[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