[Federal Register Volume 64, Number 188 (Wednesday, September 29, 1999)]
[Notices]
[Pages 52546-52551]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-24939]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-36; Exemption Application No. D-
10504, et al.]
Grant of Individual Exemptions; Aetna Inc. (Aetna)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Aetna Inc. (Aetna), Located In Hartford, Connecticut
[Prohibited Transaction Exemption 99-36; Application No. D-10504]
Exemption
I. Transactions
The restrictions of section 406(a)(1)(A) through (D) and 406(b) 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 (F) of the
Code shall not apply to the following transactions, if the conditions
set forth in Section II and Section III, below, are satisfied:
1
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\1\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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(a) The receipt, directly or indirectly, by a sales agent (Sales
Agent or Sales Agents), as defined in Section IV(l) below, of a sales
commission from Aetna in connection with the purchase, with plan
assets, of an insurance contract (the Insurance Contract or Insurance
Contracts), as defined in Section IV(h) below;
(b) The receipt of a sales commission by Aetna, as principal
underwriter for a mutual fund registered under the Investment Company
Act of 1940, in connection with the purchase, with plan assets, of
securities issued by such mutual fund (the Aetna Fund or Aetna Funds),
as defined in Section IV(c) below;
(c) The effecting by Aetna, as a principal underwriter, of a
transaction for the purchase, with plan assets, of securities issued by
an Aetna Fund, and the effecting by a Sales Agent of a transaction for
the purchase, with plan assets, of an Insurance Contract; and
(d) The purchase, with plan assets, of an Insurance Contract from
Aetna.
II. General Conditions
(a) The transactions are effected by Aetna in the ordinary course
of Aetna's business as an insurance company, or as a principal
underwriter to an Aetna Fund, or in the case of a Sales Agent, in the
ordinary course of the Sales Agent's business as a Sales Agent.
(b) The transactions are on terms at least as favorable to the plan
as an arm's length transaction with an unrelated party would be.
(c) The combined total of all fees, sales commissions, and other
consideration received by Aetna or a Sales Agent: (1) For the provision
of services to the plan, and (2) in connection with a purchase of an
Insurance Contract or securities issued by an Aetna Fund, is not in
excess of ``reasonable compensation'' within the contemplation of
section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and
(d)(10) of the Code. If such total is in excess of ``reasonable
compensation'' the ``amount involved'' for purposes of the civil
penalties of section 502(i) of the Act and excise taxes imposed by
section 4975(a) and (b) of the Code is the amount of compensation in
excess of ``reasonable compensation.''
III. Specific Conditions
(a) Aetna or the Sales Agent is not--
[[Page 52547]]
(1) A trustee of the plan (other than a non-discretionary trustee
who does not render investment advice with respect to any assets of the
plan, or a trustee to an investment trust (the Investment Trust), as
defined in Section IV(g) below, which will not purchase Insurance
Contracts or securities issued by an Aetna Fund pursuant to this
exemption);
(2) A plan administrator (within the meaning of section 3(16)(A) of
the Act and section 414(g) of the Code);
(3) A fiduciary who is expressly authorized in writing to manage,
acquire, or dispose of, on a discretionary basis, those assets of the
plan that are or could be invested in Insurance Contracts, securities
issued by an Aetna Fund, or an Investment Trust; or
(4) An employer any of whose employees are covered by the plan.
(b) (1) Prior to the execution of a transaction involving the
receipt of sales commissions by a Sales Agent in connection with the
plan's purchase of an Insurance Contract, Aetna or the Sales Agent
provides to an independent plan fiduciary (the Independent Plan
Fiduciary), as defined in Section IV(f) below, disclosures of the
following information concerning the Insurance Contract in writing and
in a form calculated to be understood by a plan fiduciary who has no
special expertise in insurance or investment matters:
(A) An explanation of: (i) The nature of the affiliation or
relationship between Aetna and the Sales Agent recommending the
Insurance Contract; and, (ii) the nature of any limitations that such
affiliation or relationship, or any agreement between the Sales Agent
and Aetna places on the Sales Agent's ability to recommend Insurance
Contracts;
(B) The sales commission, expressed as a percentage of gross annual
premium payments for the first year and for each of the succeeding
renewal years, that will be paid by Aetna to the Sales Agent in
connection with the purchase of the recommended Insurance Contract,
together with a description of any factors that may affect the
commission; and
(C) A full and detailed description of any charges, fees,
discounts, penalties, or adjustments which may be paid by the plan
under the recommended Insurance Contract in connection with the plan's
purchase, holding, exchange, termination, or sale of the Insurance
Contract, including a description of any factors that may affect the
level of charges, fees, discounts, or penalties paid by the plan.
(2) Following receipt of the information required to be provided to
the Independent Plan Fiduciary, as described in Section III(b)(1)
above, and before the execution of the transaction, the Independent
Plan Fiduciary acknowledges in writing receipt of such information and
approves the transaction on behalf of the plan. The Independent Plan
Fiduciary may be an employer of employees covered by the plan but may
not be a Sales Agent involved in the transaction. The Independent Plan
Fiduciary may not receive, directly or indirectly (e.g. through an
affiliate), any compensation or other consideration for his or her own
personal account from any party dealing with the plan in connection
with the transaction.
(3) With respect to additional purchases of Insurance Contracts,
the written disclosure required under Section III(b)(1) need not be
repeated, unless--
(A) More than three years have passed since such disclosure was
made with respect to the same kind of Insurance Contract, or
(B) The Insurance Contract being recommended for purchase or the
commission with respect thereto is materially different from that for
which the approval described under Section III(b)(2) was obtained.
(c)(1) With respect to purchases with plan assets of securities
issued by an Aetna Fund, or the receipt of sales commissions by Aetna
in connection with such purchases, Aetna provides to an Independent
Plan Fiduciary prior to the execution of the transaction the following
information concerning the Aetna Fund in writing and in a form
calculated to be understood by a plan fiduciary who has no special
expertise in insurance or investment matters:
(A) A description of: (i) The investment objectives and policies of
the Aetna Fund, (ii) the principal investment strategies that the Aetna
Fund may use to obtain its investment objectives, (iii) the principal
risk factors associated with investing in the Aetna Fund, (iv)
historical investment return information for the Aetna Fund, (v) fees
and expenses of the Aetna Fund, including annual operating expenses
(e.g., management fees, distribution fees, service fees, and other
expenses) and fees paid by shareholders (e.g., sales charges and
redemption fees), (vi) the identity of the Aetna Fund adviser, and
(vii) the procedures for purchases of securities issued by the Aetna
Fund (including any applicable minimum investment requirements and
sales charges);
(B) A description of: (i) The expenses of the recommended Aetna
Fund, including investment management, investment advisory, or similar
services, any fees for secondary services (e.g., for services other
than investment management, investment advisory, or similar services,
including but not limited to custodial, administrative, or other
services), and (ii) any charges, fees, discounts, penalties, or
adjustments that may be paid by the plan in connection with the
purchase, holding, exchange, termination, or sale of shares of the
recommended Aetna Fund securities, together with a description of any
factors that may affect the level of charges, fees, discounts, or
penalties paid by the plan or the Aetna Fund;
(C) An explanation of (i) the nature of the affiliation or
relationship between Aetna and the Aetna Fund, and (ii) the limitation,
if any, that such affiliation, relationship, or any agreement between
Aetna and the Aetna Fund places on Aetna's ability to recommend
securities issued by other investment companies;
(D) The sales commission, if any, that Aetna will receive in
connection with the purchase of securities of the recommended Aetna
Fund, expressed as either (i) a percentage of the dollar amount of the
plan's gross payments and the amount actually invested, (ii) a
percentage of the average daily net assets under investment in
securities issued by the Aetna Fund, or (iii) both if applicable,
together with a description of any factors that may affect the
commission; and
(E) A description of the procedure or procedures for redeeming the
Aetna Fund securities.
The disclosures required under Section III(c)(1) above shall be
deemed to be completed only if, with respect to fees and expenses of an
Aetna Fund, the type of each fee or expense (e.g., management fees,
administrative fees, fund operating expenses, and other fees, including
but not limited to fees payable for marketing and distribution services
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the
12b-1 Fees) ) and the rate or amount charged for a specified period
(e.g., annually) is provided in a written document separate from the
prospectus of such Aetna Fund.
(2) Following receipt of the information required to be provided to
the Independent Plan Fiduciary, as described in Section III(c)(1)
above, and before execution of the transaction, the Independent Plan
Fiduciary approves the specific transaction on behalf of the plan.
Unless facts and circumstances would indicate the contrary, such
approval may be presumed if the Independent Plan Fiduciary directs the
transaction to proceed after Aetna has
[[Page 52548]]
delivered the written disclosures to the Independent Plan Fiduciary.
The Independent Plan Fiduciary may be an employer of employees covered
by the plan but may not be Aetna. The Independent Plan Fiduciary may
not receive, directly or indirectly (e.g., through an affiliate), any
compensation or other consideration for his or her own personal account
from any party dealing with the plan in connection with the
transaction.
(3) With respect to additional purchases of Aetna Fund securities,
Aetna:
(A) Provides reasonable advance notice of any material change with
respect to the Aetna Fund securities being purchased or the commission
with respect thereto, and
(B) Repeats the written disclosure required under Section
III(c)(1)(A), (C), (D) and (E) once every three years.
(d)(1) Aetna shall retain or cause to be retained for a period of
six (6) years from the date of any transaction covered by this
exemption the following:
(A) The information disclosed with respect to such transaction
pursuant to Sections III(b), and (c);
(B) Any additional information or documents provided to the
Independent Plan Fiduciary with respect to the transaction; and
(C) Written acknowledgments, as described in Section III(b)(2)
above.
(2) A prohibited transaction shall not be deemed to have occurred
if, due to circumstances beyond the control of Aetna, such records are
lost or destroyed before the end of such six-year period.
(3) Notwithstanding anything to the contrary in sections 504(a)(2)
and (b) of the Act, such records shall be unconditionally available for
examination during normal business hours by duly authorized employees
or representatives of the Department of Labor, the Internal Revenue
Service, plan participants and beneficiaries, any employer of plan
participants and beneficiaries, and any employee organization any of
whose members are covered by the plan.
IV. Definitions
For purposes of this exemption--
(a) Aeltus means the Aeltus Trust Company, or any other financial
institution supervised under state or federal laws and affiliated with
Aetna.
(b) Aetna means the Aetna Life Insurance Company, the Aetna Life
Insurance and Annuity Company, and any of their affiliates, including
but not limited to Aeltus;
(c) Aetna Fund means any investment company registered under the
Investment Company Act of 1940 for which Aetna serves as investment
adviser and as principal underwriter (as that term is defined in
section 2(a)(29) of the Investment Company Act of 1940, 15 U.S.C. 80a-
2(a)(29)).
(d) An affiliate of a person means (1) any person directly or
indirectly controlling, controlled by, or under common control with
such person, (2) any officer, director, employee, or relative of any
such person, or any partner in such person, and (3) Any corporation or
partnership of which such person is an officer, director, or employee,
or in which such person is a partner. For purposes of this definition,
an ``employee'' includes (A) any registered representative of Aetna,
where Aetna or an affiliate is principal underwriter, and (B) any
insurance agent or broker or pension consultant acting under a written
agreement as Aetna's agent in connection with the sale of an Insurance
Contract, whether or not such registered representative or insurance
agent or broker or pension consultant is a common law employee of
Aetna.
(e) The term, control, means the power to exercise a controlling
influence over the management or policies of a person other than an
individual;
(f) Independent Plan Fiduciary means a fiduciary with respect to a
plan, which fiduciary has no relationship to, or interest in, Aetna
that might affect the exercise of such fiduciary's best judgment as a
fiduciary.
(g) Investment Trust means (1) any collective investment fund or
group trust qualifying for tax-exempt status under the provisions of
the Internal Revenue Code of 1986 and regulations and rulings
thereunder, of which Aeltus, as defined in Section IV(a) above, or its
successor or affiliate serves as trustee, or (2) any single-customer
trust account for which Aeltus serves as trustee, provided that Aeltus
has no discretionary authority or responsibility with respect to the
management or administration of, and does not provide any investment
advice with respect to, any plan assets not invested in such single-
customer trust account or another Investment Trust.
(h) Insurance Contract or Insurance Contracts means an insurance or
annuity contract issued by Aetna.2
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\2\ The Department expresses no opinion as to whether any so-
called ``synthetic guaranteed insurance contracts'' offered by Aetna
constitutes an Insurance Contract within the meaning of this
exemption. The Department further notes that this exemption provides
relief from the self-dealing and conflict of interest provisions of
the Act in connection with the sale of Insurance Contracts to plans
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase
of specific insurance products. Thus, for example, no relief is
provided under this exemption for any act of self-dealing that may
arise in connection with the ongoing operation or administration of
an Insurance Contract.
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(i) A nondiscretionary trustee of a plan is a trustee whose powers
and duties with respect to any assets of the plan are limited to: (1)
the provision of nondiscretionary trust services, as defined in Section
IV(j) below, to such plan, and (2) the duties imposed on the trustee by
any provision or provisions of the Act or the Code.
(j) Nondiscretionary trust services means custodial services and
services ancillary to custodial services, none of which services are
discretionary.
(k) A relative means a relative as that term is defined in section
3(15) of the Act (or a member of the family as that term is defined in
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a
brother or a sister;
(l) Sales Agent means any insurance agent, broker, or pension
consultant or any affiliate thereof that is affiliated with Aetna.
(m) Principal underwriter is defined in the same manner as that
term is defined in section 2(a)(29) of the Investment Company Act of
1940 (15 U.S.C. 8a-2(a)(29)).
Effective Date: This exemption will be effective as of August 28,
1997, the date of the filing of the application for exemption.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department of
Labor (the Department) invited all interested persons to submit written
comments and requests for a hearing on the proposed exemption within
forty-five (45) days of the date of the publication of the Notice in
the Federal Register on May 13, 1999. All comments and requests for a
hearing were due by June 28, 1999.
During the comment period, the Department received no requests for
a hearing. However, the Department did receive two (2) comment letters
from Aetna, the applicant, dated June 28, and August 10, 1999,
respectively. In the comment letters, the applicant requested certain
modifications and clarifications to the language of the exemption, as
proposed, and informed the Department of certain changes, as described
in the Summary of Facts and Representations (the SFR) in the Notice.
Specifically, the issues raised in the applicant's comment letters fall
into seven (7) categories: (1) Clarification regarding the transactions
exempted by
[[Page 52549]]
Section I(c) and Section I(d); (2) an issue relating to reliance on
other applicable exemptions; (3) an alternative method of disclosing
sales commissions; (4) clarification of the scope of the exemption; (5)
interpretation of the definition of Sales Agent, as set forth in
Section IV(l); (6) certain corrections to the facts, as set forth in
the SFR in the Notice, and (7) a modification of the language of the
definition of Aeltus, as set forth in Section IV(a). A discussion of
each of the applicant's comments and the Department's responses,
thereto, are set forth in the numbered paragraphs below.
1. The applicant seeks clarification from the Department of the
transactions exempted by Section I(c) and Section I(d), as published in
the Notice (64 FR at 25917, column 1, lines 26-34). In this regard,
Section I(c) provides relief for:
The effecting by Aetna, as a principal underwriter, of a
transaction for the purchase, with plan assets, of securities issued
by an Aetna Fund, and the effecting by a Sales Agent of a
transaction for the purchase, with plan assets, of an Insurance
Contract.
Further, Section I(d) provides relief for, ``The purchase, with plan
assets, of an Insurance Contract from Aetna.''
Specifically, Aetna requests that the Department confirm that
Section I(c) and Section I(d) would be available for the effecting by
Aetna of a transaction for the purchase of an Insurance Contract, as
defined in Section IV(h), where the sale is effected through an
employee of Aetna or through one of Aetna's affiliates. The concern is
that Aetna itself would require relief if either: (a) A plan's purchase
of an Insurance Contract from Aetna is deemed to be a prohibited sale
between a plan and a party in interest; or (b) Aetna is deemed to be a
fiduciary because its employee/agent provided investment advice and, as
a result, Aetna is deemed to have committed a prohibited transaction by
effecting the sale of an Insurance Contract.
Aetna believes that, as an affiliate of a Sales Agent, as defined
in Section IV(d), it should be able to rely on the relief provided by
Section I(c), because the definition of Sales Agent, as set forth in
Section IV(l), includes any ``affiliate'' of such Sales Agent. In
addition, Aetna believes that the purchase from Aetna of an Insurance
Contract should be exempted under Section I(d), even if Aetna may be a
fiduciary as a result of investment advice provided by an Aetna
employee/agent. The Department concurs.
2. The applicant seeks clarification from the Department of the
interpretation of Section III(a)(1), as published in the Notice (64 FR
at 25917, column 1, lines 66-67 and column 2, lines 1-10). In this
regard, Section III(a)(1) provides that Aetna or a Sales Agent may not
rely on the exemption, if Aetna or the Sales Agent is:
A trustee of the plan (other than a non-discretionary trustee who
does not render investment advice with respect to any assets of the
plan, or a trustee to an investment trust (the Investment Trust), as
defined in Section IV(g) below, which will not purchase Insurance
Contracts or securities issued by an Aetna Fund pursuant to this
proposed exemption) (emphasis added).
Specifically, Aetna seeks confirmation that the phrase underlined
in the quotation above does not preclude its reliance on other
exemptions. In this regard, Aetna represents that while it will not
rely on the subject exemption for a purchase of Aetna Funds or an
Insurance Contract by an Investment Trust, such a transaction might be
covered by an applicable class exemption.
It is not the intention of the Department to preclude Aetna from
taking advantage of any other available exemption, proved that Aetna
has met the conditions for relief, as set forth in such exemption.
Accordingly, the Department has decided to retain the language of
Section III(a)(1), as set forth in the Notice, except that the word,
``proposed,'' before the word, ``exemption,'' has been deleted.
3. Section III(c)(1)(D), as set forth in the Notice (64 FR at
25918, column 1, lines 26-34), requires the disclosure to an
Independent Plan Fiduciary prior to execution of the transaction of:
The sales commission, if any, that Aetna will receive in
connection with the purchase of securities of the recommended Aetna
Fund, expressed as a percentage of the dollar amount of the plan's
gross payments and the amount actually invested, together with a
description of any factors that may affect the commission.
In footnote 4 of the Notice (64 FR at 25919), the Department noted
that the relief provided by the subject exemption does not preclude the
receipt by Aetna or its affiliates of 12b-1 Fees to the extent that the
payment of such 12b-1 Fees cannot be functionally distinguished from
the payment of a sales commission in connection with the purchase with
plan assets, of securities issued by an Aetna Fund. In this regard,
Aetna notes that such 12b-1 Fees are calculated as a percentage of
assets under management in Aetna Fund securities and that disclosure of
12b-1 Fees could not be easily expressed as, ``a percentage of the
dollar amount of the plan's gross payments and the amount actually
invested,'' as required by Section III(c)(1)(D). Further, Aetna is not
aware that 12b-1 Fees are disclosed in such a format by any mutual fund
provider or broker. Accordingly, Aetna has proposed an additional
method for the disclosure of 12b-1 Fees, or both methods, if
applicable, pursuant to this exemption. In this regard, Aetna requests
that the Department substitute the following text for the language of
Section III(c)(1)(D), as it appeared in the Notice:
The sales commission, if any, that Aetna will receive in
connection with the purchase of securities of the recommended Aetna
Fund, expressed as either (i) a percentage of the dollar amount of
the plan's gross payments and the amount actually invested, (ii) a
percentage of assets invested in securities issued by the Aetna
Fund, or (iii) both if applicable, together with a description of
any factors that may affect the commission.
If the Department does not accept the proposed substitution, Aetna
has suggested a second alternative. In this regard, Aetna notes that
asset-based 12b-1 Fees are required to be disclosed under Sections
III(c)(1)(A) and (B) of the exemption. Accordingly, in the alternative,
Aetna requests the Department confirm that to the extent 12b-1 Fees are
paid from the assets of an Aetna Fund, all of the disclosure conditions
under the exemption would be satisfied by disclosure of 12b-1 Fees
under Sections III(c)(1)(A) and (B), and additional disclosure
regarding 12b-1 Fees would not be required under Section III(c)(1)(D).
The Department has decided not to accept Aetna's second
alternative, which is described in the paragraph above. Instead, with
certain revisions to the language of sub-paragraph (ii), the Department
has decided to adopt the substitute language for Section III(c)(1)(D)
suggested by Aetna. In this regard, as amended, Section III(c)(1)(D) of
the exemption reads as follows:
The sales commission, if any, that Aetna will receive in
connection with the purchase of securities of the recommended Aetna
Fund, expressed as either (i) a percentage of the dollar amount of
the plan's gross payments and the amount actually invested, (ii) a
percentage of the average daily net assets under investment in
securities issued by the Aetna Fund, or (iii) both if applicable,
together with a description of any factors that may affect the
commission.
4. Aetna requests that footnote 2, as it appeared in the Notice (64
FR at 25918), should be amended to read, as follows:
The Department expresses no opinion as to whether any so-called
``synthetic guaranteed insurance contracts'' offered by Aetna
[[Page 52550]]
constitutes an Insurance Contract within the meaning of this
proposed exemption. The Department further notes that this proposed
exemption provides relief from the self-dealing and conflict of
interest provisions of the Act in connection with the sale of
Insurance Contracts and Aetna Funds to plans by fiduciaries. It does
not provide relief from any acts of self-dealing that do not arise
directly in connection with the purchase of specific insurance
products. Thus, for example, no relief is provided under this
proposal for any act of self-dealing that may arise in connection
with the ongoing operation or administration of an Insurance
Contract.
The Department has decided to delete the contents of footnote 2, as
it appeared in the Notice, and, with certain revisions, has adopted the
language suggested by Aetna as the text for footnote 2 in the
exemption. With regard to revisions of the language suggested by Aetna,
the Department has:
(a) Deleted the word, ``proposed,'' before the word, ``exemption,''
in the first and second sentences of the quotation above;
(b) Deleted the phrase, ``and Aetna Funds'' after the words,
``Insurance Contracts,'' in the second sentence of the quotation above;
and
(c) Substituted the word, ``exemption,'' for the word,
``proposal,'' in the fourth sentence of the quotation above.
Accordingly, the revised language of footnote 2 into this exemption
reads as follows:
The Department expresses no opinion as to whether any so-called
``synthetic guaranteed insurance contracts'' offered by Aetna
constitutes an Insurance Contract within the meaning of this
exemption. The Department further notes that this exemption provides
relief from the self-dealing and conflict of interest provisions of
the Act in connection with the sale of Insurance Contracts to plans
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase
of specific insurance products. Thus, for example, no relief is
provided under this exemption for any act of self-dealing that may
arise in connection with the ongoing operation or administration of
an Insurance Contract.
In addition, Aetna has requested that the Department confirm that
the last sentence of the quotation above does not refer to routine
transactions such as asset valuation and rate setting, but only to
extraneous transactions such as asset transfer and loan advances.
Although the Department is unable to provide the requested confirmation
regarding the application of the footnote to routine transactions, it
is our view that transactions, such as asset transfers and loan
advances made to parties in interest in connection with the operation
of the Insurance Contract, would be beyond the scope of this exemption.
5. Aetna requests that the Department amend the definition of Sales
Agent, as set forth in Section IV(l). In this regard, Section IV(l), as
it appeared in the Notice (64 FR at 25919, column 1, lines 20-24),
provides that:
``Sales Agent'' means any insurance agent, broker, or pension
consultant or any affiliate thereof that is affiliated with Aetna
either through ownership or by contractual arrangement (emphasis
added).
Aetna is concerned that the phrase underlined in the quotation of
Section IV(l) above imposes a limitation on the definition of Sales
Agent. Specifically, Aetna believes that such language may exclude
Aetna from being considered an affiliate of a Sales Agent where an
individual who is a broker or pension consultant is affiliated with
Aetna by being Aetna's employee, rather than through a contractual or
ownership arrangement. In addition, Aetna is concerned that the
language of Section IV(1) does not make it clear that the term, ``Sales
Agent'' would include any affiliate of a Sales Agent. Accordingly,
Aetna requests that the Department clarify the definition of Sales
Agent. Further, Aetna suggests that the Department substitute for the
text of Section IV(1), as it appeared in the Notice, the following
language:
``Sales Agent'' means any insurance agent, broker, or pension
consultant that is an employee of Aetna or is affiliated with Aetna
either through ownership or by contractual arrangement, or any
affiliate thereof.
The Department has decided not to adopt the language in the
quotation above which was suggested by Aetna. Instead, the Department
has decided to modify the definition of a Sales Agent to clarify the
term. Accordingly, as amended, Section IV(l) of the exemption reads as
follows:
``Sales Agent'' means any insurance agent, broker, or pension
consultant or any affiliate thereof that is affiliated with Aetna.
Further, it is the view of the Department that Aetna would not be
excluded from being considered an affiliate of a Sales Agent where an
individual who is a broker or pension consultant is affiliated with
Aetna by being Aetna's employee. In this regard, the Department notes
that for purposes of the definition of affiliate, as set forth in
Section IV(d) of the exemption, an ``employee'' includes:
Any registered representative of Aetna, where Aetna or an
affiliate is principal underwriter, and (B) any insurance agent or
broker or pension consultant acting under a written agreement as
Aetna's agent in connection with the sale of an Insurance Contract,
whether or not such registered representative or insurance agent or
broker or pension consultant is a common law employee of Aetna.
In this regard, the Department notes that the general and specific
conditions, as set forth in the exemption, however, must be satisfied.
Specifically, Section II(a) provides that the transactions must be:
Effected by Aetna in the ordinary course of Aetna's business as
an insurance company, or as a principal underwriter to an Aetna
Fund, or in the case of a Sales Agent, in the ordinary course of the
Sales Agent's business as a Sales Agent.
Accordingly, the Department notes that in order for Aetna, a Sales
Agent, or a principal underunderwriter to rely upon relief for the
transactions described in the exemption, each such person must satisfy
Section II(a), among other conditions set forth in the exemption.
6. Aetna has informed the Department of certain changes in the
services arrangements among Aetna and its affiliates. Because these
changes occurred after Aetna filed its application for exemption with
the Department, some of the facts and representations that appeared in
the SFR are no longer completely accurate. For this reason, Aetna has
suggested certain deletions and additions to the language, as published
in the Notice and requests that the Department substitute the text
which is quoted below for the language that appeared in the SFR. Aetna
represents that none of the changes involve a material change in any
facts or representations made by Aetna in its application for
exemption. The Department concurs and has made the requested deletions
and additions in the language of the SFR. Aetna's deletions to the
language that appeared in the SFR are noted below by the words in
brackets, and Aetna's additions have been underlined in the text below.
The text of paragraph 6, as published in the Notice (64 FR at
25919, column 2, lines 59-68 and column 3, lines 1-2), should have read
as follows:
Aetna Investment Services, Inc. (AISI), Aetna Financial
Services, Inc. (AFSI), Aeltus Capital, Inc. (Aeltus Capital), and
Financial Network Investment Corporation (FNIC) are each registered
broker-dealers with the SEC and are [wholly-owned] affiliates of
ALIC and ALIAC. [ALIC ] ALIAC, AISI, [AFSI] Aeltus Capital, and FNIC
and their successors (together with ALIC, the Aetna Companies) have
provided and will provide a variety of services to the Aetna Funds
or in connection with the distribution of Aetna Funds.
The text of paragraph 7, as published in the Notice (64 FR at
25919, column 3, lines 3-36), should have read as follows:
[[Page 52551]]
[In this regard] [A]s disclosed in the prospectus materials for
each of the Aetna Funds, ALIAC is the investment adviser to [all of
the Aetna Funds] Aetna's Portfolio Partners Funds and Aeltus
Investment Management, Inc. (AIM) is the investment adviser to the
Aetna Series Funds and the Aetna Variable Funds. In addition, both
ALIAC and AIM provide other services (the Secondary Services) to
Aetna Funds for which they are the investment adviser, including
accounting, shareholder administration, [sub-accounting,] and other
administrative services. ALIAC also provides sub-accounting services
in connection with Aetna Funds offered through its variable annuity
contract. Further ALIAC is the principal underwriter to the Aetna
Variable Funds and Portfolio Partners, Inc., and [AISI] Aeltus
Capital is the principal underwriter to the Aetna Series Funds. In
this regard, it is represented that as principal underwriters, ALIAC
and [AISI] Aeltus Capital distribute Aetna Fund shares on an agency
basis. It is further represented that ALIAC and AIM may engage
affiliated or unaffiliated sub-advisers to the Aetna Funds from time
to time.
Under the terms of services agreements between ALIAC or AIM and
an Aetna Fund, ALIAC or AIM may receive management fees and fees for
Secondary Services. In addition, ALIAC or [AISI] Aeltus Capital may
receive sales commissions and distribution fees, including for some
classes of shares issued by certain Aetna Funds 12b-1 Fees. It is
represented that the prospectus materials including the Statement of
Additional Information, for each of the Aetna Funds disclose whether
such fees are paid and the basis under which such fees are paid.
7. Aetna informed the Department that it has applied for and is in
the process of obtaining authority to establish and operate a federally
chartered savings bank (the Savings Bank). If approved, the Savings
Bank may establish and operate certain collective investment funds or
group trusts or single customer trust accounts on behalf of plans
covered by the Act. Aetna would like to ensure that relief provided by
the exemption will extend to plans that invest in a trust maintained by
the Savings Bank on the same terms and conditions that would apply, if
the plan had invested in a trust maintained by Aeltus. Accordingly,
Aetna proposes that the Department revise Section IV(a), as published
in the Notice (64 FR 25918, column 2, line 55-56), to read as follows:
Aeltus means the Aeltus Trust Company, or any other financial
institution supervised under state or federal laws and affiliated
with Aetna.
The Department concurs and has incorporated the requested language into
Section IV(a) of the exemption.
After giving full consideration to the entire record, including the
written comments from the applicant, the Department has decided to
grant the exemption, as described, amended, and concurred in above. In
this regard, the comment letters submitted by the applicant to the
Department has been included as part of the public record of the
exemption application. The complete application file, including all
supplemental submissions received by the Department, is made available
for public inspection in the Public Documents Room of the Pension
Welfare Benefits Administration, Room N-5638, U. S. Department of
Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on May 13, 1999, at 64 FR 25916.
For Further Information Contact: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Modern Woodmen of America Employees' Savings Plan (the Plan),
Located in Rock Island, Illinois
[Prohibited Transaction Exemption 99-37; Exemption Application No. D-
10518]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code,
shall not apply to the past sale, on March 23, 1998, by the Plan of
certain commercial mortgages and bonds (the Securities) to Modern
Woodmen of America (the Employer), a party in interest with respect to
the Plan, provided that the following conditions were satisfied: (1)
The sale was a one-time transaction for cash; (2) the Plan paid no
commissions nor other expenses relating to the sale; (3) for each
Security, the Plan received an amount equal to the highest, as of the
date of the sale, of (a) the par value, (b) the book value, or (c) the
fair market value of the Security, as determined by a qualified,
independent appraiser; and (4) the Plan received the accrued but unpaid
interest that was due on each Security at the time of the transaction.
Effective Date: The exemption is effective as of March 23, 1998.
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 August 11, 1999 at 64 FR
43740.
For Further Information Contact: Ms. Karin Weng 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, DC, this 21st day of September, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare
BenefitsAdministration, Department of Labor.
[FR Doc. 99-24939 Filed 9-28-99; 8:45 am]
BILLING CODE 4510-29-P