/02). For the 
payments to be considered restoration payments, not contributions, 
there must be a reasonable risk of liability for breach of fiduciary 
duty.
---------------------------------------------------------------------------


    The Department has recently received a number of informal inquires 
regarding the settlement of class-action securities fraud cases where 
the plan and/or its participants are shareholders. In many securities 
fraud cases, the plan may also have a cause of action against some of 
the same parties, based on ERISA violations. The defendants in the 
ERISA case are likely to overlap with the defendants in the securities 
fraud litigation. Given the rise in the number of cases in which plans 
are involved, either as individual litigants or members of the class 
action, the Department has determined that it would be appropriate to 
provide an exemption for parties in interest in order to facilitate the 
settlement of litigation with plans.


III. Description of the Proposed Exemption


    The Department is proposing a retroactive and prospective exemption 
from the restrictions of section 406(a)(1)(A), (B) and (D) of the Act 
and from the taxes imposed by section


[[Page 6955]]


4975(a) and (b) of the Code by reason of section 4975(c)(1)(A), (B) and 
(D) of the Code, for the following transactions effective January 1, 
1975: (1) The release by the plan of a legal or equitable claim against 
a party in interest in exchange for consideration in settlement of 
litigation; and (2) an extension of credit by a plan to a party in 
interest in connection with a settlement whereby the party in interest 
agrees to repay, in installments, an amount owed to the plan.


a. Conditions Applicable to All Transactions


    Both the retroactive and prospective parts of the proposed 
exemption are conditioned upon the existence of a genuine controversy 
involving the plan. The Department believes that this condition is 
necessary to prevent the plan and parties in interest from engaging in 
a sham transaction purporting to fall within this class exemption, thus 
shielding a transaction, such as an extension of credit, that would 
otherwise be prohibited. The existence of a genuine controversy must be 
determined by an attorney retained to advise the plan. That attorney 
must be independent of the other parties to the litigation.
    The terms and conditions of the settlement must be negotiated by a 
fiduciary that has no relationship to, or interest in, the other 
parties involved in the litigation, other than the plan, that might 
affect its best judgment as a fiduciary. The Department intends a 
flexible standard for fiduciary independence, recognizing that the 
exemption will encompass a wide range of situations, both in terms of 
the type of litigation and the cost of pursuing such litigation. For 
example, in some instances where there are complex issues and 
significant amounts of money involved, it may be appropriate to hire an 
independent fiduciary having no prior relationship to the plan, its 
trustee, any parties in interest, or any other parties to the 
litigation. In other instances, the plan's current trustee, assuming 
that the trustee's conduct is not at issue, may be an appropriate 
fiduciary to make the decision on behalf of the plan as to whether to 
settle the litigation.
    The proposed exemption also provides that the settlement must not 
be part of an agreement, arrangement, or understanding designed to 
benefit a party in interest. The intent of this condition is not to 
deny direct benefits to other parties to a transaction but, rather, to 
exclude transactions that are part of a broader overall agreement, 
arrangement or understanding designed to benefit parties in interest.


b. Conditions Applicable to Retroactive Transactions


    In addition to the conditions applicable to all transactions, if 
the transactions addressed in this class exemption occurred between 
January 1, 1975 and the date of publication of the final exemption, the 
retroactive exemption with respect to any extensions of credit is 
conditioned upon those extensions of credit bearing a reasonable 
interest rate taking into account all the facts and circumstances of 
the settlement.


c. Conditions Applicable to Prospective Transactions


    In addition to the conditions applicable to all transactions, the 
prospective exemption is conditioned upon all terms of the settlement 
being specifically described in a written agreement or consent decree. 
Further, the plan must participate in the settlement on a basis no less 
favorable to the plan than the participation of similarly situated 
persons that are not plans. As discussed below, in some instances the 
plan may be able to negotiate a more favorable resolution of the issues 
than the other parties, given the additional causes of action available 
under ERISA.
    The exemption is conditioned upon the settlement being reasonable, 
given the likelihood of full recovery and the risk of litigation. 
Settlement must be in the best interests of the participants and 
beneficiaries of the plan. The Department notes that, under ERISA, the 
plan may have additional causes of action not available to the other 
plaintiffs in the same case. For example, where shareholders have 
brought a class action securities fraud case against the Company and 
its officers, the Company's employee benefit plan may be named as a 
member of the class because it holds employer securities. Such a plan 
may also have ERISA claims against the Company and some or all of its 
officers, as well as against other parties. Before entering into a 
settlement, the plan fiduciary should consider the value of these 
additional claims. The plan fiduciaries may also be able to pursue 
claims against defendants not named in the securities fraud case, 
including knowing participants in the breach. Under certain 
circumstances, the plan will have additional sources of recovery, 
including fiduciary liability insurance, the plan's fidelity bond, and 
the personal assets of the defendants, including their own employee 
benefit plan accounts.\8\
---------------------------------------------------------------------------


    \8\ Section 206(d)(4) of the Act permits a plan to offset the 
benefits of a participant under an employee pension plan against an 
amount that the participant is ordered or required to pay, if the 
order or requirement to pay arises under a judgment or conviction of 
a crime involving the plan, a civil judgment, including a consent 
order or decree, entered into by a court, or where there is a 
settlement agreement between the participant and the Secretary of 
Labor or the PBGC in connection with a violation of Part IV of 
ERISA.
---------------------------------------------------------------------------


    Where a settlement includes an extension of credit to a party in 
interest for purposes of repaying an amount owed in settlement of 
litigation, the prospective exemption requires that the credit terms, 
including the interest rate, be reasonable, but in no case may the rate 
be less than the underpayment rate defined in section 6621(a)(2) of the 
Code.


General Information


    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act which require, among other things, that a fiduciary 
discharge his duties respecting the plan solely in the interests 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 section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interests of plans 
and their participants and beneficiaries and protective of the rights 
of the participants and beneficiaries of plans;
    (3) If granted, the proposed class exemption will be applicable to 
a particular transaction only if the transaction satisfies the 
conditions specified in the class exemption; and
    (4) The proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of ERISA and the Code, 
including statutory or administrative exemptions and transitional 
rules.


[[Page 6956]]


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.


Executive Order 12866


    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f), the order defines a 
``significant regulatory action'' as an action that is likely to result 
in a rule (1) having an annual effect on the economy of $100 million or 
more, or adversely and materially affecting a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local or tribal governments or communities (also 
referred to as ``economically significant''); (2) creating serious 
inconsistency or otherwise interfering with an action taken or planned 
by another agency; (3) materially altering the budgetary impacts of 
entitlement grants, user fees, or loan programs or the rights and 
obligations of recipients thereof; or (4) raising novel legal or policy 
issues arising out of legal mandates, the President's priorities, or 
the principles set forth in the Executive Order.
    Pursuant to the terms of the Executive Order, it was determined 
that this action is ``significant'' under Section 3(f)(4) of the 
Executive Order. Accordingly, this action has been reviewed by OMB.


Paperwork Reduction Act


    As part of its continuing effort to reduce paperwork and respondent 
burden, the Department of Labor conducts a preclearance consultation 
program to provide the general public and Federal agencies with an 
opportunity to comment on proposed and continuing collections of 
information in accordance with the Paperwork Reduction Act of 1995 (PRA 
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data 
can be provided in the desired format, reporting burden (time and 
financial resources) is minimized, collection instruments are clearly 
understood, and the impact of collection requirements on respondents 
can be properly assessed.
    Currently, EBSA is soliciting comments concerning the information 
collection request (ICR) included in this Notice of Proposed Class 
Exemption For Release of Claims and Extensions of Credit in Connection 
with Litigation. Address requests for copies of the ICR to Joseph S. 
Piacentini, Office of Policy and Research, U.S. Department of Labor, 
Employee Benefits Security Administration, 200 Constitution Avenue, NW, 
Room N-5718, Washington, DC 20210. Telephone (202) 693-8410; Fax: (202) 
219-5333. These are not toll-free numbers.
    The Department has submitted a copy of the proposed revision of a 
currently approved information collection to OMB in accordance with 44 
U.S.C. 3507(d) for review. The Department and OMB are particularly 
interested in comments that:
    Evaluate whether the proposed collection of information is 
necessary for the proper performance of the functions of the agency, 
including whether the information will have practical utility;
    Evaluate the accuracy of the agency's estimate of the burden of the 
collection of information, including the validity of the methodology 
and assumptions used;
    Enhance the quality, utility, and clarity of the information to be 
collected; and
    Minimize the burden of the collection of information on those who 
are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology, e.g., permitting electronic 
submission of responses. Comments should be sent to the Office of 
Information and Regulatory Affairs, Office of Management and Budget, 
Room 10235, New Executive Office Building, Washington, DC 20503; 
Attention: Desk Officer for the Employee Benefits Security 
Administration.
    Although comments may be submitted through April 14, 2003 OMB 
requests that comments be received within 30 days of publication of the 
Notice of Class Exemption For Release of Claims and Extensions of 
Credit in Connection with Litigation to ensure their consideration.
    The proposed class exemption would cover certain transactions 
engaged in by a plan in connection with litigation. If adopted, the 
class exemption would make clear that, under specified conditions, 
plans may settle litigation by: (1) Releasing their claims against 
parties in interest in exchange for payment by or on behalf of a party 
in interest; and (2) entering into agreements with parties in interest 
for payments of agreed-upon amounts in settlement of claims in 
installments. Without this exemption, for reasons described in detail 
in the General Background section of this notice, questions may be 
raised regarding whether a fiduciary or party in interest that agrees 
to a settlement on behalf of the plan has engaged in a prohibited 
transaction under sections 406(a)(1)(A), (B), or (D) of the Act, which 
state, in pertinent part, that a fiduciary shall not cause a plan to 
engage in a transaction that constitutes a direct or indirect:
    Sale or exchange, or leasing, of any property between the plan and 
a party in interest;
    Lending of money or other extension of credit between the plan and 
a party in interest; or
    Transfer to, or use by or for the benefit of, a party in interest, 
or any assets of the plan.
    The Department recognizes that in certain instances it may be 
advantageous to the plan that is or potentially may be a party to 
litigation for the plan fiduciary to settle the litigation and release 
its claims. Settling a cause of action may be of greater benefit to a 
plan than engaging in lengthy and possibly costly litigation, or 
pursuing claims that defendants are unlikely to be capable of 
satisfying, even where a settlement does not fully satisfy amounts at 
issue. However, questions have been raised with the Department as to 
whether such a settlement and release of claims, as well as certain 
arrangements that may be made for payment in satisfaction of a 
settlement, would result in a prohibited transaction between the plan 
and the party in interest. Accordingly, the Department is proposing 
this class exemption in order to facilitate the settlement of 
litigation with plans.
    In order to grant an exemption pursuant to section 408(a) of the 
Act, the Department must, among other things, make a finding that the 
terms of the exemption are protective of the rights of participants and 
beneficiaries of a plan. To support making such a finding, the 
Department normally imposes certain conditions on fiduciaries and 
parties in interest that may make use of the exemption. The information 
collection provisions of the proposed exemption are among these 
conditions. The information collection provisions are found in sections 
IV (a), IV (e), and V (a). These requirements are summarized as 
follows:
    Written Agreement. The proposed prospective exemption requires that 
the terms of the settlement be specifically described in a written 
agreement or consent decree. The Department believes that execution of 
a written agreement between parties to litigation is usual and 
customary business practice. Therefore, no additional burden for a 
written settlement agreement is expected to be associated with the 
exemption.


[[Page 6957]]


    Acknowledgement by a Fiduciary. The proposed prospective exemption 
also requires that a fiduciary acting on behalf of the plan acknowledge 
in writing that it is a fiduciary with respect to the settlement of the 
litigation. Under the Act, a person that exercises any authority or 
control respecting disposition of [the plan's] assets,\9\ is considered 
a fiduciary. It is anticipated that the applicable plan fiduciary will 
incorporate this acknowledgement in the written agreement outlining the 
terms and conditions of its retention as a plan service provider, and 
already in existence, as part of usual and customary business practice. 
As such, a written acknowledgement is not expected to impose any 
measurable additional burden.
---------------------------------------------------------------------------


    \9\ [10]: Section 3(21)(A)(i) of ERISA.
---------------------------------------------------------------------------


    Recordkeeping. The proposed prospective exemption would require a 
plan to maintain for a period of six years the records necessary to 
enable certain persons to determine whether the conditions of the 
proposed exemption had been met. The six-year recordkeeping requirement 
is consistent with the requirements in section 107 of the Act as well 
as general recordkeeping requirements for tax information under the 
Code. The requirement is also consistent with other statutory 
requirements. As such, the Department has not accounted for a burden 
related to the recordkeeping requirement of this proposed exemption.
    The proposed prospective exemption may affect all employee benefit 
plans, the participants and beneficiaries of those plans, and parties 
in interest to plans engaging in the specified transactions. It is not 
possible to estimate the number of respondents or frequency of response 
to the information collection requirements of the proposed exemption 
due to the wide variety of litigation involving plans, parties to that 
litigation, and jurisdictions in which litigation occurs. However, the 
lack of an ascertainable number of settlements would not impact the 
hour or cost burden because, as noted, no additional burden is expected 
to be associated with the information collection requirements of the 
proposed exemption.
    The Department has on other occasions exempted classes of 
transactions involving settlement agreements under specific 
circumstances. Pursuant to PTE 94-71 (59 FR 51216), the Department 
determined that the restrictions of sections 406(a)(1)(A) through (E) 
and the taxes imposed by sections 4975(a) and 4975(b) of the Code, by 
reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply to a transaction or activity that is authorized by a remedial 
settlement agreement resulting from an investigation of an employee 
benefit plan conducted by the Department. Because this proposed 
exemption applies to settlement agreements involving plans and parties 
in interest, and the release of claims by the plan, the subject matter 
is considered to be sufficiently similar to suggest that both the 
public and the government would be served by combining the clearance of 
the information collection requests of both exemptions under one OMB 
control number.
    Type of Review: Revision of a currently approved collection.
    Agency: Employee Benefits Security Administration, Department of 
Labor.
    Title: Settlement Agreements Between a Plan and Party In Interest 
(Prohibited Transaction Class Exemption 94-71; and Application No. D-
11100).
    OMB Number: 1210-0091.
    Affected Public: Individuals or households; Business or other for-
profit institutions; Not-for-profit institutions.
    Frequency of Response: On occasion.
    Total Respondents: 4 for existing ICR; no additional for proposed 
revision.
    Total Responses: 1,080 for existing ICR; no additional for proposed 
revision.
    Estimated Burden Hours: 40 for existing ICR; no additional for 
proposed revision.
    Estimated Annual Costs (Operating and Maintenance): $0.
    Comments submitted in response to this notice will be summarized 
and/or included in the request for OMB approval of the information 
collection request; they will also become a matter of public record.


Written Comments


    All interested persons are invited to submit written comments or 
requests for a public hearing on the proposed exemption to the address 
and within the time period set forth above. All comments will be made a 
part of the record. Comments and hearing requests should state the 
reasons for the writer's interest in the proposed exemption. Comments 
received will be available for public inspection at the address set 
forth above.


Section I. Covered Transactions


    Effective January 1, 1975, the restrictions of section 
406(a)(1)(A), (B) and (D) of the Act, and the taxes imposed by section 
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A), (B) 
and (D) of the Code, shall not apply to the following transactions, if 
the relevant conditions set forth in sections II through IV below are 
met:
    (a) The release by the plan of a legal or equitable claim against a 
party in interest in exchange for consideration, given by, or on behalf 
of, a party in interest to the plan in partial or complete settlement 
of the plan's claim; and
    (b) An extension of credit by a plan to a party in interest in 
connection with a settlement whereby the party in interest agrees to 
repay, in installments, an amount owed to the plan in settlement of a 
legal or equitable claim by the plan against the party in interest.


Section II. Conditions Applicable to Transactions Described in Section 
I


    (a) An attorney or attorneys retained to advise the plan on the 
claim, and having no relationship to any of the parties, other than the 
plan, determines that there is a genuine controversy involving the 
plan;
    (b) The terms and conditions of the transaction are negotiated at 
arms' length by a fiduciary who has no relationship to, or interest in, 
any of the parties involved in the litigation, other than the plan, 
that might affect the exercise of such person s best judgment as a 
fiduciary; and
    (c) The transaction is not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest.


Section III. Retroactive Conditions for Transactions Described in 
Section I (b)


    In addition to the conditions described in section II, the 
following condition applies to the transactions described in section I 
(b) entered into on or before the date of publication of the final 
exemption in the Federal Register
    (a) Any extension of credit by the plan to a party in interest in 
connection with the settlement of a legal or equitable claim against 
the party in interest is on terms, including the interest rate, that 
are reasonable.


Section IV. Prospective Conditions for Transactions Described in 
Section I (a) and (b)


    In addition to the conditions described in section II, the 
following conditions apply to the transactions described in section I 
(a) and (b) entered into after the date of publication of the final 
exemption in the Federal Register:
    (a) All terms of the settlement are specifically described in a 
written agreement or consent decree;
    (b) The plan participates in the settlement on a basis no less 
favorable to the plan then the participation of


[[Page 6958]]


similarly situated persons that are not plans;
    (c) Assets other than cash may be received by the plan from a party 
in interest in connection with a settlement only to the extent 
necessary to rescind a transaction that is the subject of the 
litigation. Such assets must be valued at their fair market value, as 
of the date of the settlement;
    (d) The settlement is reasonable in light of the plan's likelihood 
of full recovery and the risks of litigation, and is in the best 
interest of the participants and beneficiaries of the plan;
    (e) The fiduciary acting on behalf of the plan has acknowledged in 
writing that it is fiduciary with respect to the settlement of the 
litigation on behalf of the plan; and
    (f) Any loan or extension of credit to a party in interest by the 
plan in connection with the settlement of a legal or equitable claim 
against the party in interest is on terms, including the interest rate, 
that are reasonable, but in no event is the interest rate less than the 
underpayment rate defined in section 6621(a)(2) of the Code.


Section V. General Conditions


    In addition to the conditions described in section II and IV, the 
following conditions apply to all transactions described in section I 
entered into after the date of publication of the final exemption in 
the Federal Register:
    (a) The plan maintains or causes to be maintained for a period of 
six years the records necessary to enable the persons described below 
in paragraph (b) to determine whether the conditions of this exemption 
have been met, including documents evidencing the steps taken to 
satisfy section IV (d), such as correspondence with attorneys or 
experts consulted in order to evaluate the plan's claims, except that:
    (1) This recordkeeping condition shall not be violated if, due to 
circumstances beyond the control of the party responsible for 
recordkeeping, the records are lost or destroyed prior to the end of 
the six-year period,
    (2) No party in interest other than the party responsible for 
recordkeeping shall be subject to the civil penalty that may be 
assessed under section 502(i) of the Act or to the taxes imposed by 
section 4975(a) and (b) of the Code if the records are not maintained 
or are not available for examination as required by paragraph (b) 
below; and
    (b) (1) Except as provided below in paragraph (b)(2) and 
notwithstanding any provisions of section 504(a)(2) and (b) of the Act, 
the records referred to in paragraph (a) are unconditionally available 
at their customary location for examination during normal business 
hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (ii) Any fiduciary of the plan or any duly authorized employee or 
representative of such fiduciary,
    (iii) Any employer of participants and beneficiaries and any 
employee organization whose members are covered by the plan, or any 
authorized employee or representative of these entities; or
    (iv) Any participant or beneficiary of the plan or the duly 
authorized employee or representative of such participant or 
beneficiary;
    (2) None of the persons described in paragraph (b)(1)(ii)-(iv) 
shall be authorized to examine trade secrets or commercial or financial 
information which is privileged or confidential.


    Signed at Washington, DC this 6th day of February, 2003.
Ivan L. Strasfeld,
Director, Office of Exemption , Determinations, Employee Benefits 
Security Administration, Department of Labor.
[FR Doc. 03-3393 Filed 2-10-03; 8:45 am]

BILLING CODE 4510-29-P