[Federal Register Volume 62, Number 120 (Monday, June 23, 1997)]
[Notices]
[Pages 33925-33934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-16362]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-33;
Exemption Application No. D-10011]
Grant of Individual Exemption to Make Permanent as Modified
Prohibited Transaction Exemption (PTE) 91-8 Involving Equitable Life
Assurance Society of the United States and its Affiliates (Equitable)
and Equitable Real Estate Management, Inc. (ERE)1, Located
in New York, New York
---------------------------------------------------------------------------
\1\ By letter dated April 23, 1997, the applicants have informed
the Department that Equitable has agreed to sell ERE to Lend Lease
Corporation Limited, effective on or about June 10, 1997. Lend Lease
Corporation Limited is an Australian-based real estate and financial
management company with substantial business operations in the
United States. Also, see the comment submitted by Equitable and ERE
regarding the status of ERE under this exemption.
---------------------------------------------------------------------------
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Grant of individual exemption to make permanent as modified PTE
91-8, which involves Equitable and ERE.
-----------------------------------------------------------------------
SUMMARY: This document contains a final individual exemption to make
permanent as modified the temporary relief provided by PTE 91-8 (56 FR
1411/1419, January 14, 1991). PTE 91-8 is a temporary exemption which
expired January 13, 1996. This exemption makes permanent as modified
PTE 91-8 and provides relief for the provision of property management
and/or leasing services by ERE to an Account (as defined in Section IV
below), provided that the conditions set forth in Section II are met.
EFFECTIVE DATE: The Department of Labor is extending the temporary
exemptive relief provided under PTE 91-8 until the date the final
exemption is published in the Federal Register. However, effective
January 13, 1996 until the date the final exemption is published in the
Federal Register, Equitable and ERE have a period of up to 90 days
after the end of each calendar year to prepare the annual report
required by this exemption pursuant to Section II(4)(a).
Thereafter, PTE 91-8, as modified and made permanent, is effective
on the date the final exemption is published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of
Exemption Determinations, U.S. Department of Labor, telephone (202)
219-8883. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: On September 6, 1996, the Department of
Labor (the Department) published in the Federal Register (61 FR 47205/
47214) a notice of proposed exemption to make permanent as modified PTE
91-8 (the Notice). PTE 91-8 provides an exemption from the restrictions
of section 406(a), 406(b)(1) and 406(b)(2) of the Employee Retirement
Income Security Act of 1974 (the Act) and from the sanctions resulting
from the application of section 4975 of the Internal Revenue Code of
1986 (the Code), by reason of section 4975(c)(1) (A) through (E) of the
Code.
This exemption to make permanent PTE 91-8 was requested in an
exemption application by Equitable and ERE pursuant to 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,
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.
Accordingly, this exemption to make permanent PTE 91-8 is being issued
solely by the Department.
The Notice gave interested persons an opportunity to comment on the
proposed exemption and to request a hearing. The Department received
five written comments. Three comments and an additional clarifying
comment were filed by the representatives of certain pension plans that
currently participate in one or more of the Accounts to which ERE
provides property management and/or leasing services as described
herein. The comments generally raised issues about certain aspects of
the Notice, and were subsequently sent by the Department to Equitable
and ERE for their response. Set forth below in paragraph 2 is a list of
each of the points made by the commentators together with the responses
to those points from Equitable and ERE and Jackson Cross Company as the
Independent Fiduciary for the transactions described herein.
The fourth and fifth comment were filed by Equitable and ERE and
generally request clarifications and modifications to the Notice.
Accordingly, upon consideration of the entire record, including the
written comments, the Department has determined to grant the exemption
subject to certain modifications. For a more complete statement of the
facts and representations supporting the Department's decision to grant
this exemption refer to the Notice published on September 6, 1996 at 61
FR 47205/47214.
A summary description of PTE 91-8 and this exemption; a discussion
of the comments; and the Department's modifications are addressed
below.
1. Description of PTE 91-8 and of this exemption
This exemption makes permanent as modified PTE 91-8. PTE 91-8 was a
temporary individual exemption which permits the provision of certain
real estate property management and, in some instances, leasing
services by EREIM 2, affiliates of EREIM and Tishman Speyer
Properties 3, to various real estate separate accounts (the
Accounts) in which employee benefit plans participate. The Accounts are
managed by Equitable, EREIM or subsidiaries thereof. PTE 91-8 also
permitted the provision, by the law department of Equitable, of certain
legal services to the Accounts required in connection with individual
properties held by the Accounts 4. This exemption to make
permanent as modified PTE 91-8 was requested by Equitable and ERE
pursuant to Paragraphs IX and X of the notice of proposed exemption
relating to PTE 91-8 that was published in the Federal Register on
February 28, 1990 at 55 FR 7057/7069. Furthermore, pursuant to
Paragraphs IX and X of the notice of proposed exemption relating to PTE
91-8, the application for a
[[Page 33926]]
permanent exemption was to include a report from the Independent
Fiduciary expressing such fiduciary's views and rationales with respect
to making PTE 91-8 permanent, and whether the Independent Fiduciary
under PTE 91-8 believes that cost savings have been achieved for the
Accounts. In this regard, Jackson Cross Company (Jackson Cross), as the
Independent Fiduciary for property management and leasing services
under PTE 91-8, prepared a report regarding cost savings achieved by
the Accounts (the Report). In the Report, Jackson Cross stated that the
property management and leasing services rendered by Compass Management
and Leasing and Compass Retail, two wholly-owned subsidiaries of ERE,
to the Accounts resulted in substantial savings for the benefit of the
Accounts.
---------------------------------------------------------------------------
\2\ At the time PTE 91-8 was granted, ERE or Equitable Real
Estate Investment Management, Inc. was known as EREIM, and was an
indirect wholly owned subsidiary of Equitable.
\3\ In the Notice, Equitable represented that Tishman Speyer
Properties (TSP), a partnership in which Equitable had a 50 percent
ownership interest at the time PTE 91-8 was issued, is no longer
affiliated with Equitable, and requested that this exemption be
inapplicable to TSP. Accordingly, the Department determined that
this exemption will not apply to TSP.
\4\ In the Notice, Equitable represented that under PTE 91-8 the
exemption for the provision of legal services to the Accounts by
Equitable's in-house law department was never implemented.
Therefore, Equitable requested that this exemption eliminate
reference to the relief for the provision of legal services by the
law department to the Accounts. Accordingly, in this exemption the
Department eliminates relief for the provision of legal services by
the law department to the Accounts.
---------------------------------------------------------------------------
As stated briefly above, this exemption will permit, on a permanent
basis, the provision of property management and/or leasing services by
ERE to an Account, provided that the conditions set forth in Section II
are met. These conditions require extensive structural safeguards
intended to ensure that the transactions described in this exemption
operate in the interests of the Accounts and the plans participating
therein.
Although PTE 91-8 expired on January 13, 1996, the Department has
determined to extend the temporary exemptive relief provided under PTE
91-8 from January 13, 1996, until the date the final exemption is
published in the Federal Register. Thereafter, PTE 91-8, as modified
and made permanent, is effective on the date the final exemption is
published in the Federal Register.
2. Discussion of the Comments
a. Annual Reconfirmation of the Independent Fiduciary
One of the modifications to PTE 91-8 proposed by the Department
provided for a procedure pursuant to which authorizing fiduciaries of
the plans participating in the Accounts which do not vote in the annual
reconfirmation of the Independent Fiduciary would be deemed to support
continuation of that Independent Fiduciary. The commentators assert
that ``the right to vote in favor or against reconfirmation is an
important investor privilege,'' but add that the right to vote ``should
not be given up simply by the passage of time.'' Consequently, the
commentators urge that a lack of a timely response from investors
(within 30 days) should not be interpreted as a vote in favor of
reconfirmation of the Independent Fiduciary.
Equitable and ERE agree that the annual reconfirmation procedure is
an important protective element of this exemption, but do not believe
that a requirement for an affirmative vote is needed to preserve the
integrity of this procedure. In administering the multiple services
program under PTE 91-8, Equitable and ERE have learned that the
authorizing fiduciaries sometimes delay returning, or simply fail to
return, the ballot for reconfirmation even though they do not object,
and in fact support, the continued service of the Independent
Fiduciary. This can be detrimental not only to the plan represented by
such an authorizing fiduciary, but also to all the other plans that
participate in the Accounts. An authorizing fiduciary's failure to
respond to the reconfirmation request by returning the ballot in a
timely fashion creates uncertainty as to whether the exemption will
continue to be available for ERE and its affiliates to continue
providing property management and leasing services to the Accounts.
Therefore, in the event Equitable and ERE do not receive a requisite
number of affirmative votes, there is a risk that the multiple services
program will have to be discontinued and, accordingly, the savings to
the Accounts will be lost. It is the view of Equitable and ERE that the
commentators have not given sufficient attention to this risk.
Equitable and ERE believe that there is an acceptable alternative
to the affirmative reconfirmation procedure envisioned by the
commentators. Equitable and ERE propose instituting additional
procedures to assure that each authorizing fiduciary has an opportunity
to vote and that the implications of a vote or a failure to vote are
made clear. These procedures would include: (i) A requirement that each
authorizing fiduciary be provided a ballot by certified mail (or
another method of delivery pursuant to which confirmation of receipt is
provided); (ii) a requirement that the ballot clearly indicate that the
authorizing fiduciary may vote for or against continuation of the
Independent Fiduciary; (iii) a requirement that the ballot must be
accompanied by a statement that failure to return the ballot within 45
days after receipt of the ballot will be counted as a ``for'' vote; and
(iv) a requirement that 30 days after Equitable or ERE mails the ballot
to the authorizing fiduciary, Equitable and ERE must make at least one
follow-up contact with the authorizing fiduciary that has not
previously returned the ballot prior to treating the unreturned ballot
as a ``for'' vote. If Equitable or ERE does not receive a response from
the authorizing fiduciary within 15 days after initiating contact with
the authorizing fiduciary, Equitable and ERE may treat the unreturned
ballot as a vote for reconfirmation. The reconfirmation would be
effective on the earlier of the date affirmative ballots are obtained
from the holders of a majority of the units of beneficial interests in
the Accounts, or 45 days following the authorizing fiduciaries' receipt
of the ballots (unless holders of a majority of the units of beneficial
interests in the Accounts have voted against reconfirmation).
Therefore, to address the commentators' concern regarding the right
to vote and the integrity of the voting process, Equitable and ERE
believe that the following paragraph should be substituted in place of
the language that is currently in paragraph (b) at the end of Section
II(4), such that the new Section II(4)(b) should read as follows:
``Equitable or ERE implements procedures to ensure each authorizing
fiduciary has an opportunity to vote on the reconfirmation of the
Independent Fiduciary. These procedures require that Equitable or ERE:
(i) Provide each authorizing fiduciary with a ballot by certified mail
(or another method of delivery pursuant to which confirmation of
receipt is provided); (ii) ensure that the ballot clearly indicates
that the authorizing fiduciary may vote for or against continuation of
the Independent Fiduciary; (iii) ensure that the ballot must be
accompanied by a statement that failure to return the ballot within 45
days following the authorizing fiduciaries' receipt of the ballots will
be counted as a ``for'' vote (unless holders of a majority of the units
of beneficial interests in the Accounts have voted against
reconfirmation); and (iv) 30 days after Equitable and ERE mails the
ballot to the authorizing fiduciary, Equitable and ERE must make at
least one follow-up contact with the authorizing fiduciary that has not
previously returned the ballot prior to treating the unreturned ballot
as a ``for'' vote. If Equitable or ERE does not receive a response from
the authorizing fiduciary within 15 days after initiating contact with
the authorizing fiduciary, Equitable and ERE may treat the unreturned
ballot as a vote for reconfirmation. The reconfirmation will become
effective on the earlier of the date affirmative ballots are obtained
from the holders of a majority of the units of beneficial interests in
the Accounts, or 45 days following the
[[Page 33927]]
authorizing fiduciaries' receipt of the ballots (unless holders of a
majority of the units of beneficial interests in the Accounts have
voted against reconfirmation.)''
In this way, it will be confirmed that each of the authorizing
fiduciaries has received a hard copy of the ballot, and that each
authorizing fiduciary has the right to exercise its voting power if it
so desires.
The Department concurs with this suggestion and has incorporated
the language stated above into a new paragraph (b) at the end of
Section II(4) of this exemption.
b. The 90-day Annual Reporting Time Frame
The Notice specified that Equitable and ERE would have a period of
up to 90 days after the end of each calendar year to prepare the annual
report required by this exemption. The commentators object to this
modification, although they recognize Equitable and ERE's need for
additional time to produce the annual report, and therefore indicate
that they are less averse to ``* * * some additional time for this type
of special report (e.g., 60 days after quarter end) * * *''.
Equitable and ERE note that with respect to the annual reports
previously prepared, Equitable had to frequently rely on estimated,
rather than actual data. When Equitable relied only on estimated data
it could meet the 45-day time frame provided by PTE 91-8. However,
Equitable and ERE believe it would be in the interest of the Accounts
and the plans participating therein, to receive an annual report which
is based on actual financial information.5
---------------------------------------------------------------------------
\5\ However, the annual report would still contain some
information garnered from estimated data, but such information would
be minimal and in conformance with standard accounting procedures.
---------------------------------------------------------------------------
Equitable and ERE believe that it would be appropriate for the
Accounts to wait a modest amount of time in order to obtain a more
accurate annual report. However, in response to the commentators'
concerns, the applicants propose that Equitable and ERE would have a
period of 75 days after the end of each calendar year to prepare the
annual report required by this exemption. The 75-day period is
necessary because: (i) The preparation of the annual report involves
two different entities, ERE and the Independent Fiduciary, which have
manually-intensive computation responsibilities; and (ii) the extensive
financial information that ERE must compile is a major part of an
annual report, and such information is not generally available until
sometime early in the second month following year-end. Thus, Equitable
and ERE cannot even initiate the process for preparing an annual report
containing actual data until after that time.
Furthermore, ERE's responsibilities include preparing a separate
package of information with respect to each property. This package
includes information extracted from the property's year-end financial
results, budget projections, an analysis of market conditions, ERE's
internal valuations, and projections for management and leasing fees.
At this stage, the appropriate ERE manager reviews for accuracy the
data compiled manually for each package and tests overall property and
portfolio limitations. ERE then finalizes each package of information
by including additional property-specific information.
In this regard, the Department concurs with Equitable and ERE's
arguments as set forth herein, and has determined to modify Section
II(4)(a) of the Notice by substituting ``75 days'' for ``90 days'',
such that Section II(4)(a) of this exemption should read, in relevant
part: ``* * * with the Annual Report containing the information
described in this paragraph, not less frequently than once a year and
not later than 75 days following the end of the period to which the
report relates.''
c. Increase of Investment Limitation for Equitable In-House Plans
The Notice proposed to increase the investment limitation for
Equitable in-house plans from 5 percent to 10 percent, and thus,
Equitable in-house plans may invest up to 10 percent of its assets in
any Accounts covered by PTE 91-8. The commentators approve of the
increase, but maintain that Equitable in-house plans should not receive
the same voting rights as those granted to the other investors.
In their response to these comments, Equitable and ERE state that
the commentators recognize that ``* * * the right to vote * * * is an
important investor privilege.'' (See discussion at 2.a., above).
Accordingly, Equitable and ERE maintain that Equitable in-house plans,
and the participants and beneficiaries of such plans, should not be
denied their right to vote on issues affecting operation of such plans
simply because of their relationship with Equitable.
Moreover, Equitable and ERE propose and represent that Equitable's
in-house plans continue to have voting rights equivalent to other non-
Equitable plan investors. However, to address the concerns of the
commentators, Equitable and ERE represent that the votes of Equitable's
in-house plans will not be taken into account if such votes are
outcome-dispositive with respect to any issue, including the annual
reconfirmation of the Independent Fiduciary, a matter that was of
particular concern to the commentators. Therefore, Equitable and ERE
propose that the following language be added as a new paragraph(d) in
Section II(10) of this exemption:
``Equitable in-house plans shall have the same voting rights as
those given to non-Equitable plan investors. However, the votes of
Equitable in-house plans shall be disregarded if such votes are
outcome-dispositive with respect to any issue.''
The Department concurs with this suggestion and has modified
Section II(10) of this exemption by adding new paragraph (d).
d. Proposed Increase in Maximum Leasing Commission
The Notice proposes an increase in the fee ceiling amount to ERE
for leases involving outside brokers from 1 percent to 2.75 percent of
the lease amount. The commentators suggest that ``the proposed fee
increase is substantial and the maximum fee appears high.'' The
commentators also maintain that because leasing structures vary by
market, they desire to review the leasing commission survey prepared by
Equitable to evaluate the reasonableness of the proposed threshold.
The preamble to the Notice explained that Equitable and ERE have
determined that the 1 percent limitation was not consistent with the
current practice of establishing leasing commissions for transactions
involving outside brokers. Equitable and ERE further determined that in
most leasing markets, such co-broker leasing fees for the project
leasing broker are computed at fifty percent (50%) of the normal new or
renewal lease commission fee, which is typically between four (4%) and
seven (7%) percent of the total lease payments. Before requesting an
increase in the fee limitation, Equitable and ERE obtained an opinion
from Jackson Cross, the Independent Fiduciary for property management
and leasing services. Accordingly, Mr. Charles F. Seymor, CRE, MAI and
chairman of Jackson Cross, stated that based on their experience and
studies, leasing fees vary with building size and the competitive
situation in individual markets. In most markets, the project leasing
broker received 50% of the normal new or releasing commission. Jackson
Cross concluded that because the normal full
[[Page 33928]]
leasing commission is typically in the range of 4% to 7% of the one
year lease amount, the project leasing broker usually received 2% to
3.5% of the annual lease amount. Accordingly, Jackson Cross concluded
that restricting ERE to a maximum fee of 1% does not provide adequate
compensation and that a higher fee may be required to adequately
compensate the responsible agent. Jackson Cross recommended that this
ceiling be raised to 2.75%,6 still subject to the
requirement that the Independent Fiduciary must certify an economic
benefit to the Accounts before the terms of each contract for leasing
and management services are approved. Mr. Seymor of Jackson Cross
explained that the proposed maximum 2.75% fee is ample enough to
provide adequate incentive to ERE for co-brokered transactions, while
providing an economic advantage to the Accounts, when viewed against
market data. Furthermore, Jackson Cross reviewed their own and outside
contractual fees negotiated for leasing services, derived from data
covering 92 properties in 33 separate markets in 24 states. Also,
Jackson Cross reviewed additional relevant market data and consulted
with established real estate professionals in the relevant market
areas. However, to address the commentators' concerns, the applicants
represent that during regular business hours, the Independent Fiduciary
will provide access to, or copies of, the survey prepared by Equitable
to the authorizing fiduciaries upon their request. The Independent
Fiduciary may assess a reasonable charge to the authorizing fiduciaries
for costs associated with providing access to, or copies of, the
survey.
---------------------------------------------------------------------------
\6\ It is represented that 2.75% is the median point between the
typical project leasing broker commission range of 2% to 3.5%.
---------------------------------------------------------------------------
Furthermore, Mr. Seymor reiterates, as alluded to in the Notice,
that Jackson Cross as the Independent Fiduciary, will certify that an
economic advantage to the Accounts exists before the terms of any
leasing or management service contract is approved (61 FR 47210).
Equitable and ERE also emphasize herein that the fee limitation of
2.75% is merely a ceiling, and the Independent Fiduciary would consider
a fee up to this ceiling only in cases where the market conditions
dictate that a fee higher than 1% would be warranted.
To clarify this point, Equitable and ERE suggest that the following
new language be added at the end of Section II(13)(b)(3):
``(The Independent Fiduciary must certify that an economic
advantage to the Accounts exists before consummation of any leasing or
management service contract).''
The Department concurs with this suggestion and has added this new
language at the end of Section II(13)(b)(3) of this exemption.
e. Property Management and Leasing Fees
In the notice of proposed exemption relating to PTE 91-8 published
in the Federal Register on February 28, 1990 (55 FR 7057/7069),
Equitable represented that property management and leasing fees charged
by the unaffiliated property management firms generally ranged from 4
to 5 percent of gross receipts and average approximately 4.5 percent of
the gross receipts. Paragraph X of the notice of proposed exemption
relating to PTE 91-8 provided that Equitable, in a future application
to the Department for a permanent exemption, demonstrate that the
aggregate annual property management and leasing fees charged to each
Account (including the allocable cost of the Independent Fiduciary
under the exemption) were less than 4.5 percent of the gross receipts
earned during each year that ERE or TSP has provided property
management and leasing services pursuant to the exemption.7
Also, the notice of proposed exemption relating to PTE 91-8
specifically stated that if such fees are less than 4.5 percent of the
gross receipts, Equitable believes the Department can be assured that
the exemption has operated in the best interest of the Accounts. In
this regard, the Independent Fiduciary's cost savings report submitted
to the Department in the exemption application to make PTE 91-8
permanent demonstrated that the fees charged to the Accounts under PTE
91-8 were in fact less than the 4.5 percent benchmark (61 FR 47207).
---------------------------------------------------------------------------
\7\ 4.5 percent is the median point in the range.
---------------------------------------------------------------------------
Two commentators suggest that the Department should not rely on the
4.5% threshold which was established in the notice of proposed
exemption relating to PTE 91-8. Alternatively, the commentators would
prefer to see separate thresholds established for property management
and leasing fees because these fees are typically calculated off
different bases (i.e., leasing commissions are generally based on the
total lease payments, and property management fees are based on gross
property revenues). Additionally, the commentators desire to review the
survey of leasing commissions and property management fees to evaluate
the reasonableness of these thresholds.
In the notice of proposed exemption relating to PTE 91-8, a 4.5
percent benchmark was the test for the initial period following the
grant of PTE 91-8. This reviewing standard was subject to change during
the period PTE 91-8 was in effect. However, under this exemption, the
4.5 percent benchmark will not, necessarily, be the standard for
periods after the expiration of PTE 91-8. The Notice proposes certain
cost saving procedures (Cost Saving Procedures) to assure continued
savings to the Accounts. Pursuant to the Cost Saving Procedures, the
Independent Fiduciary will be required to determine a typical range of
annual fees for property management and leasing services for the
Accounts. The Independent Fiduciary will also establish a new benchmark
rate for comparison for each subsequent five-year period following the
grant of this exemption.
Equitable and ERE state in their response that the approach
reflected in the Cost Saving Procedures is appropriate for arriving at
a reasonable range of property management and leasing fees, and,
ultimately, a new benchmark. In fact, as noted in the notice of
proposed exemption relating to PTE 91-8 (55 FR 7065), these procedures
are rather conservative because a zero dollar value is assigned to the
quality of property management and leasing services provided by ERE,
even when the Independent Fiduciary is mandated to take the anticipated
quality of services into account in approving ERE to provide property
services.
Furthermore, the Cost Saving Procedures require the Independent
Fiduciary to determine and document whether the Accounts have received
an economic benefit during each five-year period. In the event the
Independent Fiduciary concludes that such a benefit has not been
achieved for the Accounts, it will not approve any additional service
arrangements pursuant to the property services policy until Equitable
and ERE have demonstrated to the Independent Fiduciary that policies to
assure cost savings to the Accounts have been implemented by Equitable
and ERE (61 FR 47208 and 47213).
The Independent Fiduciary explains that, as part of its
responsibilities, it has surveyed (and as required by the Cost Saving
Procedures will continue to periodically survey) management and leasing
fees. Such surveys will be based upon a review of market information,
property performance, and outside leasing and management fees.
Additionally, each year the Independent Fiduciary reinspects
approximately one-third of the properties, and compares
[[Page 33929]]
contract leasing and management fees to other fees in the market area.
In this regard, the Independent Fiduciary acknowledges that it has
fiduciary responsibilities directly to the Accounts and the plans
participating therein.
However, Equitable and ERE and the Independent Fiduciary state that
they will meet, if requested, with the representatives of any affected
plan to answer any questions and explain the basis for the Independent
Fiduciary's conclusions. Furthermore, during regular business hours,
the Independent Fiduciary will provide access to, or copies of, the
survey prepared by Equitable to the auhorizing fiduciaries upon their
request. The Independent Fiduciary may assess a reasonable charge to
the authorizing fiduciaries for costs associated with providing access
to, or copies of, the survey.
f. Original PTE 91-8
The commentators noted that a copy of PTE 91-8 was not provided in
the materials distributed with the investor notification pursuant to
the Notice. Equitable has since provided each of the commentators with
a copy of PTE 91-8.
g. Data on Benchmark Fees
As stated above, the Notice contains the Cost Saving Procedures
which require ERE to prepare a survey of property management and
leasing fees for the properties that have similar geographic location
and property types to those held by the Accounts . The survey will
include data regarding the fees that have been charged to the Accounts
by real estate investment management firms that are unaffiliated with
Equitable and ERE. The Independent Fiduciary will review ERE's internal
survey, and will verify the accuracy of the data by independently
reviewing a sampling of the properties to which such fees apply.
The commentators express concern over Equitable and ERE
establishing a benchmark amount against which its own activities will
be judged. Alternatively, the commentators suggest that Equitable and
ERE use independent data obtained from the Internal Revenue Service
(IRS) transfer pricing database or certain national real estate
organizations.
In this regard, Equitable and ERE state that the transfer pricing
database referred to by the commentators, relates to the pricing of
goods and services between related and commonly controlled entities,
and would not be helpful in determining property management and leasing
fees that are described in the Notice. Furthermore, the Independent
Fiduciary confirms that there is no publicly available standard similar
to the transfer pricing database for Equitable and ERE to use for
leasing and property management service fees.
In its response, the Independent Fiduciary explained that it relies
on ERE to gather data with respect to property management and leasing
fees. However, the gathering of additional data and the verification
and interpretation of all data are the responsibility of the
Independent Fiduciary. Also, the Independent Fiduciary represents that
it knows of no public resources which provide adequate independent
benchmarks similar to the IRS's transfer pricing database against which
to judge fees for property management and leasing services. In fact,
individual practitioners are prohibited from sharing this information
with competitors to avoid any action which might be construed to
restrict free market competition for fees and charges. National real
estate organizations do not have this information. The response
submitted by the Independent Fiduciary concludes that it does not
believe that it would be appropriate to limit itself to one source of
data but, instead, use its own professional resources to obtain
additional market data and to verify and interpret all the data
received.
In addition, the exemption contains comprehensive safeguards,
including a qualified Independent Fiduciary to oversee the transactions
related thereto. Equitable and ERE therefore represent that these
safeguards effectively eliminate any risk that services provided to the
Accounts and fees charged under the exemption would be excessive or
unnecessary.
The Department concurs with the argument set forth by Equitable,
ERE and the Independent Fiduciary and has determined that no
modification is necessary regarding data on benchmark fees.
3. Discussion of Equitable's and ERE's Comments
a. Sale of ERE to the Lend Lease Corporation Limited
By letter dated April 23, 1997, Equitable and ERE have notified the
Department that on April 10, 1997, Equitable has agreed to sell ERE to
Lend Lease Corporation Limited (Lend Lease), an Australian-based real
estate and financial management company with substantial business
operations in the United States (the Sale). The Sale is expected to
close on or about June 10, 1997. The transaction is contingent on the
receipt of various regulatory approvals and the satisfaction of various
conditions. As part of the Sale, Lend Lease will also purchase Compass
Management and Leasing, Inc. and Compass Retail, Inc. (collectively;
Compass), wholly-owned subsidiaries of ERE. As a result of the Sale,
ERE will cease to be a wholly-owned subsidiary of Equitable.
After consummation of the Sale, Equitable anticipates that ERE will
continue to serve as investment advisor to Equitable in connection with
the performance by Equitable of its duties as investment manager for
the Accounts as described herein. Thus, the responsibilities of
Equitable and ERE with respect to the Accounts will be unchanged in all
material respects after consummation of the Sale. The exemption is
still needed because Equitable will continue to rely on ERE to select
persons to provide property management and related services permitted
by the exemption, and in many cases, ERE may determine that ERE or an
affiliate is best suited to provide those services. As is presently the
case, ERE may be considered to be acting as a fiduciary in these
circumstances and, therefore, could be viewed as engaging in certain
prohibited transactions under the Act with respect to such selections
unless the exemption is granted.
Although Equitable and ERE are bringing the Sale to the
Department's attention in order to assure that the record in this
exemption proceeding is complete, they believe that the Sale will have
absolutely no effect on the standards and conditions established by the
Notice. The potential prohibited transactions that would be covered by
the exemption remain the same and the scope of the exemption remains
the same. The Independent Fiduciary will continue to be responsible for
the selecting the property managers and for monitoring the extent to
which, and in the manner which, ERE makes use of the exemption to
provide additional services to the Accounts.
After the Sale, each covered service provision will still be
reviewed and approved by the Independent Fiduciary whose appointment is
confirmed by the plans participating in the Accounts, the Independent
Fiduciary will still be required to certify that the multiple service
transactions result in the savings to the Accounts, each affected plan
will continue receiving reports describing the multiple services
transactions and will continue to be given the opportunity to object to
the continued provision of multiple services pursuant to this
exemption.
Equitable and ERE also note that PTE 91-8 was granted, and this
exemption is
[[Page 33930]]
proposed to be granted to both Equitable and ERE. Therefore, no
significant restructuring of the Notice will be required on the account
of the Sale. This exemption should continue to be applicable to both
Equitable and ERE because it must cover the period retroactive to
January 13, 1996 through the date of closing of the Sale and
beyond.8
---------------------------------------------------------------------------
\8\ It is represented that there is a slight possibility that
the Sale might not be completed.
---------------------------------------------------------------------------
In this regard, Equitable and ERE suggest that the Department
eliminate any identification of ERE as Equitable's wholly-owned
subsidiary, and include the following language (or language
substantially similar) in this exemption:
``The applicants have informed the Department that Equitable has
agreed to sell ERE to the Lend Lease Corporation, effective on or about
June 10, 1997.''
The Department concurs with this comment and has added this
language to this exemption. The Department also eliminated any
identification of ERE as Equitable's wholly-owned subsidiary in this
exemption.
b. Equitable's and ERE's Comments Regarding the Notice
In another written comment submitted to the Department, Equitable
and ERE have requested that certain aspects of the Notice be clarified.
The requested clarifications are as follows:
a. Page 47206 of the Notice contained a section titled PTE 91-8.
The first sentence of the second paragraph of that section should have
read, ``Equitable is a stock life insurance company organized under the
laws of the State of New York''.
While Equitable was a mutual life insurance company at the time PTE
91-8 was originally issued, pursuant to a plan of reorganization
adopted by Equitable on November 27, 1991, Equitable became a stock
life insurance company. The Department concurs with this comment.
b. Pages 47207/47208 of the Notice contain a section titled
Permanent Exemption for Transactions Under PTE 91-8, which describes
how the Cost Saving Procedures will be carried out. Page 47213 of the
Notice in Section II--Conditions also contains the Cost Saving
Procedures as condition (12). The Cost Saving Procedures require, among
other things, that, at the end of each five year period during which
property management and leasing services are performed under the
exemption, Equitable and ERE demonstrate to the Independent Fiduciary
that the aggregate fees charged to each Account for the provision of
property management and leasing services are less than the fees that
would have been charged using a benchmark rate established at the
beginning of the five-year period. In order to determine the benchmark
pursuant to which cost savings will be determined, the Notice states
that the Cost Saving Procedures require, in relevant part, that ``After
the fifth anniversary of the grant of the exemption, and after the
beginning of each subsequent five-year period, ERE will prepare a
survey of property management and leasing fees for the properties * *
*''
Equitable and ERE comment that the literal application of this
language will allow ERE a five-year grace period before the Cost Saving
Procedures are required to be applied. Equitable and ERE believe that
such a grace period was unintended by the Department and, accordingly,
Equitable and ERE propose that the language be modified to ensure that
the Cost Saving Procedures will be initiated shortly after the final
exemption is issued by the Department. In order to ensure this result,
Equitable and ERE request that the following language, ``Within one-
year of the grant of this exemption * * *'' be substituted for ``After
the fifth anniversary of the grant of this exemption * * *'' at the
beginning of condition 12(a). The Department concurs with this comment,
and has modified condition 12(a) in Section II of this exemption
accordingly.
c. Equitable and ERE also comment that the definition of Accounts
which is contained in the Notice in Section IV--Definitions on page
47214 should not include Separate Account Nos. 16-IV and 16-VII and
Separate Accounts Nos. 136, 141, 149 and 174 for the IBM Retirement
Plan, as being covered by the exemption. In this regard, Equitable and
ERE state that these accounts either are not covered by the Employee
Retirement Income Security Act of 1974, or Equitable and ERE do not
provide services to these accounts pursuant to the exemption. In order
to clarify this point, Equitable and ERE propose that the definition of
Accounts be modified as follows:
``The Accounts--The Accounts are Equitable's Separate Account No.
8, Separate Account No. 16-I, Separate Account No. 16-II, Separate
Account No. 16-III, Investment Management Account No. 230 for the
Westinghouse Electric Corporation Pension Plan; and such other pooled
or single-customer accounts, joint ventures, general or limited
partnerships or other real estate investment vehicles that may be
established by Equitable for the investment of employee benefit plan
assets in real estate related investments to the extent disposition of
its assets is subject to the discretionary authority of Equitable.''
The Department concurs with this comment and has modified
definition of Accounts in Section IV--Definitions in this exemption
accordingly.
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 section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and the Code, including
any prohibited transaction provisions to which the exemption does not
apply, and to the extent jurisdiction exists under Title I of the Act,
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
requirements of section 401(a) of the Code, e.g., the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) This exemption will not extend to transactions prohibited under
section 406(b)(3) of the Act and section 4975(c)(1)(F) of the Code;
(3) In accordance with section 408(a) of the Act and section
4975(c)(2) of the Code, and based upon the entire record, including the
written comments submitted in response to the notice of proposed
exemption, the Department makes the following determinations:
(a) The exemption set forth herein is administratively feasible;
(b) It is in the interest of the plans investing in the Accounts
and their participants and beneficiaries; and
(c) It is protective of the rights of participants and
beneficiaries of the plans.
(4) The availability of this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describe all material terms of the transactions
which are the subject of this exemption;
(5) The availability of this exemption is subject to the express
condition that the summary of facts and representations set forth in
the notice of proposed exemption relating to PTE 91-8 (40 FR 7057/
7069), as amended by a notice of proposed exemption to make
[[Page 33931]]
permanent as modified PTE 91-8 (61 FR 47205/47214) accurately describe,
where relevant, the material terms of the transactions to be
consummated pursuant to this exemption;
(6) This exemption is supplemental to, and not in derogation of,
any other provisions of the Act and the Code, including statutory or
administrative exemptions. 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
(7) This exemption is applicable to particular transactions only if
the transactions satisfy the conditions specified in the exemption.
Exemption
Accordingly, the following exemption is hereby granted 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, August 10, 1990).
Section I--Covered Transactions
The restrictions of section 406(a), 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 provision of property management and/or leasing
services by ERE 9 to an Account (as defined in Section IV),
provided that the conditions set forth in Section II are met.
---------------------------------------------------------------------------
\9\ See Footnote 1, supra.
---------------------------------------------------------------------------
Section II--Conditions
(1) The arrangement under which the covered transactions are
performed is subject to the prior authorization of an independent plan
fiduciary with respect to each plan whose assets are invested in an
Account, following disclosure of information in the manner described in
paragraph (2) below. For plans which have previously authorized their
participation in the Accounts under PTE 91-8, no reauthorization will
be required. 10 In the case of a plan whose assets are
proposed to be invested in an Account subsequent to implementation of
the property management and leasing services (the Property Services
Policy), the plan's investment in the Account is subject to the prior
written authorization of an independent plan fiduciary following
disclosure of the information described in paragraph (2). The
requirement that the authorizing fiduciary be independent of Equitable
shall not apply in the case of plans maintained by Equitable on behalf
of its employees.
---------------------------------------------------------------------------
\10\ However, during the notification of interested persons
period, Equitable provided to all interested parties, including the
plans participating in the Accounts, a copy of the notice of the
proposed exemption. Accordingly, the plans were given the
opportunity to submit written comments on the pending exemption
during the comment period.
---------------------------------------------------------------------------
(2) In the event Equitable proposes to implement the Property
Services Policy for any additional Account, not less than 45 days prior
to the implementation of the Property Services Policy, Equitable or ERE
shall furnish the authorizing plan fiduciary with any reasonably
available information which Equitable or ERE believes to be necessary
to determine whether such approval should be given, as well as such
information which is reasonably requested by the authorizing plan
fiduciary. Such information will include: a description of the services
to be performed by ERE; identification of properties for which services
will be required; an estimate of the fees that would be paid to ERE if
it is selected to provide such services; an explanation of the
potential conflicts of interest involved in selecting ERE; an
explanation of the selection process; and a description of the terms
upon which a plan may withdraw from an Account.
(3) In the event an authorizing plan fiduciary of any plan whose
assets are invested in an Account submits a notice in writing to
Equitable or ERE at least 15 days prior to implementation of the
Property Services Policy, objecting to the implementation of the
Property Services Policy, the plan on whose behalf the objection was
tendered will be given the opportunity to terminate its investment in
the Account, without penalty. With the exception of a plan which has
invested in a closed-end Account under which the rights of withdrawal
from the Account may be limited as provided in the plan's written
agreement to invest in the Account, if written objection to the
Property Services Policy is submitted to Equitable or ERE any time
after 15 days prior to implementation of the Property Services Policy
(or after implementation), the plan must be able to withdraw without
penalty, within such time as may be necessary to effect such withdrawal
in an orderly manner that is equitable to all withdrawing plans and to
the non-withdrawing plans. However, Equitable or ERE need not
discontinue operating pursuant to the Property Services Policy, once
implemented, by reason of a plan electing to withdraw after 15 days
prior to the scheduled implementation date of the Property Services
Policy. Any plan which has a discretionary asset management arrangement
with Equitable may terminate such arrangement and withdraw from an
Account at any time.
(4)(a) Equitable or ERE shall furnish the authorizing plan
fiduciary and the Independent Fiduciary acting on behalf of the plans
participating in the Account with the Annual Report containing the
information described in this paragraph, not less frequently than once
a year and not later than 75 days following the end of the period to
which the report relates. Such Annual Report shall disclose the total
of all fees incurred by the Account during the preceding year under
contracts with ERE; include a description of the properties and the
services that have been performed by ERE for an Account; and delineate
the fees that are anticipated to be paid to ERE in the coming year for
services provided by these entities in connection with properties held
by an Account. The Annual Report will contain a description of a method
for the termination of the multiple services arrangement (see Section
II(5)), and for the confirmation and/or removal of the Independent
Fiduciary by investing plans in the Accounts. The Annual Report will
also contain a ballot regarding reconfirmation of the Independent
Fiduciary, which is to be returned to Equitable. In this respect, at
the time of delivery of each Annual Report, Equitable will specifically
indicate to each plan that the Independent Fiduciary may be terminated
by a vote in favor of such termination by the holders of a majority of
the units of beneficial interests in the Account and will request such
plan to confirm the Independent Fiduciary's appointment. Following a
plan's receipt of the Annual Report, Equitable may treat a plan's
failure to return the ballot within forty five (45) days after receipt
of a request for reconfirmation as a vote in favor of continued
retention of the Independent Fiduciary (see procedures described in
Section II(4)(b)).
(b) Equitable or ERE implements procedures to ensure each
authorizing fiduciary has an opportunity to vote on the reconfirmation
of the Independent Fiduciary. These procedures require that Equitable
or ERE: (i) Provide each authorizing fiduciary with a ballot by
certified mail (or another method of delivery pursuant to which
confirmation of receipt is provided); (ii) ensure that the ballot
clearly indicates that the authorizing fiduciary may vote for or
against continuation of the Independent Fiduciary; (iii) ensure that
the ballot must be accompanied by a statement that failure to return
the ballot within 45 days following the
[[Page 33932]]
authorizing fiduciaries' receipt of the ballots will be counted as a
``for'' vote (unless holders of a majority of the units of beneficial
interests in the Accounts have voted against reconfirmation); and (iv)
30 days after Equitable or ERE mails the ballot to the authorizing
fiduciary, Equitable and ERE must make at least one follow-up contact
with the authorizing fiduciary that has not previously returned the
ballot prior to treating the unreturned ballot as a ``for'' vote. If
Equitable or ERE does not receive a response from the authorizing
fiduciary within 15 days after initiating contact with the authorizing
fiduciary, Equitable and ERE may treat the unreturned ballot as a vote
for reconfirmation. The reconfirmation will become effective on the
earlier of the date affirmative ballots are obtained from the holders
of a majority of the units of beneficial interests in the Accounts, or
45 days following the authorizing fiduciaries' receipt of the ballots
(unless holders of a majority of the units of beneficial interests in
the Accounts have voted against reconfirmation.)
(5) The multiple services arrangement for an Account shall be
subject to annual confirmation following receipt of the Annual Report,
pursuant to which the arrangement shall be terminated by a vote in
favor of such termination by the holders of a majority of the units of
beneficial interests in the Account. In the event of a vote to
terminate the arrangement, Equitable shall cease submitting to the
Independent Fiduciary (as defined in Section IV) any new proposals to
engage in covered transactions and Equitable will not renew or extend
any covered transactions. Moreover, within 180 days after the vote of
the contract holders, Equitable shall cease engaging in any existing
covered transactions.
(6)(a) Each transaction shall be reviewed and approved by an
Independent Fiduciary. However, prior to proposing a transaction to the
Independent Fiduciary, Equitable or ERE shall first determine that such
transaction is in the best interests of the Account.
(b) The Independent Fiduciary shall negotiate the contracts for the
provision of services by ERE. The Independent Fiduciary shall also
consider the cost to the Account of such fiduciary's involvement in
connection with its consideration of whether to approve the particular
transaction.
(c) The Independent Fiduciary shall review, as applicable, the
performance of ERE under each of its contracts with the Accounts at
least once each year and shall instruct Equitable and ERE of any action
which should be taken by Equitable on behalf of the Accounts with
respect to the continuation, termination or other exercise of rights
available to the Account under the terms of the contracts. Equitable
will carry out such instruction from the Independent Fiduciary to the
extent it is legal and permitted by the terms of the service provision
arrangement.
(7)(a) The terms of each such arrangement shall be in writing and
must be reviewed by the Independent Fiduciary prior to implementation.
(b) If Equitable or ERE hold Account properties and general account
properties in the same real estate market during a period when there is
leasing competition between those properties, ERE will hire, during
such period, a third party leasing agent for Account properties.
(c) In the case of any emergency circumstances, ERE may provide
property services to an Account for a period not exceeding 90 days, but
no compensation may be paid by an Account for such services without the
prior approval of the Independent Fiduciary.
(8)(a) Equitable and ERE shall furnish the Independent Fiduciary
with any reasonably available information which Equitable reasonably
believes to be necessary or which the Independent Fiduciary shall
reasonably request to determine whether such approval of the
transactions described above should be given or to accomplish the
Independent Fiduciary's periodic reviews of the performance of ERE
under the contracts.
(b) With respect to ERE, such information will include: A
description of the Property Services Policy for the Account and the
plan clients investing therein; a description of the real estate
services which are required; the qualifications of ERE to do the job; a
statement, supported by appropriate factual representations, of the
reasons for Equitable's belief that ERE is qualified to provide the
services; a copy of the proposed arrangement for services and the terms
on which ERE would provide the services; the reasons why Equitable
believes the retention of ERE would be in the best interests of the
Account; information demonstrating why the fees and other terms of the
arrangement are reasonable and comparable to fees customarily charged
by similar firms for similar services in comparable locales; the
identities of non-affiliated service providers and the terms under
which these service providers might perform the services; and in any
case that it is determined that the property manager will also provide
leasing services, Equitable will disclose whether any affiliated
property manager under consideration by the Independent Fiduciary is a
property manager to any properties that are in competition for tenants
with the property for which ERE is under consideration.
(9) Seventy-five percent or more of the units of beneficial
interests in an Account must be held by plans or other investors having
total assets of at least $50 million. In addition, 50 percent or more
of the plans investing in an Account must have assets of at least $50
million. For purposes of the 50 percent test above, a group of plans
will be counted as a single plan if either the decision to invest in
the Account (or the decision to make investments in the Account
available as an option for an individually directed account) is made by
a fiduciary other than Equitable who exercises such discretion with
respect to plan assets in excess of $50 million.
(10)(a) Not more than 10 percent of the assets of a plan covering
employees of Equitable will be invested in an Account. Notwithstanding
the foregoing, this percentage requirement will continue to be
satisfied by any plan that exceeds the 10 percent limitation of this
subsection provided that no portion of any excess results from an
increase in the assets transferred by such plan to the Accounts.
(b) Not more than 10 percent of the assets of an Account will be
represented by the plans covering employees of Equitable.
(c) For other plans, not more than 20 percent of the assets of each
such plan can be invested in the Accounts. Notwithstanding the
foregoing, this percentage requirement will continue to be satisfied by
any plan that exceeds the 20 percent limitation of this subsection
provided that no portion of any excess results from an increase in the
assets transferred by such plan to the Accounts. Moreover, this 20
percent limitation shall not apply to any plan which, as of February
28, 1990, the date of the proposed exemption relating to PTE 91-8, had
more than 20 percent of its assets invested in the Accounts provided
that the plan makes no additional contribution to such Accounts
subsequent to that date.
(d) Equitable in-house plans shall have the same voting rights as
those given to non-Equitable plan investors. However, the votes of
Equitable in-house plans shall be disregarded if such votes are
outcome-dispositive with respect to any issue.
(11) At the time the transactions are entered into, the terms of
the transactions must be at least as favorable to the Accounts as the
terms generally
[[Page 33933]]
available in arm's length transactions between unrelated parties. In
addition, the compensation paid to ERE for services under its contracts
with any Account must not exceed payments in an arm's length
transaction between unrelated parties for comparable properties in
similar locales, and shall not be in excess of reasonable compensation
within the meaning of section 408(b)(2) of the Act and regulation 29
CFR 2550.408b-2.
(12)(a) Within one-year of the grant of this exemption, and after
the beginning of each subsequent five-year period, ERE will prepare a
survey of property management and leasing fees for the properties that
have similar geographic location and property types to those held by
the Accounts. The survey will include data regarding the fees that have
been charged to the Accounts by several property management firms that
are unaffiliated with Equitable or ERE for services that are
contemplated by the exemption during the one year period prior to the
beginning of the new five-year period. Also, the survey will include
data as to the fees paid by Equitable or ERE for such services
performed for the properties not held by the Accounts during the same
period and other market data regarding the cost of property management
and leasing services by geographic location and property types.
(b) The Independent Fiduciary will review ERE's internal survey
referred to in (a) above, and will verify the accuracy of the data by
independently reviewing a sampling of the properties to which such fees
apply. Based upon its review of the survey and its own professional
resources and expertise, the Independent Fiduciary will determine a
typical range of annual fees for property management and leasing
services for the Accounts. The average of the range, as determined from
such survey, will serve as the basis of comparison for determining for
the next five-year period whether continuation of the property
management and leasing services policy (the Property Services Policy)
has provided cost savings to the Accounts.
(c) Equitable and ERE will demonstrate to the Independent Fiduciary
at the end of the applicable five-year period that the aggregate
property management and leasing fees charged to each Account pursuant
to the Property Services Policy plus the cost of the services of the
Independent Fiduciary under the exemption that are allocated to the
Accounts, are less than the fees that would have been charged using the
benchmark rate established at the beginning of the five year period.
(d) The Independent Fiduciary will review the data supplied by ERE
and, to the extent considered necessary by the Independent Fiduciary,
data collected from the Independent Fiduciary's own surveys, and will
document its findings and analysis of such cost savings in a report to
be delivered to each of the plans participating in the Accounts within
75 days after the end of the five year period and each subsequent five-
year period and prior to the implementation of the annual confirmation
procedure described in paragraph (5) of Section II with respect to such
period. In the event the Independent Fiduciary finds that cost savings
have not been achieved for the Accounts, it will not approve any
additional services arrangements pursuant to the Property Services
Policy until Equitable and ERE have demonstrated to the satisfaction of
the Independent Fiduciary that policies intended to assure cost savings
to the Accounts have been implemented by Equitable and ERE. The survey,
the Independent Fiduciary's report reviewing the survey, and the final
report of the Independent Fiduciary analyzing whether cost savings had
been achieved during the five year period to which the survey relates,
will be maintained by Equitable or ERE in accordance with the
recordkeeping requirements of Section III.
(13)(a) The fees paid to ERE and/or its affiliates for property
management services provided in connection with a property held for an
Account shall not exceed for any one year period: (1) In the case of
property management services which include leasing services, 7 percent
of the overall gross receipts of the property; and (2) in the case of
property management services which do not include leasing services, 4
percent of the overall gross receipts of the property.
(b) Where a property manager is separately compensated for leasing
services; (1) The fee for new leases will not exceed 7 percent of the
lease amount; (2) the fee for renewal leases will not exceed 2 percent
of the lease amount; and (3) the fee for leases in which outside
brokers are involved will not exceed 2.75 percent of the lease amount
(the Independent Fiduciary must certify that an economic advantage to
the Accounts exists before consummation of any leasing or management
service contract).
Section III--Recordkeeping
(1) Equitable or ERE will maintain for a period of six years from
the date of the transaction, the records necessary to enable the
persons described in paragraph (2) of this section to determine whether
the conditions of this exemption have been met. Included in these
records maintained by Equitable or ERE will be written records of the
Independent Fiduciary which had been periodically furnished by the
Independent Fiduciary to ERE or Equitable and the records described in
paragraph (12) of Section II. Such records are described in Parts III
and VI of the summary of facts and representations of the notice of
proposed exemption relating to PTE 91-8 and in paragraph (12) of
Section II. However, a prohibited transaction will not be considered to
have occurred if, due to circumstances beyond Equitable's or ERE's
control, the records are lost or destroyed or the records of the
Independent Fiduciary are not maintained or produced prior to the end
of the six-year period.
(2)(a) Except as provided in subsection (b) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (1) of this
section are unconditionally available at their customary location for
examination during normal business hours by:
(1) Any duly authorized employee or representative of the
Department and the Internal Revenue Service;
(2) Any fiduciary of a plan who has authority to acquire or dispose
of the interests of the plan in the Accounts or any duly authorized
employee or representative of such fiduciary;
(3) Any contributing employer to any plan that has an interest in
the Accounts or any duly authorized employee or representative of such
employer;
(4) Any participant or beneficiary of any plan participating in the
Accounts, or any duly authorized employee or representative of such
participant or beneficiary; and
(5) The Independent Fiduciary.
(b) None of the persons described in subparagraphs (2)-(5) of this
paragraph shall be authorized to examine trade secrets of Equitable,
ERE or commercial or financial information which is privileged or
confidential.
Section IV--Definitions
(1) The Accounts--The Accounts are Equitable's Separate Account No.
8, Separate Account No. 16-I, Separate Account No. 16-II, Separate
Account No. 16-III, Investment Management Account No. 230 for the
Westinghouse Electric Corporation Pension Plan; and such other pooled
or single-customer accounts, joint ventures, general or limited
partnerships or other real estate investment vehicles that may be
[[Page 33934]]
established by Equitable for the investment of employee benefit plan
assets in real estate related investments to the extent disposition of
its assets is subject to the discretionary authority of Equitable.
(2) Equitable--For purposes of this exemption, the term Equitable
includes Equitable and/or affiliates of Equitable as defined in
paragraph (4) of this section which act as investment managers with
respect to an Account.
(3) ERE--For purposes of this exemption, the term ERE includes ERE
and/or affiliates of ERE as defined in paragraph (4) of this section,
which provides services to an Account pursuant to this exemption.
(4) An affiliate of a person means any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with the person.
(5) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(6) Independent Fiduciary--A person who:
(a) Is not an affiliate [as defined in Section IV(4)] of Equitable
or ERE;
(b) Is not an officer, director, employee of, or partner in,
Equitable or ERE [or affiliates thereof as defined in Section IV(4)];
(c) Is not a corporation or partnership in which Equitable or ERE
has an ownership interest or is a partner;
(d) Does not have an ownership interest in Equitable or ERE, or its
affiliates;
(e) Is not a fiduciary with respect to any plan participating in an
Account; and
(f) Has acknowledged in writing acceptance of fiduciary obligations
and has agreed not to participate in any decision with respect to any
transaction in which the Independent Fiduciary has an interest that
might affect its best judgment as a fiduciary.
For purposes of this definition of Independent Fiduciary, no
organization or individual may serve as an Independent Fiduciary for
any fiscal year if the gross income received by such organization or
individual (or partnership or corporation of which such organization or
individual is an officer, director, or 10 percent or more partner or
shareholder) from Equitable or ERE, or their affiliates, (including
amounts received for services as Independent Fiduciary under any
prohibited transaction exemption granted by the Department) for that
fiscal year exceeds 5 percent of its or his annual gross income from
all sources for such fiscal year.
In addition, no organization or individual who is an Independent
Fiduciary, and no partnership or corporation of which such organization
or individual is an officer, director or 10 percent or more partner or
shareholder, may acquire any property from, sell any property to or
borrow any funds from Equitable or ERE, their affiliates, or any
Account maintained by Equitable or ERE, their affiliates, during the
period that such organization or individual serves as an Independent
Fiduciary and continuing for a period of 6 months after such
organization or individual ceases to be an Independent Fiduciary or
negotiates any such transaction during the period that such
organization or individual serves as Independent Fiduciary.
This exemption is subject to the express condition that the summary
of facts and representations set forth in the notice of proposed
exemption relating to PTE 91-8 (40 FR 7057/7069), as amended by the
notice of proposed exemption to make permanent as modified PTE 91-8 (61
FR 47205/47214) and the written comments submitted in response thereto,
accurately describe, where relevant, the material terms of the
transactions to be consummated pursuant to this exemption.
Signed at Washington, DC, this 18th day of June, 1997.
Ivan Strasfeld,
Director of the Office of Exemption Determinations, Pension and Welfare
Benefits Administration, Department of Labor.
[FR Doc. 97-16362 Filed 6-20-97; 8:45 am]
BILLING CODE 4510-29-U
