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Employee Benefits Security Administration

EBSA Federal Register Notice

Grant of Individual Exemptions; The Prudential Insurance Company of America [09/10/2004]

[PDF Version]

Volume 69, Number 175, Page 54812-54815

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2004-13; Exemption Application No. D-
11213 et al.]

 
Grant of Individual Exemptions; The Prudential Insurance Company 
of America

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

The Prudential Insurance Company of America, Located in Newark, NJ

[Prohibited Transaction Exemption 2004-13; Exemption Application No. D-
11213]

Exemption

    The Prudential Insurance Company of America and its current and 
future affiliates (collectively, Prudential) shall not be precluded, as 
of November 21, 2003, from functioning as a ``qualified professional 
asset manager'' (QPAM), pursuant to Prohibited Transaction Class 
Exemption 84-14 (PTCE 84-14), 49 FR 9494 (March 13, 1984), solely 
because of a failure to satisfy Section I(g) of PTCE 84-14, as a result 
of Prudential's affiliation with an entity convicted of violating a 
dual-penalty law of Korea, Japan or Taiwan.
    This exemption is subject to the following conditions:
    (a) The affiliate convicted under a dual-penalty law does not 
provide fiduciary or QPAM services to employee benefit plans covered by 
the Employee Retirement Income Security Act of 1974 (ERISA) or 
otherwise exercise discretionary control over ERISA assets.
    (b) ERISA-covered assets are not involved in the misconduct that is 
the subject of the affiliate's conviction(s).
    (c) Prudential imposes its internal procedures, controls, and 
protocols on the affiliate to reduce the likelihood of any recurrence 
of misconduct to the extent permitted by local law.
    (d) This exemption is not applicable if Prudential, or any 
affiliate (other than affiliates convicted of violating a dual-penalty 
law of Korea, Japan or Taiwan) is convicted of any of the crimes 
described in Section I(g) of PTCE 84-14.
    (e) Prudential maintains records that demonstrate that the 
conditions of the exemption have been and continue to be met for at 
least six years following the conviction of an affiliate under the 
dual-penalty laws of Korea, Japan or Taiwan.
    (f) The criminal acts in question are neither authorized nor 
condoned by Prudential.
    (g) Prudential complies with the other conditions of PTCE 84-14, 
combined with the procedures it adopts to afford ample protection of 
the interests of participants and beneficiaries of employee benefit 
plans.
    Effective Date: This exemption is effective as of November 21, 
2003.

[[Page 54813]]

Written Comments

    During the comment period, the Department received one written 
comment with respect to the proposed exemption, and no requests for 
public hearing. The comment, which was submitted by Prudential, is a 
request to expand the relief proposed by the Department. In this 
regard, Prudential notes that the operative language of the proposed 
exemption provides relief only to Prudential. However, Prudential 
states that the relief requested in its application to the Department 
also included relief for Prudential's current and future affiliates 
that provide QPAM services to ERISA plans. Prudential explains that 
without such relief for its current affiliates, any time an affiliate 
of Prudential is convicted of violating a Korean, Japanese or Taiwanese 
dual-penalty law, and all conditions of the exemption are met, the QPAM 
status of every Prudential affiliate that provides QPAM services (other 
than the affiliate convicted of violating a dual-penalty law) would be 
jeopardized. Therefore, Prudential states that every Prudential 
affiliate providing QPAM services (other than the affiliate convicted 
of violating a dual-penalty law) would be required to seek relief 
through the individual exemption process, or via authorization made 
pursuant to PTCE 96-62 (61 FR 39988, July 31, 1996), in order to 
maintain its QPAM status following the dual-penalty law conviction.
    In addition, Prudential notes that QPAM services are currently 
provided by Prudential itself and its affiliate, Prudential Investment 
Management Services LLC. Prudential requests that the exemption be made 
flexible enough to allow Prudential to restructure the delivery of its 
QPAM services in the future as business needs and circumstances evolve. 
It is Prudential's view that without relief that extends to the current 
and future affiliates of Prudential that provide QPAM services, the 
usefulness and flexibility of the exemption would be significantly 
compromised over time.
    In response to this comment, the Department has revised the 
operative language of the final exemption in order to extend relief to 
Prudential's current and future affiliates that provide QPAM services.
    Accordingly, after giving full consideration to the entire record, 
including the comment letter, the Department has determined to grant 
the exemption as modified herein. For further information regarding the 
comment and other matters discussed herein, interested persons are 
encouraged to obtain copies of the exemption application file 
(Exemption Application No. D-11213) the Department is maintaining in 
this case. The complete application file, as well as 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. Anna M. N. Mpras of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Les Olson Company, Inc. Profit Sharing Plan (the Plan), Located in Salt 
Lake City, Utah

[Prohibited Transaction Exemption 2004-14; Exemption Application No. D-
11225]

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: (i) The series of loans (the Loans), originated 
within the five-year period, by the Plan to REVCO Leasing Company, LLC 
(Revco), a party in interest with respect to the Plan; and (ii) a 
guarantee of the Loans (the Guarantee) by Les Olson Company, Inc. (the 
Employer), a party in interest with respect to the Plan, provided that 
the following conditions are met:
    (a) The total amount of the outstanding Loans under this exemption 
and PTE 2000-03 do not, in the aggregate, exceed 20 percent (20%) of 
the Plan's total assets at any time during the transactions;
    (b) Each Loan entered into by the Plan is made pursuant to the 
terms and conditions of a loan agreement (the Loan Agreement) executed 
by the parties and signed on behalf of the Plan by the Plan's duly-
appointed independent, qualified fiduciary (the I/F);
    (c) All terms and conditions of the Loans are at least as favorable 
to the Plan as those the Plan could obtain in an arms-length 
transaction with an unrelated third party;
    (d) Each Loan is: (i) For a maximum term of five (5) years pursuant 
to terms and conditions of the Loan Agreement; (ii) fully amortized and 
payable in equal monthly installments of principal and interest; (iii) 
used exclusively by Revco to purchase office equipment (the Equipment) 
from the Employer, which Revco will lease to the Employer's customers 
(in the ordinary course of its business); and (iv) secured by duly 
perfected security interests in the new and used Equipment, and by 
certain leases of Equipment (Equipment Leases) where such Equipment 
Leases are assigned and pledged as collateral for the Loans, which is 
at all times equal to 200% of the outstanding principal balance of such 
Loan;
    (e) New Equipment is valued for collateralization purposes at 80 
percent (80%) of the invoice price paid by Revco to purchase such 
Equipment less taxes and transportation expenses. Used Equipment and 
any Equipment Lease pledged as collateral for the Loans is valued by an 
independent, qualified appraiser;
    (f) Prior to the approval of each Loan, the I/F determines, on 
behalf of the Plan, that each Loan is prudent and in the best interests 
of the Plan, and protective of the Plan and its participants and 
beneficiaries;
    (g) The I/F conducts a review of all terms and conditions of the 
exemption, and the Loans, including: (i) The applicable interest rate; 
(ii) the sufficiency of the collateral pledged for each Loan; (iii) the 
financial condition of the Employer, in connection with the Guarantee, 
on at least a quarterly basis; and (iv) compliance with the 20% 
limitation for the Plan's maximum total Loan amount prior to approving 
each disbursement under the Loan Agreement; and
    (h) The I/F takes whatever action is necessary to protect the 
Plan's interests, throughout the duration of the exemption, with 
respect to any Loan entered into under the exemption.
    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 
24676.

Temporary Nature of Exemption

    The exemption will be temporary and will expire five (5) years from 
the date of publication in the Federal Register of the final grant of 
this exemption. Subsequent to the expiration of the exemption, the Plan 
may hold any Loans originated during this five-year period until the 
Loans are repaid or otherwise terminated.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department 
at (202) 693-8540. (This is not a toll-free number.)

[[Page 54814]]

The Employees' Retirement Plan of Storytown U.S.A., Inc. and 
Participating Affiliated Companies (the Plan), Located in Glen Falls, 
New York

[Prohibited Transaction Exemption 2004-15; Exemption Application No. D-
11251]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act (or ERISA) 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, effective July 29, 2004, to: (1) The 
making of a loan (the Loan) to the Plan in an original principal amount 
sufficient to cover the Plan's unfunded liability upon termination, by 
Storytown U.S.A., Inc. (Storytown), the Plan sponsor and a party in 
interest with respect to the Plan; (2) the assignment (the Assignment) 
by the Plan to Storytown of all rights, title and interest the Plan has 
in claims (the Claims) against certain investment advisers (the 
Responsible Parties), in connection with losses the Plan incurred 
during 2003 and 2004; and (3) the potential repayment, by the Plan to 
Storytown, of the Loan obligation from proceeds recovered on the Claims 
against the Responsible Parties.
    This exemption is subject to the following conditions:
    (a) The Plan pays no interest in connection with the Loan.
    (b) The Loan proceeds are utilized only to satisfy the Plan's 
unfunded liability.
    (c) None of the assets of the Plan are pledged to secure the Loan 
amount.
    (d) The Loan is a non-recourse obligation of the Plan.
    (e) The Plan is properly terminated and Mr. Charles Wood, the 
principal shareholder of Storytown, agrees to waive any benefits he 
would have received on the termination of the Plan.
    (f) The Plan's rights to any Claims that are not resolved before 
final distributions are completed and assigned by the Plan to Storytown 
under the terms of the Assignment.
    (g) The Assignment is deemed a repayment in full of the Loan by the 
Plan. As a result, the Plan has no liability for the Loan and no 
interest in the Claims. However,
    (1) If the net amount recovered on the Claims against the 
Responsible Parties after the Assignment, from any judgment or 
settlement of any arbitration proceeding, is equal to or less than the 
amount of the Loan, the balance due on the Loan will be automatically 
forgiven and such unpaid balance will be treated by Storytown as an 
employer contribution to the Plan; or
    (2) If the net amount recovered on the Claims against the 
Responsible Parties from any judgment or settlement of arbitration 
proceeding exceeds the amount of the Loan (the Excess Amount), such 
Excess Amount will be treated as a reversion paid by the Plan to 
Storytown pursuant to the Plan document.
    (h) Notwithstanding the Assignment, the Plan does not release any 
claims, demands and/or causes of action which it may have against 
Storytown and/or its affiliates.
    (i) The Plan incurs no expenses, commissions or transaction costs 
in connection with the contemplated transactions, all of which are one-
time occurrences.
    (j) All terms of the transactions are at least as favorable to the 
Plan as those which the Plan could obtain in similar transactions 
negotiated at arm's length with unrelated third parties.
    (k) The subject transactions do not involve any risk of loss to 
either the Plan or to any of the participants and beneficiaries of the 
Plan.
    (l) Prior to the Plan's entering the transactions, a qualified, 
independent fiduciary (the I/F), which is acting on behalf of the Plan 
and which is unrelated to Storytown and/or its affiliates,
    (1) Reviews, negotiates and approves the terms and conditions of 
the Loan and the Assignment exclusively (but does not monitor legal 
proceedings against the Responsible Parties following the Assignment);
    (2) Determines that such transactions are prudent and in the 
interest of the Plan and its participants and beneficiaries; and
    (3) Confirms that the Loan amount is sufficient to satisfy all Plan 
liabilities, including the Plan's unfunded liability, and permits the 
Plan to terminate on a standard termination basis.
    (m) If the I/F resigns, is removed, or for any reason unable to 
serve as I/F, prior to the Plan's entering into the transactions, such 
I/F is replaced by a successor I/F:
    (1) Who is appointed immediately upon the occurrence of such event;
    (2) Who is independent of Storytown and its affiliates;
    (3) Who is qualified to serve as the I/F; and
    (4) Who assumes the duties and responsibilities of the predecessor 
I/F.
    The Department is also provided written notification of such change 
in I/F.
    Effective Date: This exemption is effective from July 29, 2004.
    For a more complete statement of the facts and representations 
supporting the Department's decisions to grant this exemption, refer to 
the notice of proposed exemption published on July 20, 2004 at 69 FR 
43447.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption and no requests for a public hearing. The comment, 
which was submitted on behalf of Storytown and the Plan, informed the 
Department that the Loan was made by Storytown to the Plan on July 29, 
2004 and that the last distributions were processed from the Plan on 
July 30, 2004 pursuant to the Plan Termination Loan and Assignment 
Agreement. The comment also stated that the Plan has currently paid out 
all participants, with the exception of Mr. Wood, who previously 
executed a waiver of all benefits under the Plan upon the Plan's 
termination.
    In response to this comment, the Department has revised the 
operative language of the exemption by making the exemption effective 
as of July 30, 2004. In addition, after giving full consideration to 
the entire record, including the written comment, the Department has 
decided to grant the exemption, as modified herein.
    For further information regarding the comment and other matters 
described therein, interested persons are encouraged to obtain copies 
of the exemption application file (Exemption Application No. D-11251) 
the Department is maintaining in this case. The complete application 
file, as well as 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. Shelly Mui of the Department, 
telephone (202) 693-8530. (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

[[Page 54815]]

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 7th day of September, 2004.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 04-20536 Filed 9-9-04; 8:45 am]

BILLING CODE 4510-29-P