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EBSA Notices

Application No. and Proposed Exemption involving D-11565, Citizens Bank Wealth Management, N.A.   [4/8/2010]
[PDF]
FR Doc 2010-7892
[Federal Register: April 8, 2010 (Volume 75, Number 67)]
[Notices]               
[Page 17966-17970]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr08ap10-104]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Application No. and Proposed Exemption involving D-11565, 
Citizens Bank Wealth Management, N.A.

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of a proposed exemption from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemption, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) the name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffitt.betty@dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. The application for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the applicant and the Department 
within 15 days of the date of publication in the Federal Register. Such 
notice shall include a copy of the notice of proposed exemption as 
published in the Federal Register and shall inform interested persons 
of their right to comment and to request a hearing (where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemption was requested in an 
application filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, this notice of proposed exemption is 
issued solely by the Department.
    The application contains representations with regard to the 
proposed exemption which is summarized below. Interested persons are 
referred to the application on file with the Department for a complete 
statement of the facts and representations.

Citizens Bank Wealth Management, N.A., Located in Flint, Michigan

[Application No. D-11565]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR Part 
2570 Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I. Transaction

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A)

[[Page 17967]]

and (D) and section 406(b)(1) and (b)(2) of the Act, and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A), (D), and (E) of the Code, shall not apply, 
effective December 16, 2008, to the past sale of certain Auction Rate 
Securities (ARS) by the Four-Way Tool & Die, Inc. Profit Sharing Plan 
and Trust (the Plan) to Citizens Republic Bancorp (Citizens Republic), 
a party in interest with respect to the Plan, provided that the 
following conditions were satisfied: \1\
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    \1\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer also to the 
corresponding provisions of section 4975 of the Code.
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    (A) The subject ARS were acquired for the Plan by Citizens Bank 
Wealth Management, N.A. (the Trustee), acting in its capacity as 
trustee of the Plan, from an independent broker;
    (B) The last auction for each of the ARS was unsuccessful;
    (C) The sale of the ARS was directly between the Plan and Citizens 
Republic for solely cash consideration against prompt delivery of the 
ARS;
    (D) The sale price for each of the ARS was equal to the par value, 
plus any accrued but unpaid interest;
    (E) The Plan did not waive any rights or claims in connection with 
the sale;
    (F) The decision to sell the ARS to the Trustee was made by a Plan 
fiduciary independent of the Trustee;
    (G) The Plan did not pay any commissions or transaction costs in 
connection with the sale;
    (H) The sale was not part of an arrangement, agreement, or 
understanding designed to benefit a party in interest to the Plan;
    (I) Upon termination of the Plan, the Plan participants received 
100 percent of their account balances, and as a result of the pre-
termination sale of the ARS to Citizens Republic at face value, plus 
any accrued but unpaid interest, no participant was adversely affected 
by the absence of an auction market for the ARS or the resulting 
decline in their market value;
    (J) The Trustee and its affiliate, as applicable, maintain, or 
cause to be maintained, for a period of at least six (6) years from the 
date of the sale, such records as are necessary to enable the persons 
described in paragraph (K), below, to determine whether the conditions 
of this exemption, if granted, have been met, except that--
    (i) No party in interest with respect to the Plan that engaged in 
the sale, other than the Trustee and its affiliate, as applicable, 
shall be subject to a civil penalty under section 502(i) of the Act or 
the taxes imposed by section 4975(a) and (b) of the Code, if such 
records are not maintained, or are not available for examination, as 
required, below, by paragraph (K); and
    (ii) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of the Trustee or its affiliate, as applicable, such records are lost 
or destroyed prior to the end of the six-year period; and
    (K)(i) Except as provided in subparagraph (ii), below, and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (J), above, are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (a) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission;
    (b) Any fiduciary of the Plan, or any duly authorized employee or 
representative of such fiduciary; or
    (c) The employer of participants of the Plan, and any employee 
organization whose members are covered by the Plan, or any authorized 
employee or representative of these entities;
    (ii) None of the persons described above in (b) or (c) of 
subparagraph (K) shall be authorized to examine trade secrets of the 
Trustee, or commercial or financial information which is privileged or 
confidential; and
    (iii) If the Trustee refuses to disclose information on the basis 
that such information is exempt from disclosure, the Trustee shall, by 
the close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.

Section II. Definitions

    For purposes of this exemption:
    (A) The term ``affiliate'' means any person, directly or 
indirectly, through one or more intermediaries, controlling, controlled 
by, or under common control with such other person (with respect to the 
Trustee, ``affiliate'' includes, but is not limited to, its parent 
corporation, Citizens Republic Bancorp;
    (B) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (C) The term ``Auction Rate Securities'' or ``ARS'' means 
securities that are debt instruments (generally with a long-term 
nominal maturity) with an interest rate that is reset at specific 
intervals through a Dutch Auction process;
    (D) A person is ``independent'' of the Trustee if the person is (1) 
not the Trustee or an affiliate, and (2) not a ``relative'' (as defined 
in section 3(15) of the Act) of the party engaging in the transaction; 
and
    (E) The term ``Plan'' means the Four-Way Tool & Die, Inc. Profit 
Sharing Plan and Trust, which is an employee benefit plan as defined in 
section 3(3) of the Act, and its related trust, which is an entity 
holding plan assets within the meaning of 29 CFR 2510.3-101, as 
modified by section 3(42) of the Act.

Summary of Facts and Representations

    1. Four-Way Tool & Die, Inc. (the Employer), located in Troy, 
Michigan, is engaged in the production of tooling, primarily for the 
automotive industry. The Four-Way Tool & Die, Inc. Profit Sharing Plan 
and Trust (the Plan), a defined contribution plan qualified under 
section 401(a) of the Code, was adopted by the Employer, effective 
October 1, 1969; was most recently amended and restated, effective 
October 1, 2007; and was terminated, effective January 31, 2009, and 
all assets were liquidated and distributed to the Plan participants. As 
of December 16, 2008, the Plan had 16 active participants (and no 
beneficiaries receiving benefits) and total assets of approximately 
$4,166,240. The Plan maintained individual accounts for each 
participant, but participants were not permitted to direct the 
investment of his or her account.
    2. The applicant Citizens Bank Wealth Management, N.A. (also 
referred to herein as the Trustee) was the trustee of the Plan, 
beginning in October 1, 2007, having full investment discretion under a 
trust agreement with the Employer to invest Plan assets within the 
guidelines set by a written investment policy. The Trustee is a 
national banking association headquartered in Flint, Michigan and a 
wholly owned subsidiary of Citizens Republic Bancorp (Citizens 
Republic), a bank holding company. Among other things, the Trustee acts 
as an institutional trustee for employee benefit plans and is a 
registered investment advisor subject to the Investment Advisers Act of 
1940.
    3. It is represented that, on various dates from November 2, 2007 
to December 24, 2007, the Trustee acquired certain Auction Rate 
Securities (ARS) as an investment for the Plan through UBS Financial 
Services, an independent international broker.\2\ The

[[Page 17968]]

value of the ARS was allocated among all participants' accounts (in the 
same manner as all other Plan investments) in accordance with the terms 
of the Plan.
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    \2\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the ARS by the Plan met the requirements 
of Part 4 in Title I of the Act.
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    The Trustee describes the ARS and the arrangement by which they are 
purchased and sold as follows. The ARS are securities (in each case 
herein issued as debt) with an interest rate that is not fixed but is 
reset at periodic intervals pursuant to a process called a ``Dutch 
Auction.'' Investors submit orders to buy, hold, or sell a specific ARS 
to a broker-dealer selected by the entity that issued the ARS. The 
broker-dealers, in turn, submit all of these orders to an auction 
agent. The auction agent's functions include collecting orders from all 
participating broker-dealers by the auction deadline, determining the 
amount of securities available for sale, and organizing the bids to 
determine the winning bid. If there are any buy orders placed into the 
auction at a specific rate, the auction agent accepts bids with the 
lowest rate above any applicable minimum rate and then successively 
higher rates up to the maximum applicable rate, until all sell orders 
and orders that are treated as sell orders are filled. Bids below any 
applicable minimum rate or above the applicable maximum rate are 
rejected. After determining the ``clearing rate'' for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers based on the orders that 
they submitted. If there are multiple bids at the clearing rate, the 
auction agent will allocate securities among the bidders at such rate 
on a pro rata basis. In the event of a failed auction, existing ARS 
holders receive the maximum rate set in the official statements under 
which the ARS were issued (i.e., the ``default rate'') until such time 
as sufficient bids are received to set a new clearing rate at the next 
auction.
    4. According to the applicant, the subject ARS acquired for the 
Plan were backed by student loans and were primarily selected based 
upon the credit rating of the issuer. Soon after the Plan's acquisition 
of the ARS, however, the unanticipated crisis in the national credit 
markets resulted in over ten months of failed auctions.\3\ 
Consequently, the Plan was unable to dispose of its ARS, thereby 
jeopardizing liquidity to make benefit payments, mandatory payments and 
withdrawals, and expense payments when due. The Employer's business was 
also impacted by the general economic downturn and the dramatic decline 
in automobile sales. In late 2008, the Trustee was notified of a 
proposed sale of the Employer and of its intention to terminate the 
Plan by year's end and distribute all assets to participants as soon as 
administratively possible. With the Employer likely to be sold and 
uncertainty about a new owner, Plan participants were anxious to 
receive their vested account balances.\4\
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    \3\ The applicant represents that all auctions for the ARS 
subsequent to the subject sale also failed.
    \4\ According to the applicant, the anticipated sale of the 
Employer ultimately was not consummated at the last minute, due to 
the rapid decline in capital available to the prospective buyer in 
late 2008, but the Plan has been terminated.
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    To relieve the situation, it is represented that the Trustee 
offered to have its parent corporation, Citizens Republic Bancorp, 
purchase the ARS directly from the Plan at their par value, plus 
accrued but unpaid interest. Larry Erickson, the owner and president of 
the Employer and a fiduciary of the Plan, orally consented after 
reviewing all the material terms of the sale,\5\ including the identity 
and par value of each of the ARS, the interest amounts that were due 
with respect to each of the ARS, and the most recent rate information 
for each of the ARS (to the extent that reliable information was 
available).\6\ The percentage of Plan assets involved in the sale on 
December 16, 2008 was approximately 61.56%.\7\
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    \5\ According to the applicant, Mr. Erickson is a member of the 
Citizens Bank Southeast Michigan Advisory Board, an entity that has 
no management responsibility or authority and cannot bind Citizens 
Republic nor any of its affiliates; thus, the board had no role in 
the subject sale of ARS by the Plan to Citizens Republic. The 
board's primary function is in the area of public relations--
ensuring community involvement in determining important goals and 
strategies for the bank to benefit the community, identifying area 
charitable organizations in need of support, and suggesting ways in 
which the bank can effectively support the local economy. The board 
is comprised of various community leaders and bank customers, such 
as Mr. Erickson. Each member of the board receives a stipend of $550 
per meeting attended; there are six or fewer meetings per year.
    \6\ The Department notes that the general standards of fiduciary 
conduct set forth in the Act also apply to the subject transaction 
described herein. In this regard, section 404 duties respecting a 
plan solely in the interest of the plan's participants and 
beneficiaries and in a prudent manner. Accordingly, the Plan 
fiduciary must act prudently with respect to, among other things: 
(1) the decision to sell an ARS, following disclosure by the Trustee 
of all of the relevant information; and (2) the negotiation of the 
terms of such sale, including the pricing. The Department further 
emphasizes that the prudence rule described in section 404 requires 
that fiduciaries conduct an objective and thorough decision making 
process that considers all of the relevant information prior to 
entering into financial transactions involving employee benefit plan 
assets to ensure that all risks associated with such transactions 
are understood.
    \7\ The Department expresses no opinion herein as to whether the 
percentage of Plan assets invested in the subject ARS met the 
diversification requirement of Part 4 in Title I of the Act.
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    The following chart provides information on each of the subject ARS 
sold to Citizens Republic. The last column of the chart shows the 
``default rate'' of interest for each of the ARS paid by Citizens 
Republic for accrued but unpaid interest from the date of the last 
interest payment until the date of sale. It is represented that none of 
the ARS was in default in payment of interest as of the sale date on 
December 16, 2008.\8\
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    \8\ With respect to the ARS issued by the New Hampshire Higher 
Education Loan Corp, the applicant represents that the 0.000% coupon 
rate indicated in the chart was the result of earlier interest 
coupon overpayments by the issuer that had been made in error. In 
total, the Plan had already received a greater amount of interest 
than the issuer was responsible to pay under the terms of the 
security's official statement.

--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                          Secondary        Rate at sale
           Issuer name               Face value            CUSIP           Nature of issuer           Rating              insurance          date (%)
--------------------------------------------------------------------------------------------------------------------------------------------------------
Iowa Student Loan Liquidity Corp.        $300,000  462590GK0...........  Private Entity......  Aa3/AA..............  AMBAC Assurance....           3.135
Access to Loans for Learning              300,000  00432MAR0...........  Private Entity......  Aaa/AAA.............  None...............           3.135
 Student Loan Corporation.
Pennsylvania Higher Education             300,000  709163GR4...........  Private Entity......  Aaa/AAA.............  AMBAC Assurance....           3.198
 Assistance Agency.
Connecticut Student Loan                  200,000  207784AG4...........  Private Entity......  Aaa/AAA.............  None...............           3.398
 Foundation.
State Board of Regents of the             200,000  917546EM1...........  Private Entity......  Aaa/AAA.............  None...............           2.431
 State of Utah.
Illinois Student Loan Assistance          350,000  452281HT8...........  Private Entity......  Aaa/AAA.............  None...............           3.325
 Commission.

[[Page 17969]]


Pennsylvania Higher Education             300,000  709163DA4...........  Private Entity......  Aaa/AAA.............  None...............           3.547
 Assistance Agency.
New Hampshire Higher Education            300,000  644616AV6...........  Private Entity......  Aaa/AAA.............  None...............           0.000
 Loan Corp.
Illinois Student Loan Assistance          300,000  452281HS0...........  Private Entity......  Aaa/AAA.............  None...............           2.695
 Commission.
Iowa Student Assistance                   300,000  462590GF1...........  Private Entity......  Aaa/AAA.............  None...............           2.695
 Commission.
                                  ----------------------------------------------------------------------------------------------------------------------
    Total........................       2,850,000
                                  ----------------------------------------------------------------------------------------------------------------------
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    5. The Trustee represents that the Plan was their only employee 
benefit plan client holding ARS. However, numerous other individual and 
corporate customers of the trust department held ARS in their accounts. 
When the business decision was made for Citizens Republic to purchase 
the illiquid ARS from the Trustee's customer accounts, it was 
determined that all purchases should be made on the same basis and at 
the same time, so as not to differentiate among different investors. It 
is represented that, because the Trustee's intention was to complete 
the purchases prior to the close of 2008, seeking a prospective 
exemption for the one employee benefit plan customer would have either 
delayed the repurchases for all customers or potentially disadvantaged 
the Plan by not simultaneously participating in the repurchase program. 
The Plan did not waive any rights or claims in connection with the sale 
of ARS to Citizens Republic.
    The applicant represents that the sale of the ARS by the Plan to 
Citizens Republic was in the best interests of Plan because the sale 
permitted the Plan to pay benefits and expenses of administration and 
to proceed with termination, effective January 31, 2009, and the prompt 
distribution of cash to all participants. Further, according to the 
applicant, the extreme illiquidity in the credit markets at the time, 
and over ten months of failed auctions, made it very apparent that all 
the ARS held by the Plan had a fair market value below par and could 
not be worth more than that amount in the near term, given the 
historically low interest rate environment.\9\ The sale was for solely 
cash consideration against prompt delivery of the ARS, and the Plan did 
not pay any commissions or transaction costs in connection with the 
sale. It is represented that, upon termination of the Plan, the Plan 
participants received 100 percent of their account balances, and as a 
result of the pre-termination sale of the ARS to Citizens Republic at 
face value, plus any accrued but unpaid interest, no participant was 
adversely affected by the absence of an auction market for the ARS or 
the resulting decline in their market value.
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    \9\ According to the applicant, due to the failure of the 
primary market, a secondary market arose; information obtained from 
secondary market activity, as well as third party valuations, 
indicates that these particular ARS issues have traded at discounts 
averaging between 72.0% and 84.5% of par.
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    The Trustee is bearing the costs of the exemption application. The 
Employer is bearing the costs of notifying interested persons.
    6. In summary, the subject transaction satisfied the statutory 
criteria for an exemption under section 408(a) of the Act for the 
following reasons: (a) The sale of the ARS was directly between the 
Plan and Citizens Republic for solely cash consideration against prompt 
delivery of the ARS; (b) the sale price for each of the ARS was equal 
to the par value, plus any accrued but unpaid interest; (c) the Plan 
did not waive any rights or claims in connection with the sale; (d) the 
decision to sell the ARS to the Trustee was made by the Employer, who 
is independent of the Trustee, after receiving disclosure of all the 
material terms of the sale; (e) the Plan did not pay any commissions or 
transaction costs in connection with the sale; and (f) upon termination 
of the Plan, the Plan participants received 100 percent of their 
account balances, and as a result of the pre-termination sale of the 
ARS to Citizens Republic at face value, plus any accrued but unpaid 
interest, no participant was adversely affected by the absence of an 
auction market for the ARS or the resulting decline in their market 
value.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8557. (This is not a toll-free.)

General Information

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


[[Page 17970]]


    Signed at Washington, DC, this 2nd day of April, 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2010-7892 Filed 4-7-10; 8:45 am]
BILLING CODE 4510-29-P