[Federal Register Volume 63, Number 77 (Wednesday, April 22, 1998)]
[Notices]
[Pages 19955-19960]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-10693]
[[Page 19955]]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 98-17; Exemption Application No. D-
10412, et al.]
Grant of Individual Exemptions; Metropolitan Life Insurance
Company
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Metropolitan Life Insurance Company (MetLife) Located in New York,
NY
[Prohibited Transaction Exemption 98-17; Exemption Application No. D-
10412]
Exemption
Section I. Covered Transactions
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply, effective April 1, 1997, to (1) the purchase or
retention by an employee benefit plan (the Plan); and (2) the sale or
continuation by MetLife or an affiliate (collectively, MetLife) of a
synthetic guaranteed investment contract (the MetLife Trust GIC)
entered into between the Plan and MetLife under which MetLife
guarantees (the Guarantee) certain amounts (the Guaranteed Value).
This exemption is conditioned upon the following requirements as
set forth below in Section II.
Section II. General Conditions
(a) The decision to enter into a MetLife Trust GIC is made on
behalf of a participating Plan in writing by a fiduciary of such Plan
which is independent of MetLife.
(b) Only Plans with total assets having an aggregate market value
of at least $25 million are permitted to purchase MetLife Trust GICs;
provided however that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the Plan
Asset Regulation), which entity has purchased a MetLife Trust GIC, the
foregoing $25 million requirement is deemed satisfied if such trust or
other entity has aggregate assets which are in excess of $25 million;
provided that, if the fiduciary responsible for making the investment
decision on behalf of such master trust or other entity is not the
employer or an affiliate of the employer, such fiduciary has total
assets under its management and control, exclusive of the $25 million
threshold amount attributable to plan investment in the commingled
entity, which are in excess of $50 million, or
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity has purchased a MetLife Trust GIC, the foregoing $25
million requirement is deemed satisfied if such trust or other entity
has aggregate assets which are in excess of $25 million; provided that
the fiduciary responsible for making the investment decision on behalf
of such group trust or other entity--
(i) Is neither the sponsoring employer, a member of the controlled
group of corporations, the employee organization, nor an affiliate,
(ii) Has full investment responsibility with respect to Plan assets
invested therein, and
(iii) Has total assets under its management and control, exclusive
of the $25 million threshold amount attributable to Plan investment in
the commingled entity, which are in excess of $50 million.
(c) Prior to the execution of the MetLife Trust GIC, the Plan
fiduciary receives a full and detailed written disclosure of all
material features concerning the MetLife Trust GIC, including--
(1) A Letter of Agreement between MetLife and the Plan fiduciary
which stipulates the relevant provisions of the GIC, the applicable
fees and the rights and obligations of the parties;
(2) Investment Guidelines defining the manner in which an
investment manager will manage a MetLife Trust GIC;
(3) A copy of the Investment Management Agreement between MetLife
and the Plan fiduciary;
(4) Information explaining in a manner calculated to be understood
by a Plan fiduciary that, if a MetLife affiliated manager underperforms
or if adverse market conditions occur, the interest rate that is
credited (the Credited Rate) to a MetLife Trust GIC account (the
Account) may be as low as 0 percent;
(5) The pertinent features of a MetLife conventional GIC (the
MetLife Conventional GIC) that a Plan fiduciary may obtain upon the
discontinuance of a MetLife Trust GIC, including an explanation that,
although a MetLife Conventional GIC will offer a guarantee of
principal, it may have a credited rate
[[Page 19956]]
as low as 0 percent for the duration of the contract; and
(6) Copies of the proposed exemption and grant notice with respect
to the exemptive relief provided herein.
(d) Upon the selection by a Plan fiduciary of a MetLife Trust GIC,
a participant in a Plan that provides for participant investment
selection (the Section 404(c) Plan) is given a summary of the pertinent
features of the documents listed above in paragraphs (c)(1), (c)(2) and
(c)(5) of this Section II, which are deemed appropriate for
distribution to such participant, including a disclosure that the
MetLife Trust GIC may have a Credited Rate as low as 0 percent.
(e) Subsequent to a Plan's investment in a MetLife Trust GIC, the
Plan fiduciary and, if applicable, the Plan participant, upon such
participant's request, receive the following ongoing disclosures
regarding such investment:
(1) A monthly report consisting of a Guaranteed Value Statement,
which specifies the affected Plan's MetLife Trust GIC balance for the
prior month, contributions, withdrawals, transfers, interest earned,
the current month's ending balance for the MetLife Trust GIC, the
current interest rate and a summary of transactions;
(2) A quarterly report consisting of a Market Value Statement,
which specifies the prior quarter's ending market value for a Plan's
MetLife Trust GIC, contributions, withdrawals, the fees paid to
MetLife, investment income, realized capital gains and/or losses from
sales, changes in unrealized appreciation of assets, the current
quarter's ending market value and rate of return, and a summary of
transactions; and
(3) An annual portfolio listing or letter describing key events,
depending upon its arrangements with a Plan fiduciary.
(f) As to each Plan, the combined total of all fees and charges
imposed under a MetLife Trust GIC is not in excess of ``reasonable
compensation'' within the meaning of section 408(b)(2) of the Act.
(g) Each MetLife Trust GIC specifically provides an objective
method for determining the fair market value of the securities owned by
the Plan pursuant to such GIC.
(h) Each MetLife Trust GIC has a predefined maturity date or dates
selected by the Plan fiduciary and agreed to by MetLife. However, in no
event does a MetLife Trust GIC have a maturity date exceeding five
years. A Plan fiduciary may extend the maturity date for an additional
year upon an affirmative written decision made annually by such
fiduciary. Once a Plan fiduciary does not affirmatively extend the
maturity date, no future extensions will occur.
(i) Prior to a Plan fiduciary's decision regarding the extension of
a maturity date for a MetLife Trust GIC for one additional year,
MetLife informs such Plan fiduciary of the new reset rate for the
Credited Rate.
(j) MetLife maintains books and records of each MetLife Trust GIC
transaction for a period of six years. Such books and records are
subject to annual audit by independent, certified public accountants.
EFFECTIVE DATE: If granted, this exemption is effective as of April 1,
1996.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption (the Notice) published on October 20,
1997 at 62 FR 54471.
Written comments
The Department received one written comment with respect to the
Notice and no requests for a public hearing. The comment, which was
submitted by MetLife, suggested modifications to the operative language
of the Notice and recommended certain changes to the Summary of Facts
and Representations (the Summary) of the Notice. Presented below are
the modifications requested by MetLife and the Department's
accompanying responses. Also presented are amendments to the Notice
made by the Department.
1. Operative Language Changes
a. Exemptive Language
MetLife notes that under the caption ``Proposed Exemption,'' the
exemptive language of the Notice does not provide exemptive relief for
any payment by MetLife to a Plan pursuant to MetLife's Guarantee.
Because a Plan would be required to receive payment under a MetLife
Trust GIC arrangement if certain conditions are met, MetLife assumes
the Department would consider such payment as part of the exempted
arrangement.
The Department agrees that the payment by MetLife to a Plan
pursuant to the Guarantee is subsumed under the transactions exempted.
Therefore, the Department does not believe any modification to the
exemptive language is warranted.
b. Condition (b)
Condition (b) of the Notice requires a Plan investing in a MetLife
Trust GIC to have assets that are in excess of $25 million.1
MetLife states that in some situations, a Plan fiduciary may act on
behalf of a trust in which a number of Plans participate. Although the
trust may have assets in excess of $25 million, MetLife indicates that
the individual Plans may not have total assets which would satisfy the
minimum threshold amount.
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\1\ MetLife represents that in instances of a start-up
situation, a Plan might not have assets totaling $25 million.
Nevertheless, MetLife explains that it would still allow the Plan to
invest in a MetLife Trust GIC as long as the Plan reached the $25
million threshold within the year.
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Therefore, MetLife requests that the Department clarify that the
scope of the Notice be expanded to include a fiduciary (e.g., an
independent investment manager) acting on behalf of a trust with assets
in excess of $25 million regardless of the asset totals of the
individual Plans participating in the trust. In MetLife's view, such
trust fiduciary would have the same level of sophistication as a
fiduciary of a Plan with assets in excess of $25 million. If this
change is made, MetLife also requests that various references in the
Notice to Plan sponsors should be construed to include fiduciaries of
trusts and references to Plans should be construed to include trusts.
In response to these comments, the Department acknowledges that the
use of the term ``Plan'' in the Notice should be construed to include
trusts and other commingled investment vehicles which have assets
(either individually or aggregated within the investment vehicle) in
excess of $25 million. Further, the term ``Plan fiduciaries'' and
``Plan sponsors'' should be construed to include fiduciaries of such
trusts or commingled investment vehicles.
In addition, in recognition of the fact that individual Plans
investing in a commingled entity may not be able to meet the $25
million threshold amount on their own in order to acquire a MetLife
Trust GIC, the Department has decided to permit the aggregation of Plan
assets within the pooled vehicle in order to satisfy the threshold
amount. However, to ensure the sophistication of the fiduciary who is
making the decision on behalf of Plans to invest in a MetLife Trust
GIC, the Department has imposed certain additional requirements for
pooled arrangements involving the assets of either related Plans (i.e.,
the Related Plans) or unrelated Plans (i.e., the Unrelated Plans).
These additional requirements are described as follows:
(1) Related Plans. With respect to two or more plans, which are
maintained by the same employer, controlled group of corporations or
employee organization,
[[Page 19957]]
whose assets are invested in a master trust or any other form of plan
asset look-through entity, which entity has purchased a MetLife Trust
GIC from MetLife, the Department notes that the $25 million threshold
may be satisfied by aggregating the assets of the investing Plans
within the pooled vehicle. In this regard, the Department also notes
that an employer may retain an independent investment manager to manage
all or a portion of plan assets invested in a master trust. Under these
circumstances, the fiduciary must have total assets under its
management and control, exclusive of the $25 million threshold amount
attributable to plan investment in the commingled entity, which are in
excess of $50 million.
(2) Unrelated Plans. For two or more plans which are not maintained
by the same employer, controlled group of corporations or employee
organization, whose assets are invested in a group trust or other plan
asset look-through entity, which entity has purchased a MetLife Trust
GIC, the $25 million threshold will apply to the aggregate assets of
such entity so long as the fiduciary responsible for making the
investment decision on behalf of the group trust or other plan asset
look-through entity is not the sponsoring employer, a member of the
controlled group of corporations, the employee organization, or an
affiliate, and such fiduciary has full investment responsibility
2 with respect to the plan assets invested therein. Also,
the fiduciary must have total assets under its management and control,
exclusive of the $25 million threshold amount attributable to plan
investment in the commingled entity, which are in excess of $50
million.
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\2\ For purposes of this exemption, the term ``full investment
responsibility'' means that the fiduciary responsible for making the
investment decision has and exercises discretionary management
authority over all of the assets of the group trust or other plan
assets look-through entity.
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Accordingly, Condition (b) of Section II has been revised to read
as follows:
``(b) Only Plans with total assets having an aggregate market
value of at least $25 million are permitted to purchase MetLife
Trust GICs; provided however that--
(1) In the case of two or more Plans which are maintained by the
same employer, controlled group of corporations or employee
organization (the Related Plans), whose assets are commingled for
investment purposes in a single master trust or any other entity the
assets of which are ``plan assets'' under 29 CFR 2510.3-101 (the
Plan Asset Regulation), which entity has purchased a MetLife Trust
GIC, the foregoing $25 million requirement is deemed satisfied if
such trust or other entity has aggregate assets which are in excess
of $25 million; provided that, if the fiduciary responsible for
making the investment decision on behalf of such master trust or
other entity is not the employer or an affiliate of the employer,
such fiduciary has total assets under its management and control,
exclusive of the $25 million threshold amount attributable to plan
investment in the commingled entity, which are in excess of $50
million, or
(2) In the case of two or more Plans which are not maintained by
the same employer, controlled group of corporations or employee
organization (the Unrelated Plans), whose assets are commingled for
investment purposes in a group trust or any other form of entity the
assets of which are ``plan assets'' under the Plan Asset Regulation,
which entity has purchased a MetLife Trust GIC, the foregoing $25
million requirement is deemed satisfied if such trust or other
entity has aggregate assets which are in excess of $25 million;
provided that the fiduciary responsible for making the investment
decision on behalf of such group trust or other entity--
(i) Is neither the sponsoring employer, a member of the
controlled group of corporations, the employee organization, nor an
affiliate,
(ii) Has full investment responsibility with respect to Plan assets
invested therein, and
(iii) Has total assets under its management and control,
exclusive of the $25 million threshold amount attributable to Plan
investment in the commingled entity, which are in excess of $50
million.''
c. Conditions (d) and (e)
MetLife believes the disclosure requirements in the Notice for
participants in Section 404(c) Plans go beyond the scope of the
disclosure requirements of section 404(c) of the Act and the
Department's accompanying regulation (the Section 404(c)
Regulation).3 MetLife explains that funding vehicles, such
as the MetLife Trust GIC, are typically part of a Plan's larger
``stable value'' or ``fixed income'' funding option. MetLife believes
that to mandate disclosure for one funding vehicle within a Plan's
stable value portfolio may create an administrative hardship for a Plan
fiduciary as well as present a competitive barrier for MetLife.
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\3\ 29 CFR 2550.404(c)-1.
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As an alternative, MetLife suggests that the existing provisions of
the Section 404(c) Regulation govern the disclosure provided or made
available to a Section 404(c) Plan if a MetLife GIC Trust is included
in the Plan's offerings. According to MetLife, under the Section 404(c)
Regulation, participants must be provided with descriptions of each
designated investment alternative but not with descriptions of separate
investments forming a part of the investment alternative. The documents
a participant may obtain upon request pursuant to section 2550.404c-
1(b)(2)(i)(B)(2)(ii) of the Section 404(c) Regulation include financial
statements and reports and any other materials relating to investment
alternatives available under the Plan to the extent provided to the
Plan. MetLife further explains that the Section 404(c) Regulation
imposes no additional obligation on the administrator to furnish or
make available materials relating to the companies in which the equity
fund invests. Therefore, MetLife wishes to have the Notice amended to
state that the disclosure required for participants in a Section 404(c)
Plan which offers a MetLife Trust GIC as an investment option,
particularly where the MetLife Trust GIC is one of a number of
contracts within a designated investment alternative, is that required
by the Section 404(c) Regulation and other existing regulations.
The Department notes that when an investment option, such as a
MetLife Trust GIC, is offered by a fiduciary under a Section 404(c)
Plan to participants as part of the Plan's stable value portfolio and a
party in interest to an investing Plan is providing the investment, the
acquisition of the contract by the plan fiduciary is beyond the scope
of the Section 404(c) Regulation. In providing exemption relief for
this type of transaction in a participant-directed plan, the Department
typically requires, among other things, that the Plan fiduciary provide
the participant with full and complete disclosures regarding the nature
of the investment. These disclosures will ensure that the directing
Plan participant has given informed consent to the investment and
continues to be apprised about the ramifications of the investment.
After considering MetLife's comment, the Department has decided
that a Section 404(c) Plan participant should, at a minimum, receive
from the appropriate fiduciary, summaries of the pertinent features of:
the Letter of Agreement between MetLife and the Plan fiduciary,
particularly the disclosure that the MetLife Trust GIC may have a
Credited Rate as low as 0 percent; the Investment Guidelines and the
MetLife Conventional GIC. However, the Department has decided to delete
paragraphs (2) and (3) of Condition (d) of the proposal relating to
disclosure of the operative language of the proposed and/or final
exemptions. Therefore, Condition (d), which has been redesignated
herein as Section II(d), has been revised to read as follows:
[[Page 19958]]
(d) Upon the selection by a Plan fiduciary of a MetLife Trust
GIC, a participant in a Plan that provides for participant
investment selection (the Section 404(c) Plan) is given a summary of
the pertinent features of the documents listed above in paragraphs
(c)(1), (c)(2) and (c)(5) of this Section II, which are deemed
appropriate for distribution to such participant, including a
disclosure that the MetLife Trust GIC may have a Credited Rate as
low as 0 percent.4
\4\ Paragraphs (c)(1), (c)(2) and (c)(5) of Section II pertain
to the Letter of Agreement, the Investment Guidelines and the
pertinent features of the MetLife Conventional GIC.
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Condition (e) of the Notice pertains to ongoing disclosures that
will be provided to a Plan fiduciary and, if applicable, Plan
participants in a Section 404(c) Plan subsequent to a Plan's investment
in a MetLife Trust GIC. Such written disclosures include monthly,
quarterly, or annual reports. These documents may also be made
available to a Plan participant upon such participant's request.
However, after careful consideration of MetLife's comment, the
Department has decided not to modify Condition (e). The Department
believes that the condition, as proposed, provides flexibility to the
Plan fiduciary by not requiring that mandatory disclosures
automatically be provided to each participant. Rather, the participant
may obtain copies of such reports at his or her request.
d. Condition (h)
Condition (h) of the Notice provides that each MetLife Trust GIC
will have a predefined maturity date or dates selected by a Plan
fiduciary and agreed to by MetLife. Upon further consideration of
Condition (h), the Department believes it is appropriate to restrict
the maximum number of years that a MetLife Trust GIC may remain in
effect before the Plan can realize the Guaranteed Value. Therefore,
MetLife has agreed to cap the maturity date for a MetLife Trust GIC at
five years. This, together with the ability of a fiduciary to annually
affirmatively extend the maturity date for an additional year, should
ensure that the Plan will have greater investment flexibility and will
enable the utilization of third-party benchmark indices having 4-6 year
durations. (For a discussion of the revised procedure for extending or
locking in the maturity date for a MetLife Trust GIC under Condition
(h), see Part 2.c. below of this grant notice).
Thus, based upon the foregoing, the Department has revised
Condition (h) of the Notice as follows:
(h) Each MetLife Trust GIC has a predefined maturity date or
dates selected by the Plan fiduciary and agreed to by MetLife.
However, in no event does a MetLife Trust GIC have a maturity date
exceeding five years. A Plan fiduciary may extend the maturity date
for an additional year upon an affirmative written decision made
annually by such fiduciary. Once a Plan fiduciary does not
affirmatively extend the maturity date, no future extensions will
occur.
e. Condition (i)
Condition (i) of the Notice states that MetLife will inform a Plan
fiduciary of the new reset rate for the Credited Rate prior to the
fiduciary's affirmation of the maturity date. To reflect the fact that
MetLife will inform a Plan fiduciary of the new reset rate for the
Credited Rate prior to a Plan fiduciary's decision to extend a maturity
date for a MetLife Trust GIC for one year or to decline such extension,
the Department has revised Condition (i).
(i) Prior to a Plan fiduciary's decision regarding the extension
of a maturity date for a MetLife Trust GIC for one additional year,
MetLife informs such Plan fiduciary of the new reset rate for the
Credited Rate.
2. Changes to the Summary
With the exception of MetLife's suggested change to the Credited
Rate formula, which is discussed below in Part 2.b., the Department has
made the following substantive modifications to the Summary.
a. Representation 7
MetLife states a possible interpretation of the language of
Representation 7 would not allow for the designation of an investment
manager other than MetLife or an affiliated sub-manager other than
State Street Research and Management Company (State Street Research).
Because MetLife wishes to be able to designate other investment
managers and affiliated sub-managers by mutual agreement with the Plan
sponsor, even though there is presently no affiliate to designate as a
sub-manager, MetLife requests that the second sentence in
Representation 7 be redrafted as follows:
However, by mutual agreement with the Plan sponsor, MetLife may
designate State Street Research or another affiliated investment
manager as investment manager or sub-manager with respect to some or
all of the assets in an Account.
In addition, in the third sentence of Representation 7, MetLife
requests that the words ``investment manager or'' be inserted before
the word ``sub-manager.''
b. Representation 12
MetLife requests that certain technical changes be made to the
description of the Credited Rate because it believes the references to
the duration and yield-to-maturity in the text imply that the source
for these two inputs is the Account rather than a third-party benchmark
index. Therefore, MetLife requests that in part (a) of the second
sentence of the first paragraph of Representation 12, the words ``of
assets in the Account'' be deleted and the following paragraphs be
inserted after part (c) of the representation:
If a Plan fiduciary has determined to extend a maturity date (as
described in Representation 13), the Yield-to-Maturity component
will be the yield-to-maturity of an external index (as described in
Representation 8) unless specifically requested by the Plan with
MetLife's consent. MetLife represents that it will not calculate the
yield-to-maturity of the index. Rather, such calculation will be
made by the index provider. Once a Plan fiduciary has determined not
to extend a maturity date, the Yield-to-Maturity component will be
the yield of a Treasury security with a comparable duration relative
to the assets in the Account.
The Credited Rate will not be affected by the length of time
that MetLife has managed a MetLife Trust GIC Account.
In addition, MetLife requests that the last sentence of the second
paragraph of Representation 12 be deleted and replaced with the
following language:
The amortization period or Duration will be no longer than the
period specified in the MetLife Trust GIC. If a Plan fiduciary has
determined to extend a maturity date (as described in Representation
13), it typically will be the duration of the index (as described in
Representation 8) unless specifically requested by the Plan with
MetLife's consent. MetLife further represents that the duration of
the index will be calculated by the index provider. Once a Plan has
determined not to extend a maturity date, the Duration is the period
from the effective date of the Credited Rate reset until the
maturity date or the average maturity date.
c. Representation 13
Representation 13 of the Summary describes the manner in which the
maturity date mechanism for a MetLife Trust GIC will operate. Under the
procedure set forth in Representation 13, a MetLife Trust GIC may
continue indefinitely since there are no restrictions placed on the
number of years the instrument may remain in effect. Also, during an
annual notification period, MetLife is required to afford the Plan
fiduciary an opportunity to ``affirm'' the maturity date in writing. If
the Plan fiduciary does nothing, the MetLife Trust GIC will continue
for another year and the notification procedure will be repeated each
year. Assuming, however, the Plan fiduciary ``affirms'' the maturity
date, the MetLife Trust GIC will mature
[[Page 19959]]
within the prescribed time frame selected by the Plan fiduciary from
the anniversary date of such MetLife Trust GIC.
In order to provide additional safeguards, the Department has
decided to revise this procedure in its entirety. Specifically, the
Department has proposed that the Plan fiduciary make an affirmative
decision to extend the maturity date for a MetLife Trust GIC.
Additionally, the Department has determined that a MetLife Trust GIC
will never have a maturity date that is in excess of five years. A
MetLife Trust GIC may be extended, however, on an annual basis, for
only one year as long as the Plan fiduciary provides advance written
notice to MetLife agreeing to the extension. If, however, the Plan
fiduciary does not inform MetLife, in writing, prior to the anniversary
date of the intention to extend the maturity date, the date will not be
extended by one year and the MetLife Trust GIC will mature within the
maximum five year time frame. As noted above, MetLife will repeat the
notification procedure over successive annual periods if the Plan
fiduciary determines that each such extension is appropriate. Should
the Plan fiduciary decide not to extend the maturity date on an
anniversary date, no further annual notifications will be required of
MetLife.
Besides the foregoing changes, the Department emphasizes the fact
that the Guaranteed Value for a MetLife Trust GIC will not always
reflect the amount of the initial contribution but may be adjusted for
contributions and withdrawals.
Therefore, Representation 13 has been revised to read as follows:
13. Although each MetLife Trust GIC will have a defined maturity
date or dates selected by the Plan fiduciary and agreed to by
MetLife, in no event will a MetLife Trust GIC have a maturity date
exceeding five years. However, such date may be extended if
specifically requested, in writing, by the Plan fiduciary. Each such
extension of the maturity date will be subject to a one year
limitation as described below.
One month before the anniversary date of the MetLife Trust GIC,
MetLife will notify the Plan fiduciary, in writing, of the impending
anniversary of such MetLife Trust GIC, as well as the new reset rate
for the Credited Rate, and afford the fiduciary the opportunity to
notify MetLife that it will extend the maturity date. If the Plan
fiduciary does not inform MetLife, in writing, prior to the
anniversary date of the intention to extend the maturity date, the
date will not be extended by one year and the original maturity date
will remain in effect. If, on the other hand, the Plan fiduciary
informs MetLife, in writing, prior to the anniversary date of the
intention to extend the maturity date, the date will be extended for
one additional year only. A Plan fiduciary which elects to extend
the maturity date in this manner will be given another opportunity
to do so one month before the next anniversary date of the MetLife
Trust GIC.
The notification procedure will be repeated, and the opportunity
to extend the maturity date for one more year will be given prior to
each subsequent anniversary date, provided the fiduciary has elected
to extend the maturity date before the immediately preceding
anniversary date. Each extension elected by the fiduciary will be
for only one year beyond the maturity date, including any extensions
previously in effect. Thus, at no time will a MetLife Trust GIC have
a maturity date that is more than five years from the anniversary
date.
Upon the maturity of a MetLife Trust GIC, MetLife represents
that if the Market Value of the assets invested in the MetLife Trust
GIC is less than the Guaranteed Value (as described in
Representation 11), it will make up the difference.9
\9\ MetLife notes that the procedures governing the maturity
date of a MetLife Trust GIC will not affect the ability of a Plan
fiduciary to discontinue such investment as described in
Representation 19.''
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d. Representation 20(b). MetLife represents that although the
conversion of a MetLife Trust GIC to a MetLife Conventional GIC has
been discussed with the Department primarily in the context of
Guaranteed Value exceeding Market Value, it wishes to clarify that the
MetLife Conventional GIC may still be selected regardless of the
relative levels of Guaranteed and Market Values. In some cases, MetLife
notes that a Plan fiduciary holding a MetLife Trust GIC with Market
Value in excess of Guaranteed Value may consider the MetLife
Conventional GIC the most prudent alternative available. If this
fiduciary believes that interest rates are about to decline, such
fiduciary may decide to lock in the gain by selecting this investment
option. Because ``any market value loss or gain * * * will be amortized
over the period ending with the final maturity date of the MetLife
Conventional GIC,'' MetLife explains that the Plan fiduciary will have
secured an above market rate of return guaranteed for an extended fixed
period.
Therefore, to cover the full range of situations in which a MetLife
Conventional GIC will be offered, MetLife requests that the words ``at
a time when there are losses and'' be deleted in the first sentence of
Representation 20(b). Similarly, and for clarification, MetLife
requests that the following sentence be substituted for the first
sentence of Footnote 16:
The Department notes that the decision by a Plan fiduciary to
convert a MetLife Trust GIC into a MetLife Conventional GIC is
subject to the provisions of section 404 of the Act, as are all Plan
investment decisions.
Finally, the Department notes that MetLife's comments with respect
to the Notice also contained certain minor clarifications to
information included in the Summary. Rather than restate these
modifications in this grant notice, the Department wishes to
acknowledge all of the technical clarifications made by MetLife to the
information in question.
For further information regarding MetLife's comment letter or other
matters discussed herein, interested persons are encouraged to obtain
copies of the two exemption application files (Exemption Application
No. D-10241 and Exemption Application No. D-10412) the Department is
maintaining in this case. The complete application files, as well as
all supplemental submissions received by the Department, are made
available for public inspection in the Public Documents Room of the
Pension and Welfare Benefits Administration, Room N-5638, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210.
Accordingly, after consideration of the entire record, including
MetLife's comment letter, the Department has determined to grant the
exemption as modified herein.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Consolidated Associations of Railroad Employees Health Care Plan
(the Plan) Located in Topeka, Kansas
[Prohibited Transaction Exemption 98-18; Exemption Application No. L-
10527]
Exemption
The restrictions of section 406(a) of the Act shall not apply,
effective June 10, 1997 to: (1) the current leasing (the Lease) of
certain real property (the Property) by the Plan to Century Health
Solutions, Inc. (Century), a party in interest with respect to the
Plan; (2) the proposed new leasing of substantially the same Property
by the Plan to Century (or its successor in name) effective April 1,
1998 (the New Lease); and (3) the possible future sale of the Property
by the Plan to Century (or its successor in name) pursuant to a right
of first refusal under the terms of the Lease, provided the following
conditions are satisfied: (a) the Property represents no more than 25%
of the value of the Plan's assets; (b) the terms of the Lease are, and
will remain, at least as favorable to the Plan as those obtainable in
an arm's-length transaction with an unrelated party; (c) the fair
market rental value is
[[Page 19960]]
determined on an annual basis by a qualified, independent appraiser;
(d) the Plan's independent fiduciary has determined that the
transaction is appropriate for the Plan and in the best interests of
the Plan's participants and beneficiaries; (e) the Plan's independent
fiduciary will continue to monitor the transaction and the conditions
of the exemption and take whatever action is necessary to enforce the
Plan's rights under the Lease; and (f) the Plan's independent fiduciary
acts to ensure that any sale of the Property by the Plan to Century is
properly effected under the terms of the Lease, pursuant to Century's
right of first refusal in the event the Plan receives a bona fide offer
from a third party to purchase the Property, and Century is not in
default on any of its obligations under the Lease.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on February 26, 1998 at 63
FR 9867.
Written Comments
The only written comments received by the Department with respect
to the proposed exemption were submitted by the applicant, which sought
clarification with respect to two points. First, the applicant
represented that the New Lease would likely be for fewer square feet of
the Property than under the Lease, and sought clarification that the
exemption as proposed would still apply to the New Lease. With respect
to the New Lease, the Department notes that the exemption would apply
to a lease of fewer square feet in the same Property provided all
conditions of the exemption are satisfied. Secondly, the applicant
requested clarification that the exemption would still apply if Century
reorganized as a for-profit corporation, or changed its name, or both.
The applicant represented that this change in name will never occur in
connection with a sale of the underlying assets of Century to an
unrelated third party. The applicant requested that the operative
language of the exemption be modified to extend relief to Century or
its successor in name. The operative language of the exemption has been
amended accordingly to reflect the possible name change.
The Department has considered the entire record, including the
comment submitted by the applicant, and has determined to grant the
exemption as proposed, with the one change as described above.
EFFECTIVE DATE: This exemption is effective June 10, 1997.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Thornton, Hegg, Reif, Johnston & Dolan Profit Sharing Plan and
Trust (the Plan) Located in Alexandria, Minnesota
[Prohibited Transaction Exemption No. 98-19; Application No. D-10563]
Exemption
The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the sale (the Sale) by the Plan of certain real
property (the Property) to Robert M. Hegg, (Mr. Hegg), a party in
interest with respect to the Plan; provided the following conditions
are satisfied:
(A) The terms and conditions of the transaction are no less
favorable to the Plan than those which the Plan would receive in an
arm's-length transaction with an unrelated party;
(B) The Sale is a one-time transaction for cash;
(C) The Plan incurs no expenses from the Sale; and
(D) The Plan receives as consideration from the Sale the greater of
either the fair market value of the Property as determined by a
qualified, independent appraiser on the date of the Sale, or an amount
equal to the funds expended by the Plan in acquiring and maintaining
the Property, less any income produced by the Property.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the Notice of Proposed Exemption published on February 26, 1998, at 63
FR 9868.
FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 17th day of April, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-10693 Filed 4-21-98; 8:45 am]
BILLING CODE 4510-29-P