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EBSA Notices

Exemptions From Certain Prohibited Transaction Restrictions   [8/11/2011]
[PDF]
Federal Register, Volume 76 Issue 155 (Thursday, August 11, 2011)
[Federal Register Volume 76, Number 155 (Thursday, August 11, 2011)]
[Notices]
[Pages 49788-49791]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20342]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


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: D-11468 and D-11469, The Krispy 
Kreme Doughnut Corporation Retirement Savings Plan (the Savings Plan) 
and the Krispy Kreme Profit-Sharing Stock Ownership Plan the KSOP 
(together, the Plans), 2011-10; D-11634, The United Brotherhood of 
Carpenters Pension Fund (the Plan), 2011-11; and L-11651 and L-11652, 
Verizon Communications, Inc. (Verizon and Cellco Partnership, doing 
business as Verizon Wireless (Verizon Wireless; collectively the 
Applicants), 2011-12 et al.

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.
    The Krispy Kreme Doughnut Corporation Retirement Savings Plan (the 
Savings Plan) and the Krispy Kreme Profit-Sharing Stock Ownership Plan 
the KSOP; together, the Plans) [Prohibited Transaction Exemption 2011-
10; Located in Winston-Salem, North Carolina [Exemption Application 
Nos. D-11468 and D-11469, respectively]

Exemption

    The restrictions of section 406(a)(1)(A),(D),(E), section 
406(a)(2), section 406(b)(2) and section 407(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) and (D) of the Code, shall not 
apply, effective January 16, 2007, to (1) the release by the Plans of 
their claims against Krispy Kreme Doughnut Corporation (KKDC), the 
sponsor of the Plans, Michael Phalen and PricewaterhouseCoopers LLP 
(PwC), parties in interest with respect to the Plan, in exchange for 
cash, shares of common stock (the Common Stock) and warrants (the 
Warrants) issued by Krispy Kreme

[[Page 49789]]

Doughnuts, Inc. (KKDI), the parent of KKDC and also a party in 
interest, in settlement of certain litigation (the Securities 
Litigation) between the Plans and KKDC, Mr. Phalen and PwC; and (2) the 
holding of the Warrants by the Plans.
    This exemption is subject to the following conditions:
    (a) The receipt and holding of cash, the Common Stock and the 
Warrants occurred in connection with a genuine controversy in which the 
Plans were parties.
    (b) An independent fiduciary was retained on behalf of the Plans to 
determine whether or not the Plans should have joined in the Securities 
Litigation and accept cash, the Common Stock and the Warrants pursuant 
to a settlement agreement (the Settlement Agreement). Such independent 
fiduciary--
    (1) Had no relationship to, or interest in, any of the parties 
involved in the Securities Litigation that might affect the exercise of 
such person's judgment as a fiduciary;
    (2) Acknowledged, in writing, that it was a fiduciary for the Plans 
with respect to the settlement of the Securities Litigation; and
    (3) Determined that an all cash settlement was either not feasible 
or was less beneficial to the participants and beneficiaries of the 
Plans than accepting all or part of the settlement in non-cash assets.
    (4) Thoroughly reviewed and determined whether it would be in the 
best interests of the Plans and their participants and beneficiaries to 
engage in the covered transactions.
    (5) Determined whether the decision by the Plans' fiduciaries to 
cause the Plans not to opt out of the Securities Litigation was more 
beneficial to the Plans than having the Plans file a separate lawsuit 
against KKDC.
    (c) The terms of the Settlement Agreement, including the scope of 
the release of claims, the amount of cash and the value of any non-cash 
assets received by the Plans, and the amount of any attorney's fee 
award or any other sums to be paid from the recovery were reasonable in 
light of the Plans' likelihood of receiving full recovery, the risks 
and costs of litigation, and the value of claims foregone.
    (d) The terms and conditions of the transactions were no less 
favorable to the Plans than comparable arm's length terms and 
conditions that would have been agreed to by unrelated parties under 
similar circumstances.
    (e) The transactions were not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest.
    (f) All terms of the Settlement Agreement were specifically 
described in a written document approved by the United States District 
Court for the Middle District of North Carolina.
    (g) Non-cash assets, which included the Common Stock and Warrants 
received by the Plans from KKDC under the Settlement Agreement, were 
specifically described in the Settlement Agreement and valued as 
determined in accordance with a court-approved objective methodology;
    (h) The Plans did not pay any fees or commissions in connection 
with the receipt or holding of the Common Stock and the Warrants.
    (i) KKDC maintains, or causes to be maintained, for a period of six 
years such records as are necessary to enable the persons described in 
paragraph (j)(1) below to determine whether the conditions of this 
exemption have been met, except that--
    (1) If the records necessary to enable the persons described in 
paragraph (j)(1) to determine whether the conditions of this exemption 
have been met are lost, or destroyed, due to circumstances beyond the 
control of KKDC, then no prohibited transaction will be considered to 
have occurred solely on the basis of the unavailability of those 
records; and
    (2) No party in interest with respect to the Plans other than KKDC 
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 such records are not maintained or are not 
available for examination as required by paragraph (i).
    (j)(1) Except as provided in this paragraph (j) and notwithstanding 
any provision of section 504(a)(2) and (b) of the Act, the records 
referred to in paragraph (i) above are unconditionally available at 
their customary locations for examination during normal business hours 
by:
    (A) Any duly authorized employee, agent or representative of the 
Department or the Internal Revenue Service, or the Securities and 
Exchange Commission (SEC);
    (B) Any fiduciary of the Plans or any duly authorized 
representative of such participant or beneficiary;
    (C) Any participant or beneficiary of the Plans or duly authorized 
representative of such participant or beneficiary;
    (D) Any employer whose employees are covered by the Plans; or
    (E) Any employee organization whose members are covered by such 
Plans.
    (2) None of the persons described in paragraph (j)(1)(B) through 
(E) shall be authorized to examine trade secrets of KKDC or commercial 
or financial information which is privileged or confidential.
    (3) Should KKDC refuse to disclose information on the basis that 
such information is exempt from disclosure, KKDC 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.

DATES: Effective Date: This exemption is effective as of January 16, 
2007.

Written Comments

    In the Notice of Proposed Exemption (76 FR 14083, March 15, 
2011)(the Notice), the Department invited all interested persons to 
submit written comments and requests for a hearing on the proposed 
exemption within forty (40) days of the date of the publication of such 
Notice in the Federal Register. All comments and requests for a hearing 
from interested persons were due by April 24, 2011. However, KKDC 
required additional time to mail the Notice to interested persons. 
Therefore, the Department extended the comment period until May 15, 
2011.
    During the comment period, the Department received one written 
comment and no requests for a hearing. KKDC submitted the comment on 
March 31, 2011 that it supplemented by e-mails dated April 19, 2011 and 
April 21, 2011.
    In its comment, KKDC stated that the proposed exemption should be 
extended to include PwC and Mr. Phalen, the former Chief Financial 
Office of KKDI and a member of the Plans' Investment Committee. Both 
were parties to the Securities Litigation and parties in interest with 
respect to the Plans. In regard to PwC and Mr. Phalen, the KKDC asserts 
the following:

    It is possible that each Plan's (A) failure to opt of the 
[Securities Litigation], and any corresponding release of claims 
thereby effected, and (B) subsequent filing of a Proof of Claim and 
Release in favor of parties in interest KKDC, Phalen and PwC, in 
exchange for the Plan's right to receive its pro rata portion of the 
settlement proceeds in the Securities Litigation could have resulted 
in a violation of [the] prohibited transaction restrictions of ERISA 
and the Code. Notwithstanding the fact that the release of KKDC, 
Phalen, and PwC could each be viewed as a prohibited transaction, 
the proposed relief published in the Federal Register on March 15, 
2011 provides an exemption only with respect to the release of KKDC, 
and leaves open the possibility that the releases of Phalen and PwC 
are

[[Page 49790]]

prohibited transactions with respect to the Plans.

KKDC further explains that the Plans' decision to enter into the 
Settlement Agreement to grant the releases of claims against the party 
in interest defendants was primarily based on the advice of Independent 
Fiduciary Services (IFS), the independent fiduciary for the Plans. 
Based on IFS' conclusions and the Department's determination that it 
was appropriate to grant an exemption for the Plans' release of claims 
against KKDC, KKDC explains that it is important that similar exemptive 
relief be provided with respect to the Plans' release of claims against 
PwC and Mr. Phalen.
    If the exemption is not extended to these parties, KKDC believes 
the Plans' participation in the settlement of the Securities Litigation 
would have to be reversed and the Plans would be required to return 
their share of the settlement proceeds received. Additionally, KKDC 
notes that the Plans would lose a significant economic benefit if 
compelled to pursue separate litigation on this matter.
    In response to this comment, the operative language of this 
exemption has been amended accordingly. The Department notes that the 
sentence in the Notice identifying PwC and Mr. Phalen as party in 
interest defendants was inadvertently omitted from the Notice. In this 
regard, the last sentence of the first paragraph of Representation 6 of 
the Notice, located in the third column of page 14085, should have 
read: ``The class action defendants (the Class Defendants) included 
KKDC, PwC, and Mr. Phalen, who served as the Chief Financial Officer of 
KKDI and a member of each Plan's committee.'' Additionally, a new 
sentence should have been added to the end of the first paragraph of 
Representation 6 of the Notice located in the third column of page 
14085, stating: ``With the exception of KKDI, Mr. Phalen and PwC, none 
of the other Class Defendants was a party in interest with respect to 
the Plans.'' The Department, therefore, wishes to clarify that the 
requested relief includes all the party in interest Class Defendants 
with respect to the Securities Litigation. Furthermore, although the 
Department has determined that the exemption sufficiently covers the 
potential prohibited transaction engaged by KKDC in its capacity as a 
fiduciary, it does not provide exemptive relief for any prohibited 
transactions that resulted from the events leading to the filing of the 
Securities Litigation.
    Accordingly, after giving full consideration to the entire record, 
including the KKDC written comment and supplemental statements, the 
Department has determined to grant the exemption as clarified herein. 
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 March 15, 2011 at 76 FR 14083.

FOR FURTHER INFORMATION CONTACT: Mr. Anh-Viet Ly of the Department at 
(202) 693-8648. (This is not a toll-free number.)
    The United Brotherhood of Carpenters Pension Fund (the Plan), 
Located in Las Vegas, Nevada, [Prohibited Transaction Exemption 2011-
11; Exemption Application No. D-11634].

Exemption

    The restrictions of sections 406(a)(1)(A), (D) and 406(b)(2) of the 
Act and the sanctions resulting from the application of section 
4975(c)(1)(A) and (D) of the Code, shall not apply to the proposed sale 
(Sale) of a 10.89 acre parcel of real property (the Parcel), which is 
part of larger parcel of real property (the Nevada Property), from the 
Plan-owned Bermuda Hidden Well, LLC to the Southwest Regional Council 
of Carpenters, a party in interest with respect to the Plan; provided 
that the following conditions are satisfied:
    (a) The terms and conditions of the Sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (b) The Sale is a one-time transaction for cash;
    (c) As consideration, the Plan receives the greater of $5,383,577, 
or the fair market value of the Parcel as determined by a qualified, 
independent appraiser (the Appraiser) in an appraisal of the Nevada 
Property, which is updated on the date of Sale;
    (d) The Plan pays no commissions, costs or fees with respect to the 
Sale, except for customary closing costs and 50% of certain rental 
credits that are paid to unrelated parties; and
    (e) The Plan fiduciaries review and approve the methodology used by 
the Appraiser, ensure that such methodology is properly applied in 
determining the fair market value of the Parcel, and also determine 
whether it is prudent to go forward with the proposed transaction.
    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 May 5, 2011 at 76 FR 
25714.

FOR FURTHER INFORMATION CONTACT: Mr. Anh-Viet Ly of the Department at 
(202) 693-8648. (This is not a toll-free number.)
    Verizon Communications, Inc. (Verizon) and Cellco Partnership, 
doing business as Verizon Wireless (Verizon Wireless; collectively, the 
Applicants), Located in Basking Ridge, New Jersey, [Prohibited 
Transaction Exemption 2011-12; Exemption Application Nos. L-11651 and 
L-11652].

Exemption

    The restrictions of sections 406(a) and (b) of the Act shall not 
apply to the reinsurance of risks and the receipt of premiums therefrom 
by Exchange Indemnity Company (EIC), a wholly-owned subsidiary of 
Verizon, in connection with an insurance contract sold by Prudential 
Life Insurance Company (Prudential) or any successor insurance company 
to Prudential which is unrelated to Verizon, to provide group-term life 
insurance to certain employees and retirees of Verizon and Verizon 
Wireless under The Plan for Group Insurance maintained by Verizon and 
the Verizon Wireless Health and Welfare Benefits Plan maintained by 
Verizon Wireless (collectively, the Plans), provided the following 
conditions are met:
    (a) EIC--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with Verizon that is described in 
section 3(14)(E) or (G) of the Act,
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act, (3) Has 
obtained a Certificate of Authority from the Insurance Commissioner of 
its domiciliary state which has neither been revoked nor suspended,
    (4)(A) Has undergone and shall continue to undergo an examination 
by an independent certified public accountant for its last completed 
taxable year immediately prior to the taxable year of the reinsurance 
transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, Vermont) by the Insurance 
Commissioner of Vermont within 5 years prior to the end of the year 
preceding the year in which the reinsurance transaction occurred, and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (b) The Plans pay no more than adequate consideration for the 
insurance contracts;

[[Page 49791]]

    (c) In subsequent years, the formula used to calculate premiums by 
Prudential or any successor insurer will be similar to formulae used by 
other insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the insurer and its competitors with the same or a better 
rating providing the same coverage under comparable programs;
    (d) The Plans only contract with insurers with a rating of A or 
better from A.M. Best Company. The reinsurance arrangement between the 
insurer and EIC will be indemnity insurance only, i.e., the insurer 
will not be relieved of liability to the Plans should EIC be unable or 
unwilling to cover any liability arising from the reinsurance 
arrangement;
    (e) No commissions, costs or other expenses are paid with respect 
to the reinsurance of such contracts; and
    (f) For each taxable year of EIC, the gross premiums and annuity 
considerations received in that taxable year by EIC for life and health 
insurance or annuity contracts for all employee benefit plans (and 
their employers) with respect to which EIC is a party in interest by 
reason of a relationship to such employer described in section 3(14)(E) 
or (G) of the Act does not exceed 50% of the gross premiums and annuity 
considerations received for all lines of insurance (whether direct 
insurance or reinsurance) in that taxable year by EIC. For purposes of 
this condition (f):
    (1) the term ``gross premiums and annuity considerations received'' 
means as to the numerator the total of premiums and annuity 
considerations received, both for the subject reinsurance transactions 
as well as for any direct sale or other reinsurance of life insurance, 
health insurance or annuity contracts to such plans (and their 
employers) by EIC. This total is to be reduced (in both the numerator 
and the denominator of the fraction) by experience refunds paid or 
credited in that taxable year by EIC.
    (2) all premium and annuity considerations written by EIC for plans 
which it alone maintains are to be excluded from both the numerator and 
the denominator of the fraction.
    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 May 5, 2011 at 76 FR 
25721.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other 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 4th day of August, 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-20342 Filed 8-10-11; 8:45 am]
BILLING CODE 4510-29-P