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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions; The Southwest Gas Corporation (Southwest Gas) [04/28/2006]

[PDF Version]

Volume 71, Number 82, Page 25229-25239

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11033, et al.]

 
Proposed Exemptions; The Southwest Gas Corporation (Southwest 
Gas)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions 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).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or fax. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by fax to (202) 219-0204 by the end of the 

scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

[[Page 25230]]


SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
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 requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

The Southwest Gas Corporation (Southwest Gas,) Located in Las Vegas, 
Nevada

[Application No. D-11033]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR part 2570 subpart B (55 FR 32836, 32847, 
August 10, 1990).
Section I--Transactions and Conditions
    If the proposed exemption is granted, the sanctions resulting from 
the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) and (D) of the Code, shall not apply to the direct or 
indirect purchase, from Southwest Gas, of the common stock of Southwest 
Gas by an individual retirement account (IRA) that is (i) established 
for the benefit of a non-employee of Southwest Gas,\1\ (ii) operated 
pursuant to the terms of the Southwest Gas Corporation Dividend 
Reinvestment and Stock Purchase Plan (the DRIP), and (iii) maintained 
in part through administrative services provided by Southwest Gas, a 
disqualified person with respect to the IRA, provided that the 
following conditions are satisfied:
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    \1\ Pursuant to 29 CFR 2510.3-2(d), the subject IRAs are not 
``employee benefit plans'' covered by Title I of the Act. However, 
because the IRA is a ``plan'' for purposes of section 4975 of the 
Code, the Department has jurisdiction under Title II of the Act over 
this matter.
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    (a) The IRA that is established by a DRIP participant pursuant to 
the terms of the DRIP (the DRIP IRA) is maintained for the exclusive 
benefit of the individual covered under the IRA (the IRA Owner), his or 
her spouse, or their beneficiaries;
    (b) Southwest Gas complies with all applicable securities laws 
relating to the Southwest Gas DRIP;
    (c) Administrative and recordkeeping services provided by Southwest 
Gas to the DRIP IRA are rendered pursuant to a written agreement 
between Southwest Gas and an independent trustee of the DRIP IRA (the 
IRA Trustee) in which Southwest Gas agrees to act as the IRA Trustee's 
agent for the provision of such services;
    (d) Southwest Gas receives no compensation, fees, or commissions, 
directly or indirectly, for the provision of such administrative and 
recordkeeping services, including any portion of the fees that the IRA 
Trustee may be entitled to receive from the DRIP IRA;
    (e) The combined total of all fees and other consideration 
received, direct or indirect, by any disqualified persons (other than 
Southwest Gas) for the provision of services to the DRIP IRA is not in 
excess of ``reasonable compensation'' within the meaning of section 
4975(d)(2) of the Code;
    (f) The DRIP IRA and/or IRA Owner does not pay a brokerage fee or 
commission in connection with the purchase of the common stock of 
Southwest Gas;
    (g) Neither Southwest Gas, the IRA Trustee, nor any affiliate 
thereof has any discretionary authority or control regarding the 
determination to acquire, manage, or dispose of the DRIP IRA assets, or 
renders investment advice (within the meaning of 26 CFR 54.4975-9(c)) 
respecting those assets;
    (h) Cash dividends paid on Southwest Gas common stock held in the 
DRIP IRA account that are used to purchase Original Issue Shares of 
Southwest Gas common stock are automatically reinvested in additional 
shares of Southwest Gas common stock on the earliest date that such 
dividends can reasonably be segregated;
    (i) Cash dividends paid on Southwest Gas common stock held in a 
DRIP IRA account that will be used to purchase Open Market Shares of 
Southwest Gas common stock under the DRIP are temporarily invested by 
the IRA Trustee, on the earliest date that such cash dividends can 
reasonably be segregated, in a no-load money market mutual fund 
registered under the Investment Company Act of 1940, and earnings 
accrued thereon are allocated at the end of each quarter on a pro-rata 
basis among those IRA Owners who earned such dividends during that 
quarter and then applied immediately towards the purchase of additional 
shares of Southwest Gas common stock for the accounts of such IRA 
Owners;
    (j) Pending the IRA Trustee's investment of the cash contributions 
of IRA Owners (including rollover contributions), such amounts are 
temporarily invested by the IRA Trustee, on the earliest date that the 
IRA Owners' contributions can reasonably be segregated, in a no-load 
money market mutual fund registered under the Investment Company Act of 
1940, and earnings accrued thereon are allocated at the end of each 
quarter on a pro-rata basis among those IRA Owners who made a 
contribution during that quarter and then applied immediately towards 
the purchase of additional shares of Southwest Gas common stock for the 
accounts of such IRA Owners;
    (k) The terms of both the money market mutual fund and of any 
purchase of Southwest Gas common stock pursuant to the terms of the 
DRIP (including the purchase price) are at least as favorable to the 
DRIP IRA as those obtainable in a comparable arm's length transaction 
with an unrelated party;
    (l) Prior to participation in the DRIP IRA, each IRA Owner receives 
a written disclosure, drafted in a manner calculated to be understood 
by the average IRA Owner, which contains: (i) The general terms and 
conditions of the DRIP IRA; (ii) The identity of the no-load money 
market mutual fund; (iii) Any fees, commissions, or compensation paid 
to the IRA Trustee and/or its affiliates in connection with the DRIP 
IRA, including the investment advisory and other fees paid by the 
mutual fund to the IRA Trustee and/or its affiliates; (iv) A disclosure 
of the right of IRA Owners to receive written notice of any amendment 
to the terms of the DRIP or the DRIP IRA at least 30 days in advance of 
its effective date (and the right of such IRA Owners to refuse consent 
to any amendment); and (v) Information about the exemption from the 
prohibited transaction rules applicable to the DRIP IRA and the right 
of each IRA Owner to request a copy of both this notice of proposed 
exemption and a copy of the final exemption, if granted;
    (m) An IRA Owner participating in the DRIP IRA is furnished 
periodically with a statement, at least quarterly, containing (i) the 
date, quantity, and price with respect to each purchase of common stock 
that occurred during the prior quarter and (ii) information concerning 
the quarterly, pro rata allocation of money market mutual fund

[[Page 25231]]

earnings attributable to each IRA Owner's account during the period 
immediately preceding the investment of cash amounts in Southwest Gas 
stock;
    (n) Southwest Gas retains, at least annually and at its own 
expense, an independent certified public accountant to perform an 
audit, in accordance with generally accepted auditing standards, of the 
DRIP IRAs, and provides the IRA Trustee with the current audit report 
prepared by such accountant, together with any written commentary from 
the accountant that accompanies the audit; and
    (o) The IRA Owner is permitted to terminate his or her 
participation in the DRIP IRA at any time, without penalty, and 
transfer his or her IRA account balance to an IRA at another financial 
institution.
Section II--Definitions
    (a) The term ``IRA'' means an individual retirement account 
described in Code section 408(a). For purposes of this exemption, the 
term ``IRA'' shall not include an individual retirement account that is 
an employee benefit plan covered by Title I of the Act.
    (b) The term ``DRIP'' (an acronym for Dividend Reinvestment Plan) 
refers to the ``Southwest Gas Corporation Dividend Reinvestment and 
Stock Purchase Plan'', which allows investors to purchase Southwest Gas 
common stock and to automatically reinvest cash dividends paid on such 
stock into additional shares of Southwest Gas stock.
    (c) The term ``Original Issue Shares'' refers to authorized but 
unissued shares of Southwest Gas common stock purchased directly from 
Southwest Gas.
    (d) The term ``Open Market Shares'' refers to outstanding shares of 
Southwest Gas common stock purchased on the open market or through 
negotiated transactions.

Summary of Facts and Representations

    1. Southwest Gas is a natural gas utility serving over one million 
customers in Arizona, California, and Nevada. The common stock of 
Southwest Gas is publicly traded on both the New York Stock Exchange 
(NYSE) and the Pacific Stock Exchange.
    2. Southwest Gas currently sponsors the DRIP, which allows its 
shareholders, natural gas customers, employees, and residents of 
Arizona, California, and Nevada (the states in which Southwest Gas does 
business) to make purchases of Southwest Gas common stock and to 
automatically reinvest the dividends received on the stock in 
additional shares of such stock. The applicant represents that the DRIP 
is neither an ``employee benefit plan'' subject to the Act, nor a 
``plan'' as defined in section 4975(e)(1) of the Code.
    The DRIP provides that the shares of Southwest Gas common stock 
purchased thereunder will be either (i) authorized but unissued shares 
of common stock purchased directly from Southwest Gas (Original Issue 
Shares), which is the most common method of purchasing such shares, or 
(ii) outstanding shares of the common stock purchased on the open 
market or through negotiated transactions (Open Market Shares).\2\ In 
the case of the sale of Original Issue Shares, Southwest Gas receives 
cash that it may use for its construction programs and other corporate 
purposes.
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    \2\ In this regard, the Department notes that the relief granted 
herein shall not extend to the DRIP IRA's purchase, through 
negotiated transactions, of outstanding shares of Southwest Gas 
common stock.
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    From the viewpoint of the investor, when additional shares are 
purchased through a DRIP directly from the issuer, there is no charge 
for brokerage commissions. Further, DRIPs may be attractive to 
``small'' investors because eligibility for such a program typically is 
not dependent upon a significant investment in the stock of the 
company.
    3. Southwest Gas wishes to offer an ``IRA option'' to non-employee 
participants in its existing DRIP. To this end, Southwest Gas would 
contract with an independent trustee to authorize the establishment of 
certain IRAs to be invested exclusively in common stock of Southwest 
Gas that is acquired through the DRIP. The mechanics concerning the 
purchase of Southwest Gas common stock through the DRIP IRA (e.g., the 
purchase price and whether the shares purchased are Original Issue 
Shares or Open Market Shares) are determined by the terms of the DRIP. 
Marshall & Ilsley Trust Company N.A. (M & I), a financial institution 
that is independent of Southwest Gas, has been designated by Southwest 
Gas to serve as the directed trustee of the DRIP IRAs.\3\ M & I offers 
a comprehensive range of trust, investment, recordkeeping, custodial 
and related services for retirement plans covering more than 370,000 
retirement plan participants nationwide, and holds $82 billion in 
custodial assets. The applicant represents that the DRIP IRAs would be 
considered ``plans,'' as defined in section 4975(e)(1) of the Code. 
However, because the DRIP IRA option would not be available to any 
employees of Southwest Gas, and Southwest Gas would not otherwise act 
as an ``employer'' (as defined in section 3(5) of the Act) with respect 
to the DRIP IRAs, the applicant represents that the DRIP IRAs would not 
be considered ``employee benefit plans,'' as defined in section 3(3) of 
the Act.\4\
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    \3\ It is represented that, in the event it becomes necessary to 
appoint a successor trustee (the Successor) to replace M & I, the 
applicant will notify the Department 60 days in advance of such 
appointment. Any Successor shall be independent of Southwest Gas and 
its affiliates, possess experience comparable to M & I, and assume M 
& I's responsibilities with respect to the DRIP IRAs.
    \4\ See also 29 CFR 2510.3-2(d) for conditions relating to 
circumstances when an ``IRA'' is not considered an ``employee 
benefit plan'' subject to Title I of the Act.
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    The IRA Owner could add to his or her DRIP IRA's investment in 
Southwest Gas common stock in the following ways: (i) Through the 
automatic reinvestment of the dividends paid on the Southwest Gas 
common stock held by the DRIP IRA in additional shares of such stock; 
(ii) By making cash contributions to the DRIP IRA for the purchase of 
additional shares; or (iii) By rolling over retirement assets to be 
invested in Southwest Gas common stock. The IRA Owner's total annual 
cash contribution to the DRIP IRA would be subject to the applicable 
contribution limits established under the Code for IRAs (except in the 
case of contributions that qualify as rollover contributions, which 
receive special tax treatment under the Code).
    According to the applicant, the DRIP IRAs would also provide two 
significant tax benefits under current federal law: (i) The dividends 
paid on the shares of Southwest Gas stock held in the DRIP IRAs 
generally would not be taxable to the IRA Owner until distribution, or 
(in the case of a Roth IRA) not at all; and (ii) The IRA Owner may be 
able to deduct certain contributions to the DRIP IRA on his or her 
federal income tax return.
    4. Although M & I, the IRA Trustee, intends to provide the trustee 
services associated with the DRIP IRAs for a fee,\5\ Southwest Gas 
proposes to provide certain administrative and recordkeeping services 
to the DRIP IRAs at no cost, pursuant to a written agency agreement 
with M & I. Southwest Gas will receive no compensation, fees, or 
commissions, directly or indirectly, for such services, including any 
portion of fees that the trustee may be entitled to receive from the 
IRA. The administrative and recordkeeping services provided to the DRIP 
IRAs by

[[Page 25232]]

Southwest Gas would be the same type of services provided to non-IRAs 
under the DRIP.
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    \5\ The Department provides no opinion herein as to whether the 
fees paid by the DRIP IRAs to M & I for trustee services would meet 
the conditions required under Code section 4975(d)(2) and the 
regulations promulgated thereunder (see 26 CFR 54.4975-6), which, 
among other things, requires that the compensation paid to the 
disqualified person must be reasonable.
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    The DRIP IRAs are ``plans'' under section 4975(e)(1)(B) of the 
Code, while Southwest Gas, as a ``person providing services'' to the 
DRIP IRAs, is a ``disqualified person,'' as defined in section 
4975(e)(2)(B) of the Code. Thus, Southwest Gas seeks an individual 
exemption to permit purchases of publicly traded common stock by the 
DRIP IRAs from Southwest Gas that would otherwise be prohibited under 
the Code. Southwest Gas wishes to reduce the overall fees charged to 
the DRIP IRAs for services in order to maximize the amount of money 
available for investing in the DRIP IRA. The applicant also represents 
that the requested exemption is in the interests of the DRIP IRAs and 
their participants and beneficiaries because, absent an exemption, the 
DRIP IRAs would have to pay a fee to a third party for the same 
services that Southwest Gas is willing to provide without charge.
    5. The IRA Trustee will be responsible for purchasing Southwest Gas 
stock for the DRIP IRAs in the form of either Original Issue Shares or 
Open Market Shares. The purchases of Southwest Gas common stock will be 
Original Issue Shares so long as the market price exceeds 75 percent of 
the book value of such stock, determined quarterly by Southwest Gas 
based upon publicly available information contained in its annual and 
quarterly reports filed with the Securities and Exchange Commission.\6\ 
However, any switch from Original Issue to Open Market Shares (or vice 
versa) will not occur more than once in any 12-month period.\7\ The IRA 
Trustee also will purchase Open Market Shares during periods when 
Southwest Gas is precluded from selling common stock due to limitations 
under the securities laws.
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    \6\ The applicant represents that, historically, the shares 
purchased in the DRIP have been Original Issue Shares.
    \7\ The applicant represents that the book value of Southwest 
Gas stock is included in the annual report on Form-10K; the number 
of outstanding shares and total equity are included in each of the 
quarterly reports on Form-10Q. The determination to switch between 
Original Issue and Open Market Shares is made at the time these 
reports are filed with the SEC.
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    Any purchase of Southwest Gas common stock by a DRIP IRA pursuant 
to the DRIP will be at least as favorable to the DRIP IRA as those 
obtainable in a comparable arm's length transaction with an unrelated 
party. In the case of Original Issue Shares, the price per share will 
be the closing price of Southwest Gas stock, as reported on the NYSE, 
on the investment date, or, if there is no trading in such stock, the 
closing price on the last date on which trading occurred prior to the 
investment date. In the case of Open Market Shares, the price per share 
will be the weighted average composite closing price, as reported on 
the NYSE, of all Southwest Gas common stock acquired by the IRA Trustee 
during the investment period described in the DRIP. Southwest Gas will 
pay brokerage commissions charged by an independent broker selected by 
the IRA Trustee, in connection with the purchase of Open Market Shares.
    6. Pursuant to the terms of the DRIP, dividends payable on shares 
of Southwest Gas common stock that are held in a DRIP IRA account will 
be automatically reinvested in additional shares of Southwest Gas 
common stock. In addition, cash contributions or rollover contributions 
that are directed to the DRIP IRA by an IRA Owner will be invested in 
Southwest Gas common stock in accordance with the terms of the DRIP.\8\
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    \8\ The applicant represents that the DRIP IRA will also accept 
rollover contributions in the form of Southwest Gas common stock.
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    The applicant represents that the IRA Trustee will invest these 
amounts in Southwest Gas common stock as soon as practicable after 
their receipt by the IRA Trustee, but in any event no later than one 
month after their receipt. The applicant represents that ``one month'' 
can be up to 35 days, a maximum period imposed by the Securities and 
Exchange Commission. As a general matter, the applicant further 
represents that the IRA Trustee is not restricted from immediately 
acquiring Southwest Gas common stock with the dividends and cash 
contributions, as the 35-day investment window is not a hold period; 
rather, it is intended to ensure that the IRA Trustee has independence 
in controlling the timing of investments rather than Southwest Gas.
    The Applicant represents that, pending the investment in Southwest 
Gas stock, the IRA Trustee will invest any cash contributions or 
rollover contributions of IRA Owners in a money market mutual fund, 
which may be a mutual fund for which the IRA Trustee or its affiliate 
serves as investment advisor. At the end of each quarter, the IRA 
Trustee shall allocate the earnings of the money market mutual fund 
among those IRA Owners who made cash contributions or rollover 
contributions during that quarter. The allocations will be computed on 
a pro-rata basis, taking into account the funds contributed by the IRA 
Owner during the preceding quarter and the number of days that such 
contributions were invested in the money market account. The allocated 
earnings will then be applied towards the immediate purchase of 
additional shares (or fractional shares) of Southwest Gas common stock 
for investment in the DRIP IRA of each contributing IRA Owner.
    The procedure for the reinvestment of dividends of Southwest Gas 
common stock is dependent upon whether the shares being purchased are 
Original Issue Shares or Open Market Shares. If the shares purchased 
are Original Issue Shares, then the cash dividend is utilized to 
purchase additional shares of Southwest Gas common stock on the same 
day that the dividend is paid.\9\ If the shares purchased are Open 
Market Shares, the cash dividends attributable to IRA Owners would be 
deposited into a money market account pending investment in Southwest 
Gas common stock, in the same manner as would govern the deposit of the 
cash contributions of IRA Owners awaiting investment.
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    \9\ The condition contained in section I(h) relating to the 
purchase of Original Issue Shares with cash dividends requires that 
the purchase occur on the earliest date that the dividends can 
reasonably be segregated. If this occurs on the day the dividends 
are paid, then this reasonable segregation period would not extend 
beyond this date.
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    7. The terms of the DRIP IRA will be disclosed in advance of 
participation in the DRIP IRA pursuant to a written agreement signed by 
each IRA Owner. According to the applicant, if the IRA Trustee charges 
fees with respect to the DRIP IRA, the Trustee or Southwest Gas will 
provide a fee schedule; any such fees will be subtracted from the DRIP 
IRA, unless paid by the IRA Owner directly. In addition, IRA Owners 
will receive written notice of any amendment to the DRIP IRA terms at 
least 30 days in advance of its effective date and have the right to 
refuse consent to any amendment. Such amendments will not affect the 
conditions described in Section I of the exemption, if granted.
    8. The IRA Owner will be furnished with customary statements, at 
least quarterly, containing the date, quantity, and price with respect 
to each purchase of Southwest Gas common stock. Such disclosures should 
assist IRA Owner in assessing whether continued participation in the 
DRIP IRA is in accordance with his or her investment objectives for 
retirement purposes.
    Further, under the terms of the trust agreement, Southwest Gas must 
retain an independent certified public accountant to conduct an annual 
audit of all the DRIP IRAs to be performed in accordance with generally 
accepted

[[Page 25233]]

auditing procedures. During the course of the audit, selected IRA 
Owners will be asked to confirm the audit statement regarding their IRA 
accounts on a basis and using a sample deemed acceptable by such 
accountants. Southwest Gas has agreed to promptly furnish M&I with a 
copy of the audit report and any written commentary from the 
accountants generated by the audit.
    9. The applicant represents that IRA Owners may terminate 
participation in the DRIP IRA, without penalty, at any time. The 
applicant represents that the terms of the DRIP permit Southwest Gas to 
impose termination fees (ranging from $10 to $75), with proper notice 
to the DRIP participant, but that Southwest Gas intends to pay any such 
fees associated with termination of a DRIP IRA. Because the DRIP IRAs 
are intended to be invested exclusively in the common stock of 
Southwest Gas, an IRA Owner who wishes to pursue other investment 
alternatives must terminate his or her DRIP IRA and roll over the 
proceeds to a different IRA. According to the applicant, the IRA Owner 
may terminate his or her DRIP IRA by requesting a distribution of all 
the account assets. The distribution may consist of the issuance of a 
Southwest Gas common stock certificate (with fractional shares paid in 
cash),\10\ or may consist solely of the payment of cash. In the case of 
cash distribution requests, the IRA trustee will have responsibility 
for selecting a broker independent of Southwest Gas to sell the DRIP 
IRA assets on the open market.\11\ The IRA Owner will pay associated 
brokerage commissions for the sale of the Southwest Gas common stock by 
the IRA; thus, any cash distribution payment will be net of brokerage 
commissions.
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    \10\ The applicant represents that the cash amount for 
fractional shares will be calculated based upon the sales price of 
whole shares at the time the distribution request is processed.
    \11\ See PTE 86-128 (51 FR 41686, Nov. 18, 1986, as amended on 
Oct. 17, 2002, 67 FR 64137), which allows certain plan fiduciaries 
to use certain affiliated broker-dealers to execute securities 
transactions on behalf of plans, including IRAs. The Department is 
not opining on the applicability of PTE 86-128 to the sale of the 
DRIP IRA assets through an affiliated broker-dealer. In any event, 
no relief is provided under this exemption for the selection, by the 
IRA Trustee, of an affiliate to execute transactions involving the 
sale of Southwest Gas common stock on behalf of the DRIP IRAs.
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    10. In summary, the applicant represents that the proposed 
transactions satisfy the statutory criteria for an exemption under 
section 4975(c)(2) of the Code for the following reasons: (a) 
Administrative and recordkeeping services will be provided to the DRIP 
IRA pursuant to a written agreement between Southwest Gas and the 
Trustee of the DRIP IRA in which Southwest Gas will act as the IRA 
Trustee's agent for the provision of such services; (b) Southwest Gas 
will receive no compensation or fees for these services, including any 
portion of fees that the IRA Trustee may be entitled to receive from 
the DRIP IRA; (c) The combined total of all fees and other 
consideration received by the IRA Trustee for the provision of services 
to the DRIP IRA is not in excess of ``reasonable compensation'' within 
the meaning of section 4975(d)(2) of the Code; (d) The IRA or IRA Owner 
does not pay a brokerage fee or commission in connection with the 
purchase of the Southwest Gas stock; (e) Neither Southwest Gas, the IRA 
Trustee, nor any affiliate thereof has any discretionary authority or 
control regarding the determination to acquire, manage, or dispose of 
the IRA assets, or renders investment advice (within the meaning of 26 
CFR 54.4975-9(c)) respecting those assets; (f) Southwest Gas will, at 
least annually, and at its own expense, retain an independent certified 
public accountant to perform an audit of the DRIP IRAs, in accordance 
with generally accepted auditing standards, and provide the audit 
report prepared by such accountant to the IRA Trustee; (g) Cash 
dividends on Southwest Gas common stock held in a DRIP IRA account that 
are used to purchase Original Issue Shares of Southwest Gas common 
stock are automatically reinvested in additional shares of Southwest 
Gas common stock on the earliest date that such dividends can 
reasonably be segregated; (h) Pending the IRA Trustee's investment of 
the cash amounts (e.g., cash contributions or rollover contributions by 
IRA Owners) in Southwest Gas stock, such amounts are deposited in a 
money market mutual fund on the earliest date that they can reasonably 
be segregated, and earnings accrued thereon are allocated at the end of 
each quarter on a pro-rata basis among IRA Owners receiving cash 
amounts and then applied immediately towards the purchase of additional 
shares of Southwest Gas common stock for the accounts of such IRA 
Owners; (i) The terms of any purchase of common stock pursuant to the 
DRIP, including the purchase price, will be at least as favorable to 
the DRIP IRA as those obtainable in a comparable arm's length 
transaction with an unrelated party; (j) Prior to participation in the 
DRIP IRA, each IRA Owner receives a written disclosure containing, 
among other things, information concerning the terms and conditions of 
the DRIP IRA and any fees paid to the IRA Trustee in connection with 
the DRIP IRA; (k) The IRA Owner will be furnished with a statement, at 
least quarterly, containing the date, quantity, and price with respect 
to each purchase of common stock; and (l) The DRIP IRA may be 
terminated without penalty by the IRA Owner at any time.

Notice to Interested Persons

    The applicant represents that the DRIP IRAs that would be affected 
by the proposed exemption do not yet exist. Thus, there are currently 
no IRA Owners who can be identified as interested persons. However, the 
applicant will provide M&I with a copy of this notice of proposed 
exemption and of the final exemption, if granted, as published in the 
Federal Register. Comments with respect to the proposed exemption are 
due within 30 days of the date of publication of this notice in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department, 
telephone (202) 693-8339. (This is not a toll-free number.)

Massachusetts Mutual Life Insurance Company, Located in Springfield, 
Massachusetts

[Exemption Application No. D-11228]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\12\
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    \12\ Unless otherwise noted, references to specific provisions 
of the Act shall refer also to the corresponding provisions of the 
Code.
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Section I--Transactions
    (a) If the exemption is granted, the restrictions of section 
406(a)(1)(B) and (D) of the Act, and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(B) and (D) of the Code, shall not apply to: (1) The 
extension of credit (``Market Rate Advance or Advances'') by 
Massachusetts Mutual Life Insurance Company (``MassMutual'') to a 
participant-directed individual account plan (``the Plan'') if the 
conditions of Sections II, III and V are met; and (2) the Plan's 
repayment of a Market Rate Advance or Advances, plus accrued interest; 
and
    (b) If the exemption is granted, the restrictions of section 
406(a)(1)(B) and

[[Page 25234]]

(D) and 406(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 (D) of the Code, shall not apply to (1) the 
interest-free extension of credit (``Interest-free Advance'') to a Plan 
by its respective sponsor (``the Plan Sponsor'') and (2) the repayment, 
by the Plan to the Plan Sponsor, of any Interest-free Advance, if the 
conditions of Sections II, IV and V are met:
Section II--General Conditions
    (a) Each Market Rate Advance and each Interest-free Advance 
(collectively ``the Advance or Advances'') is made in connection with 
the administration of a portion of the plan's assets by MassMutual as a 
unitized fund (``Unitized Fund'') in order to enable daily 
transactions, such as participant investment transfers, distributions 
or participant loans, and to facilitate redemptions from the Unitized 
Fund;
    (b) Each Advance is unsecured, uncollateralized, and without 
recourse;
    (c) No commitment fees or commissions are paid by the Plan with 
respect to the Advances;
    (d) The aggregate amount advanced on any business day that an 
Advance is initiated does not, after the Advance is made, exceed 25% of 
the total market value of the Unitized Fund;
    (e) Each Advance is made in accordance with the terms of a written 
agreement between MassMutual, the Plan, and, if Interest-free Advances 
by the Plan Sponsor are being offered, the Plan Sponsor (``the 
Agreement''). The Agreement describes the terms and procedures for the 
Advances, including instructions addressing the initiation, amount and 
repayment. With respect to Market Rate Advances, the Agreement sets 
forth the formula or method for determining the interest rate payable 
with respect to each Advance. The Agreement is approved in writing by a 
fiduciary of the Plan who is independent of, and not an affiliate of, 
MassMutual (``Independent Plan Fiduciary'');
    (f) The Agreement may be terminated by the Independent Plan 
Fiduciary at any time, subject to the Plan's repayment of any 
outstanding Advances, with no penalty for such termination;
    (g) The fair market value of the assets in the Unitized Fund is 
determined by an objective method specified in the Agreement;
    (h) Any employer security in a Unitized Fund is a ``publicly traded 
qualifying employer security'' as defined below.
    (i) The Plan is required to repay each Advance and any accrued 
interest in accordance with the terms of the Agreement as soon as 
possible after the initiation of the advance.
    (j) Within one business day after an Advance is initiated, 
MassMutual notifies the Independent Plan Fiduciary of the amount of the 
Advance and, if a Market Rate Advance, the actual interest rate to be 
applied;
    (k) Within ten (10) days after a Market Rate Advance is fully 
repaid, MassMutual provides the Independent Plan Fiduciary with a 
confirmation statement including the date of repayment, the amount of 
the Advance, and if a Market Rate Advance, the actual interest rate 
applied, and the total amount of interest paid by the Plan.
    (l) Each Advance is initiated, accounted for and administered by 
MassMutual, in accordance with the terms of the Agreement and the Act.
    (m) Neither MassMutual nor any of its affiliates is: (1) A trustee 
of the Plan (other than a nondiscretionary trustee who does not render 
investment advice with respect to the assets of the Unitized Fund); (2) 
a plan administrator (within the meaning of section 3(16)(A) of the Act 
and Code section 414(g)); (3) a fiduciary who is expressly authorized 
in writing to manage, acquire, or dispose of, on a discretionary basis, 
any assets of the Unitized Fund; or (4) an employer any of whose 
employees are covered by the Plan;
    (n) MassMutual maintains or causes to be maintained for a period of 
six years, in a manner that is accessible for audit and examination, 
the records necessary to enable the persons described in the next 
paragraph to determine whether the conditions of this exemption have 
been met, except that:
    (1) If the records necessary to enable the persons described in the 
next paragraph to determine whether the conditions of the exemption 
have been met are lost or destroyed, due to circumstances beyond the 
control of MassMutual, 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 MassMutual which is 
responsible for record-keeping, shall be subject to the civil penalty 
that may be assessed under section 502(i) of the Act or 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 the next 
paragraph;
    (o)(1) Except as provided below in subparagraph (2) and 
notwithstanding any provisions of section 504(a)(2) and (b) of the Act, 
the records referred to in the above paragraph are unconditionally 
available at their customary location for examination during normal 
business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any fiduciary of the plan or any duly authorized employee or 
representative of such fiduciary;
    (C) Any contributing employer and any employee organization whose 
members are covered by the plan, or any authorized employee or 
representative of these entities; or
    (D) Any participant or beneficiary of the plan or the duly 
authorized representative of such participant or beneficiary.
    (2) None of the persons described in subparagraph (1)(B)-(D) above 
shall be authorized to examine trade secrets or commercial or financial 
information which is privileged or confidential.
Section III--Conditions Specific to Market Rate Advances
    The relief provided under Section I (a) is available only if the 
following conditions are met:
    (a) Market Rate Advances are made on terms at least as favorable to 
the Plan as those the Plan could obtain in an arm's length transaction 
with an unrelated party;
    (b) Neither MassMutual nor its affiliate has or exercises any 
discretionary authority or control with respect to the initiation of a 
Market Rate Advance, the amount of a Market Rate Advance, the interest 
rate payable on a Market Rate Advance, or the repayment of the Market 
Rate Advance;
    (c) Interest payable by the Plan on each Market Rate Advance is 
determined in accordance with an objective formula or method described 
in the Agreement;
Section IV--Conditions Specific Interest-Free Advances
    The relief provided under Section I (b) is available only if the 
following conditions are met:
    (a) No interest or other fee is charged to the plan, and no 
discount for payment in cash is relinquished by the plan, in connection 
with the Interest Free Advance;
    (b) The Interest-free Advance is not a loan described in section 
408(b)(3) of ERISA and the regulations promulgated there under (29 CFR 
2550.408b-3) or section 4975(d)(3) of the Code and the regulations 
promulgated there under (26 CFR 54.4975-7(b));

[[Page 25235]]

    (c) The Interest-free Advance is not made directly or indirectly by 
an employee benefit plan;
    (d) Any Interest-free Advance that is entered into for a term of 60 
days or longer must be made pursuant to a written loan agreement that 
contains all of the material terms of such loan.
Section V--Definitions
    (a) The term ``affiliate'' means (i) any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person; (ii) any officer, 
director, employee or relative (as defined in section 3(15) of the Act) 
of such other person; and (iii) any corporation or partnership of which 
such other person is an officer, director or partner.
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (c) The term ``Plan Sponsor'' means the employer of the employees 
covered by the Plan.
    (d) The term ``publicly traded qualifying employer security,'' for 
purposes of this exemption, means a security that meets the definition 
of ``stock'' pursuant to section 407(d)(5)(A) of the Act and the 
definition of ``NMS stock'' as defined in SEC Regulation NMS, 17 CFR 
242.600(b)(47).
    (e) The term ``unitized fund'' for purposes of the exemption means 
a fund that, to facilitate trading and/or accounting, has established 
``units'' representing undivided interests in all of the assets of such 
fund.

Statement of Facts and Representations

    1. MassMutual is a mutual life insurance company organized under 
the laws of the Commonwealth of Massachusetts and subject to 
supervision and regulation by the Insurance Commissioner of 
Massachusetts. MassMutual conducts business in all 50 states, as well 
as in the District of Columbia and Puerto Rico. MassMutual and its 
family of companies serve the needs of over 10 million clients and 
offer a broad-based portfolio of financial products and services, 
including mutual funds, money management, trust services, retirement 
planning products, life insurance, annuities, disability income 
insurance, and long-term care insurance.
    2. MassMutual represents that it performs a wide variety of 
services for employee benefit plans subject to the Act, including 
unitization services. As part of these activities, MassMutual enters 
into arrangements with Plan Sponsors for the administration of their 
Plans and the investment of their Plan assets. As of December 31, 2005, 
MassMutual had net capital of $8,787,000,000 and assets under 
management of $395,881,000,000.
    3. Unitization services facilitate daily trading between investment 
options offered under a plan by permitting daily trading of plan 
investment options that would otherwise not be able to be traded or 
settled within one day. Unitization services permit daily transactions 
by establishing ``units'' representing undivided interests in all of 
the assets of the Unitized Fund. MassMutual represents that it 
establishes a daily unit value by dividing the market value of the 
Unitized Fund by the number of units held by participants, and on a 
daily basis, processes participant contributions to, and withdrawals 
from, the Unitized Fund as purchases and sales of units at the daily 
unit value. When cash is required to settle transactions in units 
resulting from participant withdrawals and exchanges of units from the 
Unitized Fund, the cash requirements are satisfied first from the 
liquid investments of the Unitized Fund and then shares of the Unitized 
Fund investments may be sold to restore the liquidity. MassMutual 
represents that all employer securities and separately managed accounts 
it administers are unitized. The unitization services that are the 
subject of this application are only being offered to individual plans, 
no transactions covered by this application involve pooled accounts.
    4. Under this proposed exemption, MassMutual would offer Plans with 
unitized funds the opportunity to establish one or both of the 
following two programs: (a) Market Rate Advances from MassMutual or (b) 
Interest-free Advances from the plan sponsor or its affiliate.\13\ In 
either case, Plans would use these Advances only if the cash portion of 
a Unitized Fund is insufficient to cover unit redemption requests on a 
particular business day.
---------------------------------------------------------------------------

    \13\ The Department notes that PTE 80-26, as amended [71 FR 
17917, April 7, 2006] provides relief for interest-free loans by the 
plan sponsor or its affiliate, if the conditions of the amended 
exemption are met.
---------------------------------------------------------------------------

    5. MassMutual states that it may provide unitization services to 
Plans where MassMutual is a trustee, custodian, or recordkeeper. In 
some cases, MassMutual may be engaged by the Plan solely to provide 
unitization services and MassMutual would have custody of the Plan's 
assets only to the extent required for the administration of the 
Unitized Fund.
    6. MassMutual represents that because participant-directed Plans 
generally offer MassMutual funds as investment options, procedures for 
investments, exchanges and redemptions under these Plans accommodate 
mutual fund trading practices. Participant investment transactions 
would generally be processed as follows: (a) after the close of 
business on each trade date, mutual fund transfer agents calculate the 
daily net asset value (the ``NAV'') at which shares may be purchased or 
redeemed for each mutual fund and recordkeepers receive the daily NAV 
for each mutual fund; (b) the recordkeeper processes participant 
instructions for exchanges between investment options and Plan 
withdrawals that are submitted to the recordkeeper before a cut-off 
time (e.g., 3 p.m.) on any business day (the ``trade date'' or ``T''), 
and purchase orders resulting from new Plan contributions received on 
the trade date, using the daily NAV provided for each mutual fund at 
the close of business on that trade date; (c) the recordkeeper 
aggregates participant transaction information to create a single Plan 
purchase or redemption order for each mutual fund offered as a Plan 
investment option. The recordkeeper submits these orders to the mutual 
funds during the night, or possibly, very early on the next business 
day (T+1); (d) on T+1, the purchase and redemption transactions are 
settled by the transfer of money from the master contributions account 
for purchases to the mutual funds and the collection of the redemption 
proceeds from the mutual funds which are held in the master 
disbursement account. Redemption proceeds are reinvested on T+1 if the 
redemption transaction is processed as part of an exchange between Plan 
investment options, or transferred to the Plan trustee if withdrawn 
from the Plan; and (e) in the case of an exchange between investment 
options offered under a Plan, the recordkeeper may process the exchange 
as a simultaneous redemption and purchase transaction on T, and both 
transactions are settled on T+1.
    7. MassMutual represents that these procedures are successful 
because mutual funds meet two important requirements: The transfer 
agent establishes a daily NAV for processing purchases and redemptions; 
and mutual funds maintain liquidity that permits payment of redemption 
proceeds on T+1. Interests in collective trust funds also may be traded 
on a daily basis under these procedures if administered

[[Page 25236]]

to allow daily contributions and withdrawals. MassMutual explains that 
some investment options that Plan sponsors may wish to offer 
participants do not meet requirements for daily trading. For example: 
(a) Purchase and sale transactions involving employer stock owned by a 
Plan typically settle on a ``T+3'' basis, which means that proceeds 
upon the sale of employer stock may not be received for three business 
days after the day of a sale transaction. (b) ``Stable value funds'' 
typically hold insurance company guaranteed investment contracts (GICs) 
or other investments that provide a benefit-responsive guarantee (e.g., 
so-called ``alternative'' stable value contracts, such as ``synthetic 
GICs''), which may require up to ten (10) days notice for withdrawals; 
and (c) withdrawals from a Plan account managed by an investment 
manager, within the meaning of section 3(38) of the Act (managed 
account), might require sales of securities owned in the managed 
account. Like employer stock, sales of securities from a managed 
account generally would settle on a ``T+3'' basis.
    8. Unitization services provided by MassMutual allow participants 
to engage in daily transactions involving these types of Plan 
investment options by providing a daily price and liquidity that 
permits withdrawals on any business day. MassMutual represents that 
Unitized Fund administration is a ministerial service that MassMutual 
performs under specific instructions from a Plan fiduciary independent 
of MassMutual (an ``Independent Plan Fiduciary''). The Independent Plan 
Fiduciary may be the Plan administrator described in section 3(16)(A) 
of the Act, another Plan fiduciary responsible for determining the 
Plan's investment options, or an investment manager described in 
section 3(38) of the Act appointed for a Plan. All of the Independent 
Plan Fiduciary's instructions are provided in, or in accordance with, a 
written unitization agreement (the Agreement) made between MassMutual 
and the Independent Plan Fiduciary. Where Interest-free Advances are 
being offered, the Plan Sponsor will also be a party to the Agreement. 
Among other things, MassMutual represents that the Agreement provides 
standing instructions addressing the initiation, amount, repayment and, 
with respect to Market Rate Advances by MassMutual, the formula or 
method for determining the interest rate payable with respect to each 
Advance. The terms of the Agreement are approved in writing by the 
Independent Plan Fiduciary.
    9. MassMutual represents that the Independent Plan Fiduciary 
directs it to establish a Unitized Fund consisting of the assets that 
are the primary investment under the Plan investment option to be 
unitized and cash, or cash equivalent investments, that provide 
liquidity for the Unitized Fund (the ``cash portion'') in order to 
facilitate daily trading.\14\ For example, a unitized employer stock 
fund would consist of shares of employer stock \15\ and a cash portion; 
a unitized stable value fund would consist of GICs and/or alternative 
stable value contracts and a cash portion, and a unitized managed 
account would consist of investments selected and managed by the Plan's 
investment manager and a cash portion. In most cases, the Independent 
Plan Fiduciary directs MassMutual to invest the cash portion directly 
or indirectly in shares or units of a money market fund, including one 
managed by MassMutual. In this regard, MassMutual is able to submit 
redemption orders for shares or units of the Money Market Fund on any 
business day and receive cash on the Plan's behalf on the same business 
day, which allows MassMutual to transfer funds to settle redemptions 
from the Unitized Fund on T+1. The Independent Plan Fiduciary may 
direct MassMutual to invest the cash portion of a Unitized Fund in 
investments other than the Money Market Fund, provided that the 
investment offers similar liquidity.
---------------------------------------------------------------------------

    \14\ The Department notes that whether or not unitization is 
appropriate for particular plan is a fiduciary decision. In making 
this decision, the fiduciary should consider such factors such as 
plan asset size, number of plan participants, the size of the 
unitized fund, and the type and nature of the unitized fund and the 
assets (e.g., whether exchange-traded and readily available, or less 
liquid.)
    \15\ The standard unitization agreement submitted by MassMutual 
did not permit in-kind distributions of employer securities. In 
response to questions, MassMutual explained that in-kind 
distributions are an option that may be selected by the plan. The 
Department notes that offering in-kind distributions of employer 
securities gives participants the option to elect the special tax 
treatment available for net unrealized appreciation in employer 
securities, pursuant to IRC 402(e)(4).
---------------------------------------------------------------------------

    10. MassMutual's fees for unitization services are also described 
in the Agreement. Generally, the fees may include an initial set-up 
charge and an annual administration charge, which may be a fixed 
amount, a fee based on the value of assets in the unitized account, or 
a combination of both. MassMutual represents that in no event will it 
have any discretionary authority or control or provide any investment 
advice (as described by section 3(21) of the Act and regulations 
thereunder) with respect to the selection of the assets of a Unitized 
Fund. In this regard, the Independent Plan Fiduciary or an investment 
manager appointed in accordance with Plan terms and independent of 
MassMutual would be solely responsible for determining the investments 
of the Unitized Fund and, as further described below, providing 
MassMutual with specific instructions regarding the operation of the 
Unitized Fund. In addition, MassMutual does not provide any asset 
allocation or other services that may affect or influence participant 
transactions involving a Unitized Fund.
    11. MassMutual explains that to establish a Unitized Fund, the 
Independent Plan Fiduciary directs MassMutual in the Agreement to 
calculate the market value of assets owned by the Plan in connection 
with the investment option to be unitized (e.g., the employer stock or 
other investments and the cash portion) on the first day that the 
option is unitized (the unitization date) and then establish ``units'' 
of the Unitized Fund by dividing the market value by a proposed initial 
unit value. Typically, an initial number of units are determined by 
dividing the current market value of the combined assets by $10.
    12. On the unitization date, the recordkeeper allocates the units 
to participant accounts based on each participant's pro rata interest 
in the Unitized Fund. Each business day after the unitization date, the 
Agreement requires MassMutual to establish a daily unit price based on 
the current market value of the Unitized Fund. Procedures for 
determining current market value are specified in the Agreement and 
would require an objective method so that MassMutual does not have any 
discretion in determining the market value of the unitized Fund or unit 
price.
    For example, in the case of employer stock, the Agreement may 
require MassMutual to value the stock at the closing price on the New 
York Stock Exchange. Securities issued by mutual funds would be valued 
at the daily net asset value published by the mutual fund. In the case 
of GICs or alternative stable value contracts, the Agreement would 
generally direct MassMutual to use book value as reported by the 
contract issuer. In the case of a managed account, the investment 
manager may value the managed account, or MassMutual may determine the 
value if MassMutual has custody of the managed account assets. 
MassMutual provides the daily unit price for each Unitized Fund after 
the close of each business day. The unit price is made available to

[[Page 25237]]

the Plan's recordkeeper for purposes of processing new participant 
investments in the Unitized Fund, withdrawals from the Unitized Fund, 
and participant-directed exchanges involving the Unitized Fund.
    13. Each business day, according to MassMutual, the Plan's 
recordkeeper aggregates all participant investment transactions 
involving the Unitized Fund to create a Plan purchase and redemption 
order for units of the Unitized Fund. The recordkeeper submits the 
purchase and redemption orders on the same basis that the recordkeeper 
submits orders for the mutual fund investment options offered under the 
Plan. Generally, the Plan's recordkeeper is a party to the Agreement 
and agrees to process participant investment transactions involving the 
Unitized Fund in accordance with requirements that accommodate 
MassMutual's provision of unitization services, as described by the 
Agreement. In the case of a managed account, the investment manager may 
also be party to the Agreement and would agree to assist MassMutual in 
providing unitization services by, e.g., providing daily valuation 
information and selling assets of the managed account when required for 
liquidity purposes. Upon receipt of a purchase order, MassMutual 
increases the total number of units of the Unitized Fund by the number 
of units purchased and accepts funds transferred to MassMutual to pay 
for the units purchased. Upon receipt of a unit redemption order, 
MassMutual reduces the number of units accordingly and forwards funds 
to settle the unit redemptions.
    14. MassMutual represents that the Agreement includes specific 
instructions for the management of liquidity of a Unitized Fund.
    Specifically, the Independent Plan Fiduciary must specify a 
``target liquidity,'' which specifies the intended size of the cash 
portion in comparison with the total assets of a Unitized Fund. The 
target liquidity would be established at a level that reasonably 
provides enough cash to accommodate the expected volume of redemption 
transactions generated by participants in the ordinary course. A 
typical target liquidity may range from 1% to 10%, depending on factors 
such as the size of the Unitized Fund, the average trading volume of 
assets held in the Unitized Fund, the number of participants with an 
interest in the Unitized Fund, and the relative size of each 
participant's interest in the Unitized Fund. The Agreement also 
specifies a ``liquidity variance'' that defines the range within which 
the actual value of the cash portion, as compared to total value of the 
Unitized Fund, (actual liquidity) may vary from the target liquidity. 
If the actual liquidity exceeds the target liquidity by more than the 
liquidity variance, excess amounts must be immediately invested. If the 
actual liquidity is less than the target liquidity by more than the 
target variance, then some Unitized Fund investments must be liquidated 
to increase the cash portion.
    15. According to MassMutual, the Agreement always provides 
MassMutual with specific instructions for making new investments on 
behalf of the Unitized Fund or liquidating investments of a Unitized 
Fund. In the case of employer stock, MassMutual is generally directed 
to place a purchase or sell order to restore the Unitized Fund to 
target liquidity on the business day that the excess liquidity or 
liquidity shortfall is identified. For unitized stable value funds, the 
Independent Plan Fiduciary must provide MassMutual with specific 
instructions as to which stable value contracts MassMutual should be 
credited with deposits or withdrawals. In the case of a managed fund, 
the Agreement generally requires MassMutual to notify the Plan's 
investment manager of excess liquidity or a liquidity shortfall and the 
manager is responsible for buying or selling account assets to restore 
the actual liquidity of the managed account to the permitted range.
    16. MassMutual represents that whenever the actual liquidity of a 
Unitized Fund falls below the target liquidity by more than the 
liquidity variance, assets of the Unitized Fund must be liquidated to 
restore the target liquidity. If employer stock or other securities, 
which settle on a ``T+3'' basis, are sold, the sale proceeds usually 
would be received after three business days. Some transactions may take 
longer to settle, for example, withdrawals from GICs or alternative 
stable value contracts may require up to ten days. Nevertheless, as 
long as the cash portion of the Unitized Fund is sufficient to cover 
unit redemption requests submitted to MassMutual on each business day, 
unit redemptions can be processed and settled on a daily basis.
    17. From time to time, the actual liquidity of a Unitized Fund may 
not provide sufficient liquidity for the unit redemption requests on a 
business day. If requests for redemptions exceed the actual liquidity 
of the Unitized Fund, MassMutual instructs the trustee to (1) fulfill 
the participant's unit redemption requests and (2) sell assets to 
return the fund to its requisite liquidity. MassMutual pays the trustee 
for the overdraft services: Plans, however, may make their own 
arrangements with the trustee. The redemptions are processed at the 
unit price established the business day on which the redemptions are 
resubmitted. Generally, the Agreement would instruct MassMutual to 
continue to accept unit purchase orders even if unit redemption orders 
have been rejected.
    18. MassMutual represents that in its experience it is expensive 
and burdensome to Plans and participants to reject unit redemptions due 
to insufficient liquidity for several reasons. First, the reversal of a 
transaction is an exception from typical administrative procedures and, 
therefore, must be processed and reconciled manually rather than on 
automated recordkeeping systems; this increases recordkeeping expenses 
incurred by Plans and participants and increases the opportunity for 
recordkeeping and reconciliation errors. Second, until the reversed 
transaction is posted to participant accounts, participant account 
records (which are available to participants on a daily basis) will be 
inaccurate. Most important, the unit redemption requests are likely to 
be requested in connection with a participant's request for an exchange 
from a Unitized Fund to another Plan investment option. If the Unitized 
Fund redemption requests cannot be settled, the corresponding purchases 
of shares or units of the other Plan investment options also must be 
reversed. As noted, MassMutual does not receive unit redemption orders 
until T+1, by which time; a corresponding purchase order would also 
have been received by the mutual fund transfer agent.
    In many cases, it is not possible to stop a purchase of mutual fund 
shares. Instead, the shares must be resold at the then current market 
price. If there has been a one-day change in share price, the Plan may 
be liable for the difference.
    19. One way to reduce the risk that any unit redemptions may be 
rejected is to increase the Unitized Fund's target liquidity. In this 
regard, the Agreement generally requires MassMutual to notify the 
Independent Plan Fiduciary each time that unit redemptions are rejected 
so that the Independent Plan Fiduciary can evaluate whether target 
liquidity is appropriate and increase target liquidity as needed. 
However, increasing target liquidity affects the risk and return 
characteristics of the Unitized Fund, which is an undesirable result in 
the view of many Plan fiduciaries. In many cases, increases in the 
portion of a fund invested in cash and cash equivalents reduces the 
fund's investment return over the long-term as compared to the

[[Page 25238]]

return that could be obtained by a fund with a smaller cash portion.
    20. As a service provider to Plans, MassMutual is a party in 
interest to such Plans. Therefore, MassMutual represents that Advances 
by MassMutual to Plans in connection with its unitization services, and 
the receipt by MassMutual of interest may raise issues under section 
406(a) of the Act. Advances by a plan sponsor, also a party in 
interest, are prohibited under section 406. Therefore MassMutual is 
requesting an exemption to permit it to make advances and earn interest 
on these Market Rate Advances and to permit plan sponsors of plans that 
use MassMutual's unitization services to provide Interest-free Advances 
to their plans.
    21. The proposed exemption for the Advances requires the Plan repay 
the principal amount of a Market Rate Advance and accrued interest as 
soon as possible after the initiation of the Advance. No commitment 
fees or commissions will be paid by the Plan in connection with an 
Advance. The Advances would be available under procedures reviewed and 
approved by the Independent Plan Fiduciary and incorporated into the 
Agreement. The Agreement will describe the terms and procedures for the 
Advances, including instructions addressing the initiation, amount and 
repayment.
    22. With respect to Market Rate Advances, the Agreement will also 
describe the formula or method for determining the interest rate 
payable with respect to each Market Rate Advance. For example, the 
Agreement might specify a formula for determining the interest on 
Market Rate Advances based on a published indexed interest rate 
established by an independent third party (e.g., the London Interbank 
Offered Rate or the U.S. Federal Reserve's Cost of Funds Index) and 
provide for daily accrual of interest until the Market Rate Advance is 
repaid. MassMutual will not have or exercise any discretion with 
respect to how the rate is determined under the formula or method. 
Interest on Market Rate Advances will be an operating expense of a 
Unitized Fund and will be paid from the assets of the Unitized Fund.
    23. The Agreement governing the Advances will limit the total 
amount that MassMutual or the Plan Sponsor may advance to a Plan to 25% 
of the total market value of the Unitized Fund on the business day that 
any Advance is made. MassMutual represents that such limits will be 
imposed because Advances are intended to facilitate the administration 
of a Unitized Fund in the ordinary course of business. If the liquidity 
needed to settle redemption requests on a particular business day 
exceeds a limit set on Advances, Plan fiduciaries may wish to review 
whether the Plan should continue ``daily trading'' in participant 
interests in the Unitized Fund. The fair market value of the assets of 
the Unitized Fund is determined by an objective method specified in the 
Agreement.
    24. The Advances will not be secured or collateralized. MassMutual 
will generally be directed under the Agreement to automatically sell or 
redeem assets of a Unitized Fund on any business day that the actual 
liquidity of a Unitized Fund falls below the target liquidity by more 
than the liquidity variance. Further, MassMutual generally will be 
directed by the Agreement to automatically collect the amount of an 
Advance and accrued interest, if any, from proceeds received upon the 
sale or redemption of those assets.
    25. MassMutual represents that the liquidity needs of the Unitized 
Employer Stock Fund and the market for Employer Stock may necessitate 
the situation in which an, orderly liquidation of Employer Stock may 
need to occur over a period of months or a few weeks. For example, (a) 
if it is known that a 10 percent shareholder is liquidating his or her 
interest in the Plan Sponsor in the market, large sales of Employer 
Stock will typically yield a lower price than smaller sales over a 
period of weeks or a few months; (b) if a large amount of Employer 
Stock is to be sold by the Plan (e.g., part of the business is sold and 
a large number of employees become eligible for and elect to receive 
distributions from the Plan), an orderly sale of Employer Stock by the 
Plan would normally yield a higher price; or (c) if the Plan Sponsor or 
the Independent Plan Fiduciary determines that it would be imprudent or 
unlawful to sell the Employer Stock at a particular time (e.g., it 
jeopardizes the Plan's qualified tax status or it would violate a 
securities law), then sales of Employer Stock would be made as prudent 
and lawful as possible and would be extended over a period of time. 
MassMutual represents that it will not exercise discretion with respect 
the assets in the unitized fund. Where the sale will occur over several 
days, MassMutual will receive specific instructions regarding the 
timing of the sales from the Independent Fiduciary.
    As discussed above, the employer securities may be sold over a 
period of months or weeks at the then current market price. In 
contrast, participant transactions involving purchase or sales of the 
units in the Unitized Employer Stock Fund will be made after the close 
of the market based on the unit value of the Unitized Employer Stock 
Fund at the closing price of the Employer Stock held by the Unitized 
Employer Stock Fund. Participants will also receive confirmation of the 
unit price at which their transactions (e.g., distributions, transfers, 
etc.) are made.
    26. MassMutual will provide notice to the Independent Plan 
Fiduciary about each Advance at the time the Advance is made and after 
the Advance is repaid. With respect to Market Rate Advances, no later 
than one business day after a Market Rate Advance is initiated, 
MassMutual will notify the Independent Plan Fiduciary of the principal 
amount of the Market Rate Advance and the interest rate to be applied. 
Within ten days after a Market Rate Advance is fully repaid, MassMutual 
will provide the Independent Plan Fiduciary with a confirmation 
including the date of repayment, the amount of the Market Rate Advance, 
the actual interest rate applied, and the total amount of interest paid 
by the Plan.
    27. The Agreement may be terminated by the Independent Plan 
Fiduciary at any time, subject to the Plan's repayment of any 
outstanding Advances made as required by the terms of the Agreement. 
The Advances will be made on terms at least as favorable to the Plan as 
those the Plan could obtain in an arm's-length transaction with an 
unrelated party.
    28. Neither MassMutual nor an affiliate may have, or exercise, any 
discretionary authority or control with respect to the initiation of an 
Advance, the amount of an Advance, the interest rate payable on a 
Market Rate Advance, or the repayment of an Advance. These 
circumstances are determined by the Independent Plan Fiduciary and are 
set forth in the Agreement. In addition, MassMutual or an affiliate may 
not be (a) a trustee of the Plan (other than a nondiscretionary trustee 
who does not render investment advice with respect to the assets of the 
Unitized Fund), (b) a Plan administrator, (c) a fiduciary who is 
expressly authorized in writing to manage, acquire, or dispose of, on a 
discretionary basis, any assets of the Unitized Fund, or (d) an 
employer any of whose employees are covered by the Plan.
    29. In response to concerns raised by the Department regarding the 
unitization of employer security funds consisting of that were not 
sufficiently liquid, MassMutual agreed that this exemption would only 
apply to those qualifying employer securities that would meet the 
definition of qualifying employer securities that were stock pursuant 
to 407(d)(5)(A) of the Act. To

[[Page 25239]]

further assure sufficient liquidity, MassMutual agreed that the 
employer securities must also qualify as ``NMS stock'' pursuant to the 
SEC's recently published Regulation NMS, 17 CFR 242.600(b)(46)and 
(47).\16\ The term generally covers securities that are listed on a 
National Securities Exchange, such as the New York Stock Exchange or 
The NASDAQ Stock Market, Inc.\17\ In order to meet the definition of 
NMS stock, the stock must be one for which transaction reports are 
collected and processed, and such reports must be available for review. 
Therefore, according to MassMutual, limiting application of the 
proposed exemption to employer securities which meet the definition of 
NMS stock ensures that only those securities which can be readily 
valued, based on market quotations, will be covered by the proposed 
transactions.
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    \16\ The Securities Exchange Act of 1934 directs the Securities 
and Exchange Commission (the ``SEC'') to designate certain 
securities or classes of securities qualified for trading in the 
national market system. See 15 U.S.C. 78k-1(a)(2). 17 CFR 242.600 
provides:
    a. The term national market system security as used in section 
11A(a)(2) of the Act shall mean any NMS security as defined in 
paragraph (b) of this section.
    b. For purposes of Regulation NMS (Rules 242.600 through 
242.612), the following definitions shall apply:
    46. NMS security means any security or class of securities for 
which transaction reports are collected, processed, and made 
available pursuant to an effective transaction reporting plan, or an 
effective national market system plan for reporting transactions in 
listed options.
    47. NMS stock means any NMS security other than an option.
    \17\ The NASDAQ Stock Market has been authorized by the SEC to 
become a national securities exchange and is in the process of 
making that conversion.
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    30. In summary, MassMutual represents that the subject transactions 
satisfy the criteria contained in section 408(a) of the Act for the 
following reasons:
    (a) The requested exemption will be administratively feasible 
because the Advances will be monitored by the Independent Plan 
Fiduciary of each Plan. Thus the level of oversight required by the 
Department will be minimal.
    (b) The requested exemption will be in the interests of Plan 
participants and beneficiaries because it will allow Plans to avoid 
rejections of the Unitized Fund redemption transactions resulting from 
insufficient liquidity. This will protect Plan participants and 
beneficiaries from the expense, inconvenience, possible recordkeeping 
errors, and potential Plan exposure for trading losses on corresponding 
purchase transactions for other Plan investments, which could result if 
Unitized Fund liquidity is insufficient to settle the redemption on a 
requested business day. The protection will be available where the plan 
sponsor is willing to provide the liquidity without interest, as well 
as where the sponsor is not willing to do so, but decides, in the 
interest of the plan, that liquidity is needed.
    (c) The requested exemption will protect participants' and 
beneficiaries' rights because (i) the terms and conditions of Advances 
will be clearly disclosed in a written Agreement between MassMutual and 
an Independent Plan Fiduciary, which will specifically describe the 
procedures under which Advances will be made and repaid, the amount of 
each Advance, and, in the case of a Market Rate Advance, the formula or 
method for determining interest; (ii) the terms on which Advances would 
be made must be at least as favorable to the Plan as a similar third 
party arm's length transaction; (iii) the Agreement permitting the 
Advances can be terminated by the Independent Plan Fiduciary at any 
time, without penalty; (iv) MassMutual will provide to the Independent 
Plan Fiduciary on the business day following the day an Advance is 
made, a notice describing the amount of the Advance and, if it is a 
Market Rate Advance, the interest rate payable, and within 10 days of 
the repayment of each Advance, notice confirming the amount of the 
Advance, the date of repayment and the actual amount of interest, if 
any, paid by the Plan. These notices provide an Independent Plan 
Fiduciary the ability to monitor each Advance and ensure the Advances 
are appropriate and in the interest of the Plan's participants and 
beneficiaries; (v) MassMutual will not have or exercise any 
discretionary authority or control over the assets of the Plan invested 
in a Unitized Fund and will act solely at the direction of an 
Independent Plan Fiduciary. In addition, MassMutual may not have a 
relationship to a Plan receiving Advances that might provide MassMutual 
any discretionary authority or control with respect to the investment 
of the assets of the Unitized Fund or Market Rate Advances to be made 
to the Plan; and (vi) the relief requested for interest free loans is 
protective because no fees will be charged and no recourse will be 
given.

FOR FURTHER INFORMATION CONTACT: Andrea W. Selvaggio 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 of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, 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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 24th day of April, 2006.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E6-6356 Filed 4-27-06; 8:45 am]

BILLING CODE 4510-29-P