[Federal Register Volume 59, Number 60 (Tuesday, March 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-7269]
[[Page Unknown]]
[Federal Register: March 29, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 94-28; Exemption Application No. D-
9414, et al.]
Grant of Individual Exemptions; Cascade West Sportswear, Inc.
Profit Sharing Plan, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) 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).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Cascade West Sportswear, Inc. Profit Sharing Plan (the Plan)
Located in Puyallup, Washington
[Prohibited Transaction Exemption 94-28; Exemption Application No.
D-9414]
Exemption
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 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the sale for cash of certain limited partnership
units (the Units) from the Plan to Cascade West Sportswear, Inc. (the
Employer), a party in interest with respect to the Plan, provided that
the following conditions are met:
1. The fair market value of the Units is established by an
appraiser independent of the Plan and the Employer;
2. The Employer pays the greater of $131,560 or the current fair
market value of the Units plus an ``opportunity loss'' of no less than
$171,000;
3. The sale is a one-time transaction for cash; and
4. The Plan pays no commissions or other expenses in relation to
the sale.
Written Comments
The Department received a written comment from a Plan participant
in response to the notice of proposed exemption. The applicant reviewed
the comment letter and responded that the letter appears to not relate
to the transaction described in the proposal. According to the
applicant, the letter concerns the decision made in 1992 to terminate
the Plan. The applicant notes that the participant's account remains
100 percent vested and that the account will share in the proceeds of
the sale of the Units and in the ``opportunity loss'' payment in the
same manner as all other Plan participants and beneficiaries.
The Department has considered the entire record, including the
comment letter and the applicant's response to the letter, and has
determined to grant the exemption as it was proposed.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on January 18, 1994, at 59
FR 2622.
FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
Residential Funding Corporation (RFC), Residential Funding Mortgage
Securities, Inc. (RFMSI), Residential Funding Mortgage Exchange
Corporation (RFMEC), Residential Funding Securities Corporation (RFSC),
GMAC Auto Receivables Corporation (GMAC Auto), General Motors
Acceptance Corporation (GMAC), GMAC Mortgage Corporation (GMAC
Mortgage) and GMAC Mortgage Securities II, Inc. (GMAC Mortgage
Securities; together, the Applicants) Located in Minneapolis, Minnesota
(RFC, RFMSI, RFMEC and RFSC), Wilmington, Delaware (GMAC Auto), New
York, New York (GMAC), and Elkins Park, Pennsylvania (GMAC Mortgage and
GMAC Mortgage Securities)
[Prohibited Transaction Exemption 94-29; Exemption Application Nos.
D-9112 and D-9113]
Exemption
I. Transactions
A. Effective June 9, 1992, the restrictions of sections 406(a) and
407(a) of the Act and the taxes imposed by section 4975 (a) and (b) of
the Code by reason of section 4975(c)(1) (A) through (D) of the Code
shall not apply to the following transactions involving trusts and
certificates evidencing interests therein:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and an employee benefit plan when the sponsor,
servicer, trustee or insurer of a trust, the underwriter of the
certificates representing an interest in the trust, or an obligor is a
party in interest with respect to such plan;
(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates;
and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.A.(1) or (2).
Notwithstanding the foregoing, section I.A. does not provide an
exemption from the restrictions of sections 406(a)(1)(E), 406(a)(2) and
407 for the acquisition or holding of a certificate on behalf of an
Excluded Plan by any person who has discretionary authority or renders
investment advice with respect to the assets of that Excluded
Plan.1
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\1\Section I.A. provides no relief from sections 406(a)(1)(E),
406(a)(2) and 407 for any person rendering investment advice to an
Excluded Plan within the meaning of section 3(21)(A)(ii) and
regulation 29 CFR 2510.3-21(c).
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B. Effective June 9, 1992, the restrictions of sections 406(b)(1)
and 406(b)(2) of the Act and the taxes imposed by section 4975 (a) and
(b) of the Code by reason of section 4975(c)(1)(E) of the Code shall
not apply to:
(1) The direct or indirect sale, exchange or transfer of
certificates in the initial issuance of certificates between the
sponsor or underwriter and a plan when the person who has discretionary
authority or renders investment advice with respect to the investment
of plan assets in the certificates is (a) an obligor with respect to 5
percent or less of the fair market value of obligations or receivables
contained in the trust, or (b) an affiliate of a person described in
(a); if:
(i) The plan is not an Excluded Plan;
(ii) Solely in the case of an acquisition of certificates in
connection with the initial issuance of the certificates, at least 50
percent of each class of certificates in which plans have invested is
acquired by persons independent of the members of the Restricted Group
and at least 50 percent of the aggregate interest in the trust is
acquired by persons independent of the Restricted Group;
(iii) A plan's investment in each class of certificates does not
exceed 25 percent of all of the certificates of that class outstanding
at the time of the acquisition; and
(iv) Immediately after the acquisition of the certificates, no more
than 25 percent of the assets of a plan with respect to which the
person has discretionary authority or renders investment advice are
invested in certificates representing an interest in a trust containing
assets sold or serviced by the same entity.2 For purposes of this
paragraph B.(1)(iv) only, an entity will not be considered to service
assets contained in a trust if it is merely a subservicer of that
trust;
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\2\For purposes of this exemption, each plan participating in a
commingled fund (such as a bank collective trust fund or insurance
company pooled separate account) shall be considered to own the same
proportionate undivided interest in each asset of the commingled
fund as its proportionate interest in the total assets of the
commingled fund as calculated on the most recent preceding valuation
date of the fund.
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(2) The direct or indirect acquisition or disposition of
certificates by a plan in the secondary market for such certificates,
provided that the conditions set forth in paragraphs B.(1)(i), (iii)
and (iv) are met; and
(3) The continued holding of certificates acquired by a plan
pursuant to subsection I.B.(1) or (2).
C. Effective June 9, 1992, the restrictions of sections 406(a),
406(b) and 407(a) of the Act, and the taxes imposed by section 4975(a)
and (b) of the Code by reason of section 4975(c) of the Code, shall not
apply to transactions in connection with the servicing, management and
operation of a trust, provided:
(1) Such transactions are carried out in accordance with the terms
of a binding pooling and servicing arrangement; and
(2) The pooling and servicing agreement is provided to, or
described in all material respects in the prospectus or private
placement memorandum provided to, investing plans before they purchase
certificates issued by the trust.3
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\3\In the case of a private placement memorandum, such
memorandum must contain substantially the same information that
would be disclosed in a prospectus if the offering of the
certificates were made in a registered public offering under the
Securities Act of 1933. In the Department's view, the private
placement memorandum must contain sufficient information to permit
plan fiduciaries to make informed investment decisions.
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Notwithstanding the foregoing, section I.C. does not provide an
exemption from the restrictions of section 406(b) of the Act or from
the taxes imposed by reason of section 4975(c) of the Code for the
receipt of a fee by a servicer of the trust from a person other than
the trustee or sponsor, unless such fee constitutes a ``qualified
administrative fee'' as defined in section III.S.
D. Effective June 9, 1992, the restrictions of sections 406(a) and
407(a) of the Act, and the taxes imposed by sections 4975(a) and (b) of
the Code by reason of sections 4975(c)(1)(A) through (D) of the Code,
shall not apply to any transactions to which those restrictions or
taxes would otherwise apply merely because a person is deemed to be a
party in interest or disqualified person (including a fiduciary) with
respect to a plan by virtue of providing services to the plan (or by
virtue of having a relationship to such service provider described in
section 3(14)(F), (G), (H) or (I) of the Act or section 4975(e)(2)(F),
(G), (H) or (I) of the Code), solely because of the plan's ownership of
certificates.
II. General Conditions
A. The relief provided under part I is available only if the
following conditions are met:
(1) The acquisition of certificates by a plan is on terms
(including the certificate price) that are at least as favorable to the
plan as they would be in an arm's-length transaction with an unrelated
party;
(2) The rights and interests evidenced by the certificates are not
subordinated to the rights and interests evidenced by other
certificates of the same trust;
(3) The certificates acquired by the plan have received a rating at
the time of such acquisition that is in one of the three highest
generic rating categories from either Standard & Poor's Corporation
(S&P's), Moody's Investors Service, Inc. (Moody's), Duff & Phelps Inc.
(D & P) or Fitch Investors Service, Inc. (Fitch);
(4) The trustee is not an affiliate of any member of the Restricted
Group. However, the trustee shall not be considered to be an affiliate
of a servicer solely because the trustee has succeeded to the rights
and responsibilities of the servicer pursuant to the terms of a pooling
and servicing agreement providing for such succession upon the
occurrence of one or more events of default by the servicer;
(5) The sum of all payments made to and retained by the
underwriters in connection with the distribution or placement of
certificates represents not more than reasonable compensation for
underwriting or placing the certificates; the sum of all payments made
to and retained by the sponsor pursuant to the assignment of
obligations (or interests therein) to the trust represents not more
than the fair market value of such obligations (or interests); and the
sum of all payments made to and retained by the servicer represents not
more than reasonable compensation for the servicer's services under the
pooling and servicing agreement and reimbursement of the servicer's
reasonable expenses in connection therewith; and
(6) The plan investing in such certificates is an ``accredited
investor'' as defined in Rule 501(a)(1) of Regulation D of the
Securities and Exchange Commission under the Securities Act of 1933.
B. Neither any underwriter, sponsor, trustee, servicer, insurer, or
any obligor, unless it or any of its affiliates has discretionary
authority or renders investment advice with respect to the plan assets
used by a plan to acquire certificates, shall be denied the relief
provided under Part I, if the provision of subsection II.A.(6) above is
not satisfied with respect to acquisition or holding by a plan of such
certificates, provided that (1) such condition is disclosed in the
prospectus or private placement memorandum; and (2) in the case of a
private placement of certificates, the trustee obtains a representation
from each initial purchaser which is a plan that it is in compliance
with such condition, and obtains a covenant from each initial purchaser
to the effect that, so long as such initial purchaser (or any
transferee of such initial purchaser's certificates) is required to
obtain from its transferee a representation regarding compliance with
the Securities Act of 1933, any such transferees will be required to
make a written representation regarding compliance with the condition
set forth in subsection II.A.(6) above.
III. Definitions
For purposes of this exemption:
A. ``Certificate'' means:
(1) A certificate
(a) That represents a beneficial ownership interest in the assets
of a trust;
(b) That entitles the holder to pass-through payments of principal,
interest, and/or other payments made with respect to the assets of such
trust; and
(c) With respect to which (i) one of the Applicants or any of their
affiliates is the sponsor, and an entity which has received from the
Department an individual prohibited transaction exemption relating to
certificates which is similar to this exemption is the sole underwriter
or the manager or co-manager of the underwriting syndicate or a selling
or placement agent; or (ii) one of the Applicants is the sole
underwriter or the manager or co-manager of the underwriting syndicate
or a selling or placement agent; or
(2) A certificate denominated as a debt instrument--
(a) That represents an interest in a Real Estate Mortgage
Investment Conduit (REMIC) within the meaning of section 860D(a) of the
Code; and
(b) That is issued by and is an obligation of a trust with respect
to which (i) one of the Applicants or any of its affiliates is the
sponsor, and an entity which has received from the Department an
individual prohibited transaction exemption relating to certificates
which is similar to this exemption is the sole underwriter or the
manager or co-manager of the underwriting syndicate or a selling or
placement agent or (ii) one of the Applicants is the sole underwriter
or the manager or co-manager of the underwriting syndicate, or a
selling or placement agent.
For purposes of this exemption, references to ``certificates
representing an interest in a trust'' include certificates denominated
as debt which are issued by a trust.
B. ``Trust'' means an investment pool, the corpus of which is held
in trust and consists solely of:
(1) Either
(a) Secured consumer receivables that bear interest or are
purchased at a discount (including, but not limited to, home equity
loans and obligations secured by shares issued by a cooperative housing
association);
(b) Secured credit instruments that bear interest or are purchased
at a discount in transactions by or between business entities
(including, but not limited to, qualified equipment notes secured by
leases, as defined in section III.T);
(c) Obligations that bear interest or are purchased at a discount
and which are secured by single-family residential, multi-family
residential and commercial real property, (including obligations
secured by leasehold interests on commercial real property);
(d) Obligations that bear interest or are purchased at a discount
and which are secured by motor vehicles or equipment, or qualified
motor vehicle leases (as defined in section III.U);
(e) ``Guaranteed governmental mortgage pool certificates,'' as
defined in 29 CFR section 2510.3-101(i)(2);
(f) Fractional undivided interests in any of the obligations
described in clauses (a)-(e) of this section B.(1);
(2) Property which had secured any of the obligations described in
subsection B.(1);
(3) Undistributed cash or temporary investments made therewith
maturing no later than the next date on which distributions are to be
made to certificateholders; and
(4) Rights of the trustee under the pooling and servicing
agreement, and rights under any insurance policies, third-party
guarantees, contracts of suretyship and other credit support
arrangements with respect to any obligations described in subsection
B.(1).
Notwithstanding the foregoing, the term ``trust'' does not include
any investment pool unless: (i) The investment pool consists only of
assets of the type which have been included in other investment pools,
(ii) certificates evidencing interests in such other investment pools
have been rated in one of the three highest generic rating categories
by S&P's, Moody's, D & P, or Fitch for at least one year prior to the
plan's acquisition of certificates pursuant to this exemption, and
(iii) certificates evidencing interests in such other investment pools
have been purchased by investors other than plans for at least one year
prior to the plan's acquisition of certificates pursuant to this
exemption.
C. ``Underwriter'' means:
(1) Any of the Applicants;
(2) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by or under common control with
any of the Applicants;
(3) Any member of an underwriting syndicate or selling group of
which any of the Applicants or a person described in (2) is a manager
or co-manager with respect to the certificates; or
(4) An entity which has received from the Department an individual
prohibited transaction exemption relating to certificates which is
similar to this exemption.
D. ``Sponsor'' means the entity that organizes a trust by
depositing obligations therein in exchange for certificates.
E. ``Master Servicer'' means the entity that is a party to the
pooling and servicing agreement relating to trust assets and is fully
responsible for servicing, directly or through subservicers, the assets
of the trust.
F. ``Subservicer'' means an entity which, under the supervision of
and on behalf of the master servicer, services loans contained in the
trust, but is not a party to the pooling and servicing agreement.
G. ``Servicer'' means any entity which services loans contained in
the trust, including the master servicer and any subservicer.
H. ``Trustee'' means the trustee of the trust, and in the case of
certificates which are denominated as debt instruments, also means the
trustee of the indenture trust.
I. ``Insurer'' means the insurer or guarantor of, or provider of
other credit support for, a trust.
Notwithstanding the foregoing, a person is not an insurer solely
because it holds securities representing an interest in a trust which
are of a class subordinated to certificates representing an interest in
the same trust.
J. ``Obligor'' means any person, other than the insurer, that is
obligated to make payments with respect to any obligation or receivable
included in the trust. Where a trust contains qualified motor vehicle
leases or qualified equipment notes secured by leases, ``obligor''
shall also include any owner of property subject to any lease included
in the trust, or subject to any lease securing an obligation included
in the trust.
K. ``Excluded Plan'' means any plan with respect to which any
member of the Restricted Group is a ``plan sponsor'' within the meaning
of section 3(16)(B) of the Act.
L. ``Restricted Group'' with respect to a class of certificates
means:
(1) Each underwriter;
(2) Each insurer;
(3) The sponsor;
(4) The trustee;
(5) Each servicer;
(6) Any obligor with respect to obligations or receivables included
in the trust constituting more than 5 percent of the aggregate
unamortized principal balance of the assets in the trust, determined on
the date of the initial issuance of certificates by the trust; or
(7) Any affiliate of a person described in (1)-(6) above.
M. ``Affiliate'' of another person includes:
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with such other person;
(2) Any officer, director, partner, employee, relative (as defined
in section 3(15) of the Act), a brother, a sister, or a spouse of a
brother or sister of such other person; and
(3) Any corporation or partnership of which such other person is an
officer, director or partner.
N. ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
O. A person will be ``independent'' of another person only if:
(1) Such person is not an affiliate of that other person; and
(2) The other person, or an affiliate thereof, is not a fiduciary
who has investment management authority or renders investment advice
with respect to any assets of such person.
P. ``Sale'' includes the entrance into a forward delivery
commitment (as defined in section Q below), provided:
(1) The terms of the forward delivery commitment (including any fee
paid to the investing plan) are no less favorable to the plan than they
would be in an arm's length transaction with an unrelated party;
(2) The prospectus or private placement memorandum is provided to
an investing plan prior to the time the plan enters into the forward
delivery commitment; and
(3) At the time of the delivery, all conditions of this exemption
applicable to sales are met.
Q. ``Forward delivery commitment'' means a contract for the
purchase or sale of one or more certificates to be delivered at an
agreed future settlement date. The term includes both mandatory
contracts (which contemplate obligatory delivery and acceptance of the
certificates) and optional contracts (which give one party the right
but not the obligation to deliver certificates to, or demand delivery
of certificate from, the other party).
R. ``Reasonable compensation'' has the same meaning as that term is
defined in 29 CFR 2550.408c-2.
S. ``Qualified Administrative Fee'' means a fee which meets the
following criteria:
(1) The fee is triggered by an act or failure to act by the obligor
other than the normal timely payment of amounts owing in respect of the
obligations;
(2) The servicer may not charge the fee absent the act or failure
to act referred to in (1);
(3) The ability to charge the fee, the circumstances in which the
fee may be charged, and an explanation of how the fee is calculated are
set forth in the pooling and servicing agreement; and
(4) The amount paid to investors in the trust will not be reduced
by the amount of any such fee waived by the servicer.
T. ``Qualified Equipment Note Secured By A Lease'' means an
equipment note:
(a) Which is secured by equipment which is leased;
(b) Which is secured by the obligation of the lessee to pay rent
under the equipment lease; and
(c) With respect to which the trust's security interest in the
equipment is at least as protective of the rights of the trust as would
be the case if the equipment note were secured only by the equipment
and not the lease.
U. ``Qualified Motor Vehicle Lease'' means a lease of a motor
vehicle where:
(a) The trust holds a security interest in the lease;
(b) The trust holds a security interest in the leased motor
vehicle; and
(c) The trust's security interest in the leased motor vehicle is at
least as protective of the trust's rights as would be the case if the
trust consisted of motor vehicle installment loan contracts.
V. ``Pooling and Servicing Agreement'' means the agreement or
agreements among a sponsor, a servicer and the trustee establishing a
trust. In the case of certificates which are denominated as debt
instruments, ``Pooling and Servicing Agreement'' also includes the
indenture entered into by the trustee of the trust issuing such
certificates and the indenture trustee.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on February 9, 1994 at 59 FR
6051.
Effective Date: This exemption is effective for transactions
occurring on or after June 9, 1992.
For Further Information Contact: Mr. Gary H. Lefkowitz 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 relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of these exemptions is 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 23rd day of March, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-7269 Filed 3-28-94; 8:45 am]
BILLING CODE 4510-29-P