[Federal Register Volume 64, Number 140 (Thursday, July 22, 1999)]
[Notices]
[Pages 39532-39544]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 99-18616]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10257, et al.]
Proposed Exemptions; Pacific Life Corporation (Pacific Life)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing within 45 days from the date of
publication of this Federal Register Notice. Comments and requests for
a hearing should state: (1) The name, address, and telephone number of
the person making the comment or request, and (2) the nature of the
person's interest in the exemption and the manner in which the person
would be adversely affected by the exemption. A request for a hearing
must also state the issues to be addressed and include a general
description of the evidence to be presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
Attention: Application No. stated in each Notice of Proposed Exemption.
The applications for exemption and the comments received will be
available for public inspection in the Public Documents Room of Pension
and Welfare Benefits Administration, U.S. Department of Labor, Room N-
5507, 200 Constitution Avenue, NW, Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file
[[Page 39533]]
with the Department for a complete statement of the facts and
representations.
Pacific Life Corporation (Pacific Life), Located in Newport Beach,
California
[Exemption Application No. D-10257]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I--Transactions
(a) If the exemption is granted, the restrictions of sections
406(a), 406(b)(1) and (b)(2) of the Act and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A)
through (E) of the Code, shall not apply:
(1) For the period from January 22, 1993 until August 12, 1998, to
the sale by Pacific Life of an ``actively-managed synthetic''
guaranteed investment contract (Actively-Managed Synthetic GIC) to an
employee benefit plan for which Pacific Life was a party in interest
with respect to such plan (Plan) in instances where Pacific Life or an
Affiliate manages the Plan's assets relating to the Synthetic GIC (an
Affiliated-Manager GIC); and
(2) As of January 22, 1993, to the purchase or retention of the
Affiliated-Manager GICs, described in section (a) (1) above, by the
Plans and the payments made by Pacific Life to the Plans pursuant to
the terms and conditions of the Affiliated-Manager GICs, provided that
the general conditions set forth in section II, the specific conditions
set forth in section III, the retroactive conditions set forth in
section IV, and the recordkeeping requirements set forth in section V
below are met.
(b) If the exemption is granted, the restrictions of sections
406(a) of the Act and the taxes imposed by section 4975(a) and (b) of
the Code, by reason of section 4975(c)(1)(A) through (D) of the Code,
shall not apply:
(1) As of January 22, 1993, to the sale by Pacific Life of an
Actively-Managed Synthetic GIC to a Plan in instances where the Plan's
assets relating to the Actively-Managed Synthetic GIC are managed by an
investment manager who is unaffiliated with Pacific Life and its
Affiliates (an Unaffiliated-Manager GIC); and
(2) As of January 22, 1993, to the purchase or retention of the
Unaffiliated-Manager GICs, described in section (b) (1) above, by the
Plans and the payments made by Pacific Life to the Plans pursuant to
the terms and conditions of the Unaffiliated-Manager GICs, provided
that the general conditions set forth in section II and the
recordkeeping requirements set forth in section V below are met.
Section II--General Conditions
(a) Prior to the sale of an Actively-Managed Synthetic GIC, an
independent fiduciary of each Plan receives a full and detailed written
disclosure of all material features of the Actively-Managed Synthetic
GIC, including all applicable fees and charges;
(b) Following receipt of such disclosure, the Plan's independent
fiduciary approves in writing the purchase of the Actively-Managed
Synthetic GIC on behalf of the Plan;
(c) All fees and charges imposed under any such Actively-Managed
Synthetic GIC are not in excess of reasonable compensation within the
meaning of section 408(b)(2) of the Act;
(d) Each Actively-Managed Synthetic GIC will specifically provide
an objective means of determining the fair market value of the
securities owned by the Plan pursuant to the Actively-Managed Synthetic
GIC;
(e) Each Actively-Managed Synthetic GIC will specifically provide
an objective formula for determining the interest rates to be credited
periodically under the Actively-Managed Synthetic GIC;
(f) Pacific Life does not maintain custody of the assets which are
the subject of the Actively-Managed Synthetic GIC or commingle those
assets with any other funds under its management;
(g) The assets subject to the Actively-Managed Synthetic GIC are
invested only in high quality fixed income investments specified in the
investment guidelines agreed to, or provided by, the independent
fiduciary;
(h) The Plan may, at any time, terminate the Actively-Managed
Synthetic GIC;
(i) The fee charged under the arrangement is negotiated between
Pacific Life and a Plan fiduciary independent of Pacific Life;
(j) At all times during the term of each Actively-Managed Synthetic
GIC, a Plan may elect to receive such lump sum amount equal to the
Contract Value Record and shall be entitled to receive a lump sum
payment no more than 3 (three) years after making an election which
will establish a maturity date;
(k) The Plan may establish a maturity date by notifying Pacific
Life in writing of an intent to establish a maturity date. Each
Actively-Managed Synthetic GIC will mature within three (3) years after
the Plan notifies Pacific Life of its intent to establish a maturity
date; and
(l) Actively-Managed Synthetic GICs are sold only to Plans which
have at least $25 million in assets.
Section III--Specific Conditions
(a) With respect to any Affiliated-Manager GIC described in section
I (a), Pacific Life will notify a Plan's independent fiduciary, in
writing no later than 30 days prior to the date on which the Credited
Rate is to be reset, advising such fiduciary that the Plan may replace
Pacific Life or its affiliate as investment manager,1 at no
expense to the Plan, when the Credited Rate with respect to any
Affiliated-Manager GIC described in section I(a) is expected to be less
than three (3) percent at the next reset of the Credited Rate.
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\1\ Although Pacific Life must approve the new investment
manager selected by the Plan, Pacific Life represents that it will
not unreasonably withhold such approval.
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Section IV--Retroactive Conditions
(a) At no time between January 22, 1993 and August 12, 1998, was
the Credited Rate with respect to any Affiliated-Manager GIC described
in section I (a) less than 3% (three percent) per annum; and
(b) At no time between January 22, 1993 and August 12, 1998, did a
Plan elect to receive an amount equal to the Contract Value Record
pursuant to an Affiliated-Manager GIC described in section I (a).
Section V--Recordkeeping
(a) The Applicant maintains or causes to be maintained for a period
of six years from the date of the transaction such records as are
necessary to enable the persons described in paragraph (b) of this
section V of this proposed exemption, to determine whether the
conditions of this exemption have been met, except that: (1) A
prohibited transaction will not be deemed to have occurred if, due to
circumstances beyond the control of the Applicant or its affiliates,
such records are lost or destroyed prior to the end of such six year
period; and (2) no party in interest, other than the Applicant or an
affiliate, shall be subject to the civil penalty that may be accessed
under section 502(i) of the Act, or to the taxes imposed by section
4975(a) and (b) of the Code, if the records are not maintained, or are
not available for examination as required by paragraph (b) below.
(b)(1) Notwithstanding anything to the contrary in subsections
(a)(2) and (b) of section 504 of the Act, the records
[[Page 39534]]
referred to in paragraph (a) of this section V are unconditionally
available at their customary location for examination during normal
business hours by:
(i) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service; (ii) any fiduciary
of the plan or any duly authorized employee or representative of such
fiduciary; (iii) any participant or beneficiary of the plan or duly
authorized representative of such participant or beneficiary; (iv) any
employer of plan participants and beneficiaries; and (v) any employee
organization any of whose members are covered by such plan; and
(2) None of the persons described in paragraph (b)(1)(ii) through
(v) shall be authorized to examine trade secrets of the applicant, or
commercial or financial information which is privileged or
confidential.
Section VI--Definitions
For purposes of this proposed exemption:
(A) ``Actively-Managed Synthetic GIC'' means: a synthetic
guaranteed investment contact, which under certain circumstances
provides a guarantee that a pool of underlying plan assets which may be
managed by Pacific Life, an affiliate of Pacific Life, or an unrelated
investment manager, will perform at a specified rate of return.
(B) ``Affiliated-Manager GIC'' means: an Actively-Managed Synthetic
GIC under which Pacific Life guarantees the performance of an related
investment manager.
(C) ``Unaffiliated-Manager GIC'' means: an Actively-Managed
Synthetic GIC under which Pacific Life guarantees the performance of an
unrelated investment manager.
(D) ``Contract Value Record'' means: a bookkeeping account
maintained by Pacific Life, pursuant to each Actively-Managed Synthetic
GIC. Initially, the Contract Value Record will be credited with the
value of the Investment Assets (defined in (F) below), and subsequently
with a credited rate of interest (Credited Rate, defined in (E) below),
which shall be reset periodically as agreed to at the inception of the
Actively-Managed Synthetic GIC.
(E) ``Credited Rate'' means: the interest rate credited to the
Contract Value Record. The Credited Rate is reset periodically, in
accordance with an objective formula established under the terms of the
Actively-Managed Synthetic GIC.
(F) ``Investment Assets'' means: the underlying portfolio of
investment assets, title to which remains with the Plan.
(G) ``Managed Portfolio'' means: the total of all Investment Assets
which comprise the portfolio which is managed by either an Affiliated-
Manager or an Unaffiliated-Manager.
(H) ``Withdrawals'' means: a participant initiated payment or
transfer to other investment options available under the Plan.
Effective Date: This proposed exemption, if granted, will be
effective for the period from January 22, 1993, until August 12, 1998,
for the transactions described in section I (a)(1). Section I (a)(2) of
the proposed exemption, if granted, will be effective for the retention
by the Plan of the Affiliated-Manager GICs until the maturity date of
such GICs. Lastly, the proposal will be effective as of January 22,
1993, for the transactions described in section I (b) (including the
continuing retention of any Unaffiliated-Manager GICs).
Summary of Facts and Representations
1. Pacific Life is a life insurance company incorporated under the
laws of the State of California.2 Pacific Life is also
registered as an investment adviser under the Investment Advisers Act
of 1940. Pacific Life is currently rated as follows: AM Best A+;
Standard & Poor's AA+; Duff & Phelps AA+; and Moody's Aa3. As of
December 31, 1998, Pacific Life had statutory assets of approximately
$37.8 billion and net policy reserves of approximately $18 billion. A
significant portion of Pacific Life's business consists of writing
insurance and annuity contracts, guaranteed investments contracts, and
funding agreements for numerous plans subject to the Act.
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\2\ Pacific Life was formerly known as Pacific Mutual Life
Insurance (Pacific Mutual) and sold some Actively Managed Synthetic
GICs under the name of Pacific Mutual. Pacific Life represents that
Pacific Mutual was converted from a mutual company to a stock
company and became a majority owned subsidiary of Pacific Mutual
Life Holding Company, a mutual company owned by the former
policyholders of Pacific Mutual. After the conversion, Pacific
Mutual was renamed Pacific Life.
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2. Pacific Life has requested an exemption with respect to two
different Actively-Managed Synthetic GIC products, each of which is a
form of traditional guaranteed investment contract (GIC). The first
form of Actively-Managed Synthetic GIC, for which relief is proposed in
section I(a) of this notice of proposed exemption, is an arrangement
under which Pacific Life, or an affiliate, acts as the investment
manager, and Pacific Life guarantees the performance of the assets
which it, or an affiliate, manages (Affiliated-Manager GIC). In some
cases, Pacific Life will appoint an independent sub-advisor to carry
out the investment management functions but Pacific Life will remain
fully responsible as investment manager of the assets comprising the
Actively-Managed Synthetic GIC. The second form of Actively-Managed
Synthetic GIC, for which relief is proposed in section I(b) of this
proposed exemption, is an arrangement under which Pacific Life
guarantees the performance of an unrelated investment manager
(Unaffiliated-Manager GIC). Pacific Life represents that it has not
sold Affiliated-Manager GICs to Plans after August 12, 1998. Since
January 23, 1993, Pacific Life sold both forms of the Actively-Managed
Synthetic GICs to defined contribution plans. Pacific Life represents
that it will continue selling the Unaffiliated-Manager GIC to defined
contribution plans.
3. Pacific Life's duties and obligations with respect to each
Actively-Managed Synthetic GIC are governed by terms of an insurance
contract or investment management agreement (the Contract) between the
Plan and Pacific Life. The principal difference between the two forms
of the Actively-Managed Synthetic GIC products is the nature of the
Contract. Under the Unaffiliated-Manager GIC, where Pacific Life is
guaranteeing the performance of an unrelated investment manager,
Pacific Life's obligations and the Plan's rights will be embodied in a
single contract of insurance. Under the Affiliated-Manager GIC, where
Pacific Life, or a related or unrelated sub-adviser appointed by
Pacific Life, is responsible for the investment management of the
Managed Portfolio, the rights and obligations of the parties will
derive primarily from the investment management agreement between
Pacific Life and the Plan. Secondarily, the rights and obligations of
the parties pursuant to the Affiliated-Manager GIC will be established
in a contract of insurance guaranteeing the performance of Pacific
Life, or the sub-adviser, in its capacity as Investment Manager.
4. Both forms of Pacific Life's Actively-Managed Synthetic GICs
provide that all employee initiated benefit payments and transfers to
other investment options (collectively, Withdrawals) will be paid at an
amount equal to the Contract Value Record (see paragraph 10 below for a
description of the Contract Value Record). Since such Withdrawals are
paid at the Contract Value Record, participants will not recognize a
loss when they initiate a Withdrawal at a time when the fair
[[Page 39535]]
market value of the Investment Assets comprising the Plan's Managed
Portfolio has declined to a level below the Contract Value Record.
Pacific Life represents that Plans will typically purchase the
Actively-Managed Synthetic GIC because it will allow the Plans to use
book value accounting and, thus, account for the value of the accounts
of participants without regard to fluctuations in the fair market value
of the Investment Assets which result from changes in interest rates.
5. Pacific Life represents that each Actively-Managed Synthetic GIC
provides purchasers with the advantages of a traditional GIC, while
providing greater security than a traditional GIC. Unlike a traditional
GIC, the title to the Investment Assets at all times remains with the
Plan. For this reason, it is represented that Synthetic GICs provide
greater security to Plans because the assets held in the Managed
Portfolio are not subject to the claims of an insurance company's
general creditors in the event that the insurance company fails.
Pacific Life represents that it will negotiate the terms of each
Actively-Managed Synthetic GIC with an independent fiduciary of a Plan,
which is generally expected to be the Plan's named fiduciary and not an
independent investment professional.
6. Both the Affiliated-Manager GIC and Unaffiliated-Manager GIC
provide the same economic benefits to a Plan. The mechanical operation
of Pacific Life's obligations (other than as an investment manager),
under each form of the Actively-Managed Synthetic GIC is the same. In
each case, the Contract is issued pursuant to applicable state law and
is subject to the jurisdiction of the appropriate State Department of
Insurance. The representations made by Pacific Life in respect of the
Actively-Managed Synthetic GIC herein apply equally to both the
Affiliated-Manager GIC and Unaffiliated-Manager GIC.
7. While certain terms and conditions of each Contract will be
negotiable by the Plan and Pacific Life, once the Contract has been
executed, Pacific Life will have no discretion over any of the terms.
Each Actively-Managed Synthetic GIC is issued by Pacific Life in the
ordinary course of its business. Pacific Life represents that it will
not sell Actively-Managed Synthetic GICs to Plans which do not have at
least $25 million in assets.
8. Each Actively-Managed Synthetic GIC will consist of two
components. One component is the underlying portfolio of Investment
Assets, title to which will remain with the Plan. The underlying
Investment Assets will be securities issued or guaranteed by the
Federal government or an instrumentality thereof, or other investment
grade debt securities whose value is readily determinable and which can
thus be objectively valued. The Investment Assets will not come under
Pacific Life's administration or control, unless the Plan chooses
Pacific Life as the investment manager of the Managed Portfolio by
purchasing an Affiliated-Manager GIC. Even where Pacific Life is the
investment manager, legal title to the Managed Portfolio, including all
principal, interest, dividends and distributions on the Investment
Assets in the Managed Portfolio, at all times remains with the Plan.
The performance of such Investment Assets will affect the second
component of each Contract.
The second component under each Actively-Managed Synthetic GIC will
be an accounting record established by Pacific Life to record the
Plan's interest under the Actively-Managed Synthetic GIC. This
accounting record is called the Contract Value Record and it is the
amount available to Plan participants in the event they elect to
withdraw funds pursuant to the provisions of the Plan.
9. Under the Actively-Managed Synthetic GIC, a named fiduciary
independent of Pacific Life will select an investment manager with
respect to that portion of the Managed Portfolio as is agreed upon by
that independent fiduciary and Pacific Life. On or before August 12,
1998, the named fiduciary independent of Pacific Life may have selected
Pacific Life or one of its affiliates as investment manager. The
investment manager will manage the Managed Portfolio in accordance with
investment objectives and guidelines established at the inception of
the Contract and described therein. It is represented that, among other
things, these guidelines are intended to assure that the Managed
Portfolio is invested prudently and requires that the Managed Portfolio
be adequately diversified among the class of investments available.
10. As discussed in paragraph 8 above, under each Contract, Pacific
Life will maintain a Contract Value Record for the Investment Assets in
the Managed Portfolio. The Contract Value Record will be initially
credited with an amount equal to the value of the Investment Assets at
the inception of the Contract. Thereafter, the Contract Value Record
will be credited with a rate of interest (i.e., the ``Credited Rate'')
that will be reset periodically, [e.g., quarterly, semi-annually, or
annually], in accordance with a formula established under the Contract
and agreed upon by an independent plan fiduciary. Once the Contract is
executed, no element of the formula which sets the Credited Rate, or
the intervals at which the Credited Rate is reset, is within Pacific
Life's discretion. All principal and interest payments from the
Investment Assets will be reinvested back into the Managed Portfolio
and stay within the Contract. The Credited Rate will take into account
these additional accruals. Also, the Credited Rate applied to the
Contract Value Record will be responsive to fluctuations in the Market
Value of the Managed Portfolio (see paragraph 21 for an explanation as
to the determination of Market Value).
11. Pacific Life represents that one of the attractive features of
the Actively-Managed Synthetic GIC to a Plan is that Pacific Life
assumes certain obligations with respect to the availability of funds
for benefit Withdrawals and the return on the Managed Portfolio.
Mechanically, this is accomplished through the establishment of, and
adjustments to, the Contract Value Record.
As discussed in paragraph 10 above, the Contract Value Record
reflects a guarantee of principal and the crediting of interest at
periodically determined Credited Rates, pursuant to the formula
established in the Contract. The Credited Rate of interest will equal
the rate necessary to assure that, if the Managed Portfolio earns the
rate of return anticipated, the value of the Managed Portfolio will
equal the Contract Value Record after a pre-determined amortization
period. The length of the amortization period will be negotiated at
arms length between Pacific Life and the Plan's independent fiduciary.
Thus, for any Actively-Managed Synthetic GIC, the initial Credited Rate
is equal to the expected rate of return on the Managed Portfolio. For
all purposes under the Contract, the expected return on the Managed
Portfolio is calculated by the Plan's trustee or another fiduciary
acting on behalf of the Plan with the concurrence of Pacific Life.
It is represented that a party independent of Pacific Life, which
will be the investment manager in circumstances where Pacific Life or
an affiliate is not the Manager, or the trustee of the Plan in
circumstances where Pacific Life is the investment manager, will
determine the expected future rate of return on the Investment Assets
assuming that those assets were held until maturity. Pacific Life
represents that it will accept the expected rate of return calculations
of the independent party, absent a mathematical error. It is
represented that Pacific Life will calculate the
[[Page 39536]]
Credited Rate pursuant to the formula agreed upon in the Contract, and
that the calculations will be based on the data received from the
independent party as to the expected rate of return and the actual rate
of return.
12. To achieve the intended effect of causing the Contract Value
Record balance and the value of the Managed Portfolio to be equal at
maturity, the formula for determining the Contract Value Credited Rate
of interest under each Contract resets periodically pursuant to the
terms of the Contract (see paragraph 10 above for the description of
the Credited Rate). At each reset period, the Credited Rate will be
adjusted, up or down, to reflect the difference between the actual
investment experience of the Managed Portfolio and the expected
investment experience of such assets. The Credited Rate, following the
reset, will equal the rate necessary to assure that, at the end of the
amortization period, the Contract Value Record will equal the value of
the Managed Portfolio, based on the assumed return for the Managed
Portfolio for the amortization period.3 In the event that
the Credited Rate for any period, as calculated by Pacific Life
pursuant to the fixed formula established under the Contract, would be
less than zero, the Contract Value Record's Credited Rate following
such reset will be zero.
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\3\ Pacific Life represents that the amortization period for
Contracts does not exceed three (3) years.
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13. Under each Actively-Managed Synthetic GIC, Pacific Life
guarantees the availability of funds for participant initiated benefit
Withdrawals up to the amount of the Contract Value Record balance as of
any date. After certain other specified sources of funds (such as net
contributions to the Actively-Managed Synthetic GIC, maturing proceeds,
and cash equivalents) have been exhausted, a Plan will have the right
to withdraw funds from the following sources in the order listed until
depleted:
(1) Available cash attributable to the Investment Assets in the
Managed Portfolio; and
(2) Cash realized from the sale of Investment Assets in the Managed
Portfolio.
All participant initiated benefit Withdrawals are guaranteed to be
paid at the Contract Value Record.
14. A Plan's fiduciary will have the option of purchasing an
Actively-Managed Synthetic GIC which is issued on either an experience-
rated or a non-experience rated basis.4 Under both the
experience-rated contract (Experience-Rated Contract) and the non-
experience rated contract (Non-Experience Rated Contract), all
participant initiated benefit Withdrawals will be paid at Contract
Value. However, under an Experience-Rated Contract, Pacific Life will
not compensate the Plan for any loss resulting from a benefit
responsive Withdrawal which is effected at a time when the Market Value
of the Investment Assets is less than the Contract Value. Pursuant to a
Non-Experience Rated Contract, if benefit responsive Withdrawals are
made when the Contract Value of the Investment Assets is greater than
the Market Value of the Investment Assets, a reserve account is
established (as discussed in paragraph 15 below) and Pacific Life will
compensate the Plan in the event that, at maturity, the Contract Value
plus the Reserve Account exceeds the Market Value of the Investment
Assets.
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\4\ The Department notes that the fiduciary responsibility
provisions of the Act will apply to any decision made by a plan
fiduciary to purchase an Actively-Managed Synthetic GIC as a part of
its investment program for a plan's participants and beneficiaries.
In this regard, section 404(a) of the Act requires that a fiduciary
discharges his or her duties with respect to a plan solely in the
interest of the participants and beneficiaries and with the care,
skill, prudence and diligence under the circumstances then
prevailing that a prudent person acting in a like capacity and
familiar with such matters would use in the conduct of an enterprise
of a like character and with like aims. Accordingly, the fiduciaries
of a plan must act ``prudently'' with respect to the selection of
investment products. This proposed exemption, if granted, should not
be viewed as an endorsement by the Department of the plan's use of
an Actively-Managed Synthetic GIC which is issued on either an
experience-rated or non-experience rated basis. Finally, the
Department notes that plan fiduciaries would be liable for any
losses to a plan resulting from a decision to select an experience-
rated or non-experience rated synthetic GIC, if such selection was
not prudent at the time the decision was made.
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Pacific Life represents that, when investing in synthetic GICs,
some Plans are less concerned about protection against market losses
due to benefit responsive Withdrawals, primarily because such Plans
will have sufficient cash flow, in the form of new additional cash
investments by participants on an ordinary basis to avoid the need to
liquidate Investment Assets to meet benefit responsive Withdrawals.
Pursuant to an Experience-Rated Contract, Withdrawals are paid from the
inflow of new contributions and other amounts received by the Plan
(Cash Resources). Pacific Life represents that typically very large
Plans, with more than sufficient Cash Resources to cover Withdrawals
without a need to sell any of the Investment Assets, are potential
purchasers of an Experience-Rated Contract. Since Pacific Life's risk
exposure is lower in the context of an Experienced-Rated Contract
because it will have no exposure related to benefit responsive
Withdrawals, the charges associated with such a contract will be less.
Accordingly, to reduce expenses for a Plan that has sufficient Cash
Resources, a Plan's fiduciary may select an Experience Rated
Contract.5
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\5\ The Department expects that plan fiduciaries, consistent
with their responsibilities under section 404(a) of the Act, will
determine that a plan has sufficient liquidity to meet benefit
responsive Withdrawals prior to investing in an Experience-Rated
Contract.
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Plans fiduciaries that do not believe they have sufficient Cash
Resources to cover participant Withdrawals may anticipate the need to
liquidate Investment Assets and, for this reason, such Plans would be
expected to purchase a Non-Experience Rated Contract. The Non-
Experience Rated Contract has higher charges associated with it,
because Pacific Life assumes a greater obligation to the Plan.
15. Plans purchasing the Contracts are advised that the calculation
of the future Credited Rates, and the benefit risk charge payable by
the Plan to Pacific Life, will differ between Experience and Non-
Experience Rated Contracts.
Under a Non-Experience Rated Contract, any benefit responsive
Withdrawal made under the Actively-Managed Synthetic GIC will have no
impact on the Credited Rate. After each Withdrawal, Pacific Life will
add to or subtract from the Managed Portfolio's market value record a
notional amount (the Reserve Account) to maintain, solely for
bookkeeping purposes, the percentage difference between the Market
Value and Contract Value Record at their pre-withdrawal levels. The
Reserve Account is ongoing and will be in effect until the Contract
terminates. Additions to the Reserve Account will be made when benefit
Withdrawals occur and the Market Value of the Managed Portfolio is less
than Contract Value Record. Alternatively, subtractions from the
Reserve Account will be made when benefit Withdrawals are made and the
Managed Portfolio's Market Value is greater than the Contract Value
Record.
If a Plan elects to receive a payment of the Contract Value Record
at contract maturity, any balance in the Reserve Account will earn the
market rate of return earned on the Managed Portfolio. A positive
balance credited to the Reserve Account when the Contract is terminated
will be paid to the Plan. (See paragraph 16 below for a more detailed
explanation). The Plan will not be obligated to pay Pacific Life any
debit in the Reserve Account. This is the benefit Withdrawal risk that
Pacific Life will be
[[Page 39537]]
assuming under a Non-Experience Rated Contract.
However, the benefit Withdrawal activity of an Experience-Rated
Contract will affect the future Credited Rate calculation and no
Reserve Account will be maintained for such Contracts. If a benefit
Withdrawal is made from the Contract at a time when the Market Value of
the Managed Portfolio is less than the Contract Value Record, the
Credited Rate at its next reset date will be lower to reflect the
effect of the Withdrawal. On the other hand, at the next following
reset date, the Credited Rate will be increased in the event that a
Withdrawal is made at a time at which the Market Value of the Managed
Portfolio exceeds the Contract Value Record. In this regard, in an
Experience-Rated Contract, the Credited Rate of interest from and after
such benefit responsive Withdrawals will be reset taking into account
the positive or negative effect of such Withdrawal on the value of the
Investment Assets. Thus, the Plan will assume the risk of loss on the
benefit responsive Withdrawals (and be benefitted by any gains related
thereto) by receiving a lower (or higher) Credited Rate on the Contract
Value Record on a going forward basis. This enables the Plan to still
receive the benefit of book value accounting, as all Withdrawals are
still effected at book value, but enables it to avoid the cost of
having Pacific Life assume the additional risk associated with such
Withdrawals.
16. A Plan's fiduciary may at any time elect to terminate the
arrangements pertaining to the Actively-Managed Synthetic GIC and
thereby cause the investment of the Managed Portfolio to be transferred
to the Plan's trustee or another investment manager, without
restriction. This election is called a market value payment (Market
Value Payment).6 The Plan would generally be expected to
elect such a Market Value Payment only in circumstances where the
Market Value of the Managed Portfolio exceeds the balance then credited
to the Contract Value Record. If a Plan were to elect a Market Value
Payment, Pacific Life will be relieved of any potential obligation to
make a payment in an amount equal to the amount of the Contract Value
Record. Such payment of the Contract Value Record is referred to as a
``Contract Value Payment,'' as described below. A Market Value Payment,
if elected, consists in essence of the total return of the Investment
Assets of the Managed Portfolio to the Plan. Any excess of the Market
Value of the Managed Portfolio over the balance in the Contract Value
Record belongs exclusively to the Plan. The only cost to a Plan
electing to receive a Market Value Payment would be an early
termination fee, which would be payable only if the Plan makes such
election prior to the end of the minimum term for which it agrees to
keep the agreement in effect. This termination fee and minimum term
will be negotiated by the Plan and Pacific Life at the inception of the
Contract. Pacific Life represents that the minimum term is typically
one (1) year and the termination fee generally equals Pacific Life's
cost of establishing the Actively-Managed GIC Contract. It is further
represented that for Contracts involving the investment of $50 million
or more, it will waive any such early termination fee. The purpose of
the early termination fee is to assure that Pacific Life recovers the
costs it will incur in implementing the Actively-Managed Synthetic GIC
for a Plan which elects the Market Value Payment.
---------------------------------------------------------------------------
\6\ However, a Market Value Payment will not be deemed to have
been requested if a Plan fiduciary, pursuant to the condition of the
exemption proposed herein for Affiliated-Manager GICs, elects to
replace Pacific Life or an affiliate of Pacific Life as investment
manager, when the Credited Rate under such Contract falls below
three (3) percent.
---------------------------------------------------------------------------
Alternatively, the Plan's fiduciary may at any time elect to
receive a Contract Value Payment, if it thinks such an election would
provide the Plan a better return. A Contract Value Payment takes the
form of a single payment to be made at a date at which the Contract
will mature following such an election (the Maturity Date), which date
will have been agreed to by Pacific Life and the Plan at the
commencement of the Contract. The time between the date the fiduciary
gives notice of its intent to terminate the Contract and the Maturity
Date is generally equal to the time of the amortization period assumed
in the Credited Rate calculation (see paragraph 12 above). It is
represented that the amortization period will not be more than three
years. As a result, following the provision of notice of an election to
terminate the contract and receive a Contract Value Payment, the
maximum period a Plan would have to wait for the Contract Value Payment
is three years. Any payment that Pacific Life will have to make to
support the Contract Value Payment will be in an amount equal to the
excess on the Maturity Date of (i) the balance in the Contract Value
Record plus the balance in the Reserve Account over (ii) the Market
Value of the Managed Portfolio.
17. If a Plan elects to receive a Contract Value Payment, new
restricted investment guidelines and objectives will be set, to be
effective for the remainder of the Contract term, under which either
(i) the average duration of the assets in the Managed Portfolio will
generally be six months less than the scheduled payment date until one
year prior to the payment date, and thereafter generally one-half of
the remaining period until the scheduled payment date, or (ii) the
Managed Portfolio will be required to be invested in Treasury Bonds
maturing on or before the scheduled payment date. To effect a Contract
Value Payment, Pacific Life must receive written notice, signed by the
Plan's independent fiduciary, of their acceptance of the revised
investment objectives and guidelines.
18. In making the choice as to which form of termination
distribution it wants upon the maturity of an Actively-Managed
Synthetic GIC, a Plan's fiduciary will compare the Market Value of the
Investment Assets as determined by its duly appointed custodian to the
dollar amount credited to the Contract Value Record. Pacific Life, as
issuer of the Contract, will have no involvement in valuing the Managed
Portfolio. Moreover, at any time after having given Pacific Life notice
of an election to receive a Contract Value Payment, the Plan may elect
to receive a Market Value Payment instead. Thus, if the Market Value of
the Managed Portfolio increases to the advantage of the Plan after the
Plan has made a Contract Value Payment election, the Plan has the right
to reverse such election and immediately terminate the
Contract.7 As with any election of a Market Value Payment,
Pacific Life will thereafter have no further obligation with respect to
any Contract Value Payment.
---------------------------------------------------------------------------
\7\ Pacific Life acknowledges that circumstances which would
cause the recovery of the Market Value to the extent that it would
exceed the Contract Value Record, after a request for a Contract
Value Payment is made, would be unlikely to occur given the short
amortization period and the implementation of the restrictive
investment guidelines provided for under the Contract.
---------------------------------------------------------------------------
19. Pacific Life represents that it believes that each Actively-
Managed Synthetic GIC is superior to traditional GICs in that each
Actively-Managed Synthetic GIC serves the dual functions of: (a)
Affording a Plan substantially greater protection against the risk that
it will lose its principal investment; and (b) providing the Plan with
an opportunity for a greater rate of return than a traditional GIC.
In the case of an Actively-Managed Synthetic GIC, an investment
manager will invest the Managed Portfolio within the parameters of the
pre-established investment guidelines. The Plan's trustee holds title
to assets in the Managed Portfolio. Any appreciation in the value of
the Managed Portfolio
[[Page 39538]]
belongs to the Plan. The only risk in regard to the Managed Portfolio
arising from the financial condition of Pacific Life relates to the
amount representing the excess, if any, of the balance in the Contract
Value Record over the Market Value of the Managed Portfolio. Pacific
Life represents that the Actively-Managed Synthetic GIC provides
greater security to an investing Plan than a traditional GIC, while
also providing a guaranteed rate of return not generally available in
respect to a managed portfolio under a separate investment advisory
agreement.
20. Pacific Life will maintain full and complete records and books
reflecting the various accounts maintained in accordance with the
Actively-Managed Synthetic GICs. Pacific Life will furnish a Plan's
representatives with periodic statements regarding distributions,
Withdrawals and any other transaction pertaining to the Contract. Upon
written request from a Plan, Pacific Life will also make its records
pertaining to the Actively-Managed Synthetic GICs available during
normal business hours for audit by independent certified public
accountants hired by the Plan's fiduciary.
21. The applicant makes the following representation with respect
to the valuation of assets under the Actively-Managed Synthetic GIC.
The time at which the value of the Investment Assets is relevant to
Pacific Life's obligations is at the time of any Withdrawal, including
upon termination of the entire arrangement. At such time, the Market
Value of the Investment Assets will be based on the last quoted sales
price on the valuation date on a national securities exchange. With
regard to any other security or asset which is not listed on a national
securities exchange, its value will be determined by the Plan's
independent investment manager or another fiduciary acting on behalf of
the Plan, such as the Plan's trustee.
22. Pacific Life and the Plan's fiduciary will agree to an expense
charge, determined at the inception of the Contract, payable to Pacific
Life with respect to each Actively-Managed Synthetic GIC that will be
stated as a fixed percentage of the market value of the Managed
Portfolio. This charge covers four elements: (a) A benefit risk charge,
(b) a maturity risk charge, (c) an expense charge and (d) a profit
charge.
The benefit risk charge is the component of the fee attributable to
Pacific Life's risk of loss associated with payments Pacific Life will
be obligated to make as a result of the benefit responsive Withdrawal
feature provided for under the Contract. The benefit risk charge will
be developed on a Plan specific basis after a review of the Plan's
benefit payment cash flow history and the structure of the Plan
itself--that is, the frequency at which Withdrawals and investment
transfers are permitted, and the structure of alternate investment
opportunities. Since the Credited Rate for Non-Experience Rated
Synthetic GICs is not responsive to benefit Withdrawal activity, the
benefit risk that Pacific Life assumes from Non-Experience Rated
Contracts is higher than for Experience Rated Contracts. Consequently,
the benefit risk charge will be higher for Non-Experience Rated
Contracts based on an evaluation of the Plan's Withdrawal and transfer
possibilities.
The maturity risk charge component of the fee will be based on a
review of the potential volatility of the Managed Portfolio. This
assessment of the potential volatility will be based on a thorough
review of the investment guidelines which will be applied to the
Managed Portfolio. If Pacific Life feels that the potential volatility
is too high to properly manage the maturity risk, the portfolio will
not be approved for a Actively-Managed Synthetic GIC.
The expense and profit charges components of the fee will be
assessed based on the expected expenses related to the arrangement and
the payment to Pacific Life of a reasonable profit. The expense charge
will be based on an annual rate to be determined by negotiations
between Pacific Life and the Plan's fiduciary at the inception of the
Contract and stated as a fixed percentage and multiplied by the value
of the Managed Portfolio, determined pursuant to a fixed formula under
the Contract. Such negotiated charge would remain in effect for the
initial period until maturity agreed to by the Plan and Pacific Life,
subject to Pacific Life's ability to make changes to such charge upon
30 day's advance written notice if and solely to the extent that there
has been a material change to the provisions or administration of the
Plan which adversely affects deposits to or Withdrawals from the
Contract, or another action by the Plan's sponsor which results in
significant Withdrawals from the Contract, such as, but not limited to,
plant closing, divestitures, a partial plan termination, bankruptcy, or
early retirement incentive programs. Based on its review of competitive
practices, Pacific Life represents that the aggregate charges with
respect to each of the Actively-Managed Synthetic GICs are, and are
expected to continue to be, comparable to the charges made by other
Actively-Managed Synthetic GIC providers.
23. Pacific Life represents that to date, Actively-Managed
Synthetic GICs have been purchased by numerous Plans, with the first
such purchase occurring on January 22, 1993. Pacific Life has
accordingly requested that the exemption proposed herein be made
retroactive to that date. Pacific Life represents that it entered into
the previously issued Actively-Managed Synthetic GICs with the good
faith belief that the transactions involved therein were, to the extent
they constituted prohibited transactions, exempted by Prohibited
Transaction Exemption 84-24 (PTE 84-24, 49 FR13208, April 3,
1984).8 However, because Pacific Life is unable to conclude
affirmatively that the Actively-Managed Synthetic GICs constituted
insurance contracts within the meaning of PTE 84-24, Pacific Life has
requested the exemption proposed herein.
---------------------------------------------------------------------------
\8\ In this proposed exemption, the Department expresses no
opinion as to whether the subject transaction would be exempt under
PTE 84-24.
---------------------------------------------------------------------------
24. In summary, the applicant represents that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The decision to enter into an Actively-Managed
Synthetic GIC will be made on behalf of the Plan by a fiduciary of the
Plan who is independent of Pacific Life, after receipt of full and
detailed disclosure of all material features of the Contact, including
all applicable fees and charges; (b) following receipt of such
disclosure, the Plan's independent fiduciary approves in writing the
execution of the Actively-Managed Synthetic GIC on behalf of the Plan;
(c) all fees and charges under the Actively-Managed Synthetic GICs are
reasonable; (d) each Actively-Managed Synthetic GIC will specifically
provide for an objective means for determining the fair market value of
the securities owned by the Plan pursuant to the Actively-Managed
Synthetic GIC; (e) each Actively-Managed Synthetic GIC will
specifically provide for an objective means for determining the
Credited Rate under the Actively-Managed Synthetic GIC; (f) Pacific
Life does not take possession of the assets which are the subject of
the Actively-Managed Synthetic GIC or commingle those assets with any
other funds under its management; (g) the assets subject to the
Actively-Managed Synthetic GIC are invested only in high quality fixed
income instruments specified in the investment guidelines provided to
the independent fiduciary; (h) the Plan may choose at any time to
terminate the Actively-Managed Synthetic GIC and receive the Market
Value of the
[[Page 39539]]
Managed Portfolio; (i) An Affiliate-Manager GIC Contract provides that
a Plan may replace an Affiliated-Manager GIC with an Unaffiliated-
Manager GIC if the Credited Rate for the next reset will be three (3)
percent or less; (j) the Plan may receive a Contract Value Payment no
more than three (3) years after electing a Maturity Date; (k) the fee
charged for the combination of services is negotiated between Pacific
Life and a Plan fiduciary independent of Pacific Life; (l) Pacific Life
will maintain books and records of all transaction which will be the
subject to annual audit by independent certified public accountants
selected and responsible solely to the Plan; and (m) Affiliated-Manager
GICs were not sold to Plans by Pacific Life after August 12, 1998; and
(n) the Actively-Managed Synthetic GICs will only be marketed to Plans
---------------------------------------------------------------------------
which have at least $25 million in assets.
For Further Information Contact: Janet Schmidt of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
The Manufacturers Life Insurance Company (Manulife), Located in
Toronto, Canada
[Application No. D-10738]
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
32847, August 10, 1990). 9
---------------------------------------------------------------------------
\9\ For purposes of this proposed exemption, reference to
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
Section I. Covered Transactions
If the exemption is granted, the restrictions of section 406(a) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (D) of the
Code, shall not apply, to (1) the receipt of common stock (the Common
Shares) of Manulife Financial Corporation, a newly-formed company that
will be the holding company (the Holding Company) for Manulife; or (2)
the receipt of cash or policy credits, by any plan policyholder (the
Eligible Policyholder that is an employee benefit plan (the Plan),
other than a policyholder which is a plan established by Manulife or an
affiliate for its own employees (the Manulife Plan), in exchange for
such Eligible Policyholder's membership interest in Manulife, in
accordance with a plan of reorganization (the Plan of Demutualization)
adopted by Manulife and implemented under the insurance laws of Canada
and the State of Michigan.
This proposed exemption is subject to the conditions set forth
below in Section II.
Section II. General Conditions
(a) The Plan of Demutualization is implemented in accordance with
procedural and substantive safeguards that are imposed under the
insurance laws of Canada and the State of Michigan and is subject to
review and/or approval in Canada by the Office of the Superintendent of
Financial Institutions (OSFI) and the Minister of Finance (the Canadian
Finance Minister) and, in the State of Michigan, by the Commissioner of
Insurance (the Michigan Insurance Commissioner).
(b) OSFI, the Canadian Finance Minister and the Michigan Insurance
Commissioner review the terms of the options that are provided to
Eligible Policyholders of Manulife as part of their separate reviews of
the Plan of Demutualization. In this regard,
(1) OSFI (i) authorizes the release of the Plan of Demutualization
and all information to be sent to Eligible Policyholders; (ii) oversees
each step of the demutualization process; and (iii) makes a final
recommendation to the Canadian Finance Minister on the Plan of
Demutualization.
(2) The Canadian Finance Minister considers such factors as whether
(i) the Plan of Demutualization is fair and equitable to Eligible
Policyholders; (ii) the Plan of Demutualization is in the best
interests of the financial system in Canada; and (iii) sufficient steps
had been taken to inform Eligible Policyholders of the Plan of
Demutualization and of the special meeting on demutualization.
(3) The Michigan Insurance Commissioner makes a determination that
the Plan of Demutualization is (i) fair and equitable to all Eligible
Policyholders and (ii) consistent with the requirements of Michigan
law.
(4) Both the Canadian Finance Minister and the Michigan Insurance
Commissioner concur on the terms of the Plan of Demutualization.
(c) Each Eligible Policyholder has an opportunity to vote to
approve the Plan of Demutualization after full written disclosure is
given to the Eligible Policyholder by Manulife.
(d) One or more independent fiduciaries of a Plan that is an
Eligible Policyholder receives Holding Company Common Shares, cash or
policy credits pursuant to the terms of the Plan of Demutualization and
neither Manulife nor any of its affiliates exercises any discretion or
provides investment advice with respect to such acquisition.
(e) After each Eligible Policyholder entitled to receive stock is
allocated at least 184 Common Shares, additional consideration is
allocated to Eligible Policyholders who own participating policies
based on actuarial formulas that take into account each participating
policy's contribution to the surplus of Manulife which formulas have
been reviewed by the Canadian Finance Minister and the Michigan
Insurance Commissioner.
(f) All Eligible Policyholders that are Plans participate in the
transactions on the same basis within their class groupings as other
Eligible Policyholders that are not Plans.
(g) No Eligible Policyholder pays any brokerage commissions or fees
in connection with the receipt of Common Shares.
(h) All of Manulife's policyholder obligations remain in force and
are not affected by the Plan of Demutualization.
Section III. Definitions
For purposes of this proposed exemption:
(a) The term ``Manulife'' means ``The Manufacturers Life Insurance
Company'' and any affiliate of Manulife as defined in paragraph (b) of
this Section III.
(b) An ``affiliate'' of Manulife includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Manulife. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.)
(2) Any officer, director or partner in such person, and
(3) Any corporation or partnership of which such person is an
officer, director or a 5 percent partner or owner.
(c) The term ``Eligible Policyholder'' means a policyholder who is
eligible to vote at annual meetings of the mutual insurer and to
receive consideration under Manulife's Plan of Demutualization. More
specifically, an Eligible Policyholder is a policyholder of the mutual
insurer that had a voting policy before Manulife announced its
intention to demutualize or any policyholder that applied for a voting
policy prior to that day. Policyholders will also be deemed Eligible
Policyholders if they are holders of a
[[Page 39540]]
voting policy that lapsed before the insurer's announcement date but
was reinstated on or before 90 days prior to the special meeting to
consider demutualization. These policyholders will be eligible to
receive benefits upon demutualization.
(d) The term ``policy credit'' means whichever of the following is
applicable: (1) With respect to an individual life insurance policy, an
increase in the dividend accumulation amount; (2) with respect to an
individual deferred annuity policy where the owner has elected a
dividend accumulation option, an increase in the dividend accumulation
amount; (3) with respect to all other individual deferred annuity
policies, an increase in the dividend addition value; and (4) with
respect to a settlement annuity, an increase in the contract reserve
which shall provide for an increase in the monthly income payment equal
to the ratio of the reserve increase to the then current contract
reserve.
Summary of Facts and Representations
1. Manulife, which maintains its principal place of business at 200
Bloor Street East, Toronto, Ontario, Canada, is a mutual insurance
company originally incorporated on June 23, 1887 by a Special Act of
Parliament of the Dominion of Canada. Manulife currently has letters
patent (i.e., a corporate charter) issued under the Insurance Companies
Act of Canada (the ICA). Its port of entry into the United States is
the State of Michigan which is responsible for regulating its United
States operations.
Manulife provides a wide range of financial products and services,
including individual life insurance, group life and health insurance,
pensions, annuities and mutual funds to individuals and group
customers, including employers in Canada and other countries. Either
directly or through its subsidiaries, Manulife is authorized to conduct
business in 50 states of the United States as well as in the District
of Columbia. As of December 31, 1997, Manulife had total assets under
administration of Cdn$79.5 billion and it had more than Cdn$400 billion
of life insurance in force. In addition, during 1998, Manulife was
rated as follows by Duff & Phelps, A.M Best, Standard & Poor's and
Moody's:
----------------------------------------------------------------------------------------------------------------
Valuation
Rating agency date Rating
----------------------------------------------------------------------------------------------------------------
Duff & Phelps Claims Paying Ability........... 8/24/98 AAA (Highest).
A.M. Best Financial Strength.................. 1998 A++ (Superior).
Standard & Poor's Financial Strength.......... 11/4/98 AA+ (Very Strong).
Moody's Financial Strength.................... 3/98 Aa2 (Excellent).
----------------------------------------------------------------------------------------------------------------
As a mutual insurance company, Manulife has no shareholders.
Instead, its participating policyholders, which are members of the
company, are entitled to vote to elect all directors of Manulife. If
Manulife is liquidated, such policyholders would also be entitled to
share in the insurer's assets.
Manulife is the sole indirect shareholder of three United States-
domiciled stock insurance companies. The three companies are Manulife
Reinsurance Corporation (U.S.A.) (Reinsurance), a Michigan-domiciled
insurer incorporated in 1983; ManUSA, a Michigan-domiciled insurer
incorporated in 1955; and The Manufacturers Life Insurance Company of
America, a Michigan-domiciled insurer incorporated in 1977.
Additionally, Manulife indirectly owns approximately 85 percent of The
Manufacturers Life Insurance Company of North America, a Delaware-
domiciled insurer incorporated in 1979, which, in turn, owns The
Manufacturers Life Insurance Company of New York, a New York-domiciled
insurer incorporated in 1992.
Formerly, Manulife operated in the United States through a branch.
However, since 1997, its businesses in the United States have been
conducted through its subsidiaries. Prior to 1997, Manulife provided a
variety of insurance products to Plans covered under applicable
provisions of the Act and the Code.
2. ManUSA is a Michigan corporation which was incorporated in 1955
as a stock life insurance company. It is a wholly owned subsidiary of
Reinsurance and is located at 500 N. Woodward Ave., Bloomfield Hills,
Michigan. ManUSA is authorized to issue and reissue various forms of
life insurance, annuities and other insurance products to Plans and to
other policyholders. As of December 31, 1997, ManUSA had approximately
16,000 policies in force that were held on behalf of Plan policyholders
located in the United States.
3. Between December 31, 1993 and December 31, 1996, Manulife began
the process of transferring its operations from its U.S. branch to its
wholly owned U.S. subsidiaries. Thus, on December 31, 1993, under the
terms of an assumption reinsurance agreement, Manulife transferred to
ManUSA (a) certain nonparticipating life insurance policies and annuity
contracts written by Manulife in the United States through its U.S.
branch; and (b) investment assets with a value and tax basis equal to
or in excess of the tax reserves and other liabilities associated with
the transferred policies and contracts. At the time of the transfer,
Reinsurance was a wholly owned subsidiary of Manulife and ManUSA was a
wholly owned subsidiary of Reinsurance.
On December 31, 1996, under the terms of an assumption reinsurance
agreement, Manulife transferred to ManUSA (either directly or through
Reinsurance) (a) all of its life insurance policies, annuity contracts,
and other insurance contracts remaining in its U.S. branch (the U.S.
Policies), other than Manulife's obligations under certain reinsurance
contracts that it had previously written in its U.S. branch as the
assuming company; and (b) other assets and liabilities of its U.S.
branch (the 1996 Assumption Transaction). 10 The transferred
assets had a value and tax basis equal to or in excess of the tax
reserves and other liabilities assumed by ManUSA or associated with the
transferred U.S. policies and assets. The U.S. Policies were primarily
participating policies and included policies that qualified as tax-
sheltered annuities described in section 403(b) of the Code, policies
that qualified as individual retirement annuities within the meaning of
section 408(b) of the Code, and individual and group policies issued in
connection with Plans intending to qualify under section 401(a) or
403(a) of the Code (the Qualified Plan Contracts). Certain Qualified
Plan Contracts were held in trust or custodial accounts; others were
not.
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\10\ As an accommodation to Canadian tax law, a portion of the
assets were transferred from Manulife to Reinsurance and then from
Reinsurance to ManUSA. The remainder of the assets and all the
liabilities were transferred directly from Manulife to ManUSA.
---------------------------------------------------------------------------
[[Page 39541]]
At the time of the 1996 Assumption Transaction, it is represented
that Manulife assured the holders of the U.S. Policies that were
participating policies (the Transferred U.S. Policies) that they would
retain their membership interests in Manulife and would not be
disadvantaged in a future demutualization of Manulife as a result of
their policies being transferred to ManUSA. Therefore, in accordance
with the approval granted by the Canadian regulatory authorities,
Manulife agreed that holders of the Transferred U.S. Policies would
retain their ``equity'' rights or membership interests in Manulife. In
addition, the membership interests retained by the holders of the
Transferred U.S. Policies were nontransferable and could be
extinguished at the time any related insurance or annuity contract was
canceled, matured, lapsed without reinstatement, or ceased to be a
ManUSA participating policy.
Second, ManUSA agreed to pay cash dividends on the Transferred U.S.
Policies by adopting a dividend policy consistent with its dividend
policy for participating policies. In addition, ManUSA agreed that in
no event would it pay dividends on the Transferred U.S. Policies on a
less favorable basis than the basis on which it paid dividends on its
own participating policies (assuming that ManUSA maintained a single
participating fund for all participating policies).
Third, Manulife agreed to satisfy any claims on the U.S. Policies
in the event of ManUSA's insolvency.
4. On January 20, 1998, Manulife's Board of Directors authorized
management to develop a plan of demutualization whereby Manulife would
be converted, in accordance with the provisions of the ICA, from a
mutual life insurance company into an insurance company with common
shares. The principal purposes of the demutualization are to (a)
enhance Manulife's strategic and financial flexibility by creating a
corporate structure that will make it potentially possible for the
insurer to obtain additional capital sources that are unavailable to
Manulife as a mutual insurer; (b) enable Manulife to use stock options
or other equity-based compensation arrangements in order to attract and
retain talented employees; and (c) provide Eligible Policyholders with
marketable securities, cash or policy credits. Moreover, the ultimate
result of the transaction will be a structure in which all of
Manulife's shares will be held by a holding company, which has applied
to be organized as an insurance company under the ICA for this purpose.
Eligible Policyholders, which will generally include holders of the
Transferred U.S. Policies will receive Common Shares of the Holding
Company, a publicly-traded company whose Common Shares will be listed
on the Montreal, Toronto or New York Stock Exchanges, or, in certain
cases (for legal or tax reasons), cash or policy credits, in exchange
for (and in extinguishment of) their membership interests and rights in
the surplus of Manulife. The demutualization will not, in any way,
change premiums or reduce policy benefits, values, guarantees or other
policy obligations of Manulife to its policyholders.
5. Therefore, Manulife requests an administrative exemption from
the Department that would cover the receipt of Common Shares of the
Holding Company, cash or policy credits by Eligible Policyholders that
are Plans in exchange for their existing membership interests in
Manulife. Neither Manulife nor ManUSA is a ``party in interest,'' with
respect to any of its Plan policyholders merely because such entity has
issued an insurance policy to the Plan. As noted above, ManUSA does
(and, prior to 1997, Manulife did), however, provide certain services
to Plan policyholders which would cause ManUSA and Manulife to be
considered parties in interest with respect to such Plans under section
3(14)(A) and (B) of the Act.11
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\11\ Manulife notes that even though the Holding Company may not
be subject to the provisions of the Act, there is no clear provision
that would except a non-U.S. person from the general definition of
the term ``party in interest'' with respect to a plan under section
3(14) of the Act. Thus, to remove any uncertainty that Manulife's
proposed demutualization will not constitute a prohibited
transaction, Manulife has requested an administrative exemption.
---------------------------------------------------------------------------
Manulife is not requesting that the exemption apply to
distributions of Common Shares to the Manulife Plans because it
believes the Common Shares received by such Plans would constitute
qualifying employer securities within the meaning of section 407(d)(5)
of the Act and that section 408(e) of the Act would apply to such
distributions.12
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\12\ The Department expresses no opinion herein on whether the
Holding Company Common Shares will constitute qualifying employer
securities and whether such distributions will satisfy the terms and
conditions of section 408(e) of the Act.
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The proposed exemption includes a requirement that distributions to
Plans pursuant to the exemption must be on terms no less favorable to
the Plans than in an arm's length transaction between unrelated parties
would be. In this regard, Plans for which Manulife and/or ManUSA are
parties in interest will not by reason of that relationship be treated
any differently from other Eligible Policyholders that are not Plans.
6. On May 19, 1999, Manulife's Board of Directors formally adopted
the Plan of Demutualization. On the effective date of the
demutualization, which is scheduled to occur during September 1999,
several steps will be deemed to occur simultaneously. In this regard,
Manulife will issue shares (Manulife Shares) to the Holding Company.
Then, all of the Holding Company's Common Shares held by Manulife
immediately prior to the effective date will be canceled. Finally, the
Holding Company will issue its Common Shares in book-entry form to
Eligible Policyholders who are entitled to receive Common Shares under
the Plan of Demutualization.
7. An initial public offering (the IPO) in which the Holding
Company's Common Shares will be sold for cash is expected to close 5
business days after the effective date of the demutualization. The
Holding Company intends to contribute a portion of the proceeds of the
IPO to Manulife in an amount at least equal to the amount required to
fund the mandatory cash payments and the mandatory crediting of policy
credits to Eligible Policyholders who are to receive such
consideration. As soon as reasonably practicable after the effective
date of the IPO, the Holding Company will pay, or cause Manulife to
pay, cash to Eligible Policyholders required under the Plan of
Demutualization to receive such consideration, and will transfer cash
to ManUSA to fund all policy credits due under the Plan of
Demutualization.
A portion of the proceeds from the IPO will also help to satisfy,
to the extent possible, elections by Canadian resident policyholders to
receive cash instead of Common Shares. If the proceeds from the IPO are
sufficient to satisfy cash elections in full, Canadian resident
policyholders will receive the full amount of their cash election as
promptly as possible after the closing of the IPO. If the proceeds from
the IPO are not sufficient to satisfy cash elections in full, Canadian
resident policyholders will receive Common Shares in book-entry form as
part of their compensation.
To avoid the potentiality of a double-tax that might otherwise be
imposed on non-Canadian policyholders who express a desire to receive
cash through a cash election, the Common Shares for which such cash
elections are made by non-Canadian policyholders will be sold in a
secondary offering by the Holding Company's underwriters as part of (or
simultaneously with) the IPO and subject to the approval of the Board
of Directors of the Holding Company.
[[Page 39542]]
Assuming the IPO generates sufficient cash to fund all cash elections,
an amount equal to the IPO price per share will be remitted to all
policyholders making such elections.13
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\13\ In this regard, Manulife has agreed that it or the Holding
Company will pay the underwriters' discount on the sale of such
shares. Because the payment of the underwriters' discount is treated
as dividend in Canada, a withholding tax of 15 percent of the amount
of the dividend will be imposed on Manulife and not on the Plans. It
is represented that Manulife will not seek reimbursement from any
Plan policyholder under such circumstances.
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8. Section 237 of the ICA and the regulations promulgated
thereunder (the Demutualization Law) establish an approval process for
the demutualization of a life insurance company organized under
Canadian law. The Demutualization Law prescribes the contents of the
Plan of Demutualization and also prescribes the information that must
be sent to Eligible Policyholders with the notice of the special
meeting which must be convened to vote on the Plan of Demutualization.
The information will be contained in an information circular which,
together with the notice of special meeting and the Plan of
Demutualization, must be sent to Eligible Policyholders at least 45
days prior to the special meeting. Manulife must first submit these
materials to OSFI, a Canadian agency established to supervise Canadian
financial institutions in order to determine whether they are in sound
financial condition and are complying with their governing statutory
law and supervisory requirements under that law. OSFI will oversee each
step of the demutualization process. Manulife must obtain the
authorization from OSFI's Superintendent to deliver the materials to
Eligible Policyholders.14 Before granting such
authorization, OSFI may require that the notice or the information
circular contain such additional information as it may determine.
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\14\ The Superintendent determined on May 21, 1999 that the
documentation submitted by Manulife's Board of Directors was
appropriate for mailing to Eligible Policyholders.
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The Plan of Demutualization must be approved by two-thirds of the
Eligible Policyholders voting in person or by proxy at the special
meeting. Within 3 months of the approval of the Plan of Demutualization
by Eligible Policyholders, Manulife must apply to the Canadian Finance
Minister for approval of the Plan of Demutualization and for the
issuance of the Letters Patent of Conversion.15 In deciding
whether to approve the Plan of Demutualization, the Canadian Finance
Minister may consider such factors as (a) whether the proposal is fair
and equitable to policyholders; (b) whether the proposal is in the best
interests of the financial system in Canada; and (c) whether sufficient
steps had been undertaken to inform policyholders of the Plan of
Demutualization and of the special meeting on
demutualization.16 The demutualization will be effective
upon the issuance of the Letters Patent of Conversion by the Canadian
Finance Minister.
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\15\ The Letters Patent of Conversion give legal effect to the
Plan of Demutualization and convert a mutual company into a company
with common shares.
\16\ The policyholder notice was mailed on or before May 31,
1999. It is anticipated that the policyholder meeting will take
place in Toronto on or about July 29, 1999. It is also expected that
the approval of the Demutualization Plan by the Canadian Finance
Minister will be obtained in late September 1999.
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9. The Plan of Demutualization must also be approved by the
Michigan Insurance Commissioner.17 To approve the Plan of
Demutualization, the Michigan Insurance Commissioner must determine
after a public hearing that the Plan of Demutualization does not
prejudice the interests of Eligible Policyholders, and is consistent
with the requirements of Michigan law. Manulife's directors, officers,
employees and policyholders have the right to appear and to be heard at
the public hearing.18
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\17\ Manulife does not believe that the demutualization can
proceed unless both the Michigan Insurance Commissioner and the
Canadian Finance Minister both approve the Demutualization Plan.
Therefore, the insurer is having simultaneous discussions with both
regulatory authorities and has been consulting with both regulators
on requested changes. The Michigan Insurance Commissioner's
statutory authority is limited to the approval or disapproval of the
Plan of Demutualization presented by Manulife and is precluded from
passing on the findings of the Canadian regulators.
\18\ It is anticipated that the Michigan Insurance
Commissioner's hearing will be conducted in Lansing, Michigan during
the month of July 1999. The hearing will be open to anyone who
wishes to participate, including Eligible Policyholders, regardless
of domicile.
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The Michigan Insurance Commissioner is required to give public
notice of the hearing not less than 10 days before the hearing. The
notice identifies the statutory authority under which the determination
is made, the time and place of the hearing, a statement of the manner
in which data, views and arguments may be submitted to the Michigan
Insurance Commissioner at time other than at the hearing, and a
description of the subjects and issues involved.
Any person who makes a written request to the Michigan Insurance
Commissioner for advanced notice of the proposed action that may affect
that person will receive copies of the notice. The notice also will be
published as a display advertisement in newspapers of general
circulation within Michigan.
The Michigan Insurance Commissioner may elect to conduct the
hearing in person or may designate this assignment to another person.
During the hearing, persons may give oral presentations to the hearing
officer. At the conclusion of the hearing, a report on the hearing will
be prepared for the Michigan Insurance Commissioner's use in reaching
the determinations required by law.
Under Section 5925 of the Michigan Insurance Code, any action
challenging the validity of the Michigan Insurance Commissioner's
decision approving or disapproving the Plan of Demutualization must be
commenced within 30 days after the Commissioner's decision.
10. Manulife's Plan of Demutualization provides for Eligible
Policyholders to receive Common Shares, cash or policy credits in
exchange for, and in extinguishment of, their membership
interests.19 For this
[[Page 39543]]
purpose, an Eligible Policyholder generally is any owner of one or more
voting policies in force (including the Transferred U.S. Policies
assumed by ManUSA) on January 20, 1998 (or in lapse status on that date
and reinstated at least 90 days prior to the special meeting of the
policyholders to vote on the Plan of Demutualization). It is
anticipated that 675,000 Eligible Policyholders will be entitled to
vote on the Plan of Demutualization following the receipt of full and
complete written disclosure of such Plan. Of these Eligible
Policyholders, approximately 2,100 are Plan policyholders. Each
Eligible Policyholder will be entitled to one vote regardless of the
number of policies held with Manulife and/or its affiliates.
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\19\ Consistent with sections 1 and 4(1)(e)(i) of the Mutual
Company (Life Insurance) Conversion Regulations (Canada), the Plan
of Demutualization generally provides that the policyholder eligible
to participate in the distribution of Common Shares, cash or policy
credits resulting from the Plan of Demutualization is the ``owner''
of the policy, and that the ``owner'' of any policy shall generally
be determined on the basis of the records of Manulife. Manulife
further represents that an insurance or annuity policy that provides
benefits under an employee benefit plan, typically designates the
employer that sponsors the plan, or a trustee acting on behalf of
the plan, as the owner of the policy. In regard to insurance or
annuity policies that designate the employer or trustee as owner of
the policy, Manulife represents that it is required under the
foregoing provisions of Canadian Law and the Demutualization Plan to
make distributions resulting from such Plan to the employer or
trustee as owner of the policy, except as provided below.
Notwithstanding the foregoing, Manulife's Plan of
Demutualization provides a special rule applicable to an insurance
policy issued to a trust established by Manulife. This rule applies
whether or not the trust, or any arrangement established by any
employer participating in the trust, constitutes an employee benefit
plan subject to the Act. Under this special rule, the holder of each
individual ``certificate'' issued in connection with the insurance
policy is treated as the policyholder and owner for all purposes
under the Plan of Demutualization, including voting rights and the
distribution of consideration. The trustee of any such trust
established by Manulife for the benefit of Eligible Policyholders
that are Plans will be considered a policyholder or owner and will
be eligible to vote or receive consideration.
In general, it is the Department's view that, if an insurance
policy (including an annuity contract) is purchased with assets of
an employee benefit plan, including participant contributions, and
if there exist any participants covered under the plan (as defined
at 29 CFR 2510.3-3) at the time when Manulife incurs the obligation
to distribute Common Shares, cash or policy credits, then such
consideration would constitute an asset of such plan. Under these
circumstances, the appropriate plan fiduciaries must take all
necessary steps to safeguard the assets of the plan in order to
avoid engaging in a violation of the fiduciary responsibility
provisions of the Act.
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To determine the amount of consideration to which each Eligible
Policyholder is entitled, each Eligible Policyholder will be allocated
(but not necessarily issued) a number of Common Shares equal to the sum
of (a) a fixed component consisting of 184 Common Shares; 20
and (b) an additional number of Common Shares based on actuarial
formulas that take into account each participating policy's death
benefit, account value and time-in-force. For those Eligible
Policyholders who receive cash or policy credits due to legal or tax
reasons, the amount of cash or policy credits will be determined by
reference to the price per share at which the Common Shares are offered
to the public in the IPO.
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\20\ Approximately 125 million Common Shares, representing 25
percent of the aggregate demutualization benefit, are expected to be
allocated to Eligible Policyholders as the fixed allocation. On this
basis, each Eligible Policyholder will be allocated a fixed
component of 184 Common Shares.
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Although an Eligible Policyholder may receive Common Shares as a
result of Manulife's demutualization, another Eligible Policyholder (a)
whose jurisdiction of residence on the records of Manulife as of a
specified date is other than Canada, the United States, Hong Kong or
the Philippines; or (b) which is a government or government agency; or
(c) who holds a Canadian Pension Policy, will receive cash in lieu of
Common Shares in an amount equal to the number of shares such
policyholder would otherwise have received multiplied by the price at
which the Common Shares are offered to the public in the IPO.
In addition, an Eligible Policyholder who is entitled to receive
Common Shares will be permitted to make a cash election in accordance
with the terms of the Plan of Demutualization and will receive the
value of his or her Common Shares in cash in accordance with the same
formula. The cash election may be reduced if the Board of Directors of
the Holding Company determines that such a reduction is in Manulife's
best interests. In the event that the IPO fails to close, the Eligible
Policyholder will receive the number of Common Shares he or she was
originally allocated.
Other Eligible Policyholders, namely owners of individual
retirement annuities, tax sheltered annuities, certain other policies
issued directly to plan participants in qualified pension or profit
sharing plans, or group policies issued in connection with plans
intending to qualify under section 403(a) of the Code that are not held
in trust, will receive policy credits equal in value to the shares
allocated to such Eligible Policyholders.
In no event will Manulife nor ManUSA exercise any discretion with
respect to voting on the Plan of Demutualization or with respect to any
election made by any Eligible Policyholder which is a Plan, nor will
Manulife and ManUSA provide ``investment advice'' as that term is
defined in 29 CFR 2510.3-2(c) with respect to any election made by such
Plan policyholder. In addition, no Plan will be required to pay any
fees or commissions in connection with the receipt of Common Shares.
As stated above, under both Canadian and Michigan law, a plan of
conversion must specify the consideration given to policyholders and it
must be approved by the Canadian Finance Minister and the Michigan
Insurance Commissioner. The Michigan Insurance Commissioner must find
that the plan is fair and equitable to the U.S. policyholders.
Moreover, the Canadian Finance Minister and the Michigan Insurance
Commissioner must approve all forms of consideration.
11. It is anticipated that Manulife will establish a Share Sales
Program to provide a convenient way for those Eligible Policyholders
who choose to sell their Common Shares subsequent to the
demutualization without having to establish an independent relationship
with an investment dealer, stock broker or other qualified
professional. The Share Sales Program will involve Common Shares being
sold through one or more of the stock exchanges on which the Common
Shares are listed for market prices that prevail at the time of the
sale. Although Manulife will not subsidize the costs of the Common
Shares, it is expected that participants in the Share Sales Program
will benefit from the bulk commission rates which Manulife has
negotiated with the participating brokers.
12. In the event the exemption has not been granted before the
effective date of the demutualization, Manulife may delay payment of
the consideration to Eligible Policyholders that are Plans and place
such consideration in an escrow or similar arrangement subject to terms
and conditions approved by the Superintendent of OSFI. Any such escrow
or arrangement will provide for the payment to Eligible Policyholders
of the consideration not later than the third anniversary date of the
demutualization. All costs and expenses associated with the escrow
arrangement will be borne by Manulife.
13. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The Plan of Demutualization, which is being implemented
pursuant to stringent procedural and substantive safeguards imposed
under Canadian and Michigan law, will not require any ongoing
supervision by the Department.
(b) One or more independent Plan fiduciaries will have an
opportunity to determine whether to vote to approve the Plan of
Demutualization and will be responsible for all such decisions.
(c) The proposed exemption will allow Eligible Policyholders that
are Plans to acquire Common Shares, cash or policy credits in exchange
for, and in extinguishment of, their membership interests in Manulife
and neither Manulife nor its affiliates will be paid any brokerage
commissions or fees in connection with the receipt of Common Shares.
(d) Neither Manulife nor ManUSA will exercise any discretion with
respect to voting on the Plan of Demutualization or with respect to any
election to be made by any Eligible Policyholder which is a Plan, nor
will they provide ``investment advice'' as that term is defined in 29
CFR 2510.3-2(c) with respect to any election made by such Plan
policyholder.
(e) The Plan of Demutualization will not change premiums or reduce
policy benefits, values, guarantees or other policy obligations of
Manulife to its policyholders and contractholders.
Notice to Interested Persons
Manulife will provide a copy of the proposed exemption to Eligible
Policyholders that are Plans, within 14 days following the publication
of the notice of pendency in the Federal Register. Such notice will be
provided to interested persons by first class mail and will include a
copy of the notice of
[[Page 39544]]
proposed exemption as published in the Federal Register as well as a
supplemental statement, as required pursuant to 20 CFR 2570.43(b)(2),
which shall inform interested persons of their right to comment on the
proposed exemption. Comments with respect to the notice of proposed
exemption are due within 44 days of the publication of this pendency
notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete and 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 16th day of July, 1999.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 99-18616 Filed 7-21-99; 8:45 am]
BILLING CODE 4510-29-P
