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Secretary of Labor Thomas E. Perez
Notice of Proposed Individual Exemption to Make Permanent as Modified Prohibited Transaction Exemption (PTE) 91-8 Involving Equitable Life Assurance Society of the United States and Its Affiliates (Equitable) and Its Wholly-Owned Subsidiary, Equitable Real Estate Management, Inc. (ERE), Located in New York, New York [Notices] [09/06/1996]

EBSA (Formerly PWBA) Federal Register Notice

Notice of Proposed Individual Exemption to Make Permanent as Modified Prohibited Transaction Exemption (PTE) 91-8 Involving Equitable Life Assurance Society of the United States and Its Affiliates (Equitable) and Its Wholly-Owned Subsidiary, Equitable Real Estate Management, Inc. (ERE), Located in New York, New York [09/06/1996]

[PDF Version]

Volume 61, Number 174, Page 47205-47214

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DEPARTMENT OF LABOR
[Application No. D-10011]

 
Notice of Proposed Individual Exemption to Make Permanent as 
Modified Prohibited Transaction Exemption (PTE) 91-8 Involving 
Equitable Life Assurance Society of the United States and Its 
Affiliates (Equitable) and Its Wholly-Owned Subsidiary, Equitable Real 
Estate Management, Inc. (ERE), Located in New York, New York

AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

ACTION: Notice of proposed individual exemption to make permanent as 
modified PTE 91-8, which involves Equitable and ERE.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor of a proposed individual exemption to make 
permanent as modified the temporary relief provided by PTE 91-8 (56 FR 
1411/1419, January 14, 1991). PTE 91-8 is a temporary exemption which 
expired January 13, 1996. This proposed exemption, if granted, will 
make permanent as modified PTE 91-8 and will provide relief for the 
provision of property management and/or leasing services by ERE <SUP>1, 
Equitable's wholly-owned subsidiary to an Account (as defined in 
Section IV below), provided that the conditions set forth in Section II 
are met.

    \1\ In this regard, ERE represents that during the course of PTE 
91-8 ERE changed its acronym from EREIM. This was solely a matter of 
preference and does not reflect a change in ownership or management 
of ERE. The description of Equitable Real Estate Investment 
Management, Inc., as set forth in the original notice of proposed 
exemption published on February 28, 1990 at 55 FR 7057/7069 and in 
the exemption application for permanent exemption and modification 
of PTE 91-8, dated April 24, 1995, continues to accurately reflect 
the ownership and management of ERE.
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EFFECTIVE DATE: The Department has determined to extend the temporary 
exemptive relief provided under PTE 91-8 effective January 13, 1996, 
until the date the final grant for this proposed exemption is published 
in the Federal Register.
    Also, if granted, this proposed exemption to make permanent PTE 91-
8 will be effective on the date the final grant is published in the 
Federal Register. However, the modification in the annual reporting 
requirement whereby Equitable will furnish the annual report to each 
authorizing plan fiduciary and the Independent Fiduciary no later than 
90 days following the end of the period to which the annual report 
relates, as set forth in Section II(4)(a) in this proposed exemption, 
will be effective, as of January 13, 1996.

DATES: Written comments and requests for a public hearing must be 
received by the Department of Labor by no later than October 21, 1996.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Office of Exemption Determinations, 
Pension and Welfare Benefits Administration, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210, 
Attention: Application No. D-10011. The application for exemption

[[Page 47206]]

and the comments received will be available for public inspection in 
the Public Disclosure Room of Pension and Welfare Benefits 
Administration, U.S. Department of Labor, Room N-5638, 200 Constitution 
Avenue NW., Washington DC 20210.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of 
Exemption Determinations, U.S. Department of Labor, telephone (202) 
219-8883. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency 
before the Department of a proposed exemption to make permanent as 
modified PTE 91-8. PTE 91-8 provides an exemption from the restrictions 
of section 406(a), 406(b)(1) and 406(b)(2) of the Employee Retirement 
Income Security Act of 1974 (the Act) and from the sanctions resulting 
from the application of section 4975 of the Internal Revenue Code of 
1986 (the Code), by reason of section 4975(c)(1) (A) through (E) of the 
Code.
    The notice of proposed exemption to make permanent PTE 91-8 was 
requested in an exemption application by Equitable and ERE pursuant to 
section 408(a) of the Act and 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, August 10, 1990). Effective December 31, 1978, section 
102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 
1978) transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type requested to the Secretary of Labor. 
Accordingly, the proposed exemption to make permanent PTE 91-8 is being 
issued solely by the Department.

PTE 91-8

    PTE 91-8 is a temporary individual exemption which expired on 
January 13, 1996. A summary of the facts and representations pertaining 
to PTE 91-8 was contained in a notice of pendency of proposed exemption 
that was published in the Federal Register on February 28, 1990 at 55 
FR 7057/7069. The grant of PTE 91-8 was published in the Federal 
Register on January 14, 1991 at 56 FR 1411/1419. PTE 91-8 permits the 
provision of certain real estate property management and, in some 
instances, leasing services by EREIM, an indirect wholly owned 
subsidiary of Equitable and the predecessor of ERE, affiliates of EREIM 
and Tishman Speyer Properties (TSP), a partnership in which Equitable 
has a 50 percent ownership interest, to various real estate separate 
accounts (the Accounts) in which employee benefit plans participate. 
The Accounts are managed by Equitable, EREIM or subsidiaries thereof. 
PTE 91-8 also permits the provision, by the law department of Equitable 
(the Law Department), of certain legal services to the Accounts 
required in connection with individual properties held by the Accounts.
    Equitable is a mutual life insurance company organized under the 
laws of the State of New York. Among the variety of products and 
services, Equitable offers asset management and other services to 
numerous employee benefit plans, including investments in the Accounts. 
The Accounts hold investments in income-producing real estate such as 
office buildings, hotels, shopping centers and industrial and 
commercial properties. As the investment manager with respect to the 
Accounts, Equitable has investment discretion to acquire and dispose of 
properties on behalf of the Accounts, and the responsibility to manage 
Account properties. Equitable represented that its direct or indirect 
subsidiaries may act as the investment manager with respect to existing 
or new Accounts.
    Furthermore, Equitable represented that the provision of property 
management and leasing services to the Accounts by ERE and certain of 
its other affiliates is of central importance in maximizing returns 
available to its investors, including employee benefit plans. In this 
regard, large real estate investment managers typically manage 
properties themselves or through property management firms they have 
acquired. This strategy enables them to use unified leasing strategy 
and other efficient management strategies, and is a superior 
alternative to retaining independent managers for property management. 
Equitable stated that often the best arrangements for the provision of 
property services to the Accounts, and the highest quality of services 
can be provided through the use of its in-house personnel or through 
firms in which Equitable has an interest. Such firms possess special 
expertise in the type of properties held by the Accounts and knowledge 
of the Accounts and their properties.
    The services provided to the Accounts by ERE and certain other 
affiliates of Equitable included day to day property management and 
leasing responsibilities associated with the operation of income-
producing properties. Specifically, these responsibilities included: 
(a) using best efforts to lease the property to desirable tenants and 
negotiating the terms and renewals of such leases; (b) receiving and 
collecting rents; (c) arranging for all necessary repairs and 
replacement and installation of equipment; (d) handling tenant 
complaints; (e) preparing and submitting to the owner proposed 
operating and capital budgets; and (f) performing marketing and 
promotional supervisory services.
    To ensure that the transactions in PTE 91-8 operated in the 
interests of the Accounts and the participating plans therein, the 
exemption contained certain specified safeguards. These safeguards 
included: (1) the requirement that the arrangement under which the 
transactions were performed be subject to the prior authorization of an 
independent plan fiduciary for each plan invested in an Account; \2\ 
(2) the requirement that not less than 45 days prior to the 
implementation of either the policy for property management and leasing 
services or the policy for legal services, Equitable or EREIM, as 
investment manager, furnish the authorizing plan fiduciary with 
reasonably available information; (3) a mechanism enabling the plans to 
terminate their investment in the Account; (4) an annual reporting 
requirement whereby Equitable furnished the annual report to each 
authorizing plan fiduciary and the Independent Fiduciary no later than 
45 days following the end of the period to which the annual report 
related; (5) confirmation by the plans of the multiple services 
arrangement; (6) approval by the Independent Fiduciary of each 
transaction under the exemption, and a mechanism for the Independent 
Fiduciary's negotiation and approval of contracts for the provision of 
services by EREIM, TSP or the Law Department to the Accounts; (7) the 
requirement that the terms of a service provision arrangement must be 
reviewed by the Independent Fiduciary prior to implementation; (8) the 
requirement that Equitable and EREIM had to furnish certain information 
regarding transactions to the Independent Fiduciary for its periodic 
review of performance of EREIM, TSP, or the Law Department under the 
contracts; (9) a plan investor sophistication requirement; (10) 
percentage limitations on plan investment in the Accounts, including 
Equitable's in-house plans; (11) the requirement that the terms of the 
transactions must be as favorable to the Accounts as arm's length 
terms; and, (12) that the compensation paid to

[[Page 47207]]

EREIM, TSP or the Law Department shall not exceed reasonable 
compensation within the meaning of section 408(b)(2) of the Act and the 
regulations thereunder. In addition to these conditions, PTE 91-8 and 
the notice relating to PTE 91-8 contained other protective conditions 
that had to be met by Equitable and its affiliates with respect to the 
Accounts and the transactions which were the subject of PTE 91-8. Also, 
representations contained in Paragraph IV of the notice of proposed 
exemption relating to PTE 91-8 placed certain limitations on the fees 
that EREIM or TSP were permitted to receive for property management and 
leasing services rendered to the Accounts pursuant to PTE 91-8.
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    \2\ In this regard, under this proposed exemption to make 
permanent as modified PTE 91-8, Equitable represents that for plans 
which have previously authorized their participation in the Accounts 
under PTE 91-8, no reauthorization will be required.
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Procedure for Requesting Permanent Relief for Transactions in PTE 
91-8

    This proposed exemption was requested by Equitable and ERE pursuant 
to Paragraphs IX and X of the notice of proposed exemption relating to 
PTE 91-8. As mentioned, PTE 91-8 is a temporary exemption which expired 
on January 13, 1996. Pursuant to Paragraphs IX and X, prior to the 
expiration of PTE 91-8, Equitable and ERE could apply for a permanent 
exemption provided that, among other things, the application for a 
permanent exemption describes whether and how compliance with PTE 91-8 
has been achieved. In particular, the application for a permanent 
exemption should describe:
    (a) the number of transactions engaged in under PTE 91-8;
    (b) the decisions made by the independent fiduciaries for various 
services; and
    (c) the fees that have been paid to the Law Department, EREIM or 
TSP for the property services and legal services that have been 
rendered under PTE 91-8.
    Further, pursuant to Paragraphs IX and X of the notice of proposed 
exemption relating to PTE 91-8, the application for a permanent 
exemption should include a report from the Independent Fiduciary 
expressing such fiduciary views and rationales with respect to the 
extension of PTE 91-8 and whether the Independent Fiduciary believes 
that cost savings have been achieved for the Accounts. In paragraph X 
of the notice of proposed exemption relating to PTE 91-8, Equitable 
identified certain standards which may be applied by the Department in 
reviewing the fees charged by Equitable to determine whether cost 
savings have been achieved, and whether making PTE 91-8 permanent would 
be appropriate. Among other things, Equitable represented in Paragraph 
X, that property management and leasing fees charged by unaffiliated 
property management firms generally range from 4 to 5 percent of gross 
receipts (depending upon such factors as property type, geographic 
location and project complexity) and average approximately 4.5 percent 
of gross receipts. Therefore, Equitable proposed in Paragraph X, that 
the standard of review adopted by the Department in evaluating the 
operation of property related services, should require Equitable to 
demonstrate that the aggregate annual property management and leasing 
fees charged to each Account (including the allocable cost of the 
services of the independent fiduciary under the exemption) were less 
than 4.5 percent of the gross receipts earned by the Account during 
each year that ERE or TSP has provided property management and leasing 
services pursuant to the exemption.

Cost Savings Report of the Independent Fiduciary

    Jackson Cross Company (Jackson Cross), as the independent fiduciary 
(the Independent Fiduciary) for property management and leasing 
services under PTE 91-8, prepared a report regarding cost savings 
achieved by the Accounts (the Report). In the Report, Charles F. 
Seymor, CRE, MAI, and chairman of Jackson Cross, made the following 
representations. Mr. Seymor stated that the provision by Compass 
Management and Leasing and Compass Retail (collectively, Compass), two 
wholly-owned subsidiaries of ERE <SUP>3, of property management and 
leasing services to the Accounts resulted in substantial savings to the 
Accounts. Mr. Seymor represented that in negotiating the final terms of 
the management or management and leasing contracts for each of the 
Accounts' properties, Jackson Cross reviewed market fee ranges in each 
market area and also the fees paid to the previous managers. In this 
regard, Jackson Cross required that a measurable economic benefit be 
evident before they approved a transaction and also quantified that 
benefit in their separate initial reports on each approved property. In 
the annual reports to ERE for the year 1994, Jackson Cross applied 
management fees and leasing fees <SUP>4 to actual 1994 gross 
collections and to the leases negotiated for the Accounts, and compared 
the results to what would have been charged if these fees were at the 
low end of the market range or the contractual fee for the previous 
managers.<SUP>5 In 1994, Jackson Cross visited over 40% of the 
Accounts' properties. Jackson Cross estimated that in 1994 alone, a 
savings of $1,650,000 was obtained to the benefit of the Accounts. 
Furthermore, 95 transactions were completed through December 31, 1994, 
and on an annual basis, the fees earned by Compass were less than 4.5 
percent of the gross receipts earned by the properties in each Account 
managed by Compass. Accordingly, Jackson Cross concluded that the 
property management and leasing services rendered by Compass to the 
Accounts resulted in substantial savings for their benefit. In 
preparing the annual reports, Jackson Cross also reviewed several 
additional measures of quality management and leasing services to 
ensure that the services provided to the Accounts are the best 
available as compared to the services provided by other first rate 
property managers in the locality of a property. In this regard, 
Jackson Cross considered the following criteria: how each property 
performed against budget; how the value of each property has been 
affected during the year; whether the management and leasing 
professionals engaged in continuing education and training during the 
year, and what professional designations they have achieved; and 
whether these professionals have adopted an appropriate long-range view 
as stewards of these properties, with a goal of maximizing the 
Accounts' investments.
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    \3\ The applicant represents that these two subsidiaries of ERE, 
which were formerly separate divisions of ERE are subject to the 
management and control of ERE, and their status as separate 
corporate entities rather than divisions of ERE was implemented 
solely for organizational reasons. ERE may in the future recognize 
one or both of the Compass entities as divisions within ERE.
    \4\ It is represented that most management fees and leasing 
commissions are typically calculated as a percentage of gross 
receipts during a given year and a percentage of new lease 
transactions, respectively.
    \5\ In this regard, Jackson Cross compared fee schedules charged 
by Compass to the fee schedules charged by previous unaffiliated 
property managers during the year preceding ERE's performance of 
such services under the exemption. Furthermore, Jackson Cross as the 
Independent Fiduciary is obligated to monitor property management 
fees currently charged by the unaffiliated managers and to assure 
that the fees charged by Equitable or ERE do not exceed these fees.
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Permanent Exemption for Transactions Under PTE 91-8

    Equitable and ERE request that the exemptive relief for 
transactions which were the subject of PTE 91-8 be made permanent 
because as explained in the Jackson Cross report above, PTE 91-8 
benefitted the employee benefit plans that participate in the Accounts. 
Furthermore, Equitable and ERE

[[Page 47208]]

propose the following procedures to assure continued cost savings to 
the Accounts under a permanent exemption (the Cost Saving Procedures). 
The Cost Saving Procedures will be carried out as follows:
    (a) After the fifth anniversary of the grant of this exemption, and 
after the beginning of each subsequent five-year period, ERE will 
prepare a survey of property management and leasing fees for the 
properties that have similar geographic location and property types to 
those held by the Accounts. The survey will include data regarding the 
fees that have been charged to the Accounts by several property 
management firms that are unaffiliated with Equitable or ERE for 
services that are contemplated by the exemption during the one year 
period prior to the beginning of the new five-year period. Also, the 
survey will include data as to the fees paid by Equitable or ERE for 
such services performed for the properties not held by the Accounts 
during the same period and other market data regarding the cost of 
property management and leasing services by geographic location and 
property types.
    (b) The Independent Fiduciary will review ERE's internal survey 
referred to in (a) above, and will verify the accuracy of the data by 
independently reviewing a sampling of the properties to which such fees 
apply. Based upon its review of the survey and its own professional 
resources and expertise, the Independent Fiduciary will determine a 
typical range of annual fees for property management and leasing 
services for the Accounts. The average of the range, as determined from 
such survey, will serve as the basis of comparison for determining for 
the next five-year period whether continuation of the property 
management and leasing services policy (the Property Services Policy) 
has provided a cost savings to the Accounts.
    (c) Equitable and ERE will demonstrate to the Independent Fiduciary 
at the end of the applicable five-year period that the aggregate 
property management and leasing fees charged to each Account pursuant 
to the Property Services Policy plus the cost of the services of the 
Independent Fiduciary under the exemption that are allocated to the 
Accounts, are less than the fees that would have been charged using the 
benchmark rate established at the beginning of the five year period.
    (d) The Independent Fiduciary will review the data supplied by ERE 
and, to the extent considered necessary by the Independent Fiduciary, 
data collected from the Independent Fiduciary's own surveys, and will 
document its findings and analysis of such cost savings in a report to 
be delivered to each of the plans participating in the Accounts within 
90 days after the end of the five-year period and each subsequent five-
year period and prior to the implementation of the annual confirmation 
procedure described in paragraph (5) of Section II with respect to such 
period. In the event the Independent Fiduciary finds that cost savings 
have not been achieved for the Accounts, it will not approve any 
additional services arrangements pursuant to the Property Services 
Policy until Equitable and ERE have demonstrated to the satisfaction of 
the Independent Fiduciary that policies intended to assure cost savings 
to the Accounts have been implemented by Equitable and ERE. The survey, 
the Independent Fiduciary's report reviewing the survey, and the final 
report of the Independent Fiduciary analyzing whether cost savings had 
been achieved during the five-year period to which the survey relates, 
will be maintained by Equitable or ERE in accordance with the 
recordkeeping requirements of Section III of this exemption.
    Accordingly, the Department proposes to modify PTE 91-8 by adopting 
the language of the Cost Saving Procedures as stated in (a)-(d) above 
into a new paragraph (12) in Section II of this proposed exemption.

Requested Modifications and Changes in Circumstances to PTE 91-8.

A. Tishman Speyer Properties

    Equitable represents that Tishman Speyer Properties (TSP), an 
affiliate of Equitable at the time PTE 91-8 was issued, is no longer 
affiliated with Equitable and, thus, requests that this exemption, if 
granted, be inapplicable to TSP. The Department proposes to modify PTE 
91-8 by eliminating any references to TSP in this proposed exemption.

B. Legal Services

    Equitable represents that the exemption under PTE 91-8 for the 
provision of legal services to the Accounts by Equitable in-house Law 
Department was never implemented. Accordingly, Equitable requests that 
this exemption eliminate reference to the relief for the provision of 
such legal services by the Law Department to the Accounts. The 
Department proposes to modify PTE 91-8 by eliminating relief for the 
provision of legal services by the Law Department to the Accounts.

C. Modification of Acronym for EREIM

    Equitable requests that for purposes of this proposed exemption, if 
granted, EREIM should be referred to as ERE. Equitable represents that 
the change in acronym from EREIM to ERE is a matter of preference and 
does not reflect a change in ownership or management of EREIM. The 
description of EREIM, as set forth in the original notice of proposed 
exemption and in this exemption application, continues to accurately 
reflect the ownership and management of EREIM. Accordingly, the 
Department proposes to modify PTE 91-8 by substituting the acronym 
``ERE'' for the acronym ``EREIM'' in this proposed exemption.

D. Annual Reconfirmation Requirement

    Section II(4) of PTE 91-8 provides that the continued retention of 
the Independent Fiduciary with respect to the property management and 
leasing services arrangement for an Account is subject to the annual 
reconfirmation by the holders of a majority of the units of beneficial 
interests in that Account.<SUP>6 An annual report regarding the 
Account, which is furnished by Equitable and ERE to the authorizing 
plan fiduciaries and the Independent Fiduciary (the Annual Report), 
contains a ballot for the annual reconfirmation of the Independent 
Fiduciary, which is to be returned to Equitable.
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    \6\ The Independent Fiduciary may also be removed with or 
without cause by the vote of the holders of a majority of the units 
of beneficial interests in an Account voting in favor of such 
removal.
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    Equitable and ERE represent that while the plans that participate 
in the Accounts support the continued service of the Independent 
Fiduciary,<SUP>7 it is often difficult to implement the Independent 
Fiduciary reconfirmation requirement. In many cases, these ballots are 
not returned by the plans for several months and then only after 
repeated reminders. A plan's failure to respond to the reconfirmation 
request by returning the ballot in a timely fashion creates uncertainty 
as to whether the exemption will continue to be available for ERE and 
its affiliates to continue providing property management and leasing 
services to the Accounts.
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    \7\ In this respect, Equitable notes that at least 99 percent of 
the contractholders that have voted in the context of an annual 
reconfirmation of the Independent Fiduciary have voted in favor of 
such reconfirmation.
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    Equitable requests that the procedure for annual client 
reconfirmation of the Independent Fiduciary be modified to allow 
Equitable to treat a plan's failure to return the ballot within 30 days 
after

[[Page 47209]]

receipt of a request for reconfirmation as an indication of such plan's 
vote in favor of continued retention of the Independent Fiduciary. 
Equitable represents that this procedure will be implemented on an 
annual basis. Equitable also states that this proposed modification 
will increase efficiency in ensuring the continued service of a 
qualified Independent Fiduciary without adversely affecting the 
oversight conditions of the exemption.
    The Department proposes to modify PTE 91-8 by adding the following 
language to the new Section II(4)(a):
    ``The Annual Report will also contain a ballot regarding the 
reconfirmation of the Independent Fiduciary, which is to be returned to 
Equitable. In this respect, at the time of delivery of each Annual 
Report, Equitable will specifically indicate to each plan that the 
Independent Fiduciary may be terminated by a vote in favor of such 
termination by the holders of a majority of the units of beneficial 
interests in the Account and will request such plan to confirm the 
Independent Fiduciary's appointment. Following a plan's receipt of the 
Annual Report, Equitable may treat a plan's failure to return the 
ballot within thirty (30) days after receipt of a request for 
reconfirmation as a vote in favor of continued retention of the 
Independent Fiduciary.''
    In this regard, to ensure that the plans receive notification of 
the annual client reconfirmation procedure, the Department proposes to 
add the following language as a new paragraph (b) at the end of the new 
Section II(4):
    ``Equitable or ERE receives confirmation that the notice and the 
ballot sent to the authorizing plan fiduciary regarding the continued 
retention of the Independent Fiduciary has been received by the 
authorizing fiduciary and the Independent Fiduciary. The method used to 
confirm notice to the authorizing fiduciaries and the Independent 
Fiduciary must be sufficient to ensure that the authorizing fiduciaries 
and the Independent Fiduciary actually receive the notice. In all 
cases, return receipt for certified mail, printed confirmation of 
facsimile transmissions and manifest or computer data entries of 
independent courier services will be considered acceptable methods of 
confirming receipt.''
    The notice of proposed exemption relating to PTE 91-8 also 
indicated that Equitable will promptly designate a replacement 
Independent Fiduciary in the event of the removal or resignation of the 
Independent Fiduciary, but such appointment is also subject to the 
affirmative confirmation by the plans participating in the Accounts 
vis-a-vis a ballot contained in the Annual Report. Equitable represents 
that the need for such affirmative approval could cause delay in 
replacing the Independent Fiduciary with a qualified new Independent 
Fiduciary. The possibility of such delays requires that contingency 
plans be made for using unaffiliated property management and/or leasing 
firms (and whose services may not be as advantageous to the Accounts as 
those that could be provided by an Equitable affiliate). Therefore, 
Equitable represents that the appointment of the replacement 
Independent Fiduciary will also be handled in accordance with the 
procedure described in Section II(4)(a).

E. Annual Reporting Requirement

    Section II(4) of PTE 91-8 requires Equitable or ERE to furnish each 
authorizing plan fiduciary and the Independent Fiduciary with the 
Annual Report identifying detailed information about the fees incurred 
and services provided to the Account pursuant to PTE 91-8.<SUP>8 The 
Annual Report is required to be provided not later than 45 days 
following the end of each reporting period. Equitable furnishes the 
Annual Report within 45 days after the end of each calendar year.
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    \8\ Specifically, under Section II(4) of PTE 91-8 the Annual 
Report must include a description of the properties and the services 
that have been performed by ERE or its affiliates for an Account and 
an indication of the fees that were paid for the preceding reporting 
period and which are anticipated to be paid to ERE or its affiliates 
in the coming year for services provided by these entities in 
connection with the properties held by an Account. The Annual Report 
must also contain a description of the method for terminating the 
multiple services arrangement and the reconfirmation and/or removal 
of the Independent Fiduciary by the plans investing in the Account.
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    Equitable represents that providing the Annual Report within the 45 
day requirement makes it impossible to include actual year-end data for 
the Accounts' properties because this data is not generally available 
to Equitable early enough within that time period to allow for 
necessary verification, submission to the Independent Fiduciary and 
compilation and production of the Annual Reports. In addition, 
Equitable must also substantially complete end-of-year financial 
statements for the Accounts and other accounts managed by Equitable 
during this period.
    Equitable requests that the Annual Report requirement of PTE 91-8 
be modified to allow Equitable to submit the Annual Report no later 
than 90 days following the end of the period to which the Annual Report 
relates, and that this modification be effective retroactively, as of 
January 13, 1996, the date PTE 91-8 had expired.
    In this regard, the Department proposes to modify PTE 91-8 by 
substituting ``90 days'' for ``45 days'' in Section II(4)(a), such that 
the new Section II(4)(a) should read, in relevant part:

    * * * with the Annual Report containing the information 
described in this paragraph, not less frequently than once a year 
and not later than 90 days following the end of the period to which 
the report relates.

    This modification will be effective retroactively, as of January 
13, 1996.

F. Modification of Investment Limitations of Section II(10)

1. 5 Percent Investment Limitation
    Section II(10)(a) of PTE 91-8 limits the percentage of plan assets 
that can be invested in an Account by any plans covering employees of 
Equitable to 5 percent of the assets of the investing plan. Equitable 
believes that the 5 percent limitation unduly restricts the investments 
in the Accounts by Equitable's in-house plans and limits the investment 
by the trustees of Equitable's pension plan in real estate separate 
accounts, such as SA-8,<SUP>9 which they believe to be prudent 
investments that are appropriate for Equitable's plans. Fiduciaries of 
Equitable's plans should not be forced to look to competitors for real 
estate investment opportunities.
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    \9\ Equitable represents that the primary means by which 
Equitable's in-house plans invest in real estate is through SA-8.
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    Therefore, Equitable is requesting that the percentage limitation 
applicable to in-house plans be modified to permit any plan in which 
employees of Equitable or an affiliate participate, to invest up to 10 
percent of its assets in any Account covered by PTE 91-8. Equitable 
represents that a 10 percent limitation would give trustees of the in-
house plans the flexibility necessary to deal with inadvertent 
fluctuations in the levels of participation in an Account, and to 
invest the assets of such Plans in what they determine are successful 
diversified real estate funds.
    Accordingly, the Department proposes to modify PTE 91-8 by 
substituting ``10 percent'' for ``5 percent'' in Section II(10)(a), 
such that the new Section II(10)(a) should read, in relevant part:

    Not more than 10 percent of the assets of a plan covering 
employees of Equitable will be invested in an Account. 
Notwithstanding the foregoing, this percentage requirement will 
continue to be satisfied by any plan that exceeds the 10 percent 
limitation of this subsection provided that no portion of any excess 
results from an increase in the assets transferred by such plan to 
the Accounts.

[[Page 47210]]

2. 20 Percent Investment Limitation
    Section II(10)(c) of PTE 91-8 imposes a limitation on the 
percentage of total plan assets that can be invested in the Accounts by 
plans other than those covering Equitable employees.
    This limitation has been set at 20 percent of the assets of the 
investing plan. PTE 91-8 states that this limitation will apply 
prospectively only and on an ``acquisition'' basis, i.e., the 20 
percent limitation is tested only when additional investments in an 
Account are made by a plan. Equitable believes that it is unclear from 
the language of PTE 91-8, which uses the plural ``Accounts'' rather 
than ``Account'' to describe the limitation, whether the 20 percent 
limitation is intended to be applied on a single Account basis or on 
the basis of a plan's aggregate investment in all Accounts combined and 
accordingly, Equitable requests that the Department clarify the scope 
of this limitation.
    The 20 percent limitation test of Section II(10)(c) of PTE 91-8 was 
intended to apply to Equitable Accounts on an aggregate basis. 
Accordingly, no modification of Section II(10)(c) is hereby necessary.

G. Modifications to Limitations on Fees

    Paragraph IV (Fees for Property Services) of the notice of proposed 
exemption relating to PTE 91-8 places certain limitations on the fees 
that EREIM or TSP <SUP>10 are permitted to receive for property 
management and leasing services rendered to the Accounts pursuant to 
PTE 91-8.
---------------------------------------------------------------------------

    \10\ For purposes of this exemption, if granted, fee limitations 
described in Paragraph IV of the notice of proposed exemption 
relating to PTE 91-8 will apply to ERE and its affiliates.
---------------------------------------------------------------------------

    Specifically, Paragraph IV of the notice of proposed exemption 
relating to PTE 91-8 provides, among other things, that the fee for 
leases in which outside brokers are involved generally does not exceed 
one percent (1%) of the lease amount. This fee is applicable to 
circumstances where ERE as property manager is separately compensated 
for leasing services where outside brokers are involved. In this 
regard, Equitable requests that the 1% limitation be modified to 2.75 
percent (2.75%) of the lease amount. Equitable and ERE have determined 
that the 1% limitation is not consistent with the current practice of 
establishing leasing commissions for transactions involving outside 
brokers. Equitable and ERE represent that in most leasing markets such 
``co-broker'' leasing fees for the project leasing broker are computed 
at fifty percent (50%) of the normal new or renewal lease commission 
fee, which is typically somewhere between four (4%) and seven (7%) 
percent of the total lease payments. Such a fee structure reflects the 
fact that the effort required of the exclusive project leasing broker 
is, in most instances, not reduced by the addition of a tenant's 
leasing broker, but can actually be more demanding. In this regard, 
Equitable and ERE have obtained an opinion from Jackson Cross, the 
independent fiduciary for property management and leasing, regarding 
modification of this fee limitation. Mr. Seymor from Jackson Cross, 
stated that based on their experience and studies, they found that 
leasing fees vary with building size and with the competitive situation 
in individual markets. In most markets, the project leasing broker 
received 50% of the normal new or releasing commission. The outside 
broker received the other 50%, but usually an ``override'' sufficient 
to pay a full market commission. Because the normal full leasing 
commission is typically in the range of 4% to 7% of the one year lease 
amount, the project leasing broker usually received 2% to 3.5% of the 
one year lease amount. In the opinion of Jackson Cross, restricting ERE 
to a maximum of 1% does not provide adequate compensation to cover the 
cost of appropriate professional leasing representation. In this 
regard, Jackson Cross suggests that this ceiling be raised to 2.75%, 
still subject to the market requirement that the Independent Fiduciary 
must certify an economic benefit to the Account on a case by case 
basis.
    In this regard, the Department is proposing to modify PTE 91-8 by 
increasing the fee limitation to ERE for leases involving outside 
brokers to 2.75% of the lease amount. Additionally, the Department 
proposes to further modify PTE 91-8 by incorporating this fee 
limitation and other fee limitations as described in Paragraph IV of 
the notice of proposed exemption relating to PTE 91-8 into Section II 
as an additional condition. Accordingly, a new condition (13) is being 
added to Section II as follows:
    ``(13)(a) The fees paid to ERE and/or its affiliates for property 
management services provided in connection with a property held for an 
Account shall not exceed for any one year period: (1) In the case of 
property management services which include leasing services, 7 percent 
of the overall gross receipts of the property; and (2) in the case of 
property management services which do not include leasing services, 4 
percent of the overall gross receipts of the property.
    (b) Where a property manager is separately compensated for leasing 
services: (1) the fee for new leases will not exceed 7 percent of the 
lease amount; (2) the fee for renewal leases will not exceed 2 percent 
of the lease amount; and (3) the fee for leases in which outside 
brokers are involved will not exceed 2.75 percent of the lease 
amount.''
    The Department notes that this proposed exemption, if granted, is 
subject to the express condition that the summary of facts and 
representations set forth in the notice of proposed exemption relating 
to PTE 91-8, as amended by this notice to make permanent PTE 91-8 
accurately describe, where relevant, the material terms of the 
transactions to be consummated pursuant to this exemption.
    After considering Equitable and ERE's application, the Department 
is proposing this exemption to make permanent PTE 91-8 pursuant to 
section 408(a) of the Act and section 4975 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.)

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include fiduciaries and participants of plans which 
have invested or may invest in an Account. Because of the large number 
of plans which currently invest in the Accounts, the Department has 
determined that the only practical form of providing notice to 
interested persons is the distribution by Equitable, of a notice to the 
fiduciaries of all plans currently invested in any Account. Such notice 
will contain a copy of the notice of the proposed exemption published 
in the Federal Register, and a statement advising interested persons of 
their right to comment and to request a hearing on the proposed 
exemption. Such distribution will occur within two (2) weeks of the 
date of publication of the notice of the proposed exemption in the 
Federal Register. Accordingly, comments and hearing requests on the 
proposed exemption are due forty four (44) days after the date of 
publication of this proposed exemption in the Federal Register.

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 section 4975(c)(2) of the Code does 
not relieve a fiduciary

[[Page 47211]]

or other party in interest or disqualified person from certain other 
provisions of the Act and the Code, including any prohibited 
transaction provisions to which the exemption does not apply, and to 
the extent jurisdiction exists under Title I of the Act, 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 requirements of 
section 401(a) of the Code, e.g., the plan must operate for the 
exclusive benefit of the employees of the employer maintaining the plan 
and their beneficiaries;
    (2) The proposed exemption, if granted, will not extend to 
transactions prohibited under section 406(b)(3) of the Act and section 
4975(c)(1)(F) of the Code;
    (3) Before an exemption may be granted under section 408(a) of the 
Act and section 4975(c)(2) of the Code, the Department must find that 
the exemption is administratively feasible, in the interest of the plan 
and of its participants and beneficiaries and protective of the rights 
of participants and beneficiaries of the plan;
    (4) This proposed exemption, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and the Code, 
including statutory or administrative exemptions. 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
    (5) This proposed exemption, if granted, is subject to the express 
condition that the summary of facts and representations set forth in 
the notice of proposed exemption relating to PTE 91-8, as amended by 
this notice to make permanent as modified PTE 91-8 accurately describe, 
where relevant, the material terms of the transactions to be 
consummated pursuant to this exemption.

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments on 
the pending exemption to the address above, within forty four (44) days 
after the date of publication of this proposed exemption in the Federal 
Register. All comments will be made a part of the record. Comments 
received will be available for public inspection with the application 
for exemption at the address set forth above.

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting the requested 
exemption under the authority of section 408(a) of the Act and 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, August 10, 1990).

Section I--Covered Transactions

    The restrictions of section 406(a), 406(b)(1) and (b)(2) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code by reason of section 4975(c)(1) (A) through (E) of the Code shall 
not apply to the provision of property management and/or leasing 
services by ERE, Equitable's wholly-owned subsidiary to an Account (as 
defined in Section IV), provided that the conditions set forth in 
Section II are met.

Section II--Conditions

    (1) The arrangement under which the covered transactions is 
performed is subject to the prior authorization of an independent plan 
fiduciary with respect to each plan whose assets are invested in an 
Account, following disclosure of information in the manner described in 
paragraph (2) below. For plans which have previously authorized their 
participation in the Accounts under PTE 91-8, no reauthorization will 
be required.<SUP>11 In the case of a plan whose assets are proposed to 
be invested in an Account subsequent to implementation of the property 
management and leasing services (the Property Services Policy), the 
plan's investment in the Account is subject to the prior written 
authorization of an independent plan fiduciary following disclosure of 
the information described in paragraph (2). The requirement that the 
authorizing fiduciary be independent of Equitable shall not apply in 
the case of plans maintained by Equitable on behalf of its employees.
---------------------------------------------------------------------------

    \11\ However, during the notification of interested persons 
period, Equitable will provide to all interested parties, including 
the plans participating in the Accounts, a copy of the notice of 
this proposed exemption. Accordingly, the plans will have the 
opportunity to submit written comments on the pending exemption 
during the comment period.
---------------------------------------------------------------------------

    (2) In the event Equitable proposes to implement the Property 
Services Policy for any additional Account, not less than 45 days prior 
to the implementation of the Property Services Policy, Equitable or 
ERE, as investment manager, shall furnish the authorizing plan 
fiduciary with any reasonably available information which Equitable or 
ERE believes to be necessary to determine whether such approval should 
be given, as well as such information which is reasonably requested by 
the authorizing plan fiduciary. Such information will include: a 
description of the services to be performed by ERE; identification of 
properties for which services will be required; an estimate of the fees 
that would be paid to ERE if it is selected to provide such services; 
an explanation of the potential conflicts of interest involved in 
selecting ERE; an explanation of the selection process; and a 
description of the terms upon which a plan may withdraw from an 
Account.
    (3) In the event an authorizing plan fiduciary of any plan whose 
assets are invested in an Account submits a notice in writing to 
Equitable or ERE, as investment manager, at least 15 days prior to 
implementation of the Property Services Policy, objecting to the 
implementation of the Property Services Policy, the plan on whose 
behalf the objection was tendered will be given the opportunity to 
terminate its investment in the Account, without penalty. With the 
exception of a plan which has invested in a closed-end Account under 
which the rights of withdrawal from the Account may be limited as 
provided in the plan's written agreement to invest in the Account, if 
written objection to the Property Services Policy is submitted to 
Equitable or ERE any time after 15 days prior to implementation of the 
Property Services Policy (or after implementation), the plan must be 
able to withdraw without penalty, within such time as may be necessary 
to effect such withdrawal in an orderly manner that is equitable to all 
withdrawing plans and to the non-withdrawing plans. However, Equitable 
or ERE need not discontinue operating pursuant to the Property Services 
Policy, once implemented, by reason of a plan electing to withdraw 
after 15 days prior to the scheduled implementation date of the 
Property Services Policy. Any plan which has a discretionary asset 
management arrangement with Equitable may terminate such arrangement 
and withdraw from an Account at any time.
    (4)(a) Equitable or ERE shall furnish the authorizing plan 
fiduciary and the Independent Fiduciary acting on behalf of the plans 
participating in the Account with the Annual Report containing the 
information described in this paragraph, not less frequently than once 
a year and not later than 90 days following the end

[[Page 47212]]

of the period to which the report relates. Such Annual Report shall 
disclose the total of all fees incurred by the Account during the 
preceding year under contracts with ERE; include a description of the 
properties and the services that have been performed by ERE for an 
Account; and delineate the fees that are anticipated to be paid to ERE 
in the coming year for services provided by these entities in 
connection with properties held by an Account. The Annual Report will 
contain a description of a method for the termination of the multiple 
services arrangement (see Section II(5)), and for the confirmation and/
or removal of the Independent Fiduciary by investing plans in the 
Accounts. The Annual Report will also contain a ballot regarding 
reconfirmation of the Independent Fiduciary, which is to be returned to 
Equitable. In this respect, at the time of delivery of each Annual 
Report, Equitable will specifically indicate to each plan that the 
Independent Fiduciary may be terminated by a vote in favor of such 
termination by the holders of a majority of the units of beneficial 
interests in the Account and will request such plan to confirm the 
Independent Fiduciary's appointment. Following a plan's receipt of the 
Annual Report, Equitable may treat a plan's failure to return the 
ballot within thirty (30) days after receipt of a request for 
reconfirmation as a vote in favor of continued retention of the 
Independent Fiduciary.
    (b) Equitable or ERE receives confirmation that the notice and the 
ballot sent to the authorizing plan fiduciary regarding the continued 
retention of the Independent Fiduciary has been received by the 
authorizing fiduciary and the Independent Fiduciary. The method used to 
confirm notice to the authorizing fiduciaries and the Independent 
Fiduciary must be sufficient to ensure that the authorizing fiduciaries 
and the Independent Fiduciary actually receive the notice. In all 
cases, return receipt for certified mail, printed confirmation of 
facsimile transmissions and manifest or computer data entries of 
independent courier services will be considered acceptable methods of 
confirming receipt.
    (5) The multiple services arrangement for an Account shall be 
subject to annual confirmation following receipt of the Annual Report, 
pursuant to which the arrangement shall be terminated by a vote in 
favor of such termination by the holders of a majority of the units of 
beneficial interests in the Account. In the event of a vote to 
terminate the arrangement, Equitable shall cease submitting to the 
Independent Fiduciary (as defined in Section IV) any new proposals to 
engage in covered transactions and Equitable will not renew or extend 
any covered transactions. Moreover, within 180 days after the vote of 
the contract holders, Equitable shall cease engaging in any existing 
covered transactions.
    (6) (a) Each transaction shall be reviewed and approved by an 
Independent Fiduciary. However, prior to proposing a transaction to the 
Independent Fiduciary, Equitable or ERE shall first determine that such 
transaction is in the best interests of the Account.
    (b) The Independent Fiduciary shall negotiate the contracts for the 
provision of services by ERE. The Independent Fiduciary shall also 
consider the cost to the Account of such fiduciary's involvement in 
connection with its consideration of whether to approve the particular 
transaction.
    (c) The Independent Fiduciary shall review, as applicable, the 
performance of ERE under each of its contracts with the Accounts at 
least once each year and shall instruct Equitable and ERE of any action 
which should be taken by Equitable on behalf of the Accounts with 
respect to the continuation, termination or other exercise of rights 
available to the Account under the terms of the contracts. Equitable 
will carry out such instruction from the Independent Fiduciary to the 
extent it is legal and permitted by the terms of the service provision 
arrangement.
    (7) (a) The terms of each such arrangement shall be in writing and 
must be reviewed by the Independent Fiduciary prior to implementation.
    (b) If Equitable or ERE hold Account properties and general account 
properties in the same real estate market during a period when there is 
leasing competition between those properties, ERE will hire, during 
such period, a third party leasing agent for Account properties.
    (c) In the case of any emergency circumstances, ERE may provide 
property services to an Account for a period not exceeding 90 days, but 
no compensation may be paid by an Account for such services without the 
prior approval of the Independent Fiduciary.
    (8) (a) Equitable and ERE shall furnish the Independent Fiduciary 
with any reasonably available information which Equitable reasonably 
believes to be necessary or which the Independent Fiduciary shall 
reasonably request to determine whether such approval of the 
transactions described above should be given or to accomplish the 
Independent Fiduciary's periodic reviews of the performance of ERE 
under the contracts.
    (b) With respect to ERE, such information will include: a 
description of the Property Services Policy for the Account and the 
plan clients investing therein; a description of the real estate 
services which are required; the qualifications of ERE to do the job; a 
statement, supported by appropriate factual representations, of the 
reasons for Equitable's belief that ERE is qualified to provide the 
services; a copy of the proposed arrangement for services and the terms 
on which ERE would provide the services; the reasons why Equitable 
believes the retention of ERE would be in the best interests of the 
Account; information demonstrating why the fees and other terms of the 
arrangement are reasonable and comparable to fees customarily charged 
by similar firms for similar services in comparable locales; the 
identities of non-affiliated service providers and the terms under 
which these service providers might perform the services; and in any 
case that it is determined that the property manager will also provide 
leasing services, Equitable will disclose whether any affiliated 
property manager under consideration by the Independent Fiduciary is a 
property manager to any properties that are in competition for tenants 
with the property for which ERE is under consideration.
    (9) Seventy-five percent or more of the units of beneficial 
interests in an Account must be held by plans or other investors having 
total assets of at least $50 million. In addition, 50 percent or more 
of the plans investing in an Account must have assets of at least $50 
million. For purposes of the 50 percent test above, a group of plans 
will be counted as a single plan if either the decision to invest in 
the Account (or the decision to make investments in the Account 
available as an option for an individually directed account) is made by 
a fiduciary other than Equitable who exercises such discretion with 
respect to plan assets in excess of $50 million.
    (10) (a) Not more than 10 percent of the assets of a plan covering 
employees of Equitable will be invested in an Account. Notwithstanding 
the foregoing, this percentage requirement will continue to be 
satisfied by any plan that exceeds the 10 percent limitation of this 
subsection provided that no portion of any excess results from an 
increase in the assets transferred by such plan to the Accounts.
    (b) Not more than 10 percent of the assets of an Account will be 
represented by the plans covering employees of Equitable.

[[Page 47213]]

    (c) For other plans, not more than 20 percent of the assets of each 
such plan can be invested in the Accounts. Notwithstanding the 
foregoing, this percentage requirement will continue to be satisfied by 
any plan that exceeds the 20 percent limitation of this subsection 
provided that no portion of any excess results from an increase in the 
assets transferred by such plan to the Accounts. Moreover, this 20 
percent limitation shall not apply to any plan which, as of February 
28, 1990, the date of the proposed exemption relating to PTE 91-8, had 
more than 20 percent of its assets invested in the Accounts provided 
that the plan makes no additional contribution to such Accounts 
subsequent to that date.
    (11) At the time the transactions are entered into, the terms of 
the transactions must be at least as favorable to the Accounts as the 
terms generally available in arm's length transactions between 
unrelated parties. In addition, the compensation paid to ERE for 
services under its contracts with any Account must not exceed payments 
in an arm's length transaction between unrelated parties for comparable 
properties in similar locales, and shall not be in excess of reasonable 
compensation within the meaning of section 408(b)(2) of the Act and 
regulation 29 CFR 2550.408b-2.
    (12) (a) After the fifth anniversary of the grant of this 
exemption, and after the beginning of each subsequent five-year period, 
ERE will prepare a survey of property management and leasing fees for 
the properties that have similar geographic location and property types 
to those held by the Accounts. The survey will include data regarding 
the fees that have been charged to the Accounts by several property 
management firms that are unaffiliated with Equitable or ERE for 
services that are contemplated by the exemption during the one year 
period prior to the beginning of the new five-year period. Also, the 
survey will include data as to the fees paid by Equitable or ERE for 
such services performed for the properties not held by the Accounts 
during the same period and other market data regarding the cost of 
property management and leasing services by geographic location and 
property types.
    (b) The Independent Fiduciary will review ERE's internal survey 
referred to in (a) above, and will verify the accuracy of the data by 
independently reviewing a sampling of the properties to which such fees 
apply. Based upon its review of the survey and its own professional 
resources and expertise, the Independent Fiduciary will determine a 
typical range of annual fees for property management and leasing 
services for the Accounts. The average of the range, as determined from 
such survey, will serve as the basis of comparison for determining for 
the next five-year period whether continuation of the property 
management and leasing services policy (the Property Services Policy) 
has provided cost savings to the Accounts.
    (c) Equitable and ERE will demonstrate to the Independent Fiduciary 
at the end of the applicable five-year period that the aggregate 
property management and leasing fees charged to each Account pursuant 
to the Property Services Policy plus the cost of the services of the 
Independent Fiduciary under the exemption that are allocated to the 
Accounts, are less than the fees that would have been charged using the 
benchmark rate established at the beginning of the five year period.
    (d) The Independent Fiduciary will review the data supplied by ERE 
and, to the extent considered necessary by the Independent Fiduciary, 
data collected from the Independent Fiduciary's own surveys, and will 
document its findings and analysis of such cost savings in a report to 
be delivered to each of the plans participating in the Accounts within 
90 days after the end of the five year period and each subsequent five-
year period and prior to the implementation of the annual confirmation 
procedure described in paragraph (5) of Section II with respect to such 
period. In the event the Independent Fiduciary finds that cost savings 
have not been achieved for the Accounts, it will not approve any 
additional services arrangements pursuant to the Property Services 
Policy until Equitable and ERE have demonstrated to the satisfaction of 
the Independent Fiduciary that policies intended to assure cost savings 
to the Accounts have been implemented by Equitable and ERE. The survey, 
the Independent Fiduciary's report reviewing the survey, and the final 
report of the Independent Fiduciary analyzing whether cost savings had 
been achieved during the five year period to which the survey relates, 
will be maintained by Equitable or ERE in accordance with the 
recordkeeping requirements of Section III.
    (13) (a) The fees paid to ERE and/or its affiliates for property 
management services provided in connection with a property held for an 
Account shall not exceed for any one year period: (1) In the case of 
property management services which include leasing services, 7 percent 
of the overall gross receipts of the property; and (2) in the case of 
property management services which do not include leasing services, 4 
percent of the overall gross receipts of the property.
    (b) Where a property manager is separately compensated for leasing 
services; (1) the fee for new leases will not exceed 7 percent of the 
lease amount; (2) the fee for renewal leases will not exceed 2 percent 
of the lease amount; and (3) the fee for leases in which outside 
brokers are involved will not exceed 2.75 percent of the lease amount.

Section III--Recordkeeping

    (1) Equitable or ERE will maintain for a period of six years from 
the date of the transaction, the records necessary to enable the 
persons described in paragraph (2) of this section to determine whether 
the conditions of this exemption have been met. Included in these 
records maintained by Equitable or ERE will be written records of the 
Independent Fiduciary which had been periodically furnished by the 
Independent Fiduciary to ERE or Equitable and the records described in 
paragraph (12) of Section II. Such records are described in Parts III 
and VI of the summary of facts and representations of the notice of 
proposed exemption relating to PTE 91-8 and in paragraph (12) of 
Section II. However, a prohibited transaction will not be considered to 
have occurred if, due to circumstances beyond Equitable's or ERE's 
control, the records are lost or destroyed or the records of the 
Independent Fiduciary are not maintained or produced prior to the end 
of the six-year period.
    (2) (a) Except as provided in subsection (b) of this paragraph and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (1) of this 
section are unconditionally available at their customary location for 
examination during normal business hours by:
    (1) Any duly authorized employee or representative of the 
Department and the Internal Revenue Service;
    (2) Any fiduciary of a plan who has authority to acquire or dispose 
of the interests of the plan in the Accounts or any duly authorized 
employee or representative of such fiduciary;
    (3) Any contributing employer to any plan that has an interest in 
the Accounts or any duly authorized employee or representative of such 
employer;
    (4) Any participant or beneficiary of any plan participating in the 
Accounts, or any duly authorized employee or representative of such 
participant or beneficiary; and

[[Page 47214]]

    (5) The Independent Fiduciary.
    (b) None of the persons described in subparagraphs (2)-(5) of this 
paragraph shall be authorized to examine trade secrets of Equitable, 
ERE or commercial or financial information which is privileged or 
confidential.

Section IV--Definitions

    (1) The Accounts--The Accounts are Equitable's Separate Account No. 
8, Separate Account No. 16-I, Separate Account No. 16-II, Separate 
Account No. 16-III, Separate Account No. 16-IV, Separate Account No. 
16-VII, Separate Accounts Nos. 136, 141, 149 and 174 for the IBM 
Retirement Plan, Investment Management Account No. 230 for the 
Westinghouse Electric Corporation Pension Plan; and such other pooled 
or single-customer accounts, joint ventures, general or limited 
partnerships or other real estate investment vehicles that may be 
established by Equitable for the investment of employee benefit plan 
assets in real estate related investments to the extent disposition of 
its assets is subject to the discretionary authority of Equitable.
    (2) Equitable--For purposes of this exemption, the term Equitable 
includes Equitable and/or affiliates of Equitable as defined in 
paragraph (4) of this section which act as investment managers with 
respect to an Account.
    (3) ERE--For purposes of this exemption, the term ERE includes ERE 
and/or affiliates of ERE as defined in paragraph (4) of this section, 
which provides services to an Account pursuant to this exemption.
    (4) An affiliate of a person means any person directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with the person.
    (5) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (6) Independent Fiduciary--A person who:
    (a) is not an affiliate [as defined in Section IV(4)] of Equitable 
or ERE;
    (b) is not an officer, director, employee of, or partner in, 
Equitable or ERE [or affiliates thereof as defined in Section IV(4)];
    (c) is not a corporation or partnership in which Equitable or ERE 
has an ownership interest or is a partner;
    (d) does not have an ownership interest in Equitable or ERE, or its 
affiliates;
    (e) is not a fiduciary with respect to any plan participating in an 
Account; and
    (f) has acknowledged in writing acceptance of fiduciary obligations 
and has agreed not to participate in any decision with respect to any 
transaction in which the Independent Fiduciary has an interest that 
might affect its best judgment as a fiduciary.
    For purposes of this definition of Independent Fiduciary, no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such organization or 
individual is an officer, director, or 10 percent or more partner or 
shareholder) from Equitable or ERE, or their affiliates, (including 
amounts received for services as Independent Fiduciary under any 
prohibited transaction exemption granted by the Department) for that 
fiscal year exceeds 5 percent of its or his annual gross income from 
all sources for such fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to or 
borrow any funds from Equitable or ERE, their affiliates, or any 
Account maintained by Equitable or ERE, their affiliates, during the 
period that such organization or individual serves as an Independent 
Fiduciary and continuing for a period of 6 months after such 
organization or individual ceases to be an Independent Fiduciary or 
negotiates any such transaction during the period that such 
organization or individual serves as Independent Fiduciary.
    This proposed exemption, if granted, is subject to the express 
condition that the summary of facts and representations set forth in 
the notice of proposed exemption relating to PTE 91-8, as amended by 
this notice to make permanent as modified PTE 91-8 accurately describe, 
where relevant, the material terms of the transactions to be 
consummated pursuant to this exemption.

    Signed at Washington, D.C., this 30th day of August 1996.
Ivan Strasfeld,
Director of the Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, U.S. Department of Labor.
[FR Doc. 96-22716 Filed 9-5-96; 8:45 am]
BILLING CODE 4510-29-P