[Federal Register Volume 64, Number 17 (Wednesday, January 27, 1999)]
[Notices]
[Pages 4127-4132]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-1849]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-04; Exemption Application No. D-
10288, et al.]
Grant of Individual Exemptions; Salomon Smith Barney Inc, et al
AGENCY: Pension and Welfare Benefits 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).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) 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 exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Salomon Smith Barney, Inc. Located in New York, New York.
[Prohibited Transaction Exemption 99-04; Exemption Application No.
D-10288]
Exemption
Section I--Transactions
A. The restrictions of section 406(a)(1)(A) through (D) 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 to any purchase or sale of securities between certain
affiliates of Salomon Smith Barney, Inc. (SSB) which are foreign
broker-dealers or banks (the Foreign Affiliates, as defined below) and
employee benefit plans (the Plans) with respect to which the Foreign
Affiliates are parties in interest, including options written by a
Plan, SSB, or a Foreign Affiliate, provided that the following
conditions, and the General Conditions of Section II, are satisfied:
(1) The Foreign Affiliate customarily purchases and sells
securities for its own account in the ordinary course of its business
as a broker-dealer or bank;
(2) The terms of any transaction are at least as favorable to the
Plan as those the Plan could obtain in a comparable arm's length
transaction with an unrelated party; and
(3) Neither the Foreign Affiliate nor an affiliate thereof has
discretionary authority or control with respect to the investment of
the Plan assets involved in the transaction, or renders investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets, and the Foreign Affiliate is a
[[Page 4128]]
party in interest or disqualified person with respect to the Plan
assets involved in the transaction solely by reason of section 3(14)(B)
of the Act or section 4975(e)(2)(B) of the Code, or by reason of a
relationship to a person described in such sections. For purposes of
this paragraph, the Foreign Affiliate shall not be deemed to be a
fiduciary with respect to a Plan solely by reason of providing
securities custodial services for a Plan.
B. The restrictions of sections 406(a)(1)(A) through (D) and
406(b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(D) of the Code, shall not apply to any extension of credit to the
Plans by the Foreign Affiliates to permit the settlement of securities
transactions, regardless of whether they are effected on an agency or a
principal basis, or in connection with the writing of options
contracts, provided that the following conditions and the General
Conditions of Section II, are satisfied:
(1) The Foreign Affiliate is not a fiduciary with respect to the
Plan assets involved in the transaction, unless no interest or other
consideration is received by the Foreign Affiliate or an affiliate
thereof, in connection with such extension of credit; and
(2) Any extension of credit would be lawful under the Securities
Exchange Act of 1934 (the 1934 Act) and any rules or regulations
thereunder, if the 1934 Act, rules, or regulations were applicable.
C. The restrictions of section 406(a)(1)(A) through (D) 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 to the lending of securities to the Foreign Affiliates by the
Plans, provided that the following conditions, and the General
Conditions of Section II, are satisfied:
(1) Neither the Foreign Affiliate nor an affiliate thereof has
discretionary authority or control with respect to the investment of
the Plan assets involved in the transaction, or renders investment
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to
those assets;
(2) The Plan receives from the Foreign Affiliate (by physical
delivery, by book entry in a securities depository, wire transfer, or
similar means) by the close of business on the day the loaned
securities are delivered to the Foreign Affiliate, collateral
consisting of cash, securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, irrevocable U.S. bank
letters of credit issued by persons other than the Foreign Affiliate or
an affiliate of the Foreign Affiliate, or any combination thereof. All
collateral shall be in U.S. dollars, or dollar-denominated securities
or bank letters of credit, and shall be held in the United States;
(3) The collateral has, as of the close of business on the
preceding business day, a market value equal to at least 100 percent of
the then market value of the loaned securities (or, in the case of
letters of credit, a stated amount equal to same);
(4) The loan is made pursuant to a written loan agreement (the Loan
Agreement), which may be in the form of a master agreement covering a
series of securities lending transactions, and which contains terms at
least as favorable to the Plan as those the Plan could obtain in a
comparable arm's length transaction with an unrelated party;
(5) In return for lending securities, the Plan either: (a) Receives
a reasonable fee, which is related to the value of the borrowed
securities and the duration of the loan, or (b) has the opportunity to
derive compensation through the investment of cash collateral. In the
latter case, the Plan may pay a loan rebate or similar fee to the
Foreign Affiliate, if such fee is not greater than what the Plan would
pay in a comparable arm's length transaction with an unrelated party;
(6) The Plan receives at least the equivalent of all distributions
on the borrowed securities made during the term of the loan, including,
but not limited to, cash dividends, interest payments, shares of stock
as a result of stock splits, and rights to purchase additional
securities, that the Plan would have received (net of applicable tax
withholdings) 1 had it remained the record owner of such
securities;
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\1\ The Department notes the applicant's representation that
dividends and other distributions on foreign securities payable to a
lending Plan may be subject to foreign tax withholdings and that the
Foreign Affiliate will always put the Plan back in at least as good
a position as it would have been in had it not loaned the
securities.
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(7) If the market value of the collateral as of the close of
trading on a business day falls below 100 percent of the market value
of the borrowed securities as of the close of trading on that day, the
Foreign Affiliate delivers additional collateral, by the close of the
Plan's business on the following business day, to bring the level of
the collateral back to at least 100 percent. However, if the market
value of the collateral exceeds 100 percent of the market value of the
borrowed securities, the Foreign Affiliate may require the Plan to
return part of the collateral to reduce the level of the collateral to
100 percent;
(8) Before entering into a Loan Agreement, the Foreign Affiliate
furnishes to the independent Plan fiduciary: (a) The most recent
available audited statement of the Foreign Affiliate's financial
condition, (b) the most recent available unaudited statement of its
financial condition (if more recent than the audited statement), and
(c) a representation that, at the time the loan is negotiated, there
has been no material adverse change in its financial condition that has
not been disclosed since the date of the most recent financial
statement furnished to the independent Plan fiduciary. Such
representation may be made by the Foreign Affiliate's agreeing that
each loan of securities shall constitute a representation that there
has been no such material adverse change.
(9) The Loan Agreement and/or any securities loan outstanding may
be terminated by the Plan at any time, whereupon the Foreign Affiliate
shall deliver certificates for securities identical to the borrowed
securities (or the equivalent thereof in the event of reorganization,
recapitalization, or merger of the issuer of the borrowed securities)
to the Plan within: (a) The customary delivery period for such
securities, (b) five business days, or (c) the time negotiated for such
delivery by the Plan and the Foreign Affiliate, whichever is least, or,
alternatively, such period as permitted by Prohibited Transaction Class
Exemption (PTCE) 81-6 (46 FR 7527, January 23, 1981, as amended at 52
FR 18754, May 19, 1987), as it may be amended or superseded;
2
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\2\ PTCE 81-6 provides an exemption under certain conditions
from section 406(a)(1)(A) through (D) of the Act and the
corresponding provisions of section 4975(c) of the Code for the
lending of securities that are assets of an employee benefit plan to
a U.S. broker-dealer registered under the 1934 Act (or exempted from
registration under the 1934 Act as a dealer in exempt Government
securities, as defined therein) or to a U.S. bank, that is a party
in interest with respect to such plan.
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(10) In the event that the loan is terminated and the Foreign
Affiliate fails to return the borrowed securities, or the equivalent
thereof, within the time described in paragraph 9, the Plan may
purchase securities identical to the borrowed securities (or their
equivalent as described above) and may apply the collateral to the
payment of the purchase price, any other obligations of the Foreign
Affiliate under the Loan Agreement, and any expenses associated with
the sale and/or purchase. The Foreign Affiliate is obligated to pay,
under the terms of the Loan Agreement,
[[Page 4129]]
and does pay, to the Plan the amount of any remaining obligations and
expenses not covered by the collateral, plus interest at a reasonable
rate. Notwithstanding the foregoing, the Foreign Affiliate may, in the
event it fails to return borrowed securities as described above,
replace non-cash collateral with an amount of cash not less than the
then current market value of the collateral, provided that such
replacement is approved by the independent Plan fiduciary; and
(11) The independent Plan fiduciary maintains the situs of the Loan
Agreement in accordance with the indicia of ownership requirements
under section 404(b) of the Act and the regulations promulgated under
29 CFR 2550.404(b)-1. However, in the event that the independent Plan
fiduciary does not maintain the situs of the Loan Agreement in
accordance with the indicia of ownership requirements of Section 404(b)
of the Act, the Foreign Affiliate shall not be subject to the civil
penalty which may be assessed under section 502(i) of the Act, or the
taxes imposed by section 4975(a) and (b) of the Code.
If the Foreign Affiliate fails to comply with any condition of the
exemption in the course of engaging in a securities lending
transaction, the Plan fiduciary who caused the Plan to engage in such
transaction shall not be deemed to have caused the Plan to engage in a
transaction prohibited by section 406(a)(1)(A) through (D) of the Act
solely by reason of the Foreign Affiliate's failure to comply with the
conditions of the exemption.
Section II--General Conditions
A. The Foreign Affiliate is a registered broker-dealer or bank
subject to regulation by a governmental agency, as described in Section
III.B, and is in compliance with all applicable rules and regulations
thereof in connection with any transactions covered by this exemption;
B. The Foreign Affiliate, in connection with any transactions
covered by this exemption, is in compliance with the requirements of
Rule 15a-6 (17 CFR 240.15a-6) of the 1934 Act, and Securities and
Exchange Commission (S.E.C.) interpretations thereof, providing for
foreign affiliates a limited exemption from U.S. broker-dealer
registration requirements;
C. Prior to any transaction, the Foreign Affiliate enters into a
written agreement with the Plan in which the Foreign Affiliate consents
to the jurisdiction of the courts of the United States for any civil
action or proceeding brought in respect of the subject transactions;
D. The Foreign Affiliate maintains, or causes to be maintained,
within the United States for a period of six years from the date of any
transaction such records as are necessary to enable the persons
described in paragraph E to determine whether the conditions of the
exemption have been met, except that----
(1) a party in interest with respect to a Plan, other than the
Foreign Affiliate, shall not be subject to a civil penalty under
section 502(i) of the Act or the taxes imposed by section 4975 (a) and
(b) of the Code, if such records are not maintained, or not available
for examination, as required by paragraph E; and
(2) a prohibited transaction shall not be deemed to have occurred
if, due to circumstances beyond the Foreign Affiliate's control, such
records are lost or destroyed prior to the end of the six year period;
E. Notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the Foreign Affiliate makes the records
referred to in paragraph (D) unconditionally available during normal
business hours at their customary location to the following persons or
a duly authorized representative thereof: (1) The Department, the
Internal Revenue Service, or the S.E.C.; (2) any fiduciary of a Plan;
(3) any contributing employer to a Plan; (4) any employee organization
any of whose members are covered by a Plan; and (5) any participant or
beneficiary of a Plan. However, none of the persons described in (2)
through (5) of this subsection are authorized to examine the trade
secrets of the Foreign Affiliate or commercial or financial information
which is privileged or confidential.
Section III--Definitions
A. The term affiliate of another person shall include: (1) Any
person directly or indirectly, through one or more intermediaries,
controlling, controlled by, or under common control with such other
person; (2) any officer, director, or partner, employee or relative (as
defined in section 3(15) of the Act) of such other person; and (3) any
corporation or partnership of which such other person is an officer,
director or partner. For purposes of this definition, the term
``control'' means the power to exercise a controlling influence over
the management or policies of a person other than an individual;
B. The term Foreign Affiliate shall mean an affiliate of Salomon
Smith Barney Inc. (or its successor in name within Citigroup) that is
subject to regulation as a broker-dealer or bank by (1) the Ontario
Securities Commission and the Investment Dealers Association in Canada;
(2) the Securities and Futures Authority in the United Kingdom; (3) the
Deutsche Bundesbank and the Federal Banking Supervisory Authority,
i.e., der Bundesaufsichtsamt fuer das Kreditwesen (the BAK) in Germany;
or
(4) the Ministry of Finance and the Tokyo Stock Exchange in Japan;
C. The term security shall include equities, fixed income
securities, options on equity and on fixed income securities,
government obligations, and any other instrument that constitutes a
security under U.S. securities laws. The term ``security'' does not
include swap agreements or other notional principal contracts.
EFFECTIVE DATE: This exemption is effective as of June 7, 1996.
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 October 6, 1998 at 63 FR
53703.
Written Comments
The Department received written comments with respect to the notice
of proposed exemption (the Notice), which were submitted by the
applicant. The comments request certain modifications and additions to
the operative language of the final exemption and to the Summary of
Facts and Representations (the Summary) contained in the Notice (see 63
FR 53705). These modifications and additions are discussed below.
1. First, in order to perfect the record upon which the Notice was
based, the comments provide new information regarding certain corporate
mergers and restructurings that have occurred. In November, 1997, a
subsidiary of the then Travelers Group Inc. (now, Citigroup Inc., as
discussed below) acquired all of the shares of Salomon Inc., the
ultimate parent of Salomon Brothers Inc. (Salomon Bros.). Initially,
Salomon Bros. and Smith Barney Inc. (Smith Barney), an affiliate of
Travelers Group Inc., were operated as separately registered broker-
dealers. However, on September 1, 1998, Salomon Bros. was merged into
Smith Barney, and Smith Barney became the surviving corporation and
changed its name to Salomon Smith Barney Inc. On October 15, 1998,
Salomon Smith Barney Inc. was merged into Pendex Real Estate
Corporation, a New York corporation. The New York entity survived the
merger and changed its name to Salomon Smith Barney Inc., a New York
[[Page 4130]]
corporation. In addition, in April of 1998, Travelers Group Inc. and
Citicorp announced a proposed merger. On October 8, 1998, the merger
closed, and Citicorp was merged into a subsidiary of Travelers Group
Inc. Travelers Group Inc. became a bank holding company and changed its
name to Citigroup Inc.
Accordingly, the applicant requests, and the Department concurs
with, the following revisions to the Notice, which are reflected in
this exemption.
a. All references to Salomon Brothers Inc. should be changed to
Salomon Smith Barney Inc. and all references to Salomon Bros. to SSB.
b. In Paragraph 1 of the Summary, the first two full subparagraphs
and the first sentence of the third subparagraph (see 63 FR 53705,
column 3) should be replaced with the following:
Salomon Smith Barney Inc., a New York corporation, is an
indirect subsidiary of Salomon Smith Barney Holdings Inc., a
Delaware corporation, which in turn is a subsidiary of the Citigroup
Inc. (formerly the Travelers Group Inc.). Salomon Smith Barney Inc.
is one of the largest full-line investment service firms in the
United States. It is registered with and regulated by the S.E.C. as
a broker-dealer, is registered with and regulated by the Commodities
Futures Trading Commission as a futures commission merchant, is a
member of the New York Stock Exchange and other principal securities
exchanges in the United States, and is also a member of the National
Association of Securities Dealers, Inc. As of December 31, 1997, the
then Travelers Group Inc. had approximately $387 billion in assets
and approximately $21 billion in stockholders' equity.
SSB has several affiliates which are broker-dealers or banks.
Those covered by the proposed exemption * * * etc.
c. The references to Salomon Bros. Canada Inc., Salomon Bros. U.K.
Limited, Salomon Bros. U.K. Equity Limited, Salomon Bros. International
Limited, Salomon Bros. AG, and Salomon Bros. Asia should be changed to
Salomon Smith Barney Canada Inc., Salomon Brothers U.K. Limited,
Salomon Brothers U.K. Equity Limited, Salomon Brothers International
Limited, Salomon Brothers AG, and Salomon Smith Barney (Japan) Limited,
respectively.
2. Second, in consideration of the corporate mergers and
restructurings that have occurred or may occur in the future involving
SSB, the comments request that the Department confirm that this
exemption will continue to be effective for any successor entity to
SSB, provided that Citigroup remains the indirect parent corporation of
such successor entity. In this regard, the Department notes that this
exemption would be effective if SSB reorganized or changed its name,
provided that such actions did not occur in connection with the sale of
the underlying assets of SSB to an unrelated third party. Thus, in
response to this comment, the Department has modified the definition of
the term ``Foreign Affiliate'' in Section III.B. of the exemption to
clarify that such term applies to an affiliate of SSB or its successor
in name within Citigroup.
3. Third, the comments request certain modifications in order to
clarify that the provisions of this exemption are consistent with other
recent similar exemptions granted by the Department.3
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\3\ See, e.g., Prohibited Transaction Exemption (PTE) 97-08 (62
FR 4811, January 31, 1997) regarding Morgan Stanley & Co., PTE 97-57
(62 FR 56203) regarding NatWest Securities Corp., and PTE 98-62 (63
FR 71307) regarding Barclays Bank PLC.
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a. The comments state that Section I.A. of the Notice (see 63 FR
53703-4) should be revised to read as follows (note deleted and
italicized language):
A. The restrictions of section 406(a)(1)(A) through (D) 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 to any purchase or sale of securities [delete
``including options on securities''] between certain affiliates of
Salomon Smith Barney Inc. (SSB) which are foreign broker-dealers or
banks (the Foreign Affiliates, as defined below) and employee
benefit plans (the Plans) with respect to which the Foreign
Affiliates are parties in interest, including options written by a
Plan, SSB, or a Foreign Affiliate,* * *
The revised language regarding options, above, is more specific in
order to clarify that such options may be written by a Plan. In this
regard, the Department cautions Plan fiduciaries to understand the
risks and benefits associated with particular options strategies and to
monitor such strategies effectively, in order to act prudently, as
required under section 404(a) of the Act, when making investment
decisions on behalf of a Plan.
b. The comments state that the following sentence should be added
to the end of Section I.A., Paragraph 3 of the Notice (see 63 FR 53704,
column 1):
For purposes of this paragraph, the Foreign Affiliate shall not
be deemed to be a fiduciary with respect to a Plan solely by reason
of providing securities custodial services for a Plan.
c. The comments state that the word ``any'' in Section I.B,
Paragraph 1 of the Notice (see 63 FR 53704, column 1) should be
replaced with the word ``such'' so that the phrase reads ``in
connection with such extension of credit.''
d. The comments state that, in order to avoid any ambiguity,
Footnote 4 of the Summary (see 63 FR 53707, center column) should be
modified by adding the following italicized language:
SSB represents that currently all such requirements under Rule
15a-6 relating to record-keeping of principal transactions would be
applicable [delete ``to''] in respect of any Foreign Affiliate in a
principal transaction that would be covered by this proposed
exemption.
The Department concurs with the applicant's requests and, where
necessary, has so modified the language of this exemption.
4. Fourth, the comments request, as a matter of clarification, that
the following sentence be added to the end of the first subparagraph of
Paragraph 11 in Section I.C. of the Notice (see 63 FR 53705, column 1):
However, in the event that the independent Plan fiduciary does
not maintain the situs of the Loan Agreement in accordance with the
indicia of ownership requirements of Section 404(b) of the Act, the
Foreign Affiliate shall not be subject to the civil penalty which
may be assessed under section 502(i) of the Act, or the taxes
imposed by section 4975(a) and (b) of the Code.
The Department acknowledges the above-described clarification to
the Notice and has so modified the language of this exemption.
5. Fifth, the comments request certain clarifications and additions
to the information contained in Paragraph 6 of the Summary (see 63 FR
53706-07), in order to conform the language of the Summary to the
relevant language of S.E.C. Rule 15a-6 and to reflect certain S.E.C.
interpretations or modifications to that rule, pursuant to a No-Action
letter issued to Cleary, Gottlieb, Steen & Hamilton on April 9, 1997.
a. The comments state that references to ``U.S. major institutional
investor'' and ``major institutional investor'' should be changed to
``major U.S. institutional investor'' in order to be consistent with
Rule 15a-6.
b. The comments state that a footnote should be inserted after the
definition of ``major U.S. institutional investor'' in the third full
subparagraph of Paragraph 6 of the Summary (see 63 FR 53707, column 1)
which reads as follows:
Note that the categories of entities that qualify as ``major
U.S. institutional investors'' has been expanded by an S.E.C. No-
Action letter. See No-Action Letter issued to Cleary, Gottlieb,
Steen & Hamilton on April 9, 1997 (the April 9, 1997 No-Action
Letter).
c. The comments state that another footnote should be inserted
after the text of subparagraph (c)(5) of Paragraph 6 of the Summary
(see 63 FR 53707, center column) which reads as follows:
Under certain circumstances described in the April 9, 1997 No-
Action Letter (e.g.,
[[Page 4131]]
clearance and settlement transactions), there may be direct
transfers of funds and securities between a Plan and a Foreign
Affiliate. Please note that in such situations (as in the other
situations covered by Rule 15a-6), the U.S. broker-dealer will not
be acting as a principal with respect to any duties it is required
to undertake pursuant to Rule 15a-6.
d. The comments state that the following sentence should be
inserted at the end of subparagraph (c)(6) of Paragraph 6 of the
Summary (see 63 FR 53707, center column):
Under certain circumstances, the foreign associated person may
have direct communications and contact with the U.S. institutional
investor. (See April 9, 1997 No-Action Letter.)
The Department acknowledges the above-described clarifications to
the information included in the Summary.
6. Finally, with respect to the lending of securities by a Plan to
a Foreign Affiliate, the applicant states that it wishes to avoid the
necessity of amending this individual exemption each time PTCE 81-6 is
further amended or superseded. Therefore, the comments request that the
following phrase be added to the language at the end of Section I.C.,
Paragraph 9 of the Notice (see 63 FR 53704, column 3), relating to the
required time for delivery of borrowed securities back to the plan:
``or, alternatively, such period as permitted by Prohibited
Transaction Class Exemption (PTCE) 81-6 (46 FR 7527, January 23,
1981, as amended at 52 FR 18754, May 19, 1987), as it may be amended
or superseded.''
In addition, the comment states that the above phrase should be
inserted after the sentence ending ``. . . whichever is least'' in
Paragraph 18 of the Summary (see 63 FR 53708, column 3), also relating
to the required time for delivery of borrowed securities back to the
plan.
The Department has modified the language of this exemption to
reflect the applicant's clarifications to the record, as discussed
above, and also acknowledges such clarifications as they relate to the
information contained in the Notice, as published in the Federal
Register on October 6, 1998.
No other comments were received by the Department.
Accordingly, based on the information contained in the entire
record, the Department has determined to grant the proposed exemption
as modified herein.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Individual Retirement Accounts (the IRAs) for Sharilyn Brune,
Richard C. Glowacki, Carl B. Mockensturm, Arthur T. Parrish, W. Alan
Robertson, David A. Snavely and Duane Stranahan, Jr. (collectively,
the IRA Participants) Located in Holland, OH.
(Prohibited Transaction Exemption 99-05; Application Nos. D-10636--
D-10642, respectively)
Exemption
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 December 1, 1998 to (1) the cash sale by the
IRAs 4 to TTC Holdings, Inc. (TTC), the parent of The Trust
Company of Toledo, N.A., the trustee of the IRAs and a disqualified
person, of certain preferred stock (the Preferred Stock) issued by TTC;
and (2) the arrangement for the subsequent purchase by the IRA
Participants in their individual capacities, from TTC, pursuant to an
agreement with TTC, of an equal number of shares of common stock (the
Common Stock) issued by TTC, provided the following conditions are met:
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\4\ Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the
jurisdiction of Title I of the Employee Retirement Income Security
Act of 1974 (the Act). However, there is jurisdiction under Title II
of the Act pursuant to section 4975 of the Code.
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(a) The terms and conditions of the sale and purchase transactions
were at least as favorable to each IRA as the terms obtainable in an
arm's length transaction with an unrelated party.
(b) The sale by the IRAs of the Preferred Stock and the purchase by
the IRA Participants of the Common Stock, in their individual
capacities, were one-time transactions for cash which occurred on the
same business day;
(c) Each IRA received from TTC, as the sales price for the
Preferred Stock, cash consideration reflecting the fair market value of
such stock as determined by a qualified, independent appraiser;
(d) Each IRA Participant purchased, in his or her individual
capacity, shares of the Common Stock which were equal in number to the
shares of Preferred Stock sold by TTC;
(e) No IRA was required to pay any commissions, fees or other
expenses in connection with each sale transaction; and
(f) An independent fiduciary determined that the transactions
described herein were in the best interest and protective of the IRAs
at the time of the transactions; supervised and monitored such
transactions on their behalf; assured that the conditions of the
proposed exemption were met; and took whatever actions were necessary
and proper to protect the interests of the IRAs, including reviewing
amounts paid by TTC for the Preferred Stock.
EFFECTIVE DATE: This exemption is effective as of December 1, 1998.
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 December 16, 1998 at 63
FR 69319.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department at
(202) 219-8881. (This is not a toll-free number.)
Individual Retirement Accounts (the IRAs) for Robert C. Hummel,
Garth L. Gibson, Hugh B. Force, Ellen K. Davidson and Michael
Davidson (Collectively; the Participants) Located respectively in
Greeley, Colorado; Montrose, Colorado; Fort Collins, Colorado; Green
River, Wyoming; and Green River, Wyoming.
(Prohibited Transaction Exemption 99-06; Exemption Application Nos.
D-10683, D-10684, D-10685, D-10697 and D-10698)
Exemption
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 December 15, 1998, to the cash sales (the Sales)
of certain shares of closely-held common stock of First Mountain
Company (the Stock) by the IRAs 5 to the Participants,
disqualified persons with respect to the IRAs, provided that the
following conditions have been met:
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\5\ Because each IRA has only one Participant, there is no
jurisdiction under 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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1. The terms and conditions of the Sales were at least as favorable
to each IRA as those obtainable in an arm's-length transaction with an
unrelated party;
2. The Sale of the Stock by each IRA was a one-time transaction for
cash;
3. Each IRA received the fair market of the Stock, as was
established by a qualified, independent appraiser, at the time of the
Sale; and
4. The IRAs did not pay any commissions, costs or other expenses in
connection with the Sales.
Effective Date: The exemption is effective as of December 15, 1998.
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 December 16, 1998 at 63
FR 69323 (the Notice).
[[Page 4132]]
Written Comments
The Department received one written comment from the applicant (the
Comment) with respect to the Notice and no requests for a public
hearing. The Comment states that Robb and Lynne Morgan Ruyle did not
consummate the transaction as outlined in the Notice. Instead, Robb and
Lynne Morgan Ruyle each decided to terminate their respective IRAs,
distribute the IRAs' assets to themselves, file the appropriate tax
returns, and pay the penalties and taxes associated with such
distributions. As such, the Applicant states that this exemption need
not apply to the Robb and Lynne Morgan Ruyle IRAs.
The Department concurs and has eliminated all references to the
Robb and Lynne Morgan Ruyle IRAs in this exemption. 6
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\6\ The files containing exemption requests for Robb and Lynn
Morgan Ruyle were assigned numbers D-10687 and D-10686,
respectively. Because the applicant requested that this exemption
not apply to the Robb and Lynn Morgan Ruyle IRAs, the Department has
closed these files administratively.
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Accordingly, the Department has determined to grant the proposed
exemption as modified herein.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department
at (202) 219-8883. (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 exemptions do 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) These exemptions are 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 these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, DC, this 21st day of January, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 99-1849 Filed 1-26-99; 8:45 am]
BILLING CODE 4510-29-P
