[Federal Register Volume 76, Number 33 (Thursday, February 17, 2011)]
[Notices]
[Pages 9366-9373]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-3590]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions 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). This notice includes the 
following proposed exemptions: D-11528, Wachovia Corporation and Its 
Current and Future Affiliates or Successors (collectively, Wachovia or 
the Applicant; and D-11635, The Parvin Nahvi, M.D., Inc. 401(k) Profit 
Sharing Trust (the Plan); et al.]

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, Room N-5700, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No.------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
[email protected], or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
subpart B (55 FR 32836, 32847, August 10, 1990). 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 requested to the Secretary of Labor. 
Therefore, these notices of proposed exemption are issued solely by the 
Department.

[[Page 9367]]

    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and rrepresentations.

Wachovia Corporation and Its Current and Future Affiliates or 
Successors (Collectively, Wachovia or the Applicant)

    Located in San Francisco, California

[Application No. D-11528]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
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Section I. Sales of Auction Rate Securities From Plans to Wachovia: 
Unrelated to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan (as defined in 
Section V(e)) of an Auction Rate Security (as defined in Section V(c)) 
to Wachovia, where such sale (an Unrelated Sale) is unrelated to, and 
not made in connection with, a Settlement Agreement (as defined in 
Section V(f)), provided that the conditions set forth in Section II 
have been met.

Section II. Conditions Applicable to Transactions Described in Section 
I

    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by Wachovia to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Wachovia for its own 
employees (a Wachovia Plan), the Unrelated Sale is made pursuant to a 
written offer by Wachovia (the Offer) containing all of the material 
terms of the Unrelated Sale, including, but not limited to: (1) The 
identity and par value of the Auction Rate Security; (2) the interest 
or dividend amounts that are due and unpaid with respect to the Auction 
Rate Security; and (3) the most recent rate information for the Auction 
Rate Security (if reliable information is available). Notwithstanding 
the foregoing, in the case of a pooled fund maintained or advised by 
Wachovia, this condition shall be deemed met to the extent each Plan 
invested in the pooled fund (other than a Wachovia Plan) receives 
advance written notice regarding the Unrelated Sale, where such notice 
contains all of the material terms of the Unrelated Sale, including, 
but not limited to, the material terms described in the preceding 
sentence;
    (d) The Unrelated Sale is for no consideration other than cash 
payment against prompt delivery of the Auction Rate Security;
    (e) The sales price for the Auction Rate Security is equal to the 
par value of the Auction Rate Security, plus any accrued but unpaid 
interest or dividends;
    (f) The Plan does not waive any rights or claims in connection with 
the Unrelated Sale;
    (g) The decision to accept the Offer or retain the Auction Rate 
Security is made by a Plan fiduciary or Plan participant or an 
individual retirement account (an IRA (as defined in Section V(e)) 
owner who is independent (as defined in Section V(d)) of Wachovia. 
Notwithstanding the foregoing: (1) In the case of an IRA which is 
beneficially owned by an employee, officer, director or partner of 
Wachovia, the decision to accept the Offer or retain the Auction Rate 
Security may be made by such employee, officer, director or partner; or 
(2) in the case of a Wachovia Plan or a pooled fund maintained or 
advised by Wachovia, the decision to accept the Offer may be made by 
Wachovia after Wachovia has determined that such purchase is in the 
best interest of the Wachovia Plan or pooled fund; \2\
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    \2\ The Department notes that the Act's general standards of 
fiduciary conduct also would apply to the transactions described 
herein. In this regard, section 404 of the Act requires, among other 
things, that a fiduciary discharge his duties respecting a plan 
solely in the interest of the plan's participants and beneficiaries 
and in a prudent manner. Accordingly, a plan fiduciary must act 
prudently with respect to, among other things, the decision to sell 
the Auction Rate Security to Wachovia for the par value of the 
Auction Rate Security, plus unpaid interest and dividends. The 
Department further emphasizes that it expects Plan fiduciaries, 
prior to entering into any of the proposed transactions, to fully 
understand the risks associated with this type of transaction 
following disclosure by Wachovia of all relevant information.
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    (h) Except in the case of a Wachovia Plan or a pooled fund 
maintained or advised by Wachovia, neither Wachovia nor any affiliate 
exercises investment discretion or renders investment advice within the 
meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept 
the Offer or retain the Auction Rate Security;
    (i) The Plan does not pay any commissions or transaction costs with 
respect to the Unrelated Sale;
    (j) The Unrelated Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest to the Plan;
    (k) Wachovia and its affiliates, as applicable, maintain, or cause 
to be maintained, for a period of six (6) years from the date of the 
Unrelated Sale, such records as are necessary to enable the persons 
described below in paragraph (l)(1), to determine whether the 
conditions of this exemption, if granted, have been met, except that:
    (1) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than Wachovia and its affiliates, as applicable, 
shall be subject to a civil penalty under section 502(i) of the Act or 
the taxes imposed by section 4975(a) and (b) of the Code, if such 
records are not maintained, or not available for examination, as 
required, below, by paragraph (l)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Wachovia or its affiliates, as applicable, such records are lost or 
destroyed prior to the end of the six-year period;
    (l)(1) Except as provided below in paragraph (l)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan, including any IRA owner, that 
engages in a Sale, or any duly authorized employee or representative of 
such fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
Unrelated Sale, or any authorized employee or representative of these 
entities;
    (2) None of the persons described above in paragraphs (l)(1)(B)-(C) 
shall be authorized to examine trade secrets of Wachovia, or commercial 
or financial information which is privileged or confidential; and
    (3) Should Wachovia refuse to disclose information on the basis 
that

[[Page 9368]]

such information is exempt from disclosure, Wachovia shall, by the 
close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.

Section III. Sales of Auction Rate Securities From Plans to Wachovia: 
Related to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan of an Auction 
Rate Security to Wachovia, where such sale (a Settlement Sale) is 
related to, and made in connection with, a Settlement Agreement, 
provided that the conditions set forth in Section IV have been met.

Section IV. Conditions Applicable to Transactions Described in Section 
III

    (a) The terms and delivery of the Offer are consistent with the 
requirements set forth in the Settlement Agreement and acceptance of 
the Offer does not constitute a waiver of any claim of the tendering 
Plan;
    (b) The Offer or other documents available to the Plan specifically 
describe, among other things:
    (1) The securities available for purchase under the Offer;
    (2) The background of the Offer;
    (3) The methods and timing by which Plans may accept the Offer;
    (4) The purchase dates, or the manner of determining the purchase 
dates, for Auction Rate Securities tendered pursuant to the Offer, if 
the Offer had any limitation on such dates;
    (5) The timing for acceptance by Wachovia of tendered Auction Rate 
Securities, if there were any limitations on such timing;
    (6) The timing of payment for Auction Rate Securities accepted by 
Wachovia for payment, if payment was materially delayed beyond the 
acceptance of the Offer;
    (7) The expiration date of the Offer; and
    (8) How to obtain additional information concerning the Offer;
    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in Section II have been met.

Section V. Definitions

    For purposes of this proposed exemption:
    (a) The term ``affiliate'' means any person directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with such other person;
    (b) 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 ``Auction Rate Security'' or ``ARS'' means a security: 
(1) That is either a debt instrument (generally with a long-term 
nominal maturity) or preferred stock; and (2) with an interest rate or 
dividend that is reset at specific intervals through a Dutch auction 
process;
    (d) A person is ``independent'' of Wachovia if the person is: (1) 
Not Wachovia or an affiliate; and (2) not a relative (as defined in 
section 3(15) of the Act) of the party engaging in the transaction;
    (e) The term ``Plan'' means an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
the Act; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by section 3(42) of the Act; and
    (f) The term ``Settlement Agreement'' means a legal settlement 
involving Wachovia and a U.S. state or federal authority that provides 
for the purchase of an ARS by Wachovia from a Plan.

DATES: Effective Date: If granted, this proposed exemption will be 
effective as of February 1, 2008.

Summary of Facts and Representations

    1. The Applicant, Wachovia, is a global financial services firm 
headquartered in North Carolina. Among other things, Wachovia includes 
banks, registered investment advisers subject to the Investment 
Advisers Act of 1940 and broker-dealers registered with the U.S. 
Securities and Exchange Commission. In this last regard, Wachovia acts 
as a broker and dealer with respect to the purchase and sale of 
securities, including Auction Rate Securities. Wachovia is one of the 
largest diversified financial services companies in the United States. 
Wachovia provides a broad range of retail banking and brokerage, asset 
and wealth management, and corporate and investment banking products 
and services to customers through 3,330 retail financial centers in 21 
states from Connecticut to Florida and west to Texas and California, 
and nationwide retail brokerage, mortgage lending and auto finance 
businesses. On December 31, 2008, Wachovia was acquired by Wells Fargo 
& Company (WF). WF is a nationwide, diversified community-based 
financial services company with total assets of $1.2 trillion and 
market capitalization of $140 billion as of December 31, 2009.
    2. The Applicant describes Auction Rate Securities and the 
arrangement by which ARS are bought and sold as follows. Auction Rate 
Securities are securities (issued as debt or preferred stock) with an 
interest rate or dividend that is reset at periodic intervals pursuant 
to a process called a Dutch Auction. Investors submit orders to buy, 
hold, or sell a specific ARS to a broker-dealer selected by the entity 
that issued the ARS. The broker-dealers, in turn, submit all of these 
orders to an auction agent. The auction agent's functions include 
collecting orders from all participating broker-dealers by the auction 
deadline, determining the amount of securities available for sale, and 
organizing the bids to determine the winning bid. If there are any buy 
orders placed into the auction at a specific rate, the auction agent 
accepts bids with the lowest rate above any applicable minimum rate and 
then successively higher rates up to the maximum applicable rate, until 
all sell orders and orders that are treated as sell orders are filled. 
Bids below any applicable minimum rate or above the applicable maximum 
rate are rejected. After determining the clearing rate for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers based on the orders they 
submitted. If there are multiple bids at the clearing rate, the auction 
agent will allocate securities among the bidders at such rate on a pro-
rata basis.
    3. The Applicant states that, under a typical Dutch Auction 
process, Wachovia is permitted, but not obligated, to submit orders in 
auctions for its own account either as a bidder or a seller and 
routinely does so in the auction rate securities market in its sole 
discretion. Wachovia may place one or more bids in an auction for its 
own account to acquire ARS for its inventory, to prevent: (a) A failed 
auction (i.e., an event where there are insufficient clearing bids 
which would result in the auction rate being set at a specified rate, 
resulting in no ARS being sold through the auction process); or (b) an 
auction from clearing at a rate that Wachovia believes does not reflect 
the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, Wachovia has been 
appointed by the issuer of the securities to serve as a

[[Page 9369]]

dealer in the auction and is paid by the issuer for its services. 
Wachovia is typically appointed to serve as a dealer in the auctions 
pursuant to an agreement between the issuer and Wachovia. That 
agreement provides that Wachovia will receive from the issuer auction 
dealer fees based on the principal amount of the securities placed 
through Wachovia.
    5. The Applicant states further that Wachovia may share a portion 
of the auction rate dealer fees it receives from the issuer with other 
broker-dealers that submit orders through Wachovia, for those orders 
that Wachovia successfully places in the auctions. Similarly, with 
respect to ARS for which broker-dealers other than Wachovia act as 
dealer, such other broker-dealers may share auction dealer fees with 
Wachovia for orders submitted by Wachovia.
    6. According to the Applicant, since February 2008, only a minority 
of auctions have cleared, particularly involving municipalities. As a 
result, Plans holding ARS may not have sufficient liquidity to make 
benefit payments, mandatory payments and withdrawals and expense 
payments when due.\3\
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    \3\ The Department notes that Prohibited Transaction Exemption 
80-26 (45 FR 28545 (April 29, 1980), as amended at 71 FR 17917 
(April 7, 2006)) permits interest-free loans or other extensions of 
credit from a party in interest to a plan if, among other things, 
the proceeds of the loan or extension of credit are used only: (1) 
For the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of 
the plan and periodic premiums under an insurance or annuity 
contract, or (2) for a purpose incidental to the ordinary operation 
of the plan.
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    7. The Applicant represents that, in certain instances, Wachovia 
may have previously advised or otherwise caused a Plan to acquire and 
hold an Auction Rate Security.\4\ In connection with Wachovia's role in 
the acquisition and holding of ARS by various Wachovia clients, 
including the Plans, Wachovia entered into Settlement Agreements with 
certain U.S. states and federal authorities. Pursuant to these 
Settlement Agreements, among other things, Wachovia was required to 
send a written offer to certain Plans that held ARS in connection with 
the advice and/or brokerage services provided by Wachovia. As described 
in further detail below, eligible Plans that accepted the Offer were 
permitted to sell the ARS to Wachovia for cash equal to the par value 
of such securities, plus any accrued but unpaid interest and/or 
dividends. The Applicant states that, prospectively, additional shares 
of ARS may be tendered by Plans to Wachovia pursuant to a Settlement 
Agreement. Accordingly, the Applicant is requesting retroactive and 
prospective relief for the Settlement Sales. The Applicant is also 
requesting retroactive relief (and prospective relief) for Unrelated 
Sales in the event that a sale of Auction Rate Securities by a Plan to 
Wachovia has occurred outside the Settlement process. If granted, this 
proposed exemption will be effective as of February 1, 2008.
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    \4\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
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    8. Specifically, the Applicant is requesting exemptive relief for 
the sale of Auction Rate Securities under two different circumstances: 
(a) Where Wachovia initiates the sale by sending to a Plan a written 
Offer to acquire the ARS (i.e., an Unrelated Sale), notwithstanding 
that such Offer is not required under a Settlement Agreement; and (b) 
where Wachovia is required under a Settlement Agreement to send to 
Plans a written Offer to acquire the ARS (i.e., a Settlement Sale). The 
Applicant states that the Unrelated Sales and Settlement Sales (also 
referred to as a Covered Sale) are in the interests of Plans. In this 
regard, the Applicant states that the Covered Sales would permit Plans 
to normalize Plan investments. The Applicant represents that each 
Covered Sale will be for no consideration other than cash payment 
against prompt delivery of the ARS, and such cash will equal the par 
value of the ARS, plus any accrued but unpaid interest or dividends. 
The Applicant represents further that Plans will not pay any 
commissions or transaction costs with respect to any Covered Sale.
    9. The Applicant represents that the proposed exemption is 
protective of the Plans. The Applicant states that, with the exception 
of sales of ARS involving Wachovia Plans and pooled funds maintained or 
advised by Wachovia: (a) Each Covered Sale will be made pursuant to a 
written Offer; and (b) the decision to accept the Offer or retain the 
ARS will be made by a Plan fiduciary or Plan participant or IRA owner 
who is independent of Wachovia.\5\ Additionally, each Offer will be 
delivered in a manner designed to alert a Plan fiduciary that Wachovia 
intends to purchase ARS from the Plan. Offers made in connection with 
an Unrelated Sale will contain all of the material terms of the 
Unrelated Sale, including: (a) The identity and par value of the 
Auction Rate Security; (b) the interest or dividend amounts that are 
due with respect to the Auction Rate Security; and (c) the most recent 
rate information for the Auction Rate Security (if reliable information 
is available). Offers made in connection with a Settlement Agreement 
will specifically include, among other things: (a) The background of 
the Offer; (b) the method and timing by which a Plan may accept the 
Offer; (c) the expiration date of the Offer; (d) a description of 
certain risk factors relating to the Offer; (e) how to obtain 
additional information concerning the Offer; and (f) the manner in 
which information concerning material amendments or changes to the 
Offer will be communicated. The Applicant states that, with very 
narrowly tailored exceptions (involving Wachovia Plans and pooled funds 
maintained or advised by Wachovia), neither Wachovia nor any affiliate 
will exercise investment discretion or render investment advice with 
respect to a Plan's decision to accept the Offer or retain the ARS.\6\ 
In the case of a Wachovia Plan or a pooled fund maintained or advised 
by Wachovia, the decision to engage in a Covered Sale may be made by 
Wachovia after Wachovia has determined that such purchase is in the 
best interest of the Wachovia Plan or pooled fund. The Applicant 
represents further that Plans will not waive any rights or claims in 
connection with any Covered Sale.
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    \5\ However, in the case of an IRA beneficially owned by an 
employee, officer, director or partner of Wachovia, the decision to 
accept the Offer or retain the ARS may be made by such employee, 
officer, director or partner of Wachovia.
    \6\ The Applicant states that while there may be communication 
between a Plan and Wachovia subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
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    10. The Applicant represents that the proposed exemption, if 
granted, would be administratively feasible. In this regard, the 
Applicant notes that each Covered Sale will occur at the par value of 
the affected ARS (plus accrued but unpaid interest and dividends, to 
the extent applicable), and such value is readily ascertainable. The 
Applicant represents further that Wachovia will maintain the records 
necessary to enable the Department and Plan fiduciaries, among others, 
to determine whether the conditions of this exemption, if granted, have 
been met.
    11. In summary, the Applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act because, among other things:
    (a) With only very narrow exceptions (involving Wachovia Plans and 
pooled funds maintained or advised by Wachovia), each Covered Sale 
shall be made pursuant to a written Offer;
    (b) Each Covered Sale shall be for no consideration other than cash 
payment against prompt delivery of the ARS;
    (c) The amount of each Covered Sale shall equal the par value of 
the ARS,

[[Page 9370]]

plus any accrued but unpaid interest or dividends;
    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e) With only very narrow exceptions (involving Wachovia Plans and 
pooled funds maintained or advised by Wachovia): (1) The decision to 
accept an Offer or retain the ARS shall be made by a Plan fiduciary or 
Plan participant or IRA owner who is independent of Wachovia (unless 
the IRA owner is an employee, officer, director or partner of 
Wachovia); and (2) neither Wachovia nor any affiliate shall exercise 
investment discretion or render investment advice within the meaning of 
29 CFR 2510.3-21(c) with respect to the decision to accept the Offer or 
retain the ARS;
    (f) Plans shall not pay any commissions or transaction costs with 
respect to any Covered Sale;
    (g) A Covered Sale shall not be part of an arrangement, agreement 
or understanding designed to benefit a party in interest to the 
affected Plan;
    (h) With respect to any Settlement Sale, the terms and delivery of 
the Offer, and the terms of Settlement Sale, shall be consistent with 
the requirements set forth in the Settlement Agreement;
    (i) Wachovia shall make available in connection with an Unrelated 
Sale the material terms of the Unrelated Sale, including: (1) The 
identity and par value of the Auction Rate Security; (2) the interest 
or dividend amounts that are due but unpaid with respect to the Auction 
Rate Security; and (3) the most recent rate information for the Auction 
Rate Security (if reliable information is available); and
    (j) Each Offer made in connection with a Settlement Agreement shall 
describe the material terms of the Settlement Sale, including the 
following (and shall not constitute a waiver of any claim of the 
tendering Plan): (1) The background of the Offer; (2) the methods and 
timing by which the Plan may accept the Offer; (3) the purchase dates, 
or the manner of determining the purchase dates, for ARS pursuant to 
the Offer and the timing for acceptance by Wachovia of tendered ARS for 
payment; (4) the expiration date of the Offer; and (5) how to obtain 
additional information concerning the Offer.

Notice to Interested Persons

    The Applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified, and, 
therefore, the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register. Comments and requests for a hearing 
must be received by the Department not later than 30 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.
    For Further Information Contact: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

The Parvin Nahvi, M.D., Inc. 401(k) Profit Sharing Trust (the Plan), 
Located in Templeton, CA

Application No. D-11635

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, 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, by reason of section 4975(c)(1)(A) through (E) of the Code, shall 
not apply, in connection with the cash sale by the Plan (the Sale) of a 
parcel of improved real property (the Property), to Dr. Parvin Nahvi 
and Dr. Javad Sani (the Applicants), the 100% owners of the Plan 
sponsor, Parvin Nahvi, M.D., Inc. (the Employer), and parties in 
interest with respect to the Plan; provided that:
    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's length 
transaction with an unrelated party;
    (b) The Plan's obligations with respect to the remaining principal 
balance of a loan (the Loan) on the Property that is secured by a first 
deed of trust (the Deed of Trust) with Santa Lucia Bank, an unrelated 
lender, are:
    (1) Satisfied in full out of the proceeds of the Sale, or
    (2) assumed in full by the Applicants, who indemnify and hold the 
Plan harmless for any further payment on, or any claims arising in 
connection with, the Loan;
    (c) The Plan receives an amount in cash, equal to the greater of:
    (1) The original purchase price paid by the Plan for the Property, 
plus additional contributions or expenses paid by the Plan relating to 
the holding of the Property, less any income generated by the Property 
and paid to the Plan, less the Loan principal assumed by the Applicants 
pursuant to Section (b)(2), or
    (2) The Property's appraised value of $1,825,000, which represents 
the fair market value of the Property, less the Loan principal assumed 
by the Applicants pursuant to Section (b)(2);
    (d) The fair market value of the Property has been determined by a 
qualified independent appraiser (the Appraiser) and is updated by such 
appraiser on the date the Sale is consummated;
    (e) The Sale is a one-time transaction for cash;
    (f) The Plan incurs no real estate fees, or commissions, in 
connection with the Sale; and
    (g) The Plan fiduciaries (1) determine whether it is in the 
interest of the Plan to proceed with the Sale, (2) review and approve 
the methodology used in the appraisal that is being relied upon, and 
(3) ensure that such methodology is applied by the Appraiser in 
determining the fair market value of the Property on the date of the 
Sale.

Summary of Facts and Representations

Background

    1. The Employer, a California professional medical corporation, is 
the sponsor of the Plan. The Applicants are participants in the Plan 
and the sole shareholders of the Employer. The Applicants are related 
through marriage and are both fiduciaries and trustees (the Trustees) 
of the Plan. The remaining employees covered under the Plan are the 
Applicants' three children. The Employer is located in Templeton, 
California.
    2. The Plan is a profit sharing plan qualified under section 401(a) 
of the Code and an individual account plan as described in section 
3(34) of the Act, having an original effective date of January 1, 2002. 
Under the Plan, each Plan participant may direct the Trustees to invest 
any portion of his or her individual account in any asset which is 
administratively feasible for the Plan to hold, provided the 
acquisition of which would not result in disqualification of the Plan 
under the Code. The Plan provides separate individual accounting so 
that each participant bears the sole risk of loss attributable to his 
or her investment decision.
    3. According to the Plan's 2009 Annual Return/Report of Employee 
Benefit Plan (the 2009 Annual Report), as of December 31, 2009, the 
Plan had five participants holding combined net assets of 
$1,459,184.\7\ According to the Applicants, as of December 31, 2009, 
the Plan's five participants, together with their percentage holdings 
of total Plan's assets, consist of Dr. Javad N. Sani, owning 57.69%, 
Dr. Parvin Nahvi,

[[Page 9371]]

owning 32.28%, and the Applicants' children, Farhad Sani, Roya Sani, 
and Sara Sani, owning 4.13%, 3.28%, and 2.62%, respectively.
---------------------------------------------------------------------------

    \7\ This figure takes into account the Plan's Loan liability of 
$500,946 as of December 31, 2009.
---------------------------------------------------------------------------

    4. As Trustees, the Applicants caused the Plan, on August 5, 2004, 
to purchase, on behalf of the participants, the Garden Street Inn, a 
13-room bed and breakfast located at 1212 Garden Street, San Luis 
Obispo, California, from Dan and Kathy Smith, unrelated third parties. 
The Property, originally constructed in 1898, is a rectangular shaped, 
two-story building containing approximately 5,998 square feet on the 
first and second level combined and an additional 754 square foot 
finished basement that is currently used as a manager's unit. The 
Applicants represent that the purpose of the investment was to obtain 
an income producing piece of real estate.
    5. The total purchase price for the Property, inclusive of any 
closing costs and $85,890 allocated to furniture and fixtures, was 
$2,213,348.\8\ Of the total purchase price, the Plan paid $1,463,348 in 
cash and financed the remainder through a first deed of trust with 
Santa Lucia Bank, of Atascadero, California, an unrelated party, in the 
original principal amount of $750,000. According to the Applicants, 
there are no other deeds of trust or encumbrances on the Property. The 
Applicants state that the Loan underlying the Deed of Trust has a 
maturity date of August 4, 2014 and it carries a 6.5% fixed interest 
rate for 5 years, after which it is subject to an adjustable rate of 
interest. Subject to any payment changes, the Loan is payable in 119 
monthly installments. According to the Plan's 2009 Annual Report, the 
outstanding balance of the Loan as of December 31, 2009 was $500,946. 
In addition, the Applicants state that, as of August 31, 2010, the 
outstanding principal balance of the Loan had been paid down to 
$479,876.43.\9\
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    \8\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Property by the Plan violated any of 
the provisions of Part 4 of Title I of the Act.
    \9\ The Applicants state that, as trustees of the Plan, they 
have applied the income derived from the Property's operation since 
its purchase to paying down the principal balance of the Loan.
---------------------------------------------------------------------------

    6. The Applicants note that the Plan does not own any property 
aside from the subject Property. In addition, the Applicants represent 
that no parties in interest with respect to the Plan own or lease any 
property adjacent to the Property. The Applicants further represent 
that the Property has not been leased to, or used by, any party in 
interest with respect to the Plan since the date of acquisition.
    7. According to the Applicants, aside from the Property's 
acquisition price (including real estate taxes), the aggregate cost of 
holding the Property by the Plan has been paid out of the income 
generated by the Property. According to the Applicants, in respect of 
the years 2004 through 2008, the Property yielded net income to the 
Plan in the amounts of: $9,175, $30,433, $30,492, $64,639, and $14,125, 
respectively. However, the Applicants state that, in 2009, the Property 
suffered a loss of $21,035.\10\
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    \10\ According to data provided by the Applicants, this loss was 
mainly attributable to a $76,829 drop in revenue received from room 
rents compared with the previous year and a corresponding drop in 
expenses of only $41,000.
---------------------------------------------------------------------------

    8. Furthermore, during the five month period ending on May 31, 
2010, the Property suffered an additional loss of approximately $3,017, 
for a total loss of $24,052. The Applicants explain that, prior to June 
1, 2010, the Property was managed by an unrelated third party, the 
Hotel Management Group (HMG), which had been charging the Plan $3,000 
per month in maintenance fees. Due to the inability of the Plan to 
continue paying such fees, the management contract with HMG was 
terminated as of June 1, 2010, and since then, the Applicants have 
managed the Property themselves without receiving any compensation for 
their services. As a result, from June 1, 2010 through August 31, 2010, 
the Plan received approximately $16,836 in net income from the 
Property.
    Financial data provided by the Applicants, summarized below, 
reveals that for the period beginning in 2004 and continuing through 
August 31, 2010, the Plan received total income of $2,503,275 and 
incurred total expenses of $2,361,627, related to its holding of the 
Property, yielding aggregate net income of $141,648. As a result, 
through August 31, 2010, the Plan's aggregate net acquisition and 
holding costs with respect to the Property were $2,071,700 (the 
original purchase price of $2,213,348, less aggregate net income of 
$141,648).

------------------------------------------------------------------------
                                                        2004--8/31/2010
                Item of Income/Expense                        ($)
------------------------------------------------------------------------
Revenue:
  Rooms Department \11\..............................       2,490,046.00
  Other Income.......................................          13,229.00
                                                      ------------------
    Total Income.....................................       2,503,275.00
Departmental Expenses:
  Rooms Department...................................         955,938.00
  Cost of Other Income...............................           4,312.00
Fixed Expenses:
  Real Estate Taxes..................................          69,467.00
  Insurance..........................................          40,084.00
  Mortgage Interest Expense..........................         256,813.00
  UBIT on Property...................................               0.00
  Other..............................................          10,327.00
Undistributed Expenses:
  Operating Expenses.................................          96,152.00
  Marketing Expenses.................................          77,765.00
  Energy Costs.......................................          97,138.00
  Administrative & General...........................    \12\ 753,631.00
                                                      ------------------
    Total Expenses...................................       2,361,627.00
Net Income...........................................         141,648.00
------------------------------------------------------------------------

The Appraisal Report

    9. The Property was originally appraised on June 9, 2009, by Keith 
Spierling, of Spierling Appraisal and Consulting Services, Arroyo 
Grande, California. Based on the appraisal report dated June 9, 2009 
(the Appraisal Report), the Appraiser is an Associate Member of the 
Appraisal Institute and has been actively engaged in the appraisal 
profession for over 25 years, 20 of which with respect to the appraisal 
of commercial properties. The Appraiser is also certified by the State 
of California as a State Certified General Appraiser. The Appraiser 
affirms that he is independent of the Applicants, the Employer, and any 
other parties in interest. In addition, the Appraiser states that he 
derives less than 1% of his income from these parties.
---------------------------------------------------------------------------

    \11\ Typically, the ``rooms department'' may include 
reservations, the front office, housekeeping, telephone, 
maintenance, and engineering. A ``department'' is a management 
convention used in the hotel and lodging industry to ensure 
efficient coordination and control of activities undertaken to 
effectively manage a facility. In a very small lodging business, 
such as a bed-and-breakfast, the owner can supervise each 
department.
    \12\ Includes approximately $184,400 paid to Sterling Hotels 
Corporation and HMG, unrelated property management companies.
---------------------------------------------------------------------------

    10. Pursuant to a letter addressed to the Applicants dated May 14, 
2010, the Appraiser stated that the Appraisal Report was completed for 
Santa Lucia Bank, who was the primary client and the intended user of 
the Report. He further represented that he was engaged by Santa Lucia 
Bank so that the Applicants could obtain financing in order to purchase 
the Property from the Plan as well as seek exemptive relief from the 
Department for such purchase. Although the Appraisal Report was 
completed for Santa Lucia Bank as its intended user, the Applicants 
represent that the Appraisal Report was paid for by Dr. Sani. In this 
regard, the Applicants state that, in anticipation of applying for the 
exemption, they approached Santa Lucia Bank about assuming the Loan and 
also the

[[Page 9372]]

possibility of taking out a second loan. Accordingly, the Applicants 
explain, the bank required an appraisal of the Property in order to 
determine whether or not the Applicants could assume the Loan and 
qualify for the second loan. The Applicants explain further that the 
policy of the bank is to initiate an appraisal with the client paying 
the fee. Consequently, Santa Lucia Bank retained Mr. Spierling for an 
appraisal of the Property and forwarded his bill for services to the 
Applicants, who paid the amount due in turn.
    11. The Appraiser acknowledged, in his letter of May 14, 2010, that 
the Appraisal Report would be used for purposes of obtaining an 
administrative exemption from the Department for the Sale. Furthermore, 
the Appraiser stated that, barring any unforeseen circumstances, he 
would be able to update the Appraisal Report as of the date of purchase 
of the Property by the Applicants. According to the Appraiser, such an 
update would be necessary due to the length of time elapsed between the 
original Appraisal Report and the contemplated date of purchase of the 
Property. The Applicants have stated that they would pay the costs 
associated with updating the Appraisal Report.
    12. In the Appraisal Report, the Appraiser valued the Property in 
fee simple using the Sales Comparison Approach and Income Approach to 
valuation. The Appraiser indicated that he considered using the Cost 
Approach in addition to the Sales Comparison Approach and Income 
Approach, but ultimately decided that the Cost Approach was not 
appropriate, because the age of the building, the architectural details 
of the structure, and the lack of similar land sales prevent the Cost 
Approach from providing a meaningful indicator or adding any 
credibility to the overall analysis.
    The Appraisal Report indicates that the Sales Comparison Approach 
and Income Approach yielded $1,875,000 and $1,850,000 for the Property, 
respectively. According to the Appraiser, the Sales Comparison Approach 
was considered the most pertinent to the analysis because of the recent 
sales of similar properties that were available for a comparative 
analysis, in spite of the fact that the available comparable sales of 
properties in the area were somewhat dated. Consequently, the Appraiser 
determined that the Sales Comparison Approach should be given 
consideration in the final analysis. Additionally, the Appraiser 
determined that the Income Approach was the most pertinent in the 
analysis of income producing properties. In valuing the Property using 
this approach, the Appraiser reviewed historical income and expense 
data and compared such data to similar competitive properties. In 
conclusion, the Appraiser accorded relatively equal consideration to 
both approaches to value and determined that the fair market value of 
the Property as of June 9, 2009 was $1,860,000, using an exposure of 
three to sixteen months.

The Appraisal Update

    13. Because the Appraisal Report was dated more than one year 
before this proposed exemption was published, the Department required 
an additional appraisal of the Property to take place, as an update to 
the original appraisal. In this regard, on November 3, 2010, the 
Appraiser provided an update to the Appraisal Report (the Appraisal 
Update), which incorporates the Appraisal Report of June 9, 2009.\13\
---------------------------------------------------------------------------

    \13\ In the same manner that Santa Lucia Bank ordered the 
Appraisal Report, at the Applicants' behest, Santa Lucia Bank also 
retained Mr. Spierling to complete the Appraisal Update and 
forwarded his bill for services to the Applicants, who paid the 
amount due in turn.
---------------------------------------------------------------------------

    14. In the Appraisal Update, the Appraiser valued the Property in 
fee simple as of October 28, 2010 based upon the same methods of 
valuation used in the Appraisal Report, the Income Approach and Sales 
Comparison Approach. The Appraiser states that, upon his most recent 
inspection, the interior and exterior of the Property revealed no 
changes since the prior appraisal. However, the Appraisal Update notes 
that, while there continues to be overall softness in the real estate 
market in the past year since the date of the Appraisal Report, there 
is insufficient data to develop any definitive trends in current market 
price, as no additional sales of smaller, good quality hotels or bed 
and breakfast facilities since June of 2009 have occurred.
    15. The Appraisal Update indicates that the Sales Comparison 
Approach and the Income Approach yielded $1,850,000 and $1,800,000, 
respectively. Regarding the Sales Comparison Approach, while there were 
no recent comparable sales data since June of 2009, as noted above, 
there were several open listings which supported and correlated well 
with the sales data in the Appraisal Report. In this regard, the 
Appraisal Update states that the slight decline in the value of the 
Property based on the Sales Comparison Approach was primarily due to 
the persistent soft market conditions. Regarding the Income Approach, 
an updated rental survey was completed which generally revealed that 
room rates have remained relatively stable since the date of the 
Appraisal Report. In addition, the Appraisal Update notes that no sales 
data was revealed which would contradict the overall capitalization 
rates used in the prior appraisal.
    The Appraisal Update notes that the two approaches are considered 
pertinent and should be considered in the final analysis. Thus, giving 
equal weight to each valuation approach, the Appraisal Update states 
that the fair market value of the Property as of October 28, 2010 was 
$1,825,000 assuming an exposure period of 4 to 18 months. Accordingly, 
the value of the Property constitutes approximately 93.11% of the 
Plan's total asset value of $1,960,130.43.

Terms of the Sale

    16. The Applicants have requested an exemption from the Department 
to purchase the Property from the Plan. The Applicants represent that, 
although they do not currently possess enough cash to purchase the 
Property, they have the ability to sell for cash certain other 
properties that they currently own in their individual capacities. 
Furthermore, the Applicants represent that there is a chance that they 
may not be able to liquidate other real property holdings in order to 
pay cash for the full purchase price of the Property. In such event, 
they state that they will assume the remaining principal balance of the 
Loan from the Plan and pay cash to the Plan for the remainder.\14\ In 
either event, the Applicants state that the Plan's obligations with 
respect to the Loan will be satisfied in full. Furthermore, the 
Applicants state that the Plan will not pay any commissions, costs, or 
other expenses in connection with the Sale, and the Appraisal Report 
will again be updated by the Appraiser on the date of the Sale.\15\
---------------------------------------------------------------------------

    \14\ The Applicants represent that Santa Lucia Bank has 
authorized the assumption of the existing Loan by the Applicants in 
the event that the Sale takes place after approval by the Department 
of the exemption.
    \15\ For this purpose, the updated appraisal must take into 
account any new data on recent sales of similar property in the 
local real estate market, which may affect the valuation conclusion.
---------------------------------------------------------------------------

    17. Therefore, in exchange for the Property the Applicants will 
make a one-time cash payment to the Plan equal to the greater of: (a) 
The original purchase price paid by the Plan for the Property, plus any 
expenses paid by the Plan relating to the holding of the Property, less 
any income generated by the Property and paid to the Plan, and less the 
Loan principal assumed by the Applicants, or (b) the appraised value of

[[Page 9373]]

$1,825,000, which represents the fair market value of the Property, 
less the Loan principal assumed by the Applicants. In the event that 
the Applicants assume the remainder of the Loan, they will indemnify 
and hold the Plan harmless for any further payment on such Loan.

Rationale for the Sale

    18. The Applicants represent that the proposed transaction is in 
the interest of the Plan because it will divest the Plan of an asset 
that has been difficult to manage within the Plan as a result of 
adverse economic conditions. According to the Applicants, the 
hospitality industry has undergone a downturn as a result of the recent 
unfavorable economic conditions. As illustrated above, the net income 
generated by the Property since 2007 has declined precipitously. The 
Applicants point out that this lack of strong cash flow makes it 
difficult for the Plan to pay expenses related to the management and 
maintenance of the Property. In this regard, the Applicants represent 
that the Property has had several maintenance and safety issues that 
have gone unaddressed because the Plan cannot afford to make them.
    19. Moreover, the Applicants suggest that the Sale is in the 
interest of the Plan because the Applicants would pay more to the Plan 
than unrelated third parties would pay to purchase the Property. 
According to the Applicants, in a sale on the open market the Plan 
would receive no more than its fair market value, whereas in the 
proposed transaction, the Applicants would make the Plan whole for any 
loss in the value of the Property since its acquisition, including any 
expenses paid by the Plan in holding the Property (net of any income 
paid to the Plan). As the Property's current fair market value is well 
below its original acquisition cost, a sale on the open market would 
cause the Plan to sustain a significant monetary loss. Furthermore, the 
Applicants note that, in a sale on the open market, the Plan would be 
forced to pay a real estate commission of approximately 7% on the sale 
price of the Property. In the proposed transaction, the Plan will not 
incur any expenses in connection with the Sale, including real estate 
commissions.
    20. Finally, the Applicants, in their capacities as Plan 
fiduciaries, will (a) Determine whether it is in the interest of the 
Plan to proceed with the Sale of the Property, (b) review and approve 
the methodology used in the Appraisal Report that is being relied upon, 
and (c) ensure that such methodology is applied by the Appraiser in 
determining the fair market value of the Property on the date of the 
Sale.

Summary

    21. In summary, the Applicants represent that the proposed 
transaction will satisfy the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) All terms and conditions of the Sale will be at least as 
favorable to the Plan as those that the Plan could obtain in an arm's 
length transaction with an unrelated party;
    (b) The Plan's obligations with respect to the Loan will be:
    (1) Satisfied in full out of the proceeds of the sale, or
    (2) Assumed in full by the Applicants, who shall indemnify and hold 
the Plan harmless for any further payment on, or any claims arising in 
connection with, the Loan;
    (c) The Plan will receive an amount in cash, equal to the greater 
of:
    (1) The original purchase price paid by the Plan for the Property, 
plus expenses paid by the Plan relating to the holding of the Property, 
less any income generated by the Property and paid to the Plan, less 
the Loan principal assumed by the Applicants pursuant to Section 
(b)(2), or
    (2) The appraised value of $1,825,000, which represents the fair 
market value of the Property, less the Loan principal assumed by the 
Applicants pursuant to Section (b)(2);
    (d) The fair market value of the Property has been determined by 
the Appraiser, who will update the Appraisal Report on the date the 
Sale is consummated;
    (e) The Sale will be a one-time transaction for cash;
    (f) The Plan will incur no real estate fees, or commissions, in 
connection with the Sale; and
    (g) The Plan fiduciaries will (1) determine whether it is in the 
interest of the Plan to proceed with the Sale, (2) review and approve 
the methodology used in the appraisal that is being relied upon, and 
(3) ensure that such methodology is applied by the Appraiser in 
determining the fair market value of the Property on the date of the 
Sale.
    For Further Information Contact: Warren Blinder of the Department, 
telephone (202) 693-8553. (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 of the Act and/or the Code, 
including any prohibited transaction 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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, 14th day of February 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-3590 Filed 2-16-11; 8:45 am]
BILLING CODE 4510-29-P