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Secretary of Labor Hilda L. Solis
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EBSA Notices

Prohibited Transaction Exemptions 2010-16, 2010-17, and 2010-18; Grant of Individual Exemptions involving: D-11521, Morgan Stanley & Co., Inc., and Its Current and Future Affiliates and Subsidiaries (Morgan Stanley) and Union Bank, N.A., and Its Affiliates (Union Bank), PTE 2010-16; D-11584, The Bank of New York Mellon (BNY Mellon), PTE 2010-17; L-11558, Boston Carpenters Apprenticeship and Training Fund, PTE 2010-18   [6/11/2010]
[PDF]
FR Doc 2010-14022
[Federal Register: June 11, 2010 (Volume 75, Number 112)]
[Notices]               
[Page 33333-33343]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr11jn10-105]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

 
Prohibited Transaction Exemptions 2010-16, 2010-17, and 2010-18; 
Grant of Individual Exemptions involving: D-11521, Morgan Stanley & 
Co., Inc., and Its Current and Future Affiliates and Subsidiaries 
(Morgan Stanley) and Union Bank, N.A., and Its Affiliates (Union Bank), 
PTE 2010-16; D-11584, The Bank of New York Mellon (BNY Mellon), PTE 
2010-17; L-11558, Boston Carpenters Apprenticeship and Training Fund, 
PTE 2010-18

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or 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.

Morgan Stanley & Co., Inc., and Its Current and Future Affiliates and 
Subsidiaries (Morgan Stanley) and Union Bank, N.A., and Its Affiliates 
(Union Bank), Located in New York, NY and San Francisco, CA

Exemption

Section I--Transactions
    Effective October 1, 2008, the restrictions of section 406(a)(1)(A) 
through (D) and 406(b)(1) and (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:
    (a) The lending of securities to:
    (1) Morgan Stanley & Co. Incorporated, and its successors (MS&Co.) 
and Union Bank, N.A., and its successors (UB);
    (2) Any current or future affiliate of MS&Co. or UB,\1\ that is a 
bank, as defined in section 202(a)(2) of the Investment Advisers Act of 
1940, that is supervised by the U.S. or a state, any broker-dealer 
registered under the Securities Exchange Act of 1934 (the ``1934 
Act''), or any foreign affiliate that is a bank or broker-dealer that 
is supervised by (i) the Securities and Futures Authority (``SFA'') in 
the United Kingdom; (ii) the Bundesanstalt fur Finanz dienstleist ung 
sauf sicht (the ``BAFin'') in Germany; (iii) the Ministry of Finance 
(``MOF'') and/or the Tokyo Stock Exchange in Japan; (iv) the Ontario 
Securities Commission, the Investment Dealers Association and/or the 
Office of Superintendent of Financial Institutions in Canada; (v) the 
Swiss Federal Banking Commission in

[[Page 33334]]

Switzerland; (vi) the Reserve Bank of Australia or the Australian 
Securities and Investments Commission and/or Australian Stock Exchange 
Limited in Australia; (vii) the Commission Bancaire (``CB''), the 
Comite des Establissements de Credit et des Enterprises 
d'Investissement (CECEI) and the Autorite des Marches Financiers 
(``AMF'') in France; and (viii) the Swedish Financial Supervisory 
Authority (``SFSA'') in Sweden (the branches and/or affiliates in the 
enumerated foreign countries hereinafter referred to as the ``Foreign 
Affiliates'') and together with their U.S. branches or U.S. affiliates 
(individually, ``Affiliated Borrower'' and collectively, ``Affiliated 
Borrowers''), by employee benefit plans, including commingled 
investment funds holding plan assets (the Client Plans or Plans),\2\ 
for which MS&Co., UB or an affiliate of either acts as securities 
lending agent or subagent (the ``Lending Agent''),\3\ and also may 
serve as directed trustee or custodian of securities being lent, or for 
which a subagent is appointed by the Lending Agent, which subagent is 
either (I) a bank, as defined in section 202(a)(2) of the Investment 
Advisers Act of 1940 or a broker-dealer registered under the 1934 Act, 
(i) which has, as of the last day of its most recent fiscal year, 
equity capital in excess of $100 million and (ii) which annually 
exercises discretionary authority to lend securities on behalf of 
clients equal to at least $1 billion; or (II) an investment adviser 
registered under the Investment Advisers Act of 1940, (i) which has, as 
of the last day of its most recent fiscal year, equity capital in 
excess of $1 million and (ii) which annually exercises discretionary 
authority to lend securities on behalf of clients equal to at least $1 
billion (each, a ``Lending Subagent''); and
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    \1\ Any reference to MS&Co. or UB shall be deemed to include any 
successors thereto.
    \2\ The common and collective trust funds maintained by MS&Co., 
UB or an affiliate, and in which Client Plans invest, are referred 
to herein as ``Commingled Funds.'' The Client Plan separate accounts 
for which MS&Co., UB or an affiliate act as directed trustee or 
custodian are referred to herein as ``Separate Accounts.'' 
Commingled Funds and Separate Accounts are collectively referred to 
herein as ``Lender'' or ``Lenders.''
    \3\ MS&Co., UB or an affiliate may be retained by primary 
securities lending agents to provide securities lending services in 
a sub-agent capacity with respect to portfolio securities of clients 
of such primary securities lending agents. As a securities lending 
sub-agent, MS&Co.'s or UB's role parallels that under the lending 
transactions for which MS&Co., UB or an affiliate acts as a primary 
securities lending agent on behalf of its clients. References to 
MS&Co.'s or UB's performance of services as securities lending agent 
should be deemed to include its parallel performance as a securities 
lending sub-agent and references to the Client Plans should be 
deemed to include those plans for which the Lending Agent is acting 
as a sub-agent with respect to securities lending, unless otherwise 
specifically indicated or by the context of the reference.
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    (b) The receipt of compensation by the Lending Agent and the 
Lending Subagent in connection with these transactions.
Section II--Conditions
    Section I of this exemption applies only if the conditions of 
Section II are satisfied. For purposes of this exemption, any 
requirement that the approving fiduciary be independent of MS&Co., UB, 
and their affiliates shall not apply in the case of an employee benefit 
plan sponsored and maintained by the Lending Agent and/or an affiliate 
for its own employees (an Affiliated Plan) invested in a Commingled 
Fund, provided that at all times the holdings of all Affiliated Plans 
in the aggregate comprise less than 10% of the assets of the Commingled 
Fund.
    (a) For each Client Plan, neither MS&Co., UB, nor any of their 
affiliates has or exercises discretionary authority or control with 
respect to the investment of the assets of Client Plans involved in the 
transaction or renders investment advice (within the meaning of 29 CFR 
2510.3-21(c)) with respect to such assets, including decisions 
concerning a Client Plan's acquisition or disposition of securities 
available for loan.
    (b) Any arrangement for the Lending Agent to lend securities is 
approved in advance by a Plan fiduciary who is independent of MS&Co., 
UB, and their affiliates (the Independent Fiduciary).
    Notwithstanding the foregoing, section II(b) shall be deemed 
satisfied with respect to loans of securities by Client Plans to MS&Co. 
or a U.S. affiliate (Morgan Stanley Affiliated Borrower) by UB as 
Lending Agent or Lending Subagent that were outstanding as of October 
1, 2008 (the Existing Loans), provided (i) no later than April 1, 2009, 
UB provided to Client Plans with Existing Loans a description of the 
general terms of the securities loan agreements between such Client 
Plans and the Morgan Stanley Affiliated Borrowers, and (ii) at the time 
of providing such information, UB notified each such Client Plan that 
if the Client Plan did not approve the continued lending of securities 
to Morgan Stanley by May 11, 2009, UB would terminate the loans and 
cease to make any new securities loans on behalf of that Client Plan to 
Morgan Stanley.
    (c) The specific terms of the securities loan agreement (the Loan 
Agreement) are negotiated by the Lending Agent which acts as a liaison 
between the Lender and the Affiliated Borrower to facilitate the 
securities lending transaction. In the case of a Separate Account, the 
Independent Fiduciary of a Client Plan approves the general terms of 
the Loan Agreement between the Client Plan and the Affiliated Borrower 
as well as any material change in such Loan Agreement. In the case of a 
Commingled Fund, approval is pursuant to the procedure described in 
paragraph (i), below.
    (d) The terms of each loan of securities by a Lender to an 
Affiliated Borrower are at least as favorable to such Separate Account 
or Commingled Fund as those of a comparable arm's-length transaction 
between unrelated parties.
    (e) A Client Plan, in the case of a Separate Account, may terminate 
the lending agency or sub-agency arrangement at any time, without 
penalty, on five business days notice. A Client Plan in the case of a 
Commingled Fund may terminate its participation in the lending 
arrangement by terminating its investment in the Commingled Fund no 
later than 35 days after the notice of termination of participation is 
received, without penalty to the Plan, in accordance with the terms of 
the Commingled Fund. Upon termination, the Affiliated Borrowers will 
transfer securities identical to the borrowed securities (or the 
equivalent thereof in the event of reorganization, recapitalization or 
merger of the issuer of the borrowed securities) to the Separate 
Account or, if the Plan's withdrawal necessitates a return of 
securities, to the Commingled Fund within:
    (1) The customary delivery period for such securities;
    (2) Five business days; or
    (3) The time negotiated for such delivery by the Client Plan, in a 
Separate Account, or by the Lending Agent, as lending agent to a 
Commingled Fund, and the Affiliated Borrowers, whichever is least.
    (f) The Separate Account, Commingled Fund or another custodian 
designated to act on behalf of the Client Plan, receives from each 
Affiliated Borrower (either by physical delivery, book entry in a 
securities depository located in the United States, wire transfer or 
similar means) by the close of business on or before the day the loaned 
securities are delivered to the Affiliated Borrower, collateral 
consisting of U.S. currency, securities issued or guaranteed by the 
United States Government or its agencies or instrumentalities, 
irrevocable bank letters of credit issued by a U.S. bank, other than 
Morgan Stanley or Union Bank (or any subsequent parent corporation of 
the Lending Agent) or an

[[Page 33335]]

affiliate thereof, or any combination thereof, or other collateral 
permitted under Prohibited Transaction Exemption (PTE) 2006-16 (71 FR 
63786, October 31, 2006) (as it may be amended or superseded) 
(collectively, the Collateral).\4\ The Collateral will be held on 
behalf of a Client Plan in a depository account separate from the 
Affiliated Borrower.
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    \4\ PTE 2006-16 permits the use of certain types of foreign 
collateral if the lending fiduciary is a U.S. Bank or U.S. Broker-
Dealer (as defined in the exemption) and such fiduciary indemnifies 
the plan with respect to the difference, if any, between the 
replacement cost of the borrowed securities and the market value of 
the collateral on the date of a borrower default plus interest and 
any transaction costs which a plan may incur or suffer directly 
arising out of a borrower default. See PTE 2006-16, Section V(f)(5). 
The Department notes that the requirements of Section V(f)(5) of PTE 
2006-16 must be satisfied in order for those types of collateral to 
be used in connection with this exemption.
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    (g) The market value (or in the case of a letter of credit, a 
stated amount) of the Collateral on the close of business on the day 
preceding the day of the loan is initially equal at least to the 
percentage required by PTE 2006-16 (as amended or superseded) but in no 
case less than 102 percent of the market value of the loaned 
securities. The applicable Loan Agreement gives the Separate Account or 
the Commingled Fund in which the Client Plan has invested a continuing 
security interest in, and a lien on or title to, the Collateral. The 
level of the Collateral is monitored daily by the Lending Agent. If the 
market value of the Collateral, on the close of trading on a business 
day, is less than 100 percent of the market value of the loaned 
securities at the close of business on that day, the Affiliated 
Borrower is required to deliver, by the close of business on the next 
day, sufficient additional Collateral such that the market value of the 
Collateral will again equal 102 percent or the percentage otherwise 
required by PTE 2006-16 (as amended or superseded).
    (h)(1) For a Lender that is a Separate Account, prior to entering 
into a Loan Agreement, the applicable Affiliated Borrower furnishes its 
most recently available audited and unaudited financial statements to 
the Lending Agent which will, in turn, provide such statements to the 
Client Plan before the Client Plan approves the terms of the Loan 
Agreement. The Loan Agreement contains a requirement that the 
applicable Affiliated Borrower must give prompt notice at the time of a 
loan of any material adverse changes in its financial condition since 
the date of the most recently furnished financial statements. If any 
such changes have taken place, the Lending Agent will not make any 
further loans to the Affiliated Borrower unless an Independent 
Fiduciary of the Client Plan in a Separate Account is provided notice 
of any material change and approves the continuation of the lending 
arrangement in view of the changed financial condition.
    Notwithstanding the foregoing, section II(h)(1) shall be deemed 
satisfied with respect to the Existing Loans provided (i) UB provided 
to such Client Plans no later than April 1, 2009, the most recently 
available audited and unaudited financial statements of the Morgan 
Stanley Affiliated Borrower and notice of any material adverse change 
in financial condition since the date of the most recent financial 
statement being furnished to the Client Plans, and (ii) at the time of 
providing such information, UB notified each Client Plan that if the 
Client Plan did not approve the continued lending of securities to 
Morgan Stanley by May 11, 2009, UB would terminate the loans and cease 
to make any new securities loans on behalf of that Client Plan to 
Morgan Stanley.
    (h)(2) For a Lender that is a Commingled Fund, the Lending Agent 
will furnish upon reasonable request to an Independent Fiduciary of 
each Client Plan invested in the Commingled Fund the most recently 
available audited and unaudited financial statements of the applicable 
Affiliated Borrower prior to authorization of lending, and annually 
thereafter.
    (i) In the case of Commingled Funds, the information described in 
paragraph (c) (including any information with respect to any material 
change in the arrangement) shall be furnished by the Lending Agent as 
lending fiduciary to the Independent Fiduciary of each Client Plan 
whose assets are invested in the Commingled Fund, not less than 30 days 
prior to implementation of the arrangement or material change to the 
lending arrangement as previously described to the Client Plan, and 
thereafter, upon the reasonable request of the Client Plan's 
Independent Fiduciary. In the event of a material adverse change in the 
financial condition of an Affiliated Borrower, the Lending Agent will 
make a decision, using the same standards of credit analysis the 
Lending Agent would use in evaluating unrelated borrowers, whether to 
terminate existing loans and whether to continue making additional 
loans to the Affiliated Borrower.
    In the event any such Independent Fiduciary submits a notice in 
writing within the 30-day period provided in the preceding paragraph to 
the Lending Agent, as lending fiduciary, objecting to the 
implementation of, material change in, or continuation of the 
arrangement, the Plan on whose behalf the objection was tendered is 
given the opportunity to terminate its investment in the Commingled 
Fund, without penalty to the Plan, no later than 35 days after the 
notice of withdrawal is received. In the case of a Plan that elects to 
withdraw pursuant to the foregoing, such withdrawal shall be effected 
prior to the implementation of, or material change in, the arrangement; 
but an existing arrangement need not be discontinued by reason of a 
Plan electing to withdraw. In the case of a Plan whose assets are 
proposed to be invested in the Commingled Fund subsequent to the 
implementation of the arrangement, the Plan's investment in the 
Commingled Fund shall be authorized in the manner described in 
paragraph (c).
    (j) In return for lending securities, the Lender either--(1) 
Receives a reasonable fee, which is related to the value of the 
borrowed securities and the duration of the loan; or
    (2) Has the opportunity to derive compensation through the 
investment of cash Collateral. (Under such circumstances, the Lender 
may pay a loan rebate or similar fee to the Affiliated Borrowers, if 
such fee is not greater than the fee the Lender would pay in a 
comparable arm's-length transaction with an unrelated party.)
    (k) Except as otherwise expressly provided herein, all procedures 
regarding the securities lending activities will, at a minimum, conform 
to the applicable provisions of PTE 2006-16, as amended or superseded, 
as well as to applicable securities laws of the United States, the 
United Kingdom, Canada, Australia, Switzerland, Japan, France, Sweden 
and Germany.
    (l) If any event of default occurs, to the extent that (i) 
liquidation of the pledged Collateral or (ii) additional cash received 
from the Affiliated Borrower does not provide sufficient funds on a 
timely basis, the Client Plan will have the right to purchase 
securities identical to the borrowed securities (or their equivalent as 
discussed in paragraph (e) above) and apply the Collateral to the 
payment of the purchase price. If the Collateral is insufficient to 
accomplish such purchase, the Affiliated Borrower will indemnify the 
Client Plan invested in a Separate Account or Commingled Fund in the 
United States with respect to the difference between the replacement 
cost of the borrowed securities and the market value of the Collateral 
on the date the loan is declared in default, together with expenses 
incurred by the Client Plan plus applicable interest at a reasonable

[[Page 33336]]

rate, including reasonable attorney's fees incurred by the Client Plan 
for legal action arising out of default on the loans, or failure by the 
Affiliated Borrower to properly indemnify the Client Plan. The 
Affiliated Borrower's indemnification will enable the Client Plan to 
collect on any indemnification from a U.S.-domiciled affiliate of the 
Affiliated Borrower.
    (m) The Lender receives the equivalent of all distributions made to 
holders of the borrowed securities during the term of the loan, 
including but not limited to all interest and dividends on the loaned 
securities, shares of stock as a result of stock splits and rights to 
purchase additional securities, or other distributions.
    (n) Prior to any Client Plan's approval of the lending of its 
securities to any Affiliated Borrower, a copy of this final exemption 
and the notice of proposed exemption is provided to the Client Plan.
    Notwithstanding the foregoing, effective October 1, 2008, through 
June 11, 2010, section II(n) shall be deemed satisfied with respect to 
the Existing Loans, provided (i) UB provides to such Client Plans that 
have consented to securities lending prior to June 11, 2010, a copy of 
the requested exemption and (ii) UB advises each such Client Plan that 
unless the Client Plan notifies UB to the contrary within 30 days, its 
consent to make loans to Morgan Stanley will be presumed.
    (o) The Independent Fiduciary of each Client Plan that is invested 
in a Separate Account is provided with (including by electronic means) 
quarterly reports with respect to the securities lending transactions, 
including, but not limited to, the information described in 
Representation 40 of the Summary of Facts and Representations of the 
Notice of Proposed Exemption (75 FR 3078, January 19, 2010) 
(``Notice''), so that the Independent Fiduciary may monitor such 
transactions with the Affiliated Borrower. The Independent Fiduciary 
invested in a Commingled Fund is provided with (including by electronic 
means) quarterly reports with respect to the securities lending 
transactions, including, but not limited to, the information described 
in Representation 40 of the Summary of Facts and Representations of the 
Notice, so that the Independent Fiduciary may monitor such transactions 
with the Affiliated Borrower. The Lending Agent may, in lieu of 
providing the quarterly reports described in this paragraph (o) to each 
Independent Fiduciary of a Client Plan invested in a Commingled Fund, 
provide such Independent Fiduciary with the certification of an auditor 
selected by the Lending Agent who is independent of MS&Co, UB and their 
affiliates (but who may or may not be independent of the Client Plan) 
that the loans appear no less favorable to the Lender than the pricing 
established in the schedule described in paragraph 29 of the Summary of 
Facts and Representations of the Notice. Where the Independent 
Fiduciary of a Client Plan invested in a Commingled Fund is provided 
the certification of an auditor, such Independent Fiduciary shall be 
entitled to receive the quarterly reports upon request.
    Notwithstanding the foregoing, section II(o) shall be deemed 
satisfied with respect to the Existing Loans provided UB provides to 
such Client Plans no later than July 31, 2009, the material described 
in section II(o) with respect to the period from October 1, 2008, 
through June 30, 2009.
    (p) Only Client Plans with total assets having an aggregate market 
value of at least $50 million are permitted to lend securities to the 
Affiliated Borrowers; provided, however, that--
    (1) In the case of two or more Client Plans which are maintained by 
the same employer, controlled group of corporations or employee 
organization, whose assets are commingled for investment purposes in a 
single master trust or any other entity the assets of which are ``plan 
assets'' under 29 CFR 2510.3-101 (the Plan Asset Regulation), which 
entity is engaged in securities lending arrangement with the Lending 
Agent, the foregoing $50 million requirement shall be deemed satisfied 
if such trust or other entity has aggregate assets which are in excess 
of $50 million; provided that if the fiduciary responsible for making 
the investment decision on behalf of such master trust or other entity 
is not the employer or an affiliate of the employer, such fiduciary has 
total assets under its management and control, exclusive of the $50 
million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    (2) In the case of two or more Client Plans which are not 
maintained by the same employer, controlled group of corporations or 
employee organization, whose assets are commingled for investment 
purposes in a group trust or any other form of entity the assets of 
which are ``plan assets'' under the Plan Asset Regulation, which entity 
is engaged in securities lending arrangements with the Lending Agent, 
the foregoing $50 million requirement is satisfied if such trust or 
other entity has aggregate assets which are in excess of $50 million 
(excluding the assets of any Client Plan with respect to which the 
fiduciary responsible for making the investment decision on behalf of 
such group trust or other entity or any member of the controlled group 
of corporations including such fiduciary is the employer maintaining 
such Plan or an employee organization whose members are covered by such 
Plan). However, the fiduciary responsible for making the investment 
decision on behalf of such group trust or other entity--
    (A) Has full investment responsibility with respect to plan assets 
invested therein; and
    (B) Has total assets under its management and control, exclusive of 
the $50 million threshold amount attributable to plan investment in the 
commingled entity, which are in excess of $100 million.
    In addition, none of the entities described above are formed for 
the sole purpose of making loans of securities.
    (q) With respect to any calendar quarter, at least 50 percent or 
more of the outstanding dollar value of securities loans negotiated on 
behalf of Lenders will be to borrowers unrelated to MS&Co., UB and 
their affiliates.
    (r) In addition to the above, all loans involving foreign 
Affiliated Borrowers have the following requirements:
    (1) The foreign Affiliated Borrower is a bank, supervised either by 
a state or the United States, a broker-dealer registered under the 
Securities Exchange Act of 1934 or a bank or broker-dealer that is 
supervised by (i) the SFA in the United Kingdom; (ii) the BAFin in 
Germany; (iii) the MOF and/or the Tokyo Stock Exchange in Japan; (iv) 
the Ontario Securities Commission, the Investment Dealers Association 
and/or the Office of Superintendent of Financial Institutions in 
Canada; (v) the Swiss Federal Banking Commission in Switzerland; and 
(vi) the Reserve Bank of Australia or the Australian Securities and 
Investments Commission and/or Australian Stock Exchange Limited in 
Australia; (vii) the CB, the CECEI, and the AMF in France; and (viii) 
the SFSA in Sweden;
    (2) The foreign Affiliated Borrower is in compliance with all 
applicable provisions of Rule 15a-6 under the Securities Exchange Act 
of 1934 (17 CFR 240.15a-6) (Rule 15a-6) which provides foreign broker-
dealers a limited exemption from United States registration 
requirements;
    (3) All Collateral is maintained in United States dollars or U.S. 
dollar-denominated securities or letters of credit (unless an 
applicable exemption provides otherwise);
    (4) All Collateral is held in the United States and the situs of 
the securities

[[Page 33337]]

lending agreements is maintained in the United States under an 
arrangement that complies with the indicia of ownership requirements 
under section 404(b) of the Act and the regulations promulgated under 
29 CFR 2550.404(b)-1 related to the lending of securities; and
    (5) Prior to a transaction involving a foreign Affiliated Borrower, 
the foreign Affiliated Borrower--
    (A) Agrees to submit to the jurisdiction of the United States;
    (B) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (C) Consents to service of process on the Process Agent; and
    (D) Agrees that enforcement by a Client Plan of the indemnity 
provided by the Affiliated Borrower will, at the option of the Client 
Plan, occur exclusively in the United States courts.
    (s) The Lending Agent maintains, or causes to be maintained, within 
the United States for a period of six years from the date of such 
transaction, in a manner that is convenient and accessible for audit 
and examination, such records as are necessary to enable the persons 
described in paragraph (t)(1) to determine whether the conditions of 
the 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 the Lending Agent and/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 than the Lending Agent or 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 below by paragraph (t)(1).
    (t)(1) Except as provided in subparagraph (t)(2) of this paragraph 
and notwithstanding any provisions of sections (a)(2) and (b) of 
section 504 of the Act, the records referred to in paragraph (s) 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 Securities and Exchange 
Commission;
    (B) Any fiduciary of a participating Client Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any participating Client Plan or 
any duly authorized employee or representative of such employer; and
    (D) Any participant or beneficiary of any participating Client 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (t)(2) None of the persons described above in paragraphs (t)(1)(B)-
(t)(1)(D) are authorized to examine the trade secrets of the Lending 
Agent or its affiliates or commercial or financial information which is 
privileged or confidential.
    (t)(3) Should the Lending Agent refuse to disclose information on 
the basis that such information is exempt from disclosure, the Lender 
shall, by the close of the thirtieth (30th) day following the request, 
provide written notice advising that person of the reason for the 
refusal and that the Department may request such information.
    The Department received two comments with respect to the Notice of 
Proposed Exemption (75 FR 3078, January 19, 2010) (``Notice''), one 
from Union Bank and one from Morgan Stanley. A discussion of the 
comments and the Department's views follows.
    Union Bank commented on the first sentence of footnote 42 of the 
Notice, which states: ``The common and collective trust funds for which 
MS&Co., UB or an affiliate act as directed trustee or custodian, and in 
which Client Plans invest, are referred to herein as `Commingled 
Funds.' '' According to Union Bank, ``[c]onsistent with federal 
securities law exceptions and exemptions and banking regulations 
applicable to the Commingled Funds, Union Bank has and exercises 
`exclusive management' of the Commingled Funds it maintains.'' Union 
Bank further stated that it understood the same was the case with 
respect to banking affiliates of MS&Co. and their Commingled Funds.\5\ 
Therefore, Union Bank requested that the first sentence of footnote 42 
be revised to read as follows: ``The common and collective trust funds 
maintained by MS&Co., UB or an affiliate, and in which Client Plans 
invest, are referred to herein as `Commingled Funds.' ''
---------------------------------------------------------------------------

    \5\ In its comment, Morgan Stanley echoes Union Bank's comment 
on this point.
---------------------------------------------------------------------------

    In order to accurately describe the relationship between these 
entities, the Department has revised the sentence as requested. In this 
regard, however, the Department notes that Section II(a) of the 
exemption provides that neither MS&Co., UB nor any of their affiliates 
may have or exercise discretionary authority or control with respect to 
the investment of the assets of Client Plans involved in transactions 
covered by the exemption, nor may these entities render investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to such 
assets, including decisions concerning a Client Plan's acquisition or 
disposition of securities available for loan.
    Section II(a) applies equally to Commingled Funds, which are 
included in the definition in Section I of the term ``Client Plans'' or 
``Plans.'' The prohibition in Section II(a) remains a condition of the 
exemption regardless of the revised language in the footnote. The 
exemption does not provide relief for lending from Commingled Funds for 
which MS&Co., UB, or any affiliate, has or exercises discretionary 
authority or control with respect to the investment of the assets 
involved in the transaction, or for which MS&Co., UB, or any affiliate 
renders investment advice (within the meaning of 29 CFR 2510.3-21(c)) 
with respect to such assets, including decisions concerning a Client 
Plan's acquisition or disposition of securities available for loan. For 
purposes of clarity the Department states that the exemption does not 
provide relief for securities lending from index funds and model-driven 
funds.
    Morgan Stanley, as noted above, provided the same comment as Union 
Bank with respect to footnote 42 of the Notice. Additionally, Morgan 
Stanley wished to clarify a statement in paragraph 27 of the Summary of 
Facts and Representations of the Notice. Paragraph 27 stated:

    In return for lending securities, the Lender either will receive 
a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan, or will have the 
opportunity to derive compensation through the investment of cash 
collateral or a combination of both. In the case of a Lender 
investing the cash collateral, the Lender may pay a loan rebate or 
similar fee to the Affiliated Borrowers, if such fee is not greater 
than the fee the Lender would pay in a comparable arm's-length 
transaction with an unrelated party.

Morgan Stanley wished to clarify that where collateral for a loan 
consists of both securities and cash, the Lender would receive a fee 
from the Affiliated Borrower in respect of the portion of the loan 
collateralized by securities and the Lender would have the opportunity 
to derive compensation from the investment of cash collateral (less the 
rebate paid to the Affiliated Borrower and any fees to the Lending 
Agent) in respect of the portion of the loan collateralized with cash.
    Finally, Morgan Stanley informed the Department of a typographical 
error in footnote 48 of the Notice. The Department has reproduced the 
footnote in its entirety as it should have appeared in the Notice:


[[Page 33338]]


    Separate maximum daily rebate rates will be established with 
respect to loans of securities within the designated classes 
identified above. Such rebate rates will be based upon an objective 
methodology which takes into account several factors, including 
potential demand for loaned securities, the applicable benchmark 
cost of fund indices, and anticipated investment return on overnight 
investments permitted by the Client Plan's independent fiduciary. 
The Lending Agent will submit the method for determining such 
maximum daily rebate rates to such fiduciary before initially 
lending any securities to an Affiliated Borrower on behalf of the 
Client Plan.

    After giving full consideration to the entire record, including the 
written comments, the Department has determined to grant the exemption. 
For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice, 75 FR 3078 (January 19, 2010).

FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd of the Department, 202-
693-8554. (This is not a toll free number.)

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) \6\ of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of sections 4975(c)(1)(A) through (E) of 
the Code, shall not apply as of July 10, 2009, to the cash sale of 
certain medium term notes (the Notes) issued by Stanfield Victoria 
Finance Ltd. (Victoria Finance or the Issuer) for an aggregate purchase 
price of $26,997,049.52 by the BNY Mellon's Short Term Investment Fund 
(the Fund) to The Bank of New York Mellon Corporation (BNYMC), a party 
in interest with respect to employee benefit plans (the Plans) 
invested, directly or indirectly, in the Fund, provided that the 
following conditions are met:
---------------------------------------------------------------------------

    \6\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
---------------------------------------------------------------------------

    (a) The sale was a one-time transaction for cash;
    (b) The Fund received an amount which was equal to the sum of (1) 
the total current amortized cost of the Notes as of the date of the 
sale plus (2) interest for the period beginning on January 1, 2008 to 
July 12, 2009, calculated at a rate equal to the earnings rate of the 
Fund during such period;
    (c) The Fund did not bear any commissions, fees, transaction costs, 
or other expenses in connection with the sale;
    (d) BNY Mellon, as trustee of the Fund, determined that the sale of 
the Notes was appropriate for and in the best interests of the Fund, 
and the Plans invested, directly or indirectly, in the Fund, at the 
time of the transaction;
    (e) BNY Mellon took all appropriate actions necessary to safeguard 
the interests of the Fund, and the Plans invested, directly or 
indirectly, in the Fund, in connection with the transaction;
    (f) If the exercise of any of BNYMC's rights, claims or causes of 
action in connection with its ownership of the Notes results in BNYMC 
recovering from Victoria Finance, the Issuer of the Notes, or from any 
third party, an aggregate amount that is more than the sum of: (1) The 
purchase price paid for the Notes by BNYMC and (2) interest on the 
purchase price paid for the Notes at the interest rate specified in the 
Notes, then BNYMC will refund such excess amount promptly to the Fund 
(after deducting all reasonable expenses incurred in connection with 
the recovery);
    (g) BNY Mellon and its affiliates, as applicable, maintain, or 
cause to be maintained, for a period of six (6) years from the date of 
any covered transaction such records as are necessary to enable the 
person described below in paragraph (h)(1), to determine whether the 
conditions of this exemption have been met, except that:
    (1) No party in interest with respect to a Plan which engages in 
the covered transaction, other than BNY Mellon and its affiliates, as 
applicable, shall be subject to a civil penalty under section 502(i) of 
the Act or the taxes imposed by sections 4975(a) and (b) of the Code, 
if such records are not maintained, or not available for examination, 
as required, below, by paragraph (h)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of BNY Mellon or its affiliates, as applicable, such records are lost 
or destroyed prior to the end of the six-year period.
    (h)(1) Except as provided in paragraph (h)(2), and notwithstanding 
any provisions of subsections (a)(2) and (b) of section 504 of the Act, 
the records referred to, above, in paragraph (g) 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 Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan that engages in the covered 
transaction, or any duly authorized employee or representative of such 
fiduciary;
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
covered transaction, or any authorized employee or representative of 
these entities; or
    (D) Any participant or beneficiary of a Plan that engages in the 
covered transaction, or duly authorized employee or representative of 
such participant or beneficiary;
    (2) None of the persons described in paragraphs (h)(1)(B)-(D) shall 
be authorized to examine trade secrets of BNY Mellon or its affiliates, 
or commercial or financial information which is privileged or 
confidential; and
    (3) Should BNY Mellon refuse to disclose information on the basis 
that such information is exempt from disclosure, BNY Mellon 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.

DATES: Effective Date: This exemption is effective as of July 10, 2009.
    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 February 23, 2010 at 75 
FR 8134.

FOR FURTHER INFORMATION CONTACT: Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

Exemption

    I. The restrictions of sections 406(a)(1)(A) through (D), 
406(b)(1), and 406(b)(2) of the Act shall not apply to the purchase by 
the Fund from the NERCC, LLC (the Building Corporation), a party in 
interest with respect to the Fund, of a condominium unit (the Condo) in 
a building (the Building) owned by the New England Regional Council of 
Carpenters (the Union), also a party in interest with respect to the 
Fund, where the Union will own the only other condominium unit in the 
Building; provided that, at the time the transaction is entered into, 
the following conditions are satisfied:
    (1) An independent, qualified fiduciary (the I/F), acting on behalf 
of the Fund, is responsible for analyzing the relevant terms of the 
transaction and deciding whether the Board of Trustees (the Trustees) 
should proceed with the transaction;

[[Page 33339]]

    (2) The Fund may not purchase the Condo, unless and until the I/F 
approves such purchase;
    (3) Acting as the independent fiduciary on behalf of the Fund, the 
I/F is responsible for: (a) Establishing the purchase price of the 
Condo, (b) reviewing the financing terms, (c) determining that such 
financing terms are the product of arm's length negotiations, and (d) 
ensuring that the Fund will not close on the Condo until the I/F has 
determined that proceeding with the transaction is feasible, in the 
interest of, and protective of the participants and beneficiaries of 
the Fund;
    (4) The purchase price paid by the Fund for the Condo, as 
documented in writing and approved by the I/F, acting on behalf of the 
Fund, is the lesser of:
    (a) The fair market value of the Condo, as of the date of the 
closing on the transaction, as determined by an independent, qualified 
appraiser selected by the I/F; or
    (b) 58.3 percent (58.3%) of the amount actually expended by the 
Building Corporation in the construction of the Condo under the 
guaranteed maximum price contract (the GMP), plus the following 
amounts:
    (i) 58.3 percent (58.3%) of the additional construction soft costs 
incurred outside the GMP contract (i.e., the amount expended on 
furniture, fixtures, and equipment, and the amount expended for 
materials for minor work);
    (ii) 54.4 percent (54.4%) of the amount expended on construction 
soft costs (i.e. architect, legal, zoning, permits, and other fees); 
and
    (iii) 54.4 percent (54.4%) of the cost of the land underlying the 
Building;
    (5) Acting as the independent fiduciary on behalf of the Fund, the 
I/F is responsible, prior to entering into the transaction, for: (a) 
Reviewing an appraisal of the fully completed Condo, which has been 
prepared by an independent, qualified appraiser, and updated, as of the 
date of the closing on the transaction, (b) evaluating the sufficiency 
of the methodology of such appraisal, and (c) determining the 
reasonableness of the conclusions reached in such appraisal;
    (6) The terms of the transaction are no less favorable to the Fund 
than terms negotiated under similar circumstances at arm's length with 
unrelated third parties;
    (7) The Fund does not purchase the Condo or take possession of the 
Condo until such Condo is completed;
    (8) The Fund has not been, is not, and will not be a party to the 
construction financing loan or the permanent financing loan obtained by 
the Building Corporation and/or by the Union;
    (9) The Fund does not pay any commissions, sales fees, or other 
similar payments to any party as a result of the transaction, and the 
costs incurred in connection with the purchase of the Condo by the Fund 
at closing do not include, directly or indirectly, any developer's 
profit, any premium received by the developer, nor any interest charges 
incurred on the construction financing loan or the permanent financing 
loan obtained by the Building Corporation and/or by the Union;
    (10) Under the terms of the current collective bargaining 
agreement(s) and any future collective bargaining agreement(s), the 
Union must have the ability, unilaterally, to increase the contribution 
rate to the Fund at any time by diverting money to the Fund from wages 
and contributions within the total wage and benefit package, and under 
the terms of the financing that the Fund obtains to purchase the Condo, 
the Union must be obligated to increase the contribution rate to the 
Fund at any time in order to prevent a default by the Fund;
    (11) In the event the Building Corporation and/or the Union 
defaults on the construction financing loan or the permanent financing 
loan obtained by the Building Corporation and/or the Union, the 
creditors under the terms of such construction financing loan or such 
permanent financing loan shall have no recourse against the Condo or 
any of the assets of the Fund;
    (12) Acting as the independent fiduciary with respect to the Fund, 
the I/F is responsible for reviewing and approving the allocation 
between funding the purchase of the Condo from the Fund's existing 
assets or financing; and
    (13) Acting as the independent fiduciary with respect to the Fund, 
the I/F is responsible for determining whether the transaction 
satisfies the criteria, as set forth in section 404 and section 408(a) 
of the Act.

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department 
invited all interested persons to submit written comments and requests 
for a hearing on the proposed exemption within 45 days of the date of 
the publication of the Notice in the Federal Register on December 22, 
2009. All comments and requests for hearing were due by February 5, 
2010.
    During the comment period, the Department received no requests for 
hearing. However, the Department did receive a comment via an e-mail, 
dated January 28, 2010, from the applicant. In the e-mail, the 
applicant requested certain changes in the facts and circumstances 
reflected in the Summary of Facts and Representations (SFR), as 
published in the Notice in the Federal Register, and also requested a 
modification to the language of one of the conditions of the exemption, 
as set forth in the Notice. The applicant's comments are discussed in 
paragraphs 1-8, below, in an order that corresponds to the appearance 
of the relevant language in the Notice.
    1. The applicant has requested a modification to the language of 
condition 10 of the exemption, as set forth on page 68120, column 3, 
line 3 of the Notice. Condition 10 in the Notice reads, as follows:

    (10) Under the terms of the current collective bargaining 
agreement(s) and any future collective bargaining agreement(s), the 
Union has the ability, unilaterally, to increase the contribution 
rate to the Fund at any time by diverting money from wages and 
contributions to other benefit funds within the total wage and 
benefit package, and the Union is obligated to do so in order to 
prevent a default by the Fund under the terms of the financing 
(emphasis added) obtained by the Fund to purchase the Condo.

The applicant requests that the phrase, ``under the terms of the 
financing,'' in bold in the quotation, above, be deleted from Condition 
10 in the final exemption. In support of this request, the applicant 
argues that, as the terms of the financing for the Fund to purchase the 
Condo have not yet been negotiated and cannot be finalized until after 
the publication of the exemption, that it is not accurate to say that 
the Union is presently obligated by the financing terms to divert money 
from wages and contributions to other benefit funds within the total 
wage and benefit package in order to increase the contribution rate to 
the Fund and prevent default. Rather than say that the Union is 
obligated by the terms of the financing, the applicant suggests that 
the language of Condition 10 state that the Union is committed to 
divert money from wages and contributions to other benefit funds within 
the total wage and benefit package in order to increase the 
contribution rate to the Fund.
    Further, the applicant argues that, as set forth in representation 
19, in the SFR on page 68124, column 2, lines 20-22 in the Notice, the 
Union has represented its willingness to make such a commitment and, as 
set forth on page 68124, column 2, lines 9-20 in the Notice, it is 
represented that the Union anticipates having to make such a commitment 
as a pre-condition of the

[[Page 33340]]

Fund's obtaining tax exempt bond financing. In addition, the applicant 
points out that, as set forth in representation 33 in the SFR on page 
68127, column 3, lines 38-45 in the Notice, Independent Fiduciary 
Services (IFS), as part of its review and possible approval of the 
proposed transaction, ``will require that the Union pledge to increase 
contributions to the Fund by diversion from other aspects of the wage 
and benefit package to cover the Fund's cash flow needs.'' Accordingly, 
the applicant believes that the deletion of the phrase, ``under the 
terms of the financing,'' from Condition 10 of the exemption does not 
lessen the Union's commitment.
    While the Department acknowledges that the terms of the financing 
for the Fund to purchase the Condo have not yet been negotiated and 
cannot be finalized until after the publication of the final exemption 
in the Federal Register, the Department believes that the financing 
terms that the Fund obtains to purchase the Condo should obligate the 
Union to increase the contribution rate to the Fund at any time by 
diverting money from the wage and benefit package in order to prevent 
default by the Fund. Accordingly, the language of Condition 10 has been 
amended, as follows:

    (10) Under the terms of the current collective bargaining 
agreement(s) and any future collective bargaining agreement(s), the 
Union must have the ability, unilaterally, to increase the 
contribution rate to the Fund at any time by diverting money to the 
Fund from wages and contributions within the total wage and benefit 
package, and under the terms of the financing that the Fund obtains 
to purchase the Condo, the Union must be obligated to increase the 
contribution rate to the Fund at any time in order to prevent a 
default by the Fund.

    2. The applicant has requested a change to the language in 
representation 4, as set forth in the SFR on page 68121, column 1, line 
6 and line 16 in the Notice. In this regard, in March 2009, Richard 
Scaramozza replaced Neal O'Brien, as one of the labor representatives 
serving as Trustees of the Fund, and in July 2009, Tom Gunning, III, 
replaced Steven Affanato, as one of the representatives of management 
serving as Trustees of the Fund. Further, on March 19, 2010, John 
Estano, one of the labor representative serving as Trustee of the Fund, 
retired and was replaced by Thomas Flynn.
    The Department concurs with the applicant's requested change.
    3. The applicant has requested a change to the language in 
representation 10, as set forth in the SFR on page 68122, column 1, 
line 18 in the Notice. In this regard, the applicant has informed the 
Department that the amount of the Union's construction loan is $8.48 
million dollars and not the $10 million dollars estimated at the time 
the application was filed with the Department.
    The Department concurs with the applicant's requested change.
    4. The applicant has requested that one sentence in representation 
10, as set forth in the SFR on page 68122, column 1, lines 47-50 in the 
Notice, should be stated differently. In this regard, the applicant 
suggests replacing this sentence, ``These loans will bear a very low 
annual interest charge, estimated at one percent (1%) or below, to 
cover annual accounting expenses,'' with the following sentence, ``The 
New Market Tax Credit (NMTC) benefits are provided through a low 
interest loan with an effective rate of two percent (2%) to cover the 
annual fee to Bank of America, the entity providing the NMTC benefits 
to the Union.'' The applicant represents that this replacement sentence 
describes the Union's actual NMTC transaction, as opposed to the 
estimated version reflected in the application as filed with the 
Department.
    The Department concurs with the applicant's requested replacement.
    5. The applicant has requested a change to one of the sentences in 
representation 12, as set forth in the SFR on page 68122, column 2, 
lines 22-29 in the Notice. In this regard, the applicant suggests 
adding the phrase, ``and journeyman upgrade,'' after the word, 
``apprentice,'' such that the sentence reads, as follows:

    The first floor of the Building intended for the Fund will have 
approximately 21,406 square feet of training space with fifteen (15) 
foot ceilings which are necessary for erecting and working off 
scaffolding, a major component of apprentice and journeyman upgrade 
training (emphasis added).

    The Department concurs with the applicant's requested change.
    6. The applicant has requested a change to the last sentence in 
representation 14, as set forth in the SFR on page 68122, column 3, 
line 46 in the Notice. In this regard, the last sentence in 
representation 14, as set forth in the Notice reads as follows: ``It is 
represented that the intended retail lessees, include an eye care 
center (emphasis added), a banking area, and an ATM.'' The applicant 
requests that the phrase, ``an eye care center,'' in bold, above, 
should be deleted from this sentence, because the eye care center 
office is not a separate retail tenant, as stated in the SFR. Further, 
in its comment letter, the applicant informed the Department that the 
eye care center is the employee benefit fund tenant, referred to in the 
SFR on page 68122, column 3, line 39 in the Notice, to which the Union 
may lease office space and to which the Union is a party in interest. 
As set forth in the SFR on page 68122, column 3, lines 40-42 in the 
Notice, if the Union leases offices space to such employee benefit 
fund, the Union intends to do so, pursuant to section 408(b)(2) of the 
Act.\7\
---------------------------------------------------------------------------

    \7\ The Department is offering no view, herein, as to whether 
the leasing of office space to any employee benefit fund to which 
the Union is a party in interest is covered by the statutory 
exemption provided in sections 408(b)(2) of the Act and the 
Department's regulations, pursuant to 29 CFR 2550.408b-2. Further, 
the Department is not providing, herein, any relief with respect to 
the leasing of office space to any such employee benefit fund by the 
Union.
---------------------------------------------------------------------------

    The Department concurs with the applicant's requested change.
    7. The applicant has requested a change to footnote 24, as set 
forth in the SFR on page 68124, column 1, in the Notice. In this 
regard, footnote 24, as set forth in the Notice reads as follows:

    It is represented that ownership interests in FTUB are as 
follows: New England Carpenters Pension Fund--36.5%, New England 
Carpenters Guaranteed Annuity Fund--18.2%, Empire State Carpenters 
Pension Fund--45%, and Bank Senior Management (through rabbi 
trust)--.3%.

In its comment, the applicant informed the Department that the 
ownership interests in First Trade Union Bank should read, as follows:

    It is represented that ownership interests in FTUB are as 
follows: New England Carpenters Pension Fund--32.0%, New England 
Carpenters Guaranteed Annuity Fund--17.9%, Empire State Carpenters 
Pension Fund--49.9%, and Bank Senior Management (through rabbi 
trust)--.2%.

    The Department concurs with the applicant's requested change.
    8. The applicant has requested a change to representation 28(c), as 
set forth in the SFR on page 68125, column 3, lines 6-12 in the Notice. 
In this regard, subparagraph (c) in representation 28, as set forth in 
the Notice, reads as follows:

    (c) a review of the Fund's independently prepared financial 
statements and projections of future cash flow in order to evaluate 
the Fund's ability to financially support the purchase of the Condo 
and the future operating costs associated with it.

The applicant represents that IFS will be reviewing the Fund's 
financial statements which are independently prepared, but that the 
projections of future cash flow are internally prepared by the Fund 
office and not by an outside accountant. Accordingly, the applicant

[[Page 33341]]

suggests that the phrase, ``the Fund office's internally prepared,'' be 
inserted before the word, ``projections,'' such that sub-paragraph (c) 
in representation 28, should read as follows,

    (c) a review of the Fund's independently prepared financial 
statements and the Fund office's internally prepared projections of 
future cash flow in order to evaluate the Fund's ability to 
financially support the purchase of the Condo and the future 
operating costs associated with it.

    The Department concurs with the applicant's requested change.
    9. In addition to the applicant's comments, discussed in paragraphs 
1-8, above, the Department also received a comment via facsimile, dated 
February 4, 2010, from a commentator. In this comment, the commentator 
raised various issues regarding labor management relations under other 
statutory and regulatory programs beyond the scope of the Department's 
authority. It is the applicant's view that these issues are not 
relevant to the requested exemption. Accordingly, the applicant has 
chosen not to respond to those sections of the commentator's comment.
    However, the applicant has responded to the following four (4) 
issues raised by the commentator which in the applicant's view are 
relevant to the requested exemption: (a) the sufficiency of the 
notification provided to interested persons of the publication of the 
Notice in the Federal Register; (b) the leasing of space in the 
Building by the Fund prior to the purchase of the Condo by the Fund; 
(c) the decline in work hours for carpenters in 2009; (d) the fact that 
the cost of the Building will likely exceed the fair market value of 
the Building upon completion. These issues raised by the commentator 
and the applicant's responses thereto are discussed in paragraphs 10-
13, below.
    10. The commentator maintains that the notification to interested 
persons of the publication of the Notice in the Federal Register was 
defective, because the mailing in booklet form could have been mistaken 
by interested persons as a progress report on the Building and/or a 
solicitation to register for classes. In this regard, it is the 
commentator's position that interested persons were denied the 
opportunity to comment and/or request a hearing on the proposed 
exemption.
    In response, the applicant maintains that the booklet mailed to 
interested persons did not resemble the Union's quarterly magazine, 
recent course registration notices, or other notifications that 
promoted the Building or monitored its progress. It is the applicant's 
position that anyone who opened the booklet would have known that the 
booklet was not an ordinary mailing and that it contained a copy of the 
Notice. Further, the applicant sought and obtained approval from the 
Department for the inclusion of a one or two page insert of course 
offerings to be mailed to interested persons with the Notice. 
Accordingly, the applicant maintains that the notification to all 
interested persons was effectively served and was consistent with the 
Department's practices.
    11. The commentator informed the Department that the Fund is 
already occupying space in the Building and is paying to the Building 
Corporation $60,000 to $80,000 a month in rent, on a square footage 
basis, pending the Department's approval of the sale of the Condo by 
the Building Corporation to the Fund. Further, the commentator states 
that the rent money paid by the Fund to occupy the Condo is not to be 
offset against the sale price of the Condo to be paid by the Fund. 
Accordingly, the commentator maintains that the Fund is expending money 
on renting space in the Building, when the existing training facility 
is suitable, and the Fund owns such facility outright.
    In response, the applicant maintains that the leasing transaction 
between the Building Corporation and the Fund is covered by Prohibited 
Transaction Exemption 78-6 (PTE 78-6).\8\ It is represented that in 
order to conduct classes in March 2010, the Building needed to be ready 
for occupancy in February 2010. By late fall 2009, the applicant 
represents that it was apparent that construction on the Building was 
likely to be completed by February 2010, but that the final exemption 
and the financing for the Fund to purchase the Condo were not likely to 
be in place before the beginning of the March 2010 semester.
---------------------------------------------------------------------------

    \8\ Among other transactions, PTE 78-6 provides relief from 
section 406(a) of the Act for the leasing of real property (other 
than office space within the contemplation of section 408(b)(2) of 
the Act) by an apprenticeship plan from an employee organization any 
of whose members' work results in contributions being made to the 
apprenticeship plan, provided certain conditions are satisfied. 
Section 408(b)(2) of the Act provides relief from section 406(a) of 
the Act for a plan to contract or make reasonable arrangements with 
a party in interest for office space, provided certain conditions 
are satisfied.
     The relief provided by PTE 78-6 and the relief provided by 
408(b)(2) of the Act do not extend to transactions prohibited under 
section 406(b) of the Act. Section 406(b) of the Act prohibits a 
fiduciary from: (i) Dealing with the assets of a plan in his own 
interest or for his own account; (ii) acting, in his individual or 
any other capacity, in a transaction involving a plan on behalf of a 
party or representing a party whose interest are adverse to the 
interests of such plan or its participants or beneficiaries; or 
(iii) receiving any consideration for his own personal account from 
any party dealing with a plan in connection with a transaction 
involving the assets of such plan.
     The Department has explained in regulations 29 CFR Sec.  
2550.408b-2(e) that the prohibitions of section 406(b) are imposed 
upon fiduciaries to deter them from exercising the authority, 
control, or responsibility that makes them fiduciaries when they 
have interests that may conflict with the interests of the plans for 
which they act. Thus, a fiduciary may not use the authority, 
control, or responsibility that makes him a fiduciary to cause a 
plan to pay an additional fee to such fiduciary, or to a person in 
which he has an interest that may affect the exercise of his best 
judgment as a fiduciary, to provide a service. However, regulation 
29 CFR 2550.408b408b-2(e)(2) provides that a fiduciary does not 
engage in an act described in section 406(b)(1) of the Act if the 
fiduciary does not use any of the authority, control, or 
responsibility that makes him a fiduciary to cause a plan to pay 
additional fees for a service furnished by such fiduciary or to pay 
a fee for a service furnished by a person in which the fiduciary has 
an interest that may affect the exercise of his judgment as a 
fiduciary. Accordingly, if any trustee had an interest in the 
leasing transaction that may have affected his best judgment as a 
fiduciary regarding the decision whether to engage in the 
transaction on behalf of the Fund, the trustee would have engaged in 
a violation of section 406(b)(1) and 406(b)(2) for which no relief 
was available under either PTE 78-6 or section 408(b)(2) of the Act.
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    Rather than remaining for another semester in the existing training 
facility which the applicant maintains is overcrowded and inadequate, 
the Trustees began considering the option of renting space in the 
Building on a short-term basis. To this end, the Union and the Fund 
each designated subcommittees to meet and negotiate the actual terms of 
the leasing arrangement. The Fund subcommittee consisted of two (2) 
members: (a) Richard Pedi, a Union Trustee, an employee of the Union, 
and a member of Local 218; and (b) George Allen, a principal of a 
subcontractor on the Building which is also a contributing employer to 
the Fund. The Union subcommittee consisted of four (4) members: (a) 
Jack Donahue, a member of the Union Executive Board in central 
Massachusetts; (b) Dave Palmisciano, a member of the Union Executive 
Board from Rhode Island; (c) Beth Conway, the Union's comptroller; and 
(d) Mark Erlich, the Executive Secretary/Treasurer and chief executive 
officer of the Union. It is represented that the Fund retained its 
management co-counsel, James Grosso (Mr. Grosso) of O'Reilly, Grosso & 
Gross to represent it in the leasing transaction. In this regard, it is 
represented that Mr. Grosso's responsibilities included: (a) Assistance 
in the negotiations to ensure that the terms of the lease were at least 
as favorable to the Fund as terms negotiated at arms length; (b) the 
review and approval of any written agreement that the Fund would sign; 
and (c) the responsibility of obtaining an appraisal

[[Page 33342]]

of the fair market rental value of the Condo. On January 15, 2010, Mr. 
Grosso obtained an appraisal of the fair market rental value of the 
Condo from CBRE/CB Richard Ellis (CBRE), an independent, qualified 
appraiser. With regard to the Fund's proposed leasing, CBRE established 
the fair market rental value of 35,122 square feet of space in the 
Building at $30 per square foot, triple net.
    It is represented that the terms of the lease were presented to the 
full Board of Trustees of the Fund (the Board). The Board consisted of 
the following management representatives: George Allen, Donald 
MacKinnon, Thomas Gunning, III, Christopher Pennie, William Fitzgerald, 
and Mark DeNapoli. The labor representatives on the Board are Joseph 
Power, Richard Pedi, John Estano, Steven Tewksbury, Charles MacFarlane, 
and Richard Scaramozza. All of the labor representatives on the Board 
are Union employees and members of various locals affiliated with the 
Union. In addition, Board members, Richard Pedi and George Allen, are 
also members of the Fund subcommittee that negotiated the terms of the 
lease.
    With two (2) abstentions, the Board voted unanimously to accept the 
terms of the lease. The two (2) abstaining members of the Board were 
Joseph Power, a Union Trustee who is also a member of the Union 
Executive Board, and Mark DeNapoli, an Employer Trustee who is also the 
Executive Vice President of the construction manager of the Building 
retained by the Union.
    Accordingly, on January 29, 2010, the Building Corporation and the 
Fund entered into an occupancy agreement for a month to month lease of 
34,112 rentable square feet of space in the Building at a monthly 
rental rate of $73,150 (based on an annual rental of $25 per rentable 
square foot) for total rent of $877,800 per annum. Under the terms of 
the occupancy agreement, the Fund is responsible for a pro rata share 
of taxes, insurance, and operating expenses (including repairs) 
incurred by the Building Corporation with respect to the Building. The 
occupancy agreement can be terminated by either party giving not less 
than thirty (30) days prior written notice. Under the terms of the 
occupancy agreement, in the event that the Fund purchases the Condo, 
the lesser of: (a) $52,668, or (b) the product of (ii) 12 percent 
(12%), times (ii) the aggregate rental payments paid by the Fund though 
the purchase date will be credited to the Fund toward the purchase 
price of the Condo.
    It is represented that the rent under the terms of the occupancy 
agreement is below market value, that the month to month term is 
favorable to the Fund, and that such month to month term is not 
commonly found in commercial leases. Furthermore, the applicant 
maintains that by moving into the Building prior to purchasing the 
Condo, the Fund was able to market the existing training facility for 
sale. In this regard, it is represented that a tentative agreement on 
the purchase of the existing training facility has been reached with an 
unrelated third party. It is expected that the sale of the existing 
training facility will net the Fund $1.4 million after commission and 
fees.
    The Department, herein, is not providing any relief with respect to 
the leasing of space in the Building to the Fund by the Building 
Corporation. In this regard, the applicant has applied for a separate 
retroactive exemption (L-11624) with respect to the leasing of training 
space and office space in the Building to the Fund by the Building 
Corporation. By notice appearing elsewhere in this issue of the Federal 
Register, the Department is publishing a Notice of Proposed Exemption. 
If the proposed exemption is granted, the restrictions of sections 
406(b)(1), and 406(b)(2) of the Act shall not apply, effective January 
29, 2010 through June 30, 2010, to the leasing of training space and 
office space in the Building to the Fund by the Building Corporation. 
It is anticipated that the existing occupancy agreement between the 
Fund and the Building Corporation will be terminated, effective June 
30, 2010. In reliance on the relief provided by Prohibited Transaction 
78-6 (PTE 78-6)) and the statutory relief provided by 408(b)(2) of the 
Act, the terms of the leasing agreement between the Building 
Corporation and the Fund for training space and office space will be 
renegotiated, effective July 1, 2010.\9\
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    \9\ The Department is offering no view, herein, as to whether 
PTE 78-6 covers the future leasing agreement between the Building 
Corporation and the Fund for training space. Further, the Department 
is not opining as to whether the conditions of PTE 78-6 in 
connection with such leasing of training space to the Fund by the 
Building Corporation are satisfied.
    In addition, the Department is offering no view, herein, as to 
whether the future leasing agreement between the Building 
Corporation and the Fund for office space is covered by the 
statutory exemption provided in section 408(b)(2) of the Act and the 
Department's regulations, pursuant to 29 CFR 2550.408b-2. Further, 
the Department is not opining as to whether the conditions of 
408(b)(2) in connection with such leasing of office space to the 
Fund by the Building Corporation are satisfied.
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    12. The commentator questions: (a) Why the Fund should take on an 
$11 million dollar mortgage for the purchase of the Condo when the 
existing training facility is suitable and owned outright; (b) why the 
Fund should move to the larger Condo when work hours for carpenters are 
down 40 percent and the curriculum and the staff of the Fund must be 
cut from the training program; and (c) why fiduciaries of the Fund 
pursued the option of building the Condo to suit the Fund, rather than 
modifying the existing facility at half the cost?
    With regard to the amount of the Fund's mortgage, the applicant 
states that the Fund will seek financing in the amount of approximately 
$8 million, not $11 million dollars.
    With regard to the amount of work hours for carpenters, the 
applicant does not dispute that there has been a decline in work hours 
for carpenters since the beginning of 2009 when the building project 
was started. In this regard, it is represented that carpenter work 
hours for calendar year 2009 declined 29 percent (29%) from 6.8 million 
to 4.8 million over calendar year 2008. The applicant points out that 
while 29 percent (29%) in carpenter work hours is a significant 
decline, it is far less than the 40 percent (40%) claimed by the 
commentator.
    It is further represented by the applicant that IFS anticipated the 
possibility of a decline in carpenter work hours and performed a 
``stress test'' based on different projected declines in such hours 
over the course of a number of years. In this regard, the applicant 
points out that IFS has represented that even under the scenario of a 
16 percent (16%) decline in carpenter work hours in each year from 2013 
through 2022, the Fund would still have adequate revenues to support 
the purchase and financing of the Condo.
    The Department asked IFS to confirm that the work hours for 
carpenters for calendar year 2009 declined 29 percent (29%) from 6.8 
million to 4.8 million over calendar year 2008, and to confirm that the 
29 percent (29%) decline in work hours for carpenters within one year 
is within the parameters of the worst case ``stress test'' suggested by 
IFS that is based on an assumed 16 percent (16%) decline each year from 
2013 until 2022. Further, the Department asked IFS to respond to the 
following question: Given that the work hours for carpenters for 
calendar year 2009 declined 29 percent (29%) in one year, is the worst 
case ``stress test'' with an assumed 16 percent (16%) in any one year 
still valid?
    In response, IFS indicates that: (a) The Fund provided the 
statistics indicating that the hours worked by Union carpenters during 
the calendar year 2009 were 4.8 million, and that this represented a 29 
percent (29%)

[[Page 33343]]

reduction from the 6.7 million hours worked in the prior calendar year; 
and (b) that IFS has no independent source for this data. IFS 
represents that the ``worst case'' scenario IFS developed was based on 
a decrease in hours from 6.7 million in 2008 to 1.1 million in 2022, 
which is a reduction of 84 percent (84%). IFS considers the 1.1 million 
level to be a sufficiently ``worst case'' economic scenario for this 
test. IFS represents that this scenario anticipated a significant 
decrease in hours for the 2009 period already, albeit somewhat less 
than the actual 1.9 million hours. A 29 percent (29%) decline in any 
one year is within the range of possibility for the aggregate worst 
case result modeled by IFS. In the model, IFS developed, maintaining 
the overall 5.6 million hour reduction after substituting the actual 
reduction in calendar year 2009 merely requires that the average 
declining rate over the final ten (10) years to average 14.5 percent 
(14.5%), rather than 16 percent (16%). IFS concludes that a 29 percent 
(29%) reduction in work hours in one year is within the reasonable 
limits of volatility for the overall 84 percent (84%) decline that IFS 
modeled between 2008 and 2022. Accordingly, IFS considers the worst 
case scenario to remain valid.
    With regard to the feasibility of the subject transaction, the 
applicant points out that the structure of the exemption is more 
important than the actual number of carpenter work hours in any month. 
In this regard, the applicant states that IFS, acting as the 
independent fiduciary on behalf of the Fund, is responsible for 
reviewing the financing terms, the Fund's cash flow, and the amount of 
projected employer contributions to the Fund. Further, the applicant 
states that IFS will determine whether the transaction is feasible, in 
the interest of, and protective of the participants. If the transaction 
does not satisfy those requirements, the applicant states that IFS will 
not approve the transaction.
    In conclusion, it is the applicant's view that the Fund's purchase 
of a new facility is in furtherance of its long-term commitment to its 
core mission of training apprentices and carpenters in the Boston area. 
The decision by the Trustees to purchase the Condo and the decision of 
how much to pay for the Condo are not based on the number of carpenter 
work hours in a peak period or during a recession, but on an analysis 
of the training needs of participants and the projected revenues and 
expenses of the Fund over the long term. Furthermore, the applicant 
points out that while the economic downturn has caused a decline in 
carpenter work hours and contributions to the Fund, it has also 
resulted in lower interest rate financing, and lower construction costs 
for the renovation of the Building. In addition, because of the decline 
in real estate value, the Fund is likely to experience a savings in the 
purchase price of the Condo, as the fair market value is expected to be 
less than the Fund's pro rata share of the construction costs for the 
renovation of the Building. The applicant maintains that IFS will 
analyze all of these factors before making its final decision on 
whether to proceed with the subject transaction.
    13. The commentator states that the construction costs for the 
renovation of the Building were approximately $26 million dollars but 
that the fair market of such Building will be approximately $11 million 
upon completion.
    In response, the applicant maintains that the comment concerning 
the decline in the value of the Building is erroneous and misleading. 
In this regard, it is represented that while the purchase price and 
construction costs of renovating the Building totaled over $26 million, 
the pro-rata allocation of those costs to the Union's condominium unit 
is in the $11 million range, so the Union did not suffer a $15 million 
loss, as implied by the commentator.
    After full consideration and review of the entire record, including 
the written comments filed by the applicant and by the commentator, the 
Department has determined to grant the exemption, as amended, 
corrected, and clarified above. Comments and responses submitted to the 
Department by the applicant and comments submitted by the commentator 
have been included as part of the public record of the exemption 
application. Copies of these comments and the responses thereto are 
posted on the Department's Web site at http://www.dol.gov/ebsa. The 
complete application file (L-11558), including all supplemental 
submissions received by the Department, is available for public 
inspection in the Public Documents Room of the Employee Benefits 
Security 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 on December 22, 2009, at 74 FR 68120.

FOR FURTHER INFORMATION CONTACT:  Angelena C. Le Blanc 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 7th day of June 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2010-14022 Filed 6-10-10; 8:45 am]
BILLING CODE 4510-29-P