Grant of Individual Exemptions; Deutsche Bank AG
[12/17/2003]
Volume 68, Number 242, Page 70311-70318
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2003-36; Exemption Application No. D-
11086 et al.]
Grant of Individual Exemptions; Deutsche Bank AG
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.
Deutsche Bank AG
[Prohibited Transaction Exemption No. 2003-36; Application Nos. D-
11086; D-11087; D-11088; D-11089; and D-11090]
Exemption
Section I: Basic Exemption
The restrictions of section 406(a)(1)(A) through (D) of the Act and
the taxes imposed by section 4975 (a) and (b) of the Code, by reason of
4975(c)(1)(A) through (D) of the Code, shall not apply to a transaction
between a party in interest with respect to a plan (as defined in
section (v(h)) and such plan, provided that the Deutsche Bank In-house
Manager (DBIM) (as defined in section IV(a)) has discretionary
authority or control with respect to the plan assets involved in the
transaction and the following conditions are satisfied:
(a) The terms of the transaction are negotiated on behalf of the
plan by, or under the authority and general direction of, the DBIM, and
either the DBIM, or (so long as the DBIM retains full fiduciary
responsibility with respect to the transaction) a property manager
acting in accordance with written guidelines established and
administered by the DBIM, makes the decision on behalf of the plan to
enter into the transaction.
Notwithstanding the foregoing, a transaction involving an amount of
$5,000,000 or more, which has been negotiated on behalf of the plan by
the DBIM will nor fail to meet the requirements of this section I(a)
solely because the plan sponsor or its designee retains the right to
veto or approve such transaction;
(b) The transaction is not described in--
[[Page 70312]]
(1) Prohibited Transaction Exemption 81-6 \1\ (relating to
securities lending arrangements),
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\1\ 46 FR 7527; January 23, 1981.
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(2) Prohibited Transaction Exemption 83-1 \2\ (relating to
acquisitions by plans of interests in mortgage pools), or
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\2\ 48 FR 895; January 7, 1983.
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(2) Prohibited Transaction Exemption 88-59 \3\ (relating to certain
mortgage financing arrangements);
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\3\ 53 FR 24811; June 30, 1998.
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(c) The transaction is not part of an agreement, arrangement or
understanding designed to benefit a party in interest;
(d) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of the DBIM, the terms of the transaction are at least as
favorable to the plan as the terms generally available in arm's length
transactions between unrelated parties;
(e) The party in interest dealing with the plan: (1) Is a party in
interest with respect to the plan (including a fiduciary) solely by
reason of providing services to the plan, or solely by reason of a
relationship to a service provider described in section 3(14)(F), (G),
(H), or (I) of the Act; and (2) does not have discretionary authority
or control with respect to the investment of the plan assets involved
in the transaction and does not render investment advice (within the
meaning of 29 CFR 2510.3-21(c)) with respect to those assets;
(f) The party in interest realign with the plan is neither the DBIM
nor a person related to the DBIM (within the meaning of section IV(d)):
(g) The DBIM adopts written policies and procedures that are
designed to assure compliance with the conditions of the exemption;
(h) An independent auditor, who has appropriate technical training
or experience and proficiency with ERISA's fiduciary responsibility
provisions and so represents in writing, conducts an exemption audit
(as defined in section IV(f)) on an annual basis. Following completion
of the exemption audit, the auditor shall issue a written report to the
plan presenting its specific findings regarding the level of compliance
with the policies and procedure adopted by the DBIM in accordance with
section I(g); and
(i) In addition to the above:
(1) The DBIM is a bank that has the power to manage, acquire or
dispose of assets of a plan, which bank has, as of the last day of its
most recent fiscal year, equity capital in excess of $1,000,000 and is
either supervised by a state or federal agency, or by the German
Federal Banking Supervisory Authority, Bundesanstalt fur
Finanzdienstleistungsaufsicht (BAFin) in cooperation with the Deutsche
Bundesbank (Bundesbank);
(2) Prior to entering into any transaction described in the
exemption, the DBIM agrees in writing:
(A) To submit to the jurisdiction of the United States;
(B) To appoint an agent for service of process in the United
States, which maybe an affiliate (the Process Agent);
(C) To consent to service of process on the Process Agent;
(D) That it may be sued in the United States courts in connection
with the transactions described in this proposed exemption;
(E) To comply with, and be subject to, all relevant provisions of
the Act; and
(F) That enforcement of any claim arising between a plan(s) and the
DBIM, resulting from a transaction described in the exemption, will
occur in the United States courts.
Section II: Leasing of Office Space
The restrictions of sections 406(a), 406(b)(1), 406(b)(2) and
407(a) of the Act and the taxes imposed by section 4975 (a) and (b) of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to:
(a) The leasing of office or commercial space owned by a plan
managed by a DBIM to an employer any of whose employees are covered by
the plan or an affiliate of such an employer (as defined in section
407(d)(7) of the Act), if--
(1) The plan acquires the office or commercial space subject to an
existing lease with an employer, or its affiliate as a result of
foreclosure on a mortgage or deed of trust;
(2) the DBIM makes the decision on behalf of the plan to foreclose
on the mortgage or deed of trust as part of the exercise of its
discretionary authority:
(3) The exemption provided for transactions engaged in with a plan
pursuant to section II(a) is effective until the later of the
expiration of the lease term or any renewal thereof which does not
require the consent of the plan lessor;
(4) The amount of space covered by the lease does not exceed
fifteen (15) percent of the rentable space of the office building or
the commercial center; and
(5) The requirements of sections I(c), I(g), and I(h) are satisfied
with respect to the transaction.
(b) The leasing of residential space by a plan to a party in
interest if--
(1) The party in interest leasing space from the plan is an
employee of an employer any of whose employees are covered by the plan
or an employee of an affiliate of such employer (as defined in section
407(d)(7) of the Act);
(2) The employee who is leasing space does not have any
discretionary authority or control with respect to the investment of
the assets involved in the lease transaction and does not render
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets;
(3) The employee who is leasing space is not an officer, director,
or a ten percent (10%) or more shareholder of the employer or an
affiliate of such employer;
(4) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of the DBIM, the terms of the transaction are not less
favorable to the plan than the terms afforded by the plan to other,
unrelated lessees in comparable arm's length transactions;
(5) The amount of space covered by the lease does not exceed five
percent (5%) of the rentable space of the apartment building or multi-
unit residential subdivision, and the aggregate amount of space leased
to all employees of the employer or an affiliate of such employer does
not exceed ten percent (10%) of such rentable space; and
(6) The requirements of section I(a), I(c), I(d), I(g), and I(h)
are satisfied with respect to the transaction.
Section III: Places of Public Accommodation
The restrictions of sections 406(a)(1) (A) through (D) and 406(b)
(1) and (2) of the Act and the taxes imposed by section 4975 (a) and
(b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the furnishing of services and facilities (and
goods incidental thereto) by a place of public accommodation owned by a
plan and managed by a DBIM to a party in interest with respect to the
plan, if the services and facilities (and incidental goods) are
furnished on a comparable basis to the general public.
Section IV: Definitions
For the purposes of this exemption:
(a) The term ``Deutsche Bank In-house Manager'' or ``DBIM'' means
an organization which is--
(1) Deutsche Bank, or a direct or indirect wholly-owned bank or
trust company subsidiary of Deutsche Bank, supervised under the laws of
the United States, a State, or Germany, that (A) Has the power to
manage, acquire, or dispose of assets of a plan, (B) has, as of the
last day of its most recent fiscal
[[Page 70313]]
year, equity capital (i.e., common and preferred stock, surplus,
undivided profits, contingency reserves, group contingency reserves,
and other capital reserves) in excess of $1,000,000,\4\ and (C) has as
of the last day of its most recent fiscal year under its management and
control total assets attributable to plans maintained by affiliates of
the DBIM (as defined in section IV(b)) in excess of $50 million;
provided that if it has no prior fiscal year as a separate legal entity
as a result of it constituting a division or group within the
employer's organizational structure, then this requirement will be
deemed met as of the date during its initial fiscal year as a separate
legal entity that responsibility for the management of such assets in
excess of $50 million was transferred to it from the employer.
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\4\ The condition in Part IV(a) of the proposed exemption that
the INHAM have in excess of $1 million in equity capital mirrors the
parallel requirement in Part IV(a) of QPAM, PTE 84-14.
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In addition, plans maintained by affiliates of the DBIM and/or the
DBIM, must have, as of the last day of each plan's reporting year,
aggregate assets of at least $250 million.
(b) For purposes of section IV(a) and section IV(h), an
``affiliate'' of a DBIM means a member of either: (1) A controlled
group of corporations (as defined in section 414(b)) of the Code of
which the DBIM is a member; or (2) a group of trades or businesses
under common control (as defined in section 414(c)) of the Code of
which the DBIM is a member; provided that ``50 percent'' shall be
substituted for ``80 percent'' wherever ``80 percent'' appears in
section 414(b) or 414(c) of the Code or the rules thereunder.
(c) The term ``party in interest'' means a person described in
section 3(14) of the Act and includes a ``disqualified person'' as
defined in section 4975(e)(2) of the Code.
(d) A DBIM is ``related'' to a party in interest for purposes of
section I(f) of this exemption if the party in interest (or a person
controlling, or controlled by, the party in interest) owns a five
percent (5%) or more interest in the DBIM or if the DBIM (or a person
controlling, or controlled by, the DBIM) owns a five percent (5%) or
more interest in the party in interest. For purposes of this
definition:
(1) The term ``interest'' means with respect to ownership of an
entity--
(A) The combined voting power of all classes of stock entitled to
vote or the total value of the shares of all classes of stock of the
entity if the entity is a corporation.
(B) The capital interest or the profits interest of the entity if
the entity is a partnership, or
(C) The beneficial interest of the entity if the entity is a trust
or unicorporated enterprise;
(2) A person is considered to own an interest held in any capacity
is the person has or shares the authority--
(A) To exercise any voting rights or to direct some other person to
exercise the voting rights relating to such interest, or
(B) To dispose or to direct the disposition of such interest; and
(3) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(e) For purposes of this exemption, the time as of which any
transaction occurs is the date upon which the transaction is entered
into. In addition, in the case of a transaction that is continuing, the
transaction shall be deemed to occur until it is terminated. If any
transaction is entered into on or after April 8, 2002, or any renewal
that requires the consent of the DBIM occurs on or after April 8, 2002,
and the requirements of this exemption are satisfied at the time the
transaction is entered into or renewed, the requirements will continue
to be satisfied thereafter with respect to the transaction. Nothing in
this paragraph shall be construed as exempting a transaction entered
into by a plan which becomes a transaction described in section 406 of
the Act or section 4975 of the Code while the transaction is
continuing, unless the conditions of the exemption were met either at
the time the transaction was entered into or at the time the
transaction would have become prohibited but for this exemption. In
determining compliance with the conditions of the exemption at the time
that the transaction was entered into for purposes of the preceding
sentence, section I(e) will be deemed satisfied if the transaction was
entered into between a plan and a person who was not then a parety in
interest.
(f) Exemption Audit. An ``exemption audit'' of a plan must consist
of the following:
(1) A review of the written policies and procedures adopted by the
DBIM pursuant to Section I(g) for consistency with each of the
objective requirements of this exemption (as described in Section
IV(g)).
(2) A test of a representative sample of the plan's transactions in
order to make findings regarding whether the DBIM is in compliance with
(i) the written policies and procedures adopted by the DBIM pursuant to
section I(g) of the exemption and (ii) the objective requirements of
the exemption.
(3) A determination as to whether the DBIM has satisfied the
definition of a DBIM under the exemption; and
(4) Issuance of a written report describing the steps performed by
the auditor during the course of its review and the auditor's findings.
(g) For purposes of section IV(f), the written policies and
procedures must describe the following objective requirements of the
exemption and the steps adopted by the DBIM to assure compliance with
each of these requirements:
(1) The definition of a DBIM in section IV(a).
(2) The requirements of Part I and section I(a) regarding the
discretionary authority or control of the DBIM with respect to the plan
assets involved in the transaction, in negotiating the terms of the
plan to enter into the transaction, and with regard to the decision on
behalf of the plan to enter into the transaction.
(3) That any procedure for approval or veto of the transaction
meets the requirements of section I(a).
(4) For a transaction described in section I:
(A) that the transaction is not entered into with any person who is
excluded from relief under section I(e)(1), section I(e)(2), to the
extent such person has discretionary authority or control over the plan
assets involved in the transaction, or section I(f), and
(B) that the transaction is not described in any of the class
exemptions listed in section I(b).
(5) For a transaction described in Part III:
(A) If the transaction is described in section II(a).
(i) that the transaction is with a party described in section
II(a);
(ii) that the transaction occurs under the circumstances described
in section II(a)(1) and (2);
(iii) that the transaction does not extend beyond the period of
time described in section II(a)(3); and
(iv) that the percentage test in section II(a)(4) has been
satisfied or
(B) If the transaction is described in section II(b),
(i) that the transaction is with a party described in section
II(b)(1);
(ii) that the transaction is not entered into with any person
excluded from relief under section II(b)(2) to the extent such person
has discretionary authority or control over the plan assets involved in
the lease transaction or section II(b)(3); and
(iii) that the percentage test in section II(b)(5) has been
satisfied.
[[Page 70314]]
(h) the term ``plan'' means a plan maintained by the DBIM or an
affiliate of the DBIM.
Effective Date of Exemption: The effective date of this exemption
is April 8, 2002.
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 (the Notice) published on March 21,
2003 at 68 FR 13960.
Written Comments
The Department received thirty one written comments and three
requests for a public hearing from interested persons in response to
the Notice. The Department forwarded copies of the comments to Deutsche
Bank and requested that Deutsche Bank address in writing the various
concerns raised by the commentators. Many of the comments fell into
broad categories to which Deutsche Bank responded collectively. Where a
single commentator raised a unique issue, such issue was responded to
individually. The comments and Deutsche Bank's responses are summarized
below.
Several commentators questioned whether the proposed exemption
reduces or eliminates their benefits under their Deutsche Bank plans.
Deutsche Bank responded that the proposed exemptions does not address,
much less reduce or eliminate, benefits under the plans.
One commentator asked what safeguards are in place under the
proposed exemption. Deutsche Bank responded that protective conditions
for the proposed exemption are described in the Notice. Those
conditions are essentially the same as the protective conditions found
in PTE 96-23, 61 Fed. Reg. 15975 (Apr. 10, 1996), which provides relief
with respect to in-house asset managers that is substantially similar
to the relief provided in the proposed exemption. Deutsche Bank
represented that it will comply with all such conditions.
One commentator expressed concern about the proposed exemption to
the extent it allows a bank supervised under the laws of Germany to act
as an in-house investment manager, asserting that current economic
pressures will distract German authorities from adequately regulating
such banks. Deutsche Bank responded that the Department has implicitly
recognized the present capability of Germany authorities to adequately
supervise banks subject to German law by recently granting exemptive
relief (in many different contexts) where the affected bank or other
person is subject to supervision under German law. See, e.g., PTE 2003-
20, 68 Fed. Reg. 40689 (July 8, 2003); PTE 2003-12, 68 Fed. Reg. 34648
(June 10, 2003); PTE 2003-11, 68 Fed. Reg. 34646 (June 10, 2003); PTE
2002-48, 67 Fed. Reg. 62827 (Oct. 8, 2002); PTE 2002-31, 67 Fed. Reg.
42072 (June 20, 2002). Additionally, Deutsche Bank responded that the
German authorities are actively focused on banking regulation. Last
year, Germany adopted its Law on Integrated Financial Services
Supervision (Gesetz ueber die integrierte Finanzaufsicht--FinDAG),
pursuant to which the Federal Authority for Financial Services
Supervision (Bundesanstalt fuer Finanzdiensteleistungsaufsicht--BAFin)
was established. The functions of the former offices for banking
supervision (Gundesaufsichtsamt fuer das Kreditwesen--BAKred),
insurance supervision (Bundesaufsichtsamt fuer das Versicherungswesen--
BAV), and securities supervision (Bundesaufsichtsamt fuer den
Wertpapierhandel--BAWe) have been combined in this single state
regulator that supervises banks, financial services institutions, and
insurance undertakings across the entire financial market and comprises
all the key functions of consumer protection and solvency supervision.
The BAFin was created to ensure a consistent regulation and supervision
of the financial services and markets in Germany through one single
authority.
Several commentators asked whether ERISA will continue to govern
the plans and their in-house investment managers if the proposed
exemption is granted. Deutsche Bank responded that ERISA will continue
to govern its plans, that the in-house investment managers to which the
proposed exemption applies will be subject to the same rules and
regulations under ERISA that govern the plan currently, and that any
foreign in-house managers can be sued in the United States. Deutsche
Bank represented that it will fully comply with all laws respecting its
plans.
Some commentators questioned whether the exemption is in the
interest of plan participants. Deutsche Bank responded that, as
reflected in the Notice, the exemption allows plans to take greater
advantage of the investment management expertise and experience of
Deutsche Bank, the world's largest bank in terms of assets and one of
the world's largest asset managers, which will provide investment
management services to the plans without a fee.
Several commentators requested general clarification of the
proposed exemption, and others expressed concern about conflicts of
interest arising from in-house investment management. In response,
Deutsche Bank stated that, under PTE 96-23, the Department has
essentially granted the relief with respect to in-house asset managers
that is provided in the proposed exemption. The only substantial
difference between PTE 96-23 and the proposed exemption is that the
proposed exemption allows the in-house adviser to be a bank supervised
under the laws of the United States, a State, or Germany, rather than a
registered investment adviser. Although such banks are not subject to
registration under the Investment Advisers Act of 1940, they are
experienced investment advisers and subject to adequate regulations by
competent government authorities. Deutsche Bank also responded that the
proposed exemption does not negate the legal protections of ERISA,
including the requirement that investment managers discharge their
duties with respect to the plans solely in the interest of the
participants and beneficiaries.
Several commentators expressed concern, asked questions, or made
recommendations with respect to their benefits, plan administration, or
plan design. While these comments do not relate to the terms of the
proposed exemption, Deutsche Bank represents that it will contact those
commentators and attempt to address their issues.
One commentator requested that the exemption not be granted, but
provided no basis for his position. Since the commentator provided no
basis for his position, the Department believes that no response is
necessary.
With respect to the requests for a hearing, the Department has
determined that a public hearing is not necessary in this case because
none of the interested persons requesting a hearing provided any
substantive information justifying such request. In addition, the
Department is satisfied that the exemption contains adequate
independent safeguards to protect the interests of the plans and their
participants and beneficiaries.
The Department has determined to modify section IV(h) of the final
exemption as follows in order to provide consistency with PTE 96-23:
(h) the term ``plan'' means a plan maintained by the DBIM or an
affiliate of the DBIM.
Accordingly, after giving full consideration to the entire record,
including the comments by the commentators, and the responses of
Deutsche Bank, the Department has determined to grant the exemption as
[[Page 70315]]
modified herein. In this regard, the comments submitted to the
Department have been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Employee
Benefits Security Administration, Room N-1513, U.S. Department of
Labor, 200 Constitution Ave. NW, Washington DC 20210.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 693-8540 (this is not a toll-free number).
The National Electrical Benefit Fund (the Plan) Located in Rockville,
Maryland
[Prohibited Transaction Exemption No. 2003-37; Application No. D-11136]
Exemption
The restrictions of sections 406(a) 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 (D) of the Code, shall not apply
effective October 17, 2002 to Bank of America, N.A. (the Bank)
providing a guaranty of repayment for the benefit of the bondholders in
the form of an Irrevocable Direct Draw Letter of Credit No. 3051512
(Letter of Credit) and the Partnership's subsequent reimbursement to
the Bank of amounts advanced by the Bank pursuant to the Letter of
Credit in connection with the investment by the Plan in Colma Apartment
Associates, L.P. (the Partnership). This exemption is conditioned upon
the adherence to the material facts and representations described
herein and upon the satisfaction of the following requirements:
(a) The Plan's investment in the Partnership is on terms no less
favorable to the Plan than those which the Plan could obtain in arm's
length transactions with unrelated parties;
(b) The decisions on behalf of the Plan to invest in the
Partnership and consent to the terms of the reimbursement agreement in
favor of the Bank are made by fiduciaries, which are not included
among, and are independent of and unaffiliated with; the Bank;
(c) The investment in the Partnership represents no more than .5%
of the total assets of the Plan; and
(d) The general partners of the Partnership are independent of the
Plan and of the Bank of America.
(e) The Plan shall have no obligation to fund its capital
contribution unless and until (i) all conditions imposed by the
construction lender regarding disbursement to the Partnership of
$25,950,000 of the tax-exempt bond construction financing proceeds have
been satisfied by the Partnership; and (ii) the Department grants the
proposed exemption; and
(f) The Plan's capital contribution will be used solely for the
purpose of reimbursing Bank of America for the draw on the Letter of
Credit.
Effective Date of Exemption: The effective date of this exemption is
October 17, 2002.
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 September 29, 2003 at 68
FR 56008.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 693-8540 (this is not a toll-free number).
Aetna Life Insurance Company (Aetna) and UBS Realty Investors LLC UBS
Realty) Located in Hartford, Connecticut
[Prohibited Transaction Exemption 2003-; Exemption Application No. D-
11167]
Exemption
Section I--Exemption for Certain Transactions Involving the Management
of Investments Shared by Two or More Accounts
The restrictions of certain sections of the Act and the sanctions
resulting from the application of certain parts of section 4975 of the
Code shall not apply to the following transactions if the conditions
set forth in Section IV are met:
(a) Transfers Between Accounts--The restrictions of section
406(b)(2) of the Act shall not apply to the sale or transfer of an
interest in a shared investment (including a shared partnership
interest) between two or more Accounts (except the General Account),
provided that each ERISA-Covered Account pays no more, or receives no
less, than fair market value for its interested in a shared investment.
(b) Joint Sales of Property--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, shall not apply to the sale to a
third party of the entire interest in a shared investment (including a
shared partnership interest) by two or more Accounts, provided that
each ERISA-Covered Account receives no less than fair market value for
its interest in the shared investment.
(c) Additional Capital Contributions--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(b)(1)(A) through (E) of the Code, shall not apply either to the
making of a proportionate equity capital contribution by one or more of
the Accounts to a shared investment; or to the making of a
Disproportionate [as defined in Section V(e)] equity capital
contribution (or the failure to make such additional contribution) by
the one or more of such Accounts which results in an adjustment in the
equity ownership interests of the Accounts in the shared investment on
the basis of the fair market value of such interests subsequent to such
contribution, provided that each ERISA-Covered Account is given an
opportunity to make a proportionate contribution.
(d) Lending of Funds--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(a)(1)(A) through (E) of the Code, shall not apply to the lending
of funds from the General Account to an ERISA-Covered Account to enable
the ERISA-Covered Account to make an additional proportionate
contribution, provided that such loan--
(A) Is unsecured and non-recourse plans;
(B) Bears interest at a rate not to exceed the prevailing rate on
90-day Treasury Bills;
(C) Is not callable at any time by the General Account; and
(D) Is prepayable at any time without penalty.
(e) Shared Debt Investments--In the case of a debt investment that
is shared between two or more Accounts, including one or more of the
ERISA-Covered Accounts:
(1) The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to any material modification in the terms of the
loan agreement resulting from a request by the borrower or any decision
regarding the action to be taken, if any, on behalf of the Accounts in
the event of a loan default by the borrower;
(2) the restrictions of section 406(b)(2) of the Act shall not
apply to any decision by Aetna or UBS Realty on behalf of one or more
ERISA-Covered
[[Page 70316]]
Accounts: (A) Not to modify a loan agreement as requested by the
borrower; or (B) to exercise any rights provided in the loan agreement
in the event of a loan default by the borrower, even though the
independent fiduciary for one of such Accounts has approved such
modification or has not approved the exercise of such rights; and
(3) the restrictions of section 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, shall not apply either to the proportionate acquisition of
additional debt by one or more of the Accounts to a shared debt
investment, or to the acquisition of Disproportionate additional debt
(or the failure to acquire such additional debt) by one or more of such
Accounts which results in an adjustment in the amount of debt held by
the Accounts in the shared investment provided that each ERISA-Covered
Account is given an opportunity to acquire additional debt on a
proportionate basis.
Section II--Exemption for Certain Transactions Involving the Management
of Partnership Interests Shared by Two or More Accounts
The restrictions of certain sections of the Act and the sanctions
resulting from the application of certain parts of section 4975 of the
Code shall not apply to the following transactions resulting from the
sharing of an investment in a real estate partnership between two or
more Accounts, if the conditions set forth in Section IV are met:
(a) Additional Capital Contributions--(1) 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(a)(1)(A) through (E) of the Code, shall not apply
either to the making of additional proportionate equity capital
contributions by one or more Accounts participating in the partnership;
or to the making of Disproportionate (as defined Section V(e)) equity
capital contributions by one or more of such Accounts which results in
an adjustment in the equity ownership interest of the Accounts in the
shared partnership investment on the bases of the fair market value of
such interests subsequent to such contributions; provided that each
ERISA-Covered Account is given an opportunity to make a proportionate
contribution.
(2) 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, shall not apply to the lending of funds from the General Account
to an ERISA-Covered Account to enable the ERISA-Covered Account to make
an additional proportionate capital contribution, provided that such
loan--
(A) Is unsecured and non-recourse with respect to the participating
plans,
(B) bears interest at a rate not to exceed the prevailing rate on
90-day Treasury Bills,
(C) is not callable at any time by the General Account, and
(D) is prepayable at any time without penalty.
(3) The restrictions of section 406(b)(2) of the Act shall not
apply to the making of Disproportionate additional equity capital
contributions (or the failure to make such additional contributions) to
the partnership by Accounts other than the General Account which result
in an adjustment in the equity ownership interests of the ERISA-Covered
Accounts in the partnership on the basis of the fair market value of
such partnership interests subsequent to such contributions, provided
that each ERISA-Covered Account is given an opportunity to provide its
proportionate share of the additional equity capital contributions; and
(4) In the event a co-partner fails to provide all or any part of
its proportionate share of an additional equity capital contribution,
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, shall
not apply to the making of Disproportionate additional equity capital
contributions to the partnership by an Account up to the amount of such
contribution not provided by the co-partner which result in an
adjustment in the equity ownership interests of the Accounts in the
partnership on the basis provided in the partnership agreement,
provided that such ERISA-Covered Account is given an opportunity to
participate in all additional equity capital contributions on a
proportionate basis.
(b) Third Party Purchase Offers--(1) In the case of an offer by a
third party to purchase any property owned by the partnership, 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, shall
not apply to the acquisition by the Accounts, including one or more
ERISA-Covered Account[s], on either a proportionate or Disproportionate
basis of a co-partner's interest in the partnership in connection with
a decision on behalf of such Accounts to reject such purchase offer,
provided that each ERISA-Covered Account is first given an opportunity
to participate in the acquisition on a proportionate basis; and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any acceptance by Aetna or UBS Realty on behalf of two or more
Accounts, including one or more ERISA-Covered Account[s], of an offer
by a third party to purchase a property owned by the partnership even
though the independent fiduciary for one or more of such ERISA-Covered
Account[s] has not approved the acceptance of the offer where all of
the Accounts (other than the General Account) participating in such
investment are not in agreement on how to proceed with respect to such
offer, provided that the declining Account[s] are first afforded the
opportunity to buy out both the co-partner and ``selling'' Account's
interests in the partnership.
(c) Rights of First Refusal--(1) In the case of the right to
exercise a right of first refusal described in a partnership agreement
to purchase a co-partner's interest in the partnership at the price
offered for such interest by a third party, 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, shall not apply to
the acquisition by such Account, including one or more ERISA-Covered
Account[s], on either a proportionate or Disproportionate basis of a
co-partner's interest in the partnership in connection with the
exercise of such a right of first refusal, provided that each ERISA-
Covered Account is first given an opportunity to participate on a
proportionate basis; and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any decision by Aetna or UBS Realty on behalf of the ERISA-
Covered Accounts not to exercise such a right of first refusal even
though the independent fiduciary for one or more of such ERISA-Covered
Accounts has approved the exercise of the right of first refusal where
all of the Accounts participating in such investment (other than the
General Account) are not in agreement on how to proceed with respect to
such right of first refusal, provided that the Accounts that approved
the exercise of the right of first refusal are offered the opportunity
to buy-out the co-partner on their own.
[[Page 70317]]
(d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell
option set forth in the partnership agreement, 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 shall not apply to the
acquisition by one or more of the Accounts on either a proportionate or
Disproportionate basis of a co-partner's interest in the partnership in
connection with the exercise of such a buy-sell option, provided that
each ERISA-Covered Account is first given the opportunity to
participate on a proportionate basis; and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any decision by Aetna or UBS Realty on behalf of two or more
Accounts, including one or more ERISA-Covered Account[s], to sell the
interest of such Accounts in the partnership to a co-partner even
though the independent fiduciary for one or more of such ERISA-Covered
Account[s] has not approved such sale where all of the Accounts
participating in such investment (other than the General Account) are
not in agreement on how to proceed with respect to the buy-sell option,
provided that such disapproving Account is first afforded the
opportunity to purchase the entire interest of the co-partner.
Section III--Exemption for Transactions Involving a Partnership or
Persons Related to a Partnership
The restrictions of section 406(a) 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 (D) of the Code, shall not apply, if
the conditions in Section IV are met, to any additional equity or debt
capital contributions to a partnership, or any transaction with the co-
partner which arises in connection with the operation of the
partnership, by an ERISA-Covered Account that is participating in an
interest in the partnership, or to any material modification in the
terms of, or action taken upon default with respect to, a loan to the
partnership in which the ERISA-Covered Account has an interest as a
lender, where the partnership is a party in interest solely by reason
of the ownership on behalf of the General Account of a 50 percent or
more interest in such joint venture.
Section IV--General Conditions
(a) The decision to participate in any ERISA-Covered Account that
shares real estate investments must be made by plan fiduciaries who are
totally unrelated to Aetna, UBS Realty and their respective affiliates.
This condition shall not apply to plans covering employees of Aetna,
UBS Realty or any of their respective affiliates.
(b) Each contractholder or prospective contractholder in an ERISA-
Covered Account which shares or proposes to share real estate
investments is provided with a written description of potential
conflicts of interest that may result from the sharing, a copy of the
notice of pendency, and a copy of the exemption as granted.
(c) An independent fiduciary must be appointed on behalf of each
ERISA-Covered Account participating in the sharing of investments. The
independent fiduciary shall be either:
(1) A business organization which has at least five years of
experience with respect to commercial real estate investments,
(2) A committee comprised of one or more individuals who each have
at least five years of experience with respect to commercial real
estate investments, or
(3) The plan sponsor (or its designee) of a plan (or plans) that is
the sole participant in an ERISA-Covered Account.
(d) The independent fiduciary or independent fiduciary committee
member shall not be or consist of Aetna, UBS Realty or any of their
respective affiliates.
(e) No organization or individual may serve as an independent
fiduciary for an ERISA-Covered Account for any fiscal year if the gross
income (other than fixed, non-discretionary retirement income and any
cost of living increases thereon) received by such organization or
individual (or any partnership or corporation of which such
organization or individual is an officer, director, or ten percent or
more partner or shareholder) from Aetna, UBS Realty, any of their
respective affiliates, and the ERISA-Covered Accounts for that fiscal
year exceeds five percent of its or his annual gross income from all
sources for the prior fiscal year. If such organization or individual
had no income for the prior fiscal year, the five percent limitation
shall be applied with reference to the fiscal year in which such
organization or individual serves as an independent fiduciary. The
income limitation will include income for services rendered to the
Accounts as independent fiduciary under any prohibited transaction
exemption(s) granted by the Department. However, such income limitation
shall not include any income for services rendered to Single Customer
ERISA-Covered Account by an independent fiduciary selected by the Plan
Sponsor to the extent determined by the Department in any subsequent
prohibited transaction proceeding.
In addition, no organization or individual who is an independent
fiduciary, and no partnership or corporation of which such organization
or individual is an officer, director or ten percent or more partner or
shareholder, may acquire any property from, sell any property to, or
borrow any funds from, Aetna, UBS Realty, any of their respective
affiliates, or any Account managed by Aetna, UBS Realty or any of their
respective affiliates, during the period that such organization or
individual serves as an independent fiduciary and continuing for a
period of six months after such organization or individual ceases to be
an independent fiduciary, or negotiate any such transaction during the
period that such organization or individual serves as independent
fiduciary.
(f) The independent fiduciary acting on behalf of an ERISA-Covered
Account shall have the responsibility and authority to approve or
reject recommendations made by Aetna, UBS Realty or any of their
respective affiliates for each of the transactions in this exemption.
Aetna, UBS Realty and any of their respective affiliates shall involve
the independent fiduciary in the consideration of contemplated
transactions prior to the making of any decisions, and shall provide
the independent fiduciary with whatever information may be necessary in
making its determinations.
In addition, the independent fiduciary shall review on an as-needed
basis, but not less than twice annually the shared real estate
investments in the ERISA-Covered Account to determine whether the
shared real estate investments are held in the best interest of the
ERISA-Covered Account.
(g) Neither UBS Realty nor any of its affiliates is a co-investor
in the shared investment or partnership to which an exemption provided
by Sections I, II or III above is being applied; provided, however,
that this condition shall not preclude an employee benefit plan
maintained by Aetna, UBS Realty or any of their affiliates from
participating in an ERISA-Covered Account that is such a co-investor.
(h) Aetna or UBS Realty maintains for a period of six years from
the date of the transaction the records necessary to enable the persons
described in paragraph (i) of this Section to determine whether the
conditions of this exemption have been met, except that a prohibited
transaction will not be considered to have occurred if, due to
circumstances beyond the control of
[[Page 70318]]
Aetna, UBS Realty or any of their respective affiliates, the records
are lost or destroyed prior to the end of the six-year period.
(i) Except as provided in paragraph (2) of this subsection (i) and
notwithstanding any provisions of subsection (a)(2) and (b) of section
504 of the Act, the records referred to in subsection (h) of this
Section are unconditionally available at their customary location for
examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an ERISA-Covered
Account who has authority to acquire or dispose of the interests of the
plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer to any plan participating in an
ERISA-Covered Account or any duly authorized employee or representative
of such employer, and
(D) Any participant or beneficiary of any plan participating in an
ERISA-Covered Account, or any duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in subparagraphs (B) through (D)
of this subsection (i) shall be authorized to examine trade secrets of
Aetna, UBS Realty or any of their respective affiliates, or commercial
or financial information which is privileged or confidential.
(j) Given that this exemption is a replacement to a previous
prohibited transaction exemption (see PTE 91-10, 56 FR 3273, January
29, 1991) any approvals, appointments, disclosures, and decisions made
or given pursuant to PTE 91-10 shall remain in full force and effect
with respect to this replacement exemption.
Section V--Definitions
For the purposes of this exemption:
(a) An ``affiliate'' of Aetna or UBS Realty, respectively
includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Aetna or UBS Realty, respectively.
(2) Any officer, director or employee or Aetna, UBS Realty or any
person described in section V(a)(1), and
(3) Any partnership in which Aetna or UBS Realty is a partner.
(b) An ``Account'' means any account maintained by Aetna and,
except in the case of the General Account, managed by UBS Realty. The
term ``Account'' includes the General Account, ERISA-Covered Accounts,
Pooled Accounts and Single Customer Accounts, as well as combinations
of accounts other than the General Account which are consolidated for
investment management purposes as if they were a single account.
(c) The ``General Account'' means the general asset account of
Aetna and any of its affiliates which are insurance companies licensed
to do business in at least one State as defined in section 3(10) of the
Act.
(d) An ``ERISA-Covered Account'' means any Account (other than the
General Account) in which employee benefit plans subject to Title I or
Title II of the Act participate.
(e) ``Disproportionate'' means not in proportion to an Account's
existing equity ownership interest in an investment, partnership or
partnership interest in a debt.
(f) The ``Transition Effective Date'' is the effective date of the
delegation by Aetna to UBS Realty of the management of the Accounts,
which has been designated as October 1, 2003.
Effective Date: This exemption is effective as of October 1, 2003,
the Transition Effective Date.
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 September 29, 2003, at 68
FR 55993.
Comments and Modification: In response to a request made by the
applicant, the Department has added a condition to the exemption (see
Section IV (j)) stating that any approvals, appointments, disclosures,
and decisions made or given pursuant to the prior exemption for Aetna
(i.e., PTE 91-10) shall remain in full force and effect with respect to
this exemption. In this regard, the applicant represents that the
appropriate plan fiduciaries for ERISA-Covered Accounts were informed
that any approvals, appointments, disclosures and decisions made or
given pursuant to PTE 91-10 shall remain in full force and effect after
the date that this exemption is published in the Federal Register. In
addition, as noted in the notice of proposed exemption (see 68 FR at
55994, column one, last sentence of paragraph 1 of the Summary of Facts
and Representations), PTE 91-10 shall be superseded and replaced by
this exemption for all transactions entered into after the Transition
Effective Date.
No other written comments, and no requests for a public hearing,
were received by the Department. Accordingly, the Department has
decided to grant the exemption as modified.
FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski of the Department,
at telephone (202) 693-8545. (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)(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 12th day of December, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department of Labor.
[FR Doc. 03-31103 Filed 12-16-03; 8:45 am]
BILLING CODE 4510-29-M
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