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Employee Benefits Security Administration

EBSA Federal Register Notice

Grant of Individual Exemptions; Kinder Morgan, Inc. [07/07/2004]

[PDF Version]

Volume 69, Number 129, Page 40969-40979

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2004-08; Exemption Application No. D-
11079 et al.]

 
Grant of Individual Exemptions; Kinder Morgan, Inc.

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;

[[Page 40970]]

    (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.

Kinder Morgan, Inc.

[Prohibited Transaction Exemption 2004-08; Exemption Application Number 
D-11079]

Exemption

Section I. Transactions Involving Contributions In-Kind
    The restrictions of sections 406(a)(1)(E), 407(a)(2), 406(b)(1), 
and 406(b)(2) of the Act shall not apply to: (1) The acquisition of 
publicly traded Employer Stock by the Trusts through the voluntary in-
kind contribution (the Contribution) of such Stock by the Employer for 
the purpose of pre-funding welfare benefits provided by the Plans; and 
(2) the holding by the Trusts of Employer Stock acquired pursuant to a 
Contribution, provided that:
    (a) Each Contribution is authorized pursuant to, and made in 
conformity with, all relevant provisions of each affected Plan;
    (b) The Plans and/or Trusts do not pay any amount or type of 
consideration whether in cash or other property (including the 
diminution of any Employer obligation to fund a Plan) for Employer 
Stock contributed in-kind by the Employer;
    (c) Each Contribution is voluntary and unrelated to any Employer 
obligation to fund a Plan;
    (d) The Plans do not cede any right to receive a cash contribution 
from the Employer as a result of any Contribution made to any Plan;
    (e) The Plans and/or Trusts do not pay any fees or commissions in 
connection with any Contribution; and
    (f) Each condition set forth below in Section II is satisfied.
Section II. Conditions
    The exemption is conditioned upon the adherence by the Employer to 
the material facts and representations described herein and in the 
notice of proposed exemption, and upon the satisfaction of the 
following requirements:
    (a) Only Employer Stock that constitutes ``qualifying employer 
securities'' (QES), as such term is set forth in section 407(d)(5) of 
the Act, will be transferred by the Employer to a Trust pursuant to a 
Contribution; \1\
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    \1\ Section 407(d)(5) of the Act provides that the term 
``qualifying employer security'' means an employer security that is 
stock or a marketable obligation (as defined in subsection (e)). 
After December 17, 1987, in the case of a plan other than an 
individual account plan, stock is considered a ``qualifying employer 
security'' only if such stock satisfies the requirements of 
subsection 407(f)(1) of the Act. Section 407(f)(1) of the Act 
provides that stock satisfies such requirement if, immediately 
following the acquisition of such stock--(A) no more than 25 percent 
of the aggregate amount of stock of the same class issued and 
outstanding at the time of acquisition is held by the plan, and (B) 
at least 50 percent of the aggregate amount referred to in 
subparagraph (A) is held by persons independent of the issuer.
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    (b) Employer Stock transferred by the Employer on behalf of a Plan 
will thereafter be held by the Trust (or Trusts) for the purpose of 
funding welfare benefits for the participants and beneficiaries of such 
Plan;
    (c) Employer Stock contributed to, or otherwise acquired by, a 
Trust will be held in a separate account (an Account) under such Trust;
    (d) The appropriate fair market value of any Employer Stock 
contributed by the Employer to a Trust will be established by an 
Independent Fiduciary, as such term is defined in section III(c) of 
this exemption;
    (e) The Independent Fiduciary will represent the interests of the 
Plans for all purposes related to each Contribution for the duration of 
the Trust's holding of such Employer Stock, and will authorize the 
trustee of each Trust to accept Employer Stock pursuant to a 
Contribution only after such Independent Fiduciary determines, at the 
time of the transaction, that such transaction is feasible, in the 
interest of the affected Plans, and protective of the participants and 
beneficiaries of such Plans;
    (f) The Independent Fiduciary will: (1) Verify that the price of 
Employer Stock contributed by the Employer is appropriate and, 
thereafter, monitor the Employer Stock and have sole responsibility for 
the ongoing management of the Accounts; and (2) take whatever action is 
necessary to protect the rights of the Plans funded by the Trusts, 
including, but not limited to, the making of all decisions regarding 
the acceptance and acquisition of Employer Stock contributed by the 
Employer, the retention and any disposition of such Stock, and the 
exercise of any voting rights associated with such Stock;
    (g) With certain exceptions described in paragraphs (h) and (i) 
below, the total amount of: (1) Employer Stock; (2) qualifying employer 
real property (QERP), as defined by section 407(d)(4) of the Act; and 
(3) QES other than the Employer Stock (collectively, the Limited 
Assets) held by each Plan shall not comprise more than twenty-five 
percent (25%) of the fair market value of the assets held by such Plan 
as determined on the date of each such transaction;
    (h) For purposes of calculating the percentage limitation described 
in paragraph (g) of this section, and to the extent the conditions of 
Prohibited Transaction Exemption (PTE) 91-38 have been met,\2\ Employer 
Stock will not constitute a ``Limited Asset'' to the extent that such 
Employer Stock:
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    \2\ PTE 91-38 (56 FR 31966 (July 12, 1991)) requires, among 
other things, that the interests of a plan in an unrelated common or 
collective trust fund may not exceed ten percent (10%) of the total 
of all assets in such common or collective trust fund.
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    (1) Is held by an unrelated common or collective trust fund 
maintained by an independent bank in which any of the Plans through the 
Trusts may invest; and
    (2) Has a total fair market value that does not exceed five percent 
(5%) of the fair market value of each such common or collective trust 
fund;
    (i) Notwithstanding the requirement set forth in paragraph (g) 
above, the amount of Limited Assets held by a Plan may only exceed 25% 
of the total assets held by such Plan where:
    (1) The Limited Assets appreciate in value at a rate that is 
greater than the rate attributable to the Plan's non-Limited Assets, 
and such difference in rates causes the value of the Limited Assets to 
exceed 25% of the Plan's total asset value; or
    (2) The non-Limited Assets have declined in value at a rate that is 
greater than the rate attributable to the Plan's Limited Assets, and 
such difference in rates causes the value of the Limited Assets to 
exceed 25% of the Plan's total asset value; and
    (j) At no time will any of the assets of the Trusts revert to the 
use or benefit of the Employer.
Section III. Definitions
    (a) The term ``Employer'' means Kinder Morgan, Inc., any successor 
to Kinder Morgan, Inc., and/or any affiliates of Kinder Morgan, Inc.;
    (b) The term ``Employer Stock'' means shares of publicly traded 
common stock of the Employer and includes any replacement publicly 
traded shares of such stock;
    (c) The term ``Independent Fiduciary'' means W.H. Reaves & Company 
Investment Management only to the extent that W.H. Reaves & Company 
Investment Management: (1) Is an investment manager; (2) is independent 
of and unrelated to the Employer; and (3) acts solely on behalf of the 
Plans with respect to each Contribution. For purposes of this 
exemption, W.H. Reaves & Company Investment

[[Page 40971]]

Management will not be deemed to be independent of and unrelated to the 
Employer if (i) W.H. Reaves & Company Investment Management directly or 
indirectly controls, is controlled by or is under common control with 
the Employer; or (ii) the Employer pays W.H. Reaves & Company 
Investment Management an amount of income during the fiduciary's 
current tax year that exceeds one percent (1%) of such fiduciary's 
gross income (for federal income tax purposes) over its prior tax year;
    (d) The term ``Plan'' means an employee welfare benefit plan 
maintained by the Employer; and
    (e) The term ``Trust'' means a trust which is qualified under 
Section 501(c)(9) of the Code, and established for the purpose of 
funding life, sickness, accident, and other welfare benefits for the 
participants and beneficiaries of the Plans.
Written Comments
    Subsequent to the publication of the notice of proposed exemption 
(the Notice), Kinder Morgan, Inc. (hereinafter, either Kinder Morgan or 
the Applicant) notified the Department that it selected W.H. Reaves & 
Company Investment Management to act as the Independent Fiduciary.
    The Department received two written comments in response to the 
Notice. The first written comment inquired: (1) Does the contribution 
of stock by Kinder Morgan limit Kinder Morgan's liability to fund the 
Plan; (2) What purpose does the proposed exemption serve; (3) Are the 
transactions described in the proposed exemption just a ``scheme;'' (4) 
Has the Securities and Exchange Commission (the SEC) reviewed the 
proposed transactions; and (5) Does Kinder Morgan have to contribute 
more shares if the value of the previously contributed shares 
significantly decreases?
    The Applicant responded to (1) above as follows: Kinder Morgan is 
not required to pre-fund the Plans except for required contributions 
made as part of certain rate agreements with the Federal Energy 
Regulatory Commission.\3\ Kinder Morgan is required to make 
contributions to the Plans only as benefit payments become due. The 
contribution of Employer Stock increases the assets in the Plan. This 
increases Kinder Morgan's ability to make benefit payments in the 
future. These contributions do not limit Kinder Morgan's liability to 
fund the Plan.
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    \3\ As stated in the proposed exemption, Kinder Morgan is 
currently subject to two rate agreements (the Rate Agreements) that 
require the Employer to make annual cash contributions of specified 
amounts to a Trust for an indefinite period of time. The Applicant 
states that all of the contributions made by Kinder Morgan to 
satisfy the funding requirements under the Rate Agreements will be 
accounted for separately.
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    The Applicant responded to (2) above as follows: Kinder Morgan 
desires to pre-fund the Plans in order to provide both current and 
future eligible participants (and their beneficiaries) with greater 
assurance that funds will be available in future years to make benefit 
payments. This desire to pre-fund (rather than utilizing a ``pay-as-
you-go'' approach) should be perceived very positively by eligible 
participants. Pre-funding eliminates the risk associated with having 
company general asset funds available in future years to make benefit 
payments.
    With respect to (3) above, Kinder Morgan represents that there is 
no ``scheme'' involved with its prohibited transaction exemption 
request. According to the Applicant, contributions of Employer Stock 
will enable the Plans to more securely fund benefit payments in the 
future. In response to (4) above, Kinder Morgan states that the 
requested exemption does not affect the SEC's jurisdiction. With 
respect to (5) above, Kinder Morgan represents that the purpose of the 
prohibited transaction exemption request is to increase the amount of 
assets that would otherwise be contributed to the Plans by pre-funding 
the Plans with additional contributions of Employer Stock; but since 
any contributions of Employer Stock into the Plans are voluntary Kinder 
Morgan contributions, no additional contributions are required if 
previously contributed Employer Stock shares decrease in value.
    The other written comment expressed general concern regarding the 
transactions described in the proposed exemption. In response to this 
comment, Kinder Morgan states that the contributions of Employer Stock 
described in the proposed exemption are voluntary. Once made, all 
Employer Stock contributed in-kind will be subject to the control of an 
Independent Fiduciary who will represent the interests of the Plans for 
all purposes with respect to the Employer Stock for the duration of the 
Trusts' holding of any of such Employer Stock as Plan assets. Kinder 
Morgan represents that no assets of any of the Trusts may be used 
except for the exclusive purpose of providing life, sickness, accident, 
and other benefits covered under the Code to Kinder Morgan employees, 
retirees, and their dependents and beneficiaries and for reasonable 
expenses.
    In addition, the Applicant represents that the Independent 
Fiduciary is reputable and qualified as an investment manager. The 
Applicant states that: (1) The Independent Fiduciary is and will remain 
independent of, and unrelated to, Kinder Morgan; and (2) the 
Independent Fiduciary's income from Kinder Morgan will not represent a 
significant percentage (i.e., not more than one percent) of its total 
income. The Applicant further represents that the requested 
transactions are structured so that: (1) The Plans will not give up any 
rights to cash or other property in connection with the acceptance of 
the Employer Stock contributions; (2) no consideration will be paid for 
Employer Stock contributed in-kind; (3) no obligation to pre-fund 
welfare benefits will be satisfied by the contribution of Employer 
Stock; (4) the Independent Fiduciary will be authorized to sell the 
Employer Stock at any time; (5) the Plans will pay no commissions in 
connection with the acquisition of the Employer Stock; (6) acceptance 
of the Employer Stock will be consistent with the guidelines and asset 
allocation policies applicable to the Trusts; and (7) the Employer 
Stock will be subject to no restrictions on marketability and fully 
transferable.
    Accordingly, after full consideration and review of the entire 
record, including the written comments, the Department has determined 
to grant the exemption, as modified herein. The comments submitted by 
the commentators to the Department and the Applicant's response thereto 
has 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 available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1513, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.
    For a complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice published on June 24, 2003 (68 FR 37534).

FOR FURTHER INFORMATION CONTACT: Christopher Motta of the Department, 
telephone (202) 693-8544. (This is not a toll-free number.)

[[Page 40972]]

Landerholm, Memovich, Lansverk & Whitesides, P.S. 401(k) Profit Sharing 
Plan (the Plan) Located in Vancouver, WA

[Prohibited Transaction Exemption 2004-09; Exemption Application No. D-
11132]

Exemption

Section I. Covered Transactions
    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 \4\ shall not apply, 
effective January 1, 1998, to the past acquisition by the Plan, through 
its real estate contract fund (the Fund), of real estate mortgage 
contracts (the Contracts) from American Equities, Inc. (AE), a party in 
interest with respect to the Plan.
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    \4\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to corresponding provisions of the Code.
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    In addition, 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 to the (1) future acquisition by the Plan, through the Fund, of 
additional Contracts from AE; (2) the sale by the Plan of any of the 
Contracts to AE; and (3) the exchange by the Plan of certain Contracts 
with AE for other AE contracts and/or cash.
Section II. General Conditions
    This exemption is conditioned upon adherence to the material facts 
and representations described herein and upon satisfaction of the 
following general conditions:
    (a) Any acquisition, sale or exchange is approved in advance by the 
Plan's Trustees (the Trustees), who are independent of AE and the 
borrowers. Furthermore, the terms of each transaction between the Plan 
and AE involving the Contracts is not less favorable to the Plan than 
those terms generally available in an arm's length transaction between 
unrelated parties.
    (b) The transactions are not a part of an agreement, arrangement or 
understanding designed to benefit AE.
    (c) For purposes of an acquisition, sale or exchange, the cost of a 
Contract does not exceed its fair market value, as determined by the 
Plan's Trustees, using an objective appraisal methodology, and the 
yield on all Contracts purchased, sold or exchanged exceeds the average 
yield of comparable mortgage contract loans by not less then 1%.
    (d) The aggregate fees paid to AE for its activities as loan 
servicing agent for the Plan at all times do not exceed ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (e) No investment management, advisory, underwriting fees or sales 
commissions are paid by the Plan to AE or any of its affiliates with 
regard to the Plan's purchase, sale or exchange of a Contract.
    (f) All Contracts acquired by the Plan satisfy the Trustees' 
selection criteria. In this regard, at the time of the transaction:
    (1) The loan to value ratio is 75% or less;
    (2) The ``Total Return'' on the Contract is at least 1.00% above 
the prevailing 30 year home mortgage rate;
    (3) The purchaser of the property provides a clean payment history 
and a personal credit report of at least 12 months' duration;
    (4) The property is in good condition with no defects discovered 
upon inspection;
    (5) A clean title report is required; and
    (6) A first position lien is obtained on the property.
    (g) For prospective purchases or exchanges of Contracts by or 
between the Plan and AE,
    (1) The Trustees engage an independent and unrelated consultant 
(the Independent Consultant), trained and experienced in real estate 
financing, to perform a written annual review of the Plan's Contract 
selection process to assure that--
    (i) The selection process produces a yield to the Plan consistent 
with comparable market returns for first mortgage investments by direct 
federally insured lenders in the Trustees' market area;
    (ii) The selection process permits only the purchase of Contracts 
which are not subordinated to other indebtedness; and
    (iii) The selection process incorporates standards for loan to 
value ratio and borrower credit worthiness appropriate for qualified 
retirement plan investments; and
    (2) No Contracts are purchased or exchanged in any year until the 
Independent Consultant's review has been issued, and the Independent 
Consultant has the authority to require that the Plan modify or replace 
the Selection Criteria utilized by the Plan as a condition to issuance 
of its review.
    (h) The Trustees maintain for a period of six years, in a manner 
that is accessible for audit and examination, the records necessary to 
enable the persons, as described in (i) to determine whether the 
conditions of this exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of the Trustees, 
the records are lost or destroyed prior to the end of the six year 
period; and
    (2) No party in interest, other than the Trustees, shall be subject 
to the civil penalty that may be assessed under section 502(i) of the 
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if 
the records are not maintained, or are not available for examination as 
required by paragraph (h).
    (i) Except as provided in (i)(1)-(2) and notwithstanding any 
provisions of subsections (a)(2) and (b) of section 504 of the Act, the 
records referred to in paragraph (h) above shall be unconditionally 
available at their customary location for examination during normal 
business hours by--
    (1) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (2) Any fiduciary of the Plan who has authority to acquire or 
dispose of any assets of the Plan, or any duly authorized employee or 
representative of such fiduciary; and
    (3) Any participant or beneficiary of the Plan or duly authorized 
employee or representative of such participant or beneficiary.

EFFECTIVE DATE: This exemption is effective as of January 1, 1998 with 
respect to the Plan's past acquisition of the Contracts and effective 
as of the date of publication of the final exemption in the Federal 
Register for further acquisitions, sales or exchanges of additional 
Contracts by the Plan.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on March 24, 2004 at 69 FR 
13884.
Written Comments
    During the comment period, the Department received two written 
comments. The first comment letter was submitted by a former employee 
of Landerholm, Memovich, Lansverk & Whitesides (Landerholm), the Plan 
sponsor. The second comment letter was submitted by Landerholm. 
Discussed below are the comments, including the responses made by 
Landerholm to the first commenter and the Department's responses to 
Landerholm's comment.
Former Employee's Comments
    1. Arm's Length Transaction. The former employee's first comment 
concerned whether ``the Fund [would]

[[Page 40973]]

maintain an arm's length Plan.'' Landerholm notes that although the 
Plan has always functioned on an arm's length basis with respect to 
transactions with AE, all discretion to purchase either administrative 
services or Contracts from AE has resided with the Trustees, who are 
wholly independent of AE. Landerholm also points out that the exemption 
would add an Independent Consultant to review the decision-making 
parameters employed by the Trustees in selecting investment Contracts. 
In Landerholm's view, the addition of the Independent Consultant would 
not compromise the arm's length nature of the transactions.
    In addition, Landerholm wishes to remind the commenter that the 
changes resulting from the exemption relate only to the Fund, which is 
an investment option offered to participants under the Plan. Should the 
commenter have concerns about the arm's length nature of transactions 
involving the Fund, Landerholm suggests that the commenter could pursue 
other investment alternatives offered under the Plan.
    2. AE's Ownership Interests. The commenter's second comment 
concerned the ownership status of AE and whether any Landerholm 
attorneys own interests in AE. Landerholm states that AE is a wholly 
independent company owned by Mr. Ross Niles and Ms. Maureen Wile. 
Landerholm also explains that none of its attorneys, nor their 
relatives or related entities, have any ownership interest in AE.
    3. Impact of Contract Default on Plan. The commenter's third 
comment concerned the impact of a Contract failure upon her retirement 
benefits. Landerholm explains that there would be no adverse effect on 
the commenter's retirement benefits since the commenter has not 
invested any of her account balance in the Fund. On a more generic 
basis, Landerholm notes that any investments in mortgages, deeds of 
trust or other real estate financing instruments may involve some 
degree of risk of default for delayed performance by the borrower. 
However, Landerholm states that the Trustees have worked diligently to 
minimize this risk by the application of stringent underwriting 
standards to evaluate the borrower, the Contracts being purchased, and 
the incidences of default. In addition, Landerholm asserts that the 
Plan has intentionally diversified its investment in the Fund among a 
large number of Contracts to minimize the risk that default on any one 
Contract would seriously harm the Fund or its cash flow. Landerholm 
explains that historically, Contracts have either been refinanced or 
foreclosed upon. Although these processes may temporarily delay cash 
flow on a particular Contract, Landerholm indicates that the 
diversification of Contracts and their maturities is intended to 
minimize or eliminate the impact on Plan distributions to participants. 
Finally, Landerholm believes that after implementing the exemptive 
safeguards, the Plan's processes for selecting, holding and monitoring 
the Contracts provides a high degree of protection for those 
participants choosing to invest in the Fund.
Landerholm's Comments
    1. Current Plan Trustees. On page 13885 of the proposed exemption, 
the fourth sentence of Representation 1 states ``The present Trustees 
of the Plan are Irwin C. Landerholm, T. Randall Grove, and Philip 
Janney, all of whom are current Landerholm shareholders.'' Landerholm 
wishes to note that Mr. Landerholm is retired and is no longer a 
shareholder. Landerholm suggests rewording the sentence to read as 
follows: ``The present Trustees of the Plan are Irwin C. Landerholm, T. 
Randall Grove, and Philip Janney. Mr. Grove and Mr. Janney are current 
Landerholm shareholders, and Mr. Landerholm is a former Landerholm 
shareholder. The Department notes this clarification to the proposed 
exemption.
    2. Fund's Ownership Interest in the Contracts. On page 13885 of the 
proposal, the third sentence of Representation 2 states ``All of the 
Contracts are ``whole'' Contracts that are held in the name of the 
Fund.'' Landerholm wishes to clarify that all Contracts, whether 
``whole'' Contracts or partial interests in Contracts are held in the 
name of the Fund, are secured by a first mortgage, deed of trust, or 
equivalent first security, and provide the Plan with the right to 
proceed with foreclosure in the event of a default by the borrower. In 
this regard, Landerholm states that there are two types of co-
ownerships involved in the Contracts. For instance, the Plan may hold 
either a stream of a fixed number of payments (the Stream) or an 
undivided interest in a Contract. Where a Stream is involved, 
Landerholm explains that the Plan receives the first of (x) number of 
Contract payments. Any remaining payments will be made to the seller of 
the Plan, i.e., AE. Currently, Landerholm indicates the Plan holds 
thirteen Contracts which break down as follows: 6 entire Contracts, 1 
undivided interest in a Contract, 4 entire Streams, and 2 undivided 
interests in a Stream.
    Landerholm further explains that in all of the co-ownership 
situations, the Plan's interest in the Contracts is secured by a first 
real estate mortgage or deed of trust. Upon default by the borrower on 
the underlying Contract, Landerholm indicates that the Contract 
documents provide the Plan (together with any undivided co-owner) the 
right to foreclose on the underlying property. If the Plan's interest 
is in a Stream, the Plan must give thirty (30) days notice to AE, as 
seller and holder of any residue interest after the Stream. Up until 
there is a foreclosure of the property, Landerholm states that AE can 
pay the Plan an amount equal to the entire Stream (including accrued 
interest), together with all costs and expenses incurred by the Plan, 
and thereby protect its residuary interest. If such a payoff occurs, 
Landerholm represents that the Plan is made whole. However, if AE does 
not pay off the entire Stream, then the Plan will complete the 
foreclosure process, sell the underlying property and retain the entire 
net foreclosure proceeds as a Plan asset. Thus, in the case of an 
undivided interest, Landerholm states that the Plan (acting in concert 
with the joint owner) has the same right it would if the Plan were the 
sole owner of the Contract with first security position. In the case of 
a Stream, other than AE's ability to pay off the Plan to protect AE's 
residuary interest, Landerholm explains that the Plan has the same 
first lien position and foreclosure rights that it would have if it 
were the whole Contract holder with first security position.
    Landerholm further notes that as a technical matter, all of the 
Streams involve AE, a party in interest, since AE retains a residuary 
interest after all of the payments of the Stream have been made. Other 
than AE's residuary interest, Landerholm points out that only two 
active Contracts have a party in interest, Mr. Irwin Landerholm, a co-
trustee of the Plan, as a co-owner. Landerholm explains that at the 
time the Plan purchased its interests in these Contracts, the Fund 
lacked sufficient free cash to purchase full Contracts. Therefore, Mr. 
Landerholm agreed to purchase a fifty percent undivided interest in one 
undivided Contract and one undivided Stream to facilitate the Plan's 
investment of the cash it did have available in the other fifty percent 
interest.
    Landerholm further states that Mr. Landerholm's 50% co-ownership 
interest in the Contracts is identical to the Plan's 50% interest. In 
this respect, Landerholm indicates that Mr. Landerholm does not receive 
payment or distribution preferences. Until the

[[Page 40974]]

time the Contracts are paid, or Mr. Landerholm sells or otherwise 
transfers his interest to a third party, all payments under the 
Contracts are allocated equally between the Plan and Mr. Landerholm. 
Landerholm further represents that in the event of a Contract 
foreclosure the Plan and Mr. Landerholm have a joint first security 
interest, and either party can instigate the foreclosure proceeding. In 
this regard, Landerholm notes that Mr. Landerholm would not receive 
distribution or payment preferences of any kind.
    Landerholm further represents that with respect to Mr. Landerholm's 
current fiduciary status, whether as Trustee, Real Estate Committee 
member, or otherwise, Mr. Landerholm will recuse himself from any and 
all decision making by the relevant fiduciary body with respect to 
matters involving any payment default and/or foreclosure on either of 
the Contracts in which Mr. Landerholm is co-owner. In addition, 
Landerholm notes that one of the Contracts in which Mr. Landerholm is 
co-owner will be fully paid off in a matter of a few months.
    Landerholm explains that both it and Mr. Landerholm desire to 
complete Mr. Landerholm's retirement from his remaining Plan functions 
(principally as a Trustee and Real Estate Committee member) shortly 
after this exemption is granted. Upon that severance, Landerholm states 
that Mr. Landerholm will no longer be a fiduciary, and thus, he will 
have no discretionary authority over any Plan decision, including 
whether to proceed with a Contract foreclosure. The Department 
acknowledges the foregoing clarification to the proposal.\5\
---------------------------------------------------------------------------

    \5\ The Department notes that Mr. Landerholm will recuse himself 
from all decisions regarding payment default and/or foreclosure on 
either of the Contracts in which he is a co-owner with the Plan. 
Although this issue may become moot due to Mr. Landerholm's 
contemplated retirement and resignation as Trustee and Real Estate 
Committee member, the Department wishes to point out that where a 
plan fiduciary removes himself from all consideration by the plan of 
whether or not to engage in a transaction, and by not otherwise 
exercising, with respect to the transaction, any of the authority, 
control or responsibility which makes such person a fiduciary, and 
absent any arrangement, agreement or understanding with respect to 
who will render the decision concerning the propriety of the 
transaction, the fiduciary may avoid engaging in an act described in 
section 406(b)(1) and (b)(2) of the Act. (See ERISA Advisory Opinion 
97-72A, October 10, 1979.)
---------------------------------------------------------------------------

    3. Federally-Insured Mortgage Lenders. On page 13885 of the 
proposed exemption, the fourth sentence of Representation 2 states 
``The loans do not represent loans from direct, federally-insured 
lenders, and as a result, they normally trade at a discount to the 
current federally-insured lending rates.'' Landerholm explains that 
while it agrees with this statement, it would like to emphasize that 
the Contracts must provide a premium return over current rates due to 
the fact that they are not federally insured. Landerholm proposes that 
the sentence be reworded to read ``The loans do not represent loans 
from direct, federally-insured lenders, and as a result, the Contracts 
must normally provide a return which is superior to the current 
federally-insured lending rates.'' The Department notes this 
clarification to the proposed exemption.
    4. Contract Purchase Price. On page 13885 of the proposed 
exemption, the second sentence of Representation 4 reads ``AE acquires 
Contracts at a discount and sells them at less than the federally-
insured lending rate on the secondary market.'' Landerholm proposes the 
sentence be reworded to read ``AE sells the Contracts at a discount to 
reflect the fact that the return must be at a premium to the federally-
insured lending rate.'' The Department acknowledges this clarification 
to the proposal.
    5. Prospective Contract Disclosure to Plan. On page 13885 of the 
proposed exemption, the fifth sentence of Representation 4 reads ``Each 
package prepared by AE included relevant documentation and performance 
history, as well as an independent appraisal by a knowledgeable realtor 
in the property's locale, of the underlying real estate securing the 
loans.'' Landerholm states that under Washington law special licensure 
is required to provide an ``appraisal'' and a realtor is not normally 
licensed to provide ``appraisals''. As a result, Landerholm proposes 
the sentence be reworded to read ``Each package prepared by AE included 
relevant documentation and performance history, as well as an 
independent market evaluation by a knowledgeable realtor in the 
property's locale, of the underlying real estate securing the loans.'' 
The Department notes the foregoing clarification to the proposal.
    6. Contract Yield. On page 13886 of the proposed exemption, the 
third bullet point of Representation 9 reads ``The cost of a Contract 
must not exceed its fair market value, as determined by the Trustees 
using an objective appraisal methodology, and the yield on all 
Contracts purchased must exceed the average yield of comparable 
mortgage contract loans by no less than 1%.'' Landerholm notes that the 
Trustees focus on each Contract and the determination of yield at the 
time of acquisition. Therefore, Landerholm proposes the bullet language 
be modified to read ``* * *and the yield on each Contract, determined 
at the time of acquisition, must exceed the average yield of comparable 
mortgage contract loans at that time by no less than 1%.'' The 
Department notes this clarification to the proposal.
    Accordingly, after giving full consideration to the entire record, 
including the two comment letters, the Department has determined to 
grant the exemption. For further information regarding the comments and 
other matters discussed herein, interested persons are encouraged to 
obtain copies of the exemption application file (Exemption Application 
No. D-11132) the Department is maintaining in this case. The complete 
application file, as well as the comments and all supplemental 
submissions received by the Department, are made available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, Room N-1513, U.S. Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Ms. Silvia M. Quezada of the 
Department, telephone (202) 693-8553. (This is not a toll-free number.)

DuPont Capital Management Corporation (DCMC)

[Prohibited Transaction Exemption 2004-10; Exemption Application Nos. 
D-11157--D-11159]

Exemption

Section I. Covered Transactions
    The restrictions of sections 406(a), 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 the in kind transfer of certain debt securities (the 
Debt Securities) that are held in the DuPont and Related Companies 
Defined Contribution Plan Master Trust (the Master Trust), in which the 
assets of the E.I. du Pont de Nemours and Company Savings and 
Investment Plan (the DuPont Savings and Investment Plan), the DuPont 
Specialty Grains Savings Plan, and the Thrift Plan for Employees of 
Sentinel Transportation Company (collectively, the DuPont Plans) 
invest, in exchange for units in a newly-established group trust (the 
Group Trust), where DCMC, a wholly owned subsidiary of E.I. du Pont de 
Nemours and Company (DuPont), one of the sponsors of the DuPont Plans, 
acts as both a fiduciary for the Master Trust and the Group Trust.

[[Page 40975]]

Section II. Specific Conditions

    This exemption is subject to the following conditions:
    (a) A fiduciary (the Independent Fiduciary), who is acting on 
behalf of the DuPont Plans, who is independent of and unrelated to 
DuPont and its subsidiaries, as defined in paragraph (e) of Section IV 
below, has the opportunity to review the in kind transfer of the Debt 
Securities that are held in the Master Trust, to the Group Trust, in 
exchange for units in the Group Trust, and receives, in advance of the 
investment by the Master Trust in the Group Trust, full written 
disclosures concerning the Group Trust, which include, but are not 
limited to the following:
    (1) A private offering memorandum describing the transaction;
    (2) A table listing management fees, as negotiated under the 
applicable investment management agreements, and projected costs;
    (3) A chart showing the effect of such fees and costs on an 
investment in the Group Trust for different amounts of Debt Securities 
managed in the Group Trust;
    (4) A statement of the reasons why DCMC may consider such 
investment to be appropriate for the DuPont Plans;
    (5) A statement on whether there are any limitations applicable to 
DCMC with respect to which assets of a DuPont Plan may be invested in 
the Group Trust and the nature of such limitations; and
    (6) Copies of the proposed and final exemption.
    (b) On the basis of the foregoing information, the Independent 
Fiduciary authorizes, in writing, the in kind transfer of the Debt 
Securities that are held on behalf of the DuPont Plans in the Master 
Trust to a series of subtrusts under the Group Trust, in exchange for 
units in the Group Trust. Such authorization is to be consistent with 
the responsibilities, obligations, and duties imposed on fiduciaries by 
Part 4 of Title I of the Act. Specifically, the Independent Fiduciary, 
before authorizing the transfer of assets by the DuPont Plans from the 
Master Trust to the Group Trust, determines that:
    (1) The terms of the in kind transfer transaction, are fair to the 
participants in the DuPont Plans, and are comparable to, and no less 
favorable than, terms obtainable at arm's length between unaffiliated 
parties; and
    (2) The in kind transfer transaction is in the best interest of the 
DuPont Plans and their participants and beneficiaries.
    (c) No sales commissions, fees or other costs are paid by the 
DuPont Plans in connection with the in kind transfer transaction. 
Furthermore, no additional management fees are charged to the DuPont 
Plans by DCMC in the Group Trust.
    (d) The in kind transfer transaction is a one-time transaction for 
the DuPont Plans, the transferred assets constitute a pro rata portion 
of all of the assets of the DuPont Plans that are held in the total 
return tier portion of the DuPont Stable Value Fund (the Fund) within 
the Master Trust prior to the transfer.
    (e) The per unit value of the units representing interests in the 
subtrusts created under the Group Trust that are issued to each DuPont 
Plan have an aggregate value that is equal to the value of the Debt 
Securities transferred to the Group Trust on the date of the transfer, 
as determined in a single valuation performed in the same manner and at 
the close of business on the same day in accordance with Securities 
Exchange Commission Rule 17a-7 under the Investment Company Act of 1940 
(the 1940 Act), as amended (Rule 17a-7), (using sources independent of 
DCMC), and the procedures established by the Master Trust to Rule 17a-
7.
    (f) Fair market value of the Debt Securities for which a current 
market price can be obtained is determined by reference to the last 
sale price for transactions reported in the consolidated transaction 
reporting system (the Consolidated System), a recognized securities 
exchange, or the National Association of Securities Dealers Automated 
Quotation System (the NASDAQ System). If there are no reported 
transactions or if the Debt Securities are not quoted in the NASDAQ 
System, fair market value is determined based on the evaluated mean 
price provided by a pricing service that is independent of DCMC, or, in 
the absence of an evaluated mean price from an independent pricing 
service, based on the average of the highest current independent bid 
and lowest current independent offer, as of the close of business on 
the day of the transaction determined on the basis of reasonable 
inquiry from at least two market makers as shall be provided to the 
trustee and custodian of the stable value fund of the Master Trust. All 
commercial pricing sources and dealers are pre-approved by the Master 
Trust's investment managers. The fair market value of any illiquid Debt 
Securities is provided to the Independent Fiduciary by DCMC for review 
and approval of the objective methodology and the application of such 
methodology in valuing such Debt Securities.
    (g) DCMC provides, within 30 days after the completion of the 
transaction, a confirmation statement to the Independent Fiduciary 
containing the following information:
    (1) The identity of each Debt Security that DCMC deemed suitable 
for transfer from the Master Trust to the Group Trust;
    (2) The current market price of each Debt Security for purposes of 
the transfer, as determined on the date of such in kind transfer;
    (3) The identity of each Debt Security that does not fall into at 
least one of the following categories: (i) a reported security; (ii) a 
security principally traded on an exchange; or (iii) a security quoted 
on the NASDAQ System;
    (4) The identity of each pricing service or market maker consulted 
in determining the fair market value of the Debt Securities, and
    (5) The aggregate dollar value of the Debt Securities that were 
held on behalf of the DuPont Plans in the Master Trust immediately 
before the in kind transfer, and the number of Group Trust units held 
by the Master Trust for the DuPont Plans immediately after the transfer 
(the related per unit value and the aggregate value).
    (h) After the transfer of Debt Securities from the Master Trust to 
the Group Trust, the Independent Fiduciary performs a review verifying 
the pricing information supplied by the investment managers and the 
Group Trustee.
    (i) The Debt Securities that are transferred from the Master Trust 
to the Group Trust are valued using the same methodology currently used 
by the Master Trust to value such securities. Similarly, the Group 
Trust uses the same valuation methodology.
    (j) DCMC does not execute the in kind transfer transaction unless 
the Independent Fiduciary for the DuPont Plans consents to such in kind 
transfer in writing.
    (k) DCMC does not execute the in kind transfer transaction unless 
the wrap contracts issued by certain unrelated banks and insurance 
companies to the Master Trust agree in advance to maintain the then-
current book value for accounting purposes with respect to the assets 
transferred to the Group Trust. In addition, DCMC absorbs all costs 
associated with the commitments.
    (l) Each of the DuPont Plan's dealings with the Master Trust, the 
Group Trust and DCMC is on a basis that is no less favorable to such 
Plan than dealings between the Group Trust and other holders of Group 
Trust units.
Section III. General Conditions
    This exemption is subject to the following general conditions:

[[Page 40976]]

    (a) DCMC maintains for a period of six years the records necessary 
to enable the persons described below in paragraph (b) of this Section 
III to determine whether the conditions of this exemption have been 
met, except that (1) a prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond the control of DCMC, the 
records are lost or destroyed prior to the end of the six year period, 
and (2) no party in interest other than DCMC shall be subject to the 
civil penalty that may be assessed under section 502(i) of the Act or 
to the taxes imposed by section 4975(a) and (b) of the Code if the 
records are not maintained or are not available for examination as 
required by paragraph (b) below.
    (b)(1) Except as provided in paragraph (b)(2) of this Section III, 
and notwithstanding any provisions of sections 504(a)(2) and (b) of the 
Act, the records referred to in paragraph (a) are unconditionally 
available at their customary location for examination during normal 
business hours by:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) The Independent Fiduciary described in paragraph (e) of 
Section IV; or
    (iii) Any participant or beneficiary of the DuPont Plans or any 
duly authorized employee or representative of such participant or 
beneficiary.
    (2) None of the persons described in paragraph (b)(1)(ii) and (iii) 
of this Section III shall be authorized to examine trade secrets of 
DCMC, or commercial or financial information which is privileged or 
confidential.
Section IV. Definitions
    For the purposes of this exemption,
    (a) The term ``DCMC'' means DuPont Capital Management Corporation 
and any affiliate of DCMC, as defined below in Section IV(b).
    (b) An ``affiliate'' of a person includes:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``relative'' means a ``relative,'' as that term is 
defined in section 3(15) of the Act, (or a ``member of the family,'' as 
that term is defined in section 4975(e)(6) of the Code), or a brother, 
a sister, or a spouse of a brother or a sister.
    (e) The term ``Independent Fiduciary'' means a fiduciary who is: 
(1) Independent of and unrelated to DCMC and its affiliates, and (2) 
appointed to act on behalf of the Plan for all purposes related to, but 
not limited to, (A) the in kind transfer of the Debt Securities by the 
Master Trust to the Group Trust, (B) the Group Trust, in turn, 
transferring units equal in value to the assets of the Master Trust 
held in certain stable value funds. For purposes of this exemption, a 
fiduciary will not be deemed to be independent of and unrelated to DCMC 
if: (1) Such fiduciary directly or indirectly controls, is controlled 
by or is under common control with DCMC; (2) such fiduciary directly or 
indirectly receives any compensation or other consideration in 
connection with any transaction described in this exemption, except 
that an Independent Fiduciary may receive compensation for acting as an 
Independent Fiduciary from DCMC in connection with the transaction 
contemplated herein if the amount of payment of such compensation is 
not contingent upon or in any way affected by the Independent 
Fiduciary's ultimate decision; and (3) the annual gross revenue 
received by such fiduciary from DCMC and its affiliates during any year 
of its engagement, exceeds 5 percent (5%) of the Independent 
Fiduciary's annual gross revenue from all sources for its prior tax 
year.
    (f) The term ``transferable securities'' means securities (1) for 
which market quotations are readily available (as determined under Rule 
17a-7 of the 1940 Act) and (2) which are not: (i) Securities which, if 
distributed, would require registration under the Securities Exchange 
Act of 1933; (ii) securities issued by entities in countries which (a) 
restrict or prohibit the holding of securities by non-nationals other 
than through qualified investment vehicles, such as the Mutual Funds, 
or (b) permit transfers of ownership of securities to be effected only 
by transactions conducted on a local stock exchange; (iii) certain 
portfolio positions (such as forward foreign currency contracts, 
futures, and options contracts, swap transactions, certificates of 
deposit and repurchase agreements) that, although they may be liquid 
and marketable, involve the assumption of contractual obligations, 
require special trading facilities or can only be traded with the 
counter-party to the transaction to effect a change in beneficial 
ownership; (iv) cash equivalents (such as certificates of deposit, 
commercial paper and repurchase agreements) which are not readily 
distributable; (v) other assets which are not readily distributable 
(including receivables and prepaid expenses), net of all liabilities 
(including accounts payable); and (vi) securities subject to ``stop 
transfer'' instructions or similar contractual restrictions on 
transfer. Notwithstanding the above, the term ``transferable 
securities'' also includes securities that are considered private 
placements intended for large institutional investors, pursuant to Rule 
144A under the 1933 Act, which are valued by the unrelated investments 
managers for the DuPont Stable Value Fund, or if applicable, by the 
Independent Fiduciary, which will confirm and approve all such 
valuations.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on March 24, 2004 at 69 FR 
13888.
Written Comments
    During the comment period, the Department received two written 
comments and no requests for public hearing. The first comment letter 
was submitted by a DuPont Plan participant, who is a retired employee. 
The second comment letter, which was submitted by DCMC, is intended to 
clarify the proposal. Discussed below are both comments, including 
responses made by DCMC and the Department.
Retired Employee's Comments
    1. DCMC's Seeking Financial Relief. The former employee's first 
comment concerns whether DCMC is looking for some type of financial 
relief. However, as discussed at some length in the exemption 
application, and as confirmed by the Independent Fiduciary, DCMC states 
that it is in no way seeking ``financial relief.'' Rather, DCMC states 
that it receives no compensation (other than the reimbursement of 
direct expenses) for managing assets attributable to the DuPont Plans, 
and it anticipates that the Group Trust structure will ultimately 
result in lower costs for all Participating Plans.
    2. Recent Mutual Fund Scandals. The commenter's second comment 
concerns his general opposition to DCMC's exemption request due to 
recent mutual fund activities and events occurring within the DuPont 
Savings and Investment Plan which he believes were not in the best 
interests of the Plan's participants. DCMC explains that the commenter 
never specifies the activities

[[Page 40977]]

to which he is referring, and therefore DCMC is unable to respond to 
the commenter's concerns in a constructive manner. DCMC indicates that 
it is well aware of its fiduciary responsibilities. However DCMC 
explains it is not aware of any recent ``events'' that might not be 
considered to be in the best interests of participants in the DuPont 
Plans.
    3. Divestment Activities. The commenter's third comment expresses 
concern over ``activities in divestment-associated businesses [sic] 
units (i.e., Invista to Koch Industries) that are not identified in the 
notice.'' DCMC believes that the commenter's concerns on divestment 
issues relate solely to DuPont corporate matters and do not relate to 
plan administration or to the proposed exemption.
DCMC's Comments
    1. Correction of Name of DCMC. On page 13888 of the proposed 
exemption, DCMC requests that the Department make a correction to its 
listed name. DCMC states that its proper name is ``DuPont Capital 
Management Corporation.''
    Accordingly, in response to this comment, the Department has 
revised DCMC's listed name to reflect the correct name for this entity.
    2. Valuation of Debt Securities Held in the Master Trust. On page 
13888 of the proposal, Section II(f) specifies how valuations are to be 
determined for Debt Securities for which a current market price can be 
obtained, as well as for Debt Securities for where no current market 
price is available. Section II(f) requires, in relevant part, that the 
fair market value of Debt Securities for which a current market price 
is unavailable be determined by taking the average of the highest 
current independent bid and lowest current independent ask prices as of 
the close of business as provided to the Master Trust's investment 
managers and the trustee of the Group Trust by three independent third 
party commercial pricing sources.
    DCMC represents that it has been informed by the custodian for the 
DuPont Stable Value Fund of the Master Trust that current industry 
practice for valuing such securities involves reliance on values 
provided by independent pricing services. DCMC states that the pricing 
service used by the custodian develops prices using proprietary vendor 
models in conjunction with quoted values received from in house trading 
desks where available. In this connection, DCMC notes that the 
Department has acknowledged reliance on a pricing service as 
appropriate and consistent with standard industry practice in 
Prohibited Transaction Exemption (PTE) 2002-21, an individual exemption 
issued to the Pacific Investment Management Company (67 FR 14988, March 
28, 2002 and 67 FR 36037, May 22, 2002). Accordingly, DCMC requests 
that the Department modify the second sentence of Section II(f) of the 
proposal to read as follows:

    * * * If there are no reported transactions or if the Debt 
Securities are not quoted in the NASDAQ System, fair market value is 
determined based on the evaluated mean price provided by a pricing 
service that is independent of DCMC, or, in the absence of an 
evaluated mean price from an independent pricing service, based on 
the average of the highest current independent bid and lowest 
current independent offer, as of the close of business on the day of 
the transaction determined on the basis of reasonable inquiry from 
at least two market makers as shall be provided to the trustee and 
custodian of the stable value fund of the Master Trust * * *

    In response to this comment, the Department has revised Section 
II(f) of the final exemption.\6\
---------------------------------------------------------------------------

    \6\ The Department notes that, consistent with the fiduciary 
responsibility provisions of section 404 of the Act, it is 
ultimately the responsibility of the fiduciaries for the DuPont 
Plans to determine whether the Debt Securities are appropriately 
valued.
---------------------------------------------------------------------------

    3. Former DuPont Affiliate Plans. On page 13890 of the proposed 
exemption, Representation 5 identifies a defined contribution plan 
whose sponsoring employer was formerly affiliated with DuPont. DCMC 
requests that the proposed exemption be modified to refer to the 
sponsor as the ``Former DuPont Affiliate'' but not by its actual name. 
Furthermore, DCMC requests that the Department refer to the sponsor's 
respective plan as the ``Former DuPont Affiliate Plan.''
    In response to this comment, the Department acknowledges these 
clarifications to the proposal.
    4. State Street Bank and Trust (SSB) as an Issuer of Wrap 
Contracts. On page 13890 of the proposed exemption, Footnote 16 states, 
in part, that SSB, the directed trustee of the Group Trust, has not 
issued wrap contracts to the DuPont Plans nor is it anticipated that 
SSB will be issuing wrap contracts to Plans that invest in the Group 
Trust. However, DCMC wishes to clarify that in the past, SSB has issued 
wrap contracts to the DuPont Plans that may invest in the Group Trust 
and may continue to do so in the future. DCMC believes that as a 
directed trustee of the Group Trust, SSB would have no investment 
discretion over Plan assets. Since SSB would not use any of the 
authority, control or responsibility that makes it a fiduciary to cause 
a DuPont Plan to purchase wrap contracts from SSB, therefore, DCMC 
believes such a purchase would not violate section 406(b) of the Act. 
However, DCMC explains that SSB would be a party in interest to the 
Plans participating in the Group Trust, including the DuPont Plans, by 
reason of its provision of services to such Group Trust. Therefore, 
DCMC explains that any purchase of a wrap contract by SSB on behalf of 
these participating Plans would need to comply with the requirements of 
one or more prohibited transaction exemptions, for example, class PTE 
84-14 (49 FR 9494, March 13, 1984) and/or class PTE 96-23 (61 FR 15975, 
April 10, 1996).
    In response to this comment, the Department notes this 
clarification to the proposal.
    5. Reference to ``Board of Trustees.'' On page 13893 of the 
proposed exemption, Representation 15 describes the qualifications, 
duties and written determinations made by U.S. Trust Company, N.A. 
(U.S. Trust), the Independent Fiduciary for the DuPont Plans with 
respect to the proposed in kind transfer transaction. Paragraph (b) of 
Representation 15, which pertains to conclusions reached by U.S. Trust 
in a December 17, 2003 written report, indicates that the Debt 
Securities associated with the proposed transaction will be valued in 
accordance with pricing procedures ``established by the Master Trust's 
Board of Trustees.'' DCMC explains that this reference should be to the 
``custodian of the Stable Value Fund of the Master Trust.''
    In response to this comment, the Department notes this 
clarification to the proposal.
    6. Cost Savings. On page 13893 of the proposed exemption, the 
second paragraph of Representation 15 refers to how U.S. Trust will 
conclude that the proposed exemption transaction is in the interest of 
the participants and beneficiaries of the DuPont Plans since the 
anticipated costs savings are likely to be material. DCMC states that 
there is no need to modify this description of U.S. Trust's conclusion. 
However, DCMC would like to emphasize that the anticipated cost savings 
are expected to be realized over a period of time rather than 
immediately.
    In response to this comment, the Department acknowledges this 
clarification to the proposed exemption.
    Accordingly, after giving full consideration to the entire record, 
including the comment letters, the Department has determined to grant 
the exemption. For further information regarding the comments and other 
matters discussed herein, interested

[[Page 40978]]

persons are encouraged to obtain copies of the exemption application 
file (Exemption Application Nos. D-11157 through D-11159) the 
Department is maintaining in this case. The complete application file, 
as well as the comments and all supplemental submissions received by 
the Department, are made available for public inspection in the Public 
Disclosure Room of the Employee Benefits Security Administration, Room 
N-1513, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department at (202) 693-8566. (This is not a toll-free number.)

Pan-American Life Insurance Corporation (Pan-American) Located in New 
Orleans, LA

[Prohibited Transaction Exemption 2004-11; Exemption Application No. D-
11202]

Exemption

    The restrictions of sections 406(a), 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 the cash sale, on November 17, 2003, by certain 
defined contribution plans (the Plans), which invest in Separate 
Account V (the Account), a pooled separate account, whose assets are 
invested in units of the Dreyfus-Certus Stable Value Fund (the Fund), 
of Fund units, to Pan-American, the Account's investment manager and a 
fiduciary with respect to such Account.
    This exemption is subject to the following conditions:
    (a) Prior to the transaction (the Transaction), a fiduciary (the 
Independent Fiduciary), acting on behalf of the Plans, who was 
independent of and unrelated to Pan-American and its subsidiaries, 
determined that the subject Transaction (1) was fair to the 
participants in the Plans investing in the Account; (2) was comparable 
to, and no less favorable than, terms obtainable at arm's length 
between unaffiliated parties; and (3) was in the best interest of the 
Plans investing in the Account and their participants and 
beneficiaries.
    (b) The Independent Fiduciary monitored the Transaction on behalf 
of the Plans investing in the Account.
    (c) Subsequent to the closing of the Transaction, the Independent 
Fiduciary performed a post-Transaction review, which included, among 
other things, a determination that the fair market value of the Plan's 
interests in the Account as of November 14, 2003, as determined by the 
Fund trustee, was accurate and consistent with the Fund's valuation 
method.
    (d) No sales commissions, fees or other costs were paid by the 
Plans in connection with the Transaction.
    (e) The sale was a one-time transaction for cash.
    (f) The fair market value of the units was determined in good faith 
by The Dreyfus Trust Company, an unrelated party, at the time of the 
Transaction.

EFFECTIVE DATE: This exemption is effective as of November 17, 2003.
    For a complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on March 24, 2004 at 69 FR 
13900.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department at (202) 693-8566. (This is not a toll-free number.)

Svenska Cellulosa Aktiebolaget SCA (publ) (SCA) Located in Stockholm, 
Sweden

[Prohibited Transaction Exemption 2004-12; Exemption Application Nos. 
L-11217 through L-11219]

Exemption

    The restrictions of section 406(a) and (b) of the Act shall not 
apply to the reinsurance of risks and the receipt of premiums therefrom 
by SCA Reinsurance Limited (SCA Re), through its USVI Branch, in 
connection with insurance contracts sold by Aetna, Inc. (Aetna), or any 
successor insurance company to Aetna which is unrelated to SCA, to 
provide long-term disability, accidental death and dismemberment, and 
basic and supplemental life insurance benefits to participants in 
programs maintained by SCA North America, Inc. (SCA North America) to 
provide such benefits to its employees (the Plans),\7\ provided the 
following conditions are met:
---------------------------------------------------------------------------

    \7\ Each Plan will be considered an ``employee welfare benefit 
plan'' as defined in section 3(1) of the Act.
---------------------------------------------------------------------------

    (a) SCA Re--
    (1) Is a party in interest with respect to the Plans by reason of a 
stock or partnership affiliation with SCA that is described in section 
3(14)(E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Insurance 
Commissioner of its domiciliary state that has not been revoked or 
suspended;
    (4)(A) Has undergone an examination by an independent certified 
public accountant for its last completed taxable year immediately prior 
to the taxable year of the reinsurance transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, the U.S. Virgin Islands) \8\ by the 
Insurance Commissioner of the State within 5 years prior to the end of 
the year preceding the year in which the reinsurance transaction 
occurred; and
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    \8\ The U.S. Virgin Islands are considered a ``State,'' as 
defined in section 3(10) of the Act.
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    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority; and
    (b) The Plans pay no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plans with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving SCA Re, there 
will be an immediate and objectively determined benefit to the Plans' 
participants and beneficiaries in the form of increased benefits;
    (e) In subsequent years, the formula used to calculate premiums by 
Aetna or any successor insurer will be similar to formulae used by 
other insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the insurer and its competitors with the same or a better 
rating providing the same coverage under comparable programs;
    (f) The Plans only contract with insurers with a rating of A or 
better from A.M. Best Company. The reinsurance arrangement between the 
insurers and SCA Re will be indemnity insurance only, i.e., the insurer 
will not be relieved of liability to the Plans should SCA Re be unable 
or unwilling to cover any liability arising from the reinsurance 
arrangement;
    (g) SCA Re retains an independent fiduciary (the Independent 
Fiduciary), at SCA North America's expense, to analyze the transactions 
and render an opinion that the requirements of sections (a) thorough 
(f) have been complied with. For purposes of this exemption, the 
Independent Fiduciary is a person who:

[[Page 40979]]

    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with SCA, SCA North America or SCA Re (this relationship hereinafter 
referred to as an ``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in, SCA, 
SCA North America or SCA Re (or any Affiliate of either);
    (3) Is not a corporation or partnership in which SCA, SCA North 
America or SCA Re has an ownership interest or is a partner;
    (4) Does not have an ownership interest in SCA or SCA Re, or any of 
either's Affiliates;
    (5) Is not a fiduciary with respect to the Plans prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the Independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from SCA, SCA Re, or their Affiliates (including amounts received for 
services as Independent Fiduciary under any prohibited transaction 
exemption granted by the Department) for that fiscal year exceeds 5 
percent of that organization or individual's annual gross income from 
all sources for such fiscal year.
    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 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow funds from SCA, SCA Re, or their Affiliates during the period 
that such organization or individual serves as 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 Independent Fiduciary.
    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 May 4, 2004 at 69 FR 
24679.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 1st day of July, 2004.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 04-15362 Filed 7-6-04; 8:45 am]

BILLING CODE 4510-29-P