[Federal Register Volume 64, Number 64 (Monday, April 5, 1999)]
[Notices]
[Pages 16493-16500]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-8225]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 99-13; Exemption Application No. D-
10468, et al.]
Grant of Individual Exemptions; Wells Fargo Bank, N.A. (Wells
Fargo), 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.
Wells Fargo Bank, N.A. (Wells Fargo) Located in San Francisco, CA
[Prohibited Transaction Exemption (PTE) 99-13; Exemption Application
No. D-10468]
Exemption
Section I. Exemption for the Conversion of Assets (the Conversion
Transactions)
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 16, 1996, to the exchange of the
assets of various employee benefit plans (the Plans) that are either
held in certain collective investment funds (the CIF or CIFs)
maintained by Wells Fargo, or otherwise held by Wells Fargo as trustee,
investment manager or in any other capacity as fiduciary on behalf of
the Plans, for shares of any open-end investment company (the Fund or
Funds) registered under the Investment Company Act of 1940 (the 1940
Act) to which Wells Fargo or any of its affiliates (collectively, Wells
Fargo) serves as investment adviser and may provide other services,
provided the following conditions are met:
(a) The Plans are not sponsored by Wells Fargo.
(b) No sales commissions are paid by a Plan in connection with a
Conversion Transaction.
(c) All or a pro rata portion of the assets of a CIF or all or a
pro rata portion of the assets of the Plans or any separate portfolio
thereof held by Wells Fargo in any capacity as fiduciary on behalf of
such Plans are transferred in-kind to the Funds in exchange for shares
of such Funds. Notwithstanding the foregoing, the allocation of fixed-
income securities held by a CIF among Plans on the basis of each Plan's
pro rata share of the aggregate value of such securities will not fail
to meet the requirements of this subsection if--
(1) The aggregate value of such securities does not exceed one (1)
percent of the total value of the assets held by the CIF immediately
prior to the transfer; and
(2) Such securities have the same coupon rate and maturity, and at
the time of the transfer, the same credit ratings from nationally
recognized statistical rating agencies.
(d) The Plans or the CIFs receive shares of the Funds that have a
total net asset value equal in value to the assets of the Plans or the
CIFs exchanged for such shares on the date of transfer.
(e) The current market value of the assets of a Plan or the CIF is
determined in a single valuation performed in the same manner as of the
close of the same business day with respect to all such Plans
participating in the transaction on such day, using independent sources
in accordance with the procedures set forth in Rule 17a-7b (Rule 17a-7)
under the Investment Company Act of 1940 (the 1940 Act), as amended,
and the procedures established by the Funds pursuant to Rule 17a-7 for
the valuation of such assets.
(f) A second fiduciary (the Second Fiduciary) who is acting on
behalf of each affected Plan and who is independent of and unrelated to
Wells Fargo, as defined in paragraph (g) of Section III below, receives
advance written notice of the Conversion Transaction and the
disclosures described in paragraph (f) of Section II below.
(g) On the basis of the information described in paragraph (f) of
Section II below, the Second Fiduciary authorizes in writing the
Conversion Transaction, the investment of such assets in corresponding
Funds and the fees received by Wells Fargo in connection with its
services to the Funds. Such authorization by the Second Fiduciary is
consistent with the responsibilities, obligations, and duties imposed
on fiduciaries by Part 4 of Title I of the Act. In addition, the Second
Fiduciary must give prior approval, in writing, for the receipt of
confirmation statements described below in paragraph (h)(2) and (i) by
facsimile or electronic mail if the Second Fiduciary elects to receive
such statements in that form.
(h)(1) For the Conversion Transaction which occurred on September
16, 1996, the written confirmation described below in paragraph (h)(2)
was made by Wells Fargo to all Second Fiduciaries of the appropriate
Plans within 38 business days of the transaction.
(2) Not later than 30 days after completion of each Conversion
Transaction (except for the transaction described in paragraph (h)(1)
above),
[[Page 16494]]
Wells Fargo sends by regular mail or personal delivery or, if
applicable, by facsimile or electronic mail to the Second Fiduciary, a
confirmation that contains the following information:
(A) 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 1940
Act;
(B) The price of each of the assets involved in the transaction;
and
(C) The identity of each pricing service or market maker consulted
in determining the value of such assets.
(i) No later than 90 days after completion of each Conversion
Transaction, Wells Fargo sends by regular mail or personal delivery or,
if applicable, by facsimile or electronic mail to the Second Fiduciary,
a confirmation that contains the following information:
(1) The number of CIF units held by such affected Plan immediately
before the conversion (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 such
affected Plan following the conversion (and the related per share net
asset value and the aggregate dollar value of the shares received).
(j) The conditions set forth in paragraphs (d), (e), (f), (n), (o),
(p), and (q) of Section II below are satisfied.
Section II. Exemption for Receipt of Fees From Funds (transactions
involving the receipt of Fees)
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)(D) through (F) of the Code, shall
not apply to the receipt of fees by Wells Fargo from the Funds for
acting as the investment adviser, as well as for acting as the
custodian, sub-administrator, or for providing any ``secondary
service'' (the Secondary Service) to the Funds [as defined in Section
III(h)], in connection with the investment in the Funds by the Plans
for which Wells Fargo acts as a fiduciary, provided that:
(a) No sales commissions are paid by the Plans in connection with
purchase or sale of shares of the Funds through a Conversion
Transaction, and no redemption fees are paid in connection with the
sale of such shares by the Plans to the Funds.
(b) The price paid or received by the Plans for shares of the
Funds, in connection with a Conversion Transaction 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) Neither Wells Fargo nor an affiliate, including any officer or
director purchases from or sells to any of the Plans shares of any of
the Funds.
(d) As to each individual Plan, the combined total of all Plan-
level and Fund-level fees received by Wells Fargo for the provision of
services to such Plan and to the Funds (with respect to the Plan's
assets invested in the Funds), respectively, are not in excess of
``reasonable compensation'' within the meaning of section 408(b)(2) of
the Act.
(e) Wells Fargo does not receive any fees payable pursuant to Rule
12b-1 under the 1940 Act (the 12b-1 Fees) in connection with the
transactions.
(f) The Second Fiduciary receives, in advance of the investment by
the Plan in a Fund, a full and detailed written disclosure of
information concerning such Fund (including, but not limited to--
(1) A current prospectus for each Fund in which a Plan is
considering investing;
(2) A statement describing the fees for investment advisory or
similar services, any Secondary Services, and all other fees to be
charged to or paid by the Plan and by the Funds, including the nature
and extent of any differential between the rates of such fees;
(3) The reasons why Wells Fargo may consider such investment to be
appropriate for the Plan;
(4) A statement describing whether there are any limitations
applicable to Wells Fargo with respect to which assets of a Plan may be
invested in the Funds, and if so, the nature of such limitations; and
(5) Upon request of the Second Fiduciary, a copy of the proposed
exemption and/or a copy of the final exemption, once such documents are
published in the Federal Register.
(g) On the basis of the prospectus and disclosure referred to in
paragraph (f) of this Section II, the Second Fiduciary gives prior
approval for such purchases, holdings and sales of Fund shares through
Conversion Transactions that is consistent with the responsibilities
obligations, and duties imposed on fiduciaries by Part 4 of Title I of
the Act. Such approval must be in accordance with the provisions of PTE
77-4 (42 FR 18732, April 8, 1977) or its successor, as it may be
amended from time to time.
(h) The authorization, described in paragraph (g) of this Section
II, is terminable at will by the Second Fiduciary of a Plan, without
penalty to such Plan. Such termination will be effected by Wells Fargo
redeeming the shares of the Fund held by the affected Plan by the close
of the business day following the date of receipt by Wells Fargo,
either by mail, hand delivery, facsimile, or other available means of
written communication at the option of the Second Fiduciary, of the
termination form (the Termination Form), as defined in paragraph (i) of
Section III below, or any other written notice of termination; provided
that if, due to circumstances beyond the control of Wells Fargo, the
sale cannot be executed within one business day, Wells Fargo shall have
one additional business day to complete such redemption.
(i) Each Plan satisfies either (but not both) of the following:
(1) For a Plan for which Wells Fargo serves as a non-discretionary
trustee, the Plan does not pay any Plan-level investment management
fees, investment advisory fees, or similar fees to Wells Fargo with
respect to Plan assets invested in the Funds. (This condition does not
preclude the payment of investment advisory fees or similar fees by a
Fund to Wells Fargo under the terms of its investment advisory
agreement adopted in accordance with section 15 of the 1940 Act, nor
does it preclude the payment of fees for Secondary Services to Wells
Fargo pursuant to a duly adopted agreement between Wells Fargo and the
Funds.)
(2) For a Plan for which Wells Fargo serves as a discretionary
fiduciary (i.e., a trustee or investment manager), such Plan pays Wells
Fargo an investment advisory fee based on total Plan assets from which
a credit has been subtracted representing such Plan's pro rata share of
investment advisory fees paid by the Funds. (This condition also does
not preclude the payment of fees for Secondary Services to Wells Fargo
pursuant to a duly adopted agreement between Wells Fargo and the
Funds.)
(j) In the event of an increase in the rate of any fees paid by the
Funds to Wells Fargo regarding any investment management services,
investment advisory services, or fees for similar services that Wells
Fargo provides to the Funds over an existing rate for such services
that had been authorized by a Second Fiduciary, in accordance with
paragraph (g) of this Section II, Wells Fargo 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 of the Plans invested in a Fund which is
[[Page 16495]]
increasing such fees. Such notice shall be accompanied by the
Termination Form, as defined in paragraph (i) of Section III below.
(k) In the event of an addition of a Secondary Service, as defined
in paragraph (g) of Section III below, provided by Wells Fargo to the
Fund for which a fee is charged or an increase in the rate of any fee
paid by the Funds to Wells Fargo for any Secondary Service, as defined
in paragraph (h) of Section III below, 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 Wells Fargo for such fee over an existing
rate for such Secondary Service which had been authorized by the Second
Fiduciary of a Plan, in accordance with paragraph (g) of this Section
II, Wells Fargo will, at least 30 days in advance of the implementation
of such additional service for which a fee is charged 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 Fund and which explains the nature and amount of the additional
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 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
(i) of Section III below.
(l) The Second Fiduciary is supplied with a Termination Form at the
times specified in paragraphs (j), (k) and (m) of this Section II with
instructions regarding the use of such Termination Form including the
following information--
(1) The authorization is terminable at will by any of the Plans,
without penalty to such Plans. Such termination will be effected by
Wells Fargo redeeming shares of the Fund held by the Plans requesting
termination within one business day following the date of receipt by
Wells Fargo, either by mail, hand delivery, facsimile, or other
available means at the option of the Second Fiduciary, of the
Termination Form or any other written notice of termination; provided
that if, due to circumstances beyond the control of Wells Fargo, the
redemption of shares of such Plans cannot be executed within one
business day, Wells Fargo shall have one additional business day to
complete such redemption; and
(2) Failure by the Second Fiduciary to return the Termination Form
on behalf of a 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, if such Termination Form is supplied pursuant to paragraphs
(j) and (k) of this Section II, and will result in the continuation of
the authorization, as described in paragraph (h) of this Section II, of
Wells Fargo to engage in the transactions on behalf of such Plan.
(m) The Second Fiduciary is supplied with a Termination Form,
annually during the first quarter of each calendar year, beginning with
the first quarter of the calendar year that begins after the date the
notice granting 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 paragraph (m) of this Section II, 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 Plan invests,
Wells Fargo will provide the Second Fiduciary of such Plan:
(A) At least annually with a copy of an updated prospectus of such
Fund;
(B) Upon the request of such Second Fiduciary, with 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
Wells Fargo; and
(2) With respect to each of the Funds in which a Plan invests, in
the event such Fund places brokerage transactions with Wells Fargo,
Wells Fargo will provide the Second Fiduciary of such Plan at least
annually with a statement specifying:
(A) The total, expressed in dollars, brokerage commissions of each
Fund's investment portfolio that are paid to Wells Fargo by such Fund;
(B) The total, expressed in dollars, of brokerage commissions of
each Fund's investment portfolio that are paid by such Fund to
brokerage firms unrelated to Wells Fargo;
(C) The average brokerage commissions per share, expressed as cents
per share, paid to Wells Fargo by each portfolio of a Fund; and
(D) The average brokerage commissions per share, expressed as cents
per share, paid by each portfolio of a Fund to brokerage firms
unrelated to Wells Fargo.
(o) All dealings between the Plans and any of the Funds are on a
basis no less favorable to such Plans than dealings between the Funds
and other shareholders holding the same class of shares as the Plans.
(p) Wells Fargo maintains, for a period of six years, in a manner
that is convenient and accessible for audit and examination, the
records necessary to enable the persons, 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 Wells Fargo,
the records are lost or destroyed prior to the end of the 6 year
period; and
(2) No party in interest, other than Wells Fargo, 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 subsection (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 or the Securities and Exchange
Commission (the SEC);
(B) Any fiduciary of each of the Plans who has authority to acquire
or dispose of shares of any of the Funds owned by such a 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 paragraph (q)(1)(B) and
(q)(1)(C) of Section II shall be authorized to examine trade secrets of
Wells Fargo, or commercial or financial information which is privileged
or confidential.
Section III. Definitions
For purposes of this exemption, (a) The term ``Wells Fargo'' means
Wells Fargo Bank, N.A. and any of its affiliates, 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,
[[Page 16496]]
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 term ``Fund'' or ``Funds'' means any diversified open-end
investment company or companies registered under the 1940 Act for which
Wells Fargo serves as investment adviser (including sub-adviser), and
may also provide custodial or other services as approved by such Funds.
(e) The term ``net asset value'' means the amount for purposes of
pricing all purchases and redemptions through the Conversion
Transactions, calculated by dividing the value of all securities,
determined by a method adopted by the Fund's board of directors in
accordance with the 1940 Act, 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 ``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.
(g) The term ``Second Fiduciary'' means a fiduciary of a plan who
is independent of and unrelated to Wells Fargo. For purposes of this
exemption, the Second Fiduciary will not be deemed to be independent of
and unrelated to Wells Fargo if--
(1) Such Second Fiduciary directly or indirectly controls, is
controlled by, or is under common control with Wells Fargo;
(2) Such Second Fiduciary, or any officer, director, partner,
employee, or relative of such Second Fiduciary is an officer, director,
partner, or employee of Wells Fargo (or is a relative of such persons);
(3) Such Second Fiduciary directly or indirectly receives any
compensation or other consideration from Wells Fargo for his or her own
personal account in connection with any transaction described in this
exemption.
If an officer, director, partner, or employee of Wells Fargo (or a
relative of such persons), is a director of such Second Fiduciary, and
if he or she abstains from participation in (A) the choice of the
Plan's investment manager/adviser, (B) the approval of any purchase or
redemption by the Plan of shares of the Funds through a Conversion
Transaction, and (C) 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 (g)(2) of Section III above,
shall not apply.
(h) The term ``Secondary Service'' means a service, other than an
investment management, investment advisory, or similar service, which
is provided by Wells Fargo to the Funds, including but not limited to
custodial, accounting, brokerage, administrative, or any other service.
(i) The term ``Termination Form'' means the form supplied to the
Second Fiduciary, 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 may be
used at will by the Second Fiduciary to terminate such authorization
without penalty to the Plans and to notify Wells Fargo in writing to
effect such termination by redeeming the shares of the Fund held by the
Plans requesting termination by the close of the business day following
the date of receipt by Wells Fargo, either by mail, hand delivery,
facsimile or other available means at the option of the Second
Fiduciary, of written notice of such request for termination; provided
that if, due to circumstances beyond the control of Wells Fargo, the
redemption cannot be executed within one business day, Wells Fargo
shall have one additional business day to complete such redemption.
EFFECTIVE DATE: This exemption is effective as of September 16, 1996
with respect to the Conversion Transactions described in Section I and
effective as of the date of the grant with respect to Transactions
Involving the Receipt of Fees, as described in Section II.
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 January 27,
1999 at 64 FR 4132.
Written Comments
The Department received one written comment with respect to the
Notice and no requests for a public hearing. The comment was submitted
by Wells Fargo and suggested several modifications to the conditional
language of the Notice and the Summary of Facts and Representations
(the Summary). Presented below are a discussion of Wells Fargo's
comments and the Department's responses to such comments.
1. Section I(c) of the Notice. On page 4133 of the Notice, Section
I(c) states that all or a pro rata portion of the assets of a CIF or
all or a pro rata portion of the assets of the Plans that are held by
Wells Fargo in any capacity as fiduciary on behalf of such Plans are
transferred in-kind to the Funds in exchange for shares of such Funds.
Wells Fargo requests that the Department amend Section I(c) of the
Notice by inserting the phrase ``or any separate portfolio thereof''
after the phrase ``all or a pro rata portion of the assets of the
Plan.'' Wells Fargo states that it may serve as the directed trustee of
a Plan which has a variety of investment portfolios that are managed by
different investment managers. Under such circumstances, Wells Fargo
notes that the Plan fiduciaries may exchange one or more, but less than
all, of such portfolios. Wells Fargo believes the foregoing change to
Section I(c) would clarify that the Plan can make the change without
exchanging all shares that are held in a portfolio and managed by the
other investment manager.
In addition, Wells Fargo notes that on page 42835 of PTE 97-41 (62
FR 42830, August 8, 1997), Section II(c) contains an exception to the
requirement that assets transferred in a Conversion Transaction must
constitute a pro rata portion of the CIF assets. Under this exception,
which is applicable for Conversion Transactions occurring after August
8, 1997, if the CIF holds small positions that are not easily
divisible, the securities will be allocated such that the transfer will
include a pro rata share in the value of all such securities in the
aggregate rather than in each security individually.
Specifically, Section II(c) of PTE 97-41 permits this type of
allocation to be made for fixed-income securities if the following
conditions are met:
The aggregate value of such securities does not exceed one
(1) percent of the total value of the CIF assets immediately prior to
the transfer; and
The securities have the same coupon rate and maturity and,
at the time of the transfer, the same ratings from nationally
recognized statistical ratings agencies.
Consistent with Section II(c) of PTE 97-41, Wells Fargo requests
that the following sentence be added to Section I(c) of the Notice in
order to allow a CIF (or, for that matter, a Plan) to avoid transaction
costs associated with
[[Page 16497]]
liquidating small positions in fixed-income securities prior to
maturity:
* * * Notwithstanding the foregoing, the allocation of fixed-
income securities held by a CIF among Plans on the basis of each
Plan's pro rata share of the aggregate value of such securities will
not fail to meet the requirements of this subsection if--
(1) The aggregate value of such securities does not exceed one
(1) percent of the total value of the assets held by the CIF
immediately prior to the transfer; and
(2) Such securities have the same coupon rate and maturity, and
at the time of the transfer, the same credit ratings from nationally
recognized statistical rating agencies.
In response to these comments, the Department has made the changes
suggested by Wells Fargo.
2. Section I(e) of the Notice. On page 4133 of the Notice, Section
I(e) provides that assets that are transferred by a Plan or a CIF to a
Fund are to be valued using sources independent of Wells Fargo in
accordance with Rule 17a-7. In particular, the last sentence of Section
I(e) describes the procedures currently required under Rule 17a-7 of
the 1940 Act for the valuation of Plan or CIF assets that are
transferred in-kind to a Fund.
Wells Fargo requests that the last sentence of Section I(e) be
deleted in order to make the condition consistent with PTE 97-41.*
Wells Fargo believes that the reference to Rule 17a-7 should provide
flexibility to permit the use of new pricing systems which are approved
by the SEC by amendment to Rule 17a-7 without having the parties
request an amendment to the exemption.
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\*\ On page 58229 of the Preamble to the Notice underlying PTE
97-41 (61 FR 58224, November 13, 1996), the Department noted that
the requirement that valuations of plan assets transferred from a
CIF to a Fund be determined in accordance with Rule 17a-7 under the
1940 Act to provide flexibility for future transactions. Thus, if
Rule 17a-7 was subsequently amended by the SEC to accommodate new
pricing systems, the Department observed that Banks could take
advantage of the amended Rule without having to request an amendment
to the class exemption.
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In response to this comment, the Department concurs with this
clarification and has made the requested change.
3. Sections I(g), I(h)(2) and I(i) of the Notice. On page 4133 of
the Notice, Section I(g) describes the written authorization that is to
be given by the Second Fiduciary with respect to a Conversion
Transaction. Also on page 4133 of the Notice, Sections I(h)(2) and I(i)
provide for the types of confirmation statements that Wells Fargo is to
send the Second Fiduciary of a Plan by regular mail.
Wells Fargo requests that these conditions be amended to permit
personal delivery of the foregoing information and the use of facsimile
or electronic mail. With respect to Section I(g) of the Notice, Wells
Fargo suggests that the following new sentence be added as a second
sentence:
In addition, the Second Fiduciary must give prior approval, in
writing, for the receipt of confirmation statements described below
in paragraph (h)(2) and (i) by facsimile or electronic mail if the
Second Fiduciary elects to receive such statements in that form.
Further, with respect to Sections I(h)(2) and I(i) of the Notice, Wells
Fargo suggests that the phrase ``or personal delivery or, if
applicable, by facsimile or electronic mail'' be added after the term
``regular mail.''
In response, the Department concurs with the requested
clarifications and has made the changes suggested by Wells Fargo.
4. Representation 1 of the Summary. On page 4136 of the Summary,
Representation 1 describes Wells Fargo, its parent, Wells Fargo &
Company (WFC), and their various affiliates. Wells Fargo states that in
a merger of equals effective November 2, 1998, WFC was merged with and
into a wholly owned subsidiary of Norwest Corporation. In addition,
Wells Fargo states that the name of the combined company is ``Wells
Fargo & Company.''
To reflect these factual updates, the Department has revised
Representation 1 by adding the following new, third paragraph:
Effective as of November 2, 1998, WFC was merged with and into a
wholly owned subsidiary of Norwest Corporation. The name of the
combined company is ``Wells Fargo & Company.''
For further information regarding the Wells Fargo's comment letter
or other matters discussed herein, interested persons are encouraged to
obtain copies of the exemption application file (Exemption Application
No. D-10468) the Department is maintaining in this case. The complete
application file, as well as all supplemental submissions received by
the Department, are 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, N.W.,
Washington, D.C. 20210.
Accordingly, after giving full consideration to the entire record,
including the written comments provided by Wells Fargo, the Department
has made the aforementioned changes to the Notice and the Summary and
has decided to grant the exemption subject to the modifications or
clarifications described above.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
MONY Life Insurance Company
(MONY)
Located in New York, NY
[Prohibited Transaction Exemption 99-14; Exemption Application No. D-
10661]
Exemption
Section I. Covered Transactions
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,
effective November 16, 1998, to the (1) receipt of common stock of the
MONY Group, Inc. (the Holding Company), the parent company of MONY, or
(2) the receipt of cash or policy credits, by or on behalf of any
eligible policyholder (the Eligible Policyholder) of MONY which is a
plan (the Plan), subject to applicable provisions of the Act and/or the
Code, other than an Eligible Policyholder which is a Plan maintained by
MONY or an affiliate for its employees, in exchange for such Eligible
Policyholder's membership interest in MONY, in accordance with the
terms of a plan of reorganization (the Plan of Reorganization) adopted
by MONY and implemented pursuant to section 7312 of the New York
Insurance Law.
This exemption is subject to the conditions set forth below in
Section II.
Section II. General Conditions
(a) The Plan of Reorganization is implemented in accordance with
procedural and substantive safeguards that are imposed under New York
Insurance Law and is subject to review and approval by the
Superintendent of Insurance of the State of New York (the
Superintendent).
(b) The Superintendent reviews the terms of the options that are
provided to Eligible Policyholders of MONY as part of such
Superintendent's review of the Plan of Reorganization, and the
Superintendent only approves the Plan of Reorganization following a
determination that such Plan of Reorganization is fair and equitable to
all Eligible Policyholders and is not detrimental to the public.
(c) Each Eligible Policyholder has an opportunity to vote to
approve the Plan of Reorganization after full written
[[Page 16498]]
disclosure is given to the Eligible Policyholder by MONY.
(d) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder receives Holding Company stock, cash or policy
credits pursuant to the terms of the Plan of Reorganization and neither
MONY nor any of its affiliates exercises any discretion or provides
investment advice with respect to such acquisition.
(e) After each Eligible Policyholder entitled to receive stock is
allocated at least 7 shares of Holding Company stock, additional
consideration is allocated to Eligible Policyholders who own
participating policies based on actuarial formulas that take into
account each participating policy's contribution to the surplus of MONY
which formulas have been reviewed by the Superintendent.
(f) All Eligible Policyholders that are Plans participate in the
transactions on the same basis within their class groupings as other
Eligible Policyholders that are not Plans.
(g) No Eligible Policyholder pays any brokerage commissions or fees
in connection with their receipt of Holding Company stock or in
connection with the implementation of the commission-free sales and
purchase programs.
(h) All of MONY's policyholder obligations remain in force and are
not affected by the Plan of Reorganization.
Section III. Definitions
For purposes of this exemption:
(a) The term ``MONY'' means ``MONY Life Insurance Company'' and any
affiliate of MONY as defined in paragraph (b) of this Section III.
(b) An ``affiliate'' of MONY includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with MONY. (For purposes of this paragraph, the term ``control'' means
the power to exercise a controlling influence over the management or
policies of a person other than an individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(c) The term ``Eligible Policyholder'' means a policyholder who is
eligible to vote and to receive consideration under MONY's Plan of
Reorganization. Such Eligible Policyholder is a policyholder of the
mutual insurer on the date the Plan of Reorganization is adopted by the
Board of Trustees of MONY and on the effective date of the
reorganization.
(d) The term ``policy credit'' means: (1) Dividend additions under
an individual participating nonvariable annuity contract, (2) an
increase in accumulation value of an individual nonparticipating
nonvariable annuity contract, (3) an increase in the accumulation value
in the separate investment account under an individual participating
variable annuity contract, (4) an increase in the accumulation value in
the general account investment option under an individual
nonparticipating variable annuity contract or individual
nonparticipating variable life insurance policy, (5) dividend deposits
or dividend additions, as appropriate (depending on the selection of
the underlying policy), (6) an increase in fund value on an individual
nonparticipating nonvariable life insurance policy, (7) an extension of
the expiry date on a policy which is in force as extended term life
insurance pursuant to a non-forfeiture provision of a life insurance
policy, or (8) an increase in the accumulation account value in the
general account investment option under a group annuity contract or
certificate issued thereunder.
EFFECTIVE DATE: This exemption is effective as of November 16, 1998,
the date of MONY's Plan of Reorganization.
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) that was published
December 16, 1998 at 63 FR 69314.
Written Comments
The Department received three written comments with respect to the
Notice. Two comments were submitted by Plan participants who are
Eligible Policyholders of MONY. The third comment was submitted by
MONY.
The first commenter expressed general approval of the Notice and
the form of consideration that he would be receiving as a result of
MONY's Plan of Reorganization. The commenter also endorsed the idea
that his Plan policy would continue to contribute to the financial
success of MONY.
The second commenter indicated that her only concern was that her
investment account with MONY would remain unaffected by the Plan of
Reorganization. However, after discussing this matter with a Department
representative who explained that the exemption was predicated on the
requirement that all of MONY's policyholder obligations would remain in
force and would not be affected by the Plan of Reorganization, the
commenter decided to withdraw her comment.
The third commenter, MONY, suggested certain technical and
clarifying changes to the Notice and the Summary of Facts and
Representations (the Summary). In addition, MONY was provided with
comments from the New York State Insurance Department (the New York
Department), whose comments were, in turn, incorporated into the
comments submitted by MONY.
Following is a discussion of the comments received from MONY and
the Department's responses with respect thereto.
1. Section I. On page 69314 of the Notice, Section I describes MONY
Group, Inc. as a subsidiary of MONY. MONY notes that while MONY Group
was a subsidiary of MONY at the time MONY filed its exemption
application, on the effective date of the reorganization (November 16,
1998), the MONY Group became the parent company of MONY when MONY
issued all of its common stock to the MONY Group. In this regard, MONY
suggests that the phrase ``a subsidiary'' be deleted and replaced with
``the parent company.''
The Department concurs with the requested modification and has
revised Section I, accordingly.
Also on page 69314 of the Notice, Section I uses the phrase
``employee benefit plans'' to describe the Plans that are covered by
the exemption. MONY wishes to clarify that it may be a disqualified
person with respect to arrangements involving individual retirement
accounts which are described in section 4975(e)(1) of the Code but
which may not constitute ``employee benefit plans'' as that term is
defined under the Act and the Department's regulations. Therefore, MONY
suggests that the exemption use the phrase ``Plan subject to ERISA or
section 4975(e) of the Code.''
The Department has considered this comment and concurs basically
with MONY's clarification. However, for the sake of consistency in the
use of defined terms in the Notice as well as for parallelism, the
Department has decided to revise the phrase to state ``Plan subject to
applicable provisions of the Act and/or the Code.''
2. Section II(a). On page 69314 of the Notice, Section II(a)
states, in pertinent part, that the Plan of Reorganization is subject
to review and supervision by the Superintendent of Insurance of the
State of New York (the Superintendent). MONY suggests that the word
``supervision'' be replaced with the word ``approval'' because the New
York Department believes the word ``approval'' more accurately reflects
the
[[Page 16499]]
role of the Superintendent with respect to MONY's Plan of
Reorganization.
The Department concurs and has modified Section II(a), accordingly.
3. Section II(d). On page 69315 of the Notice, Section II(d) states
that an Eligible Policyholder may elect to receive Holding Company
stock, cash or policy credits pursuant to the Plan of Reorganization
provided the decision is made by one or more independent fiduciaries of
such Plan and that neither MONY nor any of its affiliates exercises any
discretion or provides investment advice with respect to such election.
MONY wishes to clarify that the only election provided under its Plan
of Reorganization is a cash election that is provided to certain
policyholders that would otherwise receive Holding Company stock.
Specifically, MONY notes that under its Plan of Reorganization,
Eligible Policyholders who are allocated 75 shares or less of Holding
Company stock will be provided the option to elect cash instead of
stock. However, because the principal thrust of the condition is to
ensure that an Eligible Policyholder's decision to receive Holding
Company stock, cash or policy credits is not influenced by MONY or any
of its affiliates, MONY suggests that the Department revise General
Condition II(d) of the Notice to read as follows:
(d) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder receives Holding Company stock, cash or policy
credits pursuant to the terms of the Plan of Reorganization and
neither MONY nor any of its affiliates exercises any discretion or
provides investment advice with respect to such acquisition.
The Department concurs and has modified Section II(d), accordingly.
4. Section II(e). On page 69315 of the Notice, Section II(e)
provides that the actuarial formulas developed by MONY to determine the
allocation of stock among Eligible Policyholders have been approved by
the Superintendent. MONY suggests that the word ``approved'' be
replaced by the word ``reviewed'' because the New York Department
believes the word ``reviewed'' more accurately reflects their role with
respect to the allocation methodology, which the New York Department
did not specifically approve.
The Department concurs and has modified Section II(e), accordingly.
5. Section III(d). On page 69315 of the Notice, Section III(d)
defines the term ``policy credit'' to mean ``an increase in the
accumulation account value (to which no surrender or similar charges
are applied) in the general account or an increase in an dividend
accumulation on a policy.'' To make the definition more comprehensive,
MONY suggests the following replacement definition of the term:
(d) ``Policy credit'' means (1) dividend additions under an
individual participating nonvariable annuity contract, (2) an
increase in accumulation value of an individual nonparticipating
nonvariable annuity contract, (3) an increase in the accumulation
value in the separate investment account under an individual
participating variable annuity contract, (4) an increase in the
accumulation value in the general account investment option under an
individual nonparticipating variable annuity contract or individual
nonparticipating variable life insurance policy, (5) dividend
deposits or dividend additions, as appropriate (depending of the
selection of the underlying policy), (6) an increase in fund value
on an individual nonparticipating nonvariable life insurance policy,
(7) an extension of the expiry date on a policy which is in force as
extended term life insurance pursuant to a non-forfeiture provision
of a life insurance policy, or (8) an increase in the accumulation
account value in the general account investment option under a group
annuity contract or certificate issued thereunder.*
In addition, MONY suggests that Footnote 2, which appears on page
69315 of the Notice, be placed at the end of the revised definition of
the term ``policy credit'' where the asterisk is shown above.
The Department concurs with the revisions suggested by MONY and has
made the requested changes.
6. Representation 4. On page 69316 of the Summary, the second
sentence of the fourth paragraph of Representation 4 states that MONY
hired the actuarial firm of Tillinghast Towers-Perrin (TT-P) to conduct
the actuarial review of the Plan of Reorganization. MONY wishes to
clarify that because the Superintendent actually selected the actuarial
firm of TT-P to assist him in his actuarial review of the Plan of
Reorganization, the word ``MONY'' should be deleted and replaced with
the term ``the Superintendent.''
The Department concurs with this clarification.
7. Representation 6. On page 69316 of the Summary, the second
sentence of the second paragraph of Representation 6 states that as a
result of the reorganization, MONY's charter and by-laws were
extinguished in accordance with New York Insurance Law. MONY wishes to
clarify that it was required to amend and restate its charter and by-
laws to reflect the new organizational structure of the company.
Therefore, it suggests that the word ``extinguished'' be replaced with
the words ``amended and restated.''
In response, the Department concurs with the requested
modification.
8. Footnote 9. On page 69317 of the Summary, Footnote 9 of
Representation 8 states that (as a result of MONY's demutualization)
both the fixed and variable components of an insurance policy will be
provided in exchange for the policyholder's membership interests. For
purposes of clarification, MONY requests that the term ``insurance
policy'' be deleted and replaced with the word ``consideration.''
In response to this change, the Department concurs that Footnote 9
should have read as follows:
\9\ MONY notes that both the fixed and variable components of
consideration will be provided in exchange for the policyholder's
membership interests.
9. Representation 9. On page 69317 of the Summary, the first
sentence of the first paragraph of Representation 9 states that amounts
to be distributed to Eligible Policyholders that are Plans will be held
in an escrow or similar arrangement in the event that the Department
does not provide exemptive relief prior to the date of the
reorganization. MONY wishes to point out that its Plan of
Reorganization and exemption application provide that such amounts
``may'' be held in an escrow or similar arrangement pending the
finalization of the exemption and that subsequent text in
Representation 9 reflects the fact that the escrow arrangement may be
determined to be unnecessary if the proposed exemption specifies the
date of reorganization as the effective date of the exemption.
The Department concurs with this modification.
MONY also wishes to point out that after the Department issued the
Notice specifying the date of reorganization as the effective date of
the exemption, the New York Department did not require that amounts
distributed to Eligible Policyholders be held in an escrow or similar
arrangement. As such, MONY represents that the required distributions
to the Plans have taken place.
10. Representation 10. On page 69317 of the Summary, the first
sentence of the first paragraph of Representation 10 states that MONY's
Plan of Reorganization provides for the establishment of a commission-
free sales program (the Program) whereby Stock Eligible Policyholders
who receive between 25 and 99 shares of Holding Company stock will be
given the opportunity to sell their Holding Company stock on the open
market within 60 days prior to the commencement date of the program.
While this representation is generally accurate, MONY notes that it,
subject to
[[Page 16500]]
the New York Department's review, has determined that policyholders who
receive up to 99 shares may participate in the Program. In addition,
MONY has determined that the Program will be offered for three months
commencing August 17, 1999 and ending November 17, 1999, which date may
be extended by MONY with the approval of the Superintendent.
For further information regarding the comments or other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-10661) the
Department is maintaining in this case. The complete application file,
as well as all supplemental submissions received by the Department are
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, N.W., Washington, D.C.
20210.
Accordingly, after giving full consideration to the entire record,
including the written comments received, the Department has decided to
grant the exemption subject to the modifications and clarifications
described above.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady 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
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, D.C., this 30th day of March, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 99-8225 Filed 4-2-99; 8:45 am]
BILLING CODE 4510-29-P
