skip to page content
Secretary of Labor Hilda L. Solis
     DOL Home > Federal Register > Notices > EBSA
EBSA Notices

[Prohibited Transaction Exemption 2002-15; Exemption Application No. D-10852, et al.] Grant of Individual Exemptions; Rockford Corporation 401(k) Retirement Savings Plan   [3/22/2002]
[PDF]
[Federal Register: March 22, 2002 (Volume 67, Number 56)]
[Notices]               
[Page 13365-13372]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr22mr02-90]                         

-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-15; Exemption Application No. D-
10852, et al.]

 
Grant of Individual Exemptions; Rockford Corporation 401(k) 
Retirement Savings Plan

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

-----------------------------------------------------------------------

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, 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 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.

Rockford Corporation 401(k) Retirement Savings Plan (the Plan) 
Located in Tempe, AZ

[Prohibited Transactions Exemption 2002-15; Exemption Application No. 
D-10852]

Exemption

    The restrictions of sections 406(a)(1)(D), 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)(D) and (E) of the 
Code,\1\ shall not apply, effective December 30, 1999 until March 15, 
2000, to an arrangement, by Rockford Corporation (Rockford), the Plan 
sponsor, for the reversal of the original purchase of debt securities 
(the Debentures) previously issued by Rockford (the Reversal 
Transactions), involving the following transactions affecting the 
individually-directed accounts in the Plan (the Plan Accounts) of 
certain Plan participants (the Participants): (1) The purchase, by the 
Participants, from their Plan Accounts of the Debentures; (2) the 
distribution in kind of the Debentures by the Plan Accounts to the 
Participants; (3) the rollover of the Debentures, if distributed in 
kind to the Participants, into self-directed individual retirement 
accounts (the IRAs) established by the Participants; and (4) any 
benefit that may have inured to Rockford by not having to repurchase 
the Debentures held by the Plan Accounts.
---------------------------------------------------------------------------

    \1\ For purposes of this exemption, references to provisions of 
Title I of the Act, unless otherwise specified, refer also to the 
corresponding provisions of the Code.
---------------------------------------------------------------------------

    This exemption is subject to the following conditions:
    (a) A Form 5330 was filed by Rockford with the Internal Revenue 
Service (the Service) and all appropriate excise taxes were paid with 
respect to the Plan's acquisition and holding of the Debentures, as 
well as for the extension of credit by the Plan to Rockford resulting 
therefrom.
    (b) With respect to each Debenture,
    (1) Rockford offered to repurchase such Debentures from each 
affected Participant's account in the Plan (the Plan Account), at their 
fair market value, as determined by Arthur Andersen LLP, a qualified, 
independent appraiser; and
    (2) By March 15, 2000 each Debenture was either--
    (i) Repurchased by Rockford; (ii) purchased by or distributed in 
kind to each Participant whose Plan Account had held such Debentures; 
and (iii) rolled over, at the election of the Participant, into the 
Participant's self-directed IRA.
    (c) At the time of the Reversal Transactions, each Plan Account 
received no less than fair market value for the Debentures, which was 
in excess of their initial cost.
    (d) The Plan Accounts paid no fees or commissions in connection 
with the Reversal Transactions.
    (e) Rockford advised each affected Participant in advance of any 
transaction of the various options available with respect to the 
divestment of the Debentures from the Participant's Plan Account.
    (f) Rockford has maintained, or will cause to be maintained, for a 
period of six years from the date of such transactions, in a manner 
capable for audit and examination, such records as are necessary to 
enable the persons described below in paragraph (g) to determine 
whether the conditions of this exemption have been met, except that a 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of Rockford, the records are 
destroyed prior to the end of the six year period.
    (g)(1) Except as provided in paragraph (2) of this section (g) and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (f) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Service;
    (B) Any fiduciary of the Plan or any duly authorized employee or 
representative of such fiduciary; and
    (C) Any Participant or beneficiary or duly authorized employee or 
representative of such Participant or beneficiary.
    (g)(2) None of the persons described in subparagraphs (g)(1)(B)-
(g)(1)(C) shall be authorized to examine the trade secrets of Rockford 
or commercial or

[[Page 13366]]

financial information which is privileged or confidential.

EFFECTIVE DATE: This exemption is effective from December 30, 1999 
until March 15, 2000.
    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 64459.

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

Morgan Stanley & Co. Incorporated (MS&Co) Located in New York, New 
York

[Prohibited Transaction Exemption 2002-16; Exemption Application Number 
D-10886]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the 
Act and the sanctions resulting from the application of section 4975(a) 
and (b) of the Code, by reason of section 4975(c)(1)(A) through (E) of 
the Code, shall not apply, effective September 16, 1998, to the 
acquisition (the Acquisition), on behalf of the Central States, 
Southeast and Southwest Areas Pension Fund (the Fund), of certain 
Argentine bonds (the Bonds) from MS&Co, a party in interest with 
respect to the Fund, by the Capital Asset Trust (the Trust) at the 
direction of Alliance Capital Management L.P. (Alliance), an investment 
manager for the Fund, provided the following conditions are satisfied:
    (a) The Acquisition was a one-time transaction for cash;
    (b) The Fund paid no more than the current fair market value of the 
Bonds as of the date of the Acquisition;
    (c) The Fund paid no commissions or expenses with respect to the 
Acquisition;
    (d) The Acquisition and subsequent sale of the Bonds resulted in 
the Fund's receipt of a one-day profit totaling $147,250.01;
    (e) Upon identifying the Acquisition as a ``prohibited 
transaction'', MS&Co and Alliance acted promptly to comply with the 
relevant provisions of the Act and the Code;
    (f) Alliance and MS&Co took whatever actions were necessary to 
ensure that the Fund was adequately protected with respect to the 
Acquisition;
    (g) Subsequent to the Acquisition, Alliance implemented an internal 
computer system designed to prevent transactions between client plans 
and named fiduciaries with respect to such plans; and
    (h) The transaction was not part of an agreement, arrangement or 
understanding designed to benefit a party in interest.
    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 January 3, 2002 at 67 FR 
351.

FOR FURTHER INFORMATION CONTACT: Christopher J. Motta of the 
Department, telephone (202) 693-8544. (This is not a toll-free number.)

State Farm Mutual Automobile Insurance Company and State Farm VP 
Management Corp.

[Prohibited Transaction Exemption 2002-17; Exemption Application No. D-
10961]

Exemption

    The Department of Labor is 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).\2\
---------------------------------------------------------------------------

    \2\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to the corresponding provisions of the Code.
---------------------------------------------------------------------------

Section I: Transactions
    The restrictions of sections 406(a)(1)(A) through (d) and 406(b)(2) 
of the Act and the sanctions resulting from the application of section 
4974 of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code shall not apply to the purchase or redemption of an institutional 
class of shares (the Institutional Shares) of State Farm mutual funds 
(the Fund(s)), as defined in Section III(c), below, by pension plans 
(the Plan(s)), as defined in Section III(h), below, which are 
established by:
    (a) Independent contractor agents (the Agent(s)) of State Farm 
Mutual Automobile Insurance Company (State Farm) or its affiliates, who 
are also registered representatives of State Farm VP Management Corp. 
(SFVPMC), for themselves and their employees, and
    (b) The family members of such Agents (the Family Member(s)) (as 
defined in Section III(e), below), provided that the conditions set 
forth in Section II, below are satisfied.
Section II: Conditions
    (a) Neither State Farm nor its affiliates has discretionary 
authority or control with respect to the investment of the plan assets 
involved in the transaction or renders investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to those assets.
    (b) Plans do not pay any plan-level investment management, 
investment advisory, or similar fees to State Farm or its affiliates in 
connection with the investment of the assets of such Plans in any of 
the Funds.
    (c) Plans do not pay any redemption fees in connection with the 
sale of shares of any of the Funds by such Plans.
    (d) Plans do not pay any sales commissions in connection with the 
acquisition or sale of shares of any of the Funds, and the Agents do 
not receive any sales commission or any other compensation or benefit, 
direct or indirect, in connection with the transactions that are the 
subject of this exemption. In this regard, neither State Farm nor any 
of its affiliates provides production credit, bonus, trip, or other 
sales incentive to such Agents based on such transactions.
    (e) All dealings between the Plans and the Funds and State Farm and 
its affiliates are on a basis no less favorable to such Plans than such 
dealings with other shareholders of the Funds.
    (f) The price paid or received by a Plan for shares in a Fund is 
the net asset value per share, as defined, in Section III(d), below, at 
the time of the transaction and is the same price that would have been 
paid or received for such shares by any other investor in such Fund at 
that time.
    (g) For each Plan, the combined total of all fees received by State 
Farm and its affiliates for the prevention of services to such Plan, 
and in connection with the provision of services to any of the Funds in 
which such Plan may invest, are not in excess of ``reasonable 
compensation'' within the meaning of section 408(b)(2) of the Act.
    (h) Neither State Farm nor its affiliates receive any fees payable 
pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the 
1940 Act) in connection with the transactions.
    (i) The Plans are not employee benefit plans sponsored or 
maintained by State Farm or its affiliates for their employees.
    (j)(1) Each Agent, or a Family Member of such Agent (as defined in 
Section III(e), below) in the case of a Plan sponsored by such Family 
Member, or each participant (the Participant(s)) in the case of a Plan 
which provides for participant investment direction, or other fiduciary 
of a Plan who has the authority to acquire or dispose of shares of the 
Funds, receives in advance of any initial investment in a Fund by such 
Plan (or Participant's account, in the case of a participant directed 
individual account plan) a full and detailed written disclosure of 
information concerning each Fund in which such Plan or

[[Page 13367]]

Participant's account, as the case may be, is considering investing, 
including but not limited to:
    (A) A current prospectus for such Fund;
    (B) A statement describing the fees for investment advisory, 
investment management, or similar services, a statement describing any 
fees for secondary services (Secondary Services), as defined below in 
Section III(f), (including but not limited to fees for acting as 
custodian, transfer agent, or for providing administrative, brokerage, 
or other services) payable to State Farm or its affiliates, and all 
other fees to be charged to or paid by such Plan, Participant's 
account, or such Fund to State Farm or its affiliates;
    (C) A statement regarding appropriate investments for retirement 
plans and explaining why such Fund would be an appropriate investment 
for such Plan or Participant's account, as the case may be; and
    (D) Upon the request of an Agent, a Family member, or a Participant 
in a participant directed individual account plan, or other fiduciary 
of a Plan who has the authority to acquire or dispose of shares of the 
Funds, as the case may be, a copy of the proposed exemption and/or a 
copy of the final exemption, as such documents appear when published in 
the Federal Register.
    (2) Each Participant, in the case of a Plan that does not provide 
for participant investment direction, receives from the fiduciary 
responsible for directing the investment of plan asset in advance of 
any initial investment in a Fund by such Plan:
    (A) A statement that the Plan is investing in the Funds;
    (B) The name of each Fund in which such Plan is investing; and
    (C) A current prospectus for each such Fund.
    (k) Any investment of the assets of a Plan (or a Participant's 
account in the case of a participant directed individual account plan) 
in each particular Fund is implemented only at the express direction of 
an Agent, Family Member, or Participant in a participant directed 
individual account plan, or other fiduciary of a Plan who has the 
authority to acquire or dispose of shares of the Funds, as appropriate, 
after such Agent, Family Member, or Participant, or other fiduciary of 
a plan who has the authority to acquire or dispose of shares of the 
Funds, receives the information described in paragraph (j) of Section 
II, above.\3\
---------------------------------------------------------------------------

    \3\ The Department notes that the general standards of fiduciary 
conduct under the Act would apply to the investment transactions 
permitted by this exemption, and that satisfaction of the conditions 
of this exemption should not be viewed as an endorsement of any 
particular investment by the Department. Section 404 of the Act 
requires, among other things, that a fiduciary discharge his duties 
with respect to a plan solely in the interest of the plan's 
participants and beneficiaries and in a prudent fashion. 
Accordingly, the Department notes that the selection and the 
retention of any of the Funds as an investment or an investment 
option under a Plan is a fiduciary act. In this regard, the 
Department expects the fiduciary of a Plan to determine, if such 
selection and retention of any of the Funds by a Plan is appropriate 
after taking into consideration the investment performance of such 
Funds and the fees paid by such Funds (including advisory fees and 
administrative fees paid to State Farm and other persons).
---------------------------------------------------------------------------

    (1) Pursuant to paragraph (k) of Section II, above, the investment 
of any assets of a Plan (or Participant's account, in the case of a 
participant directed individual account plan) in a Fund shall be 
terminable at will by an Agent, Family Member, or Participant, or other 
fiduciary of a Plan who has the authority to acquire or dispose of 
shares of the Funds, as appropriate, without penalty to such Plan (or 
Participant's account, in the case of an individually directed account 
plan), upon receipt by State Farm or its affiliates of a written notice 
of termination. A form (the Termination Form) expressly providing an 
election to terminate the investment in a Fund by a Plan (or 
Participant's account, in the case of an individually directed account 
plan) with instructions on the use of the form must be supplied to 
Agents, Family Members, or Participants, or other fiduciary of a Plan 
who has the authority to acquire or dispose of shares of the Funds, as 
the case may be, no less than annually; provided that the Termination 
Form need not be supplied to Agents, Family Members, or Participants, 
or other fiduciary of a Plan who has the authority to acquire or 
dispose of shares of the Funds, pursuant to this paragraph, sooner than 
six (6) months after such Termination Form is supplied pursuant to 
paragraph (m) of this Section II, below, except to the extent required 
by such paragraph in order to disclose an additional service or a fee 
increase. The instructions for the Termination Form must include a 
statement that the investment by a Plan in the Fund is terminable at 
will by a Plan (or Participant's account in the case of a participant 
directed individual account plan) without penalty to such Plan (or 
Participant's account), upon receipt by State Farm or its affiliates of 
written notice from the appropriate Agent, Family Member, or 
Participant, or other fiduciary of a Plan who has the authority to 
acquire or dispose of shares of the Funds.
    (m) (1) In the event of an increase in fees paid by a Fund for any 
service, or
    (2) In the event of an addition of any Secondary Service for which 
a fee is charged, or
    (3) In the event of an increase in the rate of any fee that results 
either from an increase in the rate of such fee or from the decrease in 
the number or kind of services performed for such fee, State Farm or 
its affiliates will, at least 30 days in advance of the implementation 
of such fee increase or a fee for an additional service or increase in 
the rate of a fee, provide a written notice (which may take the form of 
a proxy statement, letter, or similar communication that is separate 
from the prospectus of such Fund and that explains the nature and 
amount of the additional service for which a fee is charged or the 
increase in fees or the increase in the rate of any fee) to the 
appropriate Agent, Family Member, or Participant in a participant 
directed individual account plan, or other fiduciary of a Plan who has 
the authority to acquire or dispose of shares of the Funds. Such notice 
shall be accompanied by a Termination Form with instructions, as 
described above in paragraph (1) of this Section II, which will permit 
a Plan (or Participant's account, in the case of a participant directed 
individual account plan) to redeem shares of such Fund without penalty.
    (n)(1) On an annual basis, each Agent, Family Member, or 
Participant in a participant directed individual account plan, or other 
fiduciary of a Plan who has the authority to acquire or dispose of 
shares of the Funds, receives from State Farm the following information 
for each Fund in which a Plan (or Participant's account, in the case of 
a participant directed individual account plan) invests:
    (A) A copy of the current prospectus,
    (B) Upon the request of the appropriate Agent, Family Member, or 
Participant in a participant directed individual account plan, or other 
fiduciary of a Plan who has the authority to acquire or dispose of 
shares of the Funds, a copy of the Statement of Additional Information 
that contains a description of all fees paid by such Fund to State Farm 
or its affiliates;
    (C) A copy of the annual report prepared by State Farm or its 
affiliates that includes information about such Fund, as well as audit 
findings of an independent auditor, within 60 days of the preparation 
of such report; and
    (D) Oral or written responses to inquiries of an Agent, Family 
Member, or Participant, or other fiduciary of a Plan who has the 
authority to acquire or

[[Page 13368]]

dispose of shares of the Funds, as such responses arise.
    (2) On an annual basis, each Participant in the case of a Plan that 
does not provide for participant investment direction receives from the 
fiduciary responsible for directing the investment of plan assets 
copies of the annual report for each of the Funds in which the assets 
of such Plan are invested.
    (o) Any plan subject to this exemption that is a prototype 
retirement plan sponsored by State Farm or its affiliates may not 
require the investment of a minimum percentage of the total assets of 
such Plan in State Farm investment products.
    (p) State Farm or its affiliates maintain for a period of six (6) 
years the records necessary to enable the persons described in 
paragraph (q) of this Section II, below, to determine whether the 
conditions of this exemption have been met, except that--
    (1) A prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of State Farm or 
its affiliates, the records are lost or destroyed prior to the end of 
the six-year period; and
    (2) No party in interest other that State Farm and its affiliates 
shall be subject to the civil penalty that may be assessed under 
Section 502(i) of the Act, or to the taxes imposed by section 4975(a) 
and (b) of the Code, if the records are not maintained or are not 
available for examination as required by paragraph (q) of this Section 
II, below.
    (q)(1) Except as provided in paragraph (q)(2) of this Section II, 
below, and notwithstanding any provisions of section 504(a)(2) of the 
Act, the records referred to in paragraph (p) of this Section II, 
above, are unconditionally available at their customary location for 
examination during normal business hours by--
    (i) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service.
    (ii) Any Agent, Family Member, Participant in the case of a 
participant directed individual account plan, or other fiduciary of a 
Plan who has the authority to acquire or dispose of shares of the 
Funds, or any duly authorized employee or representative of such 
fiduciary, and
    (iii) Any participant or beneficiary of a Plan or duly authorized 
employee or representative of such participant or beneficiary;
    (2) None of the persons described in paragraph (q)(1)(ii) and (iii) 
of this Section II, above, shall be authorized to examine trade secrets 
of State Farm or its affiliates, or commercial or financial information 
that is privileged or confidential.
Section III--Definitions
    For purposes of this exemption:
    (a) The term, ``affiliate'' or ``affiliates,'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, Family Member (as defined in 
paragraph (e) of this Section III, below), or partner in any such 
person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (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, ``Funds or Funds,'' shall include any individual 
investment portfolios that are part of the State Farm Mutual Fund 
Trust, a diversified open-end investment company registered under the 
1940 Act for which State Farm or its affiliates serve as an investment 
adviser and may also serve as a custodian, dividend disbursing agent, 
shareholder servicing agent, transfer agent, Fund accountant, or 
provide some other Secondary Service (as defined in paragraph (f) of 
this Section III, below), which has been approved by such Fund.
    (d) The term, ``net asset value,'' means the amount for purposes of 
pricing all purchases and sales, calculated by dividing the value of 
all securities (determined by a method as set forth in a Fund's 
prospectus and Statement of Additional Information) and other asset's 
belonging to such Fund, less the liabilities charged to each such Fund, 
by the number of outstanding shares.
    (e) The term, ``Family Member or Family Members,'' 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 section 4975(e)(6) 
of the Code), or a brother, a sister, or a spouse of a brother or a 
sister.
    (f) The term, ``Secondary Service,'' means a service other than an 
investment management, investment advisory, or similar service, which 
is provided by State Farm or its affiliates to a Fund, including 
custodial, accounting, brokerage, administrative, or any other service.
    (g) ``Termination Form,'' means the form supplied to an Agent, 
Family Member, or Participant in a participant directed individual 
account plan, or other fiduciary of a Plan who has the authority to 
acquire or dispose of shares of the Funds, as appropriate, that 
expressly provides an election to terminate on behalf of a Plan (or the 
Participant's account in the case of a participant directed individual 
account plan) the investment of plan assets in a Fund. Such Termination 
Form may be used at will by an Agent, Family Member, or Participant in 
a participant directed individual account plan, or other fiduciary of a 
Plan who has the authority to acquire or dispose of shares of the Funds 
to terminate the investment by a Plan in a Fund without penalty to the 
Plan (or the Participant's account, in the case of a participant 
directed individual account plan) and to notify State Farm and its 
affiliates in writing to effect a termination by selling the shares of 
a Fund held by the Plan (or Participant's account) requesting such 
termination within one (1) business day following receipt by State Farm 
or its affiliates of the form; provided that if, due to circumstances 
beyond control of State Farm or its affiliates, the sale cannot be 
executed within one (1) business day, State Farm or its affiliates 
shall have one (1) additional business day to complete such sale.
    (h) The term, ``Plan'' or ``Plans,'' means any pension plan subject 
to the Act and/or the Code, including but not limited to plans that 
provide for participant investment direction, traditional individual 
retirement accounts (IRAs), SEP-IRAs, and Keogh plans.

EFFECTIVE DATE: This exemption is effective, as of May 1, 2001.

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 December 13, 2001. All comments and requests 
for a hearing were due by January 28, 2002.
    In a letter dated February 5, 2002, the applicants confirmed that 
State Farm had provided notice to interested persons of the pendency of 
the proposed exemption. The notification was provided via electronic 
mail (e-mail) to all State Farm agents who are registered 
representatives. It is represented that on December 20, 2001, the 
Corporate Department of State Farm sent an e-mail to all of its Agency 
Field Executives (AFEs or AFE) and its Agency Resource Managers (ARMs 
or ARM). The e-mail contained a copy of the Notice, as published in the 
Federal Register, along

[[Page 13369]]

with a notice to interested persons (the Supplemental Statement), as 
described at 29 CFR 2570.43(b)(2) of the Department's regulations. The 
Supplemental Statement provided that interested persons had a right to 
comment on the proposed exemption and/or request a hearing by January 
28, 2002.
    The AFEs were instructed to send to the registered representatives 
who report to them an e-mail containing the Supplemental Statement with 
the Notice attached. The AFEs were further required to ``cc'' a 
corporate mailbox on the e-mail to each registered representative. In 
any area where an AFE's position was not currently filled or an AFE was 
out of the office on vacation or for any other reason, ARMs were 
instructed to send the e-mail to the registered representatives, using 
the same procedure that AFEs were instructed to use.
    The Corporate Department of State Farm monitored the corporate 
mailbox to determine whether a follow-up from the Vice President-Agency 
(VPA) or the ARM for the region was necessary. Through the ``cc'' to 
the corporate mailbox, State Farm was able to verify whether each AFE 
or ARM, if applicable, had forwarded the Notice and the Supplemental 
Statement to the registered representatives. The appropriate VPA or 
ARMs were instructed to take corrective action if a ``cc'' was not 
received from an AFE or an ARM.
    Through this verification process, State Farm determined that 7,935 
out of 10,175 registered representatives received the e-mail 
notification by December 28, 2001. State Farm was also able to confirm 
that the remaining 2,240 registered representatives received the e-mail 
notification by January 15, 2002.
    Although State Farm represents that it was able to notify all of 
the registered representatives through the process described above, the 
process was slower than anticipated. In light of the fact that 
notification to some interested persons was delayed until January 15, 
2002, and in order to allow such interested persons the benefit of the 
full thirty (30) day comment period, the Department required, and the 
applicants agreed to, an extension of the deadline within which to 
comment and request a hearing on the proposed exemption. In this 
regard, the applicants confirmed in a letter dated February 5, 2001, 
that all 10,175 registered representatives were sent via first class 
U.S. mail on January 23, 2002, notification that the comment period had 
been extended and that all comments and/or requests for a hearing on 
the proposed exemption were due by February 15, 2002.
    During the comment period, the Department received one (1) comment 
letter in which the commentator requested a hearing. In this regard, 
the commentator wished to use the hearing to discuss the possibility of 
providing State Farm Mutual Funds for herself and her family members.
    The Department has considered the request of the commentator for a 
hearing. In this regard, the commentator has not indicated any manner 
in which she or her family would be adversely affected by the 
exemption. Rather, the comment supports the issuance of the exemption. 
As the commentator will be able to purchase shares in the Funds for 
herself and her family members upon the publication of the exemption, 
the Department does not believe that any issue has been raised which 
would require the convening of a hearing.
    During the comment period, the Department received favorable 
comment letters from fifty-six (56) commentators. In this regard, these 
commentators expressed support for the grant of the exemption.
    The Department also received unfavorable comment letters from four 
(4) commentators. At the close of the comment period, the Department 
forwarded copies of all of the comment letters, both favorable and 
unfavorable, to the applicants. With respect to the four (4) 
unfavorable comment letters, the Department requested that the 
applicants respond in writing to the issues raised by the commentators. 
The concerns expressed by these commentators and the applicants 
response thereto are summarized below.
    One commentator did not think that the exemption was necessary, not 
did he think that the Act should be changed to satisfy the wishes of a 
few individuals. In response to this commentator, the applicants point 
out that State Farm's exemption request has been submitted and proposed 
under the relevant procedures of the Department's regulations; and 
therefore, the granting of the proposed exemption does not change the 
Act, but on the contrary, is within the scope of the Act. Further, the 
applicants point out, as evidenced by the number of comments in favor 
of the proposed exemption, that many registered representative agents 
favor having the Funds available as investment options for their plans 
and the plans of their family members. If the exemption is granted, the 
applicants note that the exemption will in no way obligate the 
commentator to invest in the Funds.
    Another commentator did not understand why State Farm had not 
previously allowed investments in the Funds by the agents' plans. In 
response, the applicants state that State Farm did not permit its 
registered representative agents to sell shares of the Funds to their 
plans (or those of family members) because of the possibility that such 
sales could be considered prohibited transactions, absent an exemption. 
The applicants point out that the grant of proposed exemption will 
allow investments in the Funds to be made available to the commentator, 
with appropriate safeguards, as reflected in the conditions and other 
terms of the exemption.
    This same commentator complained that State Farm had placed a quota 
requirement on registered representatives. Another commentator 
indicated that State Farm had recently notified agents that they must 
produce a minimum number of sales per year or lose their license to 
sell State Farm products. This commentator expressed the opinion that 
sales of shares in the Funds would help agents and their clients who 
happen to be relatives.
    It is the Department's view that crediting transactions subject to 
the exemption for purposes of satisfying a minimum number of sales per 
year in order to retain a license to sell State Farm products is a 
benefit to State Farm agents, in violation of Section II(d) of the 
exemption. In this regard, the applicants confirm that transactions 
subject to this exemption will not be credited in determining whether 
the requirement of a minimum number of sales per year has been met.
    The fourth commentator objected to the proposed exemption because 
it does not permit him to be paid for his work. In response, the 
applicants presume that this commentator would support the exemption, 
if it allowed him, as an agent, to receive commissions on sales of 
shares in the Funds to plans established by such agent for himself and 
his employees or to plans established by family members of such agent. 
The condition that no commissions be paid in connection with the 
subject transactions is designed as a safeguard to protect against 
potential self-dealing. In this regard, Section II(d), ensures that, 
where the agent is a plan fiduciary, the agent's decision whether to 
invest plan assets in the Funds is not unduly influenced by the 
potential for personal gain and that personal gain will not be a 
motivating factor in any other transaction covered by the exemption.
    The Department also received, on February 12, 2002, a comment 
letter

[[Page 13370]]

from the applicants. In their comment letter, the applicants requested 
certain amendments to the operant language in the exemption, as set 
forth in the Notice published in the Federal Register. The applicants' 
comments and the Department's response thereto are discussed in the 
numbered paragraphs below.
    1. The applicants requested that the language of Section II(i), as 
published in the Notice, be revised to add the phrase, ``for their 
employees,'' after the word, ``affiliates.'' In this regard, State Farm 
wished to clarify that compliance with Section II(i) would not preclude 
agents or their family members from relying on the relief provided by 
the exemption to purchase shares of the Funds for various prototype 
plans sponsored by State Farm.
    The Department concurs with the applicants' request and has 
modified Section II(i) of the exemption to read as follows: ``The Plans 
are not employee benefit plans sponsored or maintained by State Farm or 
its affiliates for their employees.''\4\
---------------------------------------------------------------------------

    \4\ Throughout this exemption words that have been stricken from 
the text as published in the Notice appear in closed brackets and 
additions to the language of text as published in the Notice appear 
in bold.
---------------------------------------------------------------------------

    2. The applicants requested that the language of Section II(j), 
(k), (1), (m), (n), and Section III(g), as published in the Notice in 
the Federal Register, be amended. In this regard, State Farm requested 
that the phrase, ``or other fiduciary of a Plan who has the authority 
to acquire or dispose of shares of the Funds,'' be added at the end of 
the phrase, ``Agent, Family Member, or Participant in a participant 
directed individual account plan,'' each time such phrase or a 
variation of such phrase appears in Section II(j), (k), (m), (n), or in 
Section III(g). State Farms believes that in cases where a separate 
independent fiduciary, such as an investment committee, has been 
appointed to make relevant investment decisions for a plan concerning 
the acquisition or disposition of shares of the Funds, that it would be 
appropriate to include such fiduciary among the parties listed in 
Section II(j), (k), (m), (n), or in Section III(g).
    The Department concurs with the applicants' request. Accordingly, 
the Department has modified the language of the exemption to add the 
phrase, ``or other fiduciary of a Plan who has the authority to acquire 
or dispose of shares of the Funds,'' as indicated below:
    (a) in Section II(j)(1), after the word, ``direction,'' on page 
64473, column 2, line 12 of the Notice;
    (b) in Section II(j)(1)(D), after the word, ``plan,'' on page 
64473, column 2, line 48 of the Notice;
    (c) in Section II(k), after the word, ``plan,'' on page 64473, 
column 3, line 4 of the Notice, and after the word, ``Participant,'' on 
page 64473, column 3, line 6 of the Notice;
    (e) in Section II(1), after the word, ``Participant,'' on page 
64473, column 3, lines 15 and 49 of the Notice, and after the word, 
``Participants,'' on page 64473, column 3, lines 38 and 32 of the 
Notice;
    (f) in Section II(m)(3), after the word, ``plan,'' on page 64474, 
column 1, line 25 of the Notice;
    (g) in Section II(n)(1), after the word, ``plan,'' on page 64474, 
column 1, line 37 of the Notice;
    (h) in Section II(n)(1)(B), after the word, ``plan'' on page 64474, 
column 1, line 46 of the Notice;
    (i) in Section II(n)(1)(D), after the word, ``Participant,'' on 
page 64474, column 1, line 60 of the Notice; and
    (j) in Section III(g), after the word, ``plan,'' on page 64474, 
column 3, lines 57 and 67 of the Notice.
    Further, in order to maintain consistency in the language of the 
exemption, the Department has modified Section II (q)(ii) to read as 
follows:

    Any Agent, Family Member, Participant in the case of a 
participant directed individual account plan, or [any] other 
fiduciary of a Plan who has the authority to acquire or dispose of 
shares of the Funds [owned by such Plan], or any duly authorized 
employee or representative of such fiduciary.

    3. The applicants sought clarification that the meaning of the 
term, ``prototype retirement plan,'' as set forth in Section II(o) of 
the Notice, referred only to Section 401(a) qualified plans, and does 
not preclude State Farm IRAs approved under the Internal Revenue 
Service prototype IRA program from limiting permissible investment to 
State Farm products only. In this regard, State Farm proposed that the 
term, ``prototype retirement plan,'' as set forth in Section II(o), be 
replaced by the phrase, ``a section 401(a) qualified prototype plan.'' 
Subsequently, in a letter dated February 26, 2002, the applicants 
withdrew this comment.
    The Department has accepted the applicants' withdrawal of the 
comment and notes that the language of Section II(o) in the exemption 
remains the same as the language published in the Notice.
    4. In Section III(c) of the Notice, the term, ``Fund or Funds'' is 
defined to include:

    Any diversified open-end investment company or companies 
registered under the 1940 Act for which State Farm or its affiliates 
serve as an investment adviser and may also serve as a custodian, 
dividend disbursing agent, shareholder servicing agent, transfer 
agent, Fund accountant, or provide some other Secondary Service (as 
defined in paragraph (f) of this Section III, below), which has been 
approved by such Fund.

    State Farm believes that this definition would be more accurate if 
it referred to the individual investment portfolios within the State 
Farm Mutual Fund Trust in light of the manner in which the terms, 
``Fund and Funds,'' were used throughout the Notice. Therefore, State 
Farm proposes that Section III(c) be revised to read as follows:

    The term, ``Fund or Funds,'' shall include any individual 
investment portfolios that are part of the State Farm Mutual Fund 
Trust, a diversified open-end investment company [or companies] 
registered under the 1940 Act for which State Farm or its affiliates 
serve as an investment adviser and may also serve as a custodian, 
dividend disbursing agent, shareholder servicing agent, transfer 
agent, Fund accountant, or provide some other Secondary Service (as 
defined in paragraph (f) of this Section III, below), which has been 
approved by such Fund.

    The Department concurs with the applicants' request and has 
modified Section III(c) of he exemption, accordingly. Further, in order 
to maintain consistency in the language of the exemption, the 
Department has modified three (3) other sections of the exemption. In 
this regard, Section I has been modified to read as follows:

    The restrictions of sections 406(a)(1)(A) through (D) and 
406(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 (D) of the Code shall not apply to the 
purchase or redemption of an institutional class of shares (the 
Institutional Shares) of State Farm mutual funds (the Fund(s)), 
[open-end management investment companies registered under the 
Investment Company Act of 1940 (the 1940 Act)] as defined in Section 
III(c), below, by pension plans (the Plan(s)), as defined in Section 
III(h), below, which are established by * * *.

Section III(d) of the exemption has been modified to read as follows:

    The term, ``net asset value,'' means the amount for purposes of 
pricing all purchases and sales, calculated by dividing the value of 
all securities (determined by a method as set forth in a Fund's 
prospectus and Statement of Additional Information) and other assets 
belonging to such Fund [or portfolio of such Fund], less the 
liabilities charged to each such [portfolio or] Fund, by the number 
of outstanding shares.

In addition, Section II(n)(1)(C) of the exemption has been modified to 
read as follows:


[[Page 13371]]


    A copy of the annual report prepared by State Farm or its 
affiliates that includes information about [the portfolios in] such 
Fund, as well as audit findings of an independent auditor, within 60 
days of the preparation of such report.

    5. The applicants sought to clarify the use of the words, 
``relative'' and ``Family Member or Family Members,'' as those terms 
are used in the Notice. In this regard, the applicants noted that the 
term, ``Family Member or Family Members,'' is defined solely by 
reference to section 3(15) of the Act in parenthetical phrases that 
appear in Section I(b) and Section II(j)(1) of the Notice, whereas the 
word, ``relative,'' as defined in Section III(e) of the Notice, 
references the relevant provisions of both the Act and the Code and 
includes within the definition of a relative--``a brother, a sister, or 
a spouse of a brother or a sister.'' As the term, ``Family Member or 
Family Members,'' appears in Section I(b) and in Sections II(j)(1); 
(j)(1)(D); (k); (l); (m)(3); (n)(1); an d(q)(1)(ii), in order to 
minimize the need to modify the text of the exemption, State Farm 
proposes that the term defined in Section III(e) of the Notice be 
changed from ``relative'' to ``Family Member or Family Members.'' 
Further, State Farm proposes that the parenthetical phrase, ``(as 
defined in section 3(15) of the Act),'' be deleted from both Section 
I(b) and Section II(j)(1).
    The Department concurs with the applicant's request and has amended 
the relevant provisions of the exemption. In this regard, Section 
III(e) in the exemption has been modified to read, as follows:

    The term, [``relative,''] ``Family Member or Family Members,'' 
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 
section 4975(e)(6) of the Code), or a brother, a sister, or a spouse 
of a brother or a sister.

Section I(b) in the exemption has been modified to read, as follows:

    The family members of such Agents (the Family Member(s)) (as 
defined in Section III(e), below [section 3(15) of the Act]), 
provided that the conditions set forth in Section II, below are 
satisfied.

Section II(j)(1) in the exemption has been modified to read, as 
follows:

    Each Agent, or a Family Member of such Agent (as defined in 
Section III(e), below [section 3(15) of the Act]) in the case of a 
Plan sponsored by such Family Member, or each participant (the 
Participant(s)) in the case of a Plan which provides for participant 
investment direction, receives in advance of any initial investment 
in a Fund by such Plan (or Participant's account, in the case of a 
participant directed individual account plan) a full and detailed 
written disclosure of information concerning each Fund in which such 
Plan or Participant's account, as the case may be, is considering 
investing, including but not limited to * * *

Section III(a)(2) in the exemption has been modified to read as 
follows:

    Any officer, director, employee, [relative] Family Member (as 
defined in paragraph (e) of this Section III, below), or partner in 
any such person.

    6. Section III(g) of the exemption, sets forth the requirements for 
the Termination Form. The applicants sought confirmation that for this 
purpose, ``termination'' means the pricing and redemption of the Fund 
shares and does not necessarily include the actual mailing of a 
redemption check or other physical transfer of funds (e.g., by rollover 
to another account). Subsequently, by letter dated February 26, 2002, 
the applicants withdrew this comment. In this regard, State Farm 
represented that in accordance with its standard operating procedures, 
State Farm will price and redeem shares within one business day (except 
when circumstances outside of State Farm's control prevent such 
execution) and will mail redemption checks or otherwise disburse the 
funds within a reasonable time thereafter.
    7. The Department also wishes to correct certain typographical 
errors that appeared in the Notice. In this regard, in Section II(h), 
the word, ``receives,'' should be replaced by the word, ``receive,'' 
and the phrase, ``the Investment Company Act of 1940,'' should be 
inserted before the parenthetical, ``(the 1940 Act).'' The 
subparagraphs under Section II(n)(1) should be designated by capital 
letters, ``(A),'' ``(B),'' ``(C),'' and ``(D).'' In Section III(g), the 
parenthetical ``(1),'' should be inserted after the word, ``one,'' 
whenever that word appears in such section.
    After giving full consideration to the entire record, including the 
written comments from the commentors, the Department has decided to 
grant the exemption, as amended herein. In this regard, the comment 
letters, both favorable and unfavorable, submitted to the Department 
have 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-1513, 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 in December 13, 2001, at 66 FR 64472.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8551 (This is not a toll-free number.)

Smart Chevrolet Co. Employees' Profit Sharing Retirement Plan (the 
Plan) Located in Pine Bluff, Arkansas

[Prohibited Transaction Exemption 2002-18; Exemption Application No. D-
11035]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(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: (1) The secured loans (the Loans) by the Plan to 
Motors Finance Company (Motors), a party in interest with respect to 
the Plan, and (2) the guaranty of such Loans (the Guaranty) by the 
individual partners of Motors; provided that the following conditions 
are met: (a) The terms and conditions of the Loans are at least as 
favorable as those which the Plan could have received in similar 
transactions with an unrelated third party; (b) an independent 
fiduciary negotiates, reviews, approves, and monitors the Loans and the 
Guaranty under the terms and conditions, as set forth in paragraph #6 
of the notice of proposed exemption; and (c) the balance of all Loans 
will at no time exceed 15% of the assets of the Plan.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, see the 
notice of proposed exemption published on January 18, 2002 at 67 FR 
2689.

Temporary Nature of Exemption

    This exemption is temporary and will expire September 16, 2007. 
However, the exemption will extend until the maturity of any of the 90 
day Loans made prior to September 16, 2007.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (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

[[Page 13372]]

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 13th day of March, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 02-6430 Filed 3-21-02; 8:45 am]
BILLING CODE 4510-29-M