[Federal Register Volume 74, Number 57 (Thursday, March 26, 2009)]
[Notices]
[Pages 13235-13241]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E9-6620]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Prohibited Transaction Exemptions and Grant of Individual
Exemptions Involving: 2009-10, Camino Medical Group, Inc. Employee
Retirement Plan (the Retirement Plan) D-11336; and 2009-11, JPMorgan
Chase Bank, National Association, D-11471
AGENCY: Employee Benefits Security 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
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
being granted solely by the Department because, effective December 31,
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1
(1996), 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 exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
Camino Medical Group, Inc. Employee Retirement Plan
(the Retirement Plan)
Located in Sunnyvale, CA
[Prohibited Transaction Exemption 2009-10;
Exemption Application No. D-11336]
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,\1\ shall not apply, effective July 1, 2003 until December 14,
2007, to (1) the leasing (the 2003 Leases) of a medical facility (the
Urgent Care Facility) and a single family residence
[[Page 13236]]
converted to an office (the Residence) by the Retirement Plan to CMG,
the sponsor of the Retirement Plan and a party in interest with respect
to such plan; and (2) the exercise, by CMG, of options to renew the
2003 Lease with respect to the Residence for one year and the 2003
Lease with respect to the Urgent Care Facility for three years,
provided that the following conditions were or will be met:
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\1\ For purposes of this exemption reference 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 terms and conditions of each 2003 Lease were no less
favorable to the Retirement Plan than those obtainable by the
Retirement Plan under similar circumstances when negotiated at arm's
length with unrelated third parties.
(b) The Retirement Plan was represented for all purposes under the
2003 Leases, and during each renewal term, by a qualified, independent
fiduciary.
(c) The independent fiduciary negotiated, reviewed, and approved
the terms and conditions of the 2003 Leases and the options to renew
such leases on behalf of the Retirement Plan and determined that the
transactions were appropriate investments for the Retirement Plan and
were in the best interests of the Retirement Plan and its participants
and beneficiaries.
(d) The rent paid to the Retirement Plan under each 2003 Lease, and
during each renewal term, was no less than the fair market rental value
of the Urgent Care Facility and the Residence, as established by a
qualified, independent appraiser.
(e) The rent was subject to adjustment at the commencement of the
second year of each 2003 Lease and each year thereafter by way of an
independent appraisal. A qualified, independent appraiser was selected
by the independent fiduciary to conduct the appraisal. If the appraised
fair market rent of the Urgent Care Facility or the Residence was
greater than that of the current base rent, then the base rent was
revised to reflect the appraised increase in fair market rent. If the
appraised fair market rent of the Urgent Care Facility or the Residence
was less than or equal to the current base rent, then the base rent
remained the same.
(f) Each 2003 Lease was triple net, requiring all expenses for
maintenance, taxes, utilities and insurance to be paid by CMG, as
lessee.
(g) The independent fiduciary--
(1) Monitored CMG's compliance with the terms of each 2003 Lease
and the conditions of the exemption throughout the duration of such
leases and the renewal terms, and was responsible for legally enforcing
the payment of the rent and the proper performance of all other
obligations of CMG under the terms of such leases.
(2) Expressly approved the renewals of the 2003 Leases beyond their
initial terms.
(3) Determined whether the rent had been paid on a monthly basis
and in a timely manner based on documentation provided by CMG.
(4) Determined whether CMG owed the Camino Medical Group, Inc.
Matching 401(k) Plan (the 401(k) Plan) or the Retirement Plan
additional rent by reason of CMG's leasing of the Urgent Care Facility
and/or the Residence from such plans prior to July 1, 2003 and ensured
that CMG made such payments to the Plans, including reasonable
interest.
(h) At all times throughout the duration of each 2003 Lease and
each respective renewal term, the fair market value of the Urgent Care
Facility and the Residence did not exceed 25 percent of the value of
the total assets of the Retirement Plan.
(i) Within 90 days of the publication of the grant notice in the
Federal Register, Palo Alto Medical Foundation, the successor in
interest to CMG, (1) files a Form 5330 with the Internal Revenue
Service and pays all applicable excise taxes that are due with respect
to the leasing of the Urgent Care Facility and the Residence to CMG by
the 401(k) Plan and/or the Retirement Plan prior to July 1, 2003; and
(2) provides a copy of the cancelled check and other documentary
evidence to the Department indicating that the taxes were correctly
computed and paid within 45 days of such payment.
DATES: Effective Date: This exemption is effective from July 1, 2003
until December 14, 2007.
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 December 24, 2008 at 73
FR 79168.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 693-8556. (This is not a toll-free number.)
JPMorgan Chase Bank, National Association, Located in Columbus, Ohio
[Prohibited Transaction Exemption 2009-11; Exemption Application No. D-
11471]
Exemption
Section I. Covered Transactions
The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1)
and (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 lending of securities to
affiliates of JPMorgan Chase & Co. Inc. (JPMCC), which are engaged in
JPMCC's capital markets line of business (referred to herein as Global
Capital Markets), by employee benefit plans (the Client Plans),
including commingled investment funds holding Client Plan assets, for
which JPMCC through its Financing & Market Products or any other
similar division of JPMCB or a U.S. affiliate of JPMCC (collectively,
FMP) acts as securities lending agent or sub-agent, and for which
JPMCC, through its Investor Services line of Business, as operated
through JPMCB and its affiliates (Investor Services), may also act as
directed trustee or custodian, and (2) to the receipt of compensation
by FMP in connection with the proposed transactions, provided the
general conditions set forth below in Section II are met.
Section II. General Conditions
(a) This exemption applies to loans of securities to Global Capital
Markets, as operated in the United States (J. P. Morgan Securities
Inc., or the U.S. Affiliated Borrower) and in the following foreign
countries: the United Kingdom (J. P. Morgan Securities Ltd.), Canada
(J. P. Morgan Securities Canada Inc.), Australia (J. P. Morgan
Securities Australia Limited), Japan (J. P. Morgan Securities Japan Co.
Ltd) (collectively, the Foreign Affiliated Borrowers). Global Capital
Markets will also include other companies or their successors which are
affiliated with either JPMCB or JPMCC within these countries.\2\
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\2\ Unless otherwise noted, Global Capital Markets will consist
collectively of the above referenced entities.
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(b) For each Client Plan, neither Investor Services, Global Capital
Markets, FMP, nor any other division or affiliate of JPMCC has or
exercises discretionary authority or control with respect to the
investment of the assets of Client Plans involved in the transaction
(other than with respect to the lending of securities designated by an
independent fiduciary of a Client Plan as being available to lend and
the investment of cash collateral after securities have been loaned and
collateral received), or renders investment advice (within the meaning
of 29 CFR 2510.3-21(c)) with respect to those assets, including
decisions concerning a Client Plan's acquisition and disposition of
securities available for loan.
(i) Notwithstanding the foregoing, for the period from March 16,
2008,
[[Page 13237]]
through June 14, 2008, section II(b) shall not apply to the lending of
securities by a Client Plan to Bear Stearns Affiliates, provided that
(i) no division or affiliate of JPMCC that has discretionary authority
or control with respect to the investment of the assets of the Client
Plan involved in the transaction, or renders investment advice (within
the meaning of 29 CFR 2510.3-21(c)) with respect to those assets, has
access to information regarding whether the particular securities have
been loaned to a Bear Stearns Affiliate, and (ii) an Independent
Fiduciary (as defined in section IV(f)) conducts a Review (as defined
in section IV(g)) of Client Plan securities loans to Bear Stearns
Affiliates and within 180 days of the date of publication of this
proposed amendment in the Federal Register, issues a written report
presenting its specific findings.
(c) Before a Client Plan participates in a securities lending
program and before any loan of securities to Global Capital Markets is
effected, a Client Plan fiduciary which is independent of Global
Capital Markets must have--
(1) Authorized and approved a securities lending authorization
agreement with FMP, where FMP is acting as the securities lending
agent;
(2) Authorized and approved the primary securities lending
authorization agreement with the primary lending agent where FMP is
lending securities under a sub-agency agreement with the primary
lending agent; \3\ and
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\3\ The Department, herein, is not providing exemptive relief
for securities lending transactions engaged in by primary lending
agents, other than FMP, beyond that provided pursuant to PTE 2006-
16.
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(3) Approved the general terms of the securities loan agreement
(the Loan Agreement) between such Client Plan and Global Capital
Markets, the specific terms of which are negotiated and entered into by
FMP.
Notwithstanding the foregoing, effective March 16, 2008, section
II(c)(3) shall be deemed satisfied with respect to loans of securities
by Client Plans to Bear Stearns Affiliates by FMP as securities lending
agent or sub-agent, provided (i) FMP provided to such Client Plans no
later than April 15, 2008, a description of the general terms of the
securities loan agreements between such Client Plans and the Bear
Stearns Affiliates and (ii) at the time of providing such information,
FMP notified each Client Plan that it had 10 days to object in writing
to the continued lending of securities to the Bear Stearns Affiliates.
If a written objection is received from a Client Plan within the 10-day
period, FMP shall cease to make any new securities loans on behalf of
that Client Plan to Bear Stearns Affiliates; any securities loans made
on behalf of that Client Plan to Bear Stearns Affiliates prior to the
date the objection is received shall be covered by this exemption, and
FMP shall seek to expeditiously terminate such securities loan in a
manner approved by the Client Plan.
(d) Each loan of securities by a Client Plan to Global Capital
Markets is at market rates and terms which are at least as favorable to
such Client Plan as if made at the same time and under the same
circumstances to an unrelated party.
(e) The Client Plan may terminate the agency or sub-agency
arrangement at any time without penalty to such Client Plan on five
business days notice whereupon Global Capital Markets delivers
securities identical to the borrowed securities (or the equivalent in
the event of reorganization, recapitalization or merger of the issuer
of the borrowed securities) to the Client Plan within--
(1) The customary delivery period for such securities;
(2) Five business days; or
(3) The time negotiated for such delivery by the Client Plan and
Global Capital Markets, whichever is less.
(f) The Client Plan receives from Global Capital Markets (either by
physical delivery or by book entry in a securities depository located
in the United States, wire transfer or similar means) by the close of
business on or before the day the loaned securities are delivered to
Global Capital Markets, collateral consisting of cash, securities
issued or guaranteed by the United States Government or its agencies or
instrumentalities, or irrevocable United States bank letters of credit
issued by a U.S. bank, which is a person other than Global Capital
Markets or an affiliate thereof, or any combination thereof, or other
collateral permitted under PTE 2006-16 (as amended from time to time
or, alternatively, any additional or superseding class exemption that
may be issued to cover securities lending by employee benefit plans),
having, as of the close of business on the preceding business day, a
market value (or, in the case of a letter of credit, a stated amount)
initially equal to at least the percentage required in PTE 2006-16 (as
amended from time to time) but in no case less than 102 percent of the
market value of the loaned securities.
(g) If the market value of the collateral on the close of trading
on a business day is less than 100 percent of the market value of the
borrowed securities at the close of business on that day, Global
Capital Markets delivers additional collateral on the following day
such that the market value of the collateral again equals 102 percent
or the percentage otherwise required by 2006-16.
(h) The Loan Agreement gives the Client Plan a continuing security
interest in, title to, or the rights of a secured creditor with respect
to the collateral and a lien on the collateral and FMP monitors the
level of the collateral daily.
(i) Before entering into a Loan Agreement, Global Capital Markets
furnishes FMP the most recently available audited and unaudited
statements of the financial condition of the applicable borrower within
Global Capital Markets. Such statements are, in turn, provided by FMP
to the Client Plan. At the time of the loan, Global Capital Markets
gives prompt notice to the Client Plan fiduciary of any material
adverse change in the borrower's financial condition since the date of
the most recent financial statement furnished to the Client Plan. In
the event of any such changes, FMP requests approval of the Client Plan
to continue lending to Global Capital Markets before making any such
additional loans. No new securities loans will be made until approval
is received and each loan constitutes a representation by Global
Capital Markets that there has been no such material adverse change.
Notwithstanding the foregoing, effective March 16, 2008, section
II(i) shall be deemed satisfied with respect to loans of securities by
Client Plans to Bear Stearns Affiliates by FMP as securities lending
agent or sub-agent, provided (i) FMP provided to such Client Plans no
later than April 15, 2008, the most recently available audited and
unaudited consolidated statements of the financial condition of the
parent company of the applicable Bear Stearns Affiliates and the parent
company's subsidiaries, and notice of any material adverse change in
financial condition since the date of the most recent financial
statement being furnished to the Client Plans, and (ii) at the time of
providing such information, FMP notified each Client Plan that it had
10 days to object in writing to the continued lending of securities to
the Bear Stearns Affiliates. If a written objection is received from a
Client Plan within the 10-day period, FMP shall cease to make any new
securities loans on behalf of that Client Plan to Bear Stearns
Affiliates; any securities loans made on behalf of that Client Plan to
Bear Stearns Affiliates prior to the date the objection is received
shall be covered by this exemption, and FMP
[[Page 13238]]
shall seek to expeditiously terminate such securities loan in a manner
approved by the Client Plan. Loans of securities by such Client Plans
to a Bear Stearns Affiliate entered into on or after April 15, 2008,
under the same securities loan agreement terms disclosed in accordance
with the second paragraph of section II(c)(3) above shall be deemed to
satisfy this section II(i), absent a material adverse change in the
financial condition of the particular Bear Stearns Affiliate since
April 15, 2008 (in which event the provisions of the first paragraph of
this section II(i) shall apply).
(j) In return for lending securities, the Client Plan either--
(1) Receives a reasonable fee, which is related to the value of the
borrowed securities and the duration of the loan; or
(2) Has the opportunity to derive compensation through the
investment of cash collateral. (In the case of cash collateral, the
Client Plan may pay a loan rebate or similar fee to Global Capital
Markets if such fee is not greater than the fee the Client Plan would
pay an unrelated party in a comparable arm's length transaction.)
(k) All procedures regarding the securities lending activities
conform to the applicable provisions of PTE 2006-16 (as amended from
time, or alternatively, any additional or superseding class exemption
that may be issued to cover securities lending by employee benefit
plans).
(l) If Global Capital Markets defaults on the securities loan or
enters bankruptcy, the collateral will not be available to Global
Capital Markets or its creditors, but will be used to make the Client
Plan whole. In this regard,
(1) In the event a Foreign Affiliated Borrower defaults on a loan,
JPMCB will liquidate the loan collateral to purchase identical
securities for the Client Plan. If the collateral is insufficient to
accomplish such purchase, JPMCB will indemnify the Client Plan for any
shortfall in the collateral plus interest on such amount and any
transaction costs incurred (including attorney's fees of the Client
Plan for legal actions arising out of the default on the loans or
failure to indemnify properly under this provision). Alternatively, if
such identical securities are not available on the market, FMP will pay
the Client Plan cash equal to--
(i) The market value of the borrowed securities as of the date they
should have been returned to the Client Plan, plus
(ii) All the accrued financial benefits derived from the beneficial
ownership of such loaned securities as of such date, plus
(iii) Interest from such date to the date of payment.
The lending Client Plans will be indemnified in the United States
for any loans to the Foreign Affiliated Borrowers.
(2) In the event the U.S. Affiliated Borrower defaults on a loan,
JPMCB will liquidate the loan collateral to purchase identical
securities for the Client Plan. If the collateral is insufficient to
accomplish such purchase, either JPMCB or the U.S. Affiliated Borrower
will indemnify the Client Plan for any shortfall in the collateral plus
interest on such amount and any transaction costs incurred (including
attorney's fees of the Client Plan for legal actions arising out of the
default on the loans or failure to indemnify property under this
provision).
(m) The Client Plan receives the equivalent of all distributions
made to holders of the borrowed securities during the term of the loan,
including all interest, dividends and distributions on the loaned
securities during the loan period.
(n) Prior to any Client Plan's approval of the lending of its
securities to Global Capital Markets, copies of the notice of proposed
exemption and the final exemption, and, effective November 7, 2008, the
proposed amendment to the exemption and, upon publication in the
Federal Register, the final amendment to the exemption, are provided to
the Client Plan; provided, that for Client Plans of FMP as of the date
of the proposed amendment or final amendment, as applicable, is
published in the Federal Register, section II(n) shall be deemed
satisfied if such notice is provided to the Client Plan within 15 days
of publication in the Federal Register.
(o) Each Client Plan receives a monthly report with respect to its
securities lending transactions, including but not limited to the
information described in Representation 24 of the proposed exemption
for PTE 99-34 (64 FR 34281, 6/25/99), so that an independent fiduciary
of the Client Plan may monitor the securities lending transactions with
Global Capital Markets.
(p) Only Client Plans with total assets having an aggregate market
value of at least $50 million are permitted to lend securities to
Global Capital Markets; provided, however, that--
(1) In the case of two or more Client Plans which are maintained by
the same employer, controlled group of corporations or employee
organization (i.e., the Related Client 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 is engaged in
securities lending arrangements with Global Capital Markets, the
foregoing $50 million requirement shall be deemed satisfied if such
trust or other entity has aggregate assets which are in excess of $50
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 $50
million threshold amount attributable to plan investment in the
commingled entity, which are in excess of $100 million.
(2) In the case of two or more Client Plans which are not
maintained by the same employer, controlled group of corporations or
employee organization (i.e., the Unrelated Client 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 is engaged in securities lending
arrangements with Global Capital Markets, the foregoing $50 million
requirement is satisfied if such trust or other entity has aggregate
assets which are in excess of $50 million (excluding the assets of any
Client Plan with respect to which the fiduciary responsible for making
the investment decision on behalf of such group trust or other entity
or any member of the controlled group of corporations including such
fiduciary is the employer maintaining such Plan or an employee
organization whose members are covered by such Plan). However, the
fiduciary responsible for making the investment decision on behalf of
such group trust or other entity--
(i) Has full investment responsibility with respect to plan assets
invested therein; and
(ii) Has total assets under its management and control, exclusive
of the $50 million threshold amount attributable to plan investment in
the commingled entity, which are in excess of $100 million.
(In addition, none of the entities described above are formed for
the sole purpose of making loans of securities.)
(q) With respect to each successive two week period, on average, at
least 50 percent or more of the outstanding dollar value of securities
loans negotiated on behalf of Client Plans by FMP, in the aggregate,
will be to unrelated borrowers.
[[Page 13239]]
(r) In addition to the above, all loans involving Foreign
Affiliated Borrowers within Global Capital Markets have the following
supplemental requirements:
(1) Such Foreign Affiliated Borrower is registered as a bank or
broker-dealer with--
(i) The Financial Services Authority in the case of J. P. Morgan
Securities Ltd.;
(ii) The Office of the Superintendent of Financial Institutions
(OSFI), in the case of J.P. Morgan Securities Canada Inc.;
(iii) The Australian Securities & Investments Commission in the
case of J.P. Morgan Securities Australia Ltd.; and
(iv) The Financial Services Agency in the case of J.P. Morgan
Securities Japan Ltd.
(2) Such broker-dealer or bank is in compliance with all applicable
provisions of Rule 15a-6 (17 CFR 240.15a-6) under the Securities
Exchange Act of 1934 (the 1934 Act) which provides for foreign broker-
dealers a limited exemption from United States registration
requirements;
(3) All collateral is maintained in United States dollars or
dollar-denominated securities or letters of credit of U.S. banks or any
combination thereof, or other collateral permitted under PTE 2006-16
(as amended from time to time, or alternatively, any additional or
superseding class exemption that may be issued to cover securities
lending by employee benefit plans);
(4) All collateral is held in the United States;
(5) The situs of the Loan Agreement is maintained in the United
States;
(6) The lending Client Plans are indemnified by JPMCB in the United
States for any transactions covered by this exemption with the Foreign
Affiliated Borrower so that the Client Plans do not have to litigate in
a foreign jurisdiction nor sue the Foreign Affiliated Borrower to
realize on the indemnification; and
(7) Prior to the transaction, each Foreign Affiliated Borrower
enters into a written agreement with FMP on behalf of the Client Plan
whereby the Foreign Affiliated Borrower consents to service of process
in the United States and to the jurisdiction of the courts of the
United States with respect to the transactions described herein.
(s) JPMCB or J.P. Morgan Securities Inc. (JPMSI) maintains, or
causes to be maintained within the United States for a period of six
years from the date of such transaction, in a manner that is convenient
and accessible for audit and examination, such records as are necessary
to enable the persons described in paragraph (t)(1) to determine
whether the conditions of the exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of JPMCB or JPMSI,
the records are lost or destroyed prior to the end of the six year
period; and
(2) No party in interest other than JPMCB or JPMSI shall be subject
to the civil penalty that may be assessed under section 502(i) of the
Act, or to the taxes imposed by section 4975(a) and (b) of the Code, if
the records are not maintained, or are not available for examination as
required below by paragraph (t)(1).
(t)(1) Except as provided in subparagraph (t)(2) of this paragraph
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (s) are
unconditionally available at their customary location during normal
business hours by:
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service or the Securities and Exchange
Commission;
(ii) Any fiduciary of a participating Client Plan or any duly
authorized representative of such fiduciary;
(iii) Any contributing employer to any participating Client Plan or
any duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Client
Plan, or any duly authorized representative of such participant or
beneficiary.
(t)(2) None of the persons described above in paragraphs
(t)(1)(ii)-(t)(1)(iv) of this paragraph (t)(1) are authorized to
examine the trade secrets of JPMCB, the U.S. Affiliated Borrowers, or
the Foreign Affiliated Borrowers or commercial or financial information
which is privileged or confidential.
Section III. Temporary Exemption for Investment in Bear Stearns Master
Note
The restrictions of sections 406(a)(1)(A) through (D) and sections
406(b)(1) and (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
investment of securities lending collateral by JPMCB, as the investment
manager of such collateral on behalf of the Client Plan or Collective
Fund that has lent the securities, in the Bear Stearns Master Note (as
defined in paragraph (b) below), provided that the condition set forth
below in paragraph (a) is met.
(a) Repayment of the Bear Stearns Master Note is unconditionally
guaranteed by JPMCB.
(b) For purposes of this Section III, the term ``Bear Stearns
Master Note'' means the $750 million Evergreen Advance dated October
23, 2007, under the Master Note Agreement dated February 9, 2007, by
and between JPMCB as agent for a group of lending entities and certain
subsidiaries of The Bear Stearns Companies Inc., which matured on June
13, 2008, and was paid in full.
Section IV. Definitions
For purposes of this exemption,
(a) The terms ``JPMCB'' and ``JPMCC'' as referred to herein in
Sections I, II and III, refer to JPMorgan Chase Bank, National
Association, and its parent, JPMorgan Chase & Co., Inc.
(b) The term ``affiliate'' means any entity now or in the future,
directly or indirectly, controlling, controlled by, or under common
control with JPMCC or its successors. (For purposes of this definition,
the term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.)
(c) The term ``U.S. Affiliated Borrower'' means an affiliate of
JPMCC that is a bank supervised by the United States or a State, or a
broker-dealer registered under the 1934 Act.
(d) The term ``Foreign Affiliated Borrower'' means an affiliate of
JPMCC that is a bank or a broker-dealer which is supervised by--
(i) The Financial Services Authority in the United Kingdom;
(ii) OSFI in Canada;
(iii) The Australian Securities & Investments Commission in
Australia; and
(iv) The Financial Services Agency in Japan.
(e) The term ``Bear Stearns Affiliate'' means The Bear Stearns
Companies Inc. and its affiliates as constituted on March 15, 2008.
(f) The term ``Independent Fiduciary'' means a fiduciary who is
independent of and unrelated to JPMCB and Bear Stearns Affiliates. For
purposes of this exemption, a fiduciary will not be deemed to be
independent of and unrelated to JPMCB and Bear Stearns Affiliates if:
(i) Such fiduciary directly or indirectly controls, is controlled
by, or is under common control with JPMCB or a Bear Stearns Affiliate;
(ii) Such fiduciary, or any employee of the fiduciary who will be
involved in the Review (as defined in section IV(g)), or any officer,
director, partner, or highly compensated employee (as
[[Page 13240]]
defined in section 4975(e)(2)(H) of the Code) of the fiduciary, is an
officer, director, partner or highly compensated employee (as defined
in section 4975(e)(2)(H) of the Code) of JPMCB or a Bear Stearns
Affiliate; or any member of the business segment performing the
independent fiduciary services is a relative of an officer, director,
partner or highly compensated employee (as defined in section
4975(e)(2)(H) of the Code) of JPMCB or a Bear Stearns Affiliate.
However, if an individual is a director of the fiduciary and an
officer, director, partner or highly compensated employee (as defined
in section 4975(e)(2)(H) of the Code) of JPMCB or a Bear Stearns
Affiliate, and if he or she abstains from participation in the Review,
then this section IV(f)(ii) shall not apply.
For purposes of this section IV(f)(ii), the term officer means a
president, any vice president in charge of a principal business unit,
division or function (such as sales, administration, or finance), or
any other officer who performs a policy-making function for the
fiduciary, JPMCB, or a Bear Stearns Affiliate.
(iii) Such fiduciary directly or indirectly receives any
compensation or other consideration for his or her own personal account
in connection with any transaction described in this exemption, except
that the Independent Fiduciary may receive compensation from JPMCB for
acting as Independent Fiduciary as contemplated herein if the amount or
payment of such compensation is not contingent upon or in any way
affected by the Independent Fiduciary's ultimate decision; or
(iv) The annual gross revenue received by such fiduciary, during
any year of its engagement, from JPMCB and Bear Stearns Affiliates
exceeds five percent (5%) of the fiduciary's annual gross revenue from
all sources for its prior tax year.
(g) The term ``Review'' means a test by an Independent Fiduciary of
a representative sample of transactions falling under section II(b)(i)
of this Exemption that is sufficient in size to afford the Independent
Fiduciary a reasonable basis to make findings as to compliance with the
following:
(i) Whether allocation of the opportunity to lend securities to the
applicable client plan account was in accordance with JPMCB's internal
securities loan allocation procedures;
(ii) Whether the loan of securities by the Client Plan to Bear
Stearns Affiliates was at market rates and terms which were at least as
favorable to such Client Plan as if made at the same time and under the
same circumstances to an unrelated party (as required by section II(d)
hereof);
(iii) Whether with respect to each successive two-week period, on
average, at least 50 percent or more of the outstanding dollar value of
securities loans negotiated on behalf of Client Plans by FMP, in the
aggregate, were to unrelated borrowers (as required by section II(q) of
the exemption); and
(iv) Whether investment by the applicable Client Plan in the
underlying securities that were loaned was consistent with the
investment guidelines for the particular Client Plan account.
For a more complete statement of facts and representations
supporting the Department's decision to grant PTE 99-34, refer to the
proposed exemption (64 FR 34281, June 25, 1999), the grant notice (64
FR 46419, August 25, 1999) and the notice of proposed amendment (the
Notice)(73 FR 63200, October 23, 2008).
DATES: Effective Date: Except as otherwise specified herein, the
amendment is effective as of August 25, 1999.
Written Comments: The Department received one comment with respect
to the Notice, which was filed by the Applicants. The Applicants'
commentary, a discussion of the Department's views in response thereto
and the modifications to the proposed exemption are discussed below.
The Applicants noted that the proposed amendments to sections
II(c)(3) and II(i) would deem certain disclosure conditions of the
exemption to be satisfied with respect to Bear Stearns Affiliate loans
``for the period between March 16, 2008, and April 15, 2008,'' provided
that the required information was furnished to the plans no later than
April 15, 2008. The special relief would expire on April 15, 2008, and
then preexisting disclosure conditions, which require disclosure prior
to participating in a securities lending program and before any loans
are effected, would apply. Applicants believe that loans to Bear
Stearns Affiliates that were made before April 15, 2008, in reliance on
the special relief, might be deemed non-compliant after April 15, 2008.
Additionally, according to the Applicants, reinstating the general rule
as of April 15, 2008, might also mean that further loans to Bear
Stearns Affiliates could not be made after that date even though the
required information has now been provided.
The Applicants suggest that removing the end date on the period for
which relief is provided would address this concern. Relief would be
limited to loans for those Client Plans that were clients of FMP during
the March 16 to April 15 period, because those are the only plans that
will have received the required disclosures by the April 15, 2008 date.
For post-April 15 clients, the general rules of the exemption would
apply. With that understanding of the applicability of the special
relief, the Department has revised the final exemption accordingly.
The Applicants also suggest that with respect to section II(i),
language be added to clarify that the special relief would not
supersede the requirement to update the provided information in the
event of a material adverse change to the borrower's financial
condition. The Applicants provided the following sentence to be added
to section II(i):
Loans of securities by such Client Plans to a Bear Stearns
Affiliate entered into on or after April 15, 2008, under the same
securities loan agreement terms disclosed in accordance with the
second paragraph of section II(c)(3) above shall be deemed to
satisfy this section II(i), absent a material adverse change in the
financial condition of the particular Bear Stearns Affiliate since
April 15, 2008 (in which event the provisions of the first paragraph
of this section II(i) shall apply).
The Department has added Applicants' proposed sentence at the end of
the new paragraph in section II(i).
Applicants request that an additional sentence be added to the new
paragraphs in section II(c)(3) and II(i) to give effect to certain
provisions previously only described in the disclosure provisions of
these paragraphs. The disclosure provisions in question require that
FMP notify each Client Plan of its ability to object to continued
securities lending to Bear Stearns Affiliates, and detail the process
that will occur if a Client Plan objects. Applicants' proposed sentence
states that:
If a written objection is received from a Client Plan within the
10-day period, FMP shall cease to make any new securities loans on
behalf of that Client Plan to Bear Stearns Affiliates; any
securities loans made on behalf of that Client Plan to Bear Stearns
Affiliates prior to the date the objection is received shall be
covered by this exemption, and FMP shall seek to expeditiously
terminate such securities loan in a manner approved by the Client
Plan.
The Department concurs; however, to avoid redundancy, the
Department shortened the disclosure provisions preceding Applicants'
requested sentences.
With respect to section II(n), which requires copies of the notice
of proposed exemption and final exemption to be
[[Page 13241]]
provided to Client Plans, Applicants suggest that the section be
amended to require disclosure of the notice of proposed amendment and
final amendment. The Department has revised that section as suggested.
Applicants additionally request a revision of the definition of
``Independent Fiduciary,'' in particular, the language describing the
relationships that will cause the fiduciary not to be independent. The
language in question, section IV(f)(ii) of the exemption, reads: ``Such
fiduciary, or any officer, director, partner, employee or relative of
the fiduciary, is an officer, director, partner or employee of JPMCB or
a Bear Stearns Affiliate (or is a relative of such persons).''
Applicants state that the firm that has been retained as
Independent Fiduciary is U.S. Trust, Bank of America Private Wealth
Management, a business unit of Bank of America, N.A. Bank of America
has entered into a definitive agreement to sell the Special Fiduciary
Services (``SFS'') business segment of U.S. Trust, which is performing
the Independent Fiduciary services for purposes of the exemption, to
Evercore Partners (Evercore), in a transaction expected to close in
early 2009, before U.S. Trust will be issuing its Independent Fiduciary
report. Following this transaction, SFS will operate as Evercore Trust
Company, N.A., a subsidiary of Evercore, which will assume the
Independent Fiduciary role.
Given the size of JPMCB and Bear Stearns, Applicants assert that
relationships of individuals within these organizations would be
difficult to monitor, and should not affect the fiduciary's
independence unless they involve persons with responsibility for the
particular transaction. More specifically, Applicants informed the
Department that monitoring relatives of the various classes of people
was administratively burdensome. Applicants additionally request that a
director of the fiduciary who is also an officer, director, partner or
highly compensated employee of JPMCB or a Bear Stearns Affiliate be
permitted to abstain from participation in the Review rather than cause
the fiduciary to fail to be independent. Finally, Applicants requested
that the exemption contain a definition of the term ``officer.''
The Department has revised the language to reduce the
administrative burden to Applicants while continuing to protect plan
participants and beneficiaries. In particular, the Department notes
that the definition requires tracking the relatives only of the members
of the SFS business unit performing the independent fiduciary services.
The language, as revised, reads:
(f) The term ``Independent Fiduciary'' means a fiduciary who is
independent of and unrelated to JPMCB and Bear Stearns Affiliates.
For purposes of this exemption, a fiduciary will not be deemed to be
independent of and unrelated to JPMCB and Bear Stearns Affiliates
if:
* * *
(ii) Such fiduciary, or any employee of the fiduciary who will
be involved in the Review (as defined in section IV(g)), or any
officer, director, partner, or highly compensated employee (as
defined in section 4975(e)(2)(H) of the Code) of the fiduciary, is
an officer, director, partner or highly compensated employee (as
defined in section 4975(e)(2)(H) of the Code) of JPMCB or a Bear
Stearns Affiliate; or any member of the business segment performing
the independent fiduciary services is a relative of an officer,
director, partner or highly compensated employee (as defined in
section 4975(e)(2)(H) of the Code) of JPMCB or a Bear Stearns
Affiliate.
However, if an individual is a director of the fiduciary and an
officer, director, partner or highly compensated employee (as
defined in section 4975(e)(2)(H) of the Code) of JPMCB or a Bear
Stearns Affiliate, and if he or she abstains from participation in
the Review, then this section IV(f)(ii) shall not apply.
For purposes of this section IV(f)(ii), the term officer means a
president, any vice president in charge of a principal business
unit, division or function (such as sales, administration, or
finance), or any other officer who performs a policy-making function
for the fiduciary, JPMCB, or a Bear Stearns Affiliate.
Finally, Applicants address the definition of ``Review'' (section
IV(g)(ii)) which states that the Independent Fiduciary will conduct a
review of:
[w]hether the loan of securities by the Client Plan to Global
Capital Markets was at market rates and terms which were at least as
favorable to such Client Plan as if made at the same time and under
the same circumstances to an unrelated party * * *.
Applicants' position is that the scope of the Independent Fiduciary's
review is limited to securities loans to Bear Stearns Affiliates, and
accordingly, references in this section to Global Capital Markets
should be changed to Bear Stearns Affiliates. The Department has made
the requested change.
DATES: Effective Date: Except as otherwise specified herein, the
amendment is effective as of August 25, 1999.
FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd of the Department at
(202) 693-8554. (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 exemption 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) This exemption is 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 this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 20th day of March, 2009.
Ivan Strasfeld,
Director of Exemption, Determinations Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E9-6620 Filed 3-25-09; 8:45 am]
BILLING CODE 4510-29-P