[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]
-----------------------------------------------------------------------
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.
-----------------------------------------------------------------------
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.
---------------------------------------------------------------------------
\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).
---------------------------------------------------------------------------
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:
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
(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.
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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