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Secretary of Labor Hilda L. Solis
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EBSA Notices

Grant of Individual Exemptions; Deutsche Bank AG   [12/17/2003]
[PDF]
FR Doc 03-31103

[Federal Register: December 17, 2003 (Volume 68, Number 242)]
[Notices]               
[Page 70311-70318]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr17de03-102]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2003-36; Exemption Application No. D-
11086 et al.]

 
Grant of Individual Exemptions; Deutsche Bank AG

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Deutsche Bank AG

[Prohibited Transaction Exemption No. 2003-36; Application Nos. D-
11086; D-11087; D-11088; D-11089; and D-11090]

Exemption

Section I: Basic Exemption
    The restrictions of section 406(a)(1)(A) through (D) of the Act and 
the taxes imposed by section 4975 (a) and (b) of the Code, by reason of 
4975(c)(1)(A) through (D) of the Code, shall not apply to a transaction 
between a party in interest with respect to a plan (as defined in 
section (v(h)) and such plan, provided that the Deutsche Bank In-house 
Manager (DBIM) (as defined in section IV(a)) has discretionary 
authority or control with respect to the plan assets involved in the 
transaction and the following conditions are satisfied:
    (a) The terms of the transaction are negotiated on behalf of the 
plan by, or under the authority and general direction of, the DBIM, and 
either the DBIM, or (so long as the DBIM retains full fiduciary 
responsibility with respect to the transaction) a property manager 
acting in accordance with written guidelines established and 
administered by the DBIM, makes the decision on behalf of the plan to 
enter into the transaction.
    Notwithstanding the foregoing, a transaction involving an amount of 
$5,000,000 or more, which has been negotiated on behalf of the plan by 
the DBIM will nor fail to meet the requirements of this section I(a) 
solely because the plan sponsor or its designee retains the right to 
veto or approve such transaction;
    (b) The transaction is not described in--

[[Page 70312]]

    (1) Prohibited Transaction Exemption 81-6 \1\ (relating to 
securities lending arrangements),
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    \1\ 46 FR 7527; January 23, 1981.
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    (2) Prohibited Transaction Exemption 83-1 \2\ (relating to 
acquisitions by plans of interests in mortgage pools), or
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    \2\ 48 FR 895; January 7, 1983.
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    (2) Prohibited Transaction Exemption 88-59 \3\ (relating to certain 
mortgage financing arrangements);
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    \3\ 53 FR 24811; June 30, 1998.
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    (c) The transaction is not part of an agreement, arrangement or 
understanding designed to benefit a party in interest;
    (d) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of the DBIM, the terms of the transaction are at least as 
favorable to the plan as the terms generally available in arm's length 
transactions between unrelated parties;
    (e) The party in interest dealing with the plan: (1) Is a party in 
interest with respect to the plan (including a fiduciary) solely by 
reason of providing services to the plan, or solely by reason of a 
relationship to a service provider described in section 3(14)(F), (G), 
(H), or (I) of the Act; and (2) does not have discretionary authority 
or control with respect to the investment of the plan assets involved 
in the transaction and does not render investment advice (within the 
meaning of 29 CFR 2510.3-21(c)) with respect to those assets;
    (f) The party in interest realign with the plan is neither the DBIM 
nor a person related to the DBIM (within the meaning of section IV(d)):
    (g) The DBIM adopts written policies and procedures that are 
designed to assure compliance with the conditions of the exemption;
    (h) An independent auditor, who has appropriate technical training 
or experience and proficiency with ERISA's fiduciary responsibility 
provisions and so represents in writing, conducts an exemption audit 
(as defined in section IV(f)) on an annual basis. Following completion 
of the exemption audit, the auditor shall issue a written report to the 
plan presenting its specific findings regarding the level of compliance 
with the policies and procedure adopted by the DBIM in accordance with 
section I(g); and
    (i) In addition to the above:
    (1) The DBIM is a bank that has the power to manage, acquire or 
dispose of assets of a plan, which bank has, as of the last day of its 
most recent fiscal year, equity capital in excess of $1,000,000 and is 
either supervised by a state or federal agency, or by the German 
Federal Banking Supervisory Authority, Bundesanstalt fur 
Finanzdienstleistungsaufsicht (BAFin) in cooperation with the Deutsche 
Bundesbank (Bundesbank);
    (2) Prior to entering into any transaction described in the 
exemption, the DBIM agrees in writing:
    (A) To submit to the jurisdiction of the United States;
    (B) To appoint an agent for service of process in the United 
States, which maybe an affiliate (the Process Agent);
    (C) To consent to service of process on the Process Agent;
    (D) That it may be sued in the United States courts in connection 
with the transactions described in this proposed exemption;
    (E) To comply with, and be subject to, all relevant provisions of 
the Act; and
    (F) That enforcement of any claim arising between a plan(s) and the 
DBIM, resulting from a transaction described in the exemption, will 
occur in the United States courts.
Section II: Leasing of Office Space
    The restrictions of sections 406(a), 406(b)(1), 406(b)(2) and 
407(a) of the Act and the taxes imposed by section 4975 (a) and (b) of 
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply to:
    (a) The leasing of office or commercial space owned by a plan 
managed by a DBIM to an employer any of whose employees are covered by 
the plan or an affiliate of such an employer (as defined in section 
407(d)(7) of the Act), if--
    (1) The plan acquires the office or commercial space subject to an 
existing lease with an employer, or its affiliate as a result of 
foreclosure on a mortgage or deed of trust;
    (2) the DBIM makes the decision on behalf of the plan to foreclose 
on the mortgage or deed of trust as part of the exercise of its 
discretionary authority:
    (3) The exemption provided for transactions engaged in with a plan 
pursuant to section II(a) is effective until the later of the 
expiration of the lease term or any renewal thereof which does not 
require the consent of the plan lessor;
    (4) The amount of space covered by the lease does not exceed 
fifteen (15) percent of the rentable space of the office building or 
the commercial center; and
    (5) The requirements of sections I(c), I(g), and I(h) are satisfied 
with respect to the transaction.
    (b) The leasing of residential space by a plan to a party in 
interest if--
    (1) The party in interest leasing space from the plan is an 
employee of an employer any of whose employees are covered by the plan 
or an employee of an affiliate of such employer (as defined in section 
407(d)(7) of the Act);
    (2) The employee who is leasing space does not have any 
discretionary authority or control with respect to the investment of 
the assets involved in the lease transaction and does not render 
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with 
respect to those assets;
    (3) The employee who is leasing space is not an officer, director, 
or a ten percent (10%) or more shareholder of the employer or an 
affiliate of such employer;
    (4) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of the DBIM, the terms of the transaction are not less 
favorable to the plan than the terms afforded by the plan to other, 
unrelated lessees in comparable arm's length transactions;
    (5) The amount of space covered by the lease does not exceed five 
percent (5%) of the rentable space of the apartment building or multi-
unit residential subdivision, and the aggregate amount of space leased 
to all employees of the employer or an affiliate of such employer does 
not exceed ten percent (10%) of such rentable space; and
    (6) The requirements of section I(a), I(c), I(d), I(g), and I(h) 
are satisfied with respect to the transaction.
Section III: Places of Public Accommodation
    The restrictions of sections 406(a)(1) (A) through (D) and 406(b) 
(1) and (2) of the Act and the taxes imposed by section 4975 (a) and 
(b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the furnishing of services and facilities (and 
goods incidental thereto) by a place of public accommodation owned by a 
plan and managed by a DBIM to a party in interest with respect to the 
plan, if the services and facilities (and incidental goods) are 
furnished on a comparable basis to the general public.
Section IV: Definitions
    For the purposes of this exemption:
    (a) The term ``Deutsche Bank In-house Manager'' or ``DBIM'' means 
an organization which is--
    (1) Deutsche Bank, or a direct or indirect wholly-owned bank or 
trust company subsidiary of Deutsche Bank, supervised under the laws of 
the United States, a State, or Germany, that (A) Has the power to 
manage, acquire, or dispose of assets of a plan, (B) has, as of the 
last day of its most recent fiscal

[[Page 70313]]

year, equity capital (i.e., common and preferred stock, surplus, 
undivided profits, contingency reserves, group contingency reserves, 
and other capital reserves) in excess of $1,000,000,\4\ and (C) has as 
of the last day of its most recent fiscal year under its management and 
control total assets attributable to plans maintained by affiliates of 
the DBIM (as defined in section IV(b)) in excess of $50 million; 
provided that if it has no prior fiscal year as a separate legal entity 
as a result of it constituting a division or group within the 
employer's organizational structure, then this requirement will be 
deemed met as of the date during its initial fiscal year as a separate 
legal entity that responsibility for the management of such assets in 
excess of $50 million was transferred to it from the employer.
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    \4\ The condition in Part IV(a) of the proposed exemption that 
the INHAM have in excess of $1 million in equity capital mirrors the 
parallel requirement in Part IV(a) of QPAM, PTE 84-14.
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    In addition, plans maintained by affiliates of the DBIM and/or the 
DBIM, must have, as of the last day of each plan's reporting year, 
aggregate assets of at least $250 million.
    (b) For purposes of section IV(a) and section IV(h), an 
``affiliate'' of a DBIM means a member of either: (1) A controlled 
group of corporations (as defined in section 414(b)) of the Code of 
which the DBIM is a member; or (2) a group of trades or businesses 
under common control (as defined in section 414(c)) of the Code of 
which the DBIM is a member; provided that ``50 percent'' shall be 
substituted for ``80 percent'' wherever ``80 percent'' appears in 
section 414(b) or 414(c) of the Code or the rules thereunder.
    (c) The term ``party in interest'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person'' as 
defined in section 4975(e)(2) of the Code.
    (d) A DBIM is ``related'' to a party in interest for purposes of 
section I(f) of this exemption if the party in interest (or a person 
controlling, or controlled by, the party in interest) owns a five 
percent (5%) or more interest in the DBIM or if the DBIM (or a person 
controlling, or controlled by, the DBIM) owns a five percent (5%) or 
more interest in the party in interest. For purposes of this 
definition:
    (1) The term ``interest'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation.
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership, or
    (C) The beneficial interest of the entity if the entity is a trust 
or unicorporated enterprise;
    (2) A person is considered to own an interest held in any capacity 
is the person has or shares the authority--
    (A) To exercise any voting rights or to direct some other person to 
exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest; and
    (3) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) For purposes of this exemption, the time as of which any 
transaction occurs is the date upon which the transaction is entered 
into. In addition, in the case of a transaction that is continuing, the 
transaction shall be deemed to occur until it is terminated. If any 
transaction is entered into on or after April 8, 2002, or any renewal 
that requires the consent of the DBIM occurs on or after April 8, 2002, 
and the requirements of this exemption are satisfied at the time the 
transaction is entered into or renewed, the requirements will continue 
to be satisfied thereafter with respect to the transaction. Nothing in 
this paragraph shall be construed as exempting a transaction entered 
into by a plan which becomes a transaction described in section 406 of 
the Act or section 4975 of the Code while the transaction is 
continuing, unless the conditions of the exemption were met either at 
the time the transaction was entered into or at the time the 
transaction would have become prohibited but for this exemption. In 
determining compliance with the conditions of the exemption at the time 
that the transaction was entered into for purposes of the preceding 
sentence, section I(e) will be deemed satisfied if the transaction was 
entered into between a plan and a person who was not then a parety in 
interest.
    (f) Exemption Audit. An ``exemption audit'' of a plan must consist 
of the following:
    (1) A review of the written policies and procedures adopted by the 
DBIM pursuant to Section I(g) for consistency with each of the 
objective requirements of this exemption (as described in Section 
IV(g)).
    (2) A test of a representative sample of the plan's transactions in 
order to make findings regarding whether the DBIM is in compliance with 
(i) the written policies and procedures adopted by the DBIM pursuant to 
section I(g) of the exemption and (ii) the objective requirements of 
the exemption.
    (3) A determination as to whether the DBIM has satisfied the 
definition of a DBIM under the exemption; and
    (4) Issuance of a written report describing the steps performed by 
the auditor during the course of its review and the auditor's findings.
    (g) For purposes of section IV(f), the written policies and 
procedures must describe the following objective requirements of the 
exemption and the steps adopted by the DBIM to assure compliance with 
each of these requirements:
    (1) The definition of a DBIM in section IV(a).
    (2) The requirements of Part I and section I(a) regarding the 
discretionary authority or control of the DBIM with respect to the plan 
assets involved in the transaction, in negotiating the terms of the 
plan to enter into the transaction, and with regard to the decision on 
behalf of the plan to enter into the transaction.
    (3) That any procedure for approval or veto of the transaction 
meets the requirements of section I(a).
    (4) For a transaction described in section I:
    (A) that the transaction is not entered into with any person who is 
excluded from relief under section I(e)(1), section I(e)(2), to the 
extent such person has discretionary authority or control over the plan 
assets involved in the transaction, or section I(f), and
    (B) that the transaction is not described in any of the class 
exemptions listed in section I(b).
    (5) For a transaction described in Part III:
    (A) If the transaction is described in section II(a).
    (i) that the transaction is with a party described in section 
II(a);
    (ii) that the transaction occurs under the circumstances described 
in section II(a)(1) and (2);
    (iii) that the transaction does not extend beyond the period of 
time described in section II(a)(3); and
    (iv) that the percentage test in section II(a)(4) has been 
satisfied or
    (B) If the transaction is described in section II(b),
    (i) that the transaction is with a party described in section 
II(b)(1);
    (ii) that the transaction is not entered into with any person 
excluded from relief under section II(b)(2) to the extent such person 
has discretionary authority or control over the plan assets involved in 
the lease transaction or section II(b)(3); and
    (iii) that the percentage test in section II(b)(5) has been 
satisfied.

[[Page 70314]]

    (h) the term ``plan'' means a plan maintained by the DBIM or an 
affiliate of the DBIM.
    Effective Date of Exemption: The effective date of this exemption 
is April 8, 2002.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice of Proposed Exemption (the Notice) published on March 21, 
2003 at 68 FR 13960.
Written Comments
    The Department received thirty one written comments and three 
requests for a public hearing from interested persons in response to 
the Notice. The Department forwarded copies of the comments to Deutsche 
Bank and requested that Deutsche Bank address in writing the various 
concerns raised by the commentators. Many of the comments fell into 
broad categories to which Deutsche Bank responded collectively. Where a 
single commentator raised a unique issue, such issue was responded to 
individually. The comments and Deutsche Bank's responses are summarized 
below.
    Several commentators questioned whether the proposed exemption 
reduces or eliminates their benefits under their Deutsche Bank plans. 
Deutsche Bank responded that the proposed exemptions does not address, 
much less reduce or eliminate, benefits under the plans.
    One commentator asked what safeguards are in place under the 
proposed exemption. Deutsche Bank responded that protective conditions 
for the proposed exemption are described in the Notice. Those 
conditions are essentially the same as the protective conditions found 
in PTE 96-23, 61 Fed. Reg. 15975 (Apr. 10, 1996), which provides relief 
with respect to in-house asset managers that is substantially similar 
to the relief provided in the proposed exemption. Deutsche Bank 
represented that it will comply with all such conditions.
    One commentator expressed concern about the proposed exemption to 
the extent it allows a bank supervised under the laws of Germany to act 
as an in-house investment manager, asserting that current economic 
pressures will distract German authorities from adequately regulating 
such banks. Deutsche Bank responded that the Department has implicitly 
recognized the present capability of Germany authorities to adequately 
supervise banks subject to German law by recently granting exemptive 
relief (in many different contexts) where the affected bank or other 
person is subject to supervision under German law. See, e.g., PTE 2003-
20, 68 Fed. Reg. 40689 (July 8, 2003); PTE 2003-12, 68 Fed. Reg. 34648 
(June 10, 2003); PTE 2003-11, 68 Fed. Reg. 34646 (June 10, 2003); PTE 
2002-48, 67 Fed. Reg. 62827 (Oct. 8, 2002); PTE 2002-31, 67 Fed. Reg. 
42072 (June 20, 2002). Additionally, Deutsche Bank responded that the 
German authorities are actively focused on banking regulation. Last 
year, Germany adopted its Law on Integrated Financial Services 
Supervision (Gesetz ueber die integrierte Finanzaufsicht--FinDAG), 
pursuant to which the Federal Authority for Financial Services 
Supervision (Bundesanstalt fuer Finanzdiensteleistungsaufsicht--BAFin) 
was established. The functions of the former offices for banking 
supervision (Gundesaufsichtsamt fuer das Kreditwesen--BAKred), 
insurance supervision (Bundesaufsichtsamt fuer das Versicherungswesen--
BAV), and securities supervision (Bundesaufsichtsamt fuer den 
Wertpapierhandel--BAWe) have been combined in this single state 
regulator that supervises banks, financial services institutions, and 
insurance undertakings across the entire financial market and comprises 
all the key functions of consumer protection and solvency supervision. 
The BAFin was created to ensure a consistent regulation and supervision 
of the financial services and markets in Germany through one single 
authority.
    Several commentators asked whether ERISA will continue to govern 
the plans and their in-house investment managers if the proposed 
exemption is granted. Deutsche Bank responded that ERISA will continue 
to govern its plans, that the in-house investment managers to which the 
proposed exemption applies will be subject to the same rules and 
regulations under ERISA that govern the plan currently, and that any 
foreign in-house managers can be sued in the United States. Deutsche 
Bank represented that it will fully comply with all laws respecting its 
plans.
    Some commentators questioned whether the exemption is in the 
interest of plan participants. Deutsche Bank responded that, as 
reflected in the Notice, the exemption allows plans to take greater 
advantage of the investment management expertise and experience of 
Deutsche Bank, the world's largest bank in terms of assets and one of 
the world's largest asset managers, which will provide investment 
management services to the plans without a fee.
    Several commentators requested general clarification of the 
proposed exemption, and others expressed concern about conflicts of 
interest arising from in-house investment management. In response, 
Deutsche Bank stated that, under PTE 96-23, the Department has 
essentially granted the relief with respect to in-house asset managers 
that is provided in the proposed exemption. The only substantial 
difference between PTE 96-23 and the proposed exemption is that the 
proposed exemption allows the in-house adviser to be a bank supervised 
under the laws of the United States, a State, or Germany, rather than a 
registered investment adviser. Although such banks are not subject to 
registration under the Investment Advisers Act of 1940, they are 
experienced investment advisers and subject to adequate regulations by 
competent government authorities. Deutsche Bank also responded that the 
proposed exemption does not negate the legal protections of ERISA, 
including the requirement that investment managers discharge their 
duties with respect to the plans solely in the interest of the 
participants and beneficiaries.
    Several commentators expressed concern, asked questions, or made 
recommendations with respect to their benefits, plan administration, or 
plan design. While these comments do not relate to the terms of the 
proposed exemption, Deutsche Bank represents that it will contact those 
commentators and attempt to address their issues.
    One commentator requested that the exemption not be granted, but 
provided no basis for his position. Since the commentator provided no 
basis for his position, the Department believes that no response is 
necessary.
    With respect to the requests for a hearing, the Department has 
determined that a public hearing is not necessary in this case because 
none of the interested persons requesting a hearing provided any 
substantive information justifying such request. In addition, the 
Department is satisfied that the exemption contains adequate 
independent safeguards to protect the interests of the plans and their 
participants and beneficiaries.
    The Department has determined to modify section IV(h) of the final 
exemption as follows in order to provide consistency with PTE 96-23:
    (h) the term ``plan'' means a plan maintained by the DBIM or an 
affiliate of the DBIM.
    Accordingly, after giving full consideration to the entire record, 
including the comments by the commentators, and the responses of 
Deutsche Bank, the Department has determined to grant the exemption as

[[Page 70315]]

modified herein. In this regard, the comments submitted to the 
Department have been included as part of the public record of the 
exemption application. The complete application file, including all 
supplemental submissions received by the Department, is made available 
for public inspection in the Public Documents Room of the Employee 
Benefits Security Administration, Room N-1513, U.S. Department of 
Labor, 200 Constitution Ave. NW, Washington DC 20210.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8540 (this is not a toll-free number).

The National Electrical Benefit Fund (the Plan) Located in Rockville, 
Maryland

[Prohibited Transaction Exemption No. 2003-37; Application No. D-11136]

Exemption

    The restrictions of sections 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1) (A) through (D) of the Code, shall not apply 
effective October 17, 2002 to Bank of America, N.A. (the Bank) 
providing a guaranty of repayment for the benefit of the bondholders in 
the form of an Irrevocable Direct Draw Letter of Credit No. 3051512 
(Letter of Credit) and the Partnership's subsequent reimbursement to 
the Bank of amounts advanced by the Bank pursuant to the Letter of 
Credit in connection with the investment by the Plan in Colma Apartment 
Associates, L.P. (the Partnership). This exemption is conditioned upon 
the adherence to the material facts and representations described 
herein and upon the satisfaction of the following requirements:
    (a) The Plan's investment in the Partnership is on terms no less 
favorable to the Plan than those which the Plan could obtain in arm's 
length transactions with unrelated parties;
    (b) The decisions on behalf of the Plan to invest in the 
Partnership and consent to the terms of the reimbursement agreement in 
favor of the Bank are made by fiduciaries, which are not included 
among, and are independent of and unaffiliated with; the Bank;
    (c) The investment in the Partnership represents no more than .5% 
of the total assets of the Plan; and
    (d) The general partners of the Partnership are independent of the 
Plan and of the Bank of America.
    (e) The Plan shall have no obligation to fund its capital 
contribution unless and until (i) all conditions imposed by the 
construction lender regarding disbursement to the Partnership of 
$25,950,000 of the tax-exempt bond construction financing proceeds have 
been satisfied by the Partnership; and (ii) the Department grants the 
proposed exemption; and
    (f) The Plan's capital contribution will be used solely for the 
purpose of reimbursing Bank of America for the draw on the Letter of 
Credit.

Effective Date of Exemption: The effective date of this exemption is 
October 17, 2002.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice of Proposed Exemption published on September 29, 2003 at 68 
FR 56008.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8540 (this is not a toll-free number).

Aetna Life Insurance Company (Aetna) and UBS Realty Investors LLC UBS 
Realty) Located in Hartford, Connecticut

[Prohibited Transaction Exemption 2003-; Exemption Application No. D-
11167]

Exemption

Section I--Exemption for Certain Transactions Involving the Management 
of Investments Shared by Two or More Accounts
    The restrictions of certain sections of the Act and the sanctions 
resulting from the application of certain parts of section 4975 of the 
Code shall not apply to the following transactions if the conditions 
set forth in Section IV are met:
    (a) Transfers Between Accounts--The restrictions of section 
406(b)(2) of the Act shall not apply to the sale or transfer of an 
interest in a shared investment (including a shared partnership 
interest) between two or more Accounts (except the General Account), 
provided that each ERISA-Covered Account pays no more, or receives no 
less, than fair market value for its interested in a shared investment.
    (b) Joint Sales of Property--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 to the sale to a 
third party of the entire interest in a shared investment (including a 
shared partnership interest) by two or more Accounts, provided that 
each ERISA-Covered Account receives no less than fair market value for 
its interest in the shared investment.
    (c) Additional Capital Contributions--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(b)(1)(A) through (E) of the Code, shall not apply either to the 
making of a proportionate equity capital contribution by one or more of 
the Accounts to a shared investment; or to the making of a 
Disproportionate [as defined in Section V(e)] equity capital 
contribution (or the failure to make such additional contribution) by 
the one or more of such Accounts which results in an adjustment in the 
equity ownership interests of the Accounts in the shared investment on 
the basis of the fair market value of such interests subsequent to such 
contribution, provided that each ERISA-Covered Account is given an 
opportunity to make a proportionate contribution.
    (d) Lending of Funds--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(a)(1)(A) through (E) of the Code, shall not apply to the lending 
of funds from the General Account to an ERISA-Covered Account to enable 
the ERISA-Covered Account to make an additional proportionate 
contribution, provided that such loan--
    (A) Is unsecured and non-recourse plans;
    (B) Bears interest at a rate not to exceed the prevailing rate on 
90-day Treasury Bills;
    (C) Is not callable at any time by the General Account; and
    (D) Is prepayable at any time without penalty.
    (e) Shared Debt Investments--In the case of a debt investment that 
is shared between two or more Accounts, including one or more of the 
ERISA-Covered Accounts:
    (1) The restrictions of sections 406(a) and 406(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 any material modification in the terms of the 
loan agreement resulting from a request by the borrower or any decision 
regarding the action to be taken, if any, on behalf of the Accounts in 
the event of a loan default by the borrower;
    (2) the restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of one or more 
ERISA-Covered

[[Page 70316]]

Accounts: (A) Not to modify a loan agreement as requested by the 
borrower; or (B) to exercise any rights provided in the loan agreement 
in the event of a loan default by the borrower, even though the 
independent fiduciary for one of such Accounts has approved such 
modification or has not approved the exercise of such rights; and
    (3) the restrictions of section 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 either to the proportionate acquisition of 
additional debt by one or more of the Accounts to a shared debt 
investment, or to the acquisition of Disproportionate additional debt 
(or the failure to acquire such additional debt) by one or more of such 
Accounts which results in an adjustment in the amount of debt held by 
the Accounts in the shared investment provided that each ERISA-Covered 
Account is given an opportunity to acquire additional debt on a 
proportionate basis.
Section II--Exemption for Certain Transactions Involving the Management 
of Partnership Interests Shared by Two or More Accounts
    The restrictions of certain sections of the Act and the sanctions 
resulting from the application of certain parts of section 4975 of the 
Code shall not apply to the following transactions resulting from the 
sharing of an investment in a real estate partnership between two or 
more Accounts, if the conditions set forth in Section IV are met:
    (a) Additional Capital Contributions--(1) 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(a)(1)(A) through (E) of the Code, shall not apply 
either to the making of additional proportionate equity capital 
contributions by one or more Accounts participating in the partnership; 
or to the making of Disproportionate (as defined Section V(e)) equity 
capital contributions by one or more of such Accounts which results in 
an adjustment in the equity ownership interest of the Accounts in the 
shared partnership investment on the bases of the fair market value of 
such interests subsequent to such contributions; provided that each 
ERISA-Covered Account is given an opportunity to make a proportionate 
contribution.
    (2) 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 to the lending of funds from the General Account 
to an ERISA-Covered Account to enable the ERISA-Covered Account to make 
an additional proportionate capital contribution, provided that such 
loan--
    (A) Is unsecured and non-recourse with respect to the participating 
plans,
    (B) bears interest at a rate not to exceed the prevailing rate on 
90-day Treasury Bills,
    (C) is not callable at any time by the General Account, and
    (D) is prepayable at any time without penalty.
    (3) The restrictions of section 406(b)(2) of the Act shall not 
apply to the making of Disproportionate additional equity capital 
contributions (or the failure to make such additional contributions) to 
the partnership by Accounts other than the General Account which result 
in an adjustment in the equity ownership interests of the ERISA-Covered 
Accounts in the partnership on the basis of the fair market value of 
such partnership interests subsequent to such contributions, provided 
that each ERISA-Covered Account is given an opportunity to provide its 
proportionate share of the additional equity capital contributions; and
    (4) In the event a co-partner fails to provide all or any part of 
its proportionate share of an additional equity capital contribution, 
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 to the making of Disproportionate additional equity capital 
contributions to the partnership by an Account up to the amount of such 
contribution not provided by the co-partner which result in an 
adjustment in the equity ownership interests of the Accounts in the 
partnership on the basis provided in the partnership agreement, 
provided that such ERISA-Covered Account is given an opportunity to 
participate in all additional equity capital contributions on a 
proportionate basis.
    (b) Third Party Purchase Offers--(1) In the case of an offer by a 
third party to purchase any property owned by the partnership, 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 to the acquisition by the Accounts, including one or more 
ERISA-Covered Account[s], on either a proportionate or Disproportionate 
basis of a co-partner's interest in the partnership in connection with 
a decision on behalf of such Accounts to reject such purchase offer, 
provided that each ERISA-Covered Account is first given an opportunity 
to participate in the acquisition on a proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any acceptance by Aetna or UBS Realty on behalf of two or more 
Accounts, including one or more ERISA-Covered Account[s], of an offer 
by a third party to purchase a property owned by the partnership even 
though the independent fiduciary for one or more of such ERISA-Covered 
Account[s] has not approved the acceptance of the offer where all of 
the Accounts (other than the General Account) participating in such 
investment are not in agreement on how to proceed with respect to such 
offer, provided that the declining Account[s] are first afforded the 
opportunity to buy out both the co-partner and ``selling'' Account's 
interests in the partnership.
    (c) Rights of First Refusal--(1) In the case of the right to 
exercise a right of first refusal described in a partnership agreement 
to purchase a co-partner's interest in the partnership at the price 
offered for such interest by a third party, 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 to 
the acquisition by such Account, including one or more ERISA-Covered 
Account[s], on either a proportionate or Disproportionate basis of a 
co-partner's interest in the partnership in connection with the 
exercise of such a right of first refusal, provided that each ERISA-
Covered Account is first given an opportunity to participate on a 
proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of the ERISA-
Covered Accounts not to exercise such a right of first refusal even 
though the independent fiduciary for one or more of such ERISA-Covered 
Accounts has approved the exercise of the right of first refusal where 
all of the Accounts participating in such investment (other than the 
General Account) are not in agreement on how to proceed with respect to 
such right of first refusal, provided that the Accounts that approved 
the exercise of the right of first refusal are offered the opportunity 
to buy-out the co-partner on their own.

[[Page 70317]]

    (d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell 
option set forth in the partnership agreement, 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 to the 
acquisition by one or more of the Accounts on either a proportionate or 
Disproportionate basis of a co-partner's interest in the partnership in 
connection with the exercise of such a buy-sell option, provided that 
each ERISA-Covered Account is first given the opportunity to 
participate on a proportionate basis; and
    (2) The restrictions of section 406(b)(2) of the Act shall not 
apply to any decision by Aetna or UBS Realty on behalf of two or more 
Accounts, including one or more ERISA-Covered Account[s], to sell the 
interest of such Accounts in the partnership to a co-partner even 
though the independent fiduciary for one or more of such ERISA-Covered 
Account[s] has not approved such sale where all of the Accounts 
participating in such investment (other than the General Account) are 
not in agreement on how to proceed with respect to the buy-sell option, 
provided that such disapproving Account is first afforded the 
opportunity to purchase the entire interest of the co-partner.
Section III--Exemption for Transactions Involving a Partnership or 
Persons Related to a Partnership
    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply, if 
the conditions in Section IV are met, to any additional equity or debt 
capital contributions to a partnership, or any transaction with the co-
partner which arises in connection with the operation of the 
partnership, by an ERISA-Covered Account that is participating in an 
interest in the partnership, or to any material modification in the 
terms of, or action taken upon default with respect to, a loan to the 
partnership in which the ERISA-Covered Account has an interest as a 
lender, where the partnership is a party in interest solely by reason 
of the ownership on behalf of the General Account of a 50 percent or 
more interest in such joint venture.
Section IV--General Conditions
    (a) The decision to participate in any ERISA-Covered Account that 
shares real estate investments must be made by plan fiduciaries who are 
totally unrelated to Aetna, UBS Realty and their respective affiliates. 
This condition shall not apply to plans covering employees of Aetna, 
UBS Realty or any of their respective affiliates.
    (b) Each contractholder or prospective contractholder in an ERISA-
Covered Account which shares or proposes to share real estate 
investments is provided with a written description of potential 
conflicts of interest that may result from the sharing, a copy of the 
notice of pendency, and a copy of the exemption as granted.
    (c) An independent fiduciary must be appointed on behalf of each 
ERISA-Covered Account participating in the sharing of investments. The 
independent fiduciary shall be either:
    (1) A business organization which has at least five years of 
experience with respect to commercial real estate investments,
    (2) A committee comprised of one or more individuals who each have 
at least five years of experience with respect to commercial real 
estate investments, or
    (3) The plan sponsor (or its designee) of a plan (or plans) that is 
the sole participant in an ERISA-Covered Account.
    (d) The independent fiduciary or independent fiduciary committee 
member shall not be or consist of Aetna, UBS Realty or any of their 
respective affiliates.
    (e) No organization or individual may serve as an independent 
fiduciary for an ERISA-Covered Account for any fiscal year if the gross 
income (other than fixed, non-discretionary retirement income and any 
cost of living increases thereon) received by such organization or 
individual (or any partnership or corporation of which such 
organization or individual is an officer, director, or ten percent or 
more partner or shareholder) from Aetna, UBS Realty, any of their 
respective affiliates, and the ERISA-Covered Accounts for that fiscal 
year exceeds five percent of its or his annual gross income from all 
sources for the prior fiscal year. If such organization or individual 
had no income for the prior fiscal year, the five percent limitation 
shall be applied with reference to the fiscal year in which such 
organization or individual serves as an independent fiduciary. The 
income limitation will include income for services rendered to the 
Accounts as independent fiduciary under any prohibited transaction 
exemption(s) granted by the Department. However, such income limitation 
shall not include any income for services rendered to Single Customer 
ERISA-Covered Account by an independent fiduciary selected by the Plan 
Sponsor to the extent determined by the Department in any subsequent 
prohibited transaction proceeding.
    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 ten percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow any funds from, Aetna, UBS Realty, any of their respective 
affiliates, or any Account managed by Aetna, UBS Realty or any of their 
respective affiliates, during the period that such organization or 
individual serves as an independent fiduciary and continuing for a 
period of six months after such organization or individual ceases to be 
an independent fiduciary, or negotiate any such transaction during the 
period that such organization or individual serves as independent 
fiduciary.
    (f) The independent fiduciary acting on behalf of an ERISA-Covered 
Account shall have the responsibility and authority to approve or 
reject recommendations made by Aetna, UBS Realty or any of their 
respective affiliates for each of the transactions in this exemption. 
Aetna, UBS Realty and any of their respective affiliates shall involve 
the independent fiduciary in the consideration of contemplated 
transactions prior to the making of any decisions, and shall provide 
the independent fiduciary with whatever information may be necessary in 
making its determinations.
    In addition, the independent fiduciary shall review on an as-needed 
basis, but not less than twice annually the shared real estate 
investments in the ERISA-Covered Account to determine whether the 
shared real estate investments are held in the best interest of the 
ERISA-Covered Account.
     (g) Neither UBS Realty nor any of its affiliates is a co-investor 
in the shared investment or partnership to which an exemption provided 
by Sections I, II or III above is being applied; provided, however, 
that this condition shall not preclude an employee benefit plan 
maintained by Aetna, UBS Realty or any of their affiliates from 
participating in an ERISA-Covered Account that is such a co-investor.
    (h) Aetna or UBS Realty maintains for a period of six years from 
the date of the transaction the records necessary to enable the persons 
described in paragraph (i) of this Section 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

[[Page 70318]]

Aetna, UBS Realty or any of their respective affiliates, the records 
are lost or destroyed prior to the end of the six-year period.
    (i) Except as provided in paragraph (2) of this subsection (i) and 
notwithstanding any provisions of subsection (a)(2) and (b) of section 
504 of the Act, the records referred to in subsection (h) of this 
Section are unconditionally available at their customary location for 
examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service,
    (B) Any fiduciary of a plan participating in an ERISA-Covered 
Account who has authority to acquire or dispose of the interests of the 
plan, or any duly authorized employee or representative of such 
fiduciary,
    (C) Any contributing employer to any plan participating in an 
ERISA-Covered Account or any duly authorized employee or representative 
of such employer, and
    (D) Any participant or beneficiary of any plan participating in an 
ERISA-Covered Account, or any duly authorized employee or 
representative of such participant or beneficiary.
    (2) None of the persons described in subparagraphs (B) through (D) 
of this subsection (i) shall be authorized to examine trade secrets of 
Aetna, UBS Realty or any of their respective affiliates, or commercial 
or financial information which is privileged or confidential.
    (j) Given that this exemption is a replacement to a previous 
prohibited transaction exemption (see PTE 91-10, 56 FR 3273, January 
29, 1991) any approvals, appointments, disclosures, and decisions made 
or given pursuant to PTE 91-10 shall remain in full force and effect 
with respect to this replacement exemption.
Section V--Definitions
    For the purposes of this exemption:
    (a) An ``affiliate'' of Aetna or UBS Realty, respectively 
includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with Aetna or UBS Realty, respectively.
    (2) Any officer, director or employee or Aetna, UBS Realty or any 
person described in section V(a)(1), and
    (3) Any partnership in which Aetna or UBS Realty is a partner.
    (b) An ``Account'' means any account maintained by Aetna and, 
except in the case of the General Account, managed by UBS Realty. The 
term ``Account'' includes the General Account, ERISA-Covered Accounts, 
Pooled Accounts and Single Customer Accounts, as well as combinations 
of accounts other than the General Account which are consolidated for 
investment management purposes as if they were a single account.
    (c) The ``General Account'' means the general asset account of 
Aetna and any of its affiliates which are insurance companies licensed 
to do business in at least one State as defined in section 3(10) of the 
Act.
    (d) An ``ERISA-Covered Account'' means any Account (other than the 
General Account) in which employee benefit plans subject to Title I or 
Title II of the Act participate.
    (e) ``Disproportionate'' means not in proportion to an Account's 
existing equity ownership interest in an investment, partnership or 
partnership interest in a debt.
    (f) The ``Transition Effective Date'' is the effective date of the 
delegation by Aetna to UBS Realty of the management of the Accounts, 
which has been designated as October 1, 2003.
    Effective Date: This exemption is effective as of October 1, 2003, 
the Transition Effective Date.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the notice of proposed exemption published on September 29, 2003, at 68 
FR 55993.
    Comments and Modification: In response to a request made by the 
applicant, the Department has added a condition to the exemption (see 
Section IV (j)) stating that any approvals, appointments, disclosures, 
and decisions made or given pursuant to the prior exemption for Aetna 
(i.e., PTE 91-10) shall remain in full force and effect with respect to 
this exemption. In this regard, the applicant represents that the 
appropriate plan fiduciaries for ERISA-Covered Accounts were informed 
that any approvals, appointments, disclosures and decisions made or 
given pursuant to PTE 91-10 shall remain in full force and effect after 
the date that this exemption is published in the Federal Register. In 
addition, as noted in the notice of proposed exemption (see 68 FR at 
55994, column one, last sentence of paragraph 1 of the Summary of Facts 
and Representations), PTE 91-10 shall be superseded and replaced by 
this exemption for all transactions entered into after the Transition 
Effective Date.
    No other written comments, and no requests for a public hearing, 
were received by the Department. Accordingly, the Department has 
decided to grant the exemption as modified.

FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski of the Department, 
at telephone (202) 693-8545. (This is not a toll-free number).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional rules. Furthermore, the 
fact that a transaction is subject to an administrative or statutory 
exemption is not dispositive of whether the transaction is in fact a 
prohibited transaction; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 12th day of December, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, Department of Labor.
[FR Doc. 03-31103 Filed 12-16-03; 8:45 am]

BILLING CODE 4510-29-M