[Federal Register Volume 59, Number 124 (Wednesday, June 29, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-15797]
[[Page Unknown]]
[Federal Register: June 29, 1994]
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DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 94-51; Exemption Application No. D-
9341]
Grant of Individual Exemptions; Prudential Insurance Company of
America (Prudential), 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, DC. 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.
Prudential Insurance Company of America (Prudential) Located in Newark,
New Jersey
[Prohibited Transaction Exemption 94-51; Exemption Application No. D-
9341]
Exemption
Section I--Exemption for Certain Transactions Involving the Management
of Investments Shared by Two or More Accounts Maintained by Prudential
The restrictions of certain sections of the Act and the sanctions
resulting from the application of certain parts of section 4975 of the
Code shall not apply to the following transactions if the conditions
set forth in Section IV are met:
(a) Transfers Between Accounts
(1) The restrictions of section 406(b)(2) of the Act shall not
apply to the sale or transfer of an interest in a shared investment
(including a shared joint venture interest) between two or more
Accounts (except the General Account), provided that each ERISA-Covered
Account pays no more, or receives no less, than fair market value for
its interest in a shared investment.
(2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the
Code shall not apply to the sale or transfer of an interest in a shared
investment (including a shared joint venture interest) between ERISA-
Covered Accounts and the General Account, provided that such transfer
is made pursuant to stalemate procedures, described in the notice of
proposed exemption, adopted by the independent fiduciary for the ERISA-
Covered Account, and provided further that the ERISA-Covered Account
pays no more or receives no less than fair market value for its
interest in a shared investment.
(b) Joint Sales of Property--The restrictions of sections 406(a),
406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code by reason of section 4975(c)(1)
(A) through (E) of the Code shall not apply to the sale to a third
party of the entire interest in a shared investment (including a shared
joint venture interest) by two or more Accounts, provided that each
ERISA-Covered Account receives no less than fair market value for its
interest in the shared investment.
(c) Additional Capital Contributions--The restrictions of sections
406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting
from the application of section 4975 of the Code by reason of section
4975(c)(1) (A) through (E) of the Code shall not apply either to the
making of a pro rata equity capital contribution by one or more of the
Accounts to a shared investment; or to the making of a Disproportionate
[as defined in Section V(e)] equity capital contribution by one or more
of such Accounts which results in an adjustment in the equity ownership
interests of the Accounts in the shared investment on the basis of the
fair market value of such interests subsequent to such contribution,
provided that each ERISA-Covered Account is given an opportunity to
make a pro rata contribution.
(d) Lending of Funds--The restrictions of sections 406(a),
406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code by reason of section 4975(c)(1)
(A) through (E) of the Code shall not apply to the lending of funds
from the General Account to an ERISA-Covered Account to enable the
ERISA-Covered Account to make an additional pro rata contribution,
provided that such loan--
(A) is unsecured and non-recourse with respect to participating
plans,
(B) bears interest at a rate not to exceed the prevailing rate on
90-day Treasury Bills,
(C) is not callable at any time by the General Account, and
(D) is prepayable at any time without penalty.
(e) Shared Debt Investments--In the case of a debt investment that
is shared between two or more Accounts, including one or more of the
ERISA-Covered Accounts, (1) the restrictions of sections 406(a) and
406(b) (1) and (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 any material
modification in the terms of the loan agreement resulting from a
request by the borrower, any decision regarding the action to be taken,
if any, on behalf of the Accounts in the event of a loan default by the
borrower, or any exercise of a right under the loan agreement in the
event of such default, and (2) the restrictions of section 406(b)(2) of
the Act shall not apply to any decision by Prudential thereof on behalf
of two or more ERISA-Covered Accounts: (A) not to modify a loan
agreement as requested by the borrower; or (B) to exercise any rights
provided in the loan agreement in the event of a loan default by the
borrower, even though the independent fiduciary for one (but not all)
of such Accounts has approved such modification or has not approved the
exercise of such rights.
Section II--Exemption for Certain Transactions Involving the Management
of Joint Venture Interests Shared by Two or More Accounts Maintained by
Prudential
The restrictions of certain sections of the Act and the sanctions
resulting from the application of certain parts of section 4975 of the
Code shall not apply to the following transactions resulting from the
sharing of an investment in a real estate joint venture between two or
more Accounts, if the conditions set forth in Section IV are met:
(a) Additional Capital Contributions--(1) The restrictions of
sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions
resulting from the application of section 4975 of the Code by reason of
section 4975(c)(1) (A) through (E) of the Code shall not apply to the
making of additional pro rata equity capital contributions by one or
more Accounts participating in the joint venture.
(2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the
Code shall not apply to the lending of funds from the General Account
to an ERISA-Covered Account to enable the ERISA-Covered Account to make
an additional pro rata capital contribution, provided that such loan--
(A) is unsecured and non-recourse with respect to the participating
plans,
(B) bears interest at a rate not to exceed the prevailing rate on
90-day Treasury Bills,
(C) is not callable at any time by the General Account, and
(D) is prepayable at any time without penalty.
(3) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975 (c)(1) (A) through (E) of
the Code shall not apply to the making of Disproportionate [as defined
in section V(e)] additional equity capital contributions (or the
failure to make such additional contributions) in the joint venture by
one or more Accounts which result in an adjustment in the equity
ownership interests of the Accounts in the joint venture on the basis
of the fair market value of such joint venture interests subsequent to
such contributions, provided that each ERISA-Covered Account is given
an opportunity to provide its proportionate share of the additional
equity capital contributions; and
(4) In the event a co-venturer fails to provide all or any part of
its pro rata share of an additional equity capital contribution, the
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and
the sanctions resulting from the application of section 4975 of the
Code by reason of section 4975(c)(1) (A) through (E) of the Code shall
not apply to the making of Disproportionate additional equity capital
contributions to the joint venture by the General Account and an ERISA-
Covered Account up to the amount of such contribution not provided by
the co-venturer which result in an adjustment in the equity ownership
interests of the Accounts in the joint venture on the basis provided in
the joint venture agreement, provided that such ERISA-Covered Account
is given an opportunity to participate in all additional equity capital
contributions on a proportionate basis.
(b) Third Party Purchase Offers--(1) In the case of an offer by a
third party to purchase any property owned by the joint venture, the
restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and
the sanctions resulting from the application of section 4975 of the
Code by reason of section 4975(c)(1) (A) through (E) of the Code shall
not apply to the acquisition by the Accounts, including one or more
ERISA-Covered Account[s], on either a proportionate or Disproportionate
basis of a co-venturer's interest in the joint venture in connection
with a decision on behalf of such Accounts to reject such purchase
offer, provided that each ERISA-Covered Account is first given an
opportunity to participate in the acquisition on a proportionate basis;
and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any acceptance by Prudential on behalf of two or more
Accounts, including one or more ERISA-Covered Account[s], of an offer
by a third party to purchase a property owned by the joint venture even
though the independent fiduciary for one (but not all) of such ERISA-
Covered Account[s] has not approved the acceptance of the offer,
provided that such declining ERISA-Covered Account[s] are first
afforded the opportunity to buy out both the co-venturer and
``selling'' Account's interests in the joint venture.
(c) Rights of First Refusal--(1) In the case of the right to
exercise a right of first refusal described in a joint venture
agreement to purchase a co-venturer's interest in the joint venture at
the price offered for such interest by a third party, the restrictions
of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the
sanctions resulting from the application of section 4975 of the Code by
reason of section 4975(c)(1) (A) through (E) of the Code shall not
apply to the acquisition by such Accounts, including one or more ERISA-
Covered Account[s], on either a proportionate or Disproportionate basis
of a co-venturer's interest in the joint venture in connection with the
exercise of such a right of first refusal, provided that each ERISA-
Covered Account is first given an opportunity to participate on a
proportionate basis; and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any decision by Prudential on behalf of the Accounts not to
exercise such a right of first refusal even though the independent
fiduciary for one (but not all) of such ERISA-Covered Accounts has
approved the exercise of the right of first refusal, provided that none
of the ERISA-Covered Accounts that approved the exercise of the right
of first refusal decides to buy-out the co-venturer on its own.
(d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell
option set forth in the joint venture agreement, the restrictions of
sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions
resulting from the application of section 4975 of the Code by reason of
section 4975(c)(1) (A) through (E) of the Code shall not apply to the
acquisition by one or more of the Accounts on either a proportionate or
Disproportionate basis of a co-venturer's interest in the joint venture
in connection with the exercise of such a buy-sell option, provided
that each ERISA-Covered Account is first given the opportunity to
participate on a proportionate basis; and
(2) The restrictions of section 406(b)(2) of the Act shall not
apply to any decision by Prudential on behalf of two or more Accounts,
including one or more ERISA-Covered Account[s], to sell the interest of
such Accounts in the joint venture to a co-venturer even though the
independent fiduciary for one (but not all) of such ERISA-Covered
Account[s] has not approved such sale, provided that such disapproving
ERISA-Covered Account is first afforded the opportunity to purchase the
entire interest of the co-venturer.
Section III--Exemption for Transactions Involving a Joint Venture or
Persons Related to a Joint Venture
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, if the
conditions in Section IV are met, to any additional equity or debt
capital contributions to a joint venture by an ERISA-Covered Account
that is participating in an interest in the joint venture, or to any
material modification in the terms of, or action taken upon default
with respect to, a loan to the joint venture in which the ERISA-Covered
Account has an interest as a lender, where the joint venture is a party
in interest solely by reason of the ownership on behalf of the General
Account of a 50 percent or more interest in such joint venture.
Section IV--General Conditions
(a) The decision to participate in any ERISA-Covered Account that
shares real estate investments must be made by plan fiduciaries who are
totally unrelated to Prudential and its affiliates. This condition
shall not apply to plans covering employees of Prudential.
(b) Each contractholder or prospective contractholder in an ERISA-
Covered Account which shares or proposes to share real estate
investments is provided with a written description of potential
conflicts of interest that may result from the sharing, a copy of the
notice of pendency, and a copy of the exemption as granted.
(c) An independent fiduciary must be appointed on behalf of each
ERISA-Covered Account participating in the sharing of investments. The
independent fiduciary shall be either
(1) a business organization which has at least five years of
experience with respect to commercial real estate investments,
(2) a committee composed of three to five individuals who each have
at least five years of experience with respect to commercial real
estate investments, or
(3) the plan sponsor (or its designee) of a plan (or plans) that is
the sole participant in an ERISA-Covered Account.
(d) The independent fiduciary or independent fiduciary committee
member shall not be or consist of Prudential or any of its affiliates.
(e) No organization or individual may serve as an independent
fiduciary for an ERISA-Covered Account for any fiscal year if the gross
income (other than fixed, non-discretionary retirement income) received
by such organization or individual (or any partnership or corporation
of which such organization or individual is an officer, director, or
ten percent or more partner or shareholder) from Prudential, its
affiliates and the ERISA-Covered Accounts for that fiscal year exceeds
five percent of its or his or her annual gross income from all sources
for the prior fiscal year. If such organization or individual had no
income for the prior fiscal year, the five percent limitation shall be
applied with reference to the fiscal year in which such organization or
individual serves as an independent fiduciary. The income limitation
shall not include compensation for services rendered to a single-
customer ERISA-Covered Account by an independent fiduciary who is
initially selected by the Plan sponsor for that ERISA-Covered Account.
The income limitation will include income for services rendered to
the Accounts as independent fiduciary under any prohibited transaction
exemption(s) granted by the Department. Notwithstanding the foregoing,
such income limitation shall not include any income for services
rendered to a single customer ERISA-Covered Account by an independent
fiduciary selected by the Plan sponsor to the extent determined by the
Department in any subsequent prohibited transaction exemption
proceeding.
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 ten percent or more partner or
shareholder, may acquire any property from, sell any property to, or
borrow any funds from, Prudential, its affiliates, or any Account
maintained by Prudential or its affiliates, during the period that such
organization or individual serves as an independent fiduciary and
continuing for a period of six months after such organization or
individual ceases to be an independent fiduciary, or negotiate any such
transaction during the period that such organization or individual
serves as independent fiduciary.
(f) The independent fiduciary acting on behalf of an ERISA-Covered
Account shall have the responsibility and authority to approve or
reject recommendations made by Prudential or its affiliates for each of
the transactions in this exemption. In the case of a possible transfer
or exchange of any interest in a shared investment between the General
Account and an ERISA-Covered Account, the independent fiduciary shall
also have full authority to negotiate the terms of the transfer.
Prudential and its affiliates shall involve the independent fiduciary
in the consideration of contemplated transactions prior to the making
of any decisions, and shall provide the independent fiduciary with
whatever information may be necessary in making its determinations.
In addition, the independent fiduciary shall review on an as-needed
basis, but not less than twice annually, the shared real estate
investments in the ERISA-Covered Account to determine whether the
shared real estate investments are held in the best interest of the
ERISA-Covered Account.
(g) Prudential maintains for a period of six years from the date of
the transaction the records necessary to enable the persons described
in paragraph (h) of this Section to determine whether the conditions of
this exemption have been met, except that a prohibited transaction will
not be considered to have occurred if, due to circumstances beyond the
control of Prudential or its affiliates, the records are lost or
destroyed prior to the end of the six-year period.
(h)(1) Except as provided in paragraph (2) of this subsection (h)
and notwithstanding any provisions of subsection (a)(2) and (b) of
section 504 of the Act, the records referred to in subsection (g) of
this Section are unconditionally available at their customary location
for examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an ERISA-Covered
Account who has authority to acquire or dispose of the interests of the
plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer to any plan participating in an
ERISA-Covered Account or any duly authorized employee or representative
of such employer, and
(D) Any participant or beneficiary of any plan participating in an
ERISA-Covered Account, or any duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in subparagraphs (B) through (D)
of this subsection (h) shall be authorized to examine trade secrets of
Prudential, any of its affiliates, or commercial or financial
information which is privileged or confidential.
Section V--Definitions
For the purposes of this exemption:
(a) An ``affiliate'' of Prudential includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Prudential,
(2) Any officer, director or employee of Prudential or person
described in section V(a)(1), and
(3) Any partnership in which Prudential is a partner.
(b) An ``Account'' means the General Account (including the general
accounts of Prudential affiliates which are managed by Prudential), any
separate account managed by Prudential, or any investment advisory
account, trust, limited partnership or other investment account or fund
managed by Prudential.
(c) The ``General Account'' means the general asset account of
Prudential and any of its affiliates which are insurance companies
licensed to do business in at least one State as defined in section
3(10) of the Act.
(d) An ``ERISA-Covered Account'' means any Account (other than the
General Account) in which employee benefit plans subject to Title I or
Title II of the Act participate.
(e) ``Disproportionate'' means not in proportion to an Account's
existing equity ownership interest in an investment, joint venture or
joint venture interest.
The exemption is subject to the express conditions that the
material facts and representations contained in the application are
true and complete, and that the application accurately describes all
material terms of the transactions to be consummated pursuant to the
exemption.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on October 15, 1993 at 58 FR
53565.
EFFECTIVE DATE: This exemption is effective December 20, 1988.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Waterman Medical Center, Inc., Productivity Incentive Program (the
Plan) Located in Eustis, Florida
[Prohibited Transaction Exemption 94-52; Exemption Application No. D-
9587]
Exemption
The restrictions of sections 406(a) and 406(b) (1) and (2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the sale of a group annuity policy (the Policy) from
the Plan to Florida Hospital/Waterman (the Employer), a party in
interest with respect to the Plan, provided that the following
conditions are met:
1. The fair market value of the Policy is established by a party
independent of the Employer and the Plan;
2. The Employer pays the greater of the current fair market value
of the Policy or the total amount the Plan has expended on the Policy
as of the date of sale;
3. The sale is a one-time transaction for cash; and
4. The Plan pays no fees or commissions in regard to the sale.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on April 22, 1994, at 59 FR
19253.
FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department,
telephone (202) 219-8883. (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, DC, this 24th day of June, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-15797 Filed 6-28-94; 8:45 am]
BILLING CODE 4510-29-P
