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Employee Benefits Security Administration

EBSA Federal Register Notice

Prohibited Transaction Exemption 2003-09; [Exemption Application No. D-11042] et al. Grant of Individual Exemptions; Metropolitan Life Insurance Company (MetLife) [05/22/2003]

[PDF Version]

Volume 68, Number 99, Page 28031-28033


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Prohibited Transaction Exemption 2003-09; [Exemption Application 
No. D-11042] et al. Grant of Individual Exemptions; Metropolitan Life 
Insurance Company (MetLife)

AGENCY: Employee Benefits Security 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 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.

Metropolitan Life Insurance Company (MetLife) Located in New York, NY 
[Prohibited Transaction Exemption 2003-09; Exemption Application No. D-
11042]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(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,\1\ shall not apply, effective April 6, 2001, to the cash sale 
(the Sale) to MetLife of a note (the Note), issued by the Pacific Gas & 
Electric Company (PG&E), by MetLife's Liquidity Plus Account (the 
Account) for which MetLife acts as investment manager and is a party in 
interest with respect to employee benefit plans (the Plans) invested in 
such Account.
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    \1\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, rafer also to 
corresponding provisions of the Code.
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    This exemption is subject to the following conditions:
    (a) The Sale was a one-time transaction for cash.
    (b) The sales price for the Note was based upon an amount 
representing the greater of the Note's outstanding principal balance, 
plus accrued interest, or the Note's fair market value as determined by 
independent broker-dealers.
    (c) The Account did not pay any fees, commissions or other expenses 
in connection with the Sale.
    (d) As manager of the Account, MetLife determined, at the time of 
the transaction, that the Sale was appropriate for, and in the best 
interests of, the Account, the Plans investing therein, and their 
participants and beneficiaries.
    (e) MetLife took all appropriate actions necessary to safeguard the 
interests of the Account and the Plans in connection with the Sale.
    (f) If the exercise of any of MetLife's rights, claims or causes of 
action in connection with its ownership of the Note results in MetLife 
recovering from PG&E an aggregate amount that is greater than the sales 
price for such Note, MetLife will refund such excess amount to the 
Account.
    Effective Date: This exemption is effective as of April 6, 2001.
    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 March 3, 2003 at 68 FR 
10041.

FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department, 
telephone (202) 693-8565. (This is not a toll-free number.)

The JPMorgan Chase Bank (Located in New York, New York)

[Prohibited Transaction Exemption 2003-10; Application No. D-11062]

Exemption

Section I--Transactions
    The restrictions of sections 406(a), 406(b)(1) and 406(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)-(E) of the Code, shall not 
apply as of December 31, 2000, to:
    (A) the continuation of a lease (the Lease), by the Commingled 
Pension Trust Fund (Strategic Property) of JPMorgan Chase Bank (the 
Fund) with respect to which JPMorgan Chase Bank (JPMCB) is the trustee 
(the Trustee), of office space in a certain commercial office building 
(the Property) to Chase Global Funds Service Company (CGF), a party in 
interest with respect to employee benefit plans whose assets are 
invested in the Fund (Plans) and an affiliate of JPMCB; and
    (B) the continued and future provision by JPMCB or its affiliates 
of letters of credit (Letter(s) of Credit) to guarantee the obligations 
of unrelated third-party tenants to pay rent to the Fund under 
commercial real estate leases.
    This exemption is subject to the conditions set forth in Section 
II.
Section II--Conditions
    (A) The Fund is represented by a fiduciary independent of JPMCB and 
its affiliates (the independent fiduciary) with respect to the Lease to 
perform the following functions:
    (1) Confirm that when the Lease originally was entered into, and as 
modified to date, all the terms and conditions of the Lease, including 
those relating to renewal options and rights of first refusal, were 
commercially reasonable and at least as favorable to the Plans as those 
terms and conditions which could have been obtained at arm's length 
with an unrelated third party;
    (2) determine, based upon a written appraisal report by a qualified 
appraiser independent of JPMCB and its affiliates, that the leasing 
renewal rate the Fund will charge CGF if CGF elects to exercise

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its renewal options under the Lease, effective in 2004 and thereafter, 
and that the leasing rate with respect to any space leased by CGF in 
the Property pursuant to any rights of first refusal CGF has under the 
Lease, accurately reflect at least fair market rental value;
    (3) negotiate and approve, subject to the appropriate ERISA 
fiduciary standards, such amendments to the Lease upon renewal(s) as it 
deems appropriate, including, for example: (i) a shorter renewal term 
than the current five year term; (ii) additional renewal period(s) 
(provided that the rent paid in any time periods after February 28, 
2009, under any newly granted renewal option(s) would be at 100% of 
fair rental value, as opposed to the 95% of fair rental value that 
applies for periods through February 28, 2009); (iii) the lease of less 
square footage than the current square footage covered under the Lease; 
(iv) the lease of more square footage than the current square footage 
covered under the Lease (provided that the rent paid for any square 
footage in excess of the current square footage would also be leased at 
100% of fair rental value, and not 95% of fair rental value); (v) using 
a ``base year'' under the Lease (upon which certain periodic increases 
such as taxes are calculated) updated to the year 2004, and (vi) 
allowing CGF to install shatter-proof glass in the space it leases; 
provided that all such amendments are not more favorable to the lessee 
than the terms generally available in arm's length transactions between 
unrelated parties, as determined by the independent fiduciary; and
    (4) represent the Fund and the participants (Participants) in the 
Plans as independent fiduciary in any circumstances in addition to 
those described in subsection (3) above while the Lease (including any 
periods of renewal) is in effect which would present a conflict of 
interest for the Trustee, including but not limited to: default by CGF 
or disagreement on an economic computation under the Lease.
    (B) The Fund is represented by an independent fiduciary with 
respect to any existing or future Letters of Credit to perform the 
following functions:
    (1) monitor monthly reports of rental payments of tenants utilizing 
a Letter of Credit issued by JPMCB or any affiliate to guarantee their 
lease payments;
    (2) confirm whether an event has occurred that calls for the Letter 
of Credit to be drawn upon; and
    (3) represent the Fund and the Participants as an independent 
fiduciary in any circumstances with respect to the Letters of Credit 
which would present a conflict of interest for the Trustee, including 
but not limited to: the need to enforce a remedy against itself or an 
affiliate with respect to its obligations under a Letter of Credit.
    (C) Future Letters of Credit are issued by JPMCB or an affiliate to 
guarantee the obligations of third-party tenants to pay rent to the 
Fund under commercial real estate leases only if the following 
additional conditions are met:
    (1) JPMCB or its affiliate, as the issuer of a Letter of Credit, 
has at least an ``A'' credit rating by at least one nationally 
recognized statistical rating service at the time of the issuance of 
the Letter of Credit;
    (2) the Letter of Credit has objective market drawing conditions 
and states precisely the documents against which payment is to be made;
    (3) JPMCB does not ``steer'' the Fund's tenants to itself or its 
affiliates in order to obtain the Letter of Credit;
    (4) Letters of Credit are issued only to tenants which are 
unrelated to JPMCB; and
    (5) The terms of any future Letters of Credit are not more 
favorable to the tenants than the terms generally available in 
transactions with other similarly situated unrelated third-party 
commercial clients of JPMCB or its affiliates.
Section III--Definitions
    (A) The term ``independent fiduciary'' means Aon Fiduciary 
Counselors, Inc. (AFC) or any successor independent fiduciary, provided 
that AFC or the successor independent fiduciary is: (1) independent of 
and unrelated to JPMCB and its affiliates, and (2) appointed to act on 
behalf of the Fund for the purposes described in conditions II(A) and 
(B) above. For purposes of this exemption, a fiduciary will not be 
deemed to be independent of and unrelated to JPMCB if: (1) Such 
fiduciary directly or indirectly controls, is controlled by or is under 
common control with JPMCB, (2) such fiduciary directly or indirectly 
receives any compensation or other consideration in connection with any 
transaction described in this exemption, except that an independent 
fiduciary may receive compensation for acting as an independent 
fiduciary from JPMCB in connection with the transactions contemplated 
herein if the amount or payment of such compensation is not contingent 
upon or in any way affected by the independent fiduciary's ultimate 
decision and (3) more than 5 percent of such fiduciary's annual gross 
revenue in its prior tax year will be paid by JPMCB and its affiliates 
in the fiduciary's current tax year.
    (B) The term ``affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) any officer, director, employee, relative or partner in any 
such person; and
    (3) any corporation or partnership of which such person is an 
officer, director, partner or employee.
    (C) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    Effective Date: The exemption is effective as of December 31, 2000.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on March 21, 2003, at 68 FR 
13954.

FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd of the Department, 
telephone (202) 693-8540. (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.


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    Signed at Washington, DC, this 19th day of May, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-12888 Filed 5-21-03; 8:45 am]

BILLING CODE 4510-29-P