[Federal Register Volume 63, Number 203 (Wednesday, October 21, 1998)]
[Notices]
[Pages 56224-56227]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-28215]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10644, et al.]
Proposed Exemptions; Bankers Trust Company
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of Proposed Exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
[[Page 56225]]
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) the name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
Attention: Application No. ____________, stated in each Notice of
Proposed Exemption. The applications for exemption and the comments
received will be available for public inspection in the Public
Documents Room of Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5507, 200 Constitution Avenue, NW,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Bankers Trust Company (Bankers Trust) Located in New York, New York
[Exemption Application Number D-10644]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Section I. Transactions
If the exemption is granted, the restrictions of section
406(a)(1)(A) through (D) and section 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 sale (the Sale) of fractional amounts of certain fixed
income instruments (Fractional Amounts) to Bankers Trust and its
affiliates by plans for which Bankers Trust or its affiliates provide
fiduciary or other services (Client Plans), as well as employee benefit
plans established and maintained by Bankers Trust or its affiliates (BT
Plans) (collectively, the Plans), provided that the following
conditions are met:
(a) Each Sale involves a one time transaction for cash;
(b) The terms of each Sale are at least as favorable to the Plan as
those terms which would be available in an arm's-length transaction
with an unrelated party;
(c) The Plans receive an amount in cash which is not less than the
par value for each of the Fractional Amounts;
(d) In the case of the Client Plans,
(1) each Sale is subject to the prior approval of an independent
plan fiduciary;
(2) the independent fiduciary of each Plan is furnished written
notice at least 60 days prior to the proposed Sale transaction,
containing information relevant to the independent fiduciary's
determination whether to approve the Sale transaction. The notice will
inform the independent fiduciary that failure to respond within 45 days
of receipt of the notice will constitute authorization of Bankers Trust
to engage in the transaction. If the fixed income instruments are not
redenominated within a year of provision of this notice, additional
notice will be delivered to the independent fiduciaries each year
notifying them of their right to not participate in this program;
(e) In the case of BT Plans, Bankers Trust must purchase the
Fractional Amounts from Plans within 30 days of the date that the
Fractional Amounts are received from the issuer;
(f) Neither Bankers Trust nor an affiliate has discretionary
authority or control with respect to the investment of the plan assets
involved in the transaction, or render investment advice (within the
meaning of 29 CFR 2510.3-21(c) with respect to these assets);
(g) The Plans do not incur any commissions or other expenses
relating to the Sales; and
(h)(1) Bankers Trust or an affiliate maintains or causes to be
maintained within the United States, for a period of six years from the
date of such transaction, the records necessary to enable the persons
described in this section to determine whether the conditions of this
exemption have been met; except that a party in interest with respect
to an employee benefit plan, other than Bankers Trust or its
affiliates, 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 Bankers Trust or its affiliates, 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 (a) the Department, (b) the Internal
Revenue Service, (c) plan participants and beneficiaries, (d) any
employer of plan participants and beneficiaries, and (e) any employee
organization whose members are covered by such plan; except that none
of the persons described in (c) through (e) of this subsection shall be
authorized to examine trade secrets of Bankers Trust or its affiliates
or any commercial or financial information which is privileged or
confidential.
Section II. Definitions
(a) The term affiliate of Bankers Trust means any other bank or
similar financial institution directly or indirectly controlling,
controlled by, or
[[Page 56226]]
under common control with Bankers Trust.
(b) The term Euro means the single European currency to be
introduced on January 1, 1999 in eleven Member States of the European
Union.1
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\1\ For purposes of reference, the Euro is slated to have a
conversion rate of 1 Euro equals 1 European Currency Unit (ECU). The
ECU is a basket of 12 European currencies that is frequently used
for inter-governmental and market transactions. Currently, the ECU
is worth less than one U.S. dollar.
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(c) The term Fractional Amount means, with respect to any fixed
income instrument, an amount less than one Euro.
(d) The term independent plan fiduciary means a plan fiduciary
independent of Bankers Trust and any of its affiliates.
(e) The term par value means the face value of the fixed income
instrument.
(f) The term Plan includes all employee benefit plans to which
Bankers Trust or an affiliate acts as a service provider, including a
fiduciary, and all plans established and maintained by Bankers Trust
and its affiliates, which have net assets of at least $25,000,000.
EFFECTIVE DATE: This exemption is effective for the period beginning on
January 1, 1999 and ending three years from the date on which each
country joining the European Economic and Monetary Union converts to
the Euro.
Summary of Facts and Representations
1. Bankers Trust, a New York banking corporation, is a commercial
bank which provides a wide range of banking, fiduciary, record keeping,
custodial, brokerage and investment services to corporations,
institutions, governments, employee benefit plans, governmental
retirement plans and private investors worldwide. Bankers Trust is
wholly-owned by Bankers Trust Corporation (BTCorp), a bank holding
company established in 1965 under the laws of the State of New York. As
of December 31, 1997, BTCorp and its affiliates had consolidated assets
of approximately $140 billion and total stockholder's equity of
approximately $5 billion.
2. Among the assets of the Plans for which Bankers Trust provides
services are corporate and government-issued fixed income instruments
denominated in the currencies of the following eleven European nations:
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
Netherlands, Portugal and Spain. In May 1998, these eleven nations
agreed to join the Economic and Monetary Union (EMU) and to cooperate
in the creation of a European Central Bank and the development of a
central currency (the Euro), in lieu of the individual currencies of
the eleven members (Legacy Currencies). Beginning on January 1, 1999,
these Legacy Currencies will be converted into the Euro, although the
Legacy Currencies will continue to coexist with the Euro for a limited
time as denominations of the Euro.2
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\2\ For example, a French Franc will be treated as a sub-unit of
a Euro in the same way as a centime is treated as a subunit of the
Franc. The applicant represents that because the conversion rate
will be irrevocably fixed throughout a three-year transitional
period, all existing banknotes and coins will continue in
circulation as legal tender but will be treated as referring to the
Euro at the fixed conversion rate.
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During the initial transition weekend that includes January 1,
1999, the securities markets in the EMU will undergo a conversion in
which (1) all stock exchanges and depositories will commence pricing,
trading and settling only in the Euro, (2) approximately 1500
government securities will be redenominated, (3) currency balances will
be converted to the Euro, and (4) all securities transactions pending
over that weekend will be converted to settle in the Euro. From January
1, 1999 forward, all stock exchanges, depositories and national or
central banks will operate only in the Euro.
With regard to fixed income instruments, the process of conversion
is scheduled to take place over a three-year period. The applicant
states that the other European nations that are not currently part of
the EMU may decide to follow these other nations and start their own
conversion process after January 1, 1999. In that event, these other
nations may take approximately 3 years from their commencement of the
conversions process to redenominate fixed income securities. Bankers
Trust represents that in the process of this redenomination, Fractional
Amounts (as defined in paragraph (c) of Section II) will be created as
a result of the relationship between the former currency values and the
Euro.
4. Bankers Trust seeks exemptive relief permitting it and its
affiliates to purchase the Fractional Amounts which result from the
conversion to the Euro of certain fixed income instruments denominated
in the Legacy Currencies that are held by its Client Plans and the BT
Plans. Bankers Trust represents that while its custody systems
currently support Fractional Amounts, it is widely predicted that there
will be little or no market for Fractional Amounts resulting from the
conversion to the Euro. In addition, Bankers Trust represents that the
Fractional Amounts will need to be disposed of as soon as possible
after the Euro Conversion because these Fractional Amounts will likely
trade at a discount in any potential secondary market. In addition,
when transaction costs and other costs are considered, the cost of
selling the Fractional Amounts may exceed their value. Accordingly,
Bankers Trust proposes purchasing these Fractional Amounts at par value
from its clients, including Client Plans, and the BT Plans to ensure
that no losses are sustained by such investors in the sale of the
Fractional Amounts.
5. Bankers Trust represents that sixty (60) days prior to December
31, 1999, Bankers Trust and its affiliates shall provide written notice
of the subject transaction in the form of a letter to all independent
plan fiduciaries. In this letter, Bankers Trust will provide several
items of important information. First, the letter will outline the
facts surrounding the conversion of various Legacy Currencies to the
Euro. Second, the letter will advise clients that no market dealing in
Fractional Amounts can be expected and that, if such a market develops,
the Fractional Amounts will likely trade at a substantial discount.
Bankers Trust will also note that, due to the small amounts involved,
any sale of the Fractional Amounts on a potential secondary market may
result in the transaction costs exceeding the proceeds derived from the
sale. Third, the letter will explain that Bankers Trust is prepared to
purchase the Fractional Amounts at par, without any transaction costs.
Fourth, the letter will advise all clients (including each Client Plan)
that if they choose not to sell their Fractional Amounts, they must
notify Bankers Trust within 45 days of receipt of notice. The notice
will inform the independent fiduciary that failure to respond within 45
days of receipt of the notice will constitute authorization of Bankers
Trust to engage in the transaction. If the fixed income instruments are
not redenominated within a year of provision of this notice, additional
notice will be delivered to the independent fiduciaries of the Client
Plans each year notifying them of their right not to participate in
this program. The letter will provide all appropriate information
including telephone numbers, the names of contact persons, and relevant
postal or electronic addresses that can be used for the purpose of
providing such notification.
6. Bankers Trust represents that the subject transactions are
administratively feasible in that each Sale will be for cash at an
amount equal to the par value of the Fractional Amounts and that all
[[Page 56227]]
transaction records will be maintained. Furthermore, Bankers Trust
states that each transaction should be viewed as being in the best
interest of the Plans and their participants and beneficiaries because
such transactions will provide for more efficient administration of the
currency conversion process for such assets and increased value to the
Plan's investments. Finally, Bankers Trust represents that the subject
transactions will be protective of the Plans' participants and
beneficiaries because each Plan will receive the par value for the
Fractional Amounts during a time when any market that may develop for
these interests will demand that they be sold at a discount.
7. In summary, Bankers Trust represents that the transactions will
satisfy the statutory criteria of section 408(a) of the Act and section
4975 of the Code because:
(a) Each Sale involves a one time transaction for cash;
(b) The terms of each Sale are at least as favorable to the Plan as
those terms which would be available in an arm's-length transaction
with an unrelated party;
(c) The Plans receive an amount in cash which is not less than the
par value for each of the Fractional Amounts;
(d) In the case of the Client Plans,
(1) each Sale is subject to the prior approval of an independent
plan fiduciary;
(2) the independent fiduciary of each Plan is furnished written
notice at least 60 days prior to the proposed Sale transaction,
containing information relevant to the independent fiduciary's
determination whether to approve the Sale transaction. The notice will
inform the independent fiduciary that failure to respond within 45 days
of receipt of the notice will constitute authorization of Bankers Trust
to engage in the transaction. If the fixed income instruments are not
redenominated within a year of provision of this notice, additional
notice will be delivered to the independent fiduciaries each year
notifying them of their right to not participate in this program;
(e) In the case of the BT Plans, Bankers Trust must purchase the
Fractional Amounts from their Plans within 30 days of the date that
Fractional Amounts are received from the issuer after the government of
each respective country determines that redenomination shall commence;
(f) Neither Bankers Trust nor an affiliate has discretionary
authority or control with respect to the investment of the plan assets
involved in the transaction, or render investment advice (within the
meaning of 29 CFR 2510.3-21(c) with respect to these assets); and
(g) The Plans do not incur any commissions or other expenses
relating to the Sales.
Notice to Interested Persons: Because of the large number of
interested persons, the Department and the applicant have agreed that
notification through publication of the proposal in the Federal
Register is sufficient.
FOR FURTHER INFORMATION CONTACT: James Scott Frazier of the Department,
phone number (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 of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 15th day of October, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 98-28215 Filed 10-20-98; 8:45 am]
BILLING CODE 4510-29-P
