[Federal Register Volume 61, Number 192 (Wednesday, October 2, 1996)]
[Notices]
[Pages 51463-51470]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25145]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 96-73; Exemption Application No. D-
10198, et al.]
Grant of Individual Exemptions; Masters, Mates and Pilots
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
[[Page 51464]]
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.
The Masters, Mates and Pilots Pension Plan (the Pension Plan) and
Individual Retirement Account Plan (the IRAP; together, the Plans)
Located in Linthicum Heights, Maryland
[Prohibited Transaction Exemption 96-73; Exemption Application Nos. D-
10198 and D-10199]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) and
407(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
(E) of the Code, shall not apply to the continued holding by the Plans
of their shares of stock (the Stock) in American Heavy Lift Shipping
Company (AHL), provided that (a) the Plans' independent fiduciary has
determined that the Plans' holding of the Stock is appropriate for the
Plans and in the best interests of the Plans' participants and
beneficiaries; and (b) the Plans' independent fiduciary continues to
monitor the Plans' holding of the Stock and determines at all times
that such transaction remains in the best interests of the 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 published on May 6, 1996 at 61 FR
20284.
Temporary Nature of Exemption: This exemption is effective until
the later of: (1) December 31, 1997, or (2) December 31, 1998 provided
another application for exemption is filed with the Department prior to
December 31, 1997.
Notice to Interested Persons: The applicant represents that it was
unable to comply with the notice to interested persons requirement
within the time frame stated in its application. However, the applicant
has represented that it notified all interested persons, in the manner
agreed upon between the applicant and the Department, by June 27, 1996.
Interested persons were informed that they had until July 31, 1996 to
comment or request a public hearing with respect to the proposed
exemption. No requests for a public hearing were received by the
Department, but two comments were submitted.
One commentator stated that no exemption should be necessary in the
case of the IRAP, which is an eligible individual account plan as
defined in section 407(d)(3)(B) of the Act. Such eligible individual
account plans are permitted to hold employer stock, provided the
holding of such stock is explicitly provided for by the plan documents.
The commentator pointed out that the IRAP documents do expressly permit
the holding of AHL Stock. The applicant responded by stating that while
the commentator might be technically correct, the commentator had
ignored the background under which the exemption was originally
requested. The investment in AHL Stock was the subject of protracted
litigation between the Department, the Plans and certain of their
trustees, a former investment adviser to the Plans, and certain Plan
participants. [See In re Masters, Mates & Pilots Pension Plan and IRAP
Litigation, Lead File No. 85 Civ. 9545 (VLB) (S.D.N.Y.)]. This
litigation was ultimately settled with the Department pursuant to a
Court Order (the Court Order) entered by the United States District
Court for the Southern District of New York on November 4, 1992. The
Court Order required both Plans to seek an exemption with respect to
the holding of the AHL Stock. In compliance with the Court Order, the
Named Fiduciary for the Plans' Special Assets Portfolio, Bear Stearns
Fiduciary Services, Inc. (BSFS), has consistently sought, and been
granted, exemptions with respect to both the Pension Plan and the IRAP
[see Prohibited Transaction Exemption 94-85 (PTE 94-85), 59 FR 65403,
December 19, 1994].
The second commentator stated that he was opposed to the granting
of the exemption for the following reasons: (a) The financial recovery
of AHL is attributable to the management and employees of AHL rather
than BSFS and the investment manager chosen to oversee the day-to-day
operations of AHL, Potomac Asset management (Potomac); (b) BSFS has
failed to respond favorably to a proposed acquisition of AHL Stock by
an employee stock ownership plan (the ESOP); and (c) the extension of
PTE 94-85 will ``unfairly'' extend the opportunity for BSFS or Potomac
to find a buyer that is willing to pay a higher price for AHL than the
ESOP.
The applicant responded by stating that the assertions have no
bearing on whether it is appropriate to extend PTE 94-85. While AHL's
employees and management have made important contributions to AHL's
recovery, it does not follow that the Plans should dispose of some or
all of their AHL investment. In furtherance of their fiduciary duty to
the Plans' participants and beneficiaries, Potomac (with the oversight
of BSFS) is obliged to protect the value of the Plans' investment in
the Stock. Potomac believes that the value of AHL is most likely to be
enhanced by focusing in the short term on AHL's economic recovery with
a view to the ultimate disposition of the Stock. BSFS and Potomac have
no fixed plan regarding the nature or terms of such a disposition and
will continue to consider carefully all reasonable offers and proposals
to purchase AHL, including the ESOP proposal, if and when such a
proposal were accepted, fully negotiated and approved by the AHL Board.
However, the applicant represents that it would be a violation of
fiduciary duty to favor the ESOP proposal merely to compensate the
employees for their ``sacrifice''. Far from being ``unfair'', the
obligation to sell AHL at the best possible price is imposed upon the
Plans' fiduciaries by the Act.
The Department has considered the entire record, including the
comments submitted and the applicant's responses thereto, and has
determined to grant the exemption as proposed.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Chicago Trust Company (Chicago Trust) Located in Chicago, IL
[Prohibited Transaction Exemption 96-74; Exemption Application No. D-
10222]
Exemption
Section I. Exemption for the In-Kind Transfer of Assets
The restrictions of section 406(a) and section 406(b) 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 (F) shall not apply,
effective September 21, 1995, to the in-kind transfer to any
diversified open-end investment company (the Fund or Funds) registered
under the Investment Company Act of 1940 (the
[[Page 51465]]
'40 Act) to which Chicago Trust or any of its affiliates (collectively,
Chicago Trust) serves as investment adviser and/or may provide other
services, of the assets of various employee benefit plans (the Client
Plans), including plans established or maintained by Chicago Trust (the
In-House Plans; collectively, the Plans) that are either held in
certain collective investment funds (the CIF or CIFs) maintained by
Chicago Trust as trustee or investment manager, in exchange for shares
of such Funds, provided that the following conditions are met:
(a) A fiduciary (the Second Fiduciary) who is acting on behalf of
each affected In-House Plan or Client Plan and who is independent of
and unrelated to Chicago Trust, as defined in paragraph (h) of Section
III below, receives advance written notice of the in-kind transfer of
assets of the CIFs in exchange for shares of the Funds and the
disclosures described in paragraph (f) of Section II below.
(b) On the basis of the information described in paragraph (f) of
Section II below, the Second Fiduciary authorizes in writing the in-
kind transfer of assets of an In- House Plan or a Client Plan in
exchange for shares of the Funds, the investment of such assets in
corresponding portfolios of the Funds, and, in the case of a Client
Plan, the fees received by Chicago Trust pursuant to its investment
advisory agreement with the Funds. Such authorization by the Second
Fiduciary is to be consistent with the responsibilities, obligations
and duties imposed on fiduciaries by Part 4 of Title I of the Act.
(c) No sales commissions or redemption fees are paid by an In-House
Plan or a Client Plan in connection with the in-kind transfers of
assets of the CIFs in exchange for shares of the Funds.
(d) All or a pro rata portion of the assets of an In-House Plan or
a Client Plan held in the CIFs are transferred in-kind to the Funds in
exchange for shares of such Funds. A Plan not electing to participate
in the Funds receives a cash payment representing a pro rata portion of
the assets of the terminating CIF before the final liquidation takes
place.
(e) The CIFs receive shares of the Funds that have a total net
asset value equal in value to the assets of the CIFs exchanged for such
shares on the date of transfer.
(f) The current value of the assets of the CIFs to be transferred
in-kind in exchange for shares is determined in a single valuation
performed in the same manner and at the close of business on the same
day, using independent sources in accordance with the procedures set
forth in Rule 17a-7(b) (Rule 17a-7) under the '40 Act, as amended from
time to time or any successor rule, regulation, or similar
pronouncement and the procedures established pursuant to Rule 17a-7 for
the valuation of such assets. Such procedures must require that all
securities for which a current market price cannot be obtained by
reference to the last sale price for transactions reported on a
recognized securities exchange or NASDAQ be valued based on an average
of the highest current independent bid and lowest current independent
offer, as of the close of business on the Friday preceding the weekend
of the CIF transfers determined on the basis of reasonable inquiry from
at least three sources that are broker-dealers or pricing services
independent of Chicago Trust.
(g) Not later than 30 days after completion of each in-kind
transfer of assets of the CIFs in exchange for shares of the Funds,
Chicago Trust sends by regular mail to the Second Fiduciary, who is
acting on behalf of each affected Plan and who is independent of and
unrelated to Chicago Trust, as defined in paragraph (h) of Section III
below, a written confirmation that contains the following information:
(1) The identity of each of the assets that was valued for purposes
of the transaction in accordance with Rule 17a-7(b)(4) under the '40
Act;
(2) The price of each such assets for purposes of the transaction;
and
(3) The identity of each pricing service or market maker consulted
in determining the value of such assets.
(The confirmation described in this paragraph I(g) is not required
if no assets were valued in accordance with the last sentence of
paragraph (f) of Section I.)
(h) Not later than 90 days after completion of each in-kind
transfer of assets of the CIFs in exchange for shares of the Funds,
Chicago Trust sends by regular mail to the Second Fiduciary, who is
acting on behalf of each affected In-House Plan or Client Plan and who
is independent of and unrelated to Chicago Trust, as defined in
paragraph (h) of Section III below, a written confirmation that
contains the following information:
(1) The number of CIF units held by each affected Plan immediately
before the in-kind transfer (and the related per unit value and the
aggregate dollar value of the units transferred); and
(2) The number of shares in the Funds that are held by each
affected Plan following the conversion (and the related per share net
asset value and the aggregate dollar value of the shares received).
(i) The conditions set forth in paragraphs (c), (d), (e), (p) and
(q) of Section II below as they would relate to all Plans are
satisfied.
Section II. Exemption for the Receipt of Fees From Funds
The restrictions of section 406(a) and section 406(b) 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 (F) of the Code shall
not apply, effective September 21, 1995, to (1) the receipt of fees by
Chicago Trust from the Funds for investment advisory services to the
Funds; and (2) the receipt or retention of fees by Chicago Trust from
the Funds for acting as custodian or shareholder servicing agent to the
Funds, as well as any other services provided to the Funds which are
not investment advisory services (i.e., the Secondary Services), in
connection with the investment of shares in the Funds by the Client
Plans for which Chicago Trust acts as a fiduciary, provided that--
(a) No sales commissions are paid by the Client Plans in connection
with purchases or sales of shares of the Funds and no redemption fees
are paid in connection with the redemption of such shares by the Client
Plans to the Funds.
(b) The price paid or received by the Client Plans for shares in
the Funds is the net asset value per share, as defined in paragraph (e)
of Section III, at the time of the transaction and is the same price
which would have been paid or received for the shares by any other
investor at that time.
(c) Chicago Trust, any of its affiliates or their officers or
directors do not purchase from or sell to any of the Client Plans
shares of any of the Funds.
(d) For each Client Plan, the combined total of all fees received
by Chicago Trust for the provision of services to such Plan, and in
connection with the provision of services to any of the Funds in which
the Client Plans may invest, is not in excess of ``reasonable
compensation'' within the meaning of section 408(b)(2) of the Act.
(e) Chicago Trust does not receive any fees payable, pursuant to
Rule 12b-1 (the 12b-1 Fees) under the '40 Act in connection with the
transactions involving the Funds.
(f) A Second Fiduciary who is acting on behalf of a Client Plan and
who is independent of and unrelated to Chicago Trust, as defined in
paragraph (h) of Section III below, receives in advance of the
investment by a Client Plan in any of the Funds a full and detailed
written disclosure of
[[Page 51466]]
information concerning such Fund including, but not limited to--
(1) A current prospectus for each portfolio of each of the Funds in
which such Client Plan is considering investing;
(2) A statement describing the fees for investment advisory or
other similar services, any fees for Secondary Services, as defined in
paragraph (i) of Section III below, and all other fees to be charged to
or paid by the Client Plan and by such Funds to Chicago Trust,
including the nature and extent of any differential between the rates
of such fees;
(3) The reasons why Chicago Trust may consider such investment to
be appropriate for the Client Plan;
(4) A statement describing whether there are any limitations
applicable to Chicago Trust with respect to which assets of a Client
Plan may be invested in the Funds, and, if so, the nature of such
limitations;
(5) A copy of the proposed exemption and/or a copy of the final
exemption upon the request of the Second Fiduciary; and
(6) The last date as of which consent to an in-kind transfer may be
given by the Second Fiduciary, along with the disclosure that if
consent is not given by that date, the Second Fiduciary will be deemed
to have withheld consent to an in-kind transfer.
(g) On the basis of the information described in paragraph (f) of
this Section II, the Second Fiduciary authorizes in writing--
(1) The investment of assets of the Client Plan in shares of the
Fund, in connection with the transaction set forth in Section II;
(2) The Funds in which the assets of the Client Plan may be
invested; and
(3) The fees received by Chicago Trust in connection with
investment advisory services and Secondary Services provided to the
Funds; such authorization by the Second Fiduciary to be consistent with
the responsibilities obligations, and duties imposed on fiduciaries by
Part 4 of Title I of the Act.
(h) The authorization, described in paragraph (g) of this Section
II, is terminable at will by the Second Fiduciary of a Client Plan,
without penalty to such Client Plan. Such termination will be effected
by Chicago Trust selling the shares of the Funds held by the affected
Client Plan within one business day following receipt by Chicago Trust,
either by mail, hand delivery, facsimile, or other available means at
the option of the Second Fiduciary, of written notice of termination
(the Termination Form), as defined in paragraph (i) of Section III
below; provided that if, due to circumstances beyond the control of
Chicago Trust, the sale cannot be executed within one business day,
Chicago Trust shall have one additional business day to complete such
sale.
(i) The Client Plans do not pay any Plan-level investment advisory
fees to Chicago Trust with respect to any of the assets of such Client
Plans which are invested in shares of the Funds. This condition does
not preclude the payment of investment advisory fees by the Funds to
Chicago Trust under the terms of an investment advisory agreement
adopted in accordance with section 15 of the '40 Act or other agreement
between Chicago Trust and the Funds or the retention by Chicago Trust
of fees for Secondary Services paid to Chicago Trust by the Funds.
(j) In the event of an increase in the rate of any fees paid by the
Funds to Chicago Trust regarding investment advisory services that
Chicago Trust provides to the Funds over an existing rate for such
services that had been authorized by a Second Fiduciary of a Client
Plan, in accordance with paragraph (g) of this Section II, Chicago
Trust will, at least 30 days in advance of the implementation of such
increase, provide a written notice (which may take the form of a proxy
statement, letter, or similar communication that is separate from the
prospectus of the Fund and which explains the nature and amount of the
increase in fees) to the Second Fiduciary of each Client Plan invested
in a Fund which is increasing such fees. Such notice shall be
accompanied by the Termination Form, as defined in paragraph (j) of
Section III below;
(k) In the event of an (1) addition of a Secondary Service, as
defined in paragraph (h) of Section III below, provided by Chicago
Trust to the Funds for which a fee is charged or (2) an increase in the
rate of any fee paid by the Funds to Chicago Trust for any Secondary
Service that results either from an increase in the rate of such fee or
from the decrease in the number or kind of services performed by
Chicago Trust for such fee over an existing rate for such Secondary
Service which had been authorized by the Secondary Fiduciary in
accordance with paragraph (g) of this Section II, Chicago Trust will,
at least 30 days in advance of the implementation of such Secondary
Service or fee increase, provide a written notice (which may take the
form of a proxy statement, letter, or similar communication that is
separate from the prospectus of the Funds and which explains the nature
and amount of the additional Secondary Service for which a fee is
charged or the nature and amount of the increase in fees) to the Second
Fiduciary of each of the Client Plans invested in a Fund which is
adding a service or increasing fees. Such notice shall be accompanied
by the Termination Form, as defined in paragraph (j) of Section III
below.
(l) The Second Fiduciary is supplied with a Termination Form at the
times specified in paragraphs (j) and (k) of this Section II, which
expressly provides an election to terminate the authorization,
described above in paragraph (g) of this Section II, with instructions
regarding the use of such Termination Form including statements that--
(1) The authorization is terminable at will by any of the Client
Plans, without penalty to such Plans. The termination will be effected
by Chicago Trust selling the shares of the Funds held by the Client
Plans requesting termination within the period of time specified by the
Client Plan, but not later than one business day following receipt by
Chicago Trust from the Second Fiduciary of the Termination Form or any
written notice of termination; provided that if, due to circumstances
beyond the control of Chicago Trust, the sale of shares of such Client
Plan cannot be executed within one business day, Chicago Trust shall
have one additional business day to complete such sale; and
(2) Failure by the Second Fiduciary to return the Termination Form
on behalf of the Client Plan will be deemed to be an approval of the
additional Secondary Service for which a fee is charged or increase in
the rate of any fees and will result in the continuation of the
authorization, as described in paragraph (g) of this Section II, of
Chicago Trust to engage in the transactions on behalf of the Client
Plan;
(m) The Second Fiduciary is supplied with a Termination Form at
least once in each calendar year, beginning with the calendar year that
begins after the grant of this proposed exemption is published in the
Federal Register and continuing for each calendar year thereafter;
provided that the Termination Form need not be supplied to the Second
Fiduciary, pursuant to this paragraph, sooner than six months after
such Termination Form is supplied pursuant to paragraphs (j) and (k) of
this Section II, except to the extent required by said paragraphs (j)
and (k) of this Section II to disclose an additional Secondary Service
for which a fee is charged or an increase in fees;
(n)(1) With respect to each of the Funds in which a Client Plan
invests, Chicago Trust will provide the Second Fiduciary of such Plan--
[[Page 51467]]
(A) At least annually with a copy of an updated prospectus of such
Fund;
(B) A report or statement (which may take the form of the most
recent financial report, the current statement of additional
information, or some other written statement) which contains a
description of all fees paid by the Fund to Chicago Trust within 15
days of such document's availability; and
(2) With respect to each of the Funds in which a Client Plan
invests, in the event such Fund places brokerage transactions with
Chicago Trust or any adviser or sub-adviser to a Fund or any of their
affiliates (collectively, Related Party Brokerage), Chicago Trust will
provide the Second Fiduciary of such Client Plan at least annually with
a statement specifying--
(A) The total, expressed in dollars, attributable to each Fund's
investment portfolio which represent Related Party Brokerage;
(B) The total, expressed in dollars, of brokerage commissions
attributable to each Fund's investment portfolio other than Related
Party Brokerage;
(C) The average brokerage commissions per share, expressed as cents
per share, paid for Related Party Brokerage by each Fund; and
(D) The average brokerage commissions per share, expressed as cents
per share, paid by each Fund for brokerage other than Related Party
Brokerage.
(o) All dealings between the Client Plans and any of the Funds are
on a basis no less favorable to such Client Plans than dealings between
the Funds and other shareholders holding the same class of shares as
the Client Plans.
(p) Chicago Trust maintains for a period of 6 years the records
necessary to enable the persons, as described in paragraph (q) of
Section II below, to determine whether the conditions of this proposed
exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Chicago Trust,
the records are lost or destroyed prior to the end of the 6 year
period; and
(2) No party in interest, other than Chicago Trust, shall be
subject to the civil penalty that may be assessed under section 502(i)
of the Act, or to the taxes imposed by section 4975 (a) and (b) of the
Code, if the records are not maintained, or are not available for
examination as required by paragraph (q) of Section II below.
(q)(1) Except as provided in paragraph (q)(2) of this Section II
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (p) of
Section II above are unconditionally available at their customary
location for examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service (the Service) or the
Securities and Exchange Commission (the SEC);
(B) Any fiduciary of each of the Client Plans who has authority to
acquire or dispose of shares of any of the Funds owned by such Client
Plan, or any duly authorized employee or representative of such
fiduciary; and
(C) Any participant or beneficiary of the Plans or duly authorized
employee or representative of such participant or beneficiary.
(2) None of the persons described in paragraphs (q)(1)(B) and
(q)(1)(C) of Section II shall be authorized to examine trade secrets of
Chicago Trust, or commercial or financial information which is
privileged or confidential.
Section III. Definitions
For purposes of this exemption,
(a) The term ``Chicago Trust'' means Chicago Trust Company and any
affiliate of Chicago Trust, as defined in paragraph (b) of this Section
III.
(b) An ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(c) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual;
(d) The terms ``Fund or Funds'' mean any diversified open-end
investment company or companies registered under the '40 Act for which
Chicago Trust serves as investment adviser and may also provide
custodial or other services such as Secondary Services as approved by
such Funds.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and sales calculated by dividing the value of all
securities, determined by a method as set forth in a Fund's prospectus
and statement of additional information, and other assets belonging to
each of the portfolios in such Fund, less the liabilities charged to
each portfolio, by the number of outstanding shares.
(f) The term ``Plan'' means any ``employee benefit pension plan''
within the meaning of section 3(2) of the Act or any ``plan'' within
the meaning of section 4975(e)(1) of the Code. The term ``Plan''
includes any plan maintained by an entity other than Chicago Trust
(referred to collectively herein as the ``Client Plans'') and any of
the following Plans sponsored or maintained by Chicago Trust (referred
to collectively as the ``In-House Plans''): The Chicago Title & Trust
Pension Plan, the Chicago Title & Trust Savings and Profit Sharing
Plan, the Celite Employees' Thrift Plan, the Celite Hourly Retirement
Savings 401(k) Plan, the Celite Employees' Retirement Plan, the Celite
Hourly Retirement Plan and the Heads & Threads Savings and Profit
Sharing Plan.
(g) The term ``relative'' means a ``relative'' as that term is
defined in section 3(15) of the Act (or a ``member of the family'' as
that term is defined in section 4975(e)(6) of the Code), or a brother,
a sister, or a spouse of a brother or a sister.
(h) The term ``Second Fiduciary'' means a fiduciary of a plan who
is independent of and unrelated to Chicago Trust. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to Chicago Trust if--
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by or is under common control with Chicago Trust;
(2) Such Second Fiduciary, or any officer, director, partner,
employee or relative of such Second Fiduciary is an officer, director,
partner or employee of Chicago Trust (or is a relative of such
persons); and
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration in connection with any transaction
described in this exemption; provided, however, that nothing shall
prevent a Second Fiduciary's receipt of its customary fees from a Plan
or the Plan's sponsoring employer for serving as a fiduciary to such
Plan.
If an officer, director, partner, or employee of Chicago Trust (or
a relative of such persons), is a director of such Second Fiduciary,
and if he or she abstains from participation in the choice of the
Plan's investment manager/adviser, the approval of any purchase or sale
by the Plan of shares of the Funds, and the approval of any change of
fees charged to or paid by the Plan, in connection with any of the
transactions described in Sections I and II above, then paragraph
(h)(2) of Section III above, shall not apply.
[[Page 51468]]
(i) The term ``Secondary Service'' means a service, other than an
investment advisory or similar service, which is provided by Chicago
Trust to the Funds, including but not limited to custodial, accounting,
brokerage, administrative, or any other service.
(j) The term ``Termination Form'' means the form supplied to the
Second Fiduciary of a Client Plan, at the times specified in paragraphs
(j), (k), and (m) of Section II above, which expressly provides an
election to the Second Fiduciary to terminate on behalf of the Plans
the authorization, described in paragraph (g) of Section II. Such
Termination Form is to be used at will by the Second Fiduciary to
terminate such authorization without penalty to the Client Plan and to
notify Chicago Trust in writing to effect such termination not later
than one business day following receipt by Chicago Trust of written
notice of such request for termination; provided that if, due to
circumstances beyond the control of Chicago Trust, the sale cannot be
executed within one business day, Chicago Trust shall have one
additional business day to complete such sale.
EFFECTIVE DATE: This exemption is effective as of September 21, 1995.
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 April 25,
1996 at 61 FR 18435.
Written Comments
The Department received four written comments with respect to the
Notice and no requests for a public hearing. One comment was submitted
by an active participant in the Chicago Title & Trust Pension Plan. The
other three comments were submitted by Chicago Trust. Following is a
discussion of these comments.
Participant's Comment
In his comment letter, the CT&T Pension Plan participant complained
that he had experienced considerable difficulty in obtaining a copy of
the Notice from Chicago Trust. In this regard, the participant
indicated that Chicago Trust had not posted the Notice but only the
supplemental statement which directed interested persons to a toll-free
telephone number where they might request a copy of the Notice and have
it mailed to them. The participant indicated that he never received a
copy of the Notice despite repeated requests. Because the participant
believed that he had been denied information required to make an
informed comment, he requested a copy of the Notice and that the
Department extend the comment period beyond its deadline of June 10,
1996.
In response to this comment, the Department had Chicago Trust
revise the supplemental statement and re-post it along with a copy of
the Notice. These documents were placed at all job sites where active
participants in the CT&T Pension Plan and the CT&T Profit Sharing Plan
are employed. The re-posting occurred on July 15, 1996 and interested
persons were given until August 15, 1996 to send written comments to
the Department. As a result of the re-posting, the Department received
no additional comments or hearing requests.
Chicago Trust's Comments
Chicago Trust's comments are intended to clarify the Notice in the
following areas:
(1) Written Confirmation of Securities for which Market Prices Are
not Readily Available. Section I(g) of the Notice states that not later
than 30 days after the completion of each in-kind transfer transaction,
Chicago Trust will send the Second Fiduciary of each affected Plan
written confirmation containing (a) the identity of each of the assets
that was valued for purposes of the transaction in accordance with Rule
17a-7(b)(4) \1\; (b) the price of each such assets for purposes of the
transaction; and (c) the identity of each pricing service or market
maker consulted in determining the value of such assets. Chicago Trust
requests that the Department modify Section I(g) by clarifying that if
no CIF assets have been valued for purposes of Rule 17a-7(b)(4), there
is no need to provide this form of confirmation.
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\1\ Such procedures must require that all securities for which a
current market price cannot be obtained by reference to the last
sale price for transactions reported on a recognized securities
exchange or NASDAQ be valued based on an average of the highest
current independent bid and lowest current independent offer, as of
the close of business on the Friday preceding the weekend of the CIF
transfers determined on the basis of reasonable inquiry from at
least three sources that are broker-dealers or pricing services
independent of Chicago Trust.
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In response, the Department has revised paragraph (g) of Section I
by adding the following language:
(The confirmation described in this paragraph I(g) is not required
if no assets were valued in accordance with the last sentence of
paragraph (f) of Section I.)
(2) In-House Plan References. Chicago Trust has requested that the
Department revise Section III(f) of the Notice by revising references
of the Chicago Trust Pension Plan and the Chicago Trust Savings and
Profit Sharing Plan to the CT&T Pension Plan and the CT&T Savings and
Profit Sharing Plan. In addition, in the list of In-House Plans Chicago
Trust requests that the Department include a reference to the Celite
Hourly Retirement Plan.
The Department has complied with these requests by amending Section
III(f) of the Notice.
(3) Description of Chicago Trust and Its Affiliates. Chicago Trust
wishes to modify Representation 1(a) of the Notice by amending
previously-furnished information regarding the description of Chicago
Trust and its affiliates as follows:
Chicago Trust is a wholly owned subsidiary of the Alleghany
Asset Management, Inc. (AAM), which is a wholly owned subsidiary of
Chicago Title & Trust Company (CT&T), which is a wholly owned
subsidiary of the Alleghany Corporation (Alleghany) whose principal
place of business is at 375 Park Avenue, New York, New York. As of
December 31, 1995, CT&T had approximately $1.5 billion in
consolidated assets and it engages in two principal lines of
business, directly or through subsidiaries. In this regard, CT&T is
the largest real estate title insurer in the world. In addition,
Chicago Trust, a second-tier subsidiary of CT&T provides trustee,
investment management and related services, primarily to high net
worth individuals, families, tax- qualified pension and profit
sharing plans (including plans subject to provisions of the Act),
individual retirement accounts and insurance companies. As of
December 31, 1995, Chicago Trust managed approximately $6 billion in
client assets.
(4) Description of Client Plans. Chicago Trust points out that the
first two sentences of Representation I(b) of the Notice should be
revised, as follows, in order to clarify previously- furnished
information:
The Client Plans consist of 239 separate employee benefit plan
clients of Chicago Trust which are either employee pension benefit
plans as defined in section 3(2) of the Act or plans covering only
partners or proprietors and their spouses, as described in 29 CFR
2510.3 (b) and (c).
In addition, Chicago Trust notes that although represented in its
original exemption application, it has no Client Plans that are IRAs.
Therefore, Chicago Trust recommends that the Department delete the
third sentence of Representation I(b).
The Department has made the aforementioned changes to the Notice.
(5) Fees for Investment Advisory Services. The last sentence of
Representation I(d) of the Notice states that Chicago Trust has charged
no fee for its investment advisory services to certain CIFs but it has
received reimbursement for its expenses. For further clarification,
Chicago Trust
[[Page 51469]]
requests that the Department revise this statement to read as follows:
Chicago Trust has charged no fee for its investment advisory
services to these CIFs, and it has received reimbursement only for
expenses of the annual audits of the CIFs.
(6) Description of the CIFs. Chicago Trust requests that the
Department modify portions of Representation I(d) of the Notice as
follows to update information: (a) The reference to the Chicago Trust
Company Investment Trust for Employee Benefit Plans, appearing in the
seventh and eighth lines of paragraph one, should be to the Chicago
Title and Trust Company Investment Trust for Employee Benefit Plans;
(b) the reference to the Index Fund in the next to the last line of
this paragraph, as contained in the original exemption application,
should be stricken to reflect the Index Fund was liquidated prior to
the conversion transactions; (c) the reference to the Chicago Trust
Stated Principal Value Investment Trust for Employee Benefit Plans,
appearing in the ninth through thirteenth lines of paragraph two,
should be to the Chicago Title and Trust Company Stated Principal Value
Trust for Employee Benefit Plans and should also reflect the fact that
the declaration of trust was restated on November 30, 1995; and (d) the
reference to the Chicago Trust Company Short Term investment Trust for
Employee Benefit Plans, appearing in the ninth through eleventh lines
of paragraph three, should be to the Chicago Title and Trust Company
Short Term Investment Trust for Employee Benefit Plans. The Department
has made the requested revisions.
(7) Description of the Funds. Chicago Trust requests that
Representation I(e) of the Notice be modified, in part, as follows to
update information previously furnished the Department in its original
exemption application: (a) The Funds presently offer eight separate,
diversified series of shares of mutual fund portfolios and not seven;
(b) the new Fund is the Chicago Trust Asset Allocation Fund, whose
investment adviser is Chicago Trust and for which the investment
advisory fee of 0.70 percent; (c) the Chicago Trust Intermediate Fixed
Income Fund has been renamed the Chicago Trust Bond Fund; (d) the
Chicago Trust Intermediate Municipal Bond Fund has been renamed the
Chicago Trust Municipal Bond Fund; and (e) Montag & Caldwell is a
wholly owned subsidiary of AAM and not of Chicago Trust. The Department
has made the requested revisions.
(8) Initial In-Kind Transfer Transaction. Chicago Trust wishes to
clarify the last sentence of the second paragraph of Representation 4
of the Notice to reflect the fact that while Chicago Trust stood ready
to make cash payments to Plans which elected not to participate in the
initial in-kind transfer transaction, no Plans made such an election.
Therefore, no such cash payments were made. In addition, Chicago Trust
states that since there were no non-conforming assets at the time of
the September 21, 1995 in-kind transfer transaction, references to the
initial conversion of such assets which appeared in the last sentence
of paragraph 9 of Representation 4, the second sentence of paragraph 10
of Representation 4 and in Representation 9(c), should be deleted.
In response, the Department has made the requested revisions.
After giving full consideration to the entire record, the
Department has decided to grant the exemption subject to the
modifications or clarifications described above. The comment letters
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 Pension and Welfare
Benefits Administration, Room N-5638, U.S. Department of Labor, 200
Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Pacific Mutual Life Insurance Company (PM) Located in Newport Beach,
California
[Prohibited Transaction Exemption 96-75; Exemption Application No. D-
10258]
Exemption
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 to
the sale to employee benefit plans (the Plans) of a synthetic
guaranteed investment contract (the Buy/Hold Synthetic GIC) offered by
PM, which is a party in interest with respect to the Plans, provided
the following conditions are satisfied: (a) Prior to the execution of
such Buy/Hold Synthetic GIC, an independent fiduciary of such Plan
receives a full and detailed written disclosure of all material
features of the Buy/Hold Synthetic GIC, including all applicable fees
and charges; (b) following receipt of such disclosure, the Plan's
independent fiduciary approves in writing the execution of the Buy/Hold
Synthetic GIC on behalf of the Plan; (c) all fees and charges imposed
under such Buy/Hold Synthetic GIC are reasonable; (d) each Buy/Hold
Synthetic GIC will specifically provide for an objective means for
determining the fair market value of the securities owned by the Plan
pursuant to the Buy/Hold Synthetic GIC; (e) each Buy/Hold Synthetic GIC
will specifically provide for an objective means for determining the
interest rates to be credited periodically under the contract; (f) PM
will maintain books and records of all transactions which will be
subject to annual audit by independent certified public accountants
selected by and responsible solely to the Plan; and (g) the Buy/Hold
Synthetic GICs will only be marketed to Plans or collective investment
funds which have at least $50 million in assets.
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 July 22, 1996 at 61 FR
37928.
EFFECTIVE DATE: This exemption is effective September 2, 1993.
FOR FURTHER INFORMATION CONTACT: Gary H. 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
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
[[Page 51470]]
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 accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, DC, this 26th day of September 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-25145 Filed 10-1-96; 8:45 am]
BILLING CODE 4510-29-P
