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[Prohibited Transaction Exemption 2002-09; Exemption Application No. D-10984] Grant of Individual Exemptions; Prudential Insurance Company of America (Prudential Insurance)   [2/5/2002]
[PDF]
[Federal Register: February 5, 2002 (Volume 67, Number 24)]
[Notices]               
[Page 5316-5319]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05fe02-85]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-09; Exemption Application No. D-
10984]

 
Grant of Individual Exemptions; Prudential Insurance Company of 
America (Prudential Insurance)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemption.

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SUMMARY: This document contains an exemption 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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

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

The Prudential Insurance Company of America (Prudential Insurance), 
Located in Newark, NJ

[Prohibited Transaction Exemption 2002-09; Exemption Application No. D-
10984]

Exemption

Section I. Covered Transactions

    The restrictions of section 406(a) 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 (D) of the Code,\1\ shall not apply, 
effective September 27, 2001, to (1) the receipt of shares of common 
stock (Common Stock) issued by Prudential Financial, Inc. (Prudential 
Financial or the Holding Company) or (2) the receipt of cash (Cash) or 
policy credits (Policy Credits) by any eligible policyholder (the 
Eligible Policyholder) of Prudential Insurance, which is an employee 
benefit plan (the Plan), including Plans sponsored by Prudential 
Insurance and/or its affiliates for the benefit of their own employees 
(collectively, the Prudential Insurance Plans),\2\ in exchange for such 
Eligible Policyholder's mutual membership interest in Prudential 
Insurance, pursuant to a plan of conversion (the Plan of 
Reorganization) adopted by Prudential Insurance and implemented in 
accordance with section 17:17C-2 of the New Jersey Insurance Law.
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    \1\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
    \2\ Unless otherwise noted, references to the term ``Plan'' are 
meant to include ``outside'' Plan policyholders of Prudential 
Insurance as well as the Prudential Welfare Benefits Plan (the 
Prudential Welfare Plan).
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    In addition, the restrictions of section 406(a)(1)(E) and (a)(2) 
and section 407(a)(2) of the Act shall not apply, effective September 
27, 2001, to the receipt and holding, by the Prudential Welfare Plan, 
of Common Stock, whose fair market value exceeds 10 percent of the 
value of the total assets held by such Plan.
    This exemption is subject to the general conditions set forth below 
in Section II.

Section II. General Conditions

    (a) The Plan of Reorganization is implemented in accordance with 
procedural and substantive safeguards that are imposed under New Jersey 
Insurance Law and is subject to review and supervision by the New 
Jersey Commissioner of Banking and Insurance (the Commissioner).
    (b) The Commissioner reviews the terms of any options that are 
provided to Eligible Policyholders of Prudential Insurance as part of 
such Commissioner's review of the Plan of Reorganization, and the 
Commissioner only approves the Plan of Reorganization following a 
determination that the Plan of Reorganization is fair and equitable to 
all Eligible Policyholders.
    (c) Except as provided below, each Eligible Policyholder has an 
opportunity to comment on and vote to approve the Plan of 
Reorganization after full written disclosure of the terms of the Plan 
of Reorganization is given to such policyholder by Prudential 
Insurance. As provided under the Plan of Reorganization and approved by 
the Commissioner,
    (1) Eligible Policyholders of policies issued by designated 
subsidiaries (the Designated Subsidiaries) of Prudential Insurance will 
not have the opportunity to comment and vote on the Plan of 
Reorganization, and
    (2) Prudential Insurance will be precluded from voting on the Plan 
of Reorganization where a group policy is issued to Prudential 
Insurance as trustee for a multiple employer, or similar, trust (the 
MET).

[[Page 5317]]

    (d) Any election by an Eligible Policyholder which is a Plan to 
receive Common Stock pursuant to the terms of the Plan of 
Reorganization, or any decision by such Eligible Policyholder to 
participate in the commission-free purchase and sale program (the 
Program), is made by one or more fiduciaries of such Plan that are 
independent of Prudential Insurance and neither Prudential Insurance 
nor any of its affiliates exercises any discretion or provides 
``investment advice,'' within the meaning of 29 CFR 2510.3-21(c) with 
respect to such election or decision-making.
    (e) In the case of the Prudential Insurance Plans, the independent 
fiduciary--
    (1) Conducts a due diligence review of the subject transactions; 
and
    (2) Votes whether to approve or disapprove the Plan of 
Reorganization, on behalf of such Plan.
    (f) In the case of the Prudential Welfare Plan, the independent 
fiduciary--
    (1) Votes shares of Common Stock that are held by such Plan, which 
exceed the limitation of section 407(a) of the Act;
    (2) Disposes of Common Stock in excess of the limitation set forth 
under section 407(a)(2) of the Act as soon as reasonably practicable, 
but in no event later than six months after the effective date of the 
Plan of Reorganization;
    (3) Provides the Department with a complete and detailed final 
report as it relates to such Plan prior to the effective date of the 
Plan of Reorganization; and
    (4) Takes all actions that are necessary and appropriate to 
safeguard the interests of such Plan.
    (g) After each Eligible Policyholder entitled to receive Common 
Stock is allocated at least 8 shares (or the equivalent value of 10 
shares of Common Stock for Eligible Policyholders receiving Cash or 
Policy Credits), additional consideration is allocated to Eligible 
Policyholders who own eligible policies based on a methodology that 
takes into account each eligible policy's contribution to Prudential 
Insurance's surplus, which methodology has been reviewed by the 
Commissioner.
    (h) All Eligible Policyholders that are Plans participate in the 
transactions on the same basis within their class groupings as other 
Eligible Policyholders that are not Plans.
    (i) No Eligible Policyholder pays any brokerage commissions or fees 
in connection with the receipt of Common Stock or in connection with 
the implementation of the Program.
    (j) All of Prudential Insurance's policyholder obligations remain 
in force and are not affected by the Plan of Reorganization.
    (k) The terms of the transactions are at least as favorable to the 
Plans as an arm's length transaction with an unrelated party.

Section III. Definitions

    For purposes of this exemption:
    (a) The term ``Prudential Insurance'' means The Prudential 
Insurance Company of America and any affiliate of Prudential Insurance 
as defined in paragraph (b) of this Section III.
    (b) An ``affiliate'' of Prudential Insurance includes --
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Prudential Insurance. (For purposes of this paragraph, the term 
``control'' means the power to exercise a controlling influence over 
the management or policies of a person other than an individual.); and
    (2) Any officer, director or partner in such person.
    (c) The term ``Eligible Policyholder'' means a policyholder who is 
eligible to receive compensation under Prudential Insurance's Plan of 
Reorganization. Eligible Policyholders are policyholders of Prudential 
Insurance on the day the Plan of Reorganization is adopted by the Board 
of Directors of Prudential Insurance.
    (d) The term ``Designated Subsidiary'' means stock life insurance 
company subsidiaries of Prudential Insurance whose policyholders, 
pursuant to section 17:17C-1 of New Jersey Insurance Law, have been 
deemed eligible under the Plan of Reorganization to receive 
compensation, but which are not qualified to vote on the Plan of 
Reorganization.
    (e) The term ``Holding Company'' refers to a New Jersey stock 
business corporation which will be named ``Prudential Financial, Inc.'' 
Under the Plan of Reorganization, Prudential Insurance will become an 
indirect, wholly owned stock life insurance company subsidiary of the 
Holding Company.
    (f) The term ``Policy Credit'' means a dividend accumulation, an 
additional dividend, an increase in the policy's account value, an 
extension of the policy's expiration date, or an additional payment 
under an annuity contract.
    (g) The term ``Plan'' refers to employee benefit plans covered by 
ERISA or section 4975(e) of the Code.
    (h) The term ``demutualization'' refers to the process of an 
insurance company's reorganizing or converting from a mutual life 
insurance company to a stock life insurance company. As used herein, 
``reorganization'' and ``conversion'' also refer to a demutualization.
    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 September 27, 2001 at 66 
FR 49408.
    Effective Date: This exemption is effective as of September 27, 
2001.

Written Comments

    The Department received two written comments with respect to the 
proposed exemption. One comment was submitted by a Plan policyholder of 
Prudential Insurance who expressed concerns about the demutualization. 
The other comment was submitted by Prudential Insurance and requested 
minor clarifications and updates to the proposed exemption.
    Discussed below are the comments submitted by the policyholder and 
Prudential Insurance, as well as responses to such comments made by 
either Prudential Insurance or the Department.

Plan Policyholder's Comment

    Although characterized as a comment, the Plan policyholder objects 
to the proposed exemption but offers no comments on the covered 
transactions, their terms, or the conditions of the proposal. Instead, 
the policyholder expresses general opposition to Prudential Insurance's 
Plan of Reorganization. In this regard, the Plan policyholder believes 
that Prudential Insurance's demutualization will impair the security of 
his insurance policy and is of the view that the Policyholder 
Information Booklet (the PIB), describing such Plan of Reorganization, 
is ``biased and inadequate.''
    In response, Prudential Insurance indicates that the Plan 
policyholder's comment is unfounded and notes that the concerns 
expressed therein have been considered by the Commissioner and 
independent experts as part of their review of the PIB and the Plan of 
Reorganization. In addition, Prudential Insurance states that a very 
small number of policyholders, who submitted objections to the 
Commissioner, expressed concerns similar to those articulated by the 
Plan policyholder. Prudential Insurance notes further that the 
Commissioner, in determining that the Plan of Reorganization is fair 
and equitable to

[[Page 5318]]

Prudential Insurance policyholders and consistent with New Jersey 
Insurance Law, rejected such comments. Accordingly, Prudential 
Insurance finds nothing in the Plan policyholder's comment letter to 
prevent the Department from granting the requested exemption.

Prudential Insurance's Comment

    1. Voting by Prudential Insurance. Section II(c)(2) of the proposal 
provides that ``Prudential Insurance will be precluded from voting on 
the Plan of Reorganization where a group policy is issued to Prudential 
as trustee for a multiple employer, or similar, trust (the MET) which 
is not a plan described in section 3(3) of the Act or section 
4975(e)(1) of the Code.'' (Emphasis added.) Prudential Insurance states 
that it did not include the italicized language in the exemption 
application or in the draft operative language it provided because it 
could not know whether any particular MET or similar arrangement would 
qualify as a plan for ERISA purposes, or whether the employers 
participating in such arrangement would be deemed to have established 
their own ERISA-covered plans in connection with the arrangement. 
Therefore, Prudential Insurance recommends deleting the italicized 
language from Section II(c)(2) of the final exemption.
    The Department concurs with this comment and has made the requested 
deletion in the operative language of the final exemption.
    2. Source of Prudential Insurance's Voting Authority. In 
Representation 10 of the proposed exemption, Footnote 23 states that 
New Jersey Insurance Law precludes Prudential Insurance as a trustee of 
a MET from voting on the Plan of Reorganization. Prudential Insurance 
states that the terms of the Plan of Reorganization actually preclude 
Prudential Insurance from voting in this situation rather than New 
Jersey Insurance Law. Accordingly, the Department notes this change to 
Footnote 23 of the proposed exemption.
    3. Status of the Demutualization. Prudential Insurance explains 
that its Plan of Reorganization was given final approval by the 
Commissioner on October 15, 2001. In addition, Prudential Insurance 
states that on December 13, 2001, it completed its initial public 
offering and that the stock of Prudential Financial is currently being 
traded on the New York Stock Exchange.
    In response to this comment, the Department has noted these recent 
developments in Prudential Insurance's demutualization.
    Accordingly, after giving full consideration to the entire record, 
including the written comments, the Department has decided to grant the 
exemption subject to the modifications and clarifications described 
above. For further information regarding the comments and other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-10984) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, are 
made available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, Room N-1513, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department, 
telephone (202) 693-8556. (This is not a toll-free number.)

The Rollover Individual Retirement Account for Brenda A. Moran (the 
IRA), Located in Hobbs, New Mexico

[Prohibited Transaction Exemption No. 2002-10; Application No. D-11015]

Exemption

    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 proposed cash sale (the Sale) of common stock (the 
Stock) of Bravo Energy Inc. (Bravo) by the IRA \3\ to Bravo, a 
disqualified person with respect to the IRA, provided that the 
following conditions are met:
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    \3\ Because Brenda A. Moran (the Applicant) is the only 
participant in the IRA, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act under section 4975 of the 
Code.
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    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the IRA as those obtainable in an arm's length transaction with an 
unrelated party;
    (c) The IRA receives the greater of $14.24 per share of Stock or 
the fair market value of the Stock at the time of the Sale; and
    (d) The IRA is not required to pay any commissions, costs or other 
expenses in connection with the Sale.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on December 13, 2001 at 66 
FR 64478.

FOR FURTHER INFORMATION CONTACT: Mr. Khalif Ford of the Department, 
telephone (202) 693-8560. (This is not a toll-free number.)

Individual Retirement Account of Howard E. Adkins (the IRA), 
Located in Boise, Idaho

[Prohibited Transaction Exemption 2002-11; Exemption Application No. D-
11025]

Exemption

    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 proposed sale by the IRA of an interest (the Interest) 
in certain real property (the Property) to Moccasin, LLC, a 
disqualified person with respect to the IRA, \4\ provided that the 
following conditions are satisfied: (1) The sale is a one-time 
transaction for cash; (2) the IRA pays no commissions nor other 
expenses relating to the sale; and (3) the sales price received by the 
IRA equals the Interest's fair market value, as of the date of the 
sale, as established by a qualified, independent appraiser.
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    \4\ Pursuant to 29 CFR 2510.3-2(d), the IRA is not an employee 
benefit plan within the jurisdiction of title I of the Act. However, 
there is jurisdiction under Title II of the Act, pursuant to section 
4975 of the Code.
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    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption (the Notice) published on December 13, 
2001 at 66 FR 64478.

Written Comments

    The applicant, Howard E. Adkins, M.D., has provided the Department 
with the following updated information regarding a change in the value 
of the IRA's Interest. On November 26, 2001, Dr. Adkins received from 
the IRA an additional two percent undivided interest in the West Tract 
of the Property as the minimum required distribution (MRD) for the year 
2001. Dr. Adkins had previously received a nine percent undivided 
interest in the West Tract as the MRD for the year 2000, as described 
in Item 3 of the Summary of Facts and Representations (the Summary) 
contained in the Notice. An independent appraisal valued the Property 
as a whole at $685,700, and the West Tract at $385,320, as of September 
18, 2001 (see Item 4 of the Summary). Subtracting the 11 percent 
minority interest in the West Tract ($385,320  x  .11 = $42,385), which 
is owned individually by Dr. Adkins, the value of the IRA's Interest is 
thus reduced to

[[Page 5319]]

$643,315. The appraisal will be updated at the time of the sale 
transaction.
    Based upon the information contained in the entire record, the 
Department has determined to grant the proposed exemption.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

General Information

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

    Signed at Washington, DC, this 30th day of January, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-2639 Filed 2-4-02; 8:45 am]
BILLING CODE 4510-29-P