[Federal Register Volume 59, Number 218 (Monday, November 14, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-28060]


[[Page Unknown]]

[Federal Register: November 14, 1994]


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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 94-78; Exemption Application No. D-
9782, et al.]

 

Grant of Individual Exemptions; Union Electric Savings Investment 
Plan (the 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.

Union Electric Savings Investment Plan (the Plan) Located in St. 
Louis, Missouri

[Prohibited Transaction Exemption 94-78; Exemption Application No. 
D-9782]

Exemption

    The restrictions of sections 406(a), 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 (1) the extension of credit to the Plan by Boatmen's 
Trust Company (BTC), a party in interest with respect to the Plan, in 
the form of a payment (the Advance) with respect to group annuity 
contract CG01285B3A (the GIC) issued by Executive Life Insurance 
Company (ELIC); and (2) the Plan's potential repayment of the Advance 
(the Repayments), provided: (a) All terms of such transactions are no 
less favorable to the Plan than those which the Plan could obtain in 
arm's-length transactions with an unrelated party; (b) no interest and/
or expenses are paid by the Plan; (c) the Advance is made with respect 
to amounts invested by the Plan in the GIC; (d) the Repayments are 
restricted to the amounts, if any, paid to the Plan after August 2, 
1994, by ELIC or other responsible third parties with respect to the 
GIC (the GIC Proceeds); (e) the Repayments do not exceed the total 
amount of the Advance; and (f) the Repayments are waived to the extent 
the Advance exceeds the GIC Proceeds.
    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 September 19, 1994, at 59 
FR 47957.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

The Prudential Insurance Company of America Located in New Jersey

[Prohibited Transaction Exemption No. 94-79; Application No. D-9692]

Exemption

    The restrictions of section 406(a) and 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 transfer by the Prudential Insurance Company of 
America (Prudential) of certain assets from its general account (the 
General Account) into a separate account (the Separate Account), 
established and managed by Prudential, in connection with the 
conversion of one of Prudential's non-participating group annuity 
contracts (the Non- Participating Annuity Contract) to a participating 
group annuity contract (the Participating Annuity Contract), issued by 
Prudential to the Retirement Program Plan for Employees of Union 
Carbide Corporation and its subsidiary companies (the Plan) and funded 
through the assets transferred to the Separate Account; provided that 
the following conditions are met: (a) Prudential transferred to the 
Separate Account sufficient assets to create a reserve the value of 
which equaled or exceeded 103% of the value of the Participating 
Annuity Contract liabilities, as of December 31, 1991; (b) an 
independent qualified appraiser determined the fair market value of the 
assets transferred into the Separate Account, as of the date of such 
transfer; (c) Prudential irrevocably guarantees the payment of benefits 
under the Participating Annuity Contract to the former participants of 
the Plan who retired prior to December 31, 1985, (the Retirees); (d) no 
additional contribution from the Union Carbide Corporation (Union 
Carbide) or its subsidiary companies or the Plan was or will be 
required to fund benefits to the Retirees or to any other participants 
and beneficiaries of the Plan; (e) prior to the transfer of assets 
between the General Account and the Separate Account, Union Carbide, 
acting as fiduciary on behalf of the Plan, determined that the 
transaction was feasible, in the interest of, and protective of the 
Plan and its participants and beneficiaries and would not affect the 
payment of benefits to the Retirees; (f) Union Carbide determined that 
the terms and conditions of the transaction were at least as favorable 
as those negotiated at arm's length in similar transactions with 
unrelated third parties; (g) prior to the conversion, Union Carbide 
negotiated, reviewed, and approved the transaction, and will monitor 
the transaction; (h) Union Carbide reviewed the appraisal and approved 
the transfer of each of the assets into the Separate Account prior to 
the date the transaction was entered; and (i) the Plan incurred no 
fees, commissions, costs, expenses, or other charges associated with 
the transaction and will pay no addition compensation as a result of 
the conversion of the Non-Participating Annuity Contract to the 
Participating Annuity Contract.\1\
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    \1\For purposes of this exemption references to specific 
provisions of title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.

Effective Date: This exemption is effective December 31, 1991.

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department 
invited all interested persons to submit written comments and requests 
for a hearing on the exemption. All comments and requests for hearing 
were due by September 23, 1994.
    The Department received thirty (30) letters from interested persons 
commenting on the exemption. With respect to all the written comments 
submitted by interested persons, the Department forwarded copies to the 
applicant and requested that the applicant address the concerns raised 
by the commentators in writing. A description of the comments and the 
applicant's responses are summarized below.
    Four of the comment letters responded favorably to the proposed 
exemption. In this regard, two commentators approved the transaction. 
One commentator stated that he had no objection as the transaction 
appeared to improve security of his retirement benefits and had no 
negative side. One commentator stated that he did not appear to be 
adversely affected by the transaction, so long as Prudential 
irrevocable guarantees the payment of benefits.
    Several commentators observed that their copies of the Notice of 
Proposed Exemption (the Notice) were illegible. Prudential has 
investigated and concluded that, insofar as it can determine, all 
Notices mailed to interested persons were legible, given the small 
print size used in the Federal Register.
    Some commentators indicated that the Notice was incomplete. 
Specifically, one commentator noted that the missing pages were those 
preceding page 40611 (the page on which the Notice begins) and 
following page 40617 (the page on which the Notice ends). Since all 
interested persons received unaltered copies of the Federal Register 
pages on which the Notice appeared but which also included parts of 
unrelated notices, it appears to Prudential that commentators may have 
erroneously concluded that relevant portions of the Notice were 
omitted.
    Two commentators objected to the use of the Participating Annuity 
Contract due to concerns that such contract may provide less security 
for Plan benefits. Other commentators were concerned that they had not 
been notified of the conversion or had not received new certificates 
under the Participating Annuity Contract. Prudential confirmed that its 
irrevocable commitment to pay the retirement benefits guaranteed under 
the former Non-Participating Annuity Contract is not affected in any 
way by the conversion or the transfer of assets to the Separate 
Account. It is represented that even if the assets in the Separate 
Account ultimately prove to be insufficient to pay benefits guaranteed 
under the Participating Annuity Contract, Prudential's General Account 
will remain fully obligated to pay the guaranteed benefits. Moreover, 
because neither the rights and benefits of Retirees covered under the 
Non-Participating Annuity Contract nor any other aspect of their 
contractual relationship with Prudential were in any way affected by 
the conversion, Prudential determined that new certificates were not 
required.
    One commentator expressed concern that Prudential's obligations 
under the Participating Annuity Contract might be affected in the event 
Prudential was acquired by or merged with another insurer. Prudential 
confirms that neither of these events would affect its obligations 
under such contract.
    Several commentators inquired whether additional benefits would be 
made available as a result of the transaction covered by the requested 
exemption. Others expressed concern that the exemption might adversely 
impact their existing pension benefits. Prudential confirms that the 
transaction covered by the requested exemption will have no impact 
whatsoever on the pension benefits of covered Retirees. If the assets 
in the Separate Account perform less well than expected, Prudential's 
General Account will remain fully responsible for the payment of 
guaranteed benefits. If the investment experience of the Separate 
Account is favorable, the Plan will receive any Plan assets remaining 
in the Separate Account after all contract liabilities have been 
satisfied.
    One commentator expressed concern that the placement of assets in 
the Separate Account implied that in violation of the Act the assets of 
the Plan had not been segregated prior to the creation of the Separate 
Account. In this regard, Prudential pointed out that section 403 of the 
Act requires assets of a plan to be segregated from the assets of the 
employer and either held in trust or held by an insurance company, 
whether in a ``separate account'' or otherwise. Further, Prudential 
indicated that when a plan purchases an insurance contract, such as the 
Non-Participating Annuity Contract, that is backed by the insurer's 
general account no segregation of the funds held by the insurer is 
required.
    Other commentators expressed concern that Plan assets had been 
transferred to Prudential. As explained in the exemption application, 
the conversion provided additional protection not required by the Act 
to Retirees whose benefits were guaranteed under the Non-Participating 
Annuity Contract by segregating a pool of assets in the Separate 
Account maintained solely for the benefit of the Plan. Prudential 
represents that neither the conversion nor the transfer of assets from 
the General Account to the Separate Account involved an additional 
transfer of funds from the Plan to Prudential.
    In a related matter, another commentator expressed concern that the 
transfer of assets in connection with the conversion would allow Union 
Carbide to withdraw funds from the Plan. Prudential confirms that Union 
Carbide does not have a right to withdraw funds from the Separate 
Account, and that the Participating Annuity Contract requires any 
assets remaining in the Separate Account when all contract liabilities 
have been satisfied to be paid directly to the Plan.
    Another commentator requested the identity of the fiduciary of the 
Participating Annuity Contract. In this regard, Prudential is a 
fiduciary solely with respect to the management of the assets of the 
Plan in the Separate Account. To the best of Prudential's knowledge, 
Union Carbide remains the ``named fiduciary'' of the Plan.
    Two commentators expressed concern regarding the conviction of a 
former employee of the Benefit Capital Management Corporation (BCMC), 
an affiliate of Union Carbide that retains certain investment 
management responsibilities on behalf of the Plan. Certain employees of 
BCMC also acted on behalf of Union Carbide in its role as independent 
fiduciary on behalf of the Plan in connection with the transfer of 
assets to the Separate Account. Prudential confirms that the improper 
activities of this former employee did not involve the transaction 
covered by the requested exemption. Moreover, this individual was only 
one of several persons assigned responsibility for carrying out Union 
Carbide's duties as fiduciary. In this regard, Union Carbide has 
verified that this individual's participation in no way affected the 
determination that the transaction was in the best interests of the 
Plan participants and beneficiaries.
    One commentator suggested that the exemption be subject to the 
further condition that Prudential transfer assets from the General 
Account to cover all retirees who contributed to the pension fund prior 
to September 30, 1985, regardless of whether they retired prior to 
December 31, 1985. His concern appears to result from his belief that 
his retirement benefits are provided under the Participating Annuity 
Contract and that assets sufficient to cover those liabilities were not 
transferred to the Separate Account. In response, Prudential reiterated 
that the Participating Annuity Contract covers a group of former 
participants who retired prior to December 31, 1985. Prudential 
confirms that the commentator is not receiving any retirement benefits 
under the Participating Annuity Contract, although he is receiving a 
portion of his retirement benefits under a different group annuity 
contract with Prudential. Further, Prudential indicates that this 
commentator was provided with the Notice, because he is also receiving 
a portion of his retirement benefits from the Plan, and thus remains a 
participant in the Plan.
    In addition, a group of nineteen (19) commentators telephoned the 
Department to express uncertainty regarding the meaning of the 
exemption. These commentators, and other commentators who wrote seeking 
additional information on the proposed exemption, were assisted with 
their questions by members of the staff of the Office of Exemption 
Determinations of the Department.
    Finally, three commentators requested a hearing with respect to the 
exemption. Each of these commentators appear to have requested a 
hearing because they believed that the transaction would reduce their 
retirement benefits. As explained above, Prudential represents that the 
transaction covered by the exemption will not affect the Retirees' 
pension benefits in any way. Accordingly, the Department does not 
believe that any issues have been raised which would require the 
convening of a hearing.
    After giving full consideration to the record, including the 
comments by commentators and the responses of the applicant, the 
Department has determined to grant the exemption, as described herein. 
In this regard, the comments submitted to the Department have been 
included as part of the public record of the exemption application. The 
complete application file, including all supplemental submissions 
received by the Department, is made available for public inspection in 
the Public Documents Room of the Pension Welfare Benefits 
Administration, room N-5507, U.S. Department of Labor, 200 Constitution 
Avenue NW., Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on Tuesday, August 9, 1994, 59 FR 40611.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (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 accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 8th day of November, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 94-28060 Filed 11-10-94; 8:45 am]
BILLING CODE 4510-29-P