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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Bankers Trust Company [Notices] [10/21/1998]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Bankers Trust Company [10/21/1998]

[PDF Version]

Volume 63, Number 203, Page 56224-56227

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10644, et al.]

 
Proposed Exemptions; Bankers Trust Company

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 restrictions of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

[[Page 56225]]

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and 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 to Interested Persons

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

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.

Bankers Trust Company (Bankers Trust) Located in New York, New York

[Exemption Application Number D-10644]

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).

Section I. Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and section 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 sale (the Sale) of fractional amounts of certain fixed 
income instruments (Fractional Amounts) to Bankers Trust and its 
affiliates by plans for which Bankers Trust or its affiliates provide 
fiduciary or other services (Client Plans), as well as employee benefit 
plans established and maintained by Bankers Trust or its affiliates (BT 
Plans) (collectively, the Plans), provided that the following 
conditions are met:
    (a) Each Sale involves a one time transaction for cash;
    (b) The terms of each Sale are at least as favorable to the Plan as 
those terms which would be available in an arm's-length transaction 
with an unrelated party;
    (c) The Plans receive an amount in cash which is not less than the 
par value for each of the Fractional Amounts;
    (d) In the case of the Client Plans,
    (1) each Sale is subject to the prior approval of an independent 
plan fiduciary;
    (2) the independent fiduciary of each Plan is furnished written 
notice at least 60 days prior to the proposed Sale transaction, 
containing information relevant to the independent fiduciary's 
determination whether to approve the Sale transaction. The notice will 
inform the independent fiduciary that failure to respond within 45 days 
of receipt of the notice will constitute authorization of Bankers Trust 
to engage in the transaction. If the fixed income instruments are not 
redenominated within a year of provision of this notice, additional 
notice will be delivered to the independent fiduciaries each year 
notifying them of their right to not participate in this program;
    (e) In the case of BT Plans, Bankers Trust must purchase the 
Fractional Amounts from Plans within 30 days of the date that the 
Fractional Amounts are received from the issuer;
    (f) Neither Bankers Trust nor an affiliate has discretionary 
authority or control with respect to the investment of the plan assets 
involved in the transaction, or render investment advice (within the 
meaning of 29 CFR 2510.3-21(c) with respect to these assets);
    (g) The Plans do not incur any commissions or other expenses 
relating to the Sales; and
    (h)(1) Bankers Trust or an affiliate maintains or causes to be 
maintained within the United States, for a period of six years from the 
date of such transaction, the records necessary to enable the persons 
described in this section to determine whether the conditions of this 
exemption have been met; except that a party in interest with respect 
to an employee benefit plan, other than Bankers Trust or its 
affiliates, shall not be subject to a civil penalty under section 
502(i) of the Act or the taxes imposed by section 4975(a) or (b) of the 
Code, if such records are not maintained, or are not available for 
examination, as required by this section, and a prohibited transaction 
will not be deemed to have occurred if, due to circumstances beyond the 
control of Bankers Trust or its affiliates, such records are lost or 
destroyed prior to the end of such six year period;
    (2) The records referred to in subsection (1) above are 
unconditionally available for examination during normal business hours 
by duly authorized employees of (a) the Department, (b) the Internal 
Revenue Service, (c) plan participants and beneficiaries, (d) any 
employer of plan participants and beneficiaries, and (e) any employee 
organization whose members are covered by such plan; except that none 
of the persons described in (c) through (e) of this subsection shall be 
authorized to examine trade secrets of Bankers Trust or its affiliates 
or any commercial or financial information which is privileged or 
confidential.

Section II. Definitions

    (a) The term affiliate of Bankers Trust means any other bank or 
similar financial institution directly or indirectly controlling, 
controlled by, or

[[Page 56226]]

under common control with Bankers Trust.
    (b) The term Euro means the single European currency to be 
introduced on January 1, 1999 in eleven Member States of the European 
Union.<SUP>1</SUP>
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    \1\ For purposes of reference, the Euro is slated to have a 
conversion rate of 1 Euro equals 1 European Currency Unit (ECU). The 
ECU is a basket of 12 European currencies that is frequently used 
for inter-governmental and market transactions. Currently, the ECU 
is worth less than one U.S. dollar.
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    (c) The term Fractional Amount means, with respect to any fixed 
income instrument, an amount less than one Euro.
    (d) The term independent plan fiduciary means a plan fiduciary 
independent of Bankers Trust and any of its affiliates.
    (e) The term par value means the face value of the fixed income 
instrument.
    (f) The term Plan includes all employee benefit plans to which 
Bankers Trust or an affiliate acts as a service provider, including a 
fiduciary, and all plans established and maintained by Bankers Trust 
and its affiliates, which have net assets of at least $25,000,000.

EFFECTIVE DATE: This exemption is effective for the period beginning on 
January 1, 1999 and ending three years from the date on which each 
country joining the European Economic and Monetary Union converts to 
the Euro.

Summary of Facts and Representations

    1. Bankers Trust, a New York banking corporation, is a commercial 
bank which provides a wide range of banking, fiduciary, record keeping, 
custodial, brokerage and investment services to corporations, 
institutions, governments, employee benefit plans, governmental 
retirement plans and private investors worldwide. Bankers Trust is 
wholly-owned by Bankers Trust Corporation (BTCorp), a bank holding 
company established in 1965 under the laws of the State of New York. As 
of December 31, 1997, BTCorp and its affiliates had consolidated assets 
of approximately $140 billion and total stockholder's equity of 
approximately $5 billion.
    2. Among the assets of the Plans for which Bankers Trust provides 
services are corporate and government-issued fixed income instruments 
denominated in the currencies of the following eleven European nations: 
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, 
Netherlands, Portugal and Spain. In May 1998, these eleven nations 
agreed to join the Economic and Monetary Union (EMU) and to cooperate 
in the creation of a European Central Bank and the development of a 
central currency (the Euro), in lieu of the individual currencies of 
the eleven members (Legacy Currencies). Beginning on January 1, 1999, 
these Legacy Currencies will be converted into the Euro, although the 
Legacy Currencies will continue to coexist with the Euro for a limited 
time as denominations of the Euro.<SUP>2</SUP>
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    \2\ For example, a French Franc will be treated as a sub-unit of 
a Euro in the same way as a centime is treated as a subunit of the 
Franc. The applicant represents that because the conversion rate 
will be irrevocably fixed throughout a three-year transitional 
period, all existing banknotes and coins will continue in 
circulation as legal tender but will be treated as referring to the 
Euro at the fixed conversion rate.
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    During the initial transition weekend that includes January 1, 
1999, the securities markets in the EMU will undergo a conversion in 
which (1) all stock exchanges and depositories will commence pricing, 
trading and settling only in the Euro, (2) approximately 1500 
government securities will be redenominated, (3) currency balances will 
be converted to the Euro, and (4) all securities transactions pending 
over that weekend will be converted to settle in the Euro. From January 
1, 1999 forward, all stock exchanges, depositories and national or 
central banks will operate only in the Euro.
    With regard to fixed income instruments, the process of conversion 
is scheduled to take place over a three-year period. The applicant 
states that the other European nations that are not currently part of 
the EMU may decide to follow these other nations and start their own 
conversion process after January 1, 1999. In that event, these other 
nations may take approximately 3 years from their commencement of the 
conversions process to redenominate fixed income securities. Bankers 
Trust represents that in the process of this redenomination, Fractional 
Amounts (as defined in paragraph (c) of Section II) will be created as 
a result of the relationship between the former currency values and the 
Euro.
    4. Bankers Trust seeks exemptive relief permitting it and its 
affiliates to purchase the Fractional Amounts which result from the 
conversion to the Euro of certain fixed income instruments denominated 
in the Legacy Currencies that are held by its Client Plans and the BT 
Plans. Bankers Trust represents that while its custody systems 
currently support Fractional Amounts, it is widely predicted that there 
will be little or no market for Fractional Amounts resulting from the 
conversion to the Euro. In addition, Bankers Trust represents that the 
Fractional Amounts will need to be disposed of as soon as possible 
after the Euro Conversion because these Fractional Amounts will likely 
trade at a discount in any potential secondary market. In addition, 
when transaction costs and other costs are considered, the cost of 
selling the Fractional Amounts may exceed their value. Accordingly, 
Bankers Trust proposes purchasing these Fractional Amounts at par value 
from its clients, including Client Plans, and the BT Plans to ensure 
that no losses are sustained by such investors in the sale of the 
Fractional Amounts.
    5. Bankers Trust represents that sixty (60) days prior to December 
31, 1999, Bankers Trust and its affiliates shall provide written notice 
of the subject transaction in the form of a letter to all independent 
plan fiduciaries. In this letter, Bankers Trust will provide several 
items of important information. First, the letter will outline the 
facts surrounding the conversion of various Legacy Currencies to the 
Euro. Second, the letter will advise clients that no market dealing in 
Fractional Amounts can be expected and that, if such a market develops, 
the Fractional Amounts will likely trade at a substantial discount. 
Bankers Trust will also note that, due to the small amounts involved, 
any sale of the Fractional Amounts on a potential secondary market may 
result in the transaction costs exceeding the proceeds derived from the 
sale. Third, the letter will explain that Bankers Trust is prepared to 
purchase the Fractional Amounts at par, without any transaction costs. 
Fourth, the letter will advise all clients (including each Client Plan) 
that if they choose not to sell their Fractional Amounts, they must 
notify Bankers Trust within 45 days of receipt of notice. The notice 
will inform the independent fiduciary that failure to respond within 45 
days of receipt of the notice will constitute authorization of Bankers 
Trust to engage in the transaction. If the fixed income instruments are 
not redenominated within a year of provision of this notice, additional 
notice will be delivered to the independent fiduciaries of the Client 
Plans each year notifying them of their right not to participate in 
this program. The letter will provide all appropriate information 
including telephone numbers, the names of contact persons, and relevant 
postal or electronic addresses that can be used for the purpose of 
providing such notification.
    6. Bankers Trust represents that the subject transactions are 
administratively feasible in that each Sale will be for cash at an 
amount equal to the par value of the Fractional Amounts and that all

[[Page 56227]]

transaction records will be maintained. Furthermore, Bankers Trust 
states that each transaction should be viewed as being in the best 
interest of the Plans and their participants and beneficiaries because 
such transactions will provide for more efficient administration of the 
currency conversion process for such assets and increased value to the 
Plan's investments. Finally, Bankers Trust represents that the subject 
transactions will be protective of the Plans' participants and 
beneficiaries because each Plan will receive the par value for the 
Fractional Amounts during a time when any market that may develop for 
these interests will demand that they be sold at a discount.
    7. In summary, Bankers Trust represents that the transactions will 
satisfy the statutory criteria of section 408(a) of the Act and section 
4975 of the Code because:
    (a) Each Sale involves a one time transaction for cash;
    (b) The terms of each Sale are at least as favorable to the Plan as 
those terms which would be available in an arm's-length transaction 
with an unrelated party;
    (c) The Plans receive an amount in cash which is not less than the 
par value for each of the Fractional Amounts;
    (d) In the case of the Client Plans,
    (1) each Sale is subject to the prior approval of an independent 
plan fiduciary;
    (2) the independent fiduciary of each Plan is furnished written 
notice at least 60 days prior to the proposed Sale transaction, 
containing information relevant to the independent fiduciary's 
determination whether to approve the Sale transaction. The notice will 
inform the independent fiduciary that failure to respond within 45 days 
of receipt of the notice will constitute authorization of Bankers Trust 
to engage in the transaction. If the fixed income instruments are not 
redenominated within a year of provision of this notice, additional 
notice will be delivered to the independent fiduciaries each year 
notifying them of their right to not participate in this program;
    (e) In the case of the BT Plans, Bankers Trust must purchase the 
Fractional Amounts from their Plans within 30 days of the date that 
Fractional Amounts are received from the issuer after the government of 
each respective country determines that redenomination shall commence;
    (f) Neither Bankers Trust nor an affiliate has discretionary 
authority or control with respect to the investment of the plan assets 
involved in the transaction, or render investment advice (within the 
meaning of 29 CFR 2510.3-21(c) with respect to these assets); and
    (g) The Plans do not incur any commissions or other expenses 
relating to the Sales.
    Notice to Interested Persons: Because of the large number of 
interested persons, the Department and the applicant have agreed that 
notification through publication of the proposal in the Federal 
Register is sufficient.

FOR FURTHER INFORMATION CONTACT: James Scott Frazier of the Department, 
phone number (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 relieve 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 and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 15th day of October, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 98-28215 Filed 10-20-98; 8:45 am]
BILLING CODE 4510-29-P