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EBSA Notices

Proposed 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 49791-49797]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-20341]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions 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 proposed exemptions: D-11601, BB&T Asset Management, Inc. 
(BB&T AM); and D-11661, Bayer Corporation (Bayer or the Applicant) et 
al.]

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: Comments and requests for a hearing should state: (1) The 
name, address, and telephone number of the person making the comment or 
request, and (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.
    All written comments and requests for a hearing (at least three 
copies) should be sent to the Employee Benefits Security Administration 
(EBSA), Office of Exemption Determinations, Room N-5700, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. --------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to

[[Page 49792]]

the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
Subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type requested to the Secretary of Labor. 
Therefore, these notices of proposed exemption are issued solely by the 
Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

BB&T Asset Management, Inc. (BB&T AM)

Located in Winston-Salem, North Carolina

[Application No. D-11601]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting the following 
exemption under the authority of Code section 4975(c)(2), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(55 FR 32836, 32847, August 10, 1990), as follows:

Section I: Covered Transactions

    If the proposed exemption is granted, the sanctions resulting from 
the application of Code section 4975, by reason of Code section 
4975(c)(1)(A) and (C)-(F), shall not apply, effective April 30, 2002 
until December 27, 2005, to (1) Directed trades by BB&T AM and its 
successors in interest (together, the Applicant) as an investment 
manager and investment adviser to certain plans, subject to Code 
section 4975, but not subject to Title I of ERISA (the IRAs), which 
resulted in the IRAs purchasing or selling securities from Scott & 
Stringfellow, LLC (S&S), an affiliated broker-dealer of BB&T AM 
(collectively, the Transactions); and (2) compensation paid by the IRAs 
to S&S in connection with the Transactions (the Transaction 
Compensation).
    This proposed exemption is subject to the conditions set forth 
below in Sections II and III.

Section II: Specific Conditions

    (a) The Transactions and the Transaction Compensation were 
corrected (1) pursuant to the requirements set forth in the 
Department's Voluntary Fiduciary Correction Program (the VFC Program) 
\1\ and (2) in a manner consistent with those transactions described in 
the Applicant's VFC Program application, dated January 22, 2010 (the 
VFC Program Application), that were substantially similar to the 
Transactions but that involved plans described in Code section 
4975(e)(1) and subject to Title I of ERISA (the Qualified Plan 
Transactions).
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    \1\ 71 FR 20262 (April 19, 2006).
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    (b) The Applicant received a ``no-action letter'' from the 
Department in connection with the Qualified Plan Transactions described 
in the VFC Program Application.
    (c) The fair market value of the securities involved in the 
Transactions was determined in accordance with Section 5 of the VFC 
Program.
    (d) The terms of the Transactions and the Transaction Compensation 
were at least as favorable to the IRAs as the terms generally available 
in arm's length transactions between unrelated parties.
    (e) The Transactions and Transaction Compensation were not part of 
an agreement, arrangement or understanding designed to benefit a 
disqualified person, as defined in Code section 4975(e)(2).
    (f) The Applicant did not take advantage of the relief provided by 
the VFC Program and Prohibited Transaction Exemption 2002-51 \2\ (PTE 
2002-51) for three (3) years prior to the date of the Applicant's 
submission of the VFC Program Application.
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    \2\ 71 FR 20135 (April 19, 2006).
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Section III: General Conditions

    (a) The Applicant maintains, or causes to be maintained, for a 
period of six (6) years from the date of any Transaction such records 
as are necessary to enable the persons described in Section III(b)(1), 
to determine whether the conditions of this exemption have been met, 
except that:
    (1) A separate prohibited transaction shall not be considered to 
have occurred if, due to circumstances beyond the control of Applicant, 
the records are lost or destroyed prior to the end of the six-year 
period; and
    (2) No disqualified person with respect to an IRA, other than 
Applicant, shall be subject to excise taxes imposed by Code section 
4975, if such records are not maintained, or are not available for 
examination, as required by Section III(b)(1).
    (b)(1) Except as provided in Section III(b)(2), the records 
referred to in Section III(a) are unconditionally available at their 
customary location for examination during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of any IRA that engaged in a Transaction, or any 
duly authorized employee or representative of such fiduciary; or
    (C) Any owner or beneficiary of an IRA that engaged in a 
Transaction or a representative of such owner or beneficiary.
    (2) None of the persons described in Sections III(b)(1)(B) and (C) 
shall be authorized to examine trade secrets of Applicant, or 
commercial or financial information which is privileged or 
confidential.
    (3) Should Applicant refuse to disclose information on the basis 
that such information is exempt from disclosure, Applicant shall, by 
the close of the thirtieth (30th) day following the request, provide a 
written notice advising that person of the reasons for the refusal and 
that the Department may request such information.
    Effective Date: If granted, this proposed exemption will be 
effective from April 30, 2002 until December 27, 2005.

Summary of Facts and Representations

    1. The Applicant consists of BB&T AM and its successors in 
interest, BB&T AM LLC and Sterling Capital Management LLC (SCM LLC). 
BB&T AM was a wholly owned subsidiary of BB&T Corporation, a large 
financial institution, headquartered in Winston-Salem, North Carolina. 
On September 9, 2010, BB&T AM was reorganized as BB&T AM LLC. On 
October 1, 2010, BB&T AM LLC was merged into SCM LLC.

[[Page 49793]]

    On September 30, 2010, BB&T AM LLC had total assets under 
management of $17.3 billion. As of December 31, 2010, BB&T Corporation 
had total assets of approximately $157 billion.
    2. Virginia Investment Counselors, Inc. (VIC) of Norfolk, Virginia 
is a former asset manager and investment adviser to the IRAs and 
certain qualified plans described in Code section 4975(e)(1) and 
subject to Title I of ERISA (collectively, the Plans). In such 
capacity, VIC was granted discretionary investment authority with 
respect to such Plans by the Plans' respective plan administrators and 
beneficial owners. On April 30, 2002, VIC was acquired by the 
Applicant, i.e., BB&T AM, (the Corporate Transaction) and, thereafter, 
became a division of the Applicant. Prior to the date of the Corporate 
Transaction, VIC was an unrelated party to the Applicant.
    3. S&S is a registered broker-dealer. At all times relevant 
hereunder, S&S was a wholly owned subsidiary of BB&T Corporation.
    4. Prior to the Corporate Transaction, VIC directed trades that 
resulted in the Plans purchasing securities from the inventory of S&S 
or selling securities to S&S. Because VIC and S&S were unrelated 
parties at that time, these types of transactions were not prohibited 
under ERISA or the Code.
    5. Following the consummation of the Corporate Transaction, from 
April 30, 2002 to the close of 2006, trading between VIC (now as a 
division of BB&T AM) and S&S with respect to the Plans continued in the 
same arm's length manner as before the Corporate Transaction. Such 
continuation was inadvertent, and it resulted solely from VIC's failure 
to identify S&S as a disqualified person. During this time period, the 
Applicant directed 103 IRAs to purchase bonds from S&S 185 times, for 
an aggregate purchase price of $3,256,925 (the Bond Purchase 
Transactions), and 10 IRAs to sell bonds to S&S 13 times, for an 
aggregate sales price of $147,640 (the Bond Sale Transactions). The 
Applicant also directed one transaction in which an IRA purchased a 
stock from S&S, for a purchase price of $29,222 (the Stock Purchase 
Transaction) and 4 Transactions in which an IRA sold stock to S&S, for 
a sales price of $133,209 (the Stock Sale Transactions and, 
collectively, the Bond Purchase Transactions, the Bond Sale 
Transactions, the Stock Purchase Transaction and Stock Sale 
Transactions being the Transactions). The last Transaction occurred on 
December 27, 2005.
    6. The Transactions caused the payment of compensation to S&S 
(Transaction Compensation). With respect to Bond Purchase Transactions 
and Bond Sale Transactions, S&S' compensation was reflected in the 
purchase price of the applicable bond. That is, S&S was compensated 
only through a ``mark-up'' of the bond price. With respect to the Stock 
Purchase Transaction and the Stock Sale Transactions, separate, 
identifiable commissions and fees totaling $829 were charged by S&S.
    7. The Applicant seeks relief with respect to the Transactions and 
with respect to the payment of the Transaction Compensation. 
Specifically, the Applicant believes that: (a) The purchase and sale of 
securities between the IRAs and S&S was prohibited by Code section 
4975(c)(1)(A); (b) S&S' provision of brokerage services to the IRAs was 
prohibited by Code section 4975(c)(1)(C); (c) both the Transactions and 
the payment of Transaction Compensation were prohibited by Code section 
4975(c)(1)(D); and (d) the decision by VIC, in its role as fiduciary, 
to cause the IRAs to enter into the Transactions and pay the 
Transaction Compensation to S&S was prohibited by Code section 
4975(c)(1)(E) and (F). The Applicant believes that if the proposed 
exemption is not granted the IRAs would be subject to hardship 
resulting from the uncertainty of not having the prohibited 
transactions outlined herein resolved. Further, the IRAs would be 
subject to additional hardship if the proposed exemption is denied as a 
result of the resultant uncertainty regarding the correction 
methodology applied by the Applicant.
    8. The Applicant represents that as soon as the Transactions and 
the Qualified Plan Transactions were discovered it began the correction 
process. The Applicant corrected the Qualified Plan Transactions 
pursuant to the requirements set forth in the VFC Program. The 
Applicant filed a VFC Program Application, dated January 22, 2010, with 
respect to the Qualified Plan Transactions, and it received a no-action 
letter from the Department, dated August 31, 2010, with respect to the 
Qualified Plan Transactions.
    9. While the Qualified Plan Transactions were properly corrected 
under the VFC Program, the Applicant was not able to similarly correct 
the Transactions and the Transaction Compensation. Despite being 
substantially similar to the Qualified Plan Transactions, the 
Transactions and the Transaction Compensation are ineligible for relief 
under the VFC Program and PTE 2002-51 because they involved IRAs which 
are not covered under Title I of ERISA. The Applicant, however, 
believes that granting relief pursuant to the proposed exemption is 
consistent with the Department's statement that ``[the VFC Program] 
does not foreclose its future consideration of individual exemption 
requests of transactions involving IRAs that are outside the scope of 
relief provided by the VFC Program and the class exemption under 
circumstance where, for example, a financial institution received a no 
action letter applicable to plans subject to [the VFC Program] for a 
transaction(s) that involved both plans and IRAs.'' 71 FR 20135 (April 
19, 2006).
    10. Consistent with the Department's statement, the Applicant 
represents that the Transactions were corrected pursuant to the 
requirements set forth in the VFC Program and in a manner consistent 
with the Applicant's VFC Program Application, with such representation 
made in the Applicant's exemption application, dated January 22, 2010, 
under penalty of perjury. In this regard, the Applicant corrected the 
Transactions in the manner generally described below:
    (a) With respect to the Bond Purchase Transactions, since bonds are 
debt instruments, the Applicant corrected the Bond Purchase 
Transactions, based on economic similarity to a loan transaction 
correction, under the procedures for loans made at a fair market 
interest rate pursuant to Section 7.2 of the VFC Program. The 
correction method for a loan, which is set forth in Section 7.2(a)(2) 
of the VFC program, is for the party in interest to pay back the loan 
in full, including any prepayment penalties. Section 7.2(a)(2) also 
requires that an independent commercial lender confirm that the loan 
was made at a fair market interest rate for a loan with similar terms 
to a borrower of similar creditworthiness. The Applicant represents 
that it satisfied the requirements under Section 7.2(a)(3) of the VFC 
Program by means of a written report prepared by Independent Fiduciary 
Services, Inc. (IFS), an independent fiduciary services firm, which 
among other things, compared the actual purchase price of transactions 
to a written confirmation of the market price on the day of each Bond 
Purchase Transaction (or the next date a price was available) obtained 
from two independent pricing services (Standard & Poor's JJ Kenny 
Pricing Service and Estate Valuation and Pricing Systems) selected by 
IFS.
    (b) With respect to the Bond Sale Transactions and Stock Sale 
Transactions, the Applicant corrected

[[Page 49794]]

these Transactions under the procedures for sale of an asset to a party 
in interest under Section 7.4(b) of the VFC Program. Section 
7.4(b)(2)(i) of the VFC Program generally requires that the asset be 
repurchased from the party in interest at the lower of the price for 
which it originally sold the property or the fair market value (FMV) of 
the property at the time of correction. As an alternative, section 
7.4(b)(2)(ii) of the VFC Program provides that a plan may receive a 
cash settlement of the ``Principal Amount,'' defined as the excess of 
the FMV of the asset at the time of sale over the sales price, plus 
``Lost Earnings,'' which is generally defined as the approximate amount 
that would have been earned by a plan on the Principal Amount but for 
the prohibited transaction, provided, that, an independent fiduciary 
determines that the applicable Plan would receive a greater benefit 
than by repurchase.
    It was impractical or impossible to repurchase the bonds in the 
Bond Sale Transactions. This was due to the fact that some of the bonds 
were no longer available because they had been called, matured, were 
thinly traded or not in the inventory of the Applicant or its 
affiliates. Further, because the Applicant no longer served as 
investment adviser to the majority of the IRAs at the time of 
correction, the Applicant did not believe it was in a position to 
effect the repurchase of the bonds by the IRAs. Therefore, the 
Applicant corrected the Bond Sale Transaction by paying the IRAs the 
Principal Amount plus Lost Earnings from the time of the Transaction.
    For the Stock Sale Transactions, the IRA was given the option of 
repurchasing the stock at the price determined under Section 7.4(b) of 
the VFC Program or receiving a cash settlement amount of the greater of 
the cash settlement amount determined under Section 7.4(b) or the 
excess, if any, of the FMV of the stock as of the date of correction 
over the price for which it originally sold the stock (which is the 
economic equivalent to repurchasing the security at the price 
determined under Section 7.4(b) of the VFC Program).
    (c) With respect to the Stock Purchase Transaction, the Applicant 
corrected the Stock Purchase Transaction under the procedures for the 
purchase of an asset from a party in interest pursuant to Section 
7.4(a) of the VFC Program. Section 7.4(a) generally requires that the 
asset be sold back to the party in interest or to a person who is not a 
party in interest for a price at least equal to the greater of (1) The 
FMV of the asset at the time of resale, without reduction for the costs 
of sale, or (2) the original purchase price, plus Lost Earnings. As an 
alternative, the asset may be retained along with a payment in the 
amount of the difference between the original purchase price paid and 
the FMV of the asset at the time of the purchase, plus lost earnings. 
Since the IRA involved in the Stock Purchase Transaction was no longer 
a client of the Applicant at the time of correction, the IRA was deemed 
to have disposed of the stock at the FMV of the stock on the date the 
IRA closed its account with the Applicant. The IRA was paid a 
corrective payment in the amount of the greater of (1) the original 
purchase price, plus Lost Earnings calculated through the time the 
IRA's account closed with the Applicant, less the FMV of the stock at 
the time of the deemed disposition or (2) any excess of the original 
purchase price over the FMV of the stock at the time of purchase, plus 
Lost Earnings on such amount calculated through the date of correction.
    11. With respect to the Applicant's correction of the Transactions, 
(a) The Applicant took into account all transaction costs (e.g., 
Transaction Compensation), if any, paid by the IRAs in calculating the 
applicable Principal Amount as defined under the VFC Program; (b) 
Section 5 of the VFC Program was followed to make fair market value 
determinations; and (c) the Applicant engaged an independent certified 
public accounting firm to calculate the appropriate correction 
payments. Since the bonds in the Bond Sale Transactions did not have a 
generally recognized FMV, the FMVs of the bonds were determined 
pursuant to a written report prepared by IFS comparing the actual 
purchase price of transactions to written confirmations of the market 
price on the applicable date from independent pricing services selected 
by IFS. For the Stock Purchase Transaction and the Stock Sale 
Transactions, the FMV of the stocks involved were determined using the 
average value of the security on the generally recognized market for 
the security on the date of the applicable transaction as reported by 
an independent pricing service.
    12. The Applicant represents that ``Restoration of Profits,'' as 
defined under the VFC Program, did not apply with respect to the 
Transactions because no amounts were used for a specific purpose such 
that a profit was determinable.
    13. The Applicant represents that it sent each IRA involved in a 
Transaction a letter describing the Transaction(s) applicable to the 
IRA and, where appropriate, a check for the correction amount.
    14. The Applicant believes that the Transactions were inadvertent 
and resulted in the IRAs receiving at least a market yield-to-maturity 
with respect to the Bond Purchase Transactions or at least the market 
price with respect to Bond Sale Transactions, Stock Purchase 
Transaction and Stock Sale Transactions because the Applicant and S&S 
operated as independently managed entities and, as a result of the 
foregoing, the terms of the Transactions were at least as favorable to 
the IRAs as the terms generally available in arm's length transactions 
between unrelated parties.
    15. The Applicant represents that it has not taken advantage of the 
relief provided by the VFC Program and PTE 2002-51 for the three (3) 
years prior to the date of the Applicant's submission of the VFC 
Program Application, and that the Transactions were not part of an 
agreement, arrangement or understanding designed to benefit a 
disqualified person.
    16. The Applicant represents that the proposed exemption is: (a) 
Administratively feasible because the Applicant has corrected the 
Transactions pursuant to the requirements set forth in the VFC Program, 
has obtained relief under the VFC Program for the Qualified Plan 
Transactions and has put procedures in place to ensure that no similar 
Transactions occur in the future; (b) in the interests of the affected 
IRAs and their owners and beneficiaries because the Transactions have 
been corrected pursuant to the procedures set forth in the VFC Program, 
which are designed to ensure that the corrections are made in a manner 
that is in the interests of the IRAs and their owners and 
beneficiaries; and (c) protective of the rights of the owners and 
beneficiaries of the IRAs because the requested relief is only with 
respect to past transactions, which the Applicant believes were 
effectively conducted on an arm's length basis, that have already been 
effectively unwound pursuant to the requirements set forth in the VFC 
Program.
    17. In summary, the Applicant represents that the Transactions and 
the Transaction Compensation satisfy the statutory criteria for an 
administrative exemption contained in Code section 4975(c)(2) because, 
among other things: (a) The Transactions and Transaction Compensation 
were substantially similar to the Qualified Plan Transactions; (b) the 
Transactions and Transaction Compensation were corrected pursuant to 
the requirements set forth in the VFC Program and in a manner similar 
to those described in the

[[Page 49795]]

Applicant's VFC Program Application; (c) the Applicant received a ``no-
action letter'' from the Department in connection with Applicant's VFC 
Program Application; (d) the FMVs of the IRA bonds and stocks involved 
in the Transactions were determined in accordance with Section 5 of the 
VFC Program; (e) the terms of the Transactions and the Transaction 
Compensation were at least as favorable to the IRAs as the terms 
generally available in arm's-length transactions between unrelated 
parties; (f) the Transactions and Transaction Compensation were not 
part of an agreement, arrangement or understanding designed to benefit 
a disqualified person; and (g) the Applicant did not take advantage of 
the relief provided by the VFC Program and PTE 2002-51 for three (3) 
years prior to the date of the Applicant's submission of the VFC 
Program Application.

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

Bayer Corporation (Bayer or the Applicant)

Located in Pittsburgh, PA

[Application No. D-11661]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990).\3\ If the 
exemption is granted, the restrictions of sections 406(a)(1)(A) and 
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the 
application of section 4975(c)(1)(A) and (E) of the Code, shall not 
apply, effective September 15, 2011, to the one-time, in kind 
contribution (the Contribution) of certain U.S. Treasury Bills (the 
Securities) to the Bayer Corporation Pension Plan (the Plan) by the 
Applicant, a party in interest with respect to the Plan; provided that 
the following conditions are satisfied:
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    \3\ For purposes of this proposed exemption, references to the 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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    (a) In addition to the Securities, Bayer contributes to the Plan, 
by September 15, 2011, such cash amounts as are needed to allow the 
Plan to attain an Adjusted Funding Target Attainment Percentage (AFTAP) 
of 90%, as determined by the Plan's actuary (the Actuary);
    (b) The fair market value of the Securities is determined by Bayer 
on the date of the Contribution (the Contribution Date) based on the 
average of the bid and ask prices as of 3 p.m. Eastern Time, as quoted 
in The Wall Street Journal on the Contribution Date;
    (c) The Securities represent less than 20% of the Plan's assets.
    (d) The terms of the Contribution are no less favorable to the Plan 
than those negotiated at arm's length under similar circumstances 
between unrelated parties;
    (e) The Plan pays no commissions, costs or fees with respect to the 
Contribution; and
    (f) The Plan fiduciaries review and approve the methodology used to 
value to the Securities and ensure that such methodology is properly 
applied in determining the fair market value of the Securities.
    Effective Date: If granted, this proposed exemption will be 
effective as of September 15, 2011.

Summary of Facts and Representations

Parties to the Proposed Transaction

    1. Bayer, headquartered in Pittsburgh, PA, is a holding company for 
the business interests of Bayer AG in the United States. Bayer AG is an 
international health care, nutrition and high-tech materials group 
based in Leverkusen, Germany. In North America, Bayer had 2010 net 
sales of approximately $10.86 billion and employed 16,400 at year end. 
Bayer sponsors the Plan.
    2. The Plan is a defined benefit pension plan. As of January 1, 
2010, which is the most recent date for which participant and Plan 
financial information are available, the Plan had 34,766 participants 
and beneficiaries and total assets of $2,126,444,442. The Plan also had 
total liabilities of $2,354,042,112 as of this date.
    3. The Bayer Corporation Master Trust (the Master Trust) holds the 
assets of the Plan and five other defined benefit plans (collectively, 
the ``Plans'') sponsored by Bayer. The Bayer Trust Investment Committee 
(the Committee) is the named fiduciary with respect to the Master 
Trust. Bayer serves as the Plan administrator for the Plans. Mellon 
Bank, N.A. serves as the trustee for the Plans.

Plan Funding for Plan Year 2011

    4. The Applicant represents that the Plans participating in the 
Master Trust are historically funded on an AFTAP funding level ranging 
from 90% to 96%. In an actuarial report (the Actuarial Report) dated 
September 30, 2010, Towers Watson, the Plan's Actuary, stated that the 
Plan's AFTAP as of January 1, 2009 was 90% and as of January 1, 2010, 
it was 90.08%.
    5. The Actuarial Report also provided for the Plan's minimum 
contribution payment for January 14, 2011 and September 15, 2011. In 
compliance with the Actuarial Report, Bayer made its scheduled minimum 
cash contribution payment to the Plan of $3,499,721 as of January 11, 
2011. Should Bayer make its next scheduled required minimum cash 
contribution payment of $12,953,054 on September 15, 2011, the 
Applicant notes that the Plan's AFTAP would fall below 80% (as measured 
on January 1, 2011). The Applicant explains that because of a prior 
year loss in 2008 of 28% to the Plan, the Plan's AFTAP would fall below 
80% if Bayer makes only its required minimum contribution for 2011.
    6. As a result, the Applicant explains that the benefit 
restrictions of sections 206(g) of the Act and 436(d)(3) of the Code 
\4\ would be triggered upon the Actuary's certification of the 2011 
Actuarial Report. Such restrictions would limit Plan lump sum payments 
to 50% of the value of a participant's benefit and would defer Plan 
Social Security level income payouts. These measures could harm current 
Plan participants nearing benefit commencement.
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    \4\ Section 436(d)(3)(C) of the Code and section 206(g)(3)(C) of 
the Act provide that if the AFTAP is at least 60% but less than 80%, 
a single employer defined benefit plan may not pay a prohibited 
payment to the extent the payment exceeds the lesser of (1) 50% of 
the amount of the payment that would be paid if the restriction did 
not apply, or (2) the present value, determined under guidance 
provided by the Pension Benefit Guaranty Corporation, of the maximum 
guarantee with respect to the participant under section 4022 of the 
Act.
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    7. The Applicant represents that these benefit restrictions would 
affect a significant number of Plan participants. With respect to lump 
sum payments, the Applicant states that approximately 3,500 active and 
deferred participants in the Plan are eligible to elect a lump sum upon 
either retirement or the time of benefit commencement. With respect to 
Social Security level income benefit elections, the Applicant explains 
that 5,100 active and deferred vested Plan participants are eligible to 
make such elections upon retirement or at the time of benefit 
commencement.

Contribution of the Securities

    8. On December 17, 2010, Bayer, in its corporate capacity, 
purchased the Securities for $299,302,083.30. The CUSIP number for the 
Securities is 9127952P5. The Applicant represents

[[Page 49796]]

that Bayer purchased the Securities on the open market through its 
broker, Citizens Investment Services, an unrelated party. The 
Securities will mature on November 17, 2011, with a value of 
$300,000,000.00 in six denominations each of $50,000,000. The 
Securities have an effective annual yield of 0.25%. The Securities also 
represent approximately 12.2% of the Plan's assets.
    On January 21, 2011, the Committee determined that contributing the 
Securities to the Plan on a one-time basis would benefit the Plan's 
participants. The Committee also determined that the Securities would 
give the Master Trust a safe and liquid investment without additional 
transactions costs, would help maintain the Plan's funding level and 
would prevent potential benefit restrictions mentioned above. 
Furthermore, the proposed Contribution is substantially similar to 
contributing cash since the Securities are considered cash equivalents.
    9. The proposed Contribution would also benefit Bayer by allowing 
it to issue public debt at a lower cost. The Applicant states that its 
credit rating impacts the interest rate payable when it borrows. The 
Applicant represents that a full cash contribution, which is reported 
on its financial statements as a use of operating gross cash flow, 
would have a negative impact on the financial ratios calculated by 
credit rating agencies. If its credit rating is lowered, the Applicant 
explains that its cost of borrowing could substantially increase. 
However, unlike a full cash contribution to the Plan, the Applicant 
indicates that the proposed Contribution is not reported as a use of 
operating cash flow. Accordingly, the Applicant maintains that the 
proposed Contribution would not have a negative impact on its credit 
rating.

Valuation of the Securities

    10. As of March 31, 2011, the Applicant represents that the fair 
market value of the Securities was $299,451,000. The Applicant states 
that it applied the average bid and ask price of .183%, as of 3 p.m. on 
March 31, 2011, as quoted in The Wall Street Journal, to obtain a 
discount value of $549,000.00. The Applicant explains that it then 
applied the discount to the face value of the Securities at maturity to 
obtain $299,451,000, as the fair market value as of March 31, 2011.
    11. The fair market value price of the Securities contributed to 
the Plan will be based on its value on the Contribution Date. The 
Applicant represents it will select the Contribution Date on which The 
Wall Street Journal publishes the bid and ask price for U.S. Treasury 
Bills that mature on November 17, 2011. The Applicant states that it 
will average the bid and ask price as of 3 p.m. Eastern Time, as 
published in The Wall Street Journal, to determine the appropriate 
discount. The Applicant also explains that it will then apply the 
discount to the Securities to determine the fair market value on the 
Contribution Date.

Request for Exemptive Relief

    12. The Applicant requests exemptive relief from the Department for 
the proposed Contribution which represents an in kind contribution to 
the Plan from the Applicant, a party in interest, that would violate 
sections 406(a)(1)(A) of the Act. The Applicant, which is a fiduciary, 
is causing both a sale or exchange between a party and interest and the 
Plan prohibited by section 406(a)(1)(A) of the Act. The Applicant 
states that the proposed Contribution also would violate sections 
406(b)(1) and (2) of the Act. The Applicant, as a fiduciary, is dealing 
with the assets of the Plan in its own interest or its own account in 
violation of 406(b)(1) of the Act and is acting in a capacity where its 
interests are adverse to the interest of the plan or the interests of 
its participants and beneficiaries in violation of 406(b)(2) of the 
Act.

Contribution Logistics

    13. The Applicant represents that it is committed to making the 
proposed Contribution as of September 15, 2011. The Applicant 
represents that it will also make a cash contribution to the Plan, by 
September 15, 2011, to allow the Plan to attain an AFTAP of 90%, along 
with the Contribution of the Securities. This additional cash 
contribution to the Plan is presently estimated at $58 million. The 
Applicant will know the actual cash contribution amount when it 
receives the 2011 Actuarial Report from the Actuary. Furthermore, the 
Applicant represents that should the Plan sell the Securities prior to 
their maturity, Bayer will pay all costs or fees related to such sale.

Rationale for the Contribution

    14. The Applicant represents that there are a number of reasons 
supporting the Contribution. In this regard, the Applicant states that 
the proposed Contribution is administratively feasible because it is a 
one time only transaction that would require no further action by the 
Department. Moreover, the Plan will pay no fees, commissions or costs 
in relation to the Contribution.
    The Applicant states that the Contribution is in the interests of 
the Plan, its participants and beneficiaries because the Contribution 
and an estimated $58 million additional cash contribution will allow 
the Plan to attain a 90% AFTAP. As noted above, the Plan's required 
minimum contribution scheduled for September 15, 2011 is $12,953,054. 
The Securities with a value of $300,000,000 at maturity on November 17, 
2011, would exceed the Plan's required minimum contribution by 
approximately $287 million. An additional cash contribution of 
approximately $58 million should allow the Plan to attain an AFTAP of 
90%, when combined with the Securities. Accordingly, the Applicant 
states that the Contribution will avoid the benefit restrictions of 
section 206(g) of the Act and section 436(g) of the Code.
    The Applicant further states that the Contribution would be 
protective of the Plan and its participants and beneficiaries. In this 
respect, the Applicant explains that the Contribution involves 
Securities that are cash equivalents and have a readily ascertainable 
fair market value. Moreover, the Applicant indicates that the 
Securities will mature within months of the Contribution Date. Should 
the Plan need to sell the Securities prior to their maturity, the 
Applicant represents that it will cover all transaction costs that are 
associated with such sale.

Summary

    15. In summary, the Applicant represents that the Contribution will 
satisfy the statutory requirements for an exemption under section 
408(a) of the Act because:
    (a) In addition to the Securities, Bayer will contribute to the 
Plan, by September 15, 2011, such cash amounts as are needed to allow 
the Plan to attain an AFTAP of 90%, as determined by the Plan's 
actuary;
    (b) The fair market value of the Securities will be determined by 
Bayer on the Contribution Date based on the average of the bid and ask 
prices as of 3 p.m. Eastern Time, as quoted in The Wall Street Journal 
on the Contribution Date;
    (c) The Securities will represent less than 20% of the Plan's 
assets.
    (d) The terms of the Contribution will be no less favorable to the 
Plan than those negotiated at arm's length under similar circumstances 
between unrelated parties;
    (e) The Plan will pay no commissions, costs or fees with respect to 
the Contribution; and

[[Page 49797]]

    (f) The Plan fiduciaries will review and approve the methodology 
used to value the Securities and ensure that such methodology is 
properly applied in determining the fair market value of the 
Securities.

Notice to Interested Parties

    Notice of the proposed exemption will be given to interested 
persons within 5 days of the publication of the notice of proposed 
exemption in the Federal Register. The notice will be given to 
interested persons by first class mail or by return receipt requested 
electronic mail. Such notice will contain a copy of the notice of 
proposed exemption, as published in the Federal Register, and a 
supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2). 
The supplemental statement will inform interested persons of their 
right to comment on and/or to request a hearing with respect to the 
pending exemption. Written comments and hearing requests are due within 
40 days of the publication of the notice of proposed exemption in the 
Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Anh-Viet Ly of the Department at 
(202) 693-8648. (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 of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 2nd day of August, 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-20341 Filed 8-10-11; 8:45 am]
BILLING CODE 4510-29-P