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Secretary of Labor Hilda L. Solis
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EBSA Notices

Proposed Exemptions; Deutsche Bank AG   [3/3/2003]
[PDF]
FR Doc 03-4921

[Federal Register: March 3, 2003 (Volume 68, Number 41)]
[Notices]               
[Page 10035-10047]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr03mr03-92]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-10840, et al.]

 
Proposed Exemptions; Deutsche Bank AG

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 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffittb@pwba.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.

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).

SUPPLEMENTARY INFORMATION: 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.

Deutsche Bank AG
Located in New York, New York
Exemption Application Number D-10840

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974 (the Act) and section 4975(c)(2) of the Internal Revenue 
Code of 1986, as amended (the Code) and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).
Section I--Retroactive Relief
    For the period from June 4, 1999 until the date this proposed 
exemption is granted, the restrictions of section 406(a) and (b)(1) and 
(b)(2) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, shall not apply to the investment of the assets of a 
Bank Plan or a Client Plan (either, a Plan) in deposits of Deutsche 
Bank AG, its current or future branches, and/or its current or future 
subsidiaries, if--
    (a) Deutsche Bank AG is supervised by the Deutsche Bundesbank and/
or the Bundesanstalt fur Finanzdienstleistungsaufsicht (the BAFin),\1\ 
and, in the case of a subsidiary of Deutsche Bank AG, is also 
supervised by similar local government authorities;
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    \1\ For purposes of this exemption, if granted, supervision of 
Deutsche Bank AG by the BAFin is deemed to include supervision of 
Deutsche Bank AG by the Federal Banking Supervisory Authority (das 
Bundesaufsichtsamt fuer das Kreditwesen), the predecessor to the 
BAFin.
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    (b) The deposit bears a rate of interest that is reasonable, as 
defined in section III(f);
    (c) The investment is:
    (i) Made by a Bank Plan; or
    (ii) Made by a Client Plan and expressly authorized pursuant to a 
provision of such Plan (or trust thereof) or expressly authorized by an 
independent fiduciary,\2\ as defined in

[[Page 10036]]

section III (g), with respect to such Plan; and
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    \2\ The Department notes that the Act's general standards of 
fiduciary conduct would apply to arrangements involving the 
investment of Plan assets permitted by this proposed exemption, if 
granted. In this regard, section 404 of the Act requires, among 
other things, a fiduciary to discharge his duties respecting a plan 
solely in the interest of the plan's participants and beneficiaries 
and in a prudent manner. Accordingly, an independent fiduciary with 
respect to a Plan must act prudently with respect to: (1) The 
decision to enter into an arrangement described herein; and (2) the 
negotiation of the terms of such an arrangement, including, among 
other things, the specific terms by which Plan assets will be 
invested in the deposits of Deutsche Bank AG. The Department further 
emphasizes that it expects plan fiduciaries, prior to allowing or 
authorizing the transactions described herein, to fully understand 
the benefits and risks associated with such transactions, following 
disclosure by Deutsche Bank AG of all relevant information. In 
addition, the Department notes that such plan fiduciaries must 
periodically monitor, and have the ability to so monitor, the 
services provided by Deutsche Bank AG.
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    (d) in situations where Deutsche Bank AG, or any of its affiliates 
that are banks or registered investment advisors, acts as an investment 
manager on behalf of a Plan, the amount of such Plan's assets invested 
in the deposits of Deutsche Bank AG does not average, over any six 
month period, more than 5% of the total amount of the plan's assets 
managed by such investment manager.
Section II--Prospective Relief
    Effective after the date this proposed exemption is granted, the 
restrictions of section 406(a) and (b)(1) and (b)(2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply to the investment of the assets of a Plan in deposits of Deutsche 
Bank AG, its current or future branches, and/or its current or future 
subsidiaries, if--
    (a) Deutsche Bank AG is supervised by the Deutsche Bundesbank and/
or the BAFin, and, in the case of a subsidiary of Deutsche Bank AG, is 
also supervised by similar local government authorities;
    (b) The deposit bears a rate of interest that is reasonable, as 
defined in section II (f);
    (c) Prior to: (i) An investment of Plan assets in bank deposits; or 
(ii) the commencement of any Deutsche Bank AG program that invests Plan 
assets in such deposits, an independent fiduciary (other than with 
respect to a Bank Plan) receives a written disclosure describing:
    (A) The circumstances pursuant to which Plan assets will be 
invested in deposits of Deutsche Bank AG or its subsidiaries or 
branches; and
    (B) A description of the applicable sovereign regulatory authority/
authorities governing the activities of Deutsche Bank AG;
    (d) A fiduciary independent of Deutsche Bank AG and its affiliates 
(other than with respect to a Bank Plan) receives, upon request, copies 
of the most recent financial statement of Deutsche Bank AG and/or its 
subsidiaries;
    (e) Immediately after any material adverse change in the financial 
condition of Deutsche Bank AG, Deutsche Bank AG will notify each Plan 
fiduciary of such material adverse change and will not use its 
authority to continue the program of deposits with respect to the Plans 
without the consent of a Bank Plan fiduciary or an independent Client 
Plan fiduciary;
    (f) In situations where Deutsche Bank AG, or any of its affiliates 
that are banks or registered investment advisors, acts as an investment 
manager on behalf of a Plan, the amount of such Plan's assets invested 
in the deposits of Deutsche Bank AG does not average, over any six 
month period, more than 1% of the total amount of the plan's assets 
managed by such investment manager;
    (g) Deutsche Bank AG--
    (1) Agrees to submit to the jurisdiction of the United States;
    (2) Agrees to appoint an agent for service of process in the United 
States, which may be an affiliate (the Process Agent);
    (3) Consents to service of process on the Process Agent;
    (4) Agrees that it may be sued in the United States Courts in 
connection with the transactions described in this proposed exemption;
    (5) Agrees that any judgment may be collectable by an employee 
benefit plan in the United States from Deutsche Bank AG; and
    (6) Agrees to comply with, and be subject to, all relevant 
provisions of the Act.
    (h) The investment is:
    (i) Made by a Bank Plan and authorized by a Bank Plan fiduciary; or
    (ii) Made by a Client Plan and authorized by an independent 
fiduciary with respect to such Client Plan. Notwithstanding (h)(i) and 
(h)(ii) above, authorization for the investment by a Plan in the 
deposits of Deutsche Bank AG may be presumed notwithstanding that 
Deutsche Bank AG does not receive any response from such Plan pursuant 
to two written requests by Deutsche Bank AG (one request by a certified 
mailing that contains only such request) for the authorization, 
provided that: (A) with respect to Plans that invest in the deposits of 
Deutsche Bank AG prior to the date this proposed exemption is granted, 
the first request occurs not later than 45 days after the date the 
proposed exemption is granted and the second request occurs within 30 
days thereafter; and (B) with respect to Plans that invest in the 
deposits of Deutsche Bank AG following the date this proposed exemption 
is granted, the first request occurs at least 45 days prior to such 
investment and the second request occurs within 30 days thereafter;
    (i) Investments in the deposits of a subsidiary of Deutsche Bank AG 
will be backed by the full faith and credit of Deutsche Bank AG;
    (j) Short-term debt issued by Deutsche Bank AG is rated in one of 
the three highest categories by an independent rating agency such as 
Standard & Poors, Moody's or a similar institution;
    (k) Deutsche Bank AG maintains or causes to be maintained within 
the United States for a period of six years from the date of such 
transaction, in a manner that is convenient and accessible for audit 
and examination, such records as are necessary to enable the persons 
described below in paragraph (1) of this proposed exemption to 
determine whether the conditions of this exemption have been met, 
except that a prohibited transaction will not be considered to have 
occurred if, due to circumstances beyond the control of Deutsche Bank 
AG, the records are lost or destroyed prior to the end of the six-year 
period; and
    (l)(1) Except as provided in paragraph (2) of this section (l) and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (k) are 
unconditionally available at their customary location in the United 
States 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 Plan, or any duly authorized employee or 
representative of such fiduciary, and
    (iii) Any participant or beneficiary of a Plan or duly authorized 
employee or representative of such participant or beneficiary;
    (2) None of the persons described in paragraphs (l)(1)(ii) and 
(iii) shall be authorized to examine trade secrets of Deutsche Bank AG, 
or commercial or financial information that is privileged or 
confidential.

Section III--Definitions

    (a) The term ``bank'' means a bank supervised by the United States, 
a state, or a sovereign government.
    (b) An ``affiliate'' of a person includes:
    (1) Any person that directly, or indirectly through one or more 
intermediaries, controls or is controlled by, or is under common 
control with, such person;

[[Page 10037]]

    (2) Any officer, director, employee or relative of such person, or 
partner of any such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner or employee.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) A ``Client Plan'' refers to an employee benefit plan as 
described in section 3(3) with respect to which Deutsche Bank AG acts 
as a trustee or custodian.
    (e) A ``Bank Plan'' means a plan sponsored or maintained by:
    (1) Deutsche Bank AG or any person that directly, or indirectly 
through one or more intermediaries, controls or is controlled by, or is 
under common control with, Deutsche Bank AG or;
    (2) Any entity in which Deutsche Bank AG holds more than a ten 
percent equity interest.
    (f) A ``reasonable'' rate of interest means a rate of interest 
determinable by reference to short-term rates available to other 
customers of the bank, those offered by other banks, those available 
from money market funds, those applicable to short-term instruments 
such as repurchase agreements, or by reference to a benchmark such as 
sovereign short term debt (e.g., in the U.S., treasury bills), all in 
the jurisdiction where the rate is being evaluated. The requirement 
that an interest rate be ``reasonable'' does not preclude the payment 
of no interest in situations where the deposit is with a branch or 
subsidiary of Deutsche Bank AG that acts as a local subcustodian and no 
interest is paid to similarly situated custody clients of the global 
custodian so long as, prior any investment in deposits that pays no 
interest, Deutsche Bank AG discloses to the appropriate Plan fiduciary 
that no interest may be paid with respect to an arrangement described 
above. Notwithstanding the foregoing, if local law is changed to 
preclude the payment of interest, and Deutsche Bank AG discloses such 
fact to the appropriate Plan fiduciary as soon as reasonably possible.
    (g) An ``independent fiduciary'' means a fiduciary independent of 
Deutsche Bank AG and its affiliates who has the authority to make the 
investments described herein, or to instruct the trustee or other 
fiduciary with respect to such investments, and who has no interest in 
the transaction which may affect the exercise of such authorizing 
fiduciary's best judgment as a fiduciary so as to cause such 
authorization to constitute an act described in section 406(b) of the 
Act.

Summary of Facts and Representations

    1. Deutsche Bank AG (hereinafter, Deutsche Bank or the Applicant) 
is a German banking corporation and commercial bank that provides a 
wide range of services to various types of entities worldwide. Deutsche 
Bank is one of the largest financial institutions in the world in terms 
of assets held, managing over $585 billion in assets either through 
collective trusts, separately, managed accounts, or mutual funds.
    Deutsche Bank Trust Company Americas (DBTCA) \3\ is a wholly-owned 
indirect subsidiary of Deutsche Bank. DBTCA is a commercial bank that 
provides a wide range of services to various types of entities 
worldwide.
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    \3\ Formerly, Bankers Trust Company.
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    2. In general terms, the transactions contained in this proposed 
exemption involve the investment of ``idle'' foreign currency in bank 
deposits, either directly or through a cash management program. In this 
regard, the Applicant states that, for various reasons, a portfolio 
manager may seek to hold foreign currency ``idle'' for short periods of 
time. For example, the Applicant states that an investment manager may 
hold ``idle'' the foreign currency a portfolio has received from the 
liquidation of foreign securities while determining how to reinvest 
such currency.
    3. According to the Applicant, there are limited options with 
respect to the investment of ``idle'' foreign currency. In this regard, 
the Applicant states that most short-term investment vehicles are 
denominated in U.S. dollars. As a result, to invest foreign currency in 
such vehicles, an investment manager would have to convert the foreign 
currency to U.S. dollars (and, thereafter, convert the U.S. dollars 
back to foreign currency). Due to the costs associated with such 
conversion(s), the Applicant states, it is often not economically 
viable to invest ``idle'' foreign currency in most of the financial 
vehicles available for short-term investments.
    Given this and for the reasons stated below, the Applicant states 
that investment managers and plan sponsors often seek to invest 
``idle'' currency in bank deposits. In this regard, the Applicant 
represents that most global banks take deposits in many different 
foreign currencies. Accordingly, an investment manager may invest the 
currency of a particular foreign nation in the same-currency deposits 
of a bank without incurring the costs associated with converting the 
currency from/to U.S. dollars.\4\ The Applicant additionally represents 
that an investment in bank deposits may be made for short periods of 
time, rendering such investments vehicles essential in foreign markets 
where collective investment funds are not available to invest short-
term cash balances. Finally, the Applicant states that an investment in 
bank deposits provides a competitive rate of return on currency being 
held ``idle'' pending reinvestment, making such an investment 
attractive with respect to portfolios investing globally.
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    \4\ For example, when a portfolio that uses the EAFE index as a 
benchmark (and has assets invested primarily in Europe, Asia and the 
Far East) holds ``idle'' foreign currency, the portfolio will 
generally allow such assets to remain in a foreign currency until 
the next investment in that country sector occurs.
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    4. The Applicant states that the investment of ``idle'' foreign 
currency in bank deposits may be achieved either directly or through 
cash management programs. According to the Applicant, the arrangement 
by which foreign currency is invested often is determined by the amount 
of time an investment manager anticipates the assets being invested 
will remain in such an investment vehicle. In this regard, the 
Applicant represents that an investment manager who seeks to invest 
plan assets in bank deposits on a day-to-day basis will likely allow 
such assets to be ``swept'' into the bank deposits of the plan's global 
custodian through a cash management program. Pursuant to such a 
program, uninvested cash balances left with any subcustodian are placed 
on an overnight basis into the same currency deposits of the global 
custodian or the subcustodian (which may or may not be a branch or an 
affiliate of the global custodian).\5\
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    \5\ The Applicant notes, however, that in certain instances 
(i.e., late trades) uninvested balances may have to remain with the 
subcustodian without being placed into the global custodian's 
deposits.
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    By comparison, the Applicant represents that to the extent an 
investment manager expects ``idle'' foreign currency will remain in 
bank deposits on a short-term basis of fixed duration (i.e., 30 days, 
60 days, etc.), the manager may choose to invest the currency directly 
in bank deposits. Unlike a cash management program, this method of 
investing in bank deposits involves an investment manager's affirmative 
act of investing in the deposits of a particular bank (upon taking into 
consideration, among other things, the interest rates and credit 
ratings of various banks).
    5. The Applicant states that global custodians often provide cash

[[Page 10038]]

management services whereby foreign currency left with an affiliated 
subcustodian will be either: (1) Swept into the deposits of the global 
custodian (or branch of subsidiary thereof); or (2) left in a non-
interest bearing account with the subcustodian. According to the 
Applicant, ``idle'' foreign currency may be swept to the global 
custodian for several reasons. For example, the global custodian may 
offer a better interest rate and/or have a better credit rating than 
banks that are not parties in interest with respect to such plan. By 
comparison, ``idle'' foreign currency may remain with the subcustodian 
in situations where the movement of the currency outside the 
subcustodial bank would be too costly. Finally, ``idle'' foreign 
currency may remain in the account of a client of the subcustodian in 
situations involving, among other things, late trades and unpredicted 
cash flows.
    6. Accordingly, the Applicant seeks an exemption to permit the 
investment of Plan assets in deposits of Deutsche Bank and its non-U.S. 
banking branches and subsidiaries, either directly or through cash 
management programs. The Applicant states that this exemption, if 
granted, is intended to cover only those Plan investments in bank 
deposits that are temporary in nature.
    The Applicant cites a lack of applicable statutory relief with 
respect to deposits in branches or subsidiaries of foreign banks 
affiliated with a custodian or a trustee when such foreign banks are 
not supervised by the U.S. or a state.\6\ In addition, the Applicant 
cites a lack of administrative relief with respect to the investment of 
plan assets in overnight deposits by a plan sponsor who is not an in-
house asset manager (i.e., an INHAM as described in PTE 96-23 (61 FR 
15975 (Apr. 10 (1996)) or by an investment manager who is not a 
qualified professional asset manager (i.e., a QPAM as described in PTE 
84-14 (49 FR 9494 (Mar. 13, 1984) and corrected at 50 FR 41430 (Oct. 10 
1985)).
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    \6\ The Applicant states that where the global custodian is a 
U.S. or state supervised bank or trust company, relief for the 
investment in bank deposits by a plan is provided by section 
408(b)(4) of ERISA. In addition, the applicant states that in 
situations where the foreign subcustodian is not affiliated with the 
global custodian, the global custodian may rely on PTE 84-14 to 
exempt the extension of credit and the use of plan assets by the 
foreign subcustodian party in interest inherent in the investment in 
that subcustodian's deposits.
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    7. Specifically, the Applicant states that DBTCA is a global 
custodian that offers a cash management program (the DBTCA Program) \7\ 
to every account for which it acts either as a custodian or trustee.\8\ 
Such Program, the Applicant states, is comprised of two parts: One that 
relates to domestic portfolios (i.e., assets that are invested in the 
U.S.) and another that relates to global portfolios. In this regard, 
the Applicant states that with respect to domestic-only portfolios, 
upon opening an account, the Plan fiduciary responsible for choosing 
DBTCA as the Plan's trustee or custodian also selects a sweep vehicle 
for cash left temporarily uninvested (Idle Cash) by the Plan's 
portfolio manager (which may or may not be DBTCA or an affiliate). The 
Applicant represents that the sweep vehicle is often a collective trust 
for short-term investments managed by DBTCA or an affiliate although, 
at the election of the fiduciary, the cash sweep vehicle may also be a 
mutual fund affiliated with DBTCA or a fund managed by, for example, an 
investment manager not affiliated with DBTCA. The Applicant states that 
Plans investing in DBTCA's collective funds are informed, as part of 
the disclosure that accompanies these investments, of the sweep vehicle 
used.
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    \7\ According to Applicant, the DBTCA is currently the only cash 
management program offered by Deutsche Bank containing the types of 
transactions described herein.
    \8\ The Applicant states that Deutsche Bank is not seeking 
relief pursuant to this proposed exemption with respect to the 
Bankers Trust Program itself or, to the extent relevant, any other 
cash management program. Rather, the Applicant states that if this 
proposed exemption is granted, the Bankers Trust Program, and any 
future program involving the types of transactions provided relief 
herein, will comply with the statutory exemption contained in 
408(b)(6) of ERISA. Accordingly, the Department is not providing any 
relief herein with respect to the Bankers Trust Program or any other 
cash management offered by Deutsche Bank AG.
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    For global investments, the Applicant states that each Client Plan 
fiduciary and each Bank Plan fiduciary is provided detailed disclosure, 
including the types of overnight investments utilized by the global 
cash management program and the fees related to the program. ERISA 
clients investing globally that have uninvested U.S. dollars have 
access to the types of ``cash sweep'' vehicles described above.
    According to the Applicant, Idle Cash is invested pursuant to the 
DBTCA cash management program in one of two ways. First, Idle Cash 
denominated as sweep currencies \9\ are deposited in the London Branch 
of DBTCA (the London Branch) in the same currency in which it is 
maintained (although some residual amounts, in the same currency, may 
remain in the deposits of the local subcustodian). For all other 
currencies, the Applicant states, Idle Cash remains in deposits of the 
local subcustodian.
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    \9\ The Applicant represents that, as of January 29, 2000, the 
Australian Dollar, British Pound Sterling, Canadian Dollar, Danish 
Krone, EMU Euro, Hong Kong Dollar, Norwegian Krone, South African 
Rand, Swedish Krona, Swiss Franc, and the U.S. Dollar are considered 
sweep currencies. Pursuant to the Bankers Trust Program, U.S. 
Dollars are swept to the U.S. and put in collective trusts.
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    The Applicant states that, with respect to all currencies that are 
part of the sweep to the London Branch, the amount of interest paid 
equals the deposit rate less a cash management fee. In this regard, the 
deposit rate is the higher of the London Branch overnight deposit rate 
for such currency (generally, a weekly or monthly average, depending on 
the currency) or the subcustodian's rate. According to the Applicant, 
the cash management fees differ by currency and are disclosed in 
advance to an independent fiduciary for each Client Plan and an 
appropriate Bank Plan fiduciary for each Bank Plan. The Applicant notes 
that Plan fiduciaries are informed that they will earn interest at the 
calculated rate on the entire contractual cash balances \10\ without 
any action necessary on their part and without any minimum balance 
requirements. In addition, the Applicant states that Plan fiduciaries 
are informed that their respective Plans will receive the specified 
rate on all cash that is part of the Plan's contractual cash balance, 
regardless of whether their contractual cash balance exceeds their 
actual balance.
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    \10\ A contractual balance, Deutsche Bank notes, is the cash, 
securities and other investments that the Client Plan would expect 
to have on a given date, assuming all transactions have settled in a 
timely fashion. Thus, assuming that an investment manager executed a 
sale of a security to settle trade date plus 3 days (T+3), and the 
investment manager did not execute a trade using those sales 
proceeds until a date two days hence, the proceeds would be swept to 
a deposit pursuant to the sweep program regardless of whether such 
proceeds are received on the third day.
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    Second, for all currencies that are not swept,\11\ the Idle Cash 
will remain in deposits of the local subcustodian. Deutsche Bank 
represents that with respect to these currencies, Deutsche Bank earns a 
cash management fee. In markets where individual client accounts are 
maintained with the subcustodian due to local regulations, Plans will 
receive interest on actual balances with no minimum rate guaranteed. In 
these currencies, no fee

[[Page 10039]]

or spread is earned for the DBTCA program.
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    \11\ In this regard, as of January 29, 2000, the currencies on 
which interest is credited, but are not swept to the London Branch 
are: the Argentine Peso, Czech Koruna, Greek Drachma, Hungarian 
Forint, Indonesian Rupiah, Israeli Shekel, Japanese Yen, Jordanian 
Dinar, Korean Won, Mexican Peso, New Taiwan Dollar, New Zealand 
Dollar, Philippine Peso, Polish Zloty, Singapore Dollar, Slovak 
Koruna, Thai Baht, and Turkish Lire.
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    The Applicant represents that Plan sponsors and/or Plan investment 
managers will receive information regarding the amounts of Idle Cash 
remaining, account activity, and the rates paid on the Idle Cash 
through monthly reports. Plan sponsors and Plan investment managers may 
also receive such information through DBTCA's proprietary on-line 
system (provided that they arrange for this service).
    8. The Applicant represents that Deutsche Bank is supervised by the 
Deutsche Bundesbank and the BAFin.\12\ The Deutsche Bundesbank is the 
central bank of the Federal Republic of Germany and part of the 
European System of Central Banks (the ESCB). The Applicant represents 
that the Deutsche Bundesbank is primarily focused on maintaining the 
stability of the ``Euro''\13\ and the execution of domestic and 
international payments. In addition, the Applicant states that the 
Deutsche Bundesbank also participates in the supervision of credit 
institutions and financial services institutions.
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    \12\ Deutsche Bank AG, New York Branch, is regulated by the New 
York State Banking Department. In addition, certain activities of 
the U.S. affiliates of Deutsche Bank are regulated by the Federal 
Reserve Bank of New York.
    \13\ The term ``Euro'' means the single European currency 
adopted by eleven Member States of the European Union, which are: 
Austria, Belgium, Finland, France, Germany, Ireland, Italy, 
Luxembourg, the Netherlands, Portugal, and Spain.
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    The BAFin is the German Federal Banking Supervisory Authority, an 
independent federal institution responsible to the German Ministry of 
Finance. The BAFin supervises the operations of banks, banking groups, 
financial holding groups and branches of foreign banks in Germany and 
has the authority to: (a) Issue and withdraw banking licenses; (b) 
issue regulations on the capital and liquidity requirements of banks; 
(c) request information and conduct investigations; and (d) intervene 
in cases of inadequate capital or liquidity, or in cases of endangered 
deposits or risk of bankruptcy by means of temporarily prohibiting 
certain banking transactions.
    Specifically, the BAFin ensures that Deutsche Bank has procedures 
for monitoring and controlling its worldwide activities through various 
statutory and regulatory standards such as: Requirements for adequate 
internal controls, oversight, administration and financial resources. 
The BAFin further reviews compliance with these limitations on 
operations and internal control requirements through an annual audit 
performed by the year-end auditor and through special audits as ordered 
by the supervisory authorities. The BAFin obtains information on the 
condition of Deutsche Bank and its branches by requiring the submission 
of periodic, consolidated financial reports, and through a mandatory 
annual report prepared by an independent auditor.\14\
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    \14\ Deutsche Bank notes that the audits of their financials are 
done in accordance with the auditing standards established by the 
International Federation of Accountants (IFAC), which is an 
organization of national accountancy bodies, including the American 
Institute of Certified Public Accountants (AICPA), to develop and 
harmonize worldwide auditing standards. The financial statements are 
prepared in accordance with standards established by the 
International Accounting Standards Committee (IASC), which is a body 
formed to achieve uniformity in accounting principles used in 
financial statement reporting. The international equivalents to the 
U.S.'s AICPA and the Financial Accounting Standards Board (FASB) are 
the IFAC and the IASC, respectively.
---------------------------------------------------------------------------

    Deutsche Bank represents that the annual audit includes foreign 
branches and subsidiaries. The auditor is required to give positive 
assurance regarding whether the institution has fulfilled its duties 
under the German Banking Act. This requires, Deutsche Bank notes, the 
auditor to comment on the asset quality and the internal control 
environment of each part of the institution, including subsidiaries, in 
detail. The BAFin also receives information regarding capital adequacy, 
country risk exposure and foreign exchange exposures from Deutsche 
Bank. German banking law mandates penalties to ensure correct reporting 
to the BAFin. The auditors of Deutsche Bank face penalties for gross 
violation of their auditing duties.
    The BAFin supervises all branches of Deutsche Bank, wherever 
located, subjecting them to announced and unannounced on-site audits 
and all other supervisory controls applicable to German banks. Deutsche 
Bank represents that in its branches located in a member state of the 
European Economic Area (the EEA), such audits are carried out 
consistent with the applicable European Directives, and with respect to 
branches outside the EEA, consistent with the applicable international 
agreements, memoranda of understanding or other arrangements with the 
relevant foreign supervisory authorities. Deutsche Bank subsidiaries 
are consolidated with Deutsche Bank for purposes of the capital ratios 
that the bank is required to meet on a group-wide basis. Supervision 
extends to the adequacy of equity capital of banking and financial 
holding groups and compliance with the regulation regarding large loans 
granted by such groups.
    9. Deposits in branches of Deutsche Bank are insured. In this 
regard, Deutsche Bank represents that there are two deposit insurance 
programs that currently cover Deutsche Bank and its foreign branches. 
The first is the European Union deposit insurance system, which insures 
deposits up to the lesser of 90% of the deposit or 20,000 euros. This 
statutory deposit protection system is maintained by the German Bank 
Institution for Indemnification, the Entschadigungseinrichtung dutscher 
Banken (the EdB), which is maintained by the Association of German 
Banks, the Bundesverband Deutscher Banken, and is subject to 
supervision by the BAFin.
    The second deposit insurance program is the Deposit Protection 
Fund, the Einlagensicherungsfonds, maintained by the Association of 
German Banks. This fund, the participation in which is voluntary, 
safeguards liabilities in excess of the thresholds guaranteed by the 
European Union program, up to a protection ceiling for each creditor of 
30% of the liable capital of the bank.\15\ This program is funded by 
the premiums paid by participating German banks and deposit-taking 
trust companies. The fund relies on the Auditing Association of German 
Banks, which audits banks and makes recommendations that are required 
to be implemented.
---------------------------------------------------------------------------

    \15\ Liable Capital means the core capital and additional 
capital.
---------------------------------------------------------------------------

    Deposits in subsidiaries of Deutsche Bank are not insured through 
the German deposit insurance system. However, the Applicant represents 
that investments by Plans in the deposits of a subsidiary of Deutsche 
Bank will be backed by the full faith and credit of Deutsche Bank.
    10. The Applicant proposes certain safeguards applicable to both 
the retroactive and prospective portions of this proposed exemption. In 
this regard, the Applicant states that the investment by a Plan in the 
deposits of Deutsche Bank will be limited. With respect to the 
retroactive portion of the exemption, if granted, in situations where 
Deutsche Bank AG, or any of its affiliates that are banks or registered 
investment advisors, acts as an investment manager on behalf of a Plan, 
the amount of such Plan's assets invested in the deposits of Deutsche 
Bank does not average, over any six month period, more than 5% of the 
total amount of the assets managed by such investment manager. With 
respect to the prospective portion of the exemption, if granted, the 
percentage limitation described above shall equal one percent. In all 
cases, the Applicant states, the interest earned on the deposits 
described herein will be

[[Page 10040]]

reasonable, determinable by reference to, among other things, short-
term rates available to other customers of Deutsche Bank, those offered 
by other banks, and those available from money market funds. The 
Applicant notes that in situations where the deposit is with a branch 
or subsidiary of Deutsche Bank that acts as a local subcustodian, no 
interest may be paid with respect to such deposit to the extent that: 
no interest is paid to similarly situated custody clients of the global 
custodian, and, prospectively, Deutsche Bank discloses to the 
appropriate Plan fiduciary that no interest may be paid pursuant to 
such an arrangement. In addition, no interest may be paid in situations 
where local law is changed to preclude the payment of interest and 
Deutsche Bank discloses such fact to the appropriate Plan fiduciary as 
soon as reasonably possible.
    Retroactively, a Client Plan must authorize an investment in the 
deposits of Deutsche Bank pursuant to a provision of such Plan or the 
trust thereof (unless the investments were expressly authorized by an 
independent fiduciary). Prospectively, investments in the deposits of 
Deutsche Bank must be: (i) Made by a Bank Plan and authorized by an 
Bank Plan fiduciary; or (ii) made a Client Plan and authorized by an 
independent fiduciary with respect to such Client Plan. In this regard, 
Notwithstanding, authorization for the investment by a Plan in the 
deposits of Deutsche Bank AG may be presumed notwithstanding that 
Deutsche Bank does not receive any response from such Plan pursuant to 
two written requests by Deutsche Bank (one request by a certified 
mailing that contains only such request) for the authorization, 
provided that: (A) With respect to Plans that invest in the deposits of 
Deutsche Bank prior to the date this proposed exemption is granted, the 
first request occurs not later than 45 days after the date the proposed 
exemption is granted and the second request occurs within 30 days 
thereafter; and (B) with respect to Plans that invest in the deposits 
of Deutsche Bank following the date this proposed exemption is granted, 
the first request occurs at least 45 days prior to such investment and 
the second request occurs within 30 days thereafter.
    Further, Deutsche Bank has been and will continue to be supervised 
by the Deutsche Bundesbank and/or the BAFin, and, in the case of a 
subsidiary of Deutsche Bank, by similar local government authorities.
    11. With respect to the prospective portion of this proposed 
exemption, the Applicant represents that Plans will be further 
protected in that Deutsche Bank will furnish to each Plan certain 
relevant information including its most recent available audited and 
unaudited financial statements and will give prompt notice of any 
material adverse changes in its financial condition that occur prior to 
the date of such statements. Upon giving this notice, the Applicant 
states, Deutsche Bank AG will not use its authority to continue the 
program of deposits with respect to the Plans without the consent of a 
Bank Plan fiduciary or an independent Client Plan fiduciary.
    In addition, with respect to the deposit cash management program 
described herein, Deutsche Bank, and its branches and subsidiaries, 
will comply with the indicia of ownership requirements under section 
404(b) of the Act and the regulations promulgated under 29 CFR 
2550.404b-1(a)(2)(i)(A).\16\ Further, Deutsche Bank: (a) Agrees to 
submit to the jurisdiction of the courts of the United States; (b) 
agrees to appoint a Process Agent for service of process in the United 
States, which may be an affiliate; (c) consents to service of process 
on the Process Agent; (d) agrees that it may be sued in the courts of 
the United States in connection with transactions described in this 
proposed exemption; (e) agrees that any judgment may be collectable by 
an employee benefit plan in the United States from Deutsche Bank; and 
(f) agrees to comply with, and be subject to, all relevant provisions 
of the Act.
---------------------------------------------------------------------------

    \16\ The Department is expressing no opinion as to whether the 
requirements of ERISA section 404(b) and the regulations promulgated 
thereunder have been met.
---------------------------------------------------------------------------

    The Applicant states that the deposits described herein will be in 
safe, well-capitalized financial institutions. In this regard, the 
proposal prospectively requires that short-term debt issued by Deutsche 
Bank must be rated in one of the three highest categories by an 
independent rating agency such as Standard & Poors, Moody's or a 
similar institution.
    12. The Applicant represents that the proposed exemption would be 
administratively feasible since the transactions would be transparent 
to Client Plan fiduciaries and no action on the part of the government 
or plan sponsors would be necessary to effectuate such transactions, 
other than the grant of the exemption and an initial authorization by a 
Client Plan fiduciary that is independent of Deutsche Bank (i.e., an 
independent fiduciary) or an appropriate Bank Plan fiduciary.
    13. In summary, the Applicant represents that, retroactively, the 
described transactions satisfy the statutory criteria for an exemption 
under section 408(a) of the Act since, among other things:
    (a) Deutsche Bank was supervised by the Deutsche Bundesbank and/or 
the BAFin, and, in the case of a subsidiary of Deutsche Bank, was also 
supervised by similar local government authorities;
    (b) The deposits provided each affected Plan with a rate of 
interest that was reasonable; and
    (c) In situations where Deutsche Bank, or any of its affiliates 
that are banks or registered investment advisors, acts as an investment 
manager on behalf of a Plan, the amount of such Plan's assets invested 
in the deposits of Deutsche Bank does not average, over any six month 
period, more than 5% of the total amount of the assets managed by such 
investment manager.
    14. The Applicant represents that, prospectively, the described 
transactions satisfy the statutory criteria for an exemption under 
section 408(a) of the Act since, among other things:
    (a) Prior to either: An investment of Plan assets in bank deposits; 
or the commencement of any Deutsche Bank AG program that invests Plan 
assets in such deposits, an independent fiduciary (other than with 
respect to a Bank Plan) receives a written disclosure describing:
    (i) The circumstances pursuant to which Plan assets will be 
invested in deposits of Deutsche Bank or its subsidiaries or branches; 
and
    (ii) A description of the applicable sovereign regulatory 
authority/authorities governing the activities of Deutsche Bank;
    (b) Immediately after any material adverse change in the financial 
condition of Deutsche Bank, Deutsche Bank will notify each Plan 
fiduciary of such material adverse change and will not use its 
authority to continue the program of deposits with respect to the Plans 
without the consent of the appropriate Bank Plan fiduciary or an 
independent Client Plan fiduciary;
    (c) Deutsche Bank--
    (1) Agrees to submit to the jurisdiction of the United States;
    (2) Agrees to appoint the Process Agent;
    (3) Consents to service of process on the Process Agent;
    (4) Agrees that it may be sued in the United States Courts in 
connection with the transactions described in this proposed exemption;
    (5) Agrees that any judgment may be collectable by an employee 
benefit plan in the United States from Deutsche Bank; and
    (6) Agrees to comply with, and be subject to, all relevant 
provisions of the Act.

[[Page 10041]]

    (d) Investments in the deposits of a subsidiary of Deutsche Bank 
will be backed by the full faith and credit of Deutsche Bank; and
    (e) Short-term debt issued by Deutsche Bank is rated in one of the 
three highest categories by an independent rating agency such as 
Standard & Poors, Moody's or a similar institution.
    For Further Information Contact: Christopher Motta of the 
Department, telephone (202) 693-8544. (This is not a toll-free number.)

Metropolitan Life Insurance Company (MetLife)
Located in New York, NY
[Application No. D-11042]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 408(a) of the Act (or ERISA) 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).\17\ If the exemption is granted, the restrictions of sections 
406(a), 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 section 
4975(c)(1)(A) through (E) of the Code, shall not apply, effective April 
6, 2001, to the cash sale (the Sale) to MetLife of a note (the Note), 
issued by the Pacific Gas & Electric Company (PG&E), by MetLife's 
Liquidity Plus Account (the Account) for which MetLife acts as 
investment manager and is a party in interest with respect to employee 
benefit plans (the Plans) invested in such Account, provided that the 
following conditions were met:
---------------------------------------------------------------------------

    \17\ For purposes of this proposed exemption, references to 
provisions of Title I of the Act, unless otherwise specified, refer 
also to corresponding provisions of the Code.
---------------------------------------------------------------------------

    (a) The Sale was a one-time transaction for cash.
    (b) The sales price for the Note was based upon an amount 
representing the greater of the Note's outstanding principal balance, 
plus accrued interest, or the Note's fair market value as determined by 
independent broker-dealers.
    (c) The Account did not pay any fees, commissions or other expenses 
in connection with the Sale.
    (d) As manager of the Account, MetLife determined, at the time of 
the transaction, that the Sale was appropriate for, and in the best 
interests of, the Account, the Plans investing therein, and their 
participants and beneficiaries.
    (e) MetLife took all appropriate actions necessary to safeguard the 
interests of the Account and the Plans in connection with the Sale.
    (f) If the exercise of any of MetLife's rights, claims or causes of 
action in connection with its ownership of the Note results in MetLife 
recovering from PG&E an aggregate amount that is greater than the sales 
price for such Note, MetLife will refund such excess amount to the 
Account.
    Effective Date: If granted, this proposed exemption will be 
effective as of April 6, 2001.

Summary of Facts and Representations

    1. MetLife is a life insurance company organized under the laws of 
New York and is subject to supervision and examination of the New York 
Superintendent of Insurance (the Superintendent). MetLife is a wholly 
owned subsidiary of MetLife, Inc., a publicly held Delaware 
corporation. In terms of assets, MetLife is the second largest life 
insurance company in the United States. As of September 30, 2002, 
MetLife, including its insurance company subsidiaries, had total assets 
under management of approximately $290.1 billion \18\ and, as of 
December 31, 2001, approximately $1.9 trillion of life insurance in 
force. Among the insurance products and services it offers, MetLife and 
certain of its affiliates provide funding, asset management and other 
services for thousands of employee benefit plans subject to the 
provisions of Title I of the Act. MetLife maintains pooled and single 
plan separate accounts in which Title I pension, profit-sharing, 
welfare benefit, and thrift plans invest, and MetLife and/or its 
affiliates manage all or a portion of the assets of such separate 
accounts. Additionally, MetLife has a number of subsidiaries and 
affiliates that provide certain financial services, including 
investment management and brokerage services.
---------------------------------------------------------------------------

    \18\ This figure does not include the fourth quarter, which has 
not yet been published.
---------------------------------------------------------------------------

    2. MetLife is the investment manager or adviser (or an affiliate of 
such investment manager or adviser) of various portfolios that are 
subject to the Act. Among the separate accounts managed by MetLife is 
the Account, which is a short term liquidity plus separate account that 
invests in short-term debt obligations. The Account is managed by 
MetLife on behalf of ERISA and non-ERISA regulated Plans, including the 
Metropolitan Life Retirement Plan for United States Employees (the 
MetLife Plan), the surviving entity following the merger of the 
Metropolitan Life Retirement Plan for United States Salaried Employees 
and the Metropolitan Life Retirement Plan for the United States 
Commissioned Employees. MetLife believes that the MetLife Plan became a 
participant in the Account at or near the time of its inception. The 
investing Plans hold units in the Account on a pro rata basis. MetLife 
represents that the purchase by the MetLife Plan of units in the 
Account is covered under section 408(b)(8) of ERISA.\19\
---------------------------------------------------------------------------

    \19\ The Department, is expressing no opinion herein on whether 
the purchase by the MetLife Plan of units in the Account is 
statutorily exempt under section 408(b)(8) of the Act.
---------------------------------------------------------------------------

    On February 2, 1971, the Account was initially approved by New York 
State Insurance Department (the NYSID), an independent state agency 
that regulates MetLife. The purpose of the Account is to achieve the 
highest possible current income consistent with the preservation of 
capital and maintenance of liquidity. The Account is permitted to 
invest in money market instruments with maturities of 13 months of 
less. Generally, the average maturity is less than 60 days. The Account 
is valued daily and is managed to maintain a stable one dollar value, 
similar to a money market fund. As of April 6,. 2001, which is the date 
of the Sale transaction described herein, the Account had a market 
value of $119,000,000. Also as of such date, participating investors in 
the Account included a number of ERISA Plan \20\ and the MetLife Plan, 
which had invested approximately $66,746,000 in the Account.
---------------------------------------------------------------------------

    \20\ Primarily, defined benefit pension plans.
---------------------------------------------------------------------------

    3. On December 15, 2000, the Account purchased, in book-entry form, 
certain commercial paper (the Commercial Paper) (CUSIP 69430JPC1) from 
Merrill Lynch, an unrelated third party, at a discount from face value 
for $15,856, 284.27. The Commercial Paper, which was also issued on 
December 15, 2000 by PG&E, California's largest public utility and an 
unrelated party, had a maturity date of February 12, 2001. The par 
value \21\ of the Commercial Paper was $16,031,000, which was payable 
at maturity. The Commercial Paper's yield was 6.723274 percent and it 
represented approximately 13 percent of the Account's assets.\22\
---------------------------------------------------------------------------

    \21\ Defined as the value of the Commercial Paper at maturity.
    \22\ As of December 15, 2000, the MetLife Pension Plan had total 
assets of $4,047,574,285.00. Of the total assets, the MetLife 
Pension Plan invested $11,494,583.03 in the Commercial Paper, which 
represented approximately 0.3 percent of such Plan's assets.
---------------------------------------------------------------------------

    4. The decision to invest assets in the Commercial Paper was made 
by MetLife

[[Page 10042]]

as investment manager of the Account. MetLife represents that the 
investment was consistent with the Account's investment policies and 
objectives.\23\ At the time the Account acquired the Commercial Paper, 
it was rated ``A-1'' by Standard & Poor's Corporation and ``P-1'' by 
Moody's Investor Services, Inc.
---------------------------------------------------------------------------

    \23\ The Department is expressing no opinion in this proposed 
exemption regarding whether the acquisition and holding of the Note 
by the Account violated any of the fiduciary responsibility 
provisions of Part 4 of Title I of the Act. The Department notes 
that section 404(a) of the Act requires, among other things, that a 
fiduciary of a plan act prudently, solely in the interest 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. Section 404(a) of the Act 
also states that a plan fiduciary should diversify the investments 
of a plan so as to minimize the risk of large losses, unless under 
the circumstances it is clearly prudent not to do so.
    In this regard, the Department is not providing any opinion on 
whether a particular category of investments or investment strategy 
would be considered prudent or in the best interests of a plan as 
required by section 404 of the Act. The determination of the 
prudence of a particular investment or investment course of action 
must be made by a plan fiduciary after appropriate consideration to 
those facts and circumstances that, given the scope of such 
fiduciary's investment duties, the fiduciary knows or should know 
are relevant to the particular investment or investment course of 
action involved, including a plan's potential exposure to losses and 
the role the investment or investment course of action plays in that 
portion of the plan's portfolio with respect to which the fiduciary 
has investment duties (see 29 CFR 2550.404a-1). The Department also 
notes that in order to act prudently in making investment decisions, 
a plan fiduciary must consider, among other factors, the 
availability, risks and potential return of alternative investments 
for the plan. Thus, a particular investment by a plan, which is 
selected in preference to other alternative investments, would 
generally not be prudent if such investment involves a greater risk 
to the security of a plan's assets than other comparable investments 
offering a similar return or result.
---------------------------------------------------------------------------

    5. Due to its inability to pay the principal amount of the 
Commercial Paper as a result of the energy crisis (the Energy 
Crisis),\24\ PG&E unilaterally converted, dollar-for-dollar, the 
Commercial Paper into an interest-bearing floating rate note (i.e., the 
Note) (also in book-entry form) in order to credit the holders of the 
Commercial Paper until it could resolve its difficulties. The 
conversion occurred on February 12, 2001. Everyone who held the 
Commercial Paper received Notes in the conversion, including the 
Account. The Note earned interest at the London Interbank Offered Rate 
(LIBOR), a floating rate with no fixed floor. According to the 
applicant, the LIBOR rate was presumably selected because it is a 
published rate that matches up with commercial paper rates. Although 
the Note had no specific maturity date, PG&E announced during a 
teleconference with all of its debt holders and in a subsequent news 
release that its plan was to pay the Note down as soon as possible. The 
Note is currently traded by independent brokers and is not listed on an 
exchange. As described below in Representation 6, no interest has been 
paid on the Note since PG&E's declaration of bankruptcy.
---------------------------------------------------------------------------

    \24\ In this regard, PG&E, along with other California 
utilities, was hit by soaring wholesale power costs and the state's 
1996 deregulation law. Energy deregulation caused blackouts 
throughout California. Soaring utility rates were the subject of 
debate as the wholesale prices of electricity skyrocketed, jumping 
to an average of $30 per megawatt hour. California was the first 
state to deregulate its electricity market in 1996. The move was 
supposed to lower the bills of consumers by preventing most 
utilities from passing rising costs on to their customers. Under 
deregulation, the state's investor-owned utilities sold most of 
their power plants and were forced to repurchase them at higher 
market prices. PG&E was faced with $9 billion in debt and debt 
payments of $500 million in February 2001 and $1.6 billion in March 
2001. PG&E, having only $500 million in cash reserves and little to 
no ability to borrow following rating downgrades, filed for 
bankruptcy on April 6, 2001.
---------------------------------------------------------------------------

    6. On April 6, 2001, PG&E declared bankruptcy and filed a voluntary 
petition under Chapter 11 of the Bankruptcy Code. As a result of PG&E's 
bankruptcy filing, the market value of the Note decreased according to 
verbal quotes obtained by MetLife's money traders from two independent 
brokers. Since the market values for all PG&E securities were trading 
below par and would continue to trade in that way until the bankruptcy 
was settled, MetLife determined that if the Account retained the Note, 
the value of the Account would be required to be reported below a value 
of $1.00 per share resulting in a loss to the Account investors. 
Therefore, MetLife sought permission from the NYSID to acquire the Note 
from the Account.
    7. The transaction was subsequently approved by the NYSID on April 
6, 2001, and it became effective on that date. MetLife purchased the 
Note from the Account for a cash payment of $16,041,857.11. This sum 
was the same as the par value of the Note, plus the accrued interest. 
The Account paid no commissions or other expenses in connection with 
the Sale. MetLife represents that the Sale allowed the Account to 
continue operation in the manner customers expected. Specifically, 
additions and withdrawals from the Account could continue to be made at 
$1.00 per share. Accordingly, MetLife requests an administrative 
exemption from the Department with respect to the Sale. If granted, the 
exemption will be effective on April 6, 2001.
    8. MetLife represents that because PG&E had declared bankruptcy and 
purchasers would not pay face value for the Note, the purchase price 
was set above the market price. In this regard, MetLife has provided a 
letter from Gian Solomon, of the New York Money Desk of Goldman Sachs & 
Co. (Goldman Sachs) dated August 9, 2002 regarding the price at which 
the Commerical Paper would have traded on April 6, 2001. According to 
Mr. Solomon, Goldman Sachs did not effect any trades in the Commercial 
Paper on April 6, 2001. However, on April 3, 2001, Goldman Sachs 
effected trades in PG&E commercial paper having a scheduled maturity 
date of January 19, 2002, at dollar prices between $72-$74 of the par 
amount. Mr. Solomon notes that these dollar prices were below the face 
amount of such securities.
    Mr. Solomon also states that Goldman Sachs has no interest in the 
Commercial Paper that is subject of the exemption request. Further, he 
represents that Goldman Sachs has no personal interest or bias with 
respect to the subject matter of the exemption application or the 
parties involved, and that Goldman Sachs has received no compensation 
for providing the pricing information.\25\
---------------------------------------------------------------------------

    \25\ In addition to the above, MetLife represents that its money 
market traders obtained verbal bids for the Note on an indicative 
basis from three independent brokers at around the time of the Sale. 
According to MetLife, bids received from Goldman Sachs ranged from 
$57-$62 of the par value of the Note. Bids received from the Bank of 
America ranged from $56-$60 of the par value of the Note. Bids 
received from Merrill Lynch ranged from $55-$60 of the par value of 
the Note. MetLife further states that all of these bids were below 
the price that it paid for the Note.
---------------------------------------------------------------------------

    9. MetLife represents that the Sale resulted in an assignment of 
all of the Account's rights, claims and causes of action against PG&E. 
Accordingly, MetLife states that if the exercise of any of the 
foregoing rights, claims or causes of action results in its recovering 
from PG&E an aggregate amount that is greater than the sales price for 
the Note, such excess amount will be refunded to the Account (after 
deducting all reasonable expenses incurred in connection with the 
recovery).
    10. In summary, it is represented that the transaction has 
satisfied the statutory criteria for an exemption under section 408(a) 
of the Act because:
    (a) The Sale was a one-time transaction for cash.
    (b) The sales price for the Note was based upon an amount 
representing the greater of the Note's outstanding principal balance, 
plus accrued interest, or the Note's fair market value as determined by 
independent broker-dealers.
    (c) The Account did not pay any fees, commissions or other expenses 
in connection with the Sale.

[[Page 10043]]

    (d) As manager of the Account, MetLife determined, at the time of 
such transaction, that the Sale was appropriate for, and in the best 
interests of, the Account, the Plans investing therein and their 
participants and beneficiaries.
    (e) MetLife took all appropriate actions necessary to safeguard the 
interests of the Account and the Plans in connection with the Sale.
    (f) If the exercise of any of MetLife's rights, claims or causes of 
action in connection with its ownership of the Note results in MetLife 
recovering from PG&E an aggregate amount that is greater than the sales 
price for such Note, MetLife will refund such excess amount to the 
Account.

Notice to Interested Persons

    MetLife will provide notice of the proposed exemption to all 
interested persons by first class mail within 30 days of the date of 
publication of the notice of proposed exemption in the Federal 
Register. The notice will include a copy of the proposed exemption, as 
published in the Federal Register, and a supplemental statement, as 
required pursuant to 29 CFR 2570.43(b)(2), which will inform interested 
persons of their right to comment on and/or to request a hearing with 
respect to the proposed exemption. Comments regarding the proposed 
exemption and requests for a public hearing are due within 60 days of 
the date of publication of the notice of pendency in the Federal 
Register.
    For Further Information Contact: Ms. Anna M.N. Mpras of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Archer Daniels Midland Company (Archer) Located in Decatur, Illinois
[Application No. D-11068]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a) and (b) of the Act shall not apply to the reinsurance 
of risks and the receipt of premiums therefrom by Agrinational 
Insurance Company (Agrinational) in connection with insurance contracts 
sold by Minnesota Life Insurance Company (Minnesota Life), or any 
successor insurance company to Minnesota Life which is unrelated to 
Archer, to provide basic and supplemental life insurance benefits to 
participants in Archer's programs to provide such benefits to its 
employees (the Plans),\26\ provided the following conditions are met:
---------------------------------------------------------------------------

    \26\ Each Plan will be considered an ``employee welfare benefit 
plan'' as defined in section 3(1) of the Act.
---------------------------------------------------------------------------

    (a) Agrinational--
    (1) Is a party in interest with respect to the Plans by reason of a 
stock or partnership affiliation with Archer 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 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 the State 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;
    (c) No commissions are paid by the Plans with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving Agrinational, 
there will be immediate and objectively determined benefit to the 
Plans' participants and beneficiaries in the form of increased 
benefits;
    (e) In subsequent years, the formula used to calculate premiums by 
Minnesota Life 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;
    (f) The Plans only contract with insurers with a rating of A or 
better from A. M. Best Company (Best's). The reinsurance arrangement 
between the insurers and Agrinational will be indemnity insurance only, 
i,e., the insurer will not be relieved of liability to the Plans should 
Agrinational be unable or unwilling to cover any liability arising from 
the reinsurance arrangement;
    (g) Agrinational retains an independent fiduciary (the Independent 
Fiduciary), at Archer's expense, to analyze the transaction and render 
an opinion that the requirements of sections (a) through (f) have been 
complied with. For purposes of the proposed exemption, the Independent 
Fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with Archer or Agrinational (this relationship hereinafter referred to 
as an ``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in, Archer 
or Agrinational (or any Affiliate of either);
    (3) Is not a corporation or partnership; in which Archer or 
Agrinational has an ownership interest or is a partner;
    (4) Does not have an ownership interest in Archer or Agrinational, 
or any of either's Affiliates;
    (5) Is not a fiduciary with respect to the Plans Prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the Independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from Archer, Agrinational, or their Affiliates (including amounts 
received for services as Independent Fiduciary under any prohibited 
transaction exception granted by the Department) for that fiscal year 
exceeds 5 percent of that organization or individual's annual gross 
income from all sources for such fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director, or 10 percent or more partner or 
shareholder, may acquire any property

[[Page 10044]]

from, sell any property to, or borrow funds from Archer, Agrinational, 
or their Affiliates during the period that such organization or 
individual serves as Independent Fiduciary, and continuing for a period 
of six months after such organization or individual ceases to be an 
Independent Fiduciary, or negotiates any such transaction during the 
period that such organization or individual serves as Independent 
Fiduciary.

Preamble

    On August 7, 1979, the Department published a class exemption 
(Prohibited Transaction Exemption 79-41 (PTE 79-41), 44, FR 46365) 
which permits insurance companies that have substantial stock or 
partnership affiliations with employers establishing or maintaining 
employee benefit plans to make direct sales or life insurance, health 
insurance or annuity contracts with fund such plans if certain 
conditions are satisfied.
    In PTE 79-41, the Department states its views that if a plan 
purchases an insurance contract from a company that is unrelated to the 
employer pursuant to an arrangement or understanding, written or oral, 
under which it is expected that the unrelated company will subsequently 
reinsure all or part of the risk related to such insurance with an 
insurance company which is a party in interest with respect to the 
plan, the purchase of the insurance contract would be a prohibited 
transaction under the Act.
    The Department further stated that as of the date of publication of 
PTE 79-41, it had received several applications for exemption under 
which a plan or its employer would contract with an unrelated company 
for insurance, and the unrelated company would, pursuant to an 
arrangement or understanding, reinsure part or all of the risk with 
(and cede part or all of the premiums to) an insurance company 
affiliated with the employer maintaining the plan. The Department felt 
that it would not be appropriate to cover the various types of 
reinsurance transactions for which it had received applications within 
the scope of the class exemption, but would instead consider such 
applications on the merits of each individual case.

Summary of Facts and Representations

    1. Archer is engaged in the business of procuring, transporting, 
storing, processing and merchandising agricultural commodities and 
products. It is one of the world's largest producers of oilseeds, corn 
and wheat. Archer also processes cocoa beans, milo, oats, barley and 
peanuts. Other operations include transporting, merchandising and 
storing agricultural commodities and products. These operations and 
processes produce products which have primarily two end uses: Food or 
feed ingredients. Each commodity processed is itself a feed ingredient 
as are the by-products produced during the processing of each 
commodity. Archer complements its own resources with a world-wide 
network of affiliates engaged in processing, transportation, storage 
and sales. Archer was incorporated under the laws of the State of 
Delaware in 1923 as successor to the Daniels Linseed Co., which was 
founded in 1902.
    2. Agrinational is a wholly-owned subsidiary of Archer. 
Agrinational was incorporated in Vermont on September 10, 1987, and on 
September 21, 1987, the Commissioner of Banking and Insurance for the 
State of Vermont granted it a Certificate of Authority to transact the 
business of a captive insurance company in the State of Vermont. The 
only restrictions placed by the State of Vermont on the type of 
insurance that Agrinational may write pertain to personal motor vehicle 
or homeowner's insurance and to excess workers' compensation insurance 
under certain circumstances, and thus are not relevant to the exemption 
proposed herein.
    3. At year end 2000, Agrinational had capital in the amount of 
$10,000,000, retained earnings in the amount of $22,731,920 and earned 
premium in the amount of $17,176,878. Agrinational presently provides 
insurance and reinsurance coverage for property, casualty and marine 
risks of Archer and its subsidiaries world-wide. In addition, 
Agrinational participates as a quota share reinsurer of various 
insurance company treaties that contain risks unrelated to Archer and 
its subsidiaries. The independent certified public accounting firm of 
Ernst & Young, LLP (EY), which prepared Agrinational's most recent 
audited financial statement, has served as Agrinational's auditor since 
its incorporation. EY will examine Agrinational's reserves on an annual 
basis in connection with the employee benefit business to be reinsured 
by Agrinational to ensure that appropriate reserve levels are 
maintained.
    4. Archer maintains the ADM Omnibus Health and Welfare Plan for 
Salaried Employees and the ADM Omnibus Health and Welfare Plan for 
Hourly Employees (i.e., the Plans) for substantially all of its 
salaried and hourly employees. The Plans provide both basic (the Basic 
Program) and supplemental (the Supplemental Program) life insurance 
programs. The Plans have been historically insured with Connecticut 
General Life Insurance Company, and, most recently, with Minnesota 
Life. However, Archer recently formulated a plan to utilize 
Agrinational for the reinsurance of benefits and has made or will make 
substantial improvements to the Plans in anticipation of that 
transaction.
    5. Specifically, the new benefits are as follows:
    (i) With respect to the life insurance program for salaried 
employees, the maximum benefit under the Basic Program has been 
increased from one-times base salary up to $100,000 to one-times base 
salary up to $1,000,000. In addition, the Basic Program will add an 
accelerated death benefit feature (which would provide benefits to the 
terminally ill) to the policy covering all participants. Finally, a 
non-contributory Accidental Death and Dismemberment benefit will be 
added to the Basic Program covering up to three times the basic life 
insurance benefit, subject to a schedule of amounts. All premiums under 
the Basic Program are fully paid by Archer. In addition, the maximum 
benefit under the Supplemental Program, which is employee paid, has 
been increased from up to four times salary with a cap of $1,000,000 to 
up to five times salary with a cap of $2,000,000. Dependent life 
insurance for the employee's spouse and children has been added on a 
voluntary basis. Portability of coverage has been added to all 
policies, so that coverage may continue at the group rates if a covered 
employee leaves employment. Finally, a waiver of premium provision has 
been added to the Supplemental and dependent coverage so in the event 
of the disability of the employee, coverage will continue without the 
payment of the premium. The new and/or enhanced benefits in the 
Supplemental Program are voluntary and the premiums are fully paid by 
the participants who elect them.
    (ii) With respect to the life insurance program for hourly 
employees who are not covered by a collective bargaining agreement, the 
new non-contributory Accidental Death and Dismemberment benefit will be 
added to the Basic Program covering up to three times the basic life 
insurance benefit, subject to a schedule of amounts. All premiums under 
the Basic Program are fully paid by Archer. In addition, the Basic 
Program will add the accelerated death benefit feature (which would 
provide benefits to the terminally ill) to the policy covering all 
hourly employees who are not covered by a collective bargaining 
agreement. With respect to these employees, the Supplemental Program, 
which is employee paid, has

[[Page 10045]]

been increased from various levels to up to five times base pay with a 
cap of $2,000,000, and dependent life insurance for the employee's 
spouse and children has been added on a voluntary basis; and
    (iii) With respect to the life insurance program for hourly 
employees who are covered by a collective bargaining agreement, Archer 
cannot unilaterally implement similar improvements to those which will 
be made to the Programs for salaried employees and hourly employees not 
covered by a collective bargaining agreement. However, Archer will 
implement such improvements if agreed to by the unions representing the 
hourly employees.
    In addition, Archer recently has enhanced benefits for employees by 
making two new benefit programs available for its salaried employees 
and for its hourly employees who are not covered by a collective 
bargaining agreement. Archer will also implement these programs for 
hourly employees covered by a collective bargaining agreement if agreed 
to by the unions representing such employees in collective bargaining. 
The first of the new benefits is a legal services program, which 
provides certain legal services through Hyatt Legal Plans, Inc., for a 
set premium each month. The premiums are paid by the employees through 
amounts deducted from their paychecks. The second new program is an 
auto and home insurance program, which offers eligible employees group 
rates for automobile, home and other personal property through Hanover 
Insurance Company. The premiums for this program are also paid by the 
employees.
    6. The life insurance Plans are now insured by Minnesota Life, 
which currently has a rating of A++ from Best's. The applicant 
represents that if the Plans choose another insurer in the future, that 
insurer will have a rating of A or better from Best's. The applicant 
anticipates that upon the granting of the exemption proposed herein, 
Minnesota Life will enter into reinsurance agreements with 
Agrinational. Minnesota Life was recently acquired by Liberty Mutual 
Insurance Company (Liberty), an A+ rated (by Best's) carrier located in 
Boston, Massachusetts. Liberty is rated by Moody's as Aa3 (Excellent) 
and by Standard & Poor's as AA- (Very Strong).
    Minnesota Life will continue to insure the Plan, with the enhanced 
new benefits. However, Minnesota Life will reinsure up to 100% of the 
risk with Agrinational. The percentage of the risk to be insured will 
be specified in the reinsurance agreements between Minnesota Life and 
Agrinational. The reinsurance agreements between Minnesota Life and 
Agrinational will be indemnity reinsurance only, so that Minnesota Life 
will not be relieved of its liability to the Plans should Agrinational 
be unwilling or unable to cover any liability arising from the 
reinsurance arrangement.
    The Plans will pay no more than adequate consideration for the 
insurance contracts with Minnesota Life or any successor insurer. The 
formula used to calculate premiums by Minnesota Life or any successor 
insurer \27\ will be similar to formulae used by other insurers 
providing life insurance 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 
providing coverage under the Plans and its competitors with the same or 
a better rating providing the same coverage under comparable programs.
---------------------------------------------------------------------------

    \27\ The applicant states that any successor insurer would be a 
legal reserve life insurance company with assets of such a size as 
to afford similar protection and responsibility.
---------------------------------------------------------------------------

    7. In connection with this exemption request, Agrinational has 
engaged the services of Milliman USA (Milliman), (formerly Milliman and 
Robertson, Inc.) as the Independent Fiduciary for the Plans. Milliman 
is an international firm of consultants and actuaries with expertise in 
all facets of employee benefits, including insurance. Charles M. 
Waldron, FSA (Mr. Waldron), a Principal and Consulting Actuary employed 
by Milliman, has signed the Independent Fiduciary representations on 
behalf of Milliman. Milliman's consultants are frequently retained to 
advise corporations on the insurance arrangements underlying their 
benefit programs and have considerable expertise in the area of 
reinsurance and captive insurers.
    8. For purposes of demonstrating independence, Mr. Waldron has 
represented that:
    (a) Neither he nor Milliman is an Affiliate of Archer, Minnesota 
Life or Agrinational;
    (b) He is not an officer, director, employee of, or partner in 
Archer, Agrinational or Minnesota Life;
    (c) Milliman is not a corporation in which Archer, Agrinational or 
any of the other insurers involved in the proposed transaction has an 
ownership interest or is a partner;
    (d) Neither he nor Milliman has an ownership interest in Archer, 
Agrinational, or Minnesota Life, or in any Affiliate of those firms;
    (e) He was not a fiduciary with respect to the Plans prior to his 
appointment for this transaction;
    (f) He has acknowledged in writing on behalf of Milliman its 
acceptance of fiduciary obligations and has agreed not to participate 
in any decision with respect to any transaction in which either he or 
Milliman has an interest that might affect their fiduciary duty;
    (g) The gross income received by Mr. Waldron and Milliman 
separately and combined from Archer, Agrinational, Minnesota Life, or 
their Affiliates (including amounts received for services as 
Independent Fiduciary under any prohibited transaction exemption 
granted by the Department), does not exceed 5 percent of Mr. Waldron's 
or Milliman's gross annual income from all sources for any fiscal year; 
and
    (h) Neither Milliman nor Mr. Waldron has acquired any property 
from, sold property to, or borrowed funds from Archer, Agrinational, or 
Minnesota Life or their Affiliates.
    9. Mr. Waldron represents that Agrinational is licensed to do 
business in the State of Vermont and has been conducting business since 
1987 insuring and reinsuring property, casualty and marine business. 
Agrinational's reserves for the past two (2) years have been reviewed 
by the actuarial services group of EY, which is a firm independent of 
Agrinational and Archer. Mr. Waldron has reviewed the report on the 
reserves and is satisfied that there are no issues to be resolved. In 
addition, Mr. Waldron represents that future reserves will be reviewed 
by a qualified actuary approved by the State of Vermont. Mr. Waldron 
has confirmed that Agrinational has undergone an examination by EY, an 
independent certified public accountant, for its last completed taxable 
year.
    10. Mr. Waldon has concluded that, as a result of the reinsurance 
agreement described in representation 6, above, the Plans' risks will 
be 100% covered by Minnesota Life, a carrier rated A++ by Best's, even 
if Agrinational were unable or unwilling to cover the Plans' 
liabilities it is assuming as a result of the reinsurance agreement. 
Mr. Waldon represents that he has reviewed the terms of the proposed 
reinsurance agreement between Minnesota Life and Agrinational. Mr. 
Waldron states that the agreement provides for the risk retained by 
Agrinational to revert back to Minnesota Life at no further cost to the 
Plans should Agrinational be unable or unwilling to pay the benefits.
    11. Mr. Waldron has represented that he reviewed the Plans' 
benefits before the reinsurance transaction and the benefits 
implemented in anticipation of

[[Page 10046]]

the reinsurance transaction. He has concluded that there is an 
immediate benefit to the Plans' participants from the reinsurance 
transaction. Generally all participants in the Supplemental Program 
receive increased benefits and options. For the Basic Program, 
generally all participants have received an accelerated death benefit 
coverage and will receive Accidental Death and Dismemberment Insurance 
up to three times the basic life insurance benefit. Finally, there are 
increased basic life insurance benefits for salaried employees with 
annual salaries exceeding specified amounts (e.g., $100,000).
    12. Mr. Waldron makes the following representations concerning the 
determination of the initial premium to the Plans under the proposed 
arrangement. The Plans contacted Minnesota Life and were quoted a rate 
based on Minnesota Life's evaluation of the risk. Archer received 
quotes from three different companies to provide insurance coverage for 
the group life, supplemental life and dependent life insurance 
programs. From these three companies, Archer selected Minnesota Life, 
which was the middle one in terms of premium. Minnesota Life was 3% 
above the lowest cost and 7.5% below the highest cost provider. The 
premium paid to Agrinational is based on a reinsurance agreement where 
Agrinational receives a portion of the premium charged equal to the 
proportion of the risk that Agrinational covers. This is a typical 
reinsurance arrangement for life insurance products. Mr. Waldron 
further represents that, based upon his review, the premiums charged by 
Minnesota Life are similar to premiums charged by other insurers 
providing group life, supplemental life, and dependent life insurance 
under similar plans. The applicant represents that the Independent 
Fiduciary (i.e., either Milliman or another qualified fiduciary acting 
as a successor, as noted below) will confirm on an annual basis that 
each Plan is paying a rate comparable to that which would be charged by 
a comparably-rated insurer for a program of the approximate size of the 
Plan with comparable claims experience.
    13. Milliman will represent the interests of the Plans as the 
Independent Fiduciary at all times.\28\ Milliman will monitor 
compliance by the parties with the terms and conditions of the proposed 
reinsurance transaction, and will take whatever action is necessary and 
appropriate to safeguard the interests of the Plans and of their 
participants and beneficiaries.
---------------------------------------------------------------------------

    \28\ In this regard, the applicant makes a representation 
regarding a successor independent fiduciary. Specifically, if it 
becomes necessary in the future to appoint a successor independent 
fiduciary (the Successor) to replace Milliman and Mr. Waldron, the 
applicant will notify the Department sixty (60) days in advance of 
the appointment of the Successor. Any Successor will have the 
responsibilities, experience and independence similar to those of 
Milliman and Mr. Waldron.
---------------------------------------------------------------------------

    14. The applicant represents that the proposed reinsurance 
transaction will meet the following conditions of PTE 79-41 covering 
direct insurance transactions:
    (a) Agrinational is a party in interest with respect to the Plans 
(within the meaning of section 3(14)(G) of the Act) by reason of stock 
affiliation with Archer, which maintains the Plans;
    (b) Agrinational is licensed to conduct reinsurance transactions by 
the State of Vermont. The law under which Agrinational is licensed 
requires that an actuarial review of reserves be conducted annually by 
an independent firm of actuaries and reported to the appropriate 
regulatory authority;
    (c) Agrinational has undergone an examination by the independent 
certified public accountant firm of EY for its last completed taxable 
year;
    (d) Agrinational has received a Certificate of Authority from its 
domiciliary state, Vermont, which has neither been revoked nor 
suspended;
    (e) The Plans will pay no more than adequate consideration for the 
insurance. In addition, in the initial year of the proposed reinsurance 
transaction, there will be an immediate and objectively determined 
benefit to the Plans' participants and beneficiaries in the form of 
increased benefits; and
    (f) No commissions will be paid by the Plans with respect to the 
reinsurance arrangement with Agrinational, as described herein.
    In addition, the Plans' interests will be represented by a 
qualified, independent fiduciary (i.e., Milliman or its Successor), who 
has initially determined that the proposed reinsurance transactions 
will be in the best interests, and protective, of the Plans and their 
participants and beneficiaries. The Independent Fiduciary will also 
confirm on an annual basis that the Plans are paying a rate comparable 
to that which would be charged by a comparably-rated insurer for a 
program of the approximate size of the Plans with comparable claims 
experience.
    15. In summary, the applicant represents that the proposed 
reinsurance transactions will meet the criteria of section 408(a) of 
the Act because: (a) The Plans' participants and beneficiaries are 
afforded insurance protection by Minnesota Life, a carrier rated A++ by 
Best's, at competitive market rates arrived at through arm's-length 
negotiations; (b) Agrinational, which will enter into the reinsurance 
agreements with Minnesota Life, is a sound, viable insurance company 
which has been in business since 1987; (c) the protections described in 
representation 14, above, provided to the Plans and their participants 
and beneficiaries under the proposed reinsurance transactions are based 
on those required for direct insurance by a ``captive'' insurer, under 
the conditions of PTE 79-41 (notwithstanding certain other requirements 
related to, among other things, the amount of gross premiums or annuity 
considerations received from customers who are not related to, or 
affiliated with the insurer); \29\ (d) Mr. Waldron, acting on behalf of 
Milliman as the Plans' Independent Fiduciary, has reviewed the proposed 
reinsurance transaction and has determined that the transaction is 
appropriate for, and in the best interests of, the Plans and that there 
will be an immediate benefit to the Plans' participants as a result 
thereof by reason of an improvement in benefits under the terms of the 
Plans; and (e) Milliman will monitor compliance by the parties with the 
terms and conditions of the proposed reinsurance transaction, and will 
take whatever action is necessary and appropriate to safeguard the 
interests of the Plans and of their participants and beneficiaries.
---------------------------------------------------------------------------

    \29\ The proposal of this exemption should not be interpreted as 
an endorsement by the Department of the transactions described 
herein. The Department notes that the fiduciary responsibility 
provisions of Part 4 of Title I of the Act apply to the fiduciary's 
decision to engage in the reinsurance arrangement.
    Specifically, section 404(a)(1) of the Act requires, among other 
things, that a plan fiduciary act prudently, solely in the interest 
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 the plan. In this regard, 
the Department is not providing any opinion as to whether a 
particular insurance or investment product, strategy or arrangement 
would be considered prudent or in the best interests of a plan, as 
required by section 404 of the Act. The determination of the 
prudence of a particular product or arrangement must be made by a 
plan fiduciary after appropriate consideration to those facts and 
circumstances that, given the scope of such fiduciary's investment 
duties, the fiduciary knows or should know are relevant to the 
particular product or arrangement involved, including the plan's 
potential exposure to losses and the role a particular insurance or 
investment product plays in that portion of the plan's investment 
portfolio with respect to which the fiduciary has investment duties 
and responsibilities (see 29 CFR 2550.404a-1).
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    For Further Information Contact: Gary H. Lefkowitz of the 
Department,

[[Page 10047]]

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 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 26th day of February, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-4921 Filed 2-28-03; 8:45 am]

BILLING CODE 4510-29-M