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Secretary of Labor Thomas E. Perez
Proposed Exemptions; ADP Fluor Daniel, Incorporated Retirement Savings Plan (the Plan) [Notices] [03/05/1997]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; ADP Fluor Daniel, Incorporated Retirement Savings Plan (the Plan) [03/05/1997]

[PDF Version]

Volume 62, Number 43, Page 10074-10078

[DOCID:fr05mr97-109]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10307, et al.]

 
Proposed Exemptions; ADP Fluor Daniel, Incorporated Retirement 
Savings Plan (the Plan)

agency: Pension and Welfare Benefits Administration, Labor.

action: Notice of proposed exemptions.

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summary: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

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

addresses: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

Notice of Interested Persons

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

supplementary information: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (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. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

ADP Fluor Daniel, Incorporated Retirement Savings Plan (The Plan) 
Located in Tucson, Arizona

(Application No. D-10307)

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32847, August 10, 1990). If the exemption is 
granted, the restrictions of sections 406(a) and 406(b) (1) and (2) of 
the Act and the sanctions resulting from the application of section 
4975(c)(1) (A) through (E) of the Code, shall not apply to the proposed 
sale by the Plan of two limited partnership interests (the Units) to 
ADP Fluor Daniel, Incorporated, a party in interest with respect to the 
Plan, providing the following conditions are satisfied: (1) the sale is 
a one-time transaction for cash; (2) the Plan pays no commissions nor 
other expenses relating to the sale; and (3) the purchase price is the 
greater of: (a) The fair market value of the Units as determined by a 
qualified, independent appraiser, or (b) the original acquisition and 
holding costs, plus attributable opportunity costs.
Summary of Facts and Representations
    1. The Plan is a combination 401(K) and profit sharing plan 
sponsored by ADP Fluor Daniel, Incorporated (ADP). ADP is an Arizona 
corporation engaged in the business of international architecture and 
engineering. As of December 31, 1994, the Plan had 250 participants and 
assets with a fair market value of approximately $4,642,585.00.
    2. Among the assets of the Plan are the Units, which are two shares 
of the Central Corridor-Osborn Investors Limited Partnership (the 
Limited Partnership), an Arizona limited partnership. The Plan's 
percentage ownership represented by its Units in the Limited 
Partnership is 3.11%. The Limited Partnership owns a 2.26 acre property 
located at the southeast corner of Central Avenue and Osborn Road, in 
Phoenix, Arizona. The Plan acquired the Units directly from the Limited 
Partnership, an unrelated third party, in 1987. The decision to acquire 
the Units was made by the Plan trustees; Richard Anderson, Philip Owen, 
Dale Harman, Solomon Pan, and Michael Stanley (the Trustees).\1\ It is 
represented that the Plan paid a total of $25,000 to acquire the Units 
and subsequently made additional cash contributions and various other 
payments totaling $34,800 between 1989 and 1996 in connection with the 
holding of the Units. It is further represented that the Plan never 
derived any income from the investment in the Units to offset the 
expenditures made by the Plan related to the acquisition and holding of 
the Units. In this regard, it is represented that the cumulative costs 
paid by the Plan in connection with the acquisition and holding of the 
Units is $59,800.
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    \1\ The Department expresses no opinion herein on whether the 
acquisition and holding of the Units by the Plan violated any of the 
provisions of Part 4 of Title I of the Act.
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    3. The Applicant represents that the Plan wishes to sell the Units 
in order to divest itself of an asset which has and may continue to 
depreciate in value. It is further represented that the Units which are 
not publicly traded are incompatible with the Plan's new administrative 
investment features, which permits participants to access daily 
valuations and to individually direct the investments of their 
accounts. Selling the Units to ADP will enable the Plan to convert an 
illiquid, non-publicly traded real estate investment into cash,

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which will then be allocated to the accounts of participants and 
invested pursuant to the direction of those participants.
    The Applicant obtained an independent appraisal of the units from 
Gary Ringel, President of U.S.L. Valuation, Inc., a real estate 
appraiser and consultant located in Scottsdale, Arizona. After 
reviewing the pertinent data, Mr. Ringel estimated that the Units' fair 
market value as of April 30, 1996 was $20,800.
    4. The Applicant proposes to purchase the Units from the Plan for 
$85,072, which will be allocated on a pro rate basis among the 
participants' accounts that are invested in the Units. This amount 
represents the greater of: (a) The fair market value of the Units as 
determined by a qualified, independent appraiser, or (b) the Units' 
original acquisition and holding costs to the Plan plus opportunity 
costs attributable to the Units. It is represented, that because the 
fair market value of the Units is less than their acquisition cost, ADP 
will purchase the units for the latter amount. Taking into account the 
purchase price of the Units ($25,000) and the associated holding costs 
($25,272), the Plan will receive a rate of return approximately equal 
to six percent for each of the eight years that the Plan has held the 
Units.
    The Applicant represents that the subject transaction is in the 
interest of the Plan because if the Plan sold the Units on the open 
market, the Plan would receive substantially less than the amount the 
Applicant is willing to pay. In addition, the Plan could not at this 
time sell the Units to an unrelated third party at other than a 
substantial discount.
    5. In summary, the Applicant represents that the subject 
transaction satisfies the statutory criteria for an exemption under 
section 408 of the Act for the following reasons: (1) The sale will be 
a one-time transaction for cash; (2) the Plan will not pay commissions 
nor other expenses relating to the sale; (3) the sale will enhance the 
liquidity of the assets of the Plan; and (4) the purchase price will be 
the greater of: (a) the fair market value of the Units as determined by 
a qualified, independent appraiser, or (b) the original acquisition and 
holding costs of the Units plus attributable opportunity costs.
Tax Consequences of Transaction
    The Department of the Treasury has determined that if a transaction 
between a qualified employee benefit plan and its sponsoring employer 
(or affiliate thereof) results in the plan either paying less than or 
receiving more than fair market value, such excess may be considered to 
be a contribution by the sponsoring employer to the plan and therefore 
must be examined under applicable provisions of the Code, including 
sections 401(a)(4), 404 and 415.
Notice to Interested Persons
    Notice of the proposed exemption shall be given to all interested 
persons by personal delivery and by first-class mail within 10 days of 
publication of the notice of pendency in the Federal Register. Such 
notice shall include a copy of the notice of proposed exemption as 
published in the Federal Register and shall inform interested persons 
of their right to comment and/or request a hearing with respect to the 
proposed exemption. Comments and requests for a hearing are due within 
40 days of the date of publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Janet L. Schmidt of the 
Department, telephone (202) 219-8883. (This is not a toll-free number.)

TA Associates, Inc. (TA Associates) Located in Boston, MA

(Application No. D-10314)

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1) (A) through (D) of the Code shall not 
apply, effective December 29, 1993, to the making, by an employee 
benefit plan (the Plan), of capital contributions to any venture 
capital fund (the TA Fund) that is organized, sponsored and/or managed 
by TA Associates and/or any of its affiliates (collectively, TA) 
pursuant to a contractual obligation by a Plan having an interest in 
the TA Fund.\2\
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    \2\ As discussed herein, TA Funds are expected to be organized 
as venture capital operating companies that are managed by TA.
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    This proposed exemption is subject to the following conditions:
    (a) At the time the Plan undertakes the obligation to make such 
capital contributions (the Determination Date), the TA Fund is not a 
party in interest with respect to the Plan.
    (b) The decision to make a capital contribution to a TA Fund is 
made on behalf of the Plan by a Plan fiduciary which is independent of 
and unrelated to TA and the portfolio company whose interest is 
acquired by the TA Fund.
    (c) TA does not otherwise provide investment advice to the Plan 
within the meaning of Regulation section 29 CFR 2510.3-21(c) with 
respect to such Plan's assets that are invested in the TA Fund.
    (d) At the Determination Date, the Plan has aggregate assets that 
are in excess of $50 million. In the case of multiple Plans which are 
invested through a master or group trust in a TA Fund, the assets of 
which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan Asset 
Regulation), the $50 million threshold applies to the aggregate assets 
of such trust.
    (e) Subsequent to the Determination Date, the TA Fund is a party in 
interest with respect to the Plan solely by reason of a relationship to 
a portfolio company which is a service provider to a Plan, as described 
in section 3(14) (H) or (I) of the Act, including a fiduciary with 
respect to such Plan.
    (f) At the Determination Date, the capital commitment of the Plan 
(together with the capital commitments of any other Plans maintained by 
the same employer or employee organization) with respect to the TA 
Fund, does not exceed 15 percent of the total capital commitments with 
respect to such TA Fund.
    (g) At the Determination Date, the percentage of the Plan's assets 
committed to be invested in the TA Fund does not exceed 5 percent of 
the Plan's total assets.
    (h) At the Determination Date, a Plan's aggregate capital 
commitment to all TA Funds does not exceed 25 percent of the Plan's 
total assets.
    (i) The Plan receives the following initial and ongoing disclosures 
with respect to the TA Fund:
    (1) A copy of the private placement memorandum applicable to the TA 
Fund or another comparable document containing substantially the same 
information;
    (2) A copy of the limited partnership or other agreement 
establishing the TA Fund;
    (3) A copy of the subscription agreement applicable to the TA Fund, 
if any;
    (4) Copies of the proposed exemption and grant notice related to 
the exemptive relief described herein; and
    (5) Periodic, but no less frequently than annually, reports 
relating to the overall financial position and operational results of 
the TA Fund

[[Page 10076]]

including copies of the TA Fund's annual financial statements.
    (j) With respect to capital contributions made to a TA Fund by a 
Plan after the date of issuance of the final exemption, TA maintains or 
causes to be maintained for a period of six years from the date of the 
transaction the records necessary to enable the persons described in 
paragraph (k) to determine whether the conditions of this exemption 
have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred, if due to circumstances beyond the control of TA, the records 
are lost or destroyed prior to the end of the six year period; and
    (2) No party in interest, other than TA, shall be subject to the 
civil penalty that may be assessed under section 502(i) of the Act, or 
to the taxes imposed by section 4975 (a) and (b) of the Code, if the 
records are not maintained, or are not available for examination as 
required by paragraph (k).
    (k)(1) Except as provided in paragraph (k)(2) and notwithstanding 
any provisions of subsection (a)(2) and (b) of section 504 of the Act, 
the records referred to in paragraph (j) are unconditionally available 
at their customary location for examination during normal business 
hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any fiduciary of a Plan who has an interest in the TA Fund and 
has the authority to acquire or dispose of the interest of the Plan in 
the TA Fund, or any duly authorized employee or representative of such 
fiduciary; and
    (C) Any participant or beneficiary of any Plans or duly authorized 
employee or representative of such participant or beneficiary.
    (2) None of the persons described in paragraph (k)(1)(B) and 
(k)(1)(C) shall be authorized to examine trade secrets of TA or 
commercial or financial information which is privileged or 
confidential.
EFFECTIVE DATE: If granted, this proposed exemption will be effective 
December 29, 1993.

Summary of Facts and Representations

    1. TA is a Delaware corporation involved in the venture capital 
industry since 1968. TA has organized, sponsored and/or managed 21 
venture capital funds, involving total capital commitments of 
approximately $1.46 billion. The investors in the TA Funds are 
primarily wealthy individuals and sophisticated investors, including 
employee benefit plans that are subject to the Act, private 
foundations, government plans, endowments and other tax exempt 
organizations. The applicant represents that venture capital funds, 
such as the TA Funds, allow Plans, particularly those having 
significant asset bases, to achieve greater diversification by asset 
class. As such, many of the investors in existing TA Funds and many 
potential investors in future TA Funds will be Plan investors that are 
covered by the Act.
    2. Each TA Fund is organized and operated so that the assets of 
such TA Fund will not be deemed to be plan assets under the Plan Asset 
Regulation. In most cases, this results from the fact that the TA Fund 
is operated in a manner which causes such fund to qualify as a venture 
capital operating company.\3\ In some cases, it may be the result of 
the fact that the equity participation in the TA Fund by benefit plan 
investors is not significant (i.e., more than 75 percent or more of the 
equity interest in the entity is held by non-benefit plan 
investors).\4\
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    \3\ Regulation section 29 CFR 2510.3-101(c) of the Plan Asset 
Regulation defines the term ``operating company'' as an entity that 
is primarily engaged, directly or through a majority-owned 
subsidiary or subsidiaries, in the production or sale of a product 
or service other than the investment of capital. The term 
``operating company'' includes a ``venture capital operating 
company.''
    Regulation section 29 CFR 2510.3-101(d) provides, in part, that 
an entity is a ``venture capital operating company'' if at least 50 
percent of its assets are invested in venture capital investments, 
and the entity, in the ordinary course of its business, actually 
exercises management rights with respect to one or more operating 
companies in which it invests. Regulation section 29 CFR 2510.3-
101(d)(3) explains that a venture capital investment is an 
investment in an operating company (other than a venture capital 
operating company) as to which the investor has or obtains 
management rights. The term ``management rights'' is defined under 
regulation section 29 CFR 2510.3-101(d)(3)(ii) to mean contractual 
rights directly between the investor and an operating company to 
substantially participate in, or substantially influence the conduct 
of, the management of the operating company.
    \4\ Regulation section 2510.3-101(f)(1) states, in pertinent 
part, that equity participation in an entity by benefit plan 
investors is ``significant'' on any date, if immediately after the 
most recent acquisition of any equity interest in the entity, 25 
percent or more of the value of any class of equity interests in the 
entity is held by benefit plan investors.
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    3. The TA Funds have typically been structured as limited 
partnerships with TA serving as general partner and, in some cases, 
having an interest as limited partner. (TA Funds organized in the 
future may be organized as limited liability companies.) The TA Funds 
are managed by TA which receives a pre-specified management fee as well 
as a pre-specified incentive allocation after investors have received 
distributions in excess of their capital contributions plus a pre-
specified minimum rate of return. Because the TA Funds are expected to 
be organized as venture capital operating companies, the applicant 
represents that none of the TA Funds will hold ``plan assets'' and that 
the compensation paid to TA by the TA Funds will not be subject to the 
prohibitions under the Act.\5\
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    \5\ The Department is providing no opinion with regard to 
whether a TA Fund is a venture capital operating company or whether 
the equity participation by Plans investing in a TA Fund is not 
significant. In addition, the Department is not expressing any views 
with respect to the compensation that is paid to TA by a TA Fund.
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    TA's most recent fund, Advent VII, has aggregate capital 
commitments of approximately $303 million from 83 individual and 
institutional investors. Of the institutional investors, 14 investors 
are Plans that are covered under the provisions of the Act. These Plans 
have made a total capital commitment to Advent VII of $95 million.
    4. Each investor in a TA Fund, including each Plan investor, enters 
into a binding commitment to make capital contributions to the TA Fund 
in an amount specified by the investor. Although an investor's capital 
commitments are not required to be made at the outset, capital is drawn 
down over time as the TA Fund identifies and makes its venture capital 
and other investments. Generally, capital is called down in 
installments ranging from 5 percent to 10 percent of the total 
commitment. In most cases, all of the capital commitments will have 
been drawn down within 3 to 5 years of the establishment of the TA 
Fund.
    5. In recent years, the TA Funds have expanded their focus to 
include a wide variety of portfolio companies.\6\ Specifically, the TA 
Funds have acquired, and expect to acquire, interests in portfolio 
companies which are involved, either directly or through subsidiaries, 
in various aspects of the financial services industry. TA believes this 
broader scope is necessary to enable the TA Funds to maximize 
investment opportunities and investment returns. In TA's view, business 
opportunities can arise in connection with start-up or later-stage 
companies (including spin-offs and management buy-outs of existing 
business operations) in

[[Page 10077]]

virtually any type of business rather than exclusively in the hi-
technology area.
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    \6\ According to the applicant, the term ``portfolio company'' 
refers to each of the operating companies in which a venture capital 
fund has made an investment. Thus, for example, when a venture 
capital fund, such as a TA Fund, makes an investment in a start-up, 
high tech company, that company becomes one of the venture capital 
fund's portfolio companies and will remain so as long as the venture 
capital fund retains its investment in that high tech company. 
Similarly, if a venture capital fund acquires an interest in an 
investment management firm, the investment management firm will 
become a portfolio company of the venture capital fund.
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    6. As part of this diversification trend, TA Funds have been and 
will be acquiring interests in portfolio companies that are involved in 
providing money management services, brokerage services or other types 
of services which may be utilized by Plans and institutional investors. 
The portfolio company may be, or may become, a party in interest with 
respect to one or more Plans which hold an interest in the TA Fund when 
such portfolio company, or any subsidiary thereof performs services for 
a Plan. The services may include fiduciary services (e.g., management 
of assets of the Plan other than those invested in a TA Fund). In no 
event will the portfolio company or its subsidiary act in a fiduciary 
capacity with respect to the assets of the Plan that are invested in 
the TA Fund.
    If the TA Fund owns, directly or indirectly, a 10 percent or more 
interest in a service provider, TA notes that the Fund will become a 
party in interest with respect to such Plan under section 3(14) (H) and 
(I) of the Act.\7\ Since a TA Fund frequently purchases a 10 percent or 
more interest in a portfolio company, TA represents that it is possible 
that a TA Fund could become a 10 percent or more owner of a service 
provider and a party in interest with respect to each Plan as to which 
the portfolio company (or one of its subsidiaries) is a service 
provider. Once a TA Fund becomes a party in interest with respect to a 
Plan, TA states that the Plan would be prohibited from engaging in any 
transaction with that TA Fund.
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    \7\ In this regard, it is noted that the corresponding section 
of the Code relating to disqualified persons (see section 4975(e)(2) 
(H) and (I) does not contain a similar provision which would make 
the owner of 10 percent or more of a service provider a disqualified 
person with respect to a Plan. Nevertheless, because the service 
provider is a disqualified person under section 4975(e)(2)(B) of the 
Code, TA has requested that the exemption extend to both the Code 
and the Act in order to avoid any potential concerns regarding the 
possibility of indirect prohibited transactions.
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    If a TA Fund were to become a party in interest with respect to a 
Plan, TA is concerned that a capital contribution made by the Plan 
subsequent to the TA Fund's becoming a party in interest would violate 
section 406(a)(1)(D) of the Act notwithstanding the fact that the 
capital contribution is being made pursuant to a pre-existing binding 
contractual commitment made by the Plan at a time when the TA Fund was 
not a party in interest. Therefore, to resolve these potential 
technical violations of the Act, TA has requested an administrative 
exemption from the Department.
    7. If granted, the proposed exemption will be effective December 
29, 1993. On that date, one of the TA Funds acquired 100 percent of the 
interest in a portfolio company which owned or subsequently acquired 
several investment managers. At least one of the investment managers 
provided services to a Plan that was also an investor in the TA Fund. 
As a result, TA believes that prohibited transactions may have occurred 
when the Plan subsequently funded its remaining capital contributions 
to the TA Fund.
    It is represented that the discovery of the prohibited transactions 
was made by TA and not by the investment manager. The only role that 
the investment manager played in these determinations was its provision 
to TA of a list of clients which enabled TA to compare the investment 
manager's clients with the list of investors in the affected TA Fund. 
It is represented that the investment manager did not have any 
responsibility with respect to the assets of the Plan that were 
invested in the TA Fund.
    8. The requested exemption is subject to a number of conditions 
that will apply both retroactively and prospectively. First, the TA 
Fund's party in interest status will, in all cases, arise on the 
Determination Date, i.e., after the Plan has made a binding commitment 
to invest in the TA Fund, including its commitment to make future 
capital contributions to the TA Fund. Second, the decision to undertake 
the obligation to make a binding commitment must be made on behalf of 
the Plan by a Plan fiduciary which is independent of and unrelated to 
TA and the portfolio company. Third, TA must not otherwise provide 
investment advice to the Plan within the meaning of Regulation section 
29 CFR 2510.3-21(c) with respect to such Plan's assets that are 
invested in the TA Fund. Fourth, at the Determination Date, the Plan 
must have aggregate assets that are in excess of $50 million. In the 
case of multiple Plans which are invested through a master or group 
trust in an entity, the $50 million threshold will apply to the 
aggregate assets of such trust or entity. Fifth, as of the 
Determination Date, the capital commitment of the Plan (together with 
the capital commitments of any other Plans maintained by the same 
employer or employee organization) with respect to the TA Fund, must 
not exceed 15 percent of the total capital commitments with respect to 
such TA Fund. Sixth, at the Determination Date, the percentage of the 
Plan's assets committed to be invested in the TA Fund must not exceed 5 
percent of the Plan's total assets. Seventh, at the Determination Date, 
a Plan's aggregate capital commitment with respect to all TA Funds must 
not exceed 25 percent of such Plan's total assets. TA represents that 
the transaction which occurred on December 29, 1993 met all of the 
foregoing substantive conditions.
    9. The conditions of the exemption also require that each Plan 
receive the following initial and ongoing written disclosures from TA: 
(a) A copy of the private placement memorandum applicable to the TA 
Fund or another comparable document containing substantially the same 
information; (b) a copy of the limited partnership or other agreement 
establishing the TA Fund; (c) a copy of the subscription agreement 
applicable to the TA Fund, if any; (d) copies of the proposed exemption 
and grant notice related to the exemptive relief described herein; and 
(e) periodic, but no less frequently than annually, reports relating to 
the overall financial position and operational results of the TA Fund 
including copies of the TA Fund's annual financial statements. In 
addition, with respect to capital contributions made to a TA Fund by a 
Plan after the date of issuance of the final exemption, TA will 
maintain or cause to be maintained for a period of six years from the 
date of each transaction, records of each Plan investing in a TA Fund 
and each portfolio company comprising a TA Fund. Such records will 
enable the Department and other persons to determine whether the terms 
and conditions of the exemption are being met.
    10. If the exemption is not granted, TA represents that it and the 
TA Funds would be required to make one of several adjustments designed 
to avoid the prohibited transaction concern that is the subject of this 
request. However, TA states that it does not believe these adjustments 
would be in the best interest of existing or prospective Plan 
investors. In this regard, TA represents that it might attempt to avoid 
the problem by not acquiring any portfolio companies which are, 
directly or indirectly, service providers to any of a TA Fund's Plan 
investors. However, TA does not consider this alternative satisfactory 
because it would limit the TA Fund's potential range of investments and 
diminish the expected investment return of such Fund. Moreover, TA 
points out that a portfolio company which is not a service provider at 
the time of the TA Fund's investment might become a service provider at 
some time in the future. Under these circumstances, TA

[[Page 10078]]

represents that it would be impractical to restrict the activities of 
all portfolio companies in which the TA Fund invests to assure that no 
such portfolio company would ever become a service provider to any TA 
Fund's Plan investors. According to TA, such restriction would be 
contrary to the best interest of the TA Funds and their investors, 
particularly, their Plan investors.
    As another alternative, TA represents that it could limit the 
offering of interests in the TA Funds to those Plans which could take 
advantage of Prohibited Transaction Exemption (PTE) 84-14 (49 FR 9494 
March 13, 1984), the Class Exemption for Plan Asset Transactions 
Determined by Independent Qualified Professional Asset Managers (QPAMs) 
or PTE 96-23 (61 FR 15975, April 10, 1996), the Class Exemption for 
Plan Asset Transactions Determined by In-House Asset Managers 
(INHAMs).\8\ However, TA believes that such an approach would be unduly 
restrictive and not in the best interest of the Plans since relatively 
few Plans could take advantage of PTE 96-23. Also Plans would be forced 
to hire a QPAM and incur an additional expense in order to invest in a 
TA Fund if the Plan's named fiduciary would otherwise make that 
decision itself.
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    \8\ PTE 84-14 permits various parties which are related to 
employee benefit plans to engage in transactions involving plan 
assets, if among other conditions, the assets are managed by QPAMs 
(i.e., banks, savings and loan associations, insurance companies or 
investment advisers registered under the Investment Advisers Act of 
1940), which are independent of the parties in interest and meet 
certain financial standards. PTE 96-23 permits various transactions 
involving employee benefit plans whose assets are managed by INHAMs 
and party in interest service providers.
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    11. In summary, it is represented that the proposed exemption has 
satisfied or will satisfy the statutory conditions for an exemption 
under section 408(a) of the Act because: (a) At the Determination Date, 
the TA Fund's party in interest status has or will, in all cases, arise 
after the Plan has made its binding commitment to invest in the TA 
Fund, including its commitment to make future capital contributions to 
the TA Fund; (b) the decision by a Plan to make capital contributions 
to the TA Fund has been and will be made on behalf of the Plan by a 
Plan fiduciary which is independent of and unrelated to TA and the 
portfolio company that is acquired by the TA Fund; (c) TA will not 
otherwise provide investment advice to the Plan within the meaning of 
29 CFR 2510.3-21(c) of the Act with respect to such Plan's assets that 
are invested in the TA Fund; (d) as of the Determination Date, the 
capital commitment of the Plan (together with the capital commitment of 
any other related Plans maintained by the same employer or employee 
organization) has not and will not exceed more than 15 percent of the 
total outstanding capital commitments with respect to the TA Fund; (d) 
at the Determination Date, the percentage of the Plan's assets 
committed to be invested in the TA Fund does not and will not exceed 5 
percent of the Plan's total assets and the Plan's aggregate commitment 
to all TA Funds has not and will not exceed 25 percent of the Plan's 
total assets; (e) a Plan investing in a TA Fund has or will have assets 
that are in excess of $50 million; and (f) TA has or will make written 
disclosures to the Plan regarding the TA Fund both at the time of the 
initial commitment to invest in such Fund as well as on an ongoing 
basis.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include fiduciaries of Plans whose assets are 
currently invested in a TA Fund. Accordingly, the Department has 
determined that the only practical form of providing notice to such 
Plan fiduciaries is the distribution, by TA, of a copy of the proposed 
exemption by first class mail within 30 days of the date of publication 
of the pendency notice in the Federal Register. The notice will include 
a copy of the notice of proposed exemption, as published in the Federal 
Register, as well as a supplemental statement, as required, pursuant to 
29 CFR 2570.43(b)(2), which shall inform interested persons of their 
right to comment on the pending exemption. Comments with respect to the 
proposed exemption are due 60 days after the date of publication of the 
proposed exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975 (c)(2) of the Code 
does not believe a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete and accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 28th day of February 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-5430 Filed 3-4-97; 8:45 am]
BILLING CODE 4510-29-M