[Federal Register Volume 60, Number 227 (Monday, November 27, 1995)]
[Notices]
[Pages 58376-58382]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-28909]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10031]
Proposed Class Exemption To Permit Certain Authorized
Transactions Between Plans and Parties in Interest
AGENCY: Pension and Welfare Benefits Administration (PWBA), Department
of Labor.
ACTION: Notice of proposed class exemption.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed class exemption from
the prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (ERISA) and the Internal Revenue Code of
1986 (the Code). The proposed class exemption would apply to certain
prospective transactions between employee benefit plans and parties in
interest where such transactions are specifically authorized by the
Department and are subject to terms, conditions and representations
which are substantially similar to exemptions previously granted by the
Department. If granted, the proposed exemption would affect plans,
participants and beneficiaries of such plans and certain persons
engaging in such transactions.
DATES: Written comments and requests for a public hearing must be
received by the Department on or before January 11, 1996.
ADDRESSES: All written comments (at least three copies) and requests
for a public hearing should be sent to: Office of Exemption
Determinations, Pension and Welfare Benefits Administration, room N-
5649, U. S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, (Attn: D-10031). Comments received from
interested persons will be available for public inspection in the
Public Documents Room, Pension and Welfare Benefits Administration, U.
S. Department of Labor, room N-5638, 200 Constitution Avenue, NW.,
Washington, DC.
FOR FURTHER INFORMATION CONTACT: Ms. Allison Padams, Mr. Ronald
Willett, or Mr. Louis Campagna, Office of Exemption Determinations,
Pension and Welfare Benefits Administration, U. S. Department of Labor,
telephone (202) 219-8971 (This is not a toll-free number.); or Mr.
William Taylor, Plan Benefits Security Division, Office of Solicitor,
U. S. Department of Labor (202) 219-4592. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed class exemption from the
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of ERISA and
from the taxes imposed by section 4975 (a) and (b) of the Internal
Revenue Code (the Code), by reason of section 4975(c)(1) (A) through
(E) of the Code.
The Department is proposing the class exemption on its own motion
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).1
\1\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, 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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Paperwork Reduction Act Analysis
The collection of information contained in this proposed class
exemption has been submitted to the Office of Management and Budget for
review under section 3507(d) of the Paperwork Reduction Act of 1995. 44
U.S.C. 3507(d). For copies of the OMB submission, contact Mrs. Theresa
O'Malley, U.S. Department of Labor, OASAM/DIRM, Room N-1301, 200
Constitution Ave. NW, Washington, D.C. 20210, 202-219-5095 or via
internet to [email protected]. Comments are solicited on the
Department's need for this information, specifically to: (1) evaluate
whether the proposed collection of information is necessary for the
proper performance of the functions of the agency, including whether
the information will have practical utility; (2) evaluate the accuracy
of the agency's estimate of the burden of the proposed collection of
information, including the validity of the methodology and assumptions
used; (3) enhance the quality, utility, and clarity of the information
to be collected; and (4) minimize the burden of the collection of
information on those who are to respond, including through the use of
appropriate automated, electronic, mechanical, or other technological
collection techniques or other forms of information technology, e.g.,
permitting electronic submission of responses. Persons wishing to
comment on the collection of information should direct their comments
to the Office of Information and Regulatory Affairs, OMB, Room 10235,
NEOB, Washington, D.C. 20503, Attn: Desk Officer for PWBA. Comments
must be filed with the Office of Management and Budget within 60 days
of this publication. A
[[Page 58377]]
copy of any comments filed with the Office of Management and Budget
should also be sent to the following address at the Department: Mrs.
Theresa O'Malley, U.S. Department of Labor, OASAM/DIRM, Room N-1301,
200 Constitution Ave. NW, Washington, D.C. 20210. For further
information, contact Gerald B. Lindrew at 202-219-4782.
Title: Class Exemption To Permit Certain Authorized Transactions
Between Plans and Parties in Interest
Summary: Certain parties in interest to ERISA covered pension and
welfare benefit plans have the opportunity to seek approval on an
accelerated basis of otherwise prohibited transactions by providing the
Department and interested persons with information demonstrating that
the proposed transaction is substantially similar to at least two
individual exemptions previously granted by the Department, and in some
cases show that the interests of the participants and beneficiaries are
adequately represented and protected by an independent fiduciary.
Needs and Uses: ERISA requires that the Department make a finding
that the proposed exemption meets the statutory requirements of section
408(a) before granting the exemption. The Department therefore finds it
necessary to receive certain information from the applicants, and that
participants and beneficiaries receive notice and an opportunity to
comment on the proposed transaction.
Respondents and proposed frequency of response: The Department
staff estimates that approximately 25 applicants will seek to take
advantage of this class exemption in any given year. The respondents
will be plans and parties in interest to plans.
Estimated annual burden: Based on past experience, the staff
believes that none of the materials required to be submitted under this
exemption will be prepared by the respondents; rather, the respondents
are expected to contract with service providers such as attorneys,
accountants, and third-party administrators to prepare the materials.
Therefore, the Department asks that one hour be inserted as the
estimated burden, in light of the current requirements that time spent
by service providers not be included in the hourly burden estimate. The
annual cost of using service providers for this collection of
information is estimated to be $19,537.50.
Background
The Department is proposing the class exemption contained in this
notice as part of a continuing effort to facilitate the administration
of the rules for proposing and granting exemptions from the prohibited
transactions provisions of ERISA. The rules set forth in section 406 of
ERISA prohibit various transactions between employee benefit plans
covered by title I of ERISA and certain related parties, unless a
statutory or administrative exemption applies to the transaction. These
related parties, such as plan fiduciaries, sponsoring employers, unions
and service providers are defined as parties in interest in section
3(14) of ERISA, and, in the absence of an exemption, may not engage in
transactions described in section 406 of ERISA with a plan.
Specifically, section 406(a)(1) prohibits a fiduciary of a plan
from causing the plan to engage in a transaction that constitutes a
direct or an indirect: sale, exchange or leasing of any property
between the plan and a party in interest; lending of money or other
extension of credit between the plan and a party in interest;
furnishing of goods, services or facilities between the plan and a
party in interest; transfer to, or use by or for the benefit of a party
in interest of any assets of the plan or acquisition on behalf of the
plan of any employer security or real property in violation of section
407(a) of ERISA. Section 406(a)(2) provides that no fiduciary who has
authority or discretion to control or manage plan assets shall permit
the plan to hold any employer security or employer real property if he
knows or should know that holding such security or real property
violates section 407(a) of ERISA. Section 406 (b)(1) and (b)(2)
prohibits a fiduciary, with respect to a plan, from dealing with the
assets of the plan in his own interest or for his own account; and
acting in his individual capacity or in any other capacity in any
transaction involving the plan on behalf of a party (or representing a
party) whose interests are adverse to the interests of the plan or the
interests of the participants or beneficiaries. In addition, such
transactions that involve plans described in section 4975(e)(1) of the
Code are generally subject to taxation under section 4975 of the Code.
In the past, the Department has frequently exercised its statutory
authority under section 408(a) of ERISA to grant both individual and
class exemptions from the restrictions imposed by section 406 of ERISA
where it has been able to find that the statutory criteria have been
met.2 This process has been helpful in providing exemptive relief
for transactions which were prohibited, but were otherwise in the
interests of the plans, participants and beneficiaries.
\2\ Section 408(a) of ERISA provides, in part, that the
Department may not grant an exemption unless a finding is made that
such 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 such plan.
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The Department has promulgated an exemption procedure 3 which
provides, among other things, that an exemption will not be granted
until a notice of pendency has been published in the Federal Register,
and interested persons have been given an opportunity to comment on the
proposed transaction. Following consideration of the entire record, the
Department then makes its final determination whether to grant the
exemption. If the Department contemplates not granting the requested
exemption, the procedure also provides an applicant with the right to a
conference.
\3\ See 29 CFR part 2570, subpart B (55 FR 32836, August 10,
1990).
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Typically, the Department grants individual exemptions for specific
transactions involving particular plans and parties in interest. Such
exemptions are generally made at the request of the parties involved.
In certain cases, however, the Department believes that an exemption
applicable to a class of transactions would be appropriate in order to
eliminate the need for individual exemptions.
In this regard, the Department granted Prohibited Transaction
Exemption (PTE) 79-15 to permit parties in interest to engage in
transactions or activities that are specifically authorized or
required, prior to the occurrence of such transactions or activities,
by a court order of the United States District Court, provided that the
transaction is specifically described in such order or settlement, and
the Secretary of Labor or the Internal Revenue Service is a party to
the litigation.4 PTE 79-15 was granted in recognition of the fact
that under these circumstances the court has the benefit of the views
of the Department and the Internal Revenue Service as to the propriety
of rendering a judgment which approves a settlement contemplating
transactions which might be prohibited under ERISA and the Code.
\4\ 44 FR 26979 (May 8, 1979).
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The Department recently granted PTE 94-71 to permit parties to
engage in prospective transactions or activities which are specifically
authorized by a non-judicial settlement resulting from an investigation
of a plan by the Department.5 The exemption recognizes
[[Page 58378]]
that in authorizing a transaction that would otherwise be prohibited as
part of a settlement, the Department will give appropriate
consideration to whether such transaction is in the interests of plan
participants and beneficiaries.
\5\ 59 FR 51216 (October 7, 1994).
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Based on its experience in considering exemption applications for
over twenty years, the Department has observed that many of the
applications present routine transactions involving terms, conditions
and circumstances which are substantially similar to those described in
previously granted individual exemptions. In fact, many exemption
applicants have made it a practice to consult previously granted
exemption files in the preparation of their submissions. Such
applicants often submit applications containing nearly identical
transactions, terms and conditions to those previously granted. Since
the enactment of ERISA, the Department has exempted a large number of
recurring transactions, including loans, leases and sales of real
property. As a result, standard terms and conditions have developed
over time which assure that the transaction is protective of the plan's
interests.
The Department believes that further action would be appropriate in
order to expedite consideration of those routine transactions which are
similar to those that have been previously considered by the Department
in prior exemption proceedings, without sacrificing the interests of
the plan participants and beneficiaries. Accordingly, the exemption
proposed in this notice would be available to the party proposing to
engage in a prohibited transaction, if the party can demonstrate to the
Department that such transaction and the material terms, conditions and
representations therein are substantially similar to at least two
individual exemptions previously granted by the Department.
Discussion of the Proposed Exemption
Proposed Conditions
The proposal contains conditions, as discussed below, which the
Department views as necessary to support a finding that the proposed
exemption meets the statutory standards of section 408(a) of ERISA.
Under section I of the proposed exemption, relief is provided for
transactions, as discussed below, from certain of the restrictions
described in section 406(a) of ERISA. In this regard, section I(a)
requires that the transaction be substantially similar to transactions
described in at least two individual exemptions that were granted by
the Department, and which provided relief from the same restrictions as
requested by the party, within the 60 month period ending on the date a
written submission is filed. ``Substantially similar'' is defined in
section IV(a) as alike in all material respects as determined by the
Department in its sole discretion.
Section I(b) of the proposed exemption requires that there be
little, if any, risk of abuse or loss to the plan as a result of the
transaction. Section I(c) further provides that prior to the execution
of a transaction, the authorizing requirements of section III must be
satisfied (as discussed below). The Department notes that, in light of
the broad scope of relief provided under the proposal, the class
exemption is only available with respect to prospective transactions.
Under section II of the proposal, additional relief is provided
from certain of the restrictions described in sections 406(b)(1) and
406(b)(2) of ERISA provided that: (a) the transaction is substantially
similar (as defined in section IV(a)) to transactions described in at
least two individual exemptions that were granted by the Department,
and which provided relief from the same restrictions as requested by
the party, within the 60 month period ending on the date of filing of
the written submission; (b) there is little, if any, risk of abuse or
loss to the plan as a result of the transaction; and (c) prior to its
execution, the transaction has met the requirements described in
section III (as discussed below).
In considering the availability of this proposed class exemption,
the party who is to engage in the transaction should carefully
determine whether the contemplated transaction contains terms and
conditions which closely parallel the transaction delineated in the
prior exemptions granted by the Department and the material facts and
representations supporting such exemptions. Further, the party seeking
to take advantage of the proposed class exemption should determine
whether the relief provided from section 406 by the prior exemptions
granted by the Department is identical to the relief necessary for the
contemplated transaction.
In addition, section II (d) and (e) require that, prior to
execution of such transaction, an independent fiduciary has reviewed
the proposed transaction and determined that the transaction would be
in the interests and protective of the plan and its participants and
beneficiaries, and later represents the interests of the plan in the
execution of the transaction. Under section II(f) of the proposal, for
those transactions that are continuing in nature, such as leases and
loans, the independent fiduciary must: (1) represent the interests of
the plan for the duration of the transaction; (2) monitor the
transaction on behalf of the plan; (3) enforce compliance with all
conditions and obligations imposed on any party dealing with the plan
with respect to the transaction; and (4) ensure that the transaction
remains in the interests of the plan.6
6 The Department expects that the written submission referred
to section III will include specific information regarding the
methods proposed by the independent fiduciary for: monitoring the
transaction; enforcing compliance with all the conditions and
obligations imposed on the parties dealing with the plan; and
ensuring that the transaction remains in the interests and
protective of the participants and beneficiaries of the plan.
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The Department notes that the independent fiduciary should be
knowledgeable and experienced with respect to the type of transaction.
The Department encourages parties to consider, when retaining an
independent fiduciary, any unique qualifications of the independent
fiduciaries utilized in the substantially similar transactions.
Section III of the proposal contains the authorization requirements
for a transaction. In view of the broad scope of relief provided under
the proposal, the Department believes that it must participate in the
proceeding in order to determine in its sole discretion whether prior
to its execution a proposed transaction is substantially similar to
previously exempted transactions and presents little if any risk of
abuse or loss to the plan. Section III(a)(1) requires that the party
who will be engaging in such transaction file a written submission with
the Department containing a specific statement that the party intends
to demonstrate compliance with the conditions of the class exemption.
The written submission must clearly indicate to the Department that it
is made pursuant to the class exemption rather than under the
Department's procedures for considering individual exemptions.7
7 See 29 CFR part 2570, subpart B.
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Section III(a)(2) requires that the submission include all
information that is otherwise required to be submitted with an
individual exemption application. This condition will permit such
submission to be considered under the Department's exemption procedures
in the event that Department is unable to conclude from the written
submissions that the conditions of the class exemption would be met.
Further, this condition will assure a full and comprehensive file upon
which the Department can base its conclusions
[[Page 58379]]
concerning the availability of this class exemption.
Under section III(a)(3), the party who will be engaging in the
transaction must demonstrate that the proposed transaction presents
little or no opportunity for abuse or risk of loss by the plan given
the terms and conditions of the transaction. Section III(a)(4) requires
that the party compare the proposed transaction to those previously
exempted transactions identified by the party as substantially similar.
In this regard, any comparison must include a description of any
material differences between the proposed transaction and the
identified exemptions. The Department notes that it is the party's
burden to provide the Department with the citations to the identified
exemptions.
Section III(a)(5) requires that a complete and accurate draft of
the notice which will be distributed to interested persons be submitted
to the Department. The purpose of the notice requirement is to afford
interested persons with the opportunity to provide the Department with
relevant information to assist the Department in its consideration of
the proposed transaction. ``Notice'' is defined in section IV(b) as a
written notification to interested persons which includes an objective
description of the transaction, the approximate date on which the
transaction will occur, a statement that the proposed transaction has
met the requirements for tentative authorization under this class
exemption, a statement apprising interested persons of their right to
comment, and the Federal Register citations for the prior exemptions
identified by the party as substantially similar to the contemplated
transaction. The Department cautions that a notice that does not
objectively and accurately characterize the transaction and its
material terms and conditions will fail to comply with section IV(b) of
the proposal. The notice must also contain a statement directing
interested persons to submit comments to the Department for
consideration.
With respect to a transaction described in section II of this
exemption, section III(b) provides that the written submission must
also contain the following additional information: (1) the identity of
the independent fiduciary; (2) a description of such fiduciary's
independence from the parties in interest involved in the subject
transaction; (3) a statement by the independent fiduciary containing an
explanation as to why the subject transaction is in the interests and
protective of the participants and beneficiaries of the plan; (4) an
agreement by the independent fiduciary to represent the interests of
the plan; and (5) a description of the procedure for replacement of the
independent fiduciary, if necessary, during the term of the
transaction.
The written submissions will be closely reviewed by the Department
to ensure that the conditions of this class exemption are met. In this
regard, the Department notes that the burden is on the party who is to
engage in the transaction to demonstrate compliance with the conditions
of the class exemption. If a party fails to do so, the Department will
notify the party that the transaction is not eligible for authorization
under the terms of the class exemption, and the written submission will
be considered pursuant to the Department's exemption procedure for
individual exemptions.
The proposal requires, under section III(c), that the transaction
meet the requirements for tentative authorization. ``Tentative
authorization'' is defined under section IV(c) as occurring at the
expiration of the forty-five day period following acknowledgement by
the Department of the receipt of the written submission with respect to
the proposed transaction, unless the Department has notified the party
who is to engage in the transaction during this period that the
transaction is not eligible for authorization under the terms of this
class exemption.
Section III(d) provides that, following tentative authorization,
the party who is to engage in the transaction provides written notice
(as defined in section IV(b)) to interested persons. The proposed
exemption does not specify the manner in which written notice must be
provided to interested persons. However, section III(d) requires that
notice be given in a manner that is reasonably calculated to result in
the receipt of such notice by interested persons. It is the
responsibility of the party who is to engage in the transaction to
promptly distribute notice after tentative authorization is obtained,
because the 25 day comment period, as defined under section IV(e), will
not commence until the notification to all interested persons is
complete. It is also the responsibility of the party to inform the
Department of the date upon which notification was completed. The
notice must inform interested persons of the date of expiration of the
comment period. Because the date of completion of the notification is
within the control of the party who is to engage in the transaction,
the expiration date of the comment period is thus dependent upon
completion of notification. The Department expects the party who
provides written notice to take this into account in determining the
expiration date of the comment period.
In addition, section III(d) requires that the party who is to
engage in the transaction resolve all substantive adverse comments
submitted to the Department to the satisfaction of the Department. The
term ``substantive adverse comments,'' as defined in section IV(f),
means those comments submitted by interested persons to the Department
within the prescribed comment period which raise significant factual,
legal or policy issues regarding the transaction as determined by the
Department. The Department wishes to emphasize that the party who is to
engage in the transaction must fully resolve those issues received
during the comment period to the satisfaction of the Department.
``Final authorization'' is defined in section IV(d) as the end of
the 5 day period immediately following the expiration of the comment
period unless the Department notifies the party within that period that
the transaction is not eligible for authorization, or the expiration of
a period of time extending beyond the 5 day period as mutually agreed
to by the Department and the party in order to resolve any substantive
adverse comments submitted to the Department. The 5 day period between
the expiration of the comment period and final authorization is
intended to allow consideration by the Department of comments received
within the 25 day comment period. If mutual agreement between the
Department and the party who is to engage in the transaction is not
reached regarding the period of time in which such comments must be
resolved, the party will be notified that the transaction fails to
comply with the conditions of the class exemption, and the written
submission will be considered by the Department in accordance the
Department's exemption procedures at 29 CFR 2570, subpart B.
In this regard, the Department will not consider a proposed
transaction to satisfy the conditions of this proposed class exemption
unless the material facts and representations contained in the written
submission and in any materials and documents submitted in support of
the written submission are true and complete. Accordingly, applicants
are cautioned against engaging in transactions shortly after final
authorization, since the Department may continue to receive comments
for several days following expiration of the comment period. Such
comments may potentially challenge the truth and/or completeness of the
[[Page 58380]]
original written submission and cause the Department to reexamine its
previous determination that the proposed transaction had met the
conditions of the proposal.8
8 See 29 CFR 2570.49 (55 FR 32886, August 10, 1990).
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The Department notes that the proposed exemption should not be
construed as a substitute for compliance with the statutory
requirements of ERISA and the Code. Individuals desiring to engage in
any transaction which is prohibited under section 406 of ERISA, and
which is not the subject of an existing statutory or administrative
exemption (including as a result of failure to satisfy the terms of
this class exemption) must seek exemptive relief in accordance with the
Department's exemption procedure at 29 CFR 2570, subpart B. Lastly, the
proposed exemption provides no relief for transactions entered into
prior to final authorization as described in section IV(d).
The application of the exemption proposed in this notice may be
illustrated by the following examples:
Example (1): An exemption application is submitted to the
Department by applicant X, the sponsor of plan Y, for a lease of office
space by plan Y to X. The transaction proposed is similar in all
material respects to four other exemptions granted by the Department
within the last five years. Applicant X, however, does not make a
specific declaration that the application is submitted with the
intention of demonstrating compliance with the class exemption, and
there is no information which otherwise complies with sections I, II
and III of the proposed class exemption. The application will be
considered by the Department pursuant to individual exemption
procedures unless the applicant amends its original written submission
and provides the required information. At that point, the Department
will acknowledge receipt of the written submission requesting expedited
authorization under the class exemption proposal.
Example (2): In 1994, two exemptions were granted for loans by
pension plans to Corporation A and Corporation B, respectively, the
sponsoring employers. The loan to Corporation A was for $50,000. The
loan to Corporation B was for $75,000. Among the conditions and
material representations contained in both exemptions were the
following: the loans would be approved and monitored by an independent
fiduciary; the term of the loans could extend no more than five years;
regular installment payments of principal and interest had to be made
during the term; the collateral consisting of real property had to be
maintained at all times at a loan-to-value ratio of at least 150
percent; and no more than 25 percent of the assets of the plan would be
involved in loans to the sponsoring employer. In 1996, X Corporation
makes a written submission pursuant to the class exemption with respect
to a proposed loan from its plan. The proposed transaction, including
the terms and conditions of the loan and the creditworthiness of the
borrower, is substantially similar to the exemptions granted to
Corporation A and Corporation B, except that the loan is for $400,000
and the term is seven years. X Corporation cites the previously granted
exemptions in its submission and demonstrates that the 25 percent
limitation on the amount of assets involved in loans to the employer
would be met. These differences in dollar amounts and loan term would
not cause the transaction to fail the ``substantially similar'' test
under section I(a) and X's proposed transaction may be eligible for
relief under the class exemption.
If, however, in addition to these differences (i.e., dollar amounts
and loan term), the loan transaction proposed by X Corporation also
included different repayment provisions requiring monthly payments of
interest only during the loan term and a balloon payment of principal
at the end of the term, the relief afforded by the class exemption
would not be available because the terms of the proposed loan are not
alike in all material respects within the meaning of section I(a) to
the previous loan exemptions granted by the Department and cited by the
applicant.
Example (3): In 1994, Investment Adviser X is granted a conditional
exemption which permits plans for which it provides investment
management services to purchase units of a limited partnership for
which X is the general partner. In 1996, the assets of X are sold to Y.
Y subsequently makes a written submission pursuant to the class
exemption for the same transactions which were the subject of the
exemption granted to X. In addition to the exemption granted to X, Y
cites in its submission one other similar exemption granted by the
Department within the last five years. The relief afforded by the
exemption would be available because the terms and conditions of the
transaction are substantially similar to previous exemptions granted by
the Department.
Example (4): Firm C makes a written submission pursuant to the
class exemption for the sale of property by its plan to C. Forty-five
days elapse from the acknowledgment of the receipt of the submission by
the Department without notification from the Department as to the
availability of the class exemption for the proposed transaction.
Pursuant to the exemption, C proceeds to distribute notice to
interested persons. On the 24th day following completion of notice, the
Department receives a comment from an interested person raising
significant factual concerns regarding the sale. At this point, the
Department and C can mutually agree, pursuant to section IV(d) of the
exemption, to a date beyond the expiration of the 25 day comment
period, at which time the comment must be resolved to the Department's
satisfaction in order for the transaction to be authorized under the
terms of the exemption. If the Department and C cannot agree to an
extended date, the transaction will not receive final authorization and
the exemption will not be available for such transaction.
Notice to Interested Persons
Because many participants, plans, fiduciaries and parties in
interests with respect to plans could conceivably be considered
interested persons, the only practical form of notice of the proposed
exemption is publication in the Federal Register.
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 ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person with respect to a plan from certain other provisions of ERISA
and the Code to which the exemption does not expressly apply and the
general fiduciary responsibility provisions of section 404 of ERISA.
Section 404 requires, in part, that a fiduciary discharge his or her
duties respecting the plan solely in the interests of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with section 404(a)(1)(B) of ERISA. This exemption does not affect the
requirement of section 401(a) of the Code that a plan must operate for
the exclusive benefit of the employees of the employer maintaining the
plan and their beneficiaries.
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of ERISA and section
4975(c)(1)(F) of the Code.
(3) Before this exemption may be granted under section 408(a) of
ERISA
[[Page 58381]]
and section 4975(c)(2) of the Code, the Department must find that the
exemption is administratively feasible, in the interests of plans and
of participants and beneficiaries and protective of the rights of
participants and beneficiaries of such plans.
(4) The proposed exemption, if granted, will be supplemental to,
and not in derogation of 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.
(5) If granted, the proposed exemption will be applicable to a
transaction only if the conditions specified in the class exemption are
satisfied.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a public hearing on the proposed exemption to the address
above and within the time period set forth above. Comments received
will be made part of the record and will be available for public
inspection at the above address.
Proposed Exemption
The Department has under consideration the granting of the
following class exemption, 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 (55 FR 32836, August 10,
1990).
Section I--General Exemption. Effective (date of grant of this
class exemption), a restriction described in section 406(a) of ERISA,
and the taxes imposed by sections 4975 (a) and (b) of the Code, by
reason of a parallel provision described in sections 4975(c)(1) (A)
through (D) of the Code, shall not apply to a transaction between a
plan and a party in interest with respect to such plan, provided the
following conditions are met:
(a) The transaction is substantially similar (as defined in section
IV(a)) to transactions described in at least two individual exemptions
that were granted by the Department, and provided relief from the same
restriction, within the 60 month period ending on the date of filing of
the written submission referred to in section III(a);
(b) There is little, if any, risk of abuse or loss to the plan as
result of the transaction; and
(c) Prior to its execution, the transaction has met the
requirements described in section III.
Section II--Specific Exemption. Effective (date of grant of this
class exemption), a restriction described in sections 406(b)(1) and
406(b)(2) of ERISA, and the taxes imposed by sections 4975(a) and (b)
of the Code, by reason of a parallel provision described in section
4975(c)(1)(E) of the Code, shall not apply to a transaction between a
plan and a party in interest with respect to such plan provided the
following conditions are met:
(a) The transaction is substantially similar (as defined in section
IV(a)) to transactions described in at least two individual exemptions
that were granted by the Department, and provided relief from the same
restriction, within the 60 month period ending on the date of filing of
the written submission referred to in section III(a);
(b) There is little if any risk of abuse or loss to the plan as a
result of the transaction;
(c) Prior to its execution, the transaction has met the
requirements described in section III;
(d) An independent fiduciary has reviewed the proposed transaction
and determined that the transaction would be in the interests and
protective of the plan and its participants and beneficiaries;
(e) The independent fiduciary represents the interests of the plan
in the execution of the transaction; and
(f) If the transaction is continuing in nature, the independent
fiduciary--
(i) represents the interests of the plan for the duration of the
transaction and monitors the transaction on behalf of the plan;
(ii) enforces compliance with all conditions and obligations
imposed on any party dealing with the plan with respect to the
transaction; and
(iii) ensures that the transaction remains in the interests of the
plan.
Section III--Authorization Requirements. The requirements for this
section are met if:
(a) A written submission is filed with the Department with respect
to the transaction which contains the following information:
(1) a separate written declaration by the party who is to engage in
the transaction that the written submission is made with the intention
of demonstrating compliance with the conditions of this class
exemption;
(2) all information required to be submitted with an individual
exemption application in accordance with the procedures set forth in 29
CFR 2570 subpart B;
(3) a specific statement demonstrating that the proposed
transaction poses little, if any, risk of abuse or loss to the plan;
(4) a comparison of the proposed transaction to at least two
substantially similar transactions which were the subject of individual
exemptions granted by the Department within a sixty month period ending
on the date of the filing of the written submission and an explanation
as to why any differences should not be considered material for
purposes of this exemption; and
(5) a complete and accurate draft of the notice (as defined in
section IV(b)) prepared for distribution to interested persons and a
description of the proposed method of distribution for such notice.
(b) With respect to transactions described in section II of this
exemption, the written submission referred to in section (a) above
contains the following additional information:
(1) the identity of the independent fiduciary;
(2) a description of such fiduciary's independence from the parties
in interest involved in the subject transaction;
(3) a statement by the independent fiduciary containing an
explanation as to why the subject transaction is in the interests and
protective of the participants and beneficiaries of the plan(s)
involved;
(4) an agreement by the independent fiduciary to represent the
interests of the plan(s) involved in the transaction; and
(5) a description of the procedures for replacement of the
independent fiduciary, if necessary, during the term of the
transaction.
(c) The transaction meets the requirements for tentative
authorization (as defined in section IV(c)) from the Department.
(d) Following tentative authorization, the party who is to engage
in the transaction provides written notice (as defined in section
IV(b)) to interested persons in a manner that is reasonably calculated
to result in the receipt of such notice by interested persons, informs
interested persons of the date of the expiration of the comment period,
and resolves all substantive adverse comments (as defined in section
IV(f)) to the satisfaction of the Department.
(e) The transaction meets the requirements for final authorization
(as defined in section IV(d)).
[[Page 58382]]
Part IV: Definitions
(a) The term ``substantially similar'' means alike in all material
respects as determined by the Department, in its sole discretion.
(b) The term ``notice'' means written notification to interested
persons which includes--
(1) an objective description of the transaction, including all
material terms and conditions,
(2) the approximate date on which the transaction will occur,
(3) a statement that the proposed transaction has met the
requirements for tentative authorization under this exemption,
(4) a statement apprising interested persons of their right to
comment to the Department on the proposed transaction, and
(5) the Federal Register citations for the prior exemptions
identified by the party as substantially similar to the contemplated
transaction.
(c) For purposes of this exemption, ``tentative authorization''
occurs upon the expiration of the forty-five (45) day period following
an acknowledgement by the Department of receipt of the written
submission with respect to the transaction under this exemption unless
the Department has notified the party who is to engage in the
transaction during that period that the transaction is not eligible for
authorization under the terms of this exemption.
(d) For purposes of this exemption ``final authorization'' occurs
upon the expiration of:
(1) the five (5) day period immediately following the comment
period (as defined in section IV(e)), unless the Department notifies
the party that the transaction is not eligible for authorization under
the terms of this exemption, and
(2) if necessary in order to resolve any substantive adverse
comments received by the Department from interested persons within the
comment period, a period of time extending beyond the five day period
immediately following the comment period as mutually agreed between the
Department and the party.
(e) The term ``comment period'' means the twenty-five (25) day
period following the completion of distribution of the notice to
interested persons by the party who is to engage in the transaction.
(f) The term ``substantive adverse comments'' means those comments
submitted by interested persons to the Department within the prescribed
comment period which raise significant factual, legal or policy issues
regarding the transaction as determined by the Department in its sole
discretion.
Signed at Washington, D.C., this 21st day of November 1995.
Alan D. Lebowitz,
Deputy Assistant Secretary of Program Operations, Pension and Welfare
Benefits Administration, Department of Labor.
[FR Doc. 95-28909 Filed 11-24-95; 8:45 am]
BILLING CODE 4510-29-P