[Federal Register Volume 59, Number 83 (Monday, May 2, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-10426]
[[Page Unknown]]
[Federal Register: May 2, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application Numbers D-9395, D-9396]
Amendment to Prohibited Transaction Exemption 93-33 (PTE 93-33)
for the Receipt of Certain Services by Individuals for Whose Benefit
Individual Retirement Accounts or Retirement Plans for Self-Employed
Individuals Have Been Established or Maintained
AGENCY: Pension and Welfare Benefits Administration, U.S. Department of
Labor.
ACTION: Adoption of Amendment to PTE 93-33.
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SUMMARY: This document amends PTE 93-33, a class exemption that permits
the receipt of services at reduced or no cost by an individual for
whose benefit an individual retirement account (IRA) or, if self-
employed, a Keogh Plan, is established or maintained, or by members of
his or her family, from a bank, provided the conditions of the
exemption are met. The amendment affects individuals with a beneficial
interest in the IRAs and Keogh Plans who receive such services as well
as the banks that provide such services.
EFFECTIVE DATE: The amendment is effective May 11, 1993.
FOR FURTHER INFORMATION CONTACT:
Allison K. Padams, Office of Exemption Determinations, Pension and
Welfare Benefits Administration, U.S. Department of Labor (202) 219-
8971. (This is not a toll-free number); or Susan E. Rees, Plan Benefits
Security Division, Office of the Solicitor, U.S. Department of Labor
(202) 219-9141. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On November 19, 1993, notice was published
in the Federal Register (58 FR 61103) of the pendency before the
Department of a proposed amendment to PTE 93-33 (58 FR 31053, May 28,
1993). PTE 93-33 provides an exemption from the restrictions of
sections 406(a)(1)(D) and 406(b) of the Employee Retirement Income
Security Act of 1974 (ERISA) and from the sanctions resulting from the
application of sections 4975 (a) and (b), 4975(c)(3) and 408(e)(2) of
the Internal Revenue Code of 1986 (the Code) by reason of section
4975(c)(1) (D), (E) and (F) of the Code.\1\
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\1\Section 102 of Reorganization Plan No. 4 of 1978 (42 FR
47712, October 17, 1978) generally transferred the authority of the
Secretary of the Treasury to issue administrative exemptions under
section 4975(c)(2) of the Code to the Secretary of Labor.
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The amendment to PTE 93-33 adopted by this notice was requested in
an exemption application filed on behalf of Citibank, N.A. and the
Chase Manhattan Bank, N.A. (the Applicants). The exemption application
was submitted pursuant to section 408(a) of ERISA 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).
The notice of pendency gave interested persons an opportunity to
comment or to request a hearing on the proposed amendment. Public
comments were received pursuant to the provisions of section 408(a) of
ERISA and section 4975(c)(2) of the Code and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B.
For the sake of convenience, the entire text of PTE 93-33, as
amended, has been reprinted with this notice.
1. Description of the Exemption
PTE 93-33 permits the receipt of services at reduced or no cost by
an individual for whose benefit an IRA or Keogh Plan is established or
maintained or by members of his or her family, from a bank pursuant to
an arrangement in which the deposit balance in the IRA or Keogh Plan is
taken into account for purposes of determining eligibility to receive
such services, provided the conditions of the exemptions are met. The
term deposit balance was defined in section III(d) of PTE 93-33 to mean
deposits as that term is defined under 29 CFR 2550.408(b)-4(c)(3).\2\
The amendment granted by the notice modifies section III(d) of PTE 93-
33 to include IRA and Keogh Plan investments in securities for which
market quotations are readily available.\3\ However, the amendment
specifically excludes investments in securities offered by the bank
exclusively to IRAs and Keogh Plans.
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\2\29 CFR 2550.408b-4(c)(3) provides that deposits are any
account upon which a reasonable rate of interest is paid, including
a certificate of deposit issued by a bank or similar financial
institution.
\3\For purposes of this exemption, the term ``securities for
which market quotations are readily available'' is derived from
Federal securities law, in particular, the Investment Company Act of
1940 and regulations issued thereunder. See, e.g., 17 CFR
Secs. 270.2a-4, 270.17a-7 (1992).
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The Department notes that all the conditions contained in PTE 93-33
still must be met under the amended class exemption. These conditions
include a requirement that for purposes of determining eligibility to
receive services at reduced or no cost, the account balance required by
the bank for the IRA or Keogh Plan is equal to the lowest balance
required for any other type of account which the bank includes to
determine eligibility to receive reduced or no cost services.
Additionally, the rate of return on the IRA or Keogh Plan is no less
favorable than the rate of return on an identical investment that could
have been made at the same time at the same branch of the bank by a
customer of the bank who is not eligible for (or who does not receive)
reduced or not cost services. Moreover, the services must be of the
type that the bank itself could offer consistent with applicable
federal and state banking law.
2. Discussion of the Comments Received
The Department received three letters commenting on the proposed
amendment, including one from the Applicants. Two commenters support
the proposed amendment. The Applicants requested that we note the
following: (1) The notice of proposed amendment incorrectly referred to
one of the Applicants, Chase Manhattan Bank, N.A., as Chase National
Bank, N.A.; and (2) the Applicants, as of January 1993, served as
trustees for 650,000 IRAs and Keogh Plans having approximately $6.5
billion in assets, not $65 billion as previously noted.
The third commenter requested that the Department either expand PTE
93-33 to provide relief for the receipt of services by individuals for
whose benefit an IRA or Keogh Plan is established or maintained from a
broker-dealer (or other non-bank custodian), or delay the effective
date of the amendment until parallel relief has been provided for non-
bank custodians. The Department notes that the proposed amendment is
limited to the modification of the term deposit balance (which has been
redesignated as ``account balance'' under the amendment) to permit IRA
and Keogh Plan investments in securities for which market quotations
are readily available to be taken into account in determining
eligibility to receive reduced or no cost services. Accordingly, the
Department believes that consideration of the issues involved in
amending PTE 93-33 to include broker-dealers is beyond the scope of
these proceedings. In addition, the Department does not believe that a
sufficient showing has been made that the relief and conditions
currently contained in PTE 93-33 are relevant in the context of broker-
dealer programs for the provision of services at reduced or no cost to
IRA and Keogh Plan accounts. Consequently, the final amendment has not
been so revised. Furthermore, in the absence of detailed information
regarding the operation of such broker-dealer programs, the Department
has determined not to delay the effective date of the amendment.
Finally, the Department wishes to take the opportunity to state
that the commenter may wish to consider filing an exemption application
for comparable relief under section 408(a) of ERISA.
General Information
The attention of interested persons is directed to the following:
(1) In accordance with section 408(a) of ERISA and section
4975(c)(2) of the Code and based upon the entire record, the Department
finds that the amendment is administratively feasible, in the interests
of the IRAs and Keogh Plans, their participants and beneficiaries and
protective of the rights of participants and beneficiaries of such
plans.
(2) The amendment is supplemental to, and not in derogation of, any
other provisions of ERISA and 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.
(3) The amendment is applicable to a transaction only if the
conditions specified in the class exemption are met.
Exemption
Accordingly, PTE 93-33 is amended under the authority of section
408(a) of ERISA and section 4975(c)(2) of the Code and in accordance
with the procedures set forth in 29 CFR 2570, subpart B.
Section I: Covered Transaction
Effective May 11, 1993, the restrictions of sections 406(a)(1)(D)
and 406(b) of ERISA and the sanctions resulting from the application of
section 4975 of the Code, including the loss of exemption of an
individual retirement account (IRA) pursuant to section 408(e)(2)(A) of
the Code, by reason of section 4975(c)(1) (D), (E) and (F) of the Code,
shall not apply to the receipt of services at reduced or no cost by an
individual for whose benefit an IRA or, if self-employed, a Keogh Plan,
is established or maintained, or by members of his or her family, from
a bank pursuant to an arrangement in which the account balance in the
IRA or Keogh Plan is taken into account for purposes of determining
eligibility to receive such services, provided that each condition of
Section II of this exemption is satisfied.
Section II: Conditions
(a) The IRA or Keogh Plan, the account balance of which is taken
into account for purposes of determining eligibility to receive
services at reduced or no cost, is established and maintained for the
exclusive benefit of the participant covered under the IRA or Keogh
Plan, his or her spouse or their beneficiaries.
(b) The services must be of the type that the bank itself could
offer consistent with applicable federal and state banking law.
(c) The services are provided by the bank (or an affiliate of the
bank) in the ordinary course of the bank's business to customers who
qualify for reduced or no cost banking services but do not maintain
IRAs or Keogh Plans with the bank.
(d) For the purpose of determining eligibility to receive services
at reduced or no cost, the account balance required by the bank for the
IRA or Keogh Plan is equal to the lowest balance required for any other
type of account which the bank includes to determine eligibility to
receive reduced or no cost services.
(e) The rate of return on the IRA or Keogh Plan investment is no
less favorable than the rate of return on an identical investment that
could have been made at the same time at the same branch of the bank by
a customer of the bank who is not eligible for (or who does not
receive) reduced or no cost services.
Section III: Definitions
The following definitions apply to this exemption:
(a) The term bank means a bank described in section 408(n) of the
Code.
(b) The term IRA means an individual retirement account described
in Code section 408(a). For purposes of this exemption, the term IRA
shall not include an IRA which is an employee benefit plan covered by
title I of ERISA, except for a Simplified Employee Pension (SEP)
described in section 408(k) of the Code which provides participates
with the unrestricted authority to transfer their SEP balances to IRAs
sponsored by different financial institutions.
(c) The term Keogh Plan means a pension, profit sharing, or stock
bonus plan qualified under Code section 401(a) and exempt from taxation
under Code section 501(a) under which some or all of the participants
are employees described in section 401(c) of the Code. For purposes of
this exemption, the term Keogh Plan shall not include a Keogh Plan
which is an employee benefit plan covered by title I of ERISA.
(d) The term account balance means deposits as that term is defined
under 29 CFR 2550.408b-4(c)(3), or investments in securities for which
market quotations are readily available. For purposes of this
exemption, the term account balance shall not include investments in
securities offered by the bank (or its affiliate) exclusively to IRAs
and Keogh Plans.
(e) An affiliate of a bank includes any person directly or
indirectly controlling, controlled by, or under common control with the
bank. The term control means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(f) The term members of his or her family refers to beneficiaries
of the individual for whose benefit the IRA or Keogh Plan is
established or maintained, who would be members of the family as that
term is defined in Code section 4975(e)(6), or a brother, a sister, or
spouse of a brother or a sister.
(g) The term service includes incidental products of a de minimis
value provided by third persons, pursuant to an arrangement with the
bank, which are directly related to the provision of banking services
covered by the exemption.
Signed at Washington, DC, this 21st day of April 1994.
Alan D. Lebowitz,
Deputy Assistant Secretary of Program Operations, Pension and Welfare
Benefits Administration; U.S. Department of Labor.
[FR Doc. 94-10426 Filed 4-29-94; 8:45 am]
BILLING CODE 4510-29-M