[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 39988-39996]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19483]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 96-62; Application No. D-10031]


Class Exemption To Permit Certain Authorized Transactions Between 
Plans and Parties in Interest

AGENCY: Pension and Welfare Benefits Administration (PWBA), Department 
of Labor.

ACTION: Grant of class exemption.

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SUMMARY: This document contains a final exemption from the prohibited 
transaction restrictions of the Employee Retirement Income Security Act 
of 1974 (ERISA), the Federal Employees' Retirement System Act of 1986 
(FERSA) and the Internal Revenue Code of 1986 (the Code). The exemption 
applies 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. The exemption affects plans, 
participants and beneficiaries of such plans and certain persons 
engaging in such transactions.

Discussion of the Exemption

    As part of the Department's continuing efforts to reduce regulatory 
burdens associated with processing individual exemptions for 
transactions prohibited under ERISA, this class exemption permits a 
plan to engage in a transaction following a demonstration to the 
Department that the transaction: (1) Is substantially similar to those 
described in two prior individual exemptions granted by the Department; 
and (2) presents little, if any, opportunity for abuse or risk of loss 
to a plan's participants and beneficiaries. Under the class exemption, 
a party may proceed with a transaction in as little as 78 days from the 
acknowledgment of receipt by the Department of a written submission 
filed in accordance with the terms of the class exemption. The time-
frames contained in the exemption enable the Department to fully 
consider the written submission for compliance with the terms of the 
class exemption and provide interested persons with a reasonable 
opportunity to comment on the proposed transaction following the 
receipt of notification.

EFFECTIVE DATE: July 31, 1996.

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: On November 27, 1995, the Department of 
Labor (the Department) published a notice in the Federal Register (60 
FR 58376) of the pendency 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 proposed 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
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     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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    The notice of pendency gave interested persons an opportunity to 
comment or request a public hearing on the proposal. No requests for a 
public hearing with respect to the proposed class exemption were 
received by the Department. Six public comments were received by the 
Department. Upon consideration of the record as a whole, the Department 
has determined to grant the proposed class exemption subject to certain 
modifications. These modifications and the comments are discussed 
below.

Discussion of Comments Received

    One commenter urged the Department to modify the final exemption to 
provide relief from section 8477(c)(2) of FERSA which parallels section 
406(b) of ERISA.2 The commenter stated that the scope of the class 
exemption should be expanded to enable the Thrift Savings Plan for 
federal employees to take advantage of the relief provided by the 
exemption. The Department sees merit in this comment and believes that 
providing such relief is consistent with the policy and safeguards 
embodied in this exemption. Accordingly, the Department has modified 
section II of the final exemption to provide relief from section 
8477(c)(2) of FERSA.
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     2 The Department is authorized to grant exemptive relief 
from the restrictions of FERSA section 8477(c)(2) pursuant to 
section 8477(c)(3) of FERSA. The restrictions of FERSA section 
8477(c)(2) parallel section 406(b) of ERISA.
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    Another commenter requested that the Department clarify that the 
relief provided in the class exemption applies to transactions 
involving multiemployer plans. The Department notes that the exemption 
applies to transactions which are substantially similar to transactions 
described in at least two individual exemptions granted by the 
Department within the 60-month period prior to the written submission 
filed in accordance with the class exemption. In this regard, the 
conditions of the exemption do not include a requirement of substantial 
similarity between the type of plan involved in the proposed 
transaction under the class exemption and the type of plans involved in 
the previously granted individual exemptions (i.e., single employer or 
multiemployer plans). Accordingly, it is the view of the Department 
that sections I(a) and II(b) will be satisfied in the case of a 
multiemployer plan, if such plan relies on two substantially similar 
individual exemptions involving single employer plans.
    A commenter requested clarification regarding sections I(b) and 
II(b) of the exemption which require that there be little, if any, risk 
of abuse or loss to the plan participants and beneficiaries as a result 
of the transaction. The commenter expressed concern that this condition 
may require that the party who is to engage in the transaction 
guarantee that a plan never experience a loss as a result of the 
subject transaction. As a result, the commenter requested that the 
Department clarify this condition to provide that, if a transaction is 
prudent when entered into, the relief provided by the class exemption 
will not be

[[Page 39989]]

retroactively revoked should there be some future decline in the value 
of the asset. It was not the intent of the Department that this 
condition act as a guarantee of the future performance of the 
transaction. The Department notes that, for purposes of determining 
whether a transaction poses little, if any, risk of abuse or loss to 
the plan, the party should examine the facts and circumstances 
surrounding the transaction as of the date that the transaction is to 
be entered into.
    Two commenters requested that the Department expand the relief 
provided by the exemption to include relief from section 406(b)(3) of 
ERISA. One of the commenters noted that section 406(b)(3) relief would 
only be available if such relief was provided in the two substantially 
similar individual exemptions granted by the Department within the 
prior 60-month period. The Department sees merit in these comments and 
has modified the final exemption accordingly. In this regard, the 
Department notes that any of the relief from specific ERISA 
restrictions provided by the class exemption for a particular 
transaction is available only to the extent that the same relief is 
provided in the two substantially similar individual exemptions 
previously granted by the Department.
    A commenter requested that the term ``independent fiduciary'' as 
used in section II be defined in the final exemption.3 Another 
commenter urged that the Department be flexible in determining who may 
serve as independent fiduciary and suggested that the sponsoring 
employer or other existing plan fiduciary be permitted to act in that 
capacity. Because of the variety and constantly evolving nature of the 
products and service arrangements presented to the Department for its 
consideration under ERISA section 408(a), the Department does not 
believe that it would be appropriate to adopt a definition that, in 
effect, would require compliance with certain enumerated standards. 
Rather, the Department generally has adopted a flexible approach with 
respect to the qualification of a party to act as an independent 
fiduciary in any particular situation. In this regard, individual 
exemptions granted by the Department have required that there be no 
affiliation between the independent fiduciary and the party or its 
affiliates seeking to engage in the transaction and that the 
independent fiduciary receive no more than a de minimis amount of 
compensation from the party seeking to engage in the subject 
transaction, including amounts received for services as independent 
fiduciary. In certain cases, such as a transaction between a plan and a 
party unrelated to the plan sponsor, the plan sponsor may qualify to 
act as independent fiduciary on behalf of the plan. In addition, as 
noted in the preamble to the proposed exemption, ``* * * 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 two or 
more individual exemptions being relied upon.
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     3 In making a finding that an exemption is 
administratively feasible under section 408(a) of ERISA, in that it 
requires no continuing administrative burden on behalf of the 
Department, the Department generally has required the involvement of 
an independent fiduciary to represent the plan for transactions that 
require relief from section 406(b) of ERISA.
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    One commenter requested that the Department delete the requirement 
under the proposed exemption relating to the distribution of notice to 
interested persons. According to the commenter, the requirement of 
notice and a comment period does not seem to serve a useful purpose and 
prolongs the approval process. The Department notes that the proposed 
exemption provides broad relief for various party in interest 
transactions that do not come within the scope of relief provided by 
existing statutory or class exemptions. In this regard, comments 
submitted to the Department by interested persons in response to the 
publication of a proposed individual exemption in the Federal Register 
may raise substantive factual, legal or policy issues which are not 
apparent from the information contained in the exemption application. 
Under the proposed class exemption, publication of notice in the 
Federal Register would not be required. Accordingly, the Department 
believes that the distribution of notice affording interested persons 
the opportunity to comment on a proposed transaction is an important 
safeguard under the class exemption. As a result, the Department has 
determined not to modify the exemption in this regard.
    The commenter also suggested that the term ``completion of 
distribution of the notice'' contained in the definition of ``comment 
period'' under section IV(e) of the proposal should be modified to 
permit the party who is to engage in the transaction to make a 
reasonable estimate of the time necessary for completion of notice such 
as three days after sending notice by first-class mail. The Department 
notes that, under section IV(e), the comment period expires 25 days 
following the completion of the distribution of notice to interested 
persons. Accordingly, the expiration date of the comment period is 
necessarily dependent upon the date that distribution of the notice is 
completed. The Department is of the view that the requirements of the 
exemption relating to the comment period as defined under section IV(e) 
will be met if the party makes a good faith estimate of the time 
necessary to complete distribution of the notice. In this regard, the 
Department has modified section IV(e) to specifically provide that a 
party may assume that distribution of notice will be complete three 
business days following the date of first class mailing of such notice.
    The commenter also suggested that the class exemption contain a 
requirement that the party wishing to engage in the transaction must 
inform interested persons of the date of the expiration of the comment 
period. The commenter noted that the preamble to the proposed class 
exemption referred to the responsibility of the party to notify 
interested persons of the date of the expiration of the comment period, 
but that such notification was not specifically included as a condition 
of the proposed class exemption. The commenter stated that such a 
requirement should appear among the terms and conditions of the class 
exemption. The Department sees merit in this comment and has modified 
section IV(b) to provide that the notice to interested persons include 
the date of the expiration of the comment period.
    One of the commenters requested that the Department delete the 60-
month requirement described in sections I(a) and II(a) of the class 
exemption. Sections I(a) and II(a) require that a transaction be 
substantially similar to transactions described in at least two 
individual exemptions that were granted by the Department within the 
60-month period ending on the date a written submission is filed. The 
Department notes that the 60-month requirement was developed to ensure 
that the two substantially similar individual exemptions that the party 
compares to its proposed transaction reflect the current exemption 
policies of the Department. Therefore, the Department is unable to 
conclude that deletion of this requirement is warranted.
    A commenter urged the Department to adopt a more liberal definition 
of the term ``substantially similar.'' Section IV(a) defines the term 
``substantially similar'' as alike in all material respects. The 
commenter suggested that the precedential exemptions be considered

[[Page 39990]]

substantially similar where, in the Department's judgement, there 
presents little possibility of abuse due to the difference in facts. 
The Department is not persuaded by the argument submitted in favor of 
an expanded definition of the term ``substantially similar''. The 
proposed exemption's premise was that the Department could provide 
expedited consideration of a party's written submission within the 
timeframes delineated in the proposal only if the transaction was 
substantially similar, as defined under the exemption, to two other 
transactions previously considered by the Department. The Department 
believes that the commenter's suggestion for a more liberal definition 
of ``substantially similar'' is inconsistent with the underlying 
premise of the class exemption. For this reason, the Department has 
determined not to modify this definition.
    One commenter requested a number of modifications to the proposal 
based upon its belief that the class exemption should be applicable to 
generic transactions that would otherwise be the subject of a class 
exemption. The Department notes that the preamble to the proposal 
indicates that the party wishing to take advantage of the exemption 
must demonstrate that the transaction is substantially similar to at 
least two individual exemptions previously granted by the Department. 
The Department notes that it determined to propose relief based, in 
part, on its observation that many of the individual applications 
contain nearly identical transactions, terms and conditions as those 
previously granted. Accordingly, because the proposal limits relief to 
identifiable individual transactions and the parties thereto, not 
generic transactions, the modifications requested by the commenter are 
beyond the scope of this proceeding. Lastly, the Department notes that 
the great majority of class exemption requests considered by the 
Department over the previous 20 years presented unique facts and 
circumstances that were not substantially similar to prior exemptions 
granted by the Department.
    The same commenter also urged the Department to extend the relief 
provided by the class exemption to include transactions that have taken 
place prior to the submission required under part III of the exemption. 
Another commenter urged the Department to consider retroactive relief 
to the date of the written submission under the class exemption. The 
Department noted in the preamble to the proposal that `` * * * in light 
of the broad scope of relief provided under the proposal, the class 
exemption is only available with respect to prospective transactions.'' 
It appears to the Department that providing retroactive relief under 
the class exemption could result in the completed transaction not being 
in compliance with one or more of the requirements of the class 
exemption, including the requirement that the transaction be 
substantially similar to two previously granted exemptions. In 
addition, the Department continues to believe that providing interested 
persons with the opportunity to comment on a contemplated transaction 
is an important safeguard under the class exemption. Accordingly, the 
Department has decided not to adopt this comment.

Conditions

    The exemption contains conditions, as described below, which are 
necessary to support a finding that the exemption meets the statutory 
standards of section 408(a) of ERISA.4
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     4 References to sections 408(a) and 406(a) and (b) of ERISA 
incorporate the corresponding provisions of section 4975 of the 
Code.
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    Under section I of the 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.
    Section I(b) of the exemption requires that there be little, if 
any, risk of abuse or loss to the plan participants and beneficiaries 
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).
    Under section II of the exemption, additional relief is provided 
from certain of the restrictions described in sections 406(b) of ERISA 
and the parallel restrictions described in section 8477(c)(2) of FERSA 
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 or, if FERSA relief is requested, the 
ERISA relief provided parallels the restriction of section 8477(c)(2) 
of FERSA, 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 participants and beneficiaries 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 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. In particular, the Department wishes to 
note that the relief provided by the class exemption is available for a 
specific transaction only to the extent that the relief from the same 
restrictions has been provided in the two substantially similar 
individual exemptions that were submitted to the Department by the 
party that wishes to engage in the transaction.
    As a precondition for a grant of relief from the fiduciary self-
dealing and conflict of interest restrictions of section 406(b) of 
ERISA, 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), 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.5
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     5 The written submission referred to section III should 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 any relief from section 406(b) provided 
under section II of the proposal required the involvement of an 
independent

[[Page 39991]]

fiduciary. Section II required that the independent fiduciary review 
and approve the transaction and, where the transaction was continuing 
in nature, monitor the transaction and represent the interests of the 
plan throughout the duration of the transaction. However, it was 
brought to the attention of the Department that certain types of 
exemptions which provided section 406(b) relief for transactions such 
as sales of property by the plan to certain parties in interest or 
loans from the individually directed accounts of participants in plans 
to those participants, may not have required the involvement of an 
independent fiduciary. Accordingly, the Department has modified the 
final exemption to clarify that the involvement of an independent 
fiduciary as described in section II is required only if the exempted 
transactions described in either of the two previously granted 
exemptions cited by the party required the involvement of an 
independent fiduciary. If an independent fiduciary is required for the 
contemplated transaction, then the fiduciary's involvement must comply 
with the requirements of section II.
    The Department notes that the independent fiduciary should be 
knowledgeable and experienced with respect to the type of transaction. 
In this regard, any unique qualifications of the independent 
fiduciaries utilized in the substantially similar individual exemptions 
should be considered when retaining an independent fiduciary. Further, 
in determining a potential fiduciary's independence from the parties to 
the transaction, consideration should be given to such person's 
relationship to the other parties involved in the contemplated 
transaction in terms of any affiliation between such person and the 
other parties to the transaction, as well as whether such person 
derives more than a de minimis amount of compensation from the other 
parties to the transaction.
    Section III of the exemption contains the authorization 
requirements for a transaction. 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 to 
demonstrate compliance with the conditions of the class exemption. The 
purpose of the authorization requirements of section III is to enable 
the Department to examine the written submission to determine whether 
the transaction, in fact, complies with the requirements of the class 
exemption. The written submission must clearly state that it is made 
pursuant to the class exemption rather than under the Department's 
procedures for considering individual exemptions.6
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    \6\ See 29 CFR part 2570, subpart B.
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    Section III(a)(2) requires that the submission include the same 
information that is required to be submitted with an individual 
exemption application. The Department believes this condition will 
assure a full and comprehensive file upon which the Department can base 
its conclusions concerning the availability of this class exemption. 
The Department's experience in considering individual exemption 
requests has demonstrated that it is difficult to approve an exemption 
for a particular transaction without the ability to examine the 
surrounding facts and circumstances. In a number of instances, 
examination of the facts and circumstances has revealed past or 
potential violations of the provisions of Title I of the Act or other 
significant issues which must be resolved prior to granting an 
exemption. Similarly, the Department believes that it is important to 
examine the supporting documentation for a transaction, such as 
appraisals and independent third party representations regarding the 
transaction. This information frequently discloses additional issues 
which must be addressed by the applicants and is required under the 
individual exemption procedures to be submitted to the Department in an 
individual exemption application. Rather than developing a separate set 
of requirements under this class exemption for the submission of 
relevant information, the Department believes that reference to the 
individual exemption procedure, already an established and familiar 
procedure, was a more appropriate approach. The information required by 
the procedure, which is published at 29 CFR 2570.34 and .35 is designed 
to minimize the need to subject applicants to repeated requests for 
additional information after the application is filed. As an additional 
consideration, this condition will permit the written submission to be 
considered under the Department's individual exemption procedures in 
the event that the Department is unable to conclude from the written 
submissions that the conditions of the class exemption would be met.
    Under section III(a)(3), the party who will be engaging in the 
transaction must demonstrate that the proposed transaction presents 
little, if any, risk of abuse or loss to the plan participants and 
beneficiaries given the terms and conditions of the transaction. The 
Department interprets section III(a)(3) as requiring that the party 
demonstrate that the facts and circumstances surrounding the 
transaction at the time the transaction is entered into present little, 
if any, risk of abuse or loss to the plan participants and 
beneficiaries. It was not the intention of the Department to make the 
party who engaged in the transaction responsible for all unforeseen 
events that occur at some later date. 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.
    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 Department believes that it is necessary to 
review the notice prior to its distribution to interested persons in 
order to assure that a completely objective summary of the proposed 
transaction has been prepared by the party. The purpose of the notice 
requirement is to afford interested persons with the opportunity to 
provide the Department with relevant information based upon an 
objective description of the transaction to assist the Department in 
its consideration of the proposed transaction. The term ``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, the Federal Register 
citations for the prior exemptions identified by the party as 
substantially similar to the contemplated transaction and the 
expiration date of the comment period. The expiration date of the 
comment period obviously cannot be determined as of the date of the 
written submission, but must be included when notice is distributed to 
interested persons. The notice must also contain a statement directing 
interested persons to submit comments to the Department for 
consideration. In order to simplify the submission of comments, the 
Department has modified the final exemption to require that the notice 
contain the address of the Department. The address is as follows: 
Office of Exemption Determinations, U.S.

[[Page 39992]]

Department of Labor, 200 Constitution Avenue, N.W., Room N-5649, 
Washington, D.C. 20210.
    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 procedures for replacement of 
the independent fiduciary, if necessary, during the term of the 
transaction. As previously explained in response to a comment, the 
description of the independence of the fiduciary may be accomplished by 
a brief discussion in the written submission describing any 
relationship between the fiduciary and the other parties to the 
contemplated transaction in terms of any affiliation and the amount of 
any income derived by the fiduciary from the other parties.
    The written submissions will be reviewed by the Department to 
ensure that the conditions of this class exemption are met. If the 
Department determines that a submission does not meet the requirements 
for the class exemption, the Department will notify the party and, if 
the party so desires, the Department will consider the submission under 
the Department's exemption procedure for individual exemptions.
    The exemption requires, under section III(c), that the transaction 
meet the requirements for tentative authorization. ``Tentative 
authorization'' is defined under section IV(c) as occurring upon the 
earlier of: (1) the expiration of the 45-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, or (2) the 
issuance of a written determination by the Department during the 45-day 
period that the proposed transaction meets the requirements for 
tentative authorization.7 In view of the broad scope of relief 
provided under the exemption, and the need to protect the interests of 
the plan's participants and beneficiaries, the Department believes it 
necessary to retain the authority to determine, prior to the execution 
of the transaction, whether the transaction is substantially similar to 
previously exempted transactions and presents little, if any, risk of 
abuse or loss to the plan participants and beneficiaries. This 
determination will be made within 45 days from the Department's 
acknowledgement of the receipt of the written submission. In order to 
protect the interests of participants and beneficiaries, the Department 
believes that the 45-day period is the minimum amount of time necessary 
for a thorough review of the written submission, and a comparison of 
the facts and circumstances surrounding the transaction under 
consideration to the transactions contained in the two prior exemptions 
cited by the party as substantially similar. Although in some cases, 
the Department expects that it will be able to complete its review and 
issue a determination letter in less than 45 days, the Department 
believes that a shorter time limit for this process would not be 
workable. Starting the review period from the date of the Department's 
acknowledgement of receipt of the written submission assures that the 
Department will have the full 45-day period in which to complete its 
review. Under the class exemption, the party seeking to engage in the 
transaction will also receive quick assurance that the Department has 
received its submission and that the 45-day period is running.
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     7 The Department does not intend to issue written 
determinations of tentative authorization except in unusual 
situations where the Department deems it appropriate to do so.
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    The Department will send a letter to each party acknowledging 
receipt of the written submission. Generally, the acknowledgement 
letter will be sent within three to five days of actual receipt of the 
written submission by the Department. The 45-day period for tentative 
authorization will commence as of the date of the acknowledgement 
letter. In this regard, the Department notes that the party may not 
assume receipt of the written submission by the Department until the 
party receives an acknowledgement letter. Since the acknowledgement 
letter may be the only formal written communication between the party 
and the Department, the acknowledgement letter will also contain a 
brief summary of the requirements for tentative authorization and final 
authorization of the transaction, to assist the party in understanding 
the requirements of the 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. Tentative 
authorization, in effect, permits the party to begin the distribution 
of written notice to interested persons. The 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. The notice must 
also inform interested persons of the date of expiration of the comment 
period in accordance with section IV(b)(5). Since the date of 
completion of the notification is within the control of the party who 
is to engage in the transaction, the Department expects the party who 
provides written notice to take this into account in determining the 
expiration date of the comment period. It is also the responsibility of 
the party to inform the Department of the date upon which notification 
was completed and the date the comment period expires. In order to 
avoid unnecessary delay, the Department strongly encourages parties to 
notify it regarding the expiration of the comment period as soon as 
possible following tentative authorization, but in no event later than 
the expiration of the 25-day comment period.
    The Department recognizes that there may be difficulties in 
determining the completion date for notification and, thus, the 
expiration of the comment period. To ease compliance with the 
requirements of the class exemption, the Department is of the view that 
distribution of notice will be deemed complete under section IV(e) on a 
date the party determines through a good faith estimate of the time 
necessary to complete distribution of notice. In the case of 
notification by first-class mail, the Department specifically has 
modified section IV(e) to provide that completion of the distribution 
of the notice will be deemed satisfied three business days following 
the date of the first class mailing to interested persons.
    In addition, section III(d) requires that the party who is to 
engage in the

[[Page 39993]]

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.
    ``Final authorization'' is defined in section IV(d) as the end of 
the five-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 five-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 five-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.
    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. In this regard, with respect to 
transactions that are continuing in nature, such as a loan or a lease, 
any change in the material facts described in the written submission 
with respect to the transaction may result in the prospective 
unavailability of the class exemption for the transaction. In the event 
of any such change, the parties involved in the transaction have the 
option of applying for a new exemption, either pursuant to this class 
exemption or under the Department's exemption procedures at 29 CFR 
2570, subpart B.
    The Department has determined to include in the exemption, as a new 
section V, an optional checklist of the information required to be 
submitted to the Department under section III of the exemption. The 
Department recognizes that, because of oversight, items required for 
the written submission described in section III may be accidentally 
omitted causing potential delay to the party who wishes to engage in 
the transaction. The Department believes that utilization of the 
checklist by the party during its preparation of the written submission 
will help avoid such omissions and assure that the submission is 
complete. However, the Department notes that use of the checklist 
described in section V is completely optional and need not be prepared 
as part of the written submission.

Examples

    The application of the exemption may be illustrated by the 
following examples:
    Example (1): ABC Company files a written submission under the class 
exemption for a loan of money from a plan for which it currently 
provides accounting services. Because the loan would be prohibited 
under section 406(a), ABC needs an exemption for the loan. ABC cites in 
its written submission two prior exemptions for loans whose terms are 
substantially similar to those proposed in the ABC Company submission. 
However, one loan is from a plan to the plan's non-discretionary broker 
and the other loan is to the plan's actuary. Both loans are for twice 
the amount proposed in the ABC Company submission, but are for less 
than 25 percent of the assets of the plans involved. Provided the 
amount of the ABC Company loan is less than 25 percent of the assets of 
the plan, these distinctions would not cause the proposed transaction 
to fail the substantially similar test of section I(a). In addition, 
the substantially similar test is applied with respect to the 
transactions described in the two prior exemptions and not the parties 
involved in the transactions.
    Example (2): 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 class exemption. The application may 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.
    Example (3): 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 value of at least 150 percent of the 
outstanding balance of the loan; 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 sections I(a) and II(a).
    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 sections I(a) and 
II(a) to the previous loan exemptions granted by the Department and 
cited by the applicant.
    Example (4): In 1994, Investment Adviser X is granted a conditional 
exemption which permits plans for which it provides investment

[[Page 39994]]

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 substantially 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 (5): Firm C makes a written submission pursuant to the 
class exemption for the sale of property by its plan to C. The written 
submission is received by the Department on April 1. On April 3, the 
Department sends an acknowledgement letter to C. Forty-five days elapse 
from April 3, the date of the acknowledgement letter, without 
notification from the Department that the transaction is not eligible 
for authorization under the terms of the class exemption. Pursuant to 
the exemption, C proceeds to distribute notice to interested persons by 
first class mail. Completion of notice is deemed to occur three days 
following the date of a first class mailing. 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, if the comment cannot be resolved within the five-
day period following the expiration of the comment period, the 
Department and C can mutually agree, pursuant to section IV(d) of the 
exemption, to a date beyond this 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.

Paperwork Reduction Act Analysis

    The collection of information contained in this final class 
exemption has been approved by the Office of Management and Budget 
after review under section 3507(d) of the Paperwork Reduction Act of 
1995, and has been given OMB control number 1210-0098.
    Comments were solicited on the Department's need for this 
information; an explanation of how the collection of information 
contained in the final class exemption was amended in response to any 
comments received from OMB or the public is contained in the preamble, 
above. This discussion includes the identification and explanation of 
those modifications made in the class exemption, and an explanation of 
why certain comments were rejected.
    Persons who are to respond to this collection of information are 
not required to respond to the collection of information unless it 
displays a currently valid OMB control number. The OMB control number 
displayed above is valid through September 1998.

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) In accordance with section 408(a) of the Act and section 
4975(c)(2) of the Code, and based upon the entire record, the 
Department finds that the exemption is administratively feasible, in 
the interests of plans and of their participants and beneficiaries and 
protective of the rights of the participants and beneficiaries.
    (3) The exemption is 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.
    (4) The exemption is applicable to a transaction only if the 
conditions specified in the class exemption are satisfied.

Exemption

    Accordingly, the following exemption is granted under the authority 
of section 408(a) of ERISA, section 4975(c)(2) of the Code, and section 
8477(c)(3) of FERSA 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 July 31, 1996, 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 section 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 
participants and beneficiaries 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 July 31, 1996, a 
restriction described in sections 406(b) of ERISA or a parallel 
restriction described in section 8477(c)(2) of FERSA, 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) and (F) 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 or, if FERSA relief is requested, the ERISA relief provided 
parallels the restrictions of section 8477(c)(2) of FERSA, 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 
participants and beneficiaries as a result of the transaction;
    (c) Prior to its execution, the transaction has met the 
requirements described in section III;
    (d) Where either of the previously granted exemptions identified in 
the written submission described in section III, required the 
involvement of an

[[Page 39995]]

independent fiduciary, 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 described in section II(d) represents 
the interests of the plan in the execution of the transaction; and
    (f) If the transaction is continuing in nature, the independent 
fiduciary described in section II(d)--
    (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 
participants and beneficiaries;
    (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)).
Section 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 at the following 
address: Office of Exemption Determinations, U.S. Department of Labor, 
200 Constitution Avenue, N.W., Room N-5649, Washington, D.C. 20210,
    (5) the expiration date of the comment period, and
    (6) 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 earlier of:
    (1) the expiration of the 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; or
    (2) the issuance of a written determination by the Department 
during the 45-day period that the proposed transaction meets the 
requirements for tentative authorization.
    (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 25-day period following the 
completion of distribution of the notice to interested persons by the 
party who is to engage in the transaction. For this purpose, 
distribution of notice by first class mail will be deemed complete 
three business days following the date of mailing to interested 
persons.
    (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.
    Section V--Optional Checklist. Completion and submission of the 
following optional checklist to accompany the written submission 
described in section III(a) will assist the Department in the 
consideration of the transaction under the class exemption.
    The written submission filed with the Department contains the 
following information:

[  ] A separate written declaration of intent to comply with the 
conditions of the class exemption.
[  ] All information required to be submitted with an individual

[[Page 39996]]

exemption application under 29 CFR 2570 subpart B.
[  ] A statement demonstrating that the transaction poses little, if 
any, risk of abuse or loss to the plan participants and beneficiaries.
[  ] A comparison of the proposed transaction to at least two 
substantially similar transactions which were the subject of individual 
exemptions granted within the 60 month period ending on the date of the 
filing and an explanation why any differences should not be considered 
material.
[  ] A complete and accurate draft of the notice to interested persons 
(as defined in section IV(b)).
[  ] A description of the proposed method of distribution of for such 
notice.

    If either of the previously granted exemptions identified in the 
written submission required the involvement of an independent 
fiduciary, the written submission must contain the following additional 
information:

[  ] The identity of the independent fiduciary responsible for 
reviewing the proposed transaction, and representing the interests of 
the plan in the execution of the transaction. (If the transaction is 
continuing in nature, the independent fiduciary represents the 
interests of the plans for the duration of the transaction and takes 
all necessary action on behalf of the plan.)
[  ] A description of such fiduciary's independence from the parties 
involved in the transaction.
[  ] A statement from the independent fiduciary explaining why the 
transaction is in the interests and protective of the plan participants 
and beneficiaries.
[  ] An agreement by the independent fiduciary to represent the 
interests of the plan.
[  ] A description of the procedures for the replacement of the 
independent fiduciary, if necessary, during the term of the 
transaction.

    The notice to interested persons filed with the Department includes 
the following information:

[  ] An objective description of the transaction, including all 
material terms and conditions.
[  ] The approximate date on which the transaction will occur.
[  ] A statement that the transaction has met the requirements for 
tentative authorization under the exemption.
[  ] A statement apprising interested persons of their right to comment 
on the proposed transaction at the address contained in the exemption.
[  ] The expiration date of the comment period.
[  ] The Federal Register citations for the two prior exemptions 
identified as substantially similar to the contemplated transaction.

    Signed at Washington, D.C., this 26th day of July 1996.
Olena Berg,
Assistant Secretary for Pension and Welfare Benefits, U.S. Department 
of Labor.
[FR Doc. 96-19483 Filed 7-30-96; 8:45 am]
BILLING CODE 4510-29-P