[Federal Register: December 16, 2010 (Volume 75, Number 241)]
[Notices]
[Page 78758-78768]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16de10-84]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Prohibited Transaction Exemptions From Certain Prohibited
Transaction Restrictions
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).
This notice includes the following: 2010-31, Deutsche Asset
Management (UK) Limited, D-11495; 2010-32, Sherburne Tele Systems, Inc.
Amended and Restored Stock Ownership Plan and Trust (the ``ESOP''), D-
11569; 2010-33, Citigroup Global Markets, Inc. and Its Affiliates
(together, CGMI or the Applicant), D-11573; and 2010-34, Retirement
Plan for Employees of the Rehabilitation Institute of Chicago (the
Plan), D-11585.
SUPPLEMENTARY INFORMATION: 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.
Deutsche Asset Management (UK) Limited (the Applicant), Located in
London, England, a Wholly-Owned Subsidiary of Deutsche Bank AG, Located
in Frankfurt, Germany, and Throughout the World
[Prohibited Transaction Exemption 2010-31; Exemption Application Number
D-11495]
Exemption
Section I--Covered Transactions
The restrictions of sections 406(a)(1)(A), 406(a)(1)(B),
406(a)(1)(D), 406(b)(1), and 406(b)(2) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of sections 4975(c)(1)(A), (B), (D), and (E) of the Code, shall not
apply to certain foreign exchange Hedging and
[[Page 78759]]
Administrative Conversion transactions that occurred between November
30, 2007 and May 30, 2008, inclusive, between the DB Torus Japan Master
Portfolio (the Master Fund), in which the assets of a client employee
benefit plan (the Client Plan) were invested, and Deutsche Bank AG, a
party in interest with respect to the Client Plan, provided that the
conditions contained herein are satisfied.
Section II--General Conditions
(a) The Foreign Exchange Transactions were executed solely in
connection with the Master Fund's Hedging of the Japanese yen currency
risk for its share classes denominated in U.S. dollars (USD), and for
Administrative Conversions;
(b) At the time that the Foreign Exchange Transactions were entered
into, the terms of such transactions were not less favorable to the
Master Fund than the terms generally available in comparable arm's
length Foreign Exchange Transactions between unrelated parties;
(c) Any Foreign Exchange Transactions authorized by Deutsche Asset
Management (UK) Ltd. and executed by Deutsche Bank AG were not part of
any agreement, arrangement, or understanding, written or otherwise,
designed to benefit the foregoing entities or their Affiliates
(collectively, Deutsche Bank), or any other party in interest;
(d) Prior to investing in DB Torus Japan Fund Ltd. (hereinafter the
Feeder Fund, the vehicle through which investments in the Master Fund
are effected), the fiduciary of the Client Plan received the offering
memorandum for the Feeder Fund;
(e) The exchange rate used for a particular Foreign Exchange
Transaction did not deviate by more than three percent (above or below)
the interbank bid and asked rate for such currency at the time of such
transaction, as displayed on an independent, nationally-recognized
service that reports rates of exchange in the foreign currency market
for such currency;
(f) Prior to the granting of this exemption concerning the subject
Foreign Exchange Transactions, Deutsche Asset Management (UK) Ltd.
reimbursed the Client Plan for its pro-rata share of: (1) The Spread on
each Foreign Exchange Transaction subject to this exemption; and (2)
Any fees charged by Deutsche Bank AG for executing the subject Foreign
Exchange Transaction(s), plus interest at the applicable Internal
Revenue Service (the Service) underpayment penalty rate up to the date
of reimbursement;
(g) Within 30 days after taking the corrective action described in
Section II(f) above, Deutsche Asset Management (UK) Ltd. provided the
independent fiduciary of the Client Plan whose assets were involved in
the Foreign Exchange Transactions with: (1) Written information,
formulas, and/or other documentation sufficient to enable such
fiduciaries to independently verify that the Plans have been reimbursed
in accordance with the requirements of Section II(f) above; and (2) a
copy of the Notice of Proposed Exemption (the Notice);
(h) Within 30 days after taking the corrective action described in
Section II(f) above, Deutsche Asset Management (UK) Ltd. provided the
Department with written documentation demonstrating that the foregoing
reimbursements to the Client Plan were correctly computed and paid;
(i) Effective May 31, 2008, Deutsche Asset Management (UK) Ltd., in
conjunction with the administrator of both the Master Fund and the
Feeder Fund (together, the Funds), continuously monitors the percentage
of total assets invested by benefit plan investors in the Funds so
that, as of each acquisition or redemption of equity interests,
Deutsche Asset Management (UK) Ltd. and the administrator of the Funds
are able to verify whether equity participation in the Funds by benefit
plan investors is not significant pursuant to section 3(42) of the Act
and 29 CFR 2510.3-101;
(j) Deutsche Asset Management (UK) Ltd. maintains, or causes to be
maintained, for a period of six years from the date of the transactions
that are the subject of this exemption, the following records, as well
as any other records necessary to enable the persons described in
Section II(l) of this exemption, to determine whether the conditions of
this exemption have been met:
(1) The account name;
(2) The trade and settlement dates of the subject foreign exchange
Hedging and Administrative Conversion transactions;
(3) The USD/Japanese yen currency exchange rates for each covered
transaction;
(4) The interbank bid and asked currency rates for USD/Japanese yen
exchanges on Bloomberg or a similar independent service at the time of
the transaction;
(5) The identification of the type of currency trade undertaken
(whether spot or forward or other contractual trade);
(6) The amount of Japanese yen sold or purchased in the Hedging and
Administrative Conversion transactions; and
(7) The amount of U.S. dollars exchanged for Japanese yen in the
Hedging and Administrative Conversion transactions.
(k) The following are exceptions to the requirements of Section
II(j):
(1) A separate prohibited transaction shall not be considered to
have occurred solely because, due to circumstances beyond the control
of Deutsche Asset Management (UK) Ltd. or its Affiliates, the records
necessary to enable the persons described in Section II(l) to determine
whether the conditions of the exemption have been met are lost or
destroyed prior to the end of the six-year period; and
(2) No party in interest, other than Deutsche Asset Management (UK)
Ltd. and its Affiliates, shall be subject to the civil penalty that may
be assessed under section 502(i) of the Act or to the excise taxes
imposed by section 4975(a) and (b) of the Code if the records are not
maintained for examination as required by Section II(l) below.
(l)(1) Except as provided in paragraph (2) of this Section II(l)
and notwithstanding the provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to above in Section II(j)
are unconditionally available for examination during normal business
hours at their customary location to the following persons or an
authorized representative thereof:
(i) Any duly authorized employee or representative of the
Department or the Service;
(ii) The independent fiduciary of the Client Plan (or a duly
authorized employee or representative of such fiduciary), or
(iii) Any participant or beneficiary of the Client Plan or any duly
authorized employee of representative of a participant or beneficiary
in such Client Plan.
(2) None of the persons described above in paragraphs (ii) and
(iii) of Section II(l)(1) shall be authorized to examine trade secrets
of Deutsche Bank or its Affiliates, or any commercial or financial
information which is privileged or confidential.
(3) Should Deutsche Asset Management (UK) Ltd. refuse to disclose
information to the persons described above in paragraphs (ii) and (iii)
of Section II(l)(1) on the basis that such information is exempt from
disclosure, Deutsche Asset Management (UK) 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
[[Page 78760]]
Department may request such information.
Section III--Definitions
For purposes of this exemption:
(a) An ``Affiliate'' of Deutsche Asset Management (UK) Ltd. means:
(1) Any person or entity directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common
control with such person or entity; (2) Any officer, director, partner,
employee, or relative (as defined in section 3(15) of the Act) of such
other person or entity; and (3) Any corporation or partnership of which
such other person or entity is an officer, director, partner, or
employee.
(b) The term ``Control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(c) The term ``Client Plan'' means an employee benefit plan, other
than a plan sponsored by Deutsche Bank and its affiliates, as described
in section 3(3) of the Act or section 4975(e)(1) of the Code that
invested directly or indirectly in the Master Fund, and for which
Deutsche Asset Management (UK) Ltd. or its affiliate served as an
investment advisor.
(d) The term ``Foreign Exchange Transaction'' means the exchange of
the currency of one nation for the currency of another nation, or a
contract for such an exchange. The term foreign exchange transaction
includes options contracts on such transactions.
(e) The term ``Hedging'' means a strategy used to offset the
investment risk of future gains or losses resulting from anticipated
fluctuations in the value of currency, such as an investor's decision
to exchange foreign currency in anticipation of upward or downward
movement in the value of that currency.
(f) The term ``Administrative Conversions'' means, with respect to
foreign exchange transactions, those transactions necessary to effect
(1) subscriptions, (2) redemptions, or (3) the payment of fees and
expenses identified below:
(i) December 27, 2007 spot conversions in the total amount of
$552,650 for management fees, incentive fees, administration fees and
expenses, legal fees, the Funds' Board of Directors fees, the Funds'
Conflict Advisory Board fees, translation services, and bank charges;
and
(ii) January 30, 2008 spot conversions in the total amount of
$554,637 for management fees, incentive fees, administration fees and
expenses, legal fees, the Funds' Board of Directors fees, the Funds'
Conflicts Advisory Board fees, translation services, and bank charges.
(g) The term ``Spread'' means the difference between (i) the rate
at which the transaction occurred and (ii) the reported market price
(i.e., the interbank bid or asked price depending on the direction of
the trade) at the time of the transaction as reflected by a ``screen
shot'' taken from an independent pricing service.
Written Comments
1. The Notice of Proposed Exemption (the Notice), published in the
January 19, 2010 issue of the Federal Register beginning at page 3067,
invited all interested persons to submit written comments and requests
for a hearing to the Department within forty-five (45) days of the date
of its publication. In response, the Department received an extensive
written comment from the Applicant regarding the content of the Notice.
This comment, which was the only one received by the Department in
connection with the Notice, suggested a number of clarifications and
editorial adjustments to the operative language of Section I (``Covered
Transactions''), Section II (``General Conditions''), and Section III
(``Definitions'') of the Notice, which are detailed below; those
modifications suggested by the Applicant which the Department has
determined to adopt are reflected in the text of this final grant (the
Grant) of exemption. The Applicant's comment also requested certain
clarifications to the text of the ``Summary of Facts and
Representations'' section of the Notice, which are also generally
described below. The Department notes that it did not receive any
requests for a hearing from the Applicant or from any other person
during the aforementioned 45-day comment period.
2. In its written comment, the Applicant expressed its view that
the scope of exemptive relief proposed in Section I of the Notice for
``foreign exchange hedging transactions'' could be construed as
limiting such relief to those spot and forward transactions directly
related to the purpose of hedging currencies, while potentially
excluding certain ``administrative conversion'' activities. The
Applicant's comment explained that the term ``administrative
conversions'' is intended to encompass those transactions necessary to
effect: (i) Subscriptions (through the conversion of U.S. dollars (USD)
to the Japanese yen, the Funds' base currency, as required by the terms
of Class A of the Feeder Fund); (ii) redemptions out of the Funds' base
currency and back into the currency required to be paid to investors
(through the conversion of yen to USD as required by the terms of Class
A of the Feeder Fund); or (iii) the payment of assorted fees and
expenses (through the spot conversion of such expenses from yen to
USD). Accordingly, the Applicant's comment requested that the
Department insert the words ``and administrative conversion'' after the
words ``foreign exchange hedging'' and before the word ``transactions''
in Section I of the Grant in order to clarify that exemptive relief
extends to the administrative conversion activities necessary for the
completion of the foreign exchange transactions. After due
consideration of the Applicant's request, the Department agrees to the
insertion of this clarifying language in this Grant.
The Applicant's comment further requested that a definition for the
term ``administrative conversions'' in Section III(f) be made
consistent with the various activities described in the previous
paragraph; this revised definition would also reference the specific
categories of fees and expenses incurred by the Funds with respect to
certain spot conversions that occurred during the period of exemptive
relief. In addition, the Applicant has requested that conforming
adjustments to the text be made to Sections II(j)(2), II(j)(6), and
II(j)(7) of the Grant by adding the term ``administrative conversions''
to each of these general conditions for relief, and that a reference to
the administrative conversion activities described in Section III(f) be
added at the conclusion of Section II(a). The Department agrees that
each of these suggested insertions and adjustments would provide
additional clarity and consistency to the text, and has, therefore,
decided to incorporate each of the foregoing modifications. In this
connection, the Department notes that the adoption of these adjustments
should not be construed to mean that the Department is expressing an
opinion herein as to whether the assessment of the various fees and
expenses charged to the Funds in connection with the administrative
conversion transactions were consistent with, or in violation of, the
fiduciary requirements of Part 4 of Title I of the Act.
3. In its comment, the Applicant also requested that a number of
references made in the text of the Notice to Deutsche Bank AG and/or
its affiliates be adjusted and clarified in the final Grant. In this
connection, the Applicant requested that the initial reference to
``Deutsche Bank Asset Management (UK) Ltd. or its affiliates
(collectively, Deutsche Bank)'' in Section I of the Notice be deleted,
and that the words
[[Page 78761]]
``Deutsche Bank AG'' be substituted in lieu thereof. Concomitantly, the
Applicant requested that the language of the general condition at
Section II(c) should be amended to read: ``Any foreign exchange
transactions authorized by Deutsche Asset Management (UK) Ltd. and
executed by Deutsche Bank AG were not part of any agreement,
arrangement, or understanding, written or otherwise, designed to
benefit Deutsche Bank, its affiliates, or any other party in
interest.'' The Applicant further requested that all references to
``Deutsche Bank'' made in the Notice at Sections II(f), II(g), II(h),
II(i), II(j), and II(k) of the Notice be deleted, and that the term
``Deutsche Asset Management (UK) Ltd.'' be substituted in lieu thereof
in each instance. After reviewing these suggested clarifications
concerning references to Deutsche Bank entities, the Department has
agreed to adopt each of these modifications in the text of the final
Grant.
4. In its comment, the Applicant stated that a definition for the
term ``spread'' be added to the text of Section III of the final Grant.
According to the Applicant, ``spread'' means the difference between (i)
the rate at which the transaction occurred and (ii) the reported market
price (i.e., the bid or asked price depending on the direction of the
trade) at the time of the transaction as reflected by a ``screen shot''
taken from an independent pricing service. The Applicant commented that
the screen shot provides an accurate reflection of the market price
since the prices quoted on the screen shot depict the prices at the
time a trade occurred. The Department concurs that the inclusion of
such a definition would improve the clarity of the exemption, and
accordingly has modified the definition at Section III(g) of the Grant.
5. In addition, the Applicant requested in its comment that the
definition of ``foreign exchange transaction'' appearing at Section
III(d) of the Notice be modified by adding similar language found in
the definition of the same term that appears in the text of an
administrative class exemption, PTE 94-20 (59 FR 51216, February 10,
1994). Section IV(a) of PTE 94-20 states that ``a `foreign exchange
transaction' means the exchange of the currency of one nation for the
currency of another nation, or a contract for such an exchange. The
term foreign exchange transaction includes options contracts on foreign
exchange transactions.'' The Applicant's comment further requested that
the clause ``including a synthetic contract'' be added to this
definition after the word ``contract''. In its comment, the Applicant
equated the term ``synthetic contract'' with a ``swap,'' which,
according to the Applicant, is the economic equivalent of continuous
currency forwards selling the yen for the USD, settling differences in
cash and then putting the same trade on immediately at the close of
each forward trade.''
After due consideration of this request, the Department has
determined to substitute, in Section III(d) of the Grant, the exact
language defining a ``foreign exchange transaction'' found in Section
IV(a) of PTE 94-20 in lieu of the definitional language contained in
Section III(d) of the Notice; however, the Department declines to
insert an additional ``synthetic contracts'' clause to the foregoing
definition. In this regard, the Department is of the view that the
exemptive relief provided in this Grant encompasses the various foreign
exchange transactions activities described by the Applicant in its
application, and that there is insufficient information on the record
for the Department to determine the scope of the term ``synthetic
contracts'' as they relate to foreign exchange transactions.
6. The Applicant's comment also suggested several additional
modifications to the text of Section II(j) of the Notice. At Section
II(j)(3), the Applicant requested that the words ``on the trade and
settlement dates'' be deleted, and that the words ``for each covered
transaction'' be substituted in lieu thereof in the final Grant. After
due consideration, the Department agrees to this change. At Section
II(j)(4), the Applicant also requested the deletion of the words ``The
high and low currency prices on Bloomberg or similar independent
service on the dates of the subject transactions'' and the substitution
of language in the text of the Grant that would require the utilization
of the interbank bid and asked currency rates for Japanese yen/USD
exchanges on Bloomberg or a similar independent service at the time of
the transaction. As described above in Item 4, the Applicant explained
that it desires this modification because it believes that the currency
rates at the time of the transaction are ``a better indicator of market
prices than the high and low for the day.'' The Department concurs, and
adopts this substitution in Section II(j)(4) of the Grant. At Section
II(j)(5), the Applicant requested the insertion of the words ``or other
contractual trade'' after the word ``forward'' in the text of the final
Grant. The Applicant explains in its comment that these ``other
contractual trades'' represent ``continuous currency forwards'' in
which yen are sold in exchange for the USD. After due consideration,
the Department agrees to the Applicant's suggested modification at
Section II(j)(5).
7. In its comment, the Applicant requested that the language
contained in Section II(l)(1)(iii) of the Notice, which permits ``[A]ny
participant of beneficiary of such Client Plans or any duly authorized
employee or representative of a participant or beneficiary in such
Client Plans'' to inspect the records required to be maintained by
Deutsche Asset Management (UK) Ltd. pursuant to Section II(j) of the
Grant, be deleted in its entirety from the text of the final Grant. In
requesting this change, the Applicant's comment stated that the class
of individuals comprising these participants and beneficiaries ``could
exceed tens of thousands of individuals, which could cause an
extraordinary burden to the Applicant.'' The Applicant further stated
that ``[b]ecause any plan invested in the [Feeder] Fund was a defined
benefit plan, we request that only plan fiduciaries (and the Department
and Service) have access to the Applicant's records.'' After due
consideration of this comment, the Department has determined not to
adopt the Applicant's suggested modification. The Department is of the
view that providing participants and beneficiaries with a right of
inspection of records that are otherwise required to be maintained
promotes transparency and is not onerous or burdensome. In this
connection, the Department, on its own motion, has also determined to
add a new Section II(l)(3) to the text of the final Grant which would
require Deutsche Asst Management (UK) Ltd., in instances where it
refuses to disclose the foregoing information to an independent plan
fiduciary, participant, and/or beneficiary on the basis that such
information is exempt from disclosure, to provide to such persons with
a written notice advising them of the reasons for the refusal.
8. The Applicant's comment included additional recommendations for
technical and clarifying changes. In this regard, the Applicant
requested that the first reference to ``Master Fund'' made in Section
II(d) of the Notice be deleted, and the words ``Feeder Fund (and
indirectly in the Master Fund through the Feeder Fund)'' be substituted
in lieu thereof. In response to the Applicant's suggestion, the
Department has determined to clarify and reformulate the text of
Section II(d) in the Grant by stating that, ``[p]rior to investing in
DB Torus Japan Fund Ltd. (hereinafter the Feeder Fund, the vehicle
through which investments in the Master Fund are
[[Page 78762]]
effected), the fiduciary of each Client Plan received the offering
memorandum for the Feeder Fund.''
The Applicant also requested that the reference to ``Applicant'',
found in Section III(a) of the Notice (which defines ``affiliate'') be
deleted, and that the word ``Deutsche Asset Management (UK) Ltd.'' be
substituted in lieu thereof in the final Grant. In addition, the
Applicant requested that the first reference to the ``Applicant'' in
Section III(c) of the Notice (which defines the term ``Client Plan'')
be deleted and the words ``Deutsche Bank'' be substituted in lieu
thereof in the text of the Grant; similarly, the Applicant requested
that the second reference to the ``Applicant'' in Section III(c) of the
Notice be deleted, and the words ``Deutsche Asset Management (UK)
Ltd.'' be substituted in lieu thereof in the final Grant. Also, the
Applicant requests that the text of Section III(c) of the Notice be
further amended in the Grant by inserting the words ``directly or
indirectly'' after the word ``invested,'' and by deleting the words
``and the Feeder Fund'' after the words ``Master Fund.'' After
consideration of these clarifying modifications suggested by the
Applicant, the Department has determined to adopt each of them in the
text of the final Grant.
9. In its comment, the Applicant also requested several technical
clarifications to the text of the Summary of Facts and Representations
section of the Notice. The majority of these adjustments involved the
systematic substitution in the text of the names of various Deutsche
Bank entities in the same manner as the substitutions described in
Items 3 and 8 above; other systematic modifications suggested by the
Applicant involved the multiple additions of the term ``administrative
conversion'' after each use of the words ``foreign exchange hedging
transaction'' when referencing the scope of relief covered by the
exemption. Accordingly, the Department herewith adopts the foregoing
systemic, clarifying modifications suggested by the Applicant to the
text of the Facts and Representations section of the Notice.
In addition, the Applicant requests that the Department amend the
language contained in the penultimate sentence of the second paragraph
of Representation 7 of the Notice by inserting the words ``may have''
before the phrase ``caused a breach of the 25% limitation until
approximately April 15, 2008.'' The Department has determined to adopt
this suggested modification in order to maintain the internal
consistency of the text of the Facts and Representations contained in
the Notice.
The Department has also determined to make the following additional
technical clarifications to the text of the Facts and Representations
section of the Notice that were requested by the Applicant in its
comment: Deleting the word ``is'' in line 8 of the first paragraph of
Representation 1 and inserting in lieu thereof the words ``until June
19, 2009 was''; inserting the word ``indirectly'' before the words
``wholly-owned'' in line 11 of the second paragraph of Representation
1; inserting the words ``and that its subscription will be converted to
yen, its redemptions will be converted to USD, and fees and expenses
will be converted to the appropriate currency for the recipient'' at
the conclusion of the third sentence of Representation 4; inserting the
words ``in advance'' before the words ``the execution of currency
trades'' in the final sentence of Representation 4; inserting the words
``bid or asked'' before the phrase ``rate available on these trades
based on the aforementioned Bloomberg screen prints'' in the final
sentence of the first paragraph of Representation 8; substituting the
word ``subscriptions'' in lieu of the word ``investments'' at the
beginning of item (ii) at line 17 of Representation 9; inserting the
words ``any class of shares in'' before the word ``either'' in item (v)
of Representation 9; inserting the words ``any class of shares'' at the
end of the final sentence of Representation 9; and inserting the words
``at the same time'' after the words ``unrelated third party'' in the
second sentence of Representation 10.
10. The Department notes that, subsequent to the submission of the
exemption application, the Applicant determined that only a single
Client Plan was affected by the foreign exchange and administrative
conversions covered by this exemption.\1\ The Applicant also made a
subsequent representation to the Department that no fees were charged
by the Applicant's affiliates or other financial institutions for
executing the exemption transactions; accordingly, there were no fees
to add to the principal amount (i.e., the Spread on each Foreign
Exchange Transaction subject to the exemption) in determining the
interest component of the reimbursement owed to the Client Plan
pursuant to Section II(f) of the exemption. In computing this interest
component, the Applicant confirms that it utilized the Department's
online Voluntary Fiduciary Correction Program (VFCP) calculator to
arrive at the applicable Internal Revenue Service underpayment rate
described in Section 5(b)(5) of the VFCP at 71 FR 20271 (April 19,
2006). The Applicant represents that, pursuant to Section II(g) of the
exemption, a copy of the Notice was furnished to the independent
fiduciary for the affected Client Plan on February 3, 2010. The
Applicant further represents that, on September 9, 2010, in accordance
with Section II(f) of the exemption, Deutsche Asset Management (UK)
Ltd. paid the affected Client Plan $6,396.16, which amount included
$741.20 in interest.
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\1\ Section 404(a) of the Act requires, among other things, that
the fiduciary of a plan act prudently, solely in the interests of
the plan's participants and beneficiaries, and for the exclusive
purpose of providing benefits to participants and beneficiaries when
making investment decisions on behalf of a plan. In granting this
exemption, the Department is expressing no opinion herein as to
whether the fiduciary provisions of Part 4 of Title I of the Act
have been satisfied.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the text of the Notice at 75 FR 3067 (January 19, 2010).
FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department,
telephone (202) 693-8550. (This is not a toll-free number.)
Sherburne Tele Systems, Inc. 2008 Amended and Restated Employee Stock
Ownership Plan and Trust (the ``ESOP'') Located in Big Lake, Minnesota
[Prohibited Transaction Exemption 2010-32; Exemption Application No. D-
11569]
Exemption
The restrictions of sections 406(a)(1)(A) and (D) and 406(b)(1) and
406(b)(2) of the Act and the sanctions imposed under section 4975 of
the Code, by reason of sections 4975(c)(1)(A), (D), and (E) of the
Code, shall not apply to the sale by the ESOP of all its shares of
common stock (the ``ESOP Shares'') in Sherburne Tele Systems, Inc. (the
``Company'') to the Company, a party in interest with respect to the
ESOP, provided that the following conditions are satisfied:\2\
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\2\ For purposes of this exemption, references to provisions of
Title I in the Act, unless otherwise specified, should be read to
refer also to the corresponding provisions of the Code.
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(a) The sale is a one-time transaction for cash;
(b) The terms and conditions of the sale are at least as favorable
to the ESOP as those that the ESOP could obtain in an arm's length
transaction with an unrelated third party;
(c) The sales price is the greater of (i) $5.01 per share, or (ii)
the fair market value of the ESOP Shares as of the date
[[Page 78763]]
of the sale, as determined by a qualified, independent appraiser (the
appraiser);
(d) The sales proceeds received by the ESOP pursuant to the
transaction are valued at a share price that is greater than the share
price received by the non-ESOP shareholders;
(e) The benefits received by the members of the board of directors
and officers of the Company pursuant to the board of directors awards
program, the Company's phantom stock plan and retention plans, which
were paid, coincident with the closing of the asset sale of the Company
to Iowa Telecommunications Services, Inc. were reasonable;
(f) A qualified, independent fiduciary (the ``Independent
Fiduciary'') for the ESOP was and is responsible for (i) reviewing the
terms of the sale of the Company's assets; (ii) engaging the appraiser
to value the ESOP Shares; (iii) reviewing and, if appropriate,
approving the methodology used by the appraiser, to ensure that such
methodology is properly applied in determining the fair market value of
the ESOP Shares, to be updated as of the date of the sale; (iv)
negotiating the terms of the sale of the ESOP Shares to the Company to
ensure that the ESOP participants receive at least the fair market
value of the ESOP Shares; (v) determining, and documenting in writing,
whether the terms of the sale are fair and reasonable to the ESOP and
whether it is prudent to proceed with the transaction; (vi) approving
the transaction; and (vii) determining whether the transaction
satisfies the criteria set forth in section 404 and section 408(a) of
the Act;
(g) The ESOP pays no fees, commissions, or other expenses in
connection with the sale (including the fees paid to the appraiser and
the Independent Fiduciary), other than a one-time $500.00 escrow fee
(as described in the notice of proposed exemption's Summary of Facts
and Representations 10); and
(h) The proceeds from the sale are promptly forwarded to the ESOP's
trust simultaneously with the transfer of the ESOP Shares to the
Company.
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 August 6, 2010 at 75 FR
47639.
Written Comments
No written comments were received by the Department with respect to
the notice of proposed exemption.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 693-8557. (This is not a toll-free number.)
Citigroup Global Markets, Inc. and Its Affiliates (together, CGMI or
the Applicant), Located in New York, New York
[Prohibited Transaction Exemption 2010-33; Exemption Application No. D-
11573]
Exemption
Section I. Covered Transactions
A. The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) through (D) of the Code, shall not apply,
effective May 31, 2009, to the purchase or redemption of shares by an
employee benefit plan, an individual retirement account (an IRA), a
retirement plan for self-employed individuals (a Keogh Plan), or an
individual account pension plan that is subject to the provisions of
Title I of the Act and established under section 403(b) of the Code
(the Section 403(b) Plan) (collectively, the Plans) in the Trust for
Consulting Group Capital Markets Funds (the Trust), sponsored by MSSB
in connection with such Plans' participation in the TRAK Personalized
Investment Advisory Service (the TRAK Program).
B. The restrictions of section 406(b) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(E) and (F) of the Code, shall not apply,
effective May 31, 2009, with respect to the provision of (i) investment
advisory services by the Adviser or (ii) an automatic reallocation
option as described below (the Automatic Reallocation Option) to an
independent fiduciary of a participating Plan (the Independent Plan
Fiduciary), which may result in such fiduciary's selection of a
portfolio (the Portfolio) \3\ in the TRAK Program for the investment of
Plan assets.
---------------------------------------------------------------------------
\3\ For the avoidance of doubt, unless the context suggests
otherwise, the term ``Portfolio'' includes the Stable Value
Investments Fund, a collective trust fund established and maintained
by First State Trust Company, formerly a wholly-owned subsidiary of
Citigroup.
---------------------------------------------------------------------------
This exemption is subject to the following conditions set forth
below in Section II.
Section II. General Conditions
(a) The participation of Plans in the TRAK Program is approved by
an Independent Plan Fiduciary. For purposes of this requirement, an
employee, officer or director of the Adviser and/or its affiliates
covered by an IRA not subject to Title I of the Act will be considered
an Independent Plan Fiduciary with respect to such IRA.
(b) The total fees paid to the Adviser and its affiliates will
constitute no more than reasonable compensation.
(c) No Plan pays a fee or commission by reason of the acquisition
or redemption of shares in the Trust.
(d) The terms of each purchase or redemption of Trust shares remain
at least as favorable to an investing Plan as those obtainable in an
arm's length transaction with an unrelated party.
(e) The Adviser provides written documentation to an Independent
Plan Fiduciary of its recommendations or evaluations based upon
objective criteria.
(f) Any recommendation or evaluation made by the Adviser to an
Independent Plan Fiduciary is implemented only at the express direction
of such Independent Plan Fiduciary, provided, however, that --
(1) If such Independent Plan Fiduciary elects in writing (the
Election), on a form designated by the Adviser from time to time for
such purpose, to participate in the Automatic Reallocation Option under
the TRAK Program, the affected Plan or participant account is
automatically reallocated whenever the Adviser modifies the particular
asset allocation recommendation which the Independent Plan Fiduciary
has chosen. Such Election continues in effect until revoked or
terminated by the Independent Plan Fiduciary in writing.
(2) Except as set forth below in paragraph II(f)(3), at the time of
a change in the Adviser's asset allocation recommendation, each account
based upon the asset allocation model (the Allocation Model) affected
by such change is adjusted on the business day of the release of the
new Allocation Model by the Adviser, except to the extent that market
conditions, and order purchase and redemption procedures, may delay
such processing through a series of purchase and redemption
transactions to shift assets among the affected Portfolios.
(3) If the change in the Adviser's asset allocation recommendation
exceeds an increase or decrease of more than 10 percent in the absolute
percentage allocated to any one investment medium (e.g., a suggested
increase in a 15 percent allocation to greater than 25 percent, or a
decrease of such 15 percent allocation to less than 5 percent), the
Adviser sends out a written notice (the Notice) to all Independent Plan
Fiduciaries whose current investment allocation may be affected,
describing the proposed reallocation and the date on which such
allocation is to be
[[Page 78764]]
instituted (the Effective Date). If the Independent Plan Fiduciary
notifies the Adviser, in writing, at any time within the period of 30
calendar days prior to the proposed Effective Date that such fiduciary
does not wish to follow such revised asset allocation recommendation,
the Allocation Model remains at the current level, or at such other
level as the Independent Plan Fiduciary then expressly designated, in
writing. If the Independent Plan Fiduciary does not affirmative `opt
out' of the new Adviser recommendation, in writing, prior to the
proposed Effective Date, such new recommendation is automatically
effected by a dollar-for-dollar liquidation and purchase of the
required amounts in the respective account.
(4) An Independent Plan Fiduciary will receive a trade confirmation
of each reallocation transaction. In this regard, for all Plan
investors other than Section 404(c) Plan accounts (i.e., 401(k) Plan
accounts), CGMI or MSSB, as applicable, mails trade confirmations on
the next business day after the reallocation trades are executed. In
the case of Section 404(c) Plan participants, notification depends upon
the notification provisions agreed to by the Plan recordkeeper.
(g) The Adviser generally gives investment advice in writing to an
Independent Plan Fiduciary with respect to all available Portfolios.
However, in the case of a Plan providing for participant-directed
investments (the Section 404(c) Plan), the Adviser provides investment
advice that is limited to the Portfolios made available under the Plan.
(h) Any sub-adviser (the Sub-Adviser) that acts for the Trust to
exercise investment discretion over a Portfolio is independent of
Morgan Stanley, Inc. (Morgan Stanley), CGMI, MSSB and their respective
affiliates (collectively, the Affiliated Entities).
(i) Immediately following the acquisition by a Portfolio of any
securities that are issued by any Affiliated Entity, such as Citigroup
or Morgan Stanley common stock (the Adviser Common Stock), the
percentage of that Portfolio's net assets invested in such securities
will not exceed one percent. However, this percentage limitation may be
exceeded if--
(1) The amount held by a Sub-Adviser in managing a Portfolio is
held in order to replicate an established third-party index (the
Index).
(2) The Index represents the investment performance of a specific
segment of the public market for equity securities in the United States
and/or foreign countries. The organization creating the Index is:
(i) Engaged in the business of providing financial information;
(ii) A publisher of financial news information; or
(iii) A public stock exchange or association of securities dealers.
The Index is created and maintained by an organization independent
of the Affiliated Entities and is a generally-accepted standardized
Index of securities which is not specifically tailored for use by the
Affiliated Entities.
(3) The acquisition or disposition of Adviser Common Stock does not
include any agreement, arrangement or understanding regarding the
design or operation of the Portfolio acquiring such Adviser Common
Stock, which is intended to benefit the Affiliated Entities or any
party in which any of the Affiliated Entities may have an interest.
(4) The Independent Plan Fiduciary authorizes the investment of a
Plan's assets in an Index Fund which purchases and/or holds the Adviser
Common Stock and the Sub-Adviser is responsible for voting any shares
of Adviser Common Stock that are held by an Index Fund on any matter in
which shareholders of Adviser Common Stock are required or permitted to
vote.
(j) The quarterly investment advisory fee that is paid by a Plan to
the Adviser for investment advisory services rendered to such Plan is
offset by any amount in excess of 20 basis points that MSSB retains
from any Portfolio (with the exception of the Money Market Investments
Portfolio and the Stable Value Investments Portfolio for which neither
MSSB nor the Trust will retain any investment management fee) which
contains investments attributable to the Plan investor.
(k) With respect to its participation in the TRAK Program prior to
purchasing Trust shares,
(1) Each Plan receives the following written or oral disclosures
from the Adviser:
(A) A copy of the Prospectus for the Trust discussing the
investment objectives of the Portfolios comprising the Trust, the
policies employed to achieve these objectives, the corporate
affiliation existing among the Adviser and its affiliates, and the
compensation paid to such entities.\4\
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\4\ The fact that certain transactions and fee arrangements are
the subject of an administrative exemption does not relieve the
Independent Plan Fiduciary from the general fiduciary responsibility
provisions of section 404 of the Act. In this regard, the Department
expects the Independent Plan Fiduciary to consider carefully the
totality of the fees and expenses to be paid by the Plan, including
any fees paid directly to MSSB, CGMI or to other third parties.
---------------------------------------------------------------------------
(B) Upon written or oral request to the Adviser, a Statement of
Additional Information supplementing the Prospectus which describes the
types of securities and other instruments in which the Portfolios may
invest, the investment policies and strategies that the Portfolios may
utilize and certain risks attendant to those investments, policies and
strategies.
(C) A copy of the investment advisory agreement between the Adviser
and such Plan which relates to participation in the TRAK Program and
describes the Automatic Reallocation Option.
(D) Upon written request of the Adviser, a copy of the respective
investment advisory agreement between MSSB and
(E) the Sub-Advisers.
(F) In the case of a Section 404(c) Plan, if required by the
arrangement negotiated between the Adviser and the Plan, an explanation
by an Adviser representative (the Financial Advisor) to eligible
participants in such Plan, of the services offered under the TRAK
Program and the operation and objectives of the Portfolios.
(G) A copy of the proposed exemption and the final exemption
pertaining to the exemptive relief described herein.
(2) If accepted as an investor in the TRAK Program, an Independent
Plan Fiduciary of an IRA or Keogh Plan is required to acknowledge, in
writing, prior to purchasing Trust shares that such fiduciary has
received copies of the documents described above in subparagraph (k)(1)
of this section.
(3) With respect to a Section 404(c) Plan, written acknowledgement
of the receipt of such documents is provided by the Independent Plan
Fiduciary (i.e., the Plan administrator, trustee or named fiduciary, as
the recordholder of Trust shares). Such Independent Plan Fiduciary is
required to represent in writing to the Adviser that such fiduciary is
(a) independent of the Affiliated Entities and (b) knowledgeable with
respect to the Plan in administrative matters and funding matters
related thereto, and able to make an informed decision concerning
participation in the TRAK Program.
(4) With respect to a Plan that is covered under Title I of the
Act, where investment decisions are made by a trustee, investment
manager or a named fiduciary, such Independent Plan Fiduciary is
required to acknowledge, in writing, receipt of such documents and
represent to the Adviser that such fiduciary is (a) independent of the
Affiliated Entities, (b) capable of making
[[Page 78765]]
an independent decision regarding the investment of Plan assets and (c)
knowledgeable with respect to the Plan in administrative matters and
funding matters related thereto, and able to make an informed decision
concerning participation in the TRAK Program.
(l) Subsequent to its participation in the TRAK Program, each Plan
receives the following written or oral disclosures with respect to its
ongoing participation in the TRAK Program:
(1) The Trust's semi-annual and annual report including a financial
statement for the Trust and investment management fees paid by each
Portfolio.
(2) A written quarterly monitoring statement containing an analysis
and an evaluation of a Plan investor's account to ascertain whether the
Plan's investment objectives have been met and recommending, if
required, changes in Portfolio allocations.
(3) If required by the arrangement negotiated between the Adviser
and a Section 404(c) Plan, a quarterly, detailed investment performance
monitoring report, in writing, provided to an Independent Plan
Fiduciary of such Plan showing Plan level asset allocations, Plan cash
flow analysis and annualized risk adjusted rates of return for Plan
investments. In addition, if required by such arrangement, Financial
Advisors meet periodically with Independent Plan Fiduciaries of Section
404(c) Plans to discuss the report as well as with eligible
participants to review their accounts' performance.
(4) If required by the arrangement negotiated between the Adviser
and a Section 404(c) Plan, a quarterly participant performance
monitoring report provided to a Plan participant which accompanies the
participant's benefit statement and describes the investment
performance of the Portfolios, the investment performance of the
participant's individual investment in the TRAK Program, and gives
market commentary and toll-free numbers that enable the participant to
obtain more information about the TRAK Program or to amend his or her
investment allocations.
(5) On a quarterly and annual basis, written disclosures to all
Plans of (a) the percentage of each Portfolio's brokerage commissions
that are paid to the Affiliated Entities and (b) the average brokerage
commission per share paid by each Portfolio to the Affiliated Entities,
as compared to the average brokerage commission per share paid by the
Trust to brokers other than the Affiliated Entities, both expressed as
cents per share.
(m) The Adviser maintains or causes to be maintained, for a period
of (6) six years, the records necessary to enable the persons described
in paragraph (m)(1) of this section to determine whether the applicable
conditions of this exemption have been met. Such records are readily
available to assure accessibility by the persons identified in
paragraph (1) of this section.
(1) Notwithstanding any provisions of section 504(a)(2) and (b) of
the Act, the records referred to in the first paragraph of this section
are unconditionally available at their customary location for
examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(ii) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to any participating Plan or any
duly authorized employee representative of such employer; and
(iv) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(2) A prohibited transaction is not deemed to have occurred if, due
to circumstances beyond the control of the Adviser, the records are
lost or destroyed prior to the end of the six-year period, and no party
in interest other than the Adviser is subject to the civil penalty that
may be assessed under section 502(i) of the Act or to the taxes imposed
by sections 4975(a) and (b) of the Code if the records are not
maintained or are not available for examination as required by
paragraph (1) of this section.
(3) None of the persons described in subparagraphs (ii)-(iv) of
section (m)(1) is authorized to examine the trade secrets of the
Adviser or commercial or financial information which is privileged or
confidential.
(4) Should the Adviser refuse to disclose information on the basis
that such information is exempt from disclosure, the Adviser 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.
Section III. Definitions
For purposes of this exemption:
(a) The term ``Adviser'' means CGMI or MSSB as investment adviser
to Plans.
(b) The term ``Affiliated Entities'' means Morgan Stanley, CGMI,
MSSB and their respective affiliates.
(c) The term ``CGMI'' means Citigroup Global Markets Inc. and any
affiliate of Citigroup Global Markets Inc.
(d) An ``affiliate'' of any of the Affiliated Entities includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the Affiliated Entity. (For purposes of this subparagraph, the
term ``control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual);
(2) Any individual who is an officer (as defined in Section III(g)
hereof), director or partner in the Affiliated Entity or a person
described in subparagraph (d)(1);
(3) Any corporation or partnership of which the Affiliated Entity,
or an affiliate described in subparagraph (d)(1), is a 10 percent or
more partner or owner; and
(4) Any corporation or partnership of which any individual which is
an officer or director of the Affiliated Entity is a 10 percent or more
partner or owner.
(e) An ``Independent Plan Fiduciary'' is a Plan fiduciary which is
independent of the Affiliated Entities and is either:
(1) A Plan administrator, sponsor, trustee or named fiduciary, as
the recordholder of Trust shares under a Section 404(c) Plan;
(2) A participant in a Keogh Plan;
(3) An individual covered under (i) a self-directed IRA or (ii) a
Section 403(b) Plan, which invests in Trust shares;
(4) A trustee, investment manager or named fiduciary responsible
for investment decisions in the case of a Title I Plan that does not
permit individual direction as contemplated by Section 404(c) of the
Act; or
(5) A participant in a Plan, such as a Section 404(c) Plan, who is
permitted under the terms of such Plan to direct, and who elects to
direct, the investment of assets of his or her account in such Plan.
(f) The term ``MSSB'' means Morgan Stanley Smith Barney Holdings
LLC, together with its subsidiaries.
(g) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer who performs a
policymaking function for the entity.
Section IV. Effective date
This exemption is effective as of May 31, 2009 with respect to the
Covered Transactions, the General Conditions and the Definitions that
are described in Sections I, II and III.
[[Page 78766]]
Written Comments
The Department invited all interested persons to submit written
comments and/or requests for a public hearing with respect to the
notice of proposed exemption on or before August 25, 2010. During the
comment period, the Department received 13 telephone calls and 2
comment letters from participants or beneficiaries in Plans with
investments in the TRAK Program, which concerned the commenters'
difficulty in understanding the notice of proposed exemption or the
effect of the exemption on the commenters' benefits. The Department
also received one written comment from the Applicant, which concerned
the correction of a publication error appearing in the operative
language of Section II of the proposed exemption and the correction of
a typographical error appearing in Representation 15 of the Summary of
Facts and Representations (the Summary). The Department received no
hearing requests during the comment period.
With respect to the operative language, the Applicant notes that
the first two paragraphs of Section II, General Conditions read:
(a) The participation of Plans in the TRAK Program is
(b) Approved by an Independent Plan Fiduciary. For purposes of
this requirement, an employee, officer or director of the Adviser
and/or its affiliates covered by an IRA not subject to Title I of
the Act will be considered an Independent Plan Fiduciary with
respect to such IRA.
Accordingly, the Applicant requests that parenthetical ``(b)'' be
deleted and the sentence fragments reproduced above be combined into a
single paragraph following the parenthetical ``(a)'', and that the
ensuing paragraphs in Section II be re-lettered for consistency. The
Department concurs with the Applicant's requested correction of this
publication error and it has revised Section II of the final exemption.
With respect to the Summary, the Applicant notes that, at the end
of Representation 15, which describes revisions to the operative
language of PTE 2009-12, the proposed exemption states that ``a new
definition of MSSB is added in Section III(f) to mean Morgan Stanley
Smith Barney Holdings LLC, together with its affiliates.'' However, the
Applicant points out that the definition of MSSB in Section III(f) of
the proposed exemption includes the term ``subsidiaries,'' rather than
``affiliates.'' Accordingly, the Applicant requests that, at the end of
Representation 15, the word ``affiliates'' be replaced with the word
``subsidiaries,'' in order to be consistent with Section III(f) of the
Definitions. The Department concurs and takes note of the foregoing
revision to Representation 15 of the Summary.
After giving full consideration to the entire record, including the
written comments, the Department has decided to grant the exemption, as
described above. The complete application file is made 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 proposed exemption published in the Federal Register on June 11,
2010 at 75 FR 33344.
FOR FURTHER INFORMATION CONTACT: Warren Blinder of the Department,
telephone (202) 693-8553. (This is not a toll-free number.)
Retirement Plan for Employees of the Rehabilitation Institute of
Chicago (the Plan), Located in Chicago, Illinois
[Prohibited Transaction Exemption 2010-34; Application No. D-11585]
Exemption
Section I: Transactions
The restrictions of sections 406(a)(1)(B), 406(a)(1)(D), and
406(b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(B) and
4975(c)(1)(D) of the Code,\5\ shall not apply:
---------------------------------------------------------------------------
\5\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(1) To a series of interest-free Advances in the aggregate amount
of $701,117 (the Advances or individually, an Advance), made to Hewitt
Associates, LLC (Hewitt), the Pension Benefit Guaranty Corporation
(PBGC), the Internal Revenue Service (the IRS), and Deloitte and
Touche, LLP (Deloitte),\6\ during the period from September 28, 2006,
through June 2, 2009, by the Rehabilitation Institute of Chicago (RIC),
for the purpose of paying ordinary operating expenses incurred on
behalf of the Plan; and
---------------------------------------------------------------------------
\6\ Hewitt, PBGC, IRS, and Deloitte are collectively referred
to, herein, as the Service Providers.
---------------------------------------------------------------------------
(2) To the reimbursement to RIC by the Plan of such Advances made
during the period from September 28, 2006, through June 2, 2009, in an
aggregate amount not to exceed $701,117, where each such reimbursement
occurred at least sixty (60) days but no more than 365 days after the
date of each such Advance; provided that the conditions as set forth in
section II of this exemption were satisfied.
Section II: Conditions
(1) During the period from September 28, 2006, through June 2,
2009, when RIC made each of the Advances and during the period at least
sixty (60) days but no more than 365 days after the date of each such
Advance, when the Plan reimbursed each such Advance, all of the
requirements of Prohibited Transaction Exemption 80-26 (PTE 80-26), as
amended, effective December 15, 2004,\7\ were satisfied, except for the
requirement in Section IV(f)(1) of PTE 80-26 that loans made on or
after April 7, 2006, with a term of sixty (60) days or longer be made
pursuant to a written loan agreement that contains all of the material
terms of such loan;
---------------------------------------------------------------------------
\7\ 71 FR 17917, April 7, 2006.
---------------------------------------------------------------------------
(2) With regard to any reimbursement covered by this exemption, an
independent, qualified auditor certifies that such reimbursement
matches each of the Advances, during the period from September 28,
2006, through June 2, 2009, made by RIC to the Service Providers on
behalf of the Plan; and such reimbursements were made by the Plan to
RIC during the period at least sixty (60) days but no more than 365
days after the date of each such Advance;
(3) The Advances made by RIC to the Service Providers, during the
period from September 28, 2006, through June 2, 2009, were for the
payment of ordinary operating expenses of the Plan which were properly
incurred on behalf of the Plan;
(4) Within ninety (90) days of the publication in the Federal
Register of the final exemption for the transactions which are the
subject of this exemption, RIC must refund to the Plan an amount equal
to $74,555 (the Refund Amount), plus earning and interest. Such Refund
Amount represents the total for certain reimbursements to RIC by the
Plan in connection with payments by RIC to Monticello Associates Inc.
(Monticello), Deloitte, the IRS, and the Department in the amounts,
respectively of $55,500, $18,530, $375, and $150. Furthermore, RIC must
refund to the Plan an additional amount attributable to lost earnings
experienced by the Plan on the Refund Amount, and interest on such lost
earnings, for the period from April 7, 2006, to the date upon which RIC
has returned to the Plan the entire Refund Amount, the lost earnings on
such Refund Amount, plus interest on such
[[Page 78767]]
lost earnings. For the purpose of calculating the lost earnings on the
Refund Amount due to the Plan, plus interest, on such lost earnings,
RIC must use the Online Calculator for the Voluntary Fiduciary
Correction Program \8\ that appears on the Web site of the Employee
Benefits Security Administration; and
---------------------------------------------------------------------------
\8\ 70 FR 17516, April 6, 2005.
---------------------------------------------------------------------------
(5) Within ninety (90) days of the publication in the Federal
Register of the final exemption for the transactions which are the
subject of this exemption, RIC must file a Form 5330 with the IRS and
pay to the IRS all applicable excise taxes, and any interest on such
excise taxes deemed to be due and owing with respect to the Refund
Amount.
Effective Date: This exemption is effective, for each Advance to
the Service Providers made by RIC from September 28, 2006, through June
2, 2009, and for reimbursements to RIC by the Plan of such Advances
covered by this exemption.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department of
Labor (the Department) invited all interested persons to submit written
comments and requests for a hearing on the proposed exemption within
forty-four (44) days of the date of the publication of the Notice in
the Federal Register on September 16, 2010. All comments and requests
for a hearing were due by October 30, 2010.
During the comment period, the Department received three letters
from the same commentator requesting a hearing. In addition, the
Department received comment letters, and e-mails from seven (7)
commentators. The concerns expressed by the commentators are summarized
in the paragraph below.
Generally, the comments from commentators have been classified into
the following categories: (1) Comments from individuals who
misunderstood the subject transactions or requested an explanation of
the subject transactions or requested confirmation that the subject
transactions do not affect benefits under the Plan; and (2) a request
for clarification from a commentator; and (3) a request for hearing
from a commentator.
Comments Requesting Explanation
With respect to the first category of comments, it is represented
that the applicant mailed to all interested persons copies of (1) the
Notice, and (2) the supplemental statement required pursuant to the
Department's Regulation section 29 CFR Sec. 2570.43 which explained
the facts and circumstances surrounding the subject transactions in a
summary form. Based on the foregoing, the Department maintains that the
applicant has provided a clear explanation and adequate notice
regarding the subject transactions and should not be required to
respond further to comment letters, and e-mails from commentators
requesting further explanation.
Clarification From an Individual
With respect to the second category of comments, during the comment
period, the Department did receive an e-mail dated October 6, 2010,
from Wayne M. Lerner, DPH, FACHE, the President and CEO of Holy Cross
Hospital in Chicago, Illinois. Mr. Lerner requests a clarification of
the language, as set forth in the Summary of Facts and Representations
on page 56572, column 2, lines 47-49 in the Notice. In this regard, the
second and third sentences of representation no. 2 in the Notice read,
as follows:
As of March 13, 2006, and at the start of the relevant period for
which relief is requested in this proposed exemption, the members of
the Committee, were: (a) Wayne M. Lerner, President and Chief Executive
Officer of RIC; (b) Edward B. Case (Mr. Case), Executive Vice President
and Chief Financial Officer of RIC; (c) Susan H. Cerletty, Executive
Vice President, Clinical, of RIC and (d) Nancy Paridy, Esq. (Ms.
Paridy), Senior Vice President of RIC and General Counsel to RIC. The
following individuals have been members of the Committee, since
December 1, 2007: (a) Joanne C. Smith, M.D., President and Chief
Executive Officer of RIC, (b) Mr. Case, and (c) Ms. Paridy.
In Mr. Lerner's view it can be inferred from these two sentences
that appeared in the Notice that the committee membership, as of March
13, 2006, was in place until a new committee was formed on December 1,
2007. Mr. Lerner points out that in fact, he resigned as President and
CEO of the RIC on June 7, 2006, and that Ms. Cerletty left RIC in
August of that same year. The Department concurs with Mr. Lerner's
requested clarification.
Requests for Hearing
With regard to the third category of comments, the Department
received three (3) letters from the same commentator requesting a
hearing. In none of the comment letters did the commentator give a
reason why a hearing should be held. As no material issues relating to
the subject transaction were raised by the commentator during the
comment period which would require the convening of a hearing, the
Department has determined not to delay consideration of the final
exemption by holding a hearing on application D-11585.
After giving full consideration to the entire record, including the
written comments from the commentators, the Department has decided to
grant the exemption, as described above. The complete application file,
including the written comments from the commentators, is made 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 September 16, 2010, at 75 FR 56568.
FOR FURTHER INFORMATION CONTACT: Ms. 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
[[Page 78768]]
transaction which is the subject of the exemption.
Signed at Washington, DC, this 13th day of December 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2010-31571 Filed 12-15-10; 8:45 am]
BILLING CODE 4510-29-P