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Employee Benefits Security Administration

EBSA Federal Register Notice

Grant of Individual Exemptions; Wachovia Corporation (Wachovia) [12/28/2005]

[PDF Version]

Volume 70, Number 248, Page 76886-76889

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2005-16; Exemption Application No. D-
11231 et al.]

 
Grant of Individual Exemptions; Wachovia Corporation (Wachovia)

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.

Wachovia Corporation (Wachovia) Located in Charlotte, NC

[Prohibited Transaction Exemption 2005-16; Exemption Application No. D-
11231]

Exemption

Section I. Covered Transactions

    The restrictions of sections 406(a) and 406(b) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code,\1\ shall 
not apply, effective January 2, 2002, to (1) the in kind transfer by 
the Wachovia Retirement Savings Plan (the Plan) of its shares in the 
Wachovia Equity Index Fund (the Index Fund), a mutual fund in which 
Evergreen Investment Management Company, LLC, a wholly owned subsidiary 
of Wachovia, the Plan sponsor, serves as the investment adviser, to the 
Wachovia Enhanced Stock Market Fund (the Enhanced Fund), a bank 
collective investment fund, also maintained by Wachovia in exchange for 
Enhanced Fund units; \2\ and (2) the in kind redemption by the Enhanced 
Fund of the Index Fund shares received on behalf of the Plan in return 
for a pro rata distribution of cash and transferable securities held by 
the Index Fund.
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
    \2\ The Index Fund and the Enhanced Fund are collectively 
referred to herein as the Funds.
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Section II. Specific Conditions

    This exemption is subject to the following conditions:
    (a) Mercer Investment Consulting, Inc. (Mercer), a fiduciary, which 
was acting on behalf of the Plan, and which was independent of, and 
unrelated to, Wachovia and its subsidiaries, as defined in paragraph 
(e) of Section IV below, had the opportunity to review the in kind 
transfer and in kind redemption transactions, and received, in advance 
of such transactions, full written disclosures concerning the Funds, 
which included, but were not limited to the following:
    (1) A prospectus or its equivalent for each of the Funds;
    (2) The management fees, as negotiated under the applicable 
investment management agreements, and the costs;
    (3) The reasons why the Plan Committee (the Plan Committee) 
considered such investment to be appropriate for the Plan; and
    (4) Whether there were any limitations applicable to the Plan with 
respect to which assets of the Plan could be invested in the Enhanced 
Fund and the nature of such limitations.
    (b) On the basis of the foregoing information, Mercer recommended,
    (1) The in kind transfer of the mutual fund shares that were held 
on behalf of the Plan in the Index Fund, in exchange for units in the 
Enhanced Fund; and
    (2) The in kind redemption by the Enhanced Fund of Index Fund 
shares received from the Plan for cash and certain transferable 
securities.
    (3) The Plan Committee followed Mercer's recommendation by acting 
on such advice.
    (c) Before recommending the covered transactions, Mercer determined 
that:
    (1) The terms of the transactions were fair to the participants in 
the Plan, and were comparable to, and no less favorable than, the terms 
obtainable at arm's length between unaffiliated parties; and
    (2) The transactions were in the best interest of the Plan and its 
participants and beneficiaries.
    (d) The in kind transfer transaction was a one-time transaction for 
the Plan and the mutual fund shares transferred were equivalent in 
value to the units in the Enhanced Fund.
    (e) The in kind redemption transaction was a one-time transaction 
and the resulting cash and transferable securities constituted a pro 
rata portion of the assets held on behalf of the Plan in the Index Fund 
prior to the transaction.
    (f) In the case of the exchange by the Plan of Index Fund shares 
for Enhanced Fund units, the per unit value of the Enhanced Fund units 
that were issued to the Plan in exchange for the Plan's Index Fund 
shares had an aggregate value that was equal to the value of the mutual 
fund shares transferred to the Enhanced Fund 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 and Exchange Commission

[[Page 76887]]

Rule 17a-7 (Rule 17a-7) under the Investment Company Act of 1940, as 
amended, (using sources independent of Wachovia), and the procedures 
established by the Enhanced Fund pursuant to Rule 17a-7.
    (g) In the in kind redemption transaction, the Enhanced Fund 
received a pro rata portion of the cash and transferable securities 
held on behalf of the Plan in the Index Fund that was equal in value to 
the number of mutual fund shares redeemed for such cash and 
transferable securities, as determined in a single valuation performed 
in the same manner and at the close of business on the same day in 
accordance with Rule 17a-7, (using sources independent of Wachovia), 
and the procedures established by the Enhanced Fund pursuant to Rule 
17a-7.
    (h) For purposes of the covered transactions, the fair market value 
of all securities received by the Enhanced Fund in the in kind 
redemption transaction was determined by reference to the last sale 
price for transactions as reported in the consolidated transaction 
reporting system, a recognized securities exchange, or the National 
Association of Securities Dealers Automated Quotation System.
    (i) Within 90 days after the completion of the transactions, Mercer 
received confirmation of the following information:
    (1) The number of Index Fund shares exchanged by the Plan and the 
number of Enhanced Fund units received by the Plan immediately before 
the in kind transfer transaction (and the related per share net asset 
value and the total dollar value of the shares held) as reported by the 
Funds; and
    (2) The identity, the current market price of each transferable 
security received by the Enhanced Fund in the in kind redemption, and 
the aggregate dollar value of the securities allocated to the Plan in 
the Enhanced Fund pursuant to the redemption, and the net asset value 
of Enhanced Fund units after the redemption;
    (j) Subsequent to the completion of the transactions, Mercer 
conducted a post-transaction review in which it verified:
    (1) The number and current market price of all Enhanced Fund units 
transferred to the Plan in exchange for the Index Fund shares;
    (2) The number and current market price of all Index Fund shares 
transferred by the Plan to the Enhanced Fund in exchange for Enhanced 
Fund units;
    (3) The identity of each transferable security, the number of 
shares of such security transferred, the closing price on the relevant 
national exchange as of the date of the transfer, and the proper 
valuation of the securities for the purposes of the transfer;
    (4) The aggregate dollar value of the Index Fund shares that were 
being held by the Plan immediately before the transfer and aggregate 
dollar value of the Enhanced Fund units held by the Plan immediately 
after the transfer were valued at their daily net asset values in 
accordance with their normal procedures.
    (5) The use, by the Index Fund and the Enhanced Fund of the same 
methodology to value the securities transferred by the Index Fund to 
the Enhanced Fund in the in kind redemption transaction.
    (k) No sales commissions, fees or other costs were paid by the Plan 
in connection with the transactions, and no additional management fees 
are being charged to the Plan by Wachovia through the Enhanced Fund.
    (l) Wachovia did not enter into the transactions unless Mercer 
concurred with such transactions.
    (m) The Plan's dealings with the Index Fund, the Enhanced Fund and 
Wachovia were on a basis that was no less favorable to the Plan than 
dealings between the Enhanced Fund and other investors.

Section III. General Conditions

    This exemption is subject to the following general conditions:
    (a) Wachovia maintains, or causes to be maintained, for a period of 
six years from the date of the covered transactions, such records as 
are necessary to enable the persons described in paragraph (b) of this 
Section III to determine whether the conditions of this exemption were 
met, except that:
    (1) If the records necessary to enable the persons described in 
paragraph (b) to determine whether the conditions of the exemption have 
been met are lost or destroyed, due to circumstances beyond the control 
of the plan fiduciary, then no prohibited transaction will be 
considered to have occurred solely on the basis of the unavailability 
of those records; and
    (2) No party in interest, other than the plan fiduciary responsible 
for recordkeeping, 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 have not been 
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 the provisions of subsections (a)(2) and (b) of 
section 504 of the Act, the records referred to above in paragraph (a) 
of this Section III are unconditionally available for examination 
during normal business hours at their customary location to the 
following persons or an authorized representative thereof:
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (ii) Mercer or any other fiduciary of the Plan; or
    (iii) Any participant or beneficiary of the Plan or any duly 
authorized employee or representative of such participant or 
beneficiary.
    (2) None of the persons described above in paragraphs (ii) and 
(iii) of this paragraph (b)(1) of this Section III shall be authorized 
to examine trade secrets of Wachovia, or any commercial or financial 
information, which is privileged or confidential.

Section IV. Definitions

    For the purposes of this exemption,
    (a) The term ``Wachovia'' means Wachovia Corporation and any 
affiliate of Wachovia 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) As applied to Mercer, the term ``independent fiduciary'' means 
a fiduciary who is (1) independent of and unrelated to Wachovia and its 
affiliates, and (2) appointed to act as investment adviser to the Plan 
for all purposes related to, but not limited to, (i) the transfer of 
Index Fund shares to the Enhanced Fund in exchange for units in the 
Enhanced Fund, and (ii) the Enhanced Fund's redemption of the Index 
Fund shares received from the

[[Page 76888]]

Plan for cash and transferable securities. For purposes of this 
exemption, a fiduciary will not be deemed to be independent of and 
unrelated to Wachovia if (1) such fiduciary directly or indirectly 
controls, is controlled by or is under common control with Wachovia; 
(2) such fiduciary directly or indirectly receives any compensation or 
other consideration in connection with any transaction described in 
this exemption, except that Mercer may receive compensation for acting 
as an independent fiduciary from Wachovia in connection with the 
transactions contemplated herein and in connection with the provision 
of ongoing investment advice to the Plan Committee if the amount of 
payment of such compensation is not contingent upon or in any way 
affected by Mercer's ultimate decision; and (3) the annual gross 
revenue received by such fiduciary from Wachovia and its affiliates 
during any year of its engagement, exceeds 5 percent (5%) of Mercer'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) and (2) which are not (i) securities which, if distributed, 
would require registration under the Securities Exchange Act of 1933 
(the 1933 Act); (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 Index 
Fund, 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.

DATES: Effective Date: This exemption is effective January 2, 2002.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on August 12, 
2005 in the Federal Register at 70 FR 47246.

Written Comments/Technical Correction to the Notice

    The Department invited all interested persons to submit written 
comments and requests for a hearing with respect to the Notice within 
75 days of the date of its publication in the Federal Register on 
August 12, 2005. Therefore, all comments and requests for a hearing 
were due by October 26, 2005.
    During the comment period, the Department received no comments and 
no requests for a public hearing. However, upon careful review of the 
Notice, the Department observed that the definition of the term 
``transferable securities'' in Section III(f) was in partial error due 
to the inclusion of the following reference to ``Rule 144A 
securities:''

    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 investment 
managers for the Funds, or if applicable, by the independent 
fiduciary, which will confirm and approve all such valuations.

The Department notes that Wachovia represented in its exemption 
application that the securities involved in the covered transactions 
were all publicly-traded on a national securities exchange. Thus, in 
the Department's view, none of the securities would be of the type to 
which Rule 144A would apply. Accordingly, the Department has revised 
the definition of the term ``transferable securities'' by striking the 
reference to ``Rule 144A securities.''
    After giving full consideration to the entire record, the 
Department has decided to grant the exemption subject to the 
modification described above. For further information, interested 
persons are encouraged to obtain copies of the exemption application 
file (Exemption Application No. D-11231) 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 Pension and 
Welfare Benefits 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.)

George N. Newton, Individual Retirement Account (the IRA) Located in 
Waco, Texas

[Prohibited Transaction Exemption 2005-17; Application No. D-11328]

Exemption

    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,\3\ 
shall not apply to the arrangement involving the in-kind distributions 
by the IRA to Mr. George N. Newton (Mr. Newton), a disqualified person 
with respect to the IRA, in two installments of 50 percent (50%) each, 
of the IRA's ownership interest in an unencumbered, improved parcel of 
real property (the Property) located in San Antonio, Texas, in 
connection with the required minimum distributions rules under the 
Code; provided the following conditions are satisfied:
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    \3\ Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the 
jurisdiction of Title I of the Act. However, there is jurisdiction 
under Title II of the Act, pursuant to section 4975 of the Code.
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    (1) the two installments of the in-kind distributions by the IRA 
occur on December 30, 2005, through January 3, 2006;
    (2) the terms and conditions of the transactions are at least as 
favorable to the IRA, as the terms of similar transactions negotiated 
at arm's length with unrelated third parties;
    (3) the fair market value of the IRA's interest in the Property is 
determined by an independent, qualified appraiser, as of the date the 
first of the two installments of the in-kind distributions is made to 
Mr. Newton; and
    (4) the IRA does not pay any commissions, costs, charges, fees, or 
other expenses in connection with the in-kind distributions.
    After giving full consideration to the entire record, the 
Department has decided to grant the exemption, as described above. The 
complete application file, including all supplemental submissions 
received by the Department, is made available for public inspection in 
the Public Documents Room of the Employee Benefit Security 
Administration, Room N-1513, U.S. Department of Labor, 200 Constitution 
Avenue, NW., Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice of

[[Page 76889]]

Proposed Exemption published on November 3, 2005, at 70 FR 66854.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 21st day of October, 2005.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 05-24492 Filed 12-27-05; 8:45 am]

BILLING CODE 4510-29-P