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Employee Benefits Security Administration

EBSA Federal Register Notice

Class Exemption for the Acquisition and Sale of Trust REIT Shares by Individual Account Plans Sponsored by Trust REITS [04/28/2004]

[PDF Version]

Volume 69, Number 82, Page 23220-23226

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2004-07; Application Number D-10659]

 
Class Exemption for the Acquisition and Sale of Trust REIT Shares 
by Individual Account Plans Sponsored by Trust REITS

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Grant of class exemption.

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SUMMARY: This document contains a final 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 (the Code). The exemption permits 
the acquisition, holding and sale of certain publicly traded shares of 
beneficial interest in a real estate investment trust (REIT), that is 
structured under state law as a business trust (Trust REIT), by 
individual account plans sponsored by the Trust REIT or its affiliates. 
The exemption affects participants and beneficiaries of employee 
benefit plans involved in such transactions, as well as the REITs and 
their affiliates that sponsor such plans.

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: On June 3, 2003, the Department published a 
notice in the Federal Register (68 FR 33185) of the pendency of a 
proposed class exemption from the restrictions of sections 406(a), 
406(b)(1) and (b)(2), and 407(a) 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) through (E) of the Code. Relief for the 
transactions was requested in an application (Application No. D-10659) 
submitted by the National Association of Real Estate Investment Trusts 
(NAREIT or the Applicant) 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\
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    \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.
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    The notice of pendency gave interested persons an opportunity to 
comment or request a public hearing on the proposal. The Department 
received two public comments. Upon consideration of the comments 
received, the Department has determined to grant the proposed class 
exemption, subject to certain modifications. These modifications and 
the comments are discussed below.

Executive Order 12866

    Under Executive Order 12866, the Department must determine whether 
the 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.
    This class exemption has been drafted and reviewed in accordance 
with Executive Order 12866, section 1(b), Principles of Regulation. The 
Department has determined that this exemption is not a ``significant 
regulatory action'' under Executive Order 12866, section 3(f). 
Accordingly, it does not require an assessment of potential costs and 
benefits under section 6(a)(3) of that order.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3501) (PRA), the Department submitted the information collection 
request (ICR) included in the Notice of a Proposed Class Exemption for 
the Acquisition and Sale of Trust REIT Shares by Individual Account 
Plans Sponsored by Trust REITs [referred to for the purposes of the ICR 
as Disclosures for Transactions with Trust REIT Shares] to the Office 
of Management and Budget (OMB) for review and clearance at the time the 
Notice of a Proposed Rulemaking (NPRM) was published in the Federal 
Register (June 3, 2003, 68 FR 33185). OMB approved the Notice under OMB 
control number 1210-0124. The approval will expire on July 31, 2006.
    The Department solicited comments concerning the ICR in connection 
with the NPRM. The Department received one comment that provided 
updated information on the number of REITs and the number of Trust 
REITs described in

[[Page 23221]]

the PRA section of the proposed exemption. Specifically, because of 
consolidation in the industry, rather than the 228 publicly traded 
REITs discussed in the proposal, there are now 173 such REITs. 
Likewise, the number of Trust REITs has decreased by one, from 52 to 
51. At the suggestion of the commenter, the Department has changed the 
data used in the preliminary discussion about REITs under PRA 95. The 
Department notes, however, that the respective changes do not 
materially affect the hour or cost burdens as originally calculated 
under the NPRM. The Department considers its original cost and hour 
burden estimates for this ICR to be appropriate at this time. However, 
the Department will continue to monitor the number of Trust REITs 
subject to the exemption's information collection provisions in future 
years.

Discussion of the Comments Received

    The comments received by the Department were generally supportive 
of the issuance of a class exemption to permit certain transactions 
involving Trust REITs shares. However, the commenters requested 
specific modifications to the proposal in the following areas:
    (1) Permit the purchase of employer securities pursuant to a plan 
provision requiring that cash contributions by the employer be used to 
purchase Trust REIT shares--The Applicant and the other commenter 
requested that the exemption permit the purchase, by the Plan, of Trust 
REIT shares in instances where the terms of the Plan require that the 
employer's cash contributions be used to acquire Trust REIT shares. The 
commenters explained that some employers prefer to contribute cash 
because contributing treasury shares would dilute the value of the 
shares. NAREIT articulated the concern as follows: ``the trustee is 
directed, and arguably is not acting in a fiduciary capacity. 
Consequently, the portion of the proposed exemption for fiduciary 
investment in Qualifying REIT Shares is probably not applicable.''
    Contrary to NAREIT's analysis of the directed trustee's fiduciary 
status, the Department notes that a directed trustee is a fiduciary 
under the Act.\2\ That fact, however, is not determinative as to 
whether the requested relief is warranted.
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    \2\ Under ERISA section 403(a)(1), a plan may expressly provide 
that a trustee is subject to the direction of a named fiduciary who 
is not a trustee, in which case the trustee shall be subject to 
proper directions of such fiduciary which are made in accordance 
with the terms of the plan and which are not contrary to the Act. 29 
U.S.C. 1103(a)(1).
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    After considering the comment, the Department has decided to modify 
the final exemption as requested by the commenters. The exemption will 
cover the purchase of Trust REIT shares in accordance with the terms of 
the Plan that require employer contributions be used to purchase Trust 
REIT shares. In such instances, the Trust REIT shares may be purchased 
on the Primary Exchange or by netting within the Plan. In following 
plan provisions that require the trustee invest employer cash 
contributions in Trust REIT shares, the Department notes that the 
trustee must discharge his duties consistent with the fiduciary 
responsibility provisions of ERISA.
    For prospective relief, shares may not be subject to a lockup. The 
Applicant has explained that, on a prospective basis, the Independent 
Fiduciary will immediately allocate Qualifying REIT Shares contributed 
by the employer or purchased with employer cash contributions to the 
individual participants' Accounts. Therefore, each participant will 
have discretionary authority to direct the trustee to sell such 
shares.\3\
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    \3\ 29 CFR 2550.404c-1(d)(2)(ii)(E)(4)(i) provides that in order 
for the limitation on liability of plan fiduciaries under 404(c) of 
the Act to apply, the securities must be qualifying employer 
securities (as defined in 407(d)(5) of the Act). The Applicant 
sought this exemption to address its concern that Trust REIT shares 
might not meet the definition of qualifying employer securities.
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    (2) Paired Share Arrangement--The other commenter requested that 
the class exemption be modified to cover a ``paired share REIT.'' 
According to the commenter, in its paired share arrangement, a share of 
corporate stock and a share of beneficial interest in the Trust REIT 
trade together on an exchange as a single security. The commenter's 
paired shares trade on the New York Stock Exchange. The commenter was 
concerned that this paired share arrangement might be viewed as a 
trading restriction that would cause the Trust REIT shares to fail to 
satisfy the definition of Qualifying REIT Shares under section III(j) 
of the proposed exemption. After considering the comment, the 
Department has determined to amend the definition of Qualifying REIT 
Shares to include Trust REIT shares that are part of a paired share 
arrangement, provided that the Trust REIT shares would otherwise 
satisfy the requirements of the exemption and the corporate stock with 
which it is paired is a ``qualifying employer security'' as defined in 
section 407(d)(5) of the Act.
    (3) Number of Trust REITs--The Applicant also informed the 
Department that, as of June 30, 2003, there are a total of 173 publicly 
traded REITs in the United States, and 51 publicly traded business 
trust REITs.

Description of the Exemption

    The exemption consists of three sections. Section I provides 
conditional exemptive relief for the acquisition, holding, and sale of 
Qualifying Trust REIT Shares by individual account plans sponsored by 
the Trust REITs. Section II(a) describes the conditions for retroactive 
relief for transactions occurring up to six years prior to the date 
that the notice granting the final exemption is published in the 
Federal Register and for 60 days thereafter. Section II(b) provides 
prospective relief for transactions that meet certain additional 
conditions that are described below. Finally, section III contains 
definitions for certain terms used in the exemption.
    The exemption is generally similar to an individual exemption 
previously granted by the Department, Crown American, PTE 97-64 (62 FR 
66690 (12/19/97)). Among the conditions of the individual exemption was 
a 25 percent cap on the percentage of trust REIT shares held in an 
account. Unlike the individual exemption, the Department believed that 
for purposes of the proposed class exemption it would not be practical 
to develop a single percentage limitation that would apply to 
investment in Qualifying REIT Shares by all individual account plans 
maintained by the Trust REITs or their Employer Affiliates, in view of 
the variety of REITs that would be subject to the proposal and the 
different types of real estate activities engaged in by such entities. 
In this regard, the Department notes that section 404(a) of the Act 
requires, among other things, that a fiduciary discharge his duties 
with respect to a plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent fashion. Section 
404(a)(1)(C) further requires that a fiduciary diversify the 
investments of the plan so as to minimize the risk of large losses, 
unless under the circumstances it is clearly prudent not to do so. 
Section 404(a)(2) provides that, in the case of an eligible individual 
account plan, the diversification requirement of section 404(a)(1)(C) 
and the prudence requirement (only to the extent that it requires 
diversification) of section 404(a)(1)(B) are not violated by the 
acquisition or holding of qualifying employer real property or 
qualifying employer securities. To the extent that the Qualifying REIT 
Shares do not

[[Page 23222]]

constitute stock for purposes of section 407(d)(5) of the Act, the 
exception contained in section 404(a)(2) from the diversification 
requirements of the Act would not apply to a Plan's investment in 
Qualifying REIT Shares. Accordingly, it is the responsibility of a 
fiduciary of each Plan intending to take advantage of the relief 
provided by this exemption to determine the appropriate level of 
investment in Qualifying REIT Shares, based on the particular facts and 
circumstances, consistent with its responsibilities under section 404 
of the Act.
    The Department continues to believe that the scope of the class 
exemption is consistent with the Applicant's request for relief based 
on the Applicant's belief that Trust REIT shares were qualifying 
employer securities subject to sections 407 and 408(e) of the Act.

Retroactive Relief

    The exemption set forth in section I(a) provides retroactive relief 
from the restrictions of sections 406(a), 406(b)(1) and (b)(2), and 
407(a) of the Act and from 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 
for: (1) The purchase or sale of Qualifying REIT Shares where the 
decision to purchase or sell the securities was made by a participant, 
or by a fiduciary that was independent of the Trust REIT and its 
affiliates; (2) the contribution of Qualifying REIT Shares to the Plan 
by an employer or the purchase of Qualifying REIT Shares pursuant to a 
plan provision requiring that employer contributions of cash be used to 
purchase Qualifying REIT Shares; and (3) the holding of Qualifying REIT 
Shares; provided that the conditions of the exemption were met at the 
time of the transaction.
    The conditions applicable to the retroactive exemption are set 
forth in Section II(a) described below. Section II(a)(1) provides 
retroactive relief where participants exercised their discretion to 
purchase Trust REIT shares for their own account so long as they were 
permitted to give instructions to sell such shares at least quarterly. 
Section II(a)(2) provides relief with respect to shares purchased by an 
independent fiduciary, including shares purchased pursuant to a plan 
provision requiring that cash contributions by the employer be used to 
purchase Trust REIT shares. The purchase of Trust REIT shares, by an 
independent fiduciary pursuant to plan provisions, or the contribution 
of Trust REIT shares by the employer, where such shares are subject to 
a lockup, i.e., a restriction on when the shares could be sold, is 
covered retroactively, but not prospectively.
    The exemption requires that the participant (section II(a)(1)(B)), 
or a fiduciary independent of the Trust REITs (Section II(a)(2)(C)) had 
the authority to vote, tender and exercise similar ownership rights 
with respect to shares controlled by them.
    Section II(a)(3) requires that Trust REIT shares be purchased and 
sold at the prevailing market price on the Primary Exchange on which 
these shares were traded. In this regard, section III(h) provides that 
the term ``Primary Exchange'' means the New York Stock Exchange (NYSE), 
the American Stock Exchange (AMEX), or the National Association of 
Securities Dealers Automated Quotation System National Market (NASDAQ 
National Market).
    Under the final exemption, the Department has expanded the scope of 
section II(a)(4) (netting transactions) to include, not only 
transactions between Accounts, but also transactions between an Account 
and the independent fiduciary purchasing Qualifying REIT Shares with 
employer cash contributions. This change was made to permit the 
independent fiduciary to use netting transactions where it is 
purchasing employer securities with employer cash contributions 
pursuant to a plan provision requiring such purchases. Where investment 
decisions are implemented through the netting of purchases and sales 
within the Plan, the transactions must be valued at the closing market 
price for that day on the Primary Exchange on which the shares are 
traded. The Department cautions that, in order for transactions to 
satisfy this condition, such trades must be done in an objective and a 
mechanical fashion, so that neither the buyer nor the seller is favored 
in the transaction.
    Section II(a)(5) provides that the covered transactions must meet 
an arm's-length test. Under this test, at the time of the transaction, 
the terms of the transaction must be at least as favorable to the Plan 
or the Account as the terms generally available between unrelated 
parties.
    Pursuant to section II(a)(6) where Trust REIT shares are 
contributed to, or purchased by, the Plan from the Trust REIT, such 
shares must be conveyed to the Plan at or below market price and no 
commissions or other fees may be charged.
    Pursuant to section II(a)(7), a participant's purchase or sale of 
Trust REIT shares is not covered by the exemption if the participant 
was subject to undue influence with respect to the investment decision 
to acquire or sell Trust REIT shares.

Prospective Relief

    The exemption set forth in section I(b) provides prospective relief 
from the restrictions of sections 406(a), 406(b)(1) and (b)(2), and 
407(a) of the Act and from 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 
for: (1) The purchase or sale of Qualifying REIT Shares by a 
participant, or (2) by an Independent Fiduciary; (3) the contribution 
of Qualifying REIT Shares to the Plan by an employer or the purchase of 
Qualifying REIT Shares pursuant to a plan provision requiring that 
employer contributions of cash be used to purchase Qualifying REIT 
Shares; and (4) the holding of Qualifying REIT Shares; provided that 
the conditions of the exemption were met at the time of the 
transaction.
    The conditions applicable to the prospective exemption are set 
forth in section II(b) described below. Section II(b)(1)(A) provides 
that participants must be able to sell Trust REIT shares purchased by 
them or contributed to their account at least monthly. As a result, no 
shares may be subject to a lockup. Section II(b)(1)(B) provides that 
participants must be able to vote, tender and exercise similar rights 
with respect to the shares over which the participants have investment 
discretion.
    Section II(b)(2) provides that an Independent Fiduciary must have 
investment discretion to purchase Qualifying REIT Shares, unless such 
shares are purchased pursuant to a plan provision requiring that 
employer cash contributions be used to purchase Qualifying REIT Shares. 
Shares purchased pursuant to such a plan provision must be transferred 
to the participants' Accounts. Section III(e) of the exemption defines 
the term ``Independent Fiduciary'' as a trustee or investment manager 
who had equity capital of at least $1 million and has assets under 
management of over $50 million. This fiduciary must be independent of 
the Trust REIT, the Employer Affiliate, and any of their affiliates. In 
this regard, the Trust REIT, the Employer Affiliate, or any of their 
affiliates, may not own any interest in the Independent Fiduciary and 
the Independent Fiduciary may not own more than 5 percent of the Trust 
REIT, the Employer Affiliate, or any of their affiliates. The 
Independent Fiduciary must acknowledge in writing that it is a 
fiduciary and that it has the appropriate technical training or 
expertise to perform the services

[[Page 23223]]

contemplated by this exemption. The Independent Fiduciary may not 
receive more than one percent (1%) of its current gross income for 
Federal tax purposes, (as measured by the prior year's taxable income) 
from the Trust REIT, the Employer Affiliate and their affiliates. 
Lastly, while serving as an Independent Fiduciary and for 6 months 
after it ceases to serve in this capacity, the Independent Fiduciary 
may not acquire property from, sell property to, or borrow any funds 
from the Trust REIT, the Employer Affiliate, or any affiliates thereof.
    Section II(b)(3) provides that, where participants have 
discretionary authority to purchase or sell Qualifying REIT Shares, 
neither the Trust REIT, an Employer Affiliate, the Independent 
Fiduciary, nor any affiliates thereof, has any discretion or authority 
over such investment decisions, renders any investment advice with 
respect to these assets, nor exerts any undue influence over the 
decisions of the participants to acquire or sell Qualifying REIT 
Shares.
    Pursuant to section II(b)(4), prior to or immediately after the 
initial investment in Qualifying REIT Shares, copies of the most recent 
prospectus, quarterly report and annual report concerning the REITs, 
must be provided to the person who is directing the investment. Updates 
of these documents must also be provided as published.
    To help ensure that participants are not subject to pressure to 
invest in, or to continue to hold, employer securities, the 
confidentiality of their investment and voting decisions with respect 
to all such shares are protected under section II(b)(5) of the 
exemption. In this regard, section II(b)(5)(A) requires the appointment 
of a fiduciary that is responsible for confidentiality. Pursuant to 
section II(b)(5)(B), the Plan must provide participants, in writing, 
the procedures established to protect confidentiality of information 
relating to the purchase, holding, and sale of Qualifying REIT Shares 
and the exercise of voting, tender and other similar rights with 
respect to such shares. Further, should any situation arise where the 
fiduciary determines that there is a potential for undue influence upon 
participants and beneficiaries with respect to the exercise of 
shareholder rights, section II(b)(5)(C) requires that the Plan appoint 
an independent fiduciary (who may, but need not be, the Independent 
Fiduciary (as defined in section III(e)) to carry out activities 
related to this particular situation.\4\ For example, tender offers, 
mergers and acquisitions are likely to generate the need for an 
independent fiduciary to provide additional safeguards for participant 
confidentiality.\5\
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    \4\ This requirement was modeled after the regulations on 
``independent exercise of control'' under section 404(c) of the Act. 
29 CFR 2550.404c-1(d)(2)(ii)(E)(4)(viii) and (ix).
    \5\ In the preamble to the 404(c) regulations cited above, the 
Department stated that it agreed with the commentators that 
``situations where the potential for undue employer influence may 
exist include tender offers, exchange offers and contested board 
elections.'' 57 FR 46906, 46927 (October 13, 1992).
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    Where Qualifying REIT Shares are purchased or sold on the Primary 
Exchange, Section II(b)(6) provides that such shares must be purchased 
for cash at their market price at the time of the transaction. It 
further provides that the broker executing the transactions must be 
independent of the Trust REIT, an Employer Affiliate, the Independent 
Fiduciary and any affiliates thereof. The Applicant requested, and the 
Department agreed, to modify the final exemption to provide that the 
broker executing the transactions covered by this exemption need not be 
independent of the Independent Fiduciary if that broker does not charge 
a commission on these purchases and sales.
    Section II(b)(7) provides that transactions within the Plan between 
Accounts and between an Account and the Independent Fiduciary 
purchasing Qualifying REIT Shares with employer cash contributions are 
permitted in order to save brokerage costs. Where investment decisions 
are implemented through the netting of purchases and sales within the 
Plan, the transactions must be valued at the closing market price for 
that day on the Primary Exchange on which the shares are traded. Such 
transactions must take place on the business day on which the 
instruction is received, or on the next business day, using that day's 
closing price, if the instruction is received after noon, or such later 
deadline as designated by the trustee or the named fiduciary.
    Pursuant to section II(b)(8) the covered transactions must meet an 
arm's-length test. Under this test, at the time of the transaction, the 
terms of the transaction must be at least as favorable to the Plan or 
the Account as the terms generally available between unrelated parties.
    Section II(b)(9) provides that where Qualifying REIT Shares are 
purchased from the Trust REIT, contributed by the Plan Sponsor, or 
purchased by the Plan with employer contributions, such shares must be 
conveyed to the Plan at or below market price and no commissions or 
other fees may be charged.
    Under section II(b)(10) certain information must be disclosed to 
the participant or the Independent Fiduciary prior to the initial 
covered transaction that occurs 60 days after publication of the final 
exemption in the Federal Register. The disclosures must describe, among 
other things, any fees or transaction costs, the role, if any, of the 
Trust REIT as a principal in the transaction, and the exchange or 
market system where Qualifying REIT Shares are traded. Finally, the 
participant or Independent Fiduciary must be informed that copies of 
the proposed and final exemption are available upon request.
    Section II(b)(11) of the exemption contains a condition requiring 
the Trust REIT or its Employer Affiliates on a prospective basis to 
maintain, for a period of six years from the date of each covered 
transaction, subject to limited exceptions, the records necessary to 
enable certain persons to determine whether the applicable conditions 
of the exemption have been met. Such persons include any duly 
authorized employee or representative of the Department or the Internal 
Revenue Service, any plan fiduciary, any participant or beneficiary of 
the Plan whose Account is invested in Qualifying REIT Shares, any 
employer of employees covered by the Plan, and any employee 
organizations whose members are covered by the Plan. All records must 
be unconditionally available at their customary location for 
examination during normal business hours by the above-described 
persons. However, the Trust REIT or its Employer Affiliates may refuse 
to disclose to a person, other than a duly authorized employee or 
representative of the Department or the Internal Revenue Service, 
commercial or financial information that is privileged or confidential.

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

[[Page 23224]]

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) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, and based on the entire record, the Department 
finds 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 the plans;
    (3) The class exemption is applicable to a particular transaction 
only if the transaction satisfies the conditions specified in the class 
exemption; and
    (4) The exemption is supplemental to, and not in derogation of, any 
other provisions of ERISA and the Code, including statutory or 
administrative exemptions and transitional 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.

Exemption

    Accordingly, the following exemption is granted under the authority 
of 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, 32847 August 10, 1990).

Section I. Covered Transactions

    (a) For the period from six years prior to April 28, 2004, to June 
28, 2004, 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 the following transactions, if the relevant 
conditions set forth in section II(a) below are met at the time of the 
transaction:
    (1) The purchase or sale of Qualifying REIT Shares (as defined in 
section III(j)) on behalf of an Account (as defined in section III(a)) 
at the direction of the participant;
    (2) The purchase or sale of Qualifying REIT Shares on behalf of the 
Plan (as defined in section III(f)) at the direction of an independent 
fiduciary (as defined in section II(a)(2));
    (3) The contribution in-kind of Qualifying REIT Shares to a Plan by 
an employer, or the purchase of Qualifying REIT Shares pursuant to a 
plan provision requiring that employer contributions of cash be used to 
purchase Qualifying REIT Shares; and
    (4) The holding of the Qualifying REIT Shares by the Plan.
    (b) Effective after June 28, 2004, 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 the following 
transactions, if the relevant conditions set forth in section II(b) 
below are met at the time of the transaction:
    (1) The purchase or sale of Qualifying REIT Shares on behalf of an 
Account in a Plan at the direction of the participant;
    (2) The purchase or sale of Qualifying REIT Shares on behalf of the 
Plan at the direction of the Independent Fiduciary (as defined in 
section III(e));
    (3) The contribution in-kind of Qualifying REIT Shares to a Plan by 
an employer, or the purchase of Qualifying REIT Shares pursuant to a 
plan provision requiring that employer contributions of cash be used to 
purchase Qualifying REIT Shares; and
    (4) The holding of the Qualifying REIT Shares by the Plan.

Section II. Conditions

(a) Retroactive Conditions
    (1) The participant has discretionary authority to direct the 
trustee to:
    (A) Sell the Qualifying REIT Shares purchased by the participant 
for his own Account no less frequently than quarterly; and
    (B) Vote, tender and exercise similar rights with respect to those 
Qualifying REIT Shares in the Account over which the participant has 
discretion; or
    (2) An independent fiduciary has discretionary authority to 
purchase, hold or sell the Qualifying REIT Shares, or such fiduciary is 
acting in accordance with a plan provision that requires employer cash 
contributions be used to purchase Qualifying REIT Shares, and such 
independent fiduciary:
    (A) Is a trustee, named fiduciary or investment manager with 
respect to the Qualifying REIT Shares;
    (B) is neither the Trust REIT (as defined in section III(i)) an 
Employer Affiliate (as defined in section III(d)) nor an affiliate 
thereof; and
    (C) has the discretionary authority to exercise the voting, tender 
and similar rights with respect to those Qualifying REIT Shares for 
which it has investment discretion. Notwithstanding the foregoing, this 
paragraph (2)(C) shall be deemed met if another fiduciary that is 
independent of the Trust REIT had the right to exercise the voting, 
tender and similar rights with respect to the Trust REIT shares.
    (3) Purchases and sales of Qualifying REIT Shares by the Plan are 
executed:
    (A) For cash;
    (B) on the Primary Exchange (as defined in section III(h)) or 
directly with the Trust REIT; and
    (C) at the market price for the Trust REIT shares on the Primary 
Exchange at the time of the transaction.
    (4) Notwithstanding paragraph (3) above, the exemption shall apply 
to purchases and sales of Qualifying REIT Shares within the Plan 
between Accounts and between an Account and the independent fiduciary 
purchasing Qualifying REIT Shares with employer cash contributions, in 
order to avoid brokerage commissions and other transaction costs, 
provided that each transaction is executed at the closing price for the 
Trust REIT shares on the Primary Exchange on the date of the 
transaction.
    (5) At the time the transaction is entered into, the terms of the 
transaction are at least as favorable to the Plan or the Account as the 
terms generally available in comparable arm's-length transactions 
between unrelated parties.
    (6) Qualifying REIT Shares contributed to, or purchased by, the 
Plan from the Trust REIT:
    (A) Are conveyed to the Plan at or below the market price for the 
Trust REIT shares on the Primary Exchange at the time of the 
transaction; and
    (B) are conveyed to the Plan without the payment of any commission 
or other fee in connection with the transaction.
    (7) Where a participant has discretionary authority to purchase or 
sell Qualifying REIT Shares, neither the Trust REIT, an Employer 
Affiliate, the independent fiduciary, nor any affiliate thereof exerts 
any undue influence over the decisions of the participant to acquire or 
sell Qualifying REIT Shares.
(b) Prospective Conditions
    (1) The participant has discretionary authority to direct the 
trustee:
    (A) To sell Qualifying REIT Shares purchased by, or contributed to, 
his Account no less frequently than monthly; and
    (B) to vote, tender and exercise similar rights with respect to 
those Qualifying REIT Shares in the Account over which the participant 
has discretion; or
    (2) An Independent Fiduciary, as defined in section III(e), has 
discretionary authority to purchase, hold or sell the Qualifying REIT 
Shares, or such fiduciary is acting in accordance with a plan provision 
that requires employer cash contributions be used to purchase 
Qualifying REIT Shares for transfer to the participants' Accounts. The 
Independent Fiduciary has the discretionary authority to exercise the

[[Page 23225]]

voting, tender and similar rights with respect to the Qualifying REIT 
Shares, unless the participant has discretionary authority to direct 
the trustee with respect to such matters. Notwithstanding the 
foregoing, this paragraph (2) shall be deemed met if another fiduciary 
that is independent of the Trust REIT, the Employer Affiliate and any 
affiliates thereof; has the right to exercise the voting, tender and 
similar rights with respect to the Qualifying Trust REIT Shares.
    (3) Where a participant has discretionary authority to purchase, 
hold or sell Qualifying REIT Shares, neither the Trust REIT, an 
Employer Affiliate, the Independent Fiduciary, nor any affiliate 
thereof:
    (A) Has discretionary authority or control with respect to the 
investment of the Plan assets involved in the transaction;
    (B) renders any investment advice [within the meaning of 29 CFR 
2510.3-21(c)] with respect to those assets; or
    (C) exerts any undue influence over the decisions of the 
participants to acquire, hold or sell Qualifying REIT Shares.
    (4) Prior to or immediately after an initial investment in 
Qualifying REIT Shares, either the Trust REIT, or an agent or affiliate 
thereof provides the person who is directing the investment (i.e. the 
participant or the Independent Fiduciary) with the most recent 
prospectus, quarterly report, and annual report concerning the Trust 
REIT, and thereafter, either the Trust REIT, or an agent or affiliate 
thereof, provides such participants and/or Independent Fiduciary with 
updated prospectuses, quarterly statements and annual reports as 
published.
    (5) Information relating to the purchase, holding, and sale of 
Qualifying REIT Shares, and the exercise of voting, tender and similar 
rights with respect to such Qualifying REIT Shares by participants is 
maintained in accordance with procedures designed to safeguard the 
confidentiality of such information except to the extent necessary to 
comply with Federal or state laws not preempted by ERISA. To safeguard 
confidentiality, the Plan shall:
    (A) Designate a fiduciary responsible for safeguarding 
confidentiality;
    (B) provide participants, when they become eligible to participate 
in the Plan, with a statement describing the procedures established to 
provide for the confidentiality of information relating to the 
purchase, holding and sale of Trust REIT shares, and the exercise of 
voting, tender and similar rights, by participants and beneficiaries 
and the name, address and telephone number of the fiduciary responsible 
for monitoring compliance with the procedures; and
    (C) appoint, if the fiduciary responsible for safeguarding 
participant confidentiality determines that a situation involves a 
potential for undue employer influence upon participants and 
beneficiaries with regard to the direct or indirect exercise of 
shareholder rights, an independent fiduciary (who may, but need not be, 
the Independent Fiduciary), to take appropriate action to protect the 
confidentiality of the participants' and beneficiaries' votes. For 
purposes of this subparagraph (C), a fiduciary is not independent if 
the fiduciary is affiliated with the Trust REIT, an Employer Affiliate, 
or any affiliate thereof.
    (6) All purchases and sales of Qualifying REIT Shares by the Plan 
are executed:
    (A) For cash;
    (B) On the Primary Exchange (as defined in section III(h)) by a 
broker that is independent of the Trust REIT, the Employer Affiliate, 
the Independent Fiduciary and any affiliate thereof, or directly with 
the Trust REIT. Notwithstanding the above, the Independent Fiduciary or 
its affiliate may execute these transactions if no commission is 
charged; and
    (C) at the market price for the Trust REIT shares on the Primary 
Exchange at the time of the transaction.
    (7) Notwithstanding paragraph (6) above, the exemption shall apply 
to purchases and sales of Qualifying REIT Shares within the Plan 
between Accounts and between an Account and the Independent Fiduciary 
purchasing Qualifying REIT Shares with employer cash contributions, in 
order to avoid brokerage commissions and other transaction costs, 
provided that the transaction is executed at the closing price for the 
Trust REIT shares on the Primary Exchange on the date of the 
transaction. All such transactions will take place at the closing price 
on the business day on which the instruction is received, or at the 
closing price on the next business day if the instruction is received 
after noon or such later deadline as designated by the trustee or named 
fiduciary.
    (8) At the time the transaction is entered into, the terms of the 
transaction are at least as favorable to the Plan or the Account as the 
terms generally available in comparable arm's-length transactions 
between unrelated parties.
    (9) Qualifying REIT Shares that are contributed to, or purchased 
by, the Plan from the Trust REIT and Qualifying REIT Shares purchased 
by the Plan with employer cash contributions:
    (A) Are conveyed to the Plan at or below the market price for the 
Trust REIT shares on the Primary Exchange at the time of the 
transaction;
    (B) Can be immediately sold on the Primary Exchange; and
    (C) Are conveyed to the Plan without the payment of any commission 
or other fee in connection with the transaction.
    (10) Prior to a participant, Plan Sponsor (as defined in section 
III(g)) or an Independent Fiduciary engaging in an initial transaction 
under this exemption, after June 28, 2004, the Trust REIT or its 
Employer Affiliate provides the following disclosures to the person who 
exercises discretionary authority with respect to the Qualifying REIT 
Shares (i.e., the participant or the Independent Fiduciary). The 
disclosure must contain the following information regarding the 
transactions and a supplemental disclosure must be made to the person 
directing the covered investments if material changes occur subsequent 
to the initial disclosure. This disclosure must include:
    (A) Disclosure of any fees for brokerage services or transaction 
costs that will be incurred as a result of the transactions;
    (B) Disclosure of the role of the Trust REIT, if any, as a 
principal in the transactions;
    (C) The exchange or market system where the Qualifying REIT Shares 
are traded; and
    (D) A statement that a copy of the proposed and final exemption 
shall be provided to participants and the Independent Fiduciary upon 
request.
    (11) The Trust REIT or its Employer Affiliates for a period of six 
years maintains the records necessary to enable the persons described 
below in paragraph (12) to determine whether the conditions of this 
exemption have been met, except that:
    (A) If the records necessary to enable the persons described in 
paragraph (12) to determine whether the conditions of the exemption 
have been met are lost or destroyed, due to circumstances beyond the 
control of the Trust REIT or its Employer Affiliates, then no 
prohibited transaction will be considered to have occurred solely on 
the basis of the unavailability of those records; and
    (B) No party in interest other than the Trust REIT or its Employer 
Affiliates shall be subject 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 (12) below.
    (12) (A) Except as provided below in paragraph (12)(B) and 
notwithstanding

[[Page 23226]]

any provisions of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (11) 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 whose Account is 
invested in Qualifying REIT Shares or the duly authorized employee or 
representative of such participant or beneficiary;
    (B) None of the persons described in paragraph (12)(A)(ii)-(iv) 
shall be authorized to examine trade secrets of the Trust REIT, or an 
Employer Affiliate or commercial or financial information which is 
privileged or confidential.

Section III. Definitions

    For purposes of this exemption,
    (a) Account--The term ``Account'' means the individual account of a 
participant in a defined contribution pension plan in which benefits 
are based solely upon the amount contributed to the participant's 
account, and any income, expenses, gains or losses, and any forfeitures 
of accounts of other participants which may be allocated to such 
participant's account.
    (b) Affiliate--The term ``affiliate'' of a person means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such person;
    (2) Any officer, director, employee, or relative (as defined in 
section 3(15) of the Act) of such person or partner in such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) Control--The term ``control'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (d) Employer Affiliate--The term ``Employer Affiliate'' means any 
corporation, limited liability company (LLC), or partnership 50 percent 
or more owned by a Trust REIT.
    (e) Independent Fiduciary--The term ``Independent Fiduciary'' means 
a person who:
    (1) Is a trustee or an investment manager (as defined in 3(38) of 
the Act) who had equity capital of at least $1 million as of the last 
day of its most recent fiscal year and has client assets under 
management or control of over $50 million;
    (2) Is not an affiliate of the Trust REIT, the Employer Affiliate 
or an affiliate thereof;
    (3) Is not a corporation, partnership or trust in which the Trust 
REIT, its Employer Affiliate or an affiliate thereof has a one percent 
or more ownership interest or is a partner;
    (4) Does not have more than a five percent ownership interest in 
the Trust REIT, its Employer Affiliate or an affiliate thereof;
    (5) Has acknowledged in writing that:
    (i) It is a fiduciary; and
    (ii) It has appropriate technical training or experience to perform 
the services contemplated by the exemption;
    (6) For purposes of this definition, no organization or individual 
may serve as Independent Fiduciary for any fiscal year in which the 
gross income received by such organization or individual (or 
partnership or corporation of which such organization or individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from the Trust REIT, its Employer Affiliate and affiliates thereof, 
(including amounts received for services as an independent fiduciary 
under any prohibited transaction exemption granted by the Department) 
exceeds one percent of such fiduciary's gross income for federal tax 
purposes in its prior tax year; and
    (7) In addition, no organization or individual which is an 
Independent Fiduciary and no partnership or corporation of which such 
organization or individual is an officer, director or 10 percent or 
more partner or shareholder may acquire any property from, sell any 
property to or borrow any funds from the Trust REIT, its Employer 
Affiliate or their 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 negotiates any such transaction during the 
period that such organization or individual serves as an Independent 
Fiduciary.
    (f) Plan--The term ``Plan'' means an individual account plan 
sponsored by the issuer of Qualifying REIT Shares or an Employer 
Affiliate thereof.
    (g) Plan Sponsor--The term ``Plan Sponsor'' means the Trust REIT or 
the Employer Affiliate that is the employer of the employees covered by 
the Plan.
    (h) Primary Exchange--The term ``Primary Exchange'' means the 
national securities exchange or market system on which the Trust REIT 
shares are primarily traded, and which is either the New York Stock 
Exchange, the American Stock Exchange, or the National Association of 
Securities Dealers Automated Quotation System National Market.
    (i) Trust REIT--The term ``Trust REIT'' means a ``real estate 
investment trust'' within the meaning of section 856 of the Code that 
is organized as a trust under applicable law.
    (j) Qualifying REIT Shares--The term ``Qualifying REIT Shares'' 
means shares of beneficial interest in a Trust REIT that:
    (1) Are publicly traded (as defined in section III(k); and
    (2) Have no trading restrictions other than those necessary to 
qualify for REIT status or otherwise to satisfy securities law or 
applicable exchange or market system trading rules. Notwithstanding the 
above, the term ``Qualifying REIT Shares'' includes a Trust REIT share 
that otherwise meets the conditions of this exemption but trades only 
as a unit consisting of a Trust REIT share and a share of corporate 
stock (a paired share arrangement), provided that the corporate stock 
with which it trades is a qualifying employer security as defined in 
ERISA section 407(d)(5).
    (k) Publicly Traded--The term ``publicly traded,'' for purposes of 
this exemption, means Trust REIT shares of beneficial interest which 
are traded on the New York Stock Exchange, the American Stock Exchange, 
or the National Association of Securities Dealers Automated Quotation 
System National Market System.
    (1) Participant--The term ``participant'' includes beneficiaries.

    Signed at Washington, DC, this 22nd day of April, 2004.
Ivan L. Strasfeld,
Director, Office of Exemption, Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 04-9631 Filed 4-27-04; 8:45 am]

BILLING CODE 4520-29-P