[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