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EBSA Notices

Grant of Individual Exemptions; Aetna Inc. (Aetna)   [9/29/1999]
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WAIS Document Retrieval
[Federal Register: September 29, 1999 (Volume 64, Number 188)]
[Notices]               
[Page 52546-52551]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr29se99-114]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-36; Exemption Application No. D-
10504, et al.]

 
Grant of Individual Exemptions; Aetna Inc. (Aetna)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type proposed to the Secretary 
of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

Aetna Inc. (Aetna), Located In Hartford, Connecticut

[Prohibited Transaction Exemption 99-36; Application No. D-10504]

Exemption

I. Transactions
    The restrictions of section 406(a)(1)(A) through (D) and 406(b) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (F) of the 
Code shall not apply to the following transactions, if the conditions 
set forth in Section II and Section III, below, are satisfied: 
<SUP>1</SUP>
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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    (a) The receipt, directly or indirectly, by a sales agent (Sales 
Agent or Sales Agents), as defined in Section IV(l) below, of a sales 
commission from Aetna in connection with the purchase, with plan 
assets, of an insurance contract (the Insurance Contract or Insurance 
Contracts), as defined in Section IV(h) below;
    (b) The receipt of a sales commission by Aetna, as principal 
underwriter for a mutual fund registered under the Investment Company 
Act of 1940, in connection with the purchase, with plan assets, of 
securities issued by such mutual fund (the Aetna Fund or Aetna Funds), 
as defined in Section IV(c) below;
    (c) The effecting by Aetna, as a principal underwriter, of a 
transaction for the purchase, with plan assets, of securities issued by 
an Aetna Fund, and the effecting by a Sales Agent of a transaction for 
the purchase, with plan assets, of an Insurance Contract; and
    (d) The purchase, with plan assets, of an Insurance Contract from 
Aetna.
II. General Conditions
    (a) The transactions are effected by Aetna in the ordinary course 
of Aetna's business as an insurance company, or as a principal 
underwriter to an Aetna Fund, or in the case of a Sales Agent, in the 
ordinary course of the Sales Agent's business as a Sales Agent.
    (b) The transactions are on terms at least as favorable to the plan 
as an arm's length transaction with an unrelated party would be.
    (c) The combined total of all fees, sales commissions, and other 
consideration received by Aetna or a Sales Agent: (1) For the provision 
of services to the plan, and (2) in connection with a purchase of an 
Insurance Contract or securities issued by an Aetna Fund, is not in 
excess of ``reasonable compensation'' within the contemplation of 
section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and 
(d)(10) of the Code. If such total is in excess of ``reasonable 
compensation'' the ``amount involved'' for purposes of the civil 
penalties of section 502(i) of the Act and excise taxes imposed by 
section 4975(a) and (b) of the Code is the amount of compensation in 
excess of ``reasonable compensation.''
III. Specific Conditions
    (a) Aetna or the Sales Agent is not--

[[Page 52547]]

    (1) A trustee of the plan (other than a non-discretionary trustee 
who does not render investment advice with respect to any assets of the 
plan, or a trustee to an investment trust (the Investment Trust), as 
defined in Section IV(g) below, which will not purchase Insurance 
Contracts or securities issued by an Aetna Fund pursuant to this 
exemption);
    (2) A plan administrator (within the meaning of section 3(16)(A) of 
the Act and section 414(g) of the Code);
    (3) A fiduciary who is expressly authorized in writing to manage, 
acquire, or dispose of, on a discretionary basis, those assets of the 
plan that are or could be invested in Insurance Contracts, securities 
issued by an Aetna Fund, or an Investment Trust; or
    (4) An employer any of whose employees are covered by the plan.
    (b) (1) Prior to the execution of a transaction involving the 
receipt of sales commissions by a Sales Agent in connection with the 
plan's purchase of an Insurance Contract, Aetna or the Sales Agent 
provides to an independent plan fiduciary (the Independent Plan 
Fiduciary), as defined in Section IV(f) below, disclosures of the 
following information concerning the Insurance Contract in writing and 
in a form calculated to be understood by a plan fiduciary who has no 
special expertise in insurance or investment matters:
    (A) An explanation of: (i) The nature of the affiliation or 
relationship between Aetna and the Sales Agent recommending the 
Insurance Contract; and, (ii) the nature of any limitations that such 
affiliation or relationship, or any agreement between the Sales Agent 
and Aetna places on the Sales Agent's ability to recommend Insurance 
Contracts;
    (B) The sales commission, expressed as a percentage of gross annual 
premium payments for the first year and for each of the succeeding 
renewal years, that will be paid by Aetna to the Sales Agent in 
connection with the purchase of the recommended Insurance Contract, 
together with a description of any factors that may affect the 
commission; and
    (C) A full and detailed description of any charges, fees, 
discounts, penalties, or adjustments which may be paid by the plan 
under the recommended Insurance Contract in connection with the plan's 
purchase, holding, exchange, termination, or sale of the Insurance 
Contract, including a description of any factors that may affect the 
level of charges, fees, discounts, or penalties paid by the plan.
    (2) Following receipt of the information required to be provided to 
the Independent Plan Fiduciary, as described in Section III(b)(1) 
above, and before the execution of the transaction, the Independent 
Plan Fiduciary acknowledges in writing receipt of such information and 
approves the transaction on behalf of the plan. The Independent Plan 
Fiduciary may be an employer of employees covered by the plan but may 
not be a Sales Agent involved in the transaction. The Independent Plan 
Fiduciary may not receive, directly or indirectly (e.g. through an 
affiliate), any compensation or other consideration for his or her own 
personal account from any party dealing with the plan in connection 
with the transaction.
    (3) With respect to additional purchases of Insurance Contracts, 
the written disclosure required under Section III(b)(1) need not be 
repeated, unless--
    (A) More than three years have passed since such disclosure was 
made with respect to the same kind of Insurance Contract, or
    (B) The Insurance Contract being recommended for purchase or the 
commission with respect thereto is materially different from that for 
which the approval described under Section III(b)(2) was obtained.
    (c)(1) With respect to purchases with plan assets of securities 
issued by an Aetna Fund, or the receipt of sales commissions by Aetna 
in connection with such purchases, Aetna provides to an Independent 
Plan Fiduciary prior to the execution of the transaction the following 
information concerning the Aetna Fund in writing and in a form 
calculated to be understood by a plan fiduciary who has no special 
expertise in insurance or investment matters:
    (A) A description of: (i) The investment objectives and policies of 
the Aetna Fund, (ii) the principal investment strategies that the Aetna 
Fund may use to obtain its investment objectives, (iii) the principal 
risk factors associated with investing in the Aetna Fund, (iv) 
historical investment return information for the Aetna Fund, (v) fees 
and expenses of the Aetna Fund, including annual operating expenses 
(e.g., management fees, distribution fees, service fees, and other 
expenses) and fees paid by shareholders (e.g., sales charges and 
redemption fees), (vi) the identity of the Aetna Fund adviser, and 
(vii) the procedures for purchases of securities issued by the Aetna 
Fund (including any applicable minimum investment requirements and 
sales charges);
    (B) A description of: (i) The expenses of the recommended Aetna 
Fund, including investment management, investment advisory, or similar 
services, any fees for secondary services (e.g., for services other 
than investment management, investment advisory, or similar services, 
including but not limited to custodial, administrative, or other 
services), and (ii) any charges, fees, discounts, penalties, or 
adjustments that may be paid by the plan in connection with the 
purchase, holding, exchange, termination, or sale of shares of the 
recommended Aetna Fund securities, together with a description of any 
factors that may affect the level of charges, fees, discounts, or 
penalties paid by the plan or the Aetna Fund;
    (C) An explanation of (i) the nature of the affiliation or 
relationship between Aetna and the Aetna Fund, and (ii) the limitation, 
if any, that such affiliation, relationship, or any agreement between 
Aetna and the Aetna Fund places on Aetna's ability to recommend 
securities issued by other investment companies;
    (D) The sales commission, if any, that Aetna will receive in 
connection with the purchase of securities of the recommended Aetna 
Fund, expressed as either (i) a percentage of the dollar amount of the 
plan's gross payments and the amount actually invested, (ii) a 
percentage of the average daily net assets under investment in 
securities issued by the Aetna Fund, or (iii) both if applicable, 
together with a description of any factors that may affect the 
commission; and
    (E) A description of the procedure or procedures for redeeming the 
Aetna Fund securities.
    The disclosures required under Section III(c)(1) above shall be 
deemed to be completed only if, with respect to fees and expenses of an 
Aetna Fund, the type of each fee or expense (e.g., management fees, 
administrative fees, fund operating expenses, and other fees, including 
but not limited to fees payable for marketing and distribution services 
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the 
12b-1 Fees) ) and the rate or amount charged for a specified period 
(e.g., annually) is provided in a written document separate from the 
prospectus of such Aetna Fund.
    (2) Following receipt of the information required to be provided to 
the Independent Plan Fiduciary, as described in Section III(c)(1) 
above, and before execution of the transaction, the Independent Plan 
Fiduciary approves the specific transaction on behalf of the plan. 
Unless facts and circumstances would indicate the contrary, such 
approval may be presumed if the Independent Plan Fiduciary directs the 
transaction to proceed after Aetna has

[[Page 52548]]

delivered the written disclosures to the Independent Plan Fiduciary. 
The Independent Plan Fiduciary may be an employer of employees covered 
by the plan but may not be Aetna. The Independent Plan Fiduciary may 
not receive, directly or indirectly (e.g., through an affiliate), any 
compensation or other consideration for his or her own personal account 
from any party dealing with the plan in connection with the 
transaction.
    (3) With respect to additional purchases of Aetna Fund securities, 
Aetna:
    (A) Provides reasonable advance notice of any material change with 
respect to the Aetna Fund securities being purchased or the commission 
with respect thereto, and
    (B) Repeats the written disclosure required under Section 
III(c)(1)(A), (C), (D) and (E) once every three years.
    (d)(1) Aetna shall retain or cause to be retained for a period of 
six (6) years from the date of any transaction covered by this 
exemption the following:
    (A) The information disclosed with respect to such transaction 
pursuant to Sections III(b), and (c);
    (B) Any additional information or documents provided to the 
Independent Plan Fiduciary with respect to the transaction; and
    (C) Written acknowledgments, as described in Section III(b)(2) 
above.
    (2) A prohibited transaction shall not be deemed to have occurred 
if, due to circumstances beyond the control of Aetna, such records are 
lost or destroyed before the end of such six-year period.
    (3) Notwithstanding anything to the contrary in sections 504(a)(2) 
and (b) of the Act, such records shall be unconditionally available for 
examination during normal business hours by duly authorized employees 
or representatives of the Department of Labor, the Internal Revenue 
Service, plan participants and beneficiaries, any employer of plan 
participants and beneficiaries, and any employee organization any of 
whose members are covered by the plan.
IV. Definitions
    For purposes of this exemption--
    (a) Aeltus means the Aeltus Trust Company, or any other financial 
institution supervised under state or federal laws and affiliated with 
Aetna.
    (b) Aetna means the Aetna Life Insurance Company, the Aetna Life 
Insurance and Annuity Company, and any of their affiliates, including 
but not limited to Aeltus;
    (c) Aetna Fund means any investment company registered under the 
Investment Company Act of 1940 for which Aetna serves as investment 
adviser and as principal underwriter (as that term is defined in 
section 2(a)(29) of the Investment Company Act of 1940, 15 U.S.C. 80a-
2(a)(29)).
    (d) An affiliate of a person means (1) any person directly or 
indirectly controlling, controlled by, or under common control with 
such person, (2) any officer, director, employee, or relative of any 
such person, or any partner in such person, and (3) Any corporation or 
partnership of which such person is an officer, director, or employee, 
or in which such person is a partner. For purposes of this definition, 
an ``employee'' includes (A) any registered representative of Aetna, 
where Aetna or an affiliate is principal underwriter, and (B) any 
insurance agent or broker or pension consultant acting under a written 
agreement as Aetna's agent in connection with the sale of an Insurance 
Contract, whether or not such registered representative or insurance 
agent or broker or pension consultant is a common law employee of 
Aetna.
    (e) The term, control, means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (f) Independent Plan Fiduciary means a fiduciary with respect to a 
plan, which fiduciary has no relationship to, or interest in, Aetna 
that might affect the exercise of such fiduciary's best judgment as a 
fiduciary.
    (g) Investment Trust means (1) any collective investment fund or 
group trust qualifying for tax-exempt status under the provisions of 
the Internal Revenue Code of 1986 and regulations and rulings 
thereunder, of which Aeltus, as defined in Section IV(a) above, or its 
successor or affiliate serves as trustee, or (2) any single-customer 
trust account for which Aeltus serves as trustee, provided that Aeltus 
has no discretionary authority or responsibility with respect to the 
management or administration of, and does not provide any investment 
advice with respect to, any plan assets not invested in such single-
customer trust account or another Investment Trust.
    (h) Insurance Contract or Insurance Contracts means an insurance or 
annuity contract issued by Aetna.<SUP>2</SUP>
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    \2\ The Department expresses no opinion as to whether any so-
called ``synthetic guaranteed insurance contracts'' offered by Aetna 
constitutes an Insurance Contract within the meaning of this 
exemption. The Department further notes that this exemption provides 
relief from the self-dealing and conflict of interest provisions of 
the Act in connection with the sale of Insurance Contracts to plans 
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase 
of specific insurance products. Thus, for example, no relief is 
provided under this exemption for any act of self-dealing that may 
arise in connection with the ongoing operation or administration of 
an Insurance Contract.
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    (i) A nondiscretionary trustee of a plan is a trustee whose powers 
and duties with respect to any assets of the plan are limited to: (1) 
the provision of nondiscretionary trust services, as defined in Section 
IV(j) below, to such plan, and (2) the duties imposed on the trustee by 
any provision or provisions of the Act or the Code.
    (j) Nondiscretionary trust services means custodial services and 
services ancillary to custodial services, none of which services are 
discretionary.
    (k) A relative means a relative as that term is defined in section 
3(15) of the Act (or a member of the family as that term is defined in 
Code section 4975(e)(6)), or a brother, a sister, or a spouse of a 
brother or a sister;
    (l) Sales Agent means any insurance agent, broker, or pension 
consultant or any affiliate thereof that is affiliated with Aetna.
    (m) Principal underwriter is defined in the same manner as that 
term is defined in section 2(a)(29) of the Investment Company Act of 
1940 (15 U.S.C. 8a-2(a)(29)).
    Effective Date: This exemption will be effective as of August 28, 
1997, the date of the filing of the application for exemption.

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department of 
Labor (the Department) invited all interested persons to submit written 
comments and requests for a hearing on the proposed exemption within 
forty-five (45) days of the date of the publication of the Notice in 
the Federal Register on May 13, 1999. All comments and requests for a 
hearing were due by June 28, 1999.
    During the comment period, the Department received no requests for 
a hearing. However, the Department did receive two (2) comment letters 
from Aetna, the applicant, dated June 28, and August 10, 1999, 
respectively. In the comment letters, the applicant requested certain 
modifications and clarifications to the language of the exemption, as 
proposed, and informed the Department of certain changes, as described 
in the Summary of Facts and Representations (the SFR) in the Notice. 
Specifically, the issues raised in the applicant's comment letters fall 
into seven (7) categories: (1) Clarification regarding the transactions 
exempted by

[[Page 52549]]

Section I(c) and Section I(d); (2) an issue relating to reliance on 
other applicable exemptions; (3) an alternative method of disclosing 
sales commissions; (4) clarification of the scope of the exemption; (5) 
interpretation of the definition of Sales Agent, as set forth in 
Section IV(l); (6) certain corrections to the facts, as set forth in 
the SFR in the Notice, and (7) a modification of the language of the 
definition of Aeltus, as set forth in Section IV(a). A discussion of 
each of the applicant's comments and the Department's responses, 
thereto, are set forth in the numbered paragraphs below.
    1. The applicant seeks clarification from the Department of the 
transactions exempted by Section I(c) and Section I(d), as published in 
the Notice (64 FR at 25917, column 1, lines 26-34). In this regard, 
Section I(c) provides relief for:

    The effecting by Aetna, as a principal underwriter, of a 
transaction for the purchase, with plan assets, of securities issued 
by an Aetna Fund, and the effecting by a Sales Agent of a 
transaction for the purchase, with plan assets, of an Insurance 
Contract.

Further, Section I(d) provides relief for, ``The purchase, with plan 
assets, of an Insurance Contract from Aetna.''
    Specifically, Aetna requests that the Department confirm that 
Section I(c) and Section I(d) would be available for the effecting by 
Aetna of a transaction for the purchase of an Insurance Contract, as 
defined in Section IV(h), where the sale is effected through an 
employee of Aetna or through one of Aetna's affiliates. The concern is 
that Aetna itself would require relief if either: (a) A plan's purchase 
of an Insurance Contract from Aetna is deemed to be a prohibited sale 
between a plan and a party in interest; or (b) Aetna is deemed to be a 
fiduciary because its employee/agent provided investment advice and, as 
a result, Aetna is deemed to have committed a prohibited transaction by 
effecting the sale of an Insurance Contract.
    Aetna believes that, as an affiliate of a Sales Agent, as defined 
in Section IV(d), it should be able to rely on the relief provided by 
Section I(c), because the definition of Sales Agent, as set forth in 
Section IV(l), includes any ``affiliate'' of such Sales Agent. In 
addition, Aetna believes that the purchase from Aetna of an Insurance 
Contract should be exempted under Section I(d), even if Aetna may be a 
fiduciary as a result of investment advice provided by an Aetna 
employee/agent. The Department concurs.
    2. The applicant seeks clarification from the Department of the 
interpretation of Section III(a)(1), as published in the Notice (64 FR 
at 25917, column 1, lines 66-67 and column 2, lines 1-10). In this 
regard, Section III(a)(1) provides that Aetna or a Sales Agent may not 
rely on the exemption, if Aetna or the Sales Agent is:

    A trustee of the plan (other than a non-discretionary trustee who 
does not render investment advice with respect to any assets of the 
plan, or a trustee to an investment trust (the Investment Trust), as 
defined in Section IV(g) below, which will not purchase Insurance 
Contracts or securities issued by an Aetna Fund pursuant to this 
proposed exemption) (emphasis added).

    Specifically, Aetna seeks confirmation that the phrase underlined 
in the quotation above does not preclude its reliance on other 
exemptions. In this regard, Aetna represents that while it will not 
rely on the subject exemption for a purchase of Aetna Funds or an 
Insurance Contract by an Investment Trust, such a transaction might be 
covered by an applicable class exemption.
    It is not the intention of the Department to preclude Aetna from 
taking advantage of any other available exemption, proved that Aetna 
has met the conditions for relief, as set forth in such exemption. 
Accordingly, the Department has decided to retain the language of 
Section III(a)(1), as set forth in the Notice, except that the word, 
``proposed,'' before the word, ``exemption,'' has been deleted.
    3. Section III(c)(1)(D), as set forth in the Notice (64 FR at 
25918, column 1, lines 26-34), requires the disclosure to an 
Independent Plan Fiduciary prior to execution of the transaction of:

    The sales commission, if any, that Aetna will receive in 
connection with the purchase of securities of the recommended Aetna 
Fund, expressed as a percentage of the dollar amount of the plan's 
gross payments and the amount actually invested, together with a 
description of any factors that may affect the commission.

    In footnote 4 of the Notice (64 FR at 25919), the Department noted 
that the relief provided by the subject exemption does not preclude the 
receipt by Aetna or its affiliates of 12b-1 Fees to the extent that the 
payment of such 12b-1 Fees cannot be functionally distinguished from 
the payment of a sales commission in connection with the purchase with 
plan assets, of securities issued by an Aetna Fund. In this regard, 
Aetna notes that such 12b-1 Fees are calculated as a percentage of 
assets under management in Aetna Fund securities and that disclosure of 
12b-1 Fees could not be easily expressed as, ``a percentage of the 
dollar amount of the plan's gross payments and the amount actually 
invested,'' as required by Section III(c)(1)(D). Further, Aetna is not 
aware that 12b-1 Fees are disclosed in such a format by any mutual fund 
provider or broker. Accordingly, Aetna has proposed an additional 
method for the disclosure of 12b-1 Fees, or both methods, if 
applicable, pursuant to this exemption. In this regard, Aetna requests 
that the Department substitute the following text for the language of 
Section III(c)(1)(D), as it appeared in the Notice:

    The sales commission, if any, that Aetna will receive in 
connection with the purchase of securities of the recommended Aetna 
Fund, expressed as either (i) a percentage of the dollar amount of 
the plan's gross payments and the amount actually invested, (ii) a 
percentage of assets invested in securities issued by the Aetna 
Fund, or (iii) both if applicable, together with a description of 
any factors that may affect the commission.

    If the Department does not accept the proposed substitution, Aetna 
has suggested a second alternative. In this regard, Aetna notes that 
asset-based 12b-1 Fees are required to be disclosed under Sections 
III(c)(1)(A) and (B) of the exemption. Accordingly, in the alternative, 
Aetna requests the Department confirm that to the extent 12b-1 Fees are 
paid from the assets of an Aetna Fund, all of the disclosure conditions 
under the exemption would be satisfied by disclosure of 12b-1 Fees 
under Sections III(c)(1)(A) and (B), and additional disclosure 
regarding 12b-1 Fees would not be required under Section III(c)(1)(D).
    The Department has decided not to accept Aetna's second 
alternative, which is described in the paragraph above. Instead, with 
certain revisions to the language of sub-paragraph (ii), the Department 
has decided to adopt the substitute language for Section III(c)(1)(D) 
suggested by Aetna. In this regard, as amended, Section III(c)(1)(D) of 
the exemption reads as follows:

    The sales commission, if any, that Aetna will receive in 
connection with the purchase of securities of the recommended Aetna 
Fund, expressed as either (i) a percentage of the dollar amount of 
the plan's gross payments and the amount actually invested, (ii) a 
percentage of the average daily net assets under investment in 
securities issued by the Aetna Fund, or (iii) both if applicable, 
together with a description of any factors that may affect the 
commission.

    4. Aetna requests that footnote 2, as it appeared in the Notice (64 
FR at 25918), should be amended to read, as follows:

    The Department expresses no opinion as to whether any so-called 
``synthetic guaranteed insurance contracts'' offered by Aetna

[[Page 52550]]

constitutes an Insurance Contract within the meaning of this 
proposed exemption. The Department further notes that this proposed 
exemption provides relief from the self-dealing and conflict of 
interest provisions of the Act in connection with the sale of 
Insurance Contracts and Aetna Funds to plans by fiduciaries. It does 
not provide relief from any acts of self-dealing that do not arise 
directly in connection with the purchase of specific insurance 
products. Thus, for example, no relief is provided under this 
proposal for any act of self-dealing that may arise in connection 
with the ongoing operation or administration of an Insurance 
Contract.

    The Department has decided to delete the contents of footnote 2, as 
it appeared in the Notice, and, with certain revisions, has adopted the 
language suggested by Aetna as the text for footnote 2 in the 
exemption. With regard to revisions of the language suggested by Aetna, 
the Department has:
    (a) Deleted the word, ``proposed,'' before the word, ``exemption,'' 
in the first and second sentences of the quotation above;
    (b) Deleted the phrase, ``and Aetna Funds'' after the words, 
``Insurance Contracts,'' in the second sentence of the quotation above; 
and
    (c) Substituted the word, ``exemption,'' for the word, 
``proposal,'' in the fourth sentence of the quotation above. 
Accordingly, the revised language of footnote 2 into this exemption 
reads as follows:

    The Department expresses no opinion as to whether any so-called 
``synthetic guaranteed insurance contracts'' offered by Aetna 
constitutes an Insurance Contract within the meaning of this 
exemption. The Department further notes that this exemption provides 
relief from the self-dealing and conflict of interest provisions of 
the Act in connection with the sale of Insurance Contracts to plans 
by fiduciaries. It does not provide relief from any acts of self-
dealing that do not arise directly in connection with the purchase 
of specific insurance products. Thus, for example, no relief is 
provided under this exemption for any act of self-dealing that may 
arise in connection with the ongoing operation or administration of 
an Insurance Contract.

    In addition, Aetna has requested that the Department confirm that 
the last sentence of the quotation above does not refer to routine 
transactions such as asset valuation and rate setting, but only to 
extraneous transactions such as asset transfer and loan advances. 
Although the Department is unable to provide the requested confirmation 
regarding the application of the footnote to routine transactions, it 
is our view that transactions, such as asset transfers and loan 
advances made to parties in interest in connection with the operation 
of the Insurance Contract, would be beyond the scope of this exemption.
    5. Aetna requests that the Department amend the definition of Sales 
Agent, as set forth in Section IV(l). In this regard, Section IV(l), as 
it appeared in the Notice (64 FR at 25919, column 1, lines 20-24), 
provides that:

    ``Sales Agent'' means any insurance agent, broker, or pension 
consultant or any affiliate thereof that is affiliated with Aetna 
either through ownership or by contractual arrangement (emphasis 
added).

    Aetna is concerned that the phrase underlined in the quotation of 
Section IV(l) above imposes a limitation on the definition of Sales 
Agent. Specifically, Aetna believes that such language may exclude 
Aetna from being considered an affiliate of a Sales Agent where an 
individual who is a broker or pension consultant is affiliated with 
Aetna by being Aetna's employee, rather than through a contractual or 
ownership arrangement. In addition, Aetna is concerned that the 
language of Section IV(1) does not make it clear that the term, ``Sales 
Agent'' would include any affiliate of a Sales Agent. Accordingly, 
Aetna requests that the Department clarify the definition of Sales 
Agent. Further, Aetna suggests that the Department substitute for the 
text of Section IV(1), as it appeared in the Notice, the following 
language:

    ``Sales Agent'' means any insurance agent, broker, or pension 
consultant that is an employee of Aetna or is affiliated with Aetna 
either through ownership or by contractual arrangement, or any 
affiliate thereof.

    The Department has decided not to adopt the language in the 
quotation above which was suggested by Aetna. Instead, the Department 
has decided to modify the definition of a Sales Agent to clarify the 
term. Accordingly, as amended, Section IV(l) of the exemption reads as 
follows:

    ``Sales Agent'' means any insurance agent, broker, or pension 
consultant or any affiliate thereof that is affiliated with Aetna.

Further, it is the view of the Department that Aetna would not be 
excluded from being considered an affiliate of a Sales Agent where an 
individual who is a broker or pension consultant is affiliated with 
Aetna by being Aetna's employee. In this regard, the Department notes 
that for purposes of the definition of affiliate, as set forth in 
Section IV(d) of the exemption, an ``employee'' includes:

    Any registered representative of Aetna, where Aetna or an 
affiliate is principal underwriter, and (B) any insurance agent or 
broker or pension consultant acting under a written agreement as 
Aetna's agent in connection with the sale of an Insurance Contract, 
whether or not such registered representative or insurance agent or 
broker or pension consultant is a common law employee of Aetna.

In this regard, the Department notes that the general and specific 
conditions, as set forth in the exemption, however, must be satisfied. 
Specifically, Section II(a) provides that the transactions must be:

    Effected by Aetna in the ordinary course of Aetna's business as 
an insurance company, or as a principal underwriter to an Aetna 
Fund, or in the case of a Sales Agent, in the ordinary course of the 
Sales Agent's business as a Sales Agent.

Accordingly, the Department notes that in order for Aetna, a Sales 
Agent, or a principal underunderwriter to rely upon relief for the 
transactions described in the exemption, each such person must satisfy 
Section II(a), among other conditions set forth in the exemption.
    6. Aetna has informed the Department of certain changes in the 
services arrangements among Aetna and its affiliates. Because these 
changes occurred after Aetna filed its application for exemption with 
the Department, some of the facts and representations that appeared in 
the SFR are no longer completely accurate. For this reason, Aetna has 
suggested certain deletions and additions to the language, as published 
in the Notice and requests that the Department substitute the text 
which is quoted below for the language that appeared in the SFR. Aetna 
represents that none of the changes involve a material change in any 
facts or representations made by Aetna in its application for 
exemption. The Department concurs and has made the requested deletions 
and additions in the language of the SFR. Aetna's deletions to the 
language that appeared in the SFR are noted below by the words in 
brackets, and Aetna's additions have been underlined in the text below.
    The text of paragraph 6, as published in the Notice (64 FR at 
25919, column 2, lines 59-68 and column 3, lines 1-2), should have read 
as follows:

    Aetna Investment Services, Inc. (AISI), Aetna Financial 
Services, Inc. (AFSI), Aeltus Capital, Inc. (Aeltus Capital), and 
Financial Network Investment Corporation (FNIC) are each registered 
broker-dealers with the SEC and are [wholly-owned] affiliates of 
ALIC and ALIAC. [ALIC ] ALIAC, AISI, [AFSI] Aeltus Capital, and FNIC 
and their successors (together with ALIC, the Aetna Companies) have 
provided and will provide a variety of services to the Aetna Funds 
or in connection with the distribution of Aetna Funds.

    The text of paragraph 7, as published in the Notice (64 FR at 
25919, column 3, lines 3-36), should have read as follows:


[[Page 52551]]


    [In this regard] [A]s disclosed in the prospectus materials for 
each of the Aetna Funds, ALIAC is the investment adviser to [all of 
the Aetna Funds] Aetna's Portfolio Partners Funds and Aeltus 
Investment Management, Inc. (AIM) is the investment adviser to the 
Aetna Series Funds and the Aetna Variable Funds. In addition, both 
ALIAC and AIM provide other services (the Secondary Services) to 
Aetna Funds for which they are the investment adviser, including 
accounting, shareholder administration, [sub-accounting,] and other 
administrative services. ALIAC also provides sub-accounting services 
in connection with Aetna Funds offered through its variable annuity 
contract. Further ALIAC is the principal underwriter to the Aetna 
Variable Funds and Portfolio Partners, Inc., and [AISI] Aeltus 
Capital is the principal underwriter to the Aetna Series Funds. In 
this regard, it is represented that as principal underwriters, ALIAC 
and [AISI] Aeltus Capital distribute Aetna Fund shares on an agency 
basis. It is further represented that ALIAC and AIM may engage 
affiliated or unaffiliated sub-advisers to the Aetna Funds from time 
to time.
    Under the terms of services agreements between ALIAC or AIM and 
an Aetna Fund, ALIAC or AIM may receive management fees and fees for 
Secondary Services. In addition, ALIAC or [AISI] Aeltus Capital may 
receive sales commissions and distribution fees, including for some 
classes of shares issued by certain Aetna Funds 12b-1 Fees. It is 
represented that the prospectus materials including the Statement of 
Additional Information, for each of the Aetna Funds disclose whether 
such fees are paid and the basis under which such fees are paid.

    7. Aetna informed the Department that it has applied for and is in 
the process of obtaining authority to establish and operate a federally 
chartered savings bank (the Savings Bank). If approved, the Savings 
Bank may establish and operate certain collective investment funds or 
group trusts or single customer trust accounts on behalf of plans 
covered by the Act. Aetna would like to ensure that relief provided by 
the exemption will extend to plans that invest in a trust maintained by 
the Savings Bank on the same terms and conditions that would apply, if 
the plan had invested in a trust maintained by Aeltus. Accordingly, 
Aetna proposes that the Department revise Section IV(a), as published 
in the Notice (64 FR 25918, column 2, line 55-56), to read as follows:

    Aeltus means the Aeltus Trust Company, or any other financial 
institution supervised under state or federal laws and affiliated 
with Aetna.

The Department concurs and has incorporated the requested language into 
Section IV(a) of the exemption.
    After giving full consideration to the entire record, including the 
written comments from the applicant, the Department has decided to 
grant the exemption, as described, amended, and concurred in above. In 
this regard, the comment letters submitted by the applicant to the 
Department has been included as part of the public record of the 
exemption application. The complete application file, including all 
supplemental submissions received by the Department, is made available 
for public inspection in the Public Documents Room of the Pension 
Welfare Benefits Administration, Room N-5638, U. S. Department of 
Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on May 13, 1999, at 64 FR 25916.
    For Further Information Contact: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Modern Woodmen of America Employees' Savings Plan (the Plan), 
Located in Rock Island, Illinois

[Prohibited Transaction Exemption 99-37; Exemption Application No. D-
10518]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, 
shall not apply to the past sale, on March 23, 1998, by the Plan of 
certain commercial mortgages and bonds (the Securities) to Modern 
Woodmen of America (the Employer), a party in interest with respect to 
the Plan, provided that the following conditions were satisfied: (1) 
The sale was a one-time transaction for cash; (2) the Plan paid no 
commissions nor other expenses relating to the sale; (3) for each 
Security, the Plan received an amount equal to the highest, as of the 
date of the sale, of (a) the par value, (b) the book value, or (c) the 
fair market value of the Security, as determined by a qualified, 
independent appraiser; and (4) the Plan received the accrued but unpaid 
interest that was due on each Security at the time of the transaction.
    Effective Date: The exemption is effective as of March 23, 1998.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on August 11, 1999 at 64 FR 
43740.
    For Further Information Contact: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 21st day of September, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare 
BenefitsAdministration, Department of Labor.
[FR Doc. 99-24939 Filed 9-28-99; 8:45 am]
BILLING CODE 4510-29-P