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Grant of 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 Equitable Real Estate Management, Inc. (ERE)<sup>1</SUP>, Located in New York, New York [Notices] [06/23/1997] EBSA (Formerly PWBA) Federal Register Notice

Grant of 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 Equitable Real Estate Management, Inc. (ERE)1, Located in New York, New York [06/23/1997]

[PDF Version]

Volume 62, Number 120, Page 32925-32934

[DOCID:fr23jn97-133]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-33;
Exemption Application No. D-10011]

 
Grant of 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 Equitable Real Estate Management, Inc. (ERE)1, Located 
in New York, New York
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    \1\ By letter dated April 23, 1997, the applicants have informed 
the Department that Equitable has agreed to sell ERE to Lend Lease 
Corporation Limited, effective on or about June 10, 1997. Lend Lease 
Corporation Limited is an Australian-based real estate and financial 
management company with substantial business operations in the 
United States. Also, see the comment submitted by Equitable and ERE 
regarding the status of ERE under this exemption.
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AGENCY: Pension and Welfare Benefits Administration, Department of 
Labor.

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

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SUMMARY: This document contains a final 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 exemption makes permanent as modified 
PTE 91-8 and provides relief for the provision of property management 
and/or leasing services by ERE to an Account (as defined in Section IV 
below), provided that the conditions set forth in Section II are met.

EFFECTIVE DATE: The Department of Labor is extending the temporary 
exemptive relief provided under PTE 91-8 until the date the final 
exemption is published in the Federal Register. However, effective 
January 13, 1996 until the date the final exemption is published in the 
Federal Register, Equitable and ERE have a period of up to 90 days 
after the end of each calendar year to prepare the annual report 
required by this exemption pursuant to Section II(4)(a).

    Thereafter, PTE 91-8, as modified and made permanent, is effective 
on the date the final exemption is published in the Federal Register.

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: On September 6, 1996, the Department of 
Labor (the Department) published in the Federal Register (61 FR 47205/
47214) a notice of proposed exemption to make permanent as modified PTE 
91-8 (the Notice). 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.
    This 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, this exemption to make permanent PTE 91-8 is being issued 
solely by the Department.
    The Notice gave interested persons an opportunity to comment on the 
proposed exemption and to request a hearing. The Department received 
five written comments. Three comments and an additional clarifying 
comment were filed by the representatives of certain pension plans that 
currently participate in one or more of the Accounts to which ERE 
provides property management and/or leasing services as described 
herein. The comments generally raised issues about certain aspects of 
the Notice, and were subsequently sent by the Department to Equitable 
and ERE for their response. Set forth below in paragraph 2 is a list of 
each of the points made by the commentators together with the responses 
to those points from Equitable and ERE and Jackson Cross Company as the 
Independent Fiduciary for the transactions described herein.
    The fourth and fifth comment were filed by Equitable and ERE and 
generally request clarifications and modifications to the Notice.
    Accordingly, upon consideration of the entire record, including the 
written comments, the Department has determined to grant the exemption 
subject to certain modifications. For a more complete statement of the 
facts and representations supporting the Department's decision to grant 
this exemption refer to the Notice published on September 6, 1996 at 61 
FR 47205/47214.
    A summary description of PTE 91-8 and this exemption; a discussion 
of the comments; and the Department's modifications are addressed 
below.

1. Description of PTE 91-8 and of this exemption

    This exemption makes permanent as modified PTE 91-8. PTE 91-8 was a 
temporary individual exemption which permits the provision of certain 
real estate property management and, in some instances, leasing 
services by EREIM <SUP>2</SUP>, affiliates of EREIM and Tishman Speyer 
Properties <SUP>3</SUP>, 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 
permitted the provision, by the law department of Equitable, of certain 
legal services to the Accounts required in connection with individual 
properties held by the Accounts <SUP>4</SUP>. This exemption to make 
permanent as modified PTE 91-8 was requested by Equitable and ERE 
pursuant to Paragraphs IX and X of the notice of proposed exemption 
relating to PTE 91-8 that was published in the Federal Register on 
February 28, 1990 at 55 FR 7057/7069. Furthermore, pursuant to 
Paragraphs IX and X of the notice of proposed exemption relating to PTE 
91-8, the application for a

[[Page 33926]]

permanent exemption was to include a report from the Independent 
Fiduciary expressing such fiduciary's views and rationales with respect 
to making PTE 91-8 permanent, and whether the Independent Fiduciary 
under PTE 91-8 believes that cost savings have been achieved for the 
Accounts. In this regard, Jackson Cross Company (Jackson Cross), as 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, Jackson Cross stated that the 
property management and leasing services rendered by Compass Management 
and Leasing and Compass Retail, two wholly-owned subsidiaries of ERE, 
to the Accounts resulted in substantial savings for the benefit of the 
Accounts.
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    \2\ At the time PTE 91-8 was granted, ERE or Equitable Real 
Estate Investment Management, Inc. was known as EREIM, and was an 
indirect wholly owned subsidiary of Equitable.
    \3\ In the Notice, Equitable represented that Tishman Speyer 
Properties (TSP), a partnership in which Equitable had a 50 percent 
ownership interest at the time PTE 91-8 was issued, is no longer 
affiliated with Equitable, and requested that this exemption be 
inapplicable to TSP. Accordingly, the Department determined that 
this exemption will not apply to TSP.
    \4\ In the Notice, Equitable represented that under PTE 91-8 the 
exemption for the provision of legal services to the Accounts by 
Equitable's in-house law department was never implemented. 
Therefore, Equitable requested that this exemption eliminate 
reference to the relief for the provision of legal services by the 
law department to the Accounts. Accordingly, in this exemption the 
Department eliminates relief for the provision of legal services by 
the law department to the Accounts.
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    As stated briefly above, this exemption will permit, on a permanent 
basis, the provision of property management and/or leasing services by 
ERE to an Account, provided that the conditions set forth in Section II 
are met. These conditions require extensive structural safeguards 
intended to ensure that the transactions described in this exemption 
operate in the interests of the Accounts and the plans participating 
therein.
    Although PTE 91-8 expired on January 13, 1996, the Department has 
determined to extend the temporary exemptive relief provided under PTE 
91-8 from January 13, 1996, until the date the final exemption is 
published in the Federal Register. Thereafter, PTE 91-8, as modified 
and made permanent, is effective on the date the final exemption is 
published in the Federal Register.

2. Discussion of the Comments

a. Annual Reconfirmation of the Independent Fiduciary

    One of the modifications to PTE 91-8 proposed by the Department 
provided for a procedure pursuant to which authorizing fiduciaries of 
the plans participating in the Accounts which do not vote in the annual 
reconfirmation of the Independent Fiduciary would be deemed to support 
continuation of that Independent Fiduciary. The commentators assert 
that ``the right to vote in favor or against reconfirmation is an 
important investor privilege,'' but add that the right to vote ``should 
not be given up simply by the passage of time.'' Consequently, the 
commentators urge that a lack of a timely response from investors 
(within 30 days) should not be interpreted as a vote in favor of 
reconfirmation of the Independent Fiduciary.
    Equitable and ERE agree that the annual reconfirmation procedure is 
an important protective element of this exemption, but do not believe 
that a requirement for an affirmative vote is needed to preserve the 
integrity of this procedure. In administering the multiple services 
program under PTE 91-8, Equitable and ERE have learned that the 
authorizing fiduciaries sometimes delay returning, or simply fail to 
return, the ballot for reconfirmation even though they do not object, 
and in fact support, the continued service of the Independent 
Fiduciary. This can be detrimental not only to the plan represented by 
such an authorizing fiduciary, but also to all the other plans that 
participate in the Accounts. An authorizing fiduciary'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. 
Therefore, in the event Equitable and ERE do not receive a requisite 
number of affirmative votes, there is a risk that the multiple services 
program will have to be discontinued and, accordingly, the savings to 
the Accounts will be lost. It is the view of Equitable and ERE that the 
commentators have not given sufficient attention to this risk.
    Equitable and ERE believe that there is an acceptable alternative 
to the affirmative reconfirmation procedure envisioned by the 
commentators. Equitable and ERE propose instituting additional 
procedures to assure that each authorizing fiduciary has an opportunity 
to vote and that the implications of a vote or a failure to vote are 
made clear. These procedures would include: (i) A requirement that each 
authorizing fiduciary be provided a ballot by certified mail (or 
another method of delivery pursuant to which confirmation of receipt is 
provided); (ii) a requirement that the ballot clearly indicate that the 
authorizing fiduciary may vote for or against continuation of the 
Independent Fiduciary; (iii) a requirement that the ballot must be 
accompanied by a statement that failure to return the ballot within 45 
days after receipt of the ballot will be counted as a ``for'' vote; and 
(iv) a requirement that 30 days after Equitable or ERE mails the ballot 
to the authorizing fiduciary, Equitable and ERE must make at least one 
follow-up contact with the authorizing fiduciary that has not 
previously returned the ballot prior to treating the unreturned ballot 
as a ``for'' vote. If Equitable or ERE does not receive a response from 
the authorizing fiduciary within 15 days after initiating contact with 
the authorizing fiduciary, Equitable and ERE may treat the unreturned 
ballot as a vote for reconfirmation. The reconfirmation would be 
effective on the earlier of the date affirmative ballots are obtained 
from the holders of a majority of the units of beneficial interests in 
the Accounts, or 45 days following the authorizing fiduciaries' receipt 
of the ballots (unless holders of a majority of the units of beneficial 
interests in the Accounts have voted against reconfirmation).
    Therefore, to address the commentators' concern regarding the right 
to vote and the integrity of the voting process, Equitable and ERE 
believe that the following paragraph should be substituted in place of 
the language that is currently in paragraph (b) at the end of Section 
II(4), such that the new Section II(4)(b) should read as follows:
    ``Equitable or ERE implements procedures to ensure each authorizing 
fiduciary has an opportunity to vote on the reconfirmation of the 
Independent Fiduciary. These procedures require that Equitable or ERE: 
(i) Provide each authorizing fiduciary with a ballot by certified mail 
(or another method of delivery pursuant to which confirmation of 
receipt is provided); (ii) ensure that the ballot clearly indicates 
that the authorizing fiduciary may vote for or against continuation of 
the Independent Fiduciary; (iii) ensure that the ballot must be 
accompanied by a statement that failure to return the ballot within 45 
days following the authorizing fiduciaries' receipt of the ballots will 
be counted as a ``for'' vote (unless holders of a majority of the units 
of beneficial interests in the Accounts have voted against 
reconfirmation); and (iv) 30 days after Equitable and ERE mails the 
ballot to the authorizing fiduciary, Equitable and ERE must make at 
least one follow-up contact with the authorizing fiduciary that has not 
previously returned the ballot prior to treating the unreturned ballot 
as a ``for'' vote. If Equitable or ERE does not receive a response from 
the authorizing fiduciary within 15 days after initiating contact with 
the authorizing fiduciary, Equitable and ERE may treat the unreturned 
ballot as a vote for reconfirmation. The reconfirmation will become 
effective on the earlier of the date affirmative ballots are obtained 
from the holders of a majority of the units of beneficial interests in 
the Accounts, or 45 days following the

[[Page 33927]]

authorizing fiduciaries' receipt of the ballots (unless holders of a 
majority of the units of beneficial interests in the Accounts have 
voted against reconfirmation.)''
    In this way, it will be confirmed that each of the authorizing 
fiduciaries has received a hard copy of the ballot, and that each 
authorizing fiduciary has the right to exercise its voting power if it 
so desires.
    The Department concurs with this suggestion and has incorporated 
the language stated above into a new paragraph (b) at the end of 
Section II(4) of this exemption.

b. The 90-day Annual Reporting Time Frame

    The Notice specified that Equitable and ERE would have a period of 
up to 90 days after the end of each calendar year to prepare the annual 
report required by this exemption. The commentators object to this 
modification, although they recognize Equitable and ERE's need for 
additional time to produce the annual report, and therefore indicate 
that they are less averse to ``* * * some additional time for this type 
of special report (e.g., 60 days after quarter end) * * *''.
    Equitable and ERE note that with respect to the annual reports 
previously prepared, Equitable had to frequently rely on estimated, 
rather than actual data. When Equitable relied only on estimated data 
it could meet the 45-day time frame provided by PTE 91-8. However, 
Equitable and ERE believe it would be in the interest of the Accounts 
and the plans participating therein, to receive an annual report which 
is based on actual financial information.<SUP>5</SUP>
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    \5\ However, the annual report would still contain some 
information garnered from estimated data, but such information would 
be minimal and in conformance with standard accounting procedures.
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    Equitable and ERE believe that it would be appropriate for the 
Accounts to wait a modest amount of time in order to obtain a more 
accurate annual report. However, in response to the commentators' 
concerns, the applicants propose that Equitable and ERE would have a 
period of 75 days after the end of each calendar year to prepare the 
annual report required by this exemption. The 75-day period is 
necessary because: (i) The preparation of the annual report involves 
two different entities, ERE and the Independent Fiduciary, which have 
manually-intensive computation responsibilities; and (ii) the extensive 
financial information that ERE must compile is a major part of an 
annual report, and such information is not generally available until 
sometime early in the second month following year-end. Thus, Equitable 
and ERE cannot even initiate the process for preparing an annual report 
containing actual data until after that time.
    Furthermore, ERE's responsibilities include preparing a separate 
package of information with respect to each property. This package 
includes information extracted from the property's year-end financial 
results, budget projections, an analysis of market conditions, ERE's 
internal valuations, and projections for management and leasing fees. 
At this stage, the appropriate ERE manager reviews for accuracy the 
data compiled manually for each package and tests overall property and 
portfolio limitations. ERE then finalizes each package of information 
by including additional property-specific information.
    In this regard, the Department concurs with Equitable and ERE's 
arguments as set forth herein, and has determined to modify Section 
II(4)(a) of the Notice by substituting ``75 days'' for ``90 days'', 
such that Section II(4)(a) of this exemption 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 75 days following the end of the period to which the 
report relates.''

c. Increase of Investment Limitation for Equitable In-House Plans

    The Notice proposed to increase the investment limitation for 
Equitable in-house plans from 5 percent to 10 percent, and thus, 
Equitable in-house plans may invest up to 10 percent of its assets in 
any Accounts covered by PTE 91-8. The commentators approve of the 
increase, but maintain that Equitable in-house plans should not receive 
the same voting rights as those granted to the other investors.
    In their response to these comments, Equitable and ERE state that 
the commentators recognize that ``* * * the right to vote * * * is an 
important investor privilege.'' (See discussion at 2.a., above). 
Accordingly, Equitable and ERE maintain that Equitable in-house plans, 
and the participants and beneficiaries of such plans, should not be 
denied their right to vote on issues affecting operation of such plans 
simply because of their relationship with Equitable.
    Moreover, Equitable and ERE propose and represent that Equitable's 
in-house plans continue to have voting rights equivalent to other non-
Equitable plan investors. However, to address the concerns of the 
commentators, Equitable and ERE represent that the votes of Equitable's 
in-house plans will not be taken into account if such votes are 
outcome-dispositive with respect to any issue, including the annual 
reconfirmation of the Independent Fiduciary, a matter that was of 
particular concern to the commentators. Therefore, Equitable and ERE 
propose that the following language be added as a new paragraph(d) in 
Section II(10) of this exemption:
    ``Equitable in-house plans shall have the same voting rights as 
those given to non-Equitable plan investors. However, the votes of 
Equitable in-house plans shall be disregarded if such votes are 
outcome-dispositive with respect to any issue.''
    The Department concurs with this suggestion and has modified 
Section II(10) of this exemption by adding new paragraph (d).

d. Proposed Increase in Maximum Leasing Commission

    The Notice proposes an increase in the fee ceiling amount to ERE 
for leases involving outside brokers from 1 percent to 2.75 percent of 
the lease amount. The commentators suggest that ``the proposed fee 
increase is substantial and the maximum fee appears high.'' The 
commentators also maintain that because leasing structures vary by 
market, they desire to review the leasing commission survey prepared by 
Equitable to evaluate the reasonableness of the proposed threshold.
    The preamble to the Notice explained that Equitable and ERE have 
determined that the 1 percent limitation was not consistent with the 
current practice of establishing leasing commissions for transactions 
involving outside brokers. Equitable and ERE further determined 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 between four (4%) and 
seven (7%) percent of the total lease payments. Before requesting an 
increase in the fee limitation, Equitable and ERE obtained an opinion 
from Jackson Cross, the Independent Fiduciary for property management 
and leasing services. Accordingly, Mr. Charles F. Seymor, CRE, MAI and 
chairman of Jackson Cross, stated that based on their experience and 
studies, leasing fees vary with building size and the competitive 
situation in individual markets. In most markets, the project leasing 
broker received 50% of the normal new or releasing commission. Jackson 
Cross concluded that because the normal full

[[Page 33928]]

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 annual lease amount. Accordingly, Jackson Cross concluded 
that restricting ERE to a maximum fee of 1% does not provide adequate 
compensation and that a higher fee may be required to adequately 
compensate the responsible agent. Jackson Cross recommended that this 
ceiling be raised to 2.75%,<SUP>6</SUP> still subject to the 
requirement that the Independent Fiduciary must certify an economic 
benefit to the Accounts before the terms of each contract for leasing 
and management services are approved. Mr. Seymor of Jackson Cross 
explained that the proposed maximum 2.75% fee is ample enough to 
provide adequate incentive to ERE for co-brokered transactions, while 
providing an economic advantage to the Accounts, when viewed against 
market data. Furthermore, Jackson Cross reviewed their own and outside 
contractual fees negotiated for leasing services, derived from data 
covering 92 properties in 33 separate markets in 24 states. Also, 
Jackson Cross reviewed additional relevant market data and consulted 
with established real estate professionals in the relevant market 
areas. However, to address the commentators' concerns, the applicants 
represent that during regular business hours, the Independent Fiduciary 
will provide access to, or copies of, the survey prepared by Equitable 
to the authorizing fiduciaries upon their request. The Independent 
Fiduciary may assess a reasonable charge to the authorizing fiduciaries 
for costs associated with providing access to, or copies of, the 
survey.
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    \6\ It is represented that 2.75% is the median point between the 
typical project leasing broker commission range of 2% to 3.5%.
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    Furthermore, Mr. Seymor reiterates, as alluded to in the Notice, 
that Jackson Cross as the Independent Fiduciary, will certify that an 
economic advantage to the Accounts exists before the terms of any 
leasing or management service contract is approved (61 FR 47210). 
Equitable and ERE also emphasize herein that the fee limitation of 
2.75% is merely a ceiling, and the Independent Fiduciary would consider 
a fee up to this ceiling only in cases where the market conditions 
dictate that a fee higher than 1% would be warranted.
    To clarify this point, Equitable and ERE suggest that the following 
new language be added at the end of Section II(13)(b)(3):
    ``(The Independent Fiduciary must certify that an economic 
advantage to the Accounts exists before consummation of any leasing or 
management service contract).''
    The Department concurs with this suggestion and has added this new 
language at the end of Section II(13)(b)(3) of this exemption.

e. Property Management and Leasing Fees

    In the notice of proposed exemption relating to PTE 91-8 published 
in the Federal Register on February 28, 1990 (55 FR 7057/7069), 
Equitable represented that property management and leasing fees charged 
by the unaffiliated property management firms generally ranged from 4 
to 5 percent of gross receipts and average approximately 4.5 percent of 
the gross receipts. Paragraph X of the notice of proposed exemption 
relating to PTE 91-8 provided that Equitable, in a future application 
to the Department for a permanent exemption, demonstrate that the 
aggregate annual property management and leasing fees charged to each 
Account (including the allocable cost of the Independent Fiduciary 
under the exemption) were less than 4.5 percent of the gross receipts 
earned during each year that ERE or TSP has provided property 
management and leasing services pursuant to the exemption.<SUP>7</SUP> 
Also, the notice of proposed exemption relating to PTE 91-8 
specifically stated that if such fees are less than 4.5 percent of the 
gross receipts, Equitable believes the Department can be assured that 
the exemption has operated in the best interest of the Accounts. In 
this regard, the Independent Fiduciary's cost savings report submitted 
to the Department in the exemption application to make PTE 91-8 
permanent demonstrated that the fees charged to the Accounts under PTE 
91-8 were in fact less than the 4.5 percent benchmark (61 FR 47207).
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    \7\ 4.5 percent is the median point in the range.
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    Two commentators suggest that the Department should not rely on the 
4.5% threshold which was established in the notice of proposed 
exemption relating to PTE 91-8. Alternatively, the commentators would 
prefer to see separate thresholds established for property management 
and leasing fees because these fees are typically calculated off 
different bases (i.e., leasing commissions are generally based on the 
total lease payments, and property management fees are based on gross 
property revenues). Additionally, the commentators desire to review the 
survey of leasing commissions and property management fees to evaluate 
the reasonableness of these thresholds.
    In the notice of proposed exemption relating to PTE 91-8, a 4.5 
percent benchmark was the test for the initial period following the 
grant of PTE 91-8. This reviewing standard was subject to change during 
the period PTE 91-8 was in effect. However, under this exemption, the 
4.5 percent benchmark will not, necessarily, be the standard for 
periods after the expiration of PTE 91-8. The Notice proposes certain 
cost saving procedures (Cost Saving Procedures) to assure continued 
savings to the Accounts. Pursuant to the Cost Saving Procedures, the 
Independent Fiduciary will be required to determine a typical range of 
annual fees for property management and leasing services for the 
Accounts. The Independent Fiduciary will also establish a new benchmark 
rate for comparison for each subsequent five-year period following the 
grant of this exemption.
    Equitable and ERE state in their response that the approach 
reflected in the Cost Saving Procedures is appropriate for arriving at 
a reasonable range of property management and leasing fees, and, 
ultimately, a new benchmark. In fact, as noted in the notice of 
proposed exemption relating to PTE 91-8 (55 FR 7065), these procedures 
are rather conservative because a zero dollar value is assigned to the 
quality of property management and leasing services provided by ERE, 
even when the Independent Fiduciary is mandated to take the anticipated 
quality of services into account in approving ERE to provide property 
services.
    Furthermore, the Cost Saving Procedures require the Independent 
Fiduciary to determine and document whether the Accounts have received 
an economic benefit during each five-year period. In the event the 
Independent Fiduciary concludes that such a benefit has not been 
achieved for the Accounts, it will not approve any additional service 
arrangements pursuant to the property services policy until Equitable 
and ERE have demonstrated to the Independent Fiduciary that policies to 
assure cost savings to the Accounts have been implemented by Equitable 
and ERE (61 FR 47208 and 47213).
    The Independent Fiduciary explains that, as part of its 
responsibilities, it has surveyed (and as required by the Cost Saving 
Procedures will continue to periodically survey) management and leasing 
fees. Such surveys will be based upon a review of market information, 
property performance, and outside leasing and management fees. 
Additionally, each year the Independent Fiduciary reinspects 
approximately one-third of the properties, and compares

[[Page 33929]]

contract leasing and management fees to other fees in the market area. 
In this regard, the Independent Fiduciary acknowledges that it has 
fiduciary responsibilities directly to the Accounts and the plans 
participating therein.
    However, Equitable and ERE and the Independent Fiduciary state that 
they will meet, if requested, with the representatives of any affected 
plan to answer any questions and explain the basis for the Independent 
Fiduciary's conclusions. Furthermore, during regular business hours, 
the Independent Fiduciary will provide access to, or copies of, the 
survey prepared by Equitable to the auhorizing fiduciaries upon their 
request. The Independent Fiduciary may assess a reasonable charge to 
the authorizing fiduciaries for costs associated with providing access 
to, or copies of, the survey.

f. Original PTE 91-8

    The commentators noted that a copy of PTE 91-8 was not provided in 
the materials distributed with the investor notification pursuant to 
the Notice. Equitable has since provided each of the commentators with 
a copy of PTE 91-8.

g. Data on Benchmark Fees

    As stated above, the Notice contains the Cost Saving Procedures 
which require ERE to 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 real estate investment management firms that are unaffiliated with 
Equitable and ERE. The Independent Fiduciary will review ERE's internal 
survey, and will verify the accuracy of the data by independently 
reviewing a sampling of the properties to which such fees apply.
    The commentators express concern over Equitable and ERE 
establishing a benchmark amount against which its own activities will 
be judged. Alternatively, the commentators suggest that Equitable and 
ERE use independent data obtained from the Internal Revenue Service 
(IRS) transfer pricing database or certain national real estate 
organizations.
    In this regard, Equitable and ERE state that the transfer pricing 
database referred to by the commentators, relates to the pricing of 
goods and services between related and commonly controlled entities, 
and would not be helpful in determining property management and leasing 
fees that are described in the Notice. Furthermore, the Independent 
Fiduciary confirms that there is no publicly available standard similar 
to the transfer pricing database for Equitable and ERE to use for 
leasing and property management service fees.
    In its response, the Independent Fiduciary explained that it relies 
on ERE to gather data with respect to property management and leasing 
fees. However, the gathering of additional data and the verification 
and interpretation of all data are the responsibility of the 
Independent Fiduciary. Also, the Independent Fiduciary represents that 
it knows of no public resources which provide adequate independent 
benchmarks similar to the IRS's transfer pricing database against which 
to judge fees for property management and leasing services. In fact, 
individual practitioners are prohibited from sharing this information 
with competitors to avoid any action which might be construed to 
restrict free market competition for fees and charges. National real 
estate organizations do not have this information. The response 
submitted by the Independent Fiduciary concludes that it does not 
believe that it would be appropriate to limit itself to one source of 
data but, instead, use its own professional resources to obtain 
additional market data and to verify and interpret all the data 
received.
    In addition, the exemption contains comprehensive safeguards, 
including a qualified Independent Fiduciary to oversee the transactions 
related thereto. Equitable and ERE therefore represent that these 
safeguards effectively eliminate any risk that services provided to the 
Accounts and fees charged under the exemption would be excessive or 
unnecessary.
    The Department concurs with the argument set forth by Equitable, 
ERE and the Independent Fiduciary and has determined that no 
modification is necessary regarding data on benchmark fees.

3. Discussion of Equitable's and ERE's Comments

a. Sale of ERE to the Lend Lease Corporation Limited

    By letter dated April 23, 1997, Equitable and ERE have notified the 
Department that on April 10, 1997, Equitable has agreed to sell ERE to 
Lend Lease Corporation Limited (Lend Lease), an Australian-based real 
estate and financial management company with substantial business 
operations in the United States (the Sale). The Sale is expected to 
close on or about June 10, 1997. The transaction is contingent on the 
receipt of various regulatory approvals and the satisfaction of various 
conditions. As part of the Sale, Lend Lease will also purchase Compass 
Management and Leasing, Inc. and Compass Retail, Inc. (collectively; 
Compass), wholly-owned subsidiaries of ERE. As a result of the Sale, 
ERE will cease to be a wholly-owned subsidiary of Equitable.
    After consummation of the Sale, Equitable anticipates that ERE will 
continue to serve as investment advisor to Equitable in connection with 
the performance by Equitable of its duties as investment manager for 
the Accounts as described herein. Thus, the responsibilities of 
Equitable and ERE with respect to the Accounts will be unchanged in all 
material respects after consummation of the Sale. The exemption is 
still needed because Equitable will continue to rely on ERE to select 
persons to provide property management and related services permitted 
by the exemption, and in many cases, ERE may determine that ERE or an 
affiliate is best suited to provide those services. As is presently the 
case, ERE may be considered to be acting as a fiduciary in these 
circumstances and, therefore, could be viewed as engaging in certain 
prohibited transactions under the Act with respect to such selections 
unless the exemption is granted.
    Although Equitable and ERE are bringing the Sale to the 
Department's attention in order to assure that the record in this 
exemption proceeding is complete, they believe that the Sale will have 
absolutely no effect on the standards and conditions established by the 
Notice. The potential prohibited transactions that would be covered by 
the exemption remain the same and the scope of the exemption remains 
the same. The Independent Fiduciary will continue to be responsible for 
the selecting the property managers and for monitoring the extent to 
which, and in the manner which, ERE makes use of the exemption to 
provide additional services to the Accounts.
    After the Sale, each covered service provision will still be 
reviewed and approved by the Independent Fiduciary whose appointment is 
confirmed by the plans participating in the Accounts, the Independent 
Fiduciary will still be required to certify that the multiple service 
transactions result in the savings to the Accounts, each affected plan 
will continue receiving reports describing the multiple services 
transactions and will continue to be given the opportunity to object to 
the continued provision of multiple services pursuant to this 
exemption.
    Equitable and ERE also note that PTE 91-8 was granted, and this 
exemption is

[[Page 33930]]

proposed to be granted to both Equitable and ERE. Therefore, no 
significant restructuring of the Notice will be required on the account 
of the Sale. This exemption should continue to be applicable to both 
Equitable and ERE because it must cover the period retroactive to 
January 13, 1996 through the date of closing of the Sale and 
beyond.<SUP>8</SUP>
---------------------------------------------------------------------------

    \8\ It is represented that there is a slight possibility that 
the Sale might not be completed.
---------------------------------------------------------------------------

    In this regard, Equitable and ERE suggest that the Department 
eliminate any identification of ERE as Equitable's wholly-owned 
subsidiary, and include the following language (or language 
substantially similar) in this exemption:
    ``The applicants have informed the Department that Equitable has 
agreed to sell ERE to the Lend Lease Corporation, effective on or about 
June 10, 1997.''
    The Department concurs with this comment and has added this 
language to this exemption. The Department also eliminated any 
identification of ERE as Equitable's wholly-owned subsidiary in this 
exemption.

b. Equitable's and ERE's Comments Regarding the Notice

    In another written comment submitted to the Department, Equitable 
and ERE have requested that certain aspects of the Notice be clarified. 
The requested clarifications are as follows:
    a. Page 47206 of the Notice contained a section titled PTE 91-8. 
The first sentence of the second paragraph of that section should have 
read, ``Equitable is a stock life insurance company organized under the 
laws of the State of New York''.
    While Equitable was a mutual life insurance company at the time PTE 
91-8 was originally issued, pursuant to a plan of reorganization 
adopted by Equitable on November 27, 1991, Equitable became a stock 
life insurance company. The Department concurs with this comment.
    b. Pages 47207/47208 of the Notice contain a section titled 
Permanent Exemption for Transactions Under PTE 91-8, which describes 
how the Cost Saving Procedures will be carried out. Page 47213 of the 
Notice in Section II--Conditions also contains the Cost Saving 
Procedures as condition (12). The Cost Saving Procedures require, among 
other things, that, at the end of each five year period during which 
property management and leasing services are performed under the 
exemption, Equitable and ERE demonstrate to the Independent Fiduciary 
that the aggregate fees charged to each Account for the provision of 
property management and leasing services are less than the fees that 
would have been charged using a benchmark rate established at the 
beginning of the five-year period. In order to determine the benchmark 
pursuant to which cost savings will be determined, the Notice states 
that the Cost Saving Procedures require, in relevant part, that ``After 
the fifth anniversary of the grant of the 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 * * 
*''
    Equitable and ERE comment that the literal application of this 
language will allow ERE a five-year grace period before the Cost Saving 
Procedures are required to be applied. Equitable and ERE believe that 
such a grace period was unintended by the Department and, accordingly, 
Equitable and ERE propose that the language be modified to ensure that 
the Cost Saving Procedures will be initiated shortly after the final 
exemption is issued by the Department. In order to ensure this result, 
Equitable and ERE request that the following language, ``Within one-
year of the grant of this exemption * * *'' be substituted for ``After 
the fifth anniversary of the grant of this exemption * * *'' at the 
beginning of condition 12(a). The Department concurs with this comment, 
and has modified condition 12(a) in Section II of this exemption 
accordingly.
    c. Equitable and ERE also comment that the definition of Accounts 
which is contained in the Notice in Section IV--Definitions on page 
47214 should not include Separate Account Nos. 16-IV and 16-VII and 
Separate Accounts Nos. 136, 141, 149 and 174 for the IBM Retirement 
Plan, as being covered by the exemption. In this regard, Equitable and 
ERE state that these accounts either are not covered by the Employee 
Retirement Income Security Act of 1974, or Equitable and ERE do not 
provide services to these accounts pursuant to the exemption. In order 
to clarify this point, Equitable and ERE propose that the definition of 
Accounts be modified as follows:
    ``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, 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.''
    The Department concurs with this comment and has modified 
definition of Accounts in Section IV--Definitions in this exemption 
accordingly.

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 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) This exemption will not extend to transactions prohibited under 
section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;
    (3) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, and based upon the entire record, including the 
written comments submitted in response to the notice of proposed 
exemption, the Department makes the following determinations:
    (a) The exemption set forth herein is administratively feasible;
    (b) It is in the interest of the plans investing in the Accounts 
and their participants and beneficiaries; and
    (c) It is protective of the rights of participants and 
beneficiaries of the plans.
    (4) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describe all material terms of the transactions 
which are the subject of this exemption;
    (5) The availability of this exemption 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 (40 FR 7057/
7069), as amended by a notice of proposed exemption to make

[[Page 33931]]

permanent as modified PTE 91-8 (61 FR 47205/47214) accurately describe, 
where relevant, the material terms of the transactions to be 
consummated pursuant to this exemption;
    (6) This exemption is 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
    (7) This exemption is applicable to particular transactions only if 
the transactions satisfy the conditions specified in the exemption.

Exemption

    Accordingly, the following exemption is hereby granted 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 <SUP>9</SUP> to an Account (as defined in Section IV), 
provided that the conditions set forth in Section II are met.
---------------------------------------------------------------------------

    \9\ See Footnote 1, supra.
---------------------------------------------------------------------------

Section II--Conditions

    (1) The arrangement under which the covered transactions are 
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>10</SUP> 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.
---------------------------------------------------------------------------

    \10\ However, during the notification of interested persons 
period, Equitable provided to all interested parties, including the 
plans participating in the Accounts, a copy of the notice of the 
proposed exemption. Accordingly, the plans were given 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 
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 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 75 days following the end 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 forty five (45) days after receipt 
of a request for reconfirmation as a vote in favor of continued 
retention of the Independent Fiduciary (see procedures described in 
Section II(4)(b)).
    (b) Equitable or ERE implements procedures to ensure each 
authorizing fiduciary has an opportunity to vote on the reconfirmation 
of the Independent Fiduciary. These procedures require that Equitable 
or ERE: (i) Provide each authorizing fiduciary with a ballot by 
certified mail (or another method of delivery pursuant to which 
confirmation of receipt is provided); (ii) ensure that the ballot 
clearly indicates that the authorizing fiduciary may vote for or 
against continuation of the Independent Fiduciary; (iii) ensure that 
the ballot must be accompanied by a statement that failure to return 
the ballot within 45 days following the

[[Page 33932]]

authorizing fiduciaries' receipt of the ballots will be counted as a 
``for'' vote (unless holders of a majority of the units of beneficial 
interests in the Accounts have voted against reconfirmation); and (iv) 
30 days after Equitable or ERE mails the ballot to the authorizing 
fiduciary, Equitable and ERE must make at least one follow-up contact 
with the authorizing fiduciary that has not previously returned the 
ballot prior to treating the unreturned ballot as a ``for'' vote. If 
Equitable or ERE does not receive a response from the authorizing 
fiduciary within 15 days after initiating contact with the authorizing 
fiduciary, Equitable and ERE may treat the unreturned ballot as a vote 
for reconfirmation. The reconfirmation will become effective on the 
earlier of the date affirmative ballots are obtained from the holders 
of a majority of the units of beneficial interests in the Accounts, or 
45 days following the authorizing fiduciaries' receipt of the ballots 
(unless holders of a majority of the units of beneficial interests in 
the Accounts have voted against reconfirmation.)
    (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.
    (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.
    (d) Equitable in-house plans shall have the same voting rights as 
those given to non-Equitable plan investors. However, the votes of 
Equitable in-house plans shall be disregarded if such votes are 
outcome-dispositive with respect to any issue.
    (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

[[Page 33933]]

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) Within one-year 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 
75 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 
(the Independent Fiduciary must certify that an economic advantage to 
the Accounts exists before consummation of any leasing or management 
service contract).

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
    (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, 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

[[Page 33934]]

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 exemption 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 (40 FR 7057/7069), as amended by the 
notice of proposed exemption to make permanent as modified PTE 91-8 (61 
FR 47205/47214) and the written comments submitted in response thereto, 
accurately describe, where relevant, the material terms of the 
transactions to be consummated pursuant to this exemption.

    Signed at Washington, DC, this 18th day of June, 1997.
Ivan Strasfeld,
Director of the Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, Department of Labor.
[FR Doc. 97-16362 Filed 6-20-97; 8:45 am]
BILLING CODE 4510-29-U