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