[Federal Register Volume 62, Number 21 (Friday, January 31, 1997)]
[Notices]
[Pages 4810-4813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-2388]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 97-07; Exemption Application Nos. D-
10079 Through D-10082, et al.]
Grant of Individual Exemptions; Pikeville National Bank & Trust
Company; Trust Company of Kentucky; and First American Bank
(Collectively, the Banks), 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.
Pikeville National Bank & Trust Company; Trust Company of Kentucky; and
First American Bank (Collectively, the Banks) Located in Pikeville and
Ashland, Kentucky
[Prohibited Transaction Exemption 97-07; Application Numbers D-10079
Through D-10082]
Exemption
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: (1) The cash sales on December 28, 1994 and January
13, 1995, of certain collateralized mortgage obligations (CMOs) and
other mortgage-backed securities (collectively, the Securities) held by
eighty-six (86) employee benefit plans, Keogh plans and individual
retirement accounts (IRAs) for which the Banks act as trustee (the
Plans) to Pikeville National Corporation (PKVL), a party in interest
with respect to the Plans; (2) the ``makewhole'' payments made by PKVL
to the Plans on January 20, 1995, in connection with the sale of
certain Securities by the Plans on the open market on November 2, 1994;
and (3) the proposed additional ``makewhole'' and interest payments to
be made by PKVL to the Plans, as of the
[[Page 4811]]
date the exemption is granted, as a result of: (i) The additional
amounts owed to such Plans based on the amortized cost of the
Securities at the time of the transactions in situations where the
amortized cost exceeded the outstanding principal balance of the
Securities (plus a reasonable rate of interest on such amounts), and
(ii) the additional accrued but unpaid interest on the Securities which
was owed to the Plans at the time of the sale to PKVL on December 28,
1994 (plus a reasonable rate of interest on such amounts); provided
that the following conditions are met:
(a) Each sale was a one-time transaction for cash;
(b) Each Plan has received or will receive a total amount for the
Securities owned by the Plan, including the sale proceeds and
``makewhole'' payments for transactions that occurred either on the
open market or with PKVL, which is equal to the greater of: (i) The
outstanding principal balance for each Security owned by the Plan, plus
accrued but unpaid interest, at the time of the sale; (ii) the
amortized cost for each Security owned by the Plan on the date of the
sale, plus accrued but unpaid interest, as determined by the Banks; or
(iii) the fair market value of each Security owned by the Plan as
determined by the Banks from broker-dealers or pricing services
independent of the Banks at the time of the sale;
(c) With respect to the ``makewhole'' payments made by PKVL to the
Plans on January 20, 1995, the Plans receive a reasonable rate of
interest for the period from November 2, 1994 (the date of the sale of
certain Securities on the open market) until January 20, 1995 (the date
such payments were made), to the extent this amount is not already
accounted for under the additional ``makewhole'' payments which are due
for the Securities based on the amounts referred to above in Item
(3)(i);
(d) The Plans did not pay any commissions or other expenses with
respect to the transactions;
(e) The Banks, as trustee of the Plans, determined that the sale of
the Securities was in the best interests of each of the Plans and their
participants and beneficiaries at the time of the transaction;
(f) The Banks took all appropriate actions necessary to safeguard
the interests of the Plans and their participants and beneficiaries in
connection with the transactions; and
(g) Each Plan received a reasonable rate of return on the
Securities during the period of time that it held the Securities.
EFFECTIVE DATE: This exemption is effective as of December 28, 1994,
and January 13, 1995, for the sales of the Securities made to PKVL, and
as of January 20, 1995, for the ``makewhole'' payments made by PKVL in
connection with the sale of the Securities to an unrelated party on
November 2, 1994. In addition, this exemption is effective for the
additional ``makewhole'' and interest payments due to the Plans as of
the date such payments are made to the affected Plans.
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 Proposal) published on November
6, 1996 at 61 FR 57462.
WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted a comment
letter on the Proposal which requested that certain modifications be
made by the Department.
First, the Banks request that the abbreviation ``PNC'', as used in
the Proposal to refer to the Pikeville National Corporation, not be
used in the final exemption. The applicant notes that the abbreviation
``PNC'' is used for identification and promotion purposes by Pittsburgh
National Corporation, a major bank holding company that was not
involved in any way with the subject transactions. To avoid unnecessary
confusion or misunderstandings by interested parties, the Banks request
that references to the Pikeville National Corporation as ``PNC'' be
changed to ``PKVL''.
In this regard, the Department has deleted references to ``PNC''
and substituted ``PKVL''.
Second, the Banks would like to clarify that there are fewer than
eighty-nine plans involved in the subject transactions, as stated in
the Proposal. The Banks represent that after the Proposal was published
it was discovered that several ``plans'' were actually subaccounts to
plans and not separate plans. Thus, the Banks state that the correct
number of ``plans'' involved is eighty-six (86).
In this regard, the Department has modified the language of the
exemption based on the applicant's clarification.
Accordingly, the Department has determined to grant the requested
exemption as modified herein.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Morgan Stanley & Co. Incorporated Located in New York, New York
[Prohibited Transaction Exemption 97-08; Exemption Application No. D-
10108]
Exemption
Section I--Transactions
A. Effective August 25, 1995, the restrictions of section
406(a)(1)(A) through (D) of the Employee Retirement Income Security Act
of 1974 (the Act) and the taxes imposed by section 4975 (a) and (b) of
the Internal Revenue Code of 1986 (the Code), by reason of section 4975
(c)(1)(A) through (D) of the Code, shall not apply to any purchase or
sale of a security between an employee benefit plan and a broker-dealer
affiliated with Morgan Stanley & Co. and subject to British law (MSC/UK
Affiliate), if the following conditions, and the conditions of Section
II, are satisfied:
(1) The MSC/UK Affiliate customarily purchases and sells securities
for its own account in the ordinary course of its business as a broker-
dealer.
(2) Such transaction is on terms at least as favorable to the plan
as those which the plan could obtain in an arm's length transaction
with an unrelated party.
(3) Neither the MSC/UK 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 C.F.R. 2510.3-21(c)) with respect to
those assets, and the MSC/UK Affiliate is a 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 MSC/UK
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. Effective August 25, 1995, 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 section 4975(c)(1)(A) through
(D) of the Code, shall not apply to the lending of securities that are
assets of an employee benefit plan to an MSC/UK Affiliate if the
following conditions, and the conditions of Section II, are satisfied:
(1) Neither the MSC/UK Affiliate (the Borrower) nor an affiliate of
the Borrower has discretionary authority or control with respect to the
investment of the plan assets involved in the
[[Page 4812]]
transaction, or renders investment advice (within the meaning of 29
C.F.R. 2510.3-21(c)) with respect to those assets;
(2) The plan receives from the Borrower, either by physical
delivery or by book entry in a securities depository located in the
United States, by the close of business on the day on which the
securities lent are delivered to the Borrower, collateral consisting of
U.S. currency, securities issued or guaranteed by the United States
Government or its agencies or instrumentalities, or irrevocable United
States bank letters of credit issued by a person other than the
Borrower or an affiliate thereof, or any combination thereof, having,
as of the close of business on the preceding business day, a market
value (or, in the case of letters of credit, a stated amount) equal to
not less than 100 percent of the then market value of the securities
lent. The collateral referred to in this Section I(B)(2) must be held
in the United States;
(3) Prior to the making of any such loan, the Borrower shall have
furnished the following items to the fiduciary for the plan who is
making decisions on behalf of the plan with respect to the lending of
securities (the Lending Fiduciary): (1) The most recent available
audited statement of the Borrower's financial condition, (2) the most
recent available unaudited statement of the Borrower's financial
condition (if more recent than such audited stated), and (3) a
representation that, at the time the loan is negotiated, there has been
no material adverse change in the Borrower's financial condition since
the date of the most recent financial statement furnished to the plan
that has not been disclosed to the Lending Fiduciary. Such
representation may be made by the Borrower's agreement that each such
loan shall constitute a representation by the Borrower that there has
been no such material adverse change;
(4) The loan is made pursuant to a written loan agreement, the
terms of which are at least as favorable to the plan as those which the
plan could obtain in an arm's-length transaction with an unrelated
party. Such agreement may be in the form of a master agreement covering
a series of securities-lending transactions;
(5) The plan (1) receives a reasonable fee that is related to the
value of the borrowed securities and the duration of the loan, or (2)
has the opportunity to derive compensation through the investment of
cash collateral. Where the plan has that opportunity, the plan may pay
a loan rebate or similar fee to the Borrower, if such fee is not
greater than the plan would pay an unrelated party in an arm's-length
transaction;
(6) The plan receives the equivalent of all distributions made to
holders of the borrowed securities 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;
(7) If the market value of the collateral on the close of trading
on a business day is less than 100 percent of the market value of the
borrowed securities at the close of trading on that day, the Borrower
shall deliver, by the close of business on the following business day,
an additional amount of collateral (as described in paragraph (2)) the
market value of which, together with the market value of all previously
delivered collateral, equals at least 100 percent of the market value
of all the borrowed securities as of such preceding day.
Notwithstanding the foregoing, part of the collateral may be returned
to the Borrower if the market value of the collateral exceeds 100
percent of the market value of the borrowed securities, as long as the
market value of the remaining collateral equals at least 100 percent of
the market value of the borrowed securities;
(8) The loan may be terminated by the plan at any time, whereupon
the Borrower 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 (1) the customary delivery
period for such securities, (2) three business days, or (3) the time
negotiated for such delivery by the plan and the Borrower, whichever is
lesser; and
(9) In the event the loan is terminated and the Borrower fails to
return the borrowed securities or the equivalent thereof within the
time described in paragraph (8) above, then (i) the plan may, under the
terms of the loan agreement, 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 Borrower under the agreement, and any expenses
associated with the sale and/or purchase, and (ii) the Borrower is
obligated, under the terms of the loan agreement, to pay, 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 Borrower may, in the event the
Borrower 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 such replacement
is approved by the Lending Fiduciary.
(10) If the Borrower fails to comply with any condition of this
exemption, in the course of engaging in a securities-lending
transactions, 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 Borrower's failure to comply with the
conditions of the exemption.
C. Effective August 25, 1995, the restrictions of sections
406(a)(1)(A) through (D) and 406(b)(2) of the Act and the taxes imposed
by section 4975 (a) and (b) of the Code shall not apply to any
extension of credit to an employee benefit plan by an MSC/UK Affiliate
to permit the settlement of securities transactions or in connection
with the writing of options contracts provided that the following
conditions are met:
(a) The MSC/UK Affiliate is not a fiduciary with respect to any
assets of such plan, unless no interest or other consideration is
received by such fiduciary or any affiliate thereof in connection with
such extension of credit; and
(b) Such extension of credit would be lawful under the Securities
Exchange Act of 1934 and any rules or regulations thereunder if such
act, rules or regulations were applicable.
Section II--General Conditions
A. The MSC/UK Affiliate is registered as a broker-dealer with the
Securities and Futures Authority of the United Kingdom (the S.F.A.);
B. The MSC/UK Affiliate is in compliance with all requirements of
Rule 15a-6 (17 CFR 240.15a-6) under the Securities and Exchange Act of
1934, which provides for foreign broker-dealers a limited exemption
from U.S. registration requirements;
C. Prior to the transaction, the MSC/UK Affiliate enters into a
written agreement with the plan in which the MSC/UK Affiliate consents
to the jurisdiction of the courts of the United States with respect to
the transactions covered by this exemption;
D. (1) The MSC/UK Affiliate maintains or causes to be maintained
within the United States for a period of six years from the date of
such transaction such records as are necessary to enable the persons
described in this section to determine whether the conditions of this
[[Page 4813]]
exemption have been met; except that a party in interest with respect
to an employee benefit plan, other than the MSC/UK Affiliate, shall not
be subject to a civil penalty under section 502(i) of the Act or the
taxes imposed by section 4975(a) or (b) of the Code, if such records
are not maintained, or are not available for examination as required by
this section, and a prohibited transaction will not be deemed to have
occurred if, due to circumstances beyond the control of the MSC/UK
Affiliate, such records are lost or destroyed prior to the end of such
six year period;
(2) The records referred to in subsection (1) above are
unconditionally available for examination during normal business hours
by duly authorized employees of the Department of Labor, the Internal
Revenue Service, plan participants and beneficiaries, any employer of
plan participants and beneficiaries, and any employee organization any
of whose members are covered by such plan; except that none of the
persons described in this subsection shall be authorized to examine
trade secrets of Morgan Stanley & Co. or the MSC/UK or any commercial
or financial information which is privileged or confidential.
III--Definitions
``Affiliate'' of a person shall include: (i) Any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with such other person; (ii) any officer,
director, or partner, employee or relative (as defined in section 3(15)
of the Act) of such other person; and (iii) 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.
``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.
For a more complete statement of the facts and representations
supporting this exemption, refer to the notice of proposed exemption
published on November 13, 1996 at 61 FR 58237.
FOR FURTHER INFORMATION CONTACT:
Mr. Ronald Willett of the Department, telephone (202) 219-8881. (This
is not a toll-free number.)
Cassemco, Inc. Retirement Plan and Trust Agreement (the Plan) Located
In Cookeville, Tennessee
[Prohibited Transaction Exemption 96-09; Exemption Application No. D-
10350]
Exemption
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 the cash sale (the Sale) by the Plan of certain
securities (the Securities) to Cassemco, Inc., the sponsoring employer
and party in interest with respect to the Plan; provided (1) the Sale
is a one-time transaction for cash, (2) the Plan pays no commissions
nor incurs any expenses in connection with the Sale, and (3) the Plan
receives as consideration for the Sale no less than the fair market
value of the Securities as of the date of the Sale.
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 3, 1996, at 61
FR 64160.
FOR FURTHER INFORMATION CONTACT: Mr. C.E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
PanAgora Asset Management, Inc. (PanAgora) Located in Boston,
Massachusetts
[Prohibited Transaction Exemption 97-10; Exemption Application No. D-
10351]
Exemption
PanAgora shall not be precluded from functioning as a ``qualified
professional asset manager'' pursuant to Prohibited Transaction
Exemption 84-14 (PTE 84-14, 49 FR 9494, March 13, 1984) solely because
of a failure to satisfy Section I(g) of PTE 84-14, as a result of
affiliation with E.F. Hutton & Company, Inc. and Shearson Lehman
Brothers, Inc., formerly Shearson Lehman Hutton, Inc.
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 3, 1996 at 61 FR
64161.
EFFECTIVE DATE: This exemption is effective as of September 22, 1989,
the date on which PanAgora was formed.
FOR FURTHER INFORMATION CONTACT: Gary Lefkowitz of the Department,
telephone (202) 219-8881. (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
a person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) 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 28th day of January, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 97-2388 Filed 1-30-97; 8:45 am]
BILLING CODE 4510-29-P
