[Federal Register Volume 61, Number 174 (Friday, September 6, 1996)]
[Notices]
[Pages 47205-47214]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-22716]
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DEPARTMENT OF LABOR
[Application No. D-10011]
Notice of Proposed Individual Exemption to Make Permanent as
Modified Prohibited Transaction Exemption (PTE) 91-8 Involving
Equitable Life Assurance Society of the United States and Its
Affiliates (Equitable) and Its Wholly-Owned Subsidiary, Equitable Real
Estate Management, Inc. (ERE), Located in New York, New York
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Notice of proposed individual exemption to make permanent as
modified PTE 91-8, which involves Equitable and ERE.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor of a proposed individual exemption to make
permanent as modified the temporary relief provided by PTE 91-8 (56 FR
1411/1419, January 14, 1991). PTE 91-8 is a temporary exemption which
expired January 13, 1996. This proposed exemption, if granted, will
make permanent as modified PTE 91-8 and will provide relief for the
provision of property management and/or leasing services by ERE 1,
Equitable's wholly-owned subsidiary to an Account (as defined in
Section IV below), provided that the conditions set forth in Section II
are met.
\1\ In this regard, ERE represents that during the course of PTE
91-8 ERE changed its acronym from EREIM. This was solely a matter of
preference and does not reflect a change in ownership or management
of ERE. The description of Equitable Real Estate Investment
Management, Inc., as set forth in the original notice of proposed
exemption published on February 28, 1990 at 55 FR 7057/7069 and in
the exemption application for permanent exemption and modification
of PTE 91-8, dated April 24, 1995, continues to accurately reflect
the ownership and management of ERE.
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EFFECTIVE DATE: The Department has determined to extend the temporary
exemptive relief provided under PTE 91-8 effective January 13, 1996,
until the date the final grant for this proposed exemption is published
in the Federal Register.
Also, if granted, this proposed exemption to make permanent PTE 91-
8 will be effective on the date the final grant is published in the
Federal Register. However, the modification in the annual reporting
requirement whereby Equitable will furnish the annual report to each
authorizing plan fiduciary and the Independent Fiduciary no later than
90 days following the end of the period to which the annual report
relates, as set forth in Section II(4)(a) in this proposed exemption,
will be effective, as of January 13, 1996.
DATES: Written comments and requests for a public hearing must be
received by the Department of Labor by no later than October 21, 1996.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Office of Exemption Determinations,
Pension and Welfare Benefits Administration, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210,
Attention: Application No. D-10011. The application for exemption
[[Page 47206]]
and the comments received will be available for public inspection in
the Public Disclosure Room of Pension and Welfare Benefits
Administration, U.S. Department of Labor, Room N-5638, 200 Constitution
Avenue NW., Washington DC 20210.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of
Exemption Determinations, U.S. Department of Labor, telephone (202)
219-8883. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption to make permanent as
modified PTE 91-8. PTE 91-8 provides an exemption from the restrictions
of section 406(a), 406(b)(1) and 406(b)(2) of the Employee Retirement
Income Security Act of 1974 (the Act) and from the sanctions resulting
from the application of section 4975 of the Internal Revenue Code of
1986 (the Code), by reason of section 4975(c)(1) (A) through (E) of the
Code.
The notice of proposed exemption to make permanent PTE 91-8 was
requested in an exemption application by Equitable and ERE pursuant to
section 408(a) of the Act and section 4975(c)(2) of the Code, and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, August 10, 1990). Effective December 31, 1978, section
102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17,
1978) transferred the authority of the Secretary of the Treasury to
issue exemptions of the type requested to the Secretary of Labor.
Accordingly, the proposed exemption to make permanent PTE 91-8 is being
issued solely by the Department.
PTE 91-8
PTE 91-8 is a temporary individual exemption which expired on
January 13, 1996. A summary of the facts and representations pertaining
to PTE 91-8 was contained in a notice of pendency of proposed exemption
that was published in the Federal Register on February 28, 1990 at 55
FR 7057/7069. The grant of PTE 91-8 was published in the Federal
Register on January 14, 1991 at 56 FR 1411/1419. PTE 91-8 permits the
provision of certain real estate property management and, in some
instances, leasing services by EREIM, an indirect wholly owned
subsidiary of Equitable and the predecessor of ERE, affiliates of EREIM
and Tishman Speyer Properties (TSP), a partnership in which Equitable
has a 50 percent ownership interest, to various real estate separate
accounts (the Accounts) in which employee benefit plans participate.
The Accounts are managed by Equitable, EREIM or subsidiaries thereof.
PTE 91-8 also permits the provision, by the law department of Equitable
(the Law Department), of certain legal services to the Accounts
required in connection with individual properties held by the Accounts.
Equitable is a mutual life insurance company organized under the
laws of the State of New York. Among the variety of products and
services, Equitable offers asset management and other services to
numerous employee benefit plans, including investments in the Accounts.
The Accounts hold investments in income-producing real estate such as
office buildings, hotels, shopping centers and industrial and
commercial properties. As the investment manager with respect to the
Accounts, Equitable has investment discretion to acquire and dispose of
properties on behalf of the Accounts, and the responsibility to manage
Account properties. Equitable represented that its direct or indirect
subsidiaries may act as the investment manager with respect to existing
or new Accounts.
Furthermore, Equitable represented that the provision of property
management and leasing services to the Accounts by ERE and certain of
its other affiliates is of central importance in maximizing returns
available to its investors, including employee benefit plans. In this
regard, large real estate investment managers typically manage
properties themselves or through property management firms they have
acquired. This strategy enables them to use unified leasing strategy
and other efficient management strategies, and is a superior
alternative to retaining independent managers for property management.
Equitable stated that often the best arrangements for the provision of
property services to the Accounts, and the highest quality of services
can be provided through the use of its in-house personnel or through
firms in which Equitable has an interest. Such firms possess special
expertise in the type of properties held by the Accounts and knowledge
of the Accounts and their properties.
The services provided to the Accounts by ERE and certain other
affiliates of Equitable included day to day property management and
leasing responsibilities associated with the operation of income-
producing properties. Specifically, these responsibilities included:
(a) using best efforts to lease the property to desirable tenants and
negotiating the terms and renewals of such leases; (b) receiving and
collecting rents; (c) arranging for all necessary repairs and
replacement and installation of equipment; (d) handling tenant
complaints; (e) preparing and submitting to the owner proposed
operating and capital budgets; and (f) performing marketing and
promotional supervisory services.
To ensure that the transactions in PTE 91-8 operated in the
interests of the Accounts and the participating plans therein, the
exemption contained certain specified safeguards. These safeguards
included: (1) the requirement that the arrangement under which the
transactions were performed be subject to the prior authorization of an
independent plan fiduciary for each plan invested in an Account; \2\
(2) the requirement that not less than 45 days prior to the
implementation of either the policy for property management and leasing
services or the policy for legal services, Equitable or EREIM, as
investment manager, furnish the authorizing plan fiduciary with
reasonably available information; (3) a mechanism enabling the plans to
terminate their investment in the Account; (4) an annual reporting
requirement whereby Equitable furnished the annual report to each
authorizing plan fiduciary and the Independent Fiduciary no later than
45 days following the end of the period to which the annual report
related; (5) confirmation by the plans of the multiple services
arrangement; (6) approval by the Independent Fiduciary of each
transaction under the exemption, and a mechanism for the Independent
Fiduciary's negotiation and approval of contracts for the provision of
services by EREIM, TSP or the Law Department to the Accounts; (7) the
requirement that the terms of a service provision arrangement must be
reviewed by the Independent Fiduciary prior to implementation; (8) the
requirement that Equitable and EREIM had to furnish certain information
regarding transactions to the Independent Fiduciary for its periodic
review of performance of EREIM, TSP, or the Law Department under the
contracts; (9) a plan investor sophistication requirement; (10)
percentage limitations on plan investment in the Accounts, including
Equitable's in-house plans; (11) the requirement that the terms of the
transactions must be as favorable to the Accounts as arm's length
terms; and, (12) that the compensation paid to
[[Page 47207]]
EREIM, TSP or the Law Department shall not exceed reasonable
compensation within the meaning of section 408(b)(2) of the Act and the
regulations thereunder. In addition to these conditions, PTE 91-8 and
the notice relating to PTE 91-8 contained other protective conditions
that had to be met by Equitable and its affiliates with respect to the
Accounts and the transactions which were the subject of PTE 91-8. Also,
representations contained in Paragraph IV of the notice of proposed
exemption relating to PTE 91-8 placed certain limitations on the fees
that EREIM or TSP were permitted to receive for property management and
leasing services rendered to the Accounts pursuant to PTE 91-8.
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\2\ In this regard, under this proposed exemption to make
permanent as modified PTE 91-8, Equitable represents that for plans
which have previously authorized their participation in the Accounts
under PTE 91-8, no reauthorization will be required.
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Procedure for Requesting Permanent Relief for Transactions in PTE
91-8
This proposed exemption was requested by Equitable and ERE pursuant
to Paragraphs IX and X of the notice of proposed exemption relating to
PTE 91-8. As mentioned, PTE 91-8 is a temporary exemption which expired
on January 13, 1996. Pursuant to Paragraphs IX and X, prior to the
expiration of PTE 91-8, Equitable and ERE could apply for a permanent
exemption provided that, among other things, the application for a
permanent exemption describes whether and how compliance with PTE 91-8
has been achieved. In particular, the application for a permanent
exemption should describe:
(a) the number of transactions engaged in under PTE 91-8;
(b) the decisions made by the independent fiduciaries for various
services; and
(c) the fees that have been paid to the Law Department, EREIM or
TSP for the property services and legal services that have been
rendered under PTE 91-8.
Further, pursuant to Paragraphs IX and X of the notice of proposed
exemption relating to PTE 91-8, the application for a permanent
exemption should include a report from the Independent Fiduciary
expressing such fiduciary views and rationales with respect to the
extension of PTE 91-8 and whether the Independent Fiduciary believes
that cost savings have been achieved for the Accounts. In paragraph X
of the notice of proposed exemption relating to PTE 91-8, Equitable
identified certain standards which may be applied by the Department in
reviewing the fees charged by Equitable to determine whether cost
savings have been achieved, and whether making PTE 91-8 permanent would
be appropriate. Among other things, Equitable represented in Paragraph
X, that property management and leasing fees charged by unaffiliated
property management firms generally range from 4 to 5 percent of gross
receipts (depending upon such factors as property type, geographic
location and project complexity) and average approximately 4.5 percent
of gross receipts. Therefore, Equitable proposed in Paragraph X, that
the standard of review adopted by the Department in evaluating the
operation of property related services, should require Equitable to
demonstrate that the aggregate annual property management and leasing
fees charged to each Account (including the allocable cost of the
services of the independent fiduciary under the exemption) were less
than 4.5 percent of the gross receipts earned by the Account during
each year that ERE or TSP has provided property management and leasing
services pursuant to the exemption.
Cost Savings Report of the Independent Fiduciary
Jackson Cross Company (Jackson Cross), as the independent fiduciary
(the Independent Fiduciary) for property management and leasing
services under PTE 91-8, prepared a report regarding cost savings
achieved by the Accounts (the Report). In the Report, Charles F.
Seymor, CRE, MAI, and chairman of Jackson Cross, made the following
representations. Mr. Seymor stated that the provision by Compass
Management and Leasing and Compass Retail (collectively, Compass), two
wholly-owned subsidiaries of ERE 3, of property management and
leasing services to the Accounts resulted in substantial savings to the
Accounts. Mr. Seymor represented that in negotiating the final terms of
the management or management and leasing contracts for each of the
Accounts' properties, Jackson Cross reviewed market fee ranges in each
market area and also the fees paid to the previous managers. In this
regard, Jackson Cross required that a measurable economic benefit be
evident before they approved a transaction and also quantified that
benefit in their separate initial reports on each approved property. In
the annual reports to ERE for the year 1994, Jackson Cross applied
management fees and leasing fees 4 to actual 1994 gross
collections and to the leases negotiated for the Accounts, and compared
the results to what would have been charged if these fees were at the
low end of the market range or the contractual fee for the previous
managers.5 In 1994, Jackson Cross visited over 40% of the
Accounts' properties. Jackson Cross estimated that in 1994 alone, a
savings of $1,650,000 was obtained to the benefit of the Accounts.
Furthermore, 95 transactions were completed through December 31, 1994,
and on an annual basis, the fees earned by Compass were less than 4.5
percent of the gross receipts earned by the properties in each Account
managed by Compass. Accordingly, Jackson Cross concluded that the
property management and leasing services rendered by Compass to the
Accounts resulted in substantial savings for their benefit. In
preparing the annual reports, Jackson Cross also reviewed several
additional measures of quality management and leasing services to
ensure that the services provided to the Accounts are the best
available as compared to the services provided by other first rate
property managers in the locality of a property. In this regard,
Jackson Cross considered the following criteria: how each property
performed against budget; how the value of each property has been
affected during the year; whether the management and leasing
professionals engaged in continuing education and training during the
year, and what professional designations they have achieved; and
whether these professionals have adopted an appropriate long-range view
as stewards of these properties, with a goal of maximizing the
Accounts' investments.
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\3\ The applicant represents that these two subsidiaries of ERE,
which were formerly separate divisions of ERE are subject to the
management and control of ERE, and their status as separate
corporate entities rather than divisions of ERE was implemented
solely for organizational reasons. ERE may in the future recognize
one or both of the Compass entities as divisions within ERE.
\4\ It is represented that most management fees and leasing
commissions are typically calculated as a percentage of gross
receipts during a given year and a percentage of new lease
transactions, respectively.
\5\ In this regard, Jackson Cross compared fee schedules charged
by Compass to the fee schedules charged by previous unaffiliated
property managers during the year preceding ERE's performance of
such services under the exemption. Furthermore, Jackson Cross as the
Independent Fiduciary is obligated to monitor property management
fees currently charged by the unaffiliated managers and to assure
that the fees charged by Equitable or ERE do not exceed these fees.
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Permanent Exemption for Transactions Under PTE 91-8
Equitable and ERE request that the exemptive relief for
transactions which were the subject of PTE 91-8 be made permanent
because as explained in the Jackson Cross report above, PTE 91-8
benefitted the employee benefit plans that participate in the Accounts.
Furthermore, Equitable and ERE
[[Page 47208]]
propose the following procedures to assure continued cost savings to
the Accounts under a permanent exemption (the Cost Saving Procedures).
The Cost Saving Procedures will be carried out as follows:
(a) After the fifth anniversary of the grant of this exemption, and
after the beginning of each subsequent five-year period, ERE will
prepare a survey of property management and leasing fees for the
properties that have similar geographic location and property types to
those held by the Accounts. The survey will include data regarding the
fees that have been charged to the Accounts by several property
management firms that are unaffiliated with Equitable or ERE for
services that are contemplated by the exemption during the one year
period prior to the beginning of the new five-year period. Also, the
survey will include data as to the fees paid by Equitable or ERE for
such services performed for the properties not held by the Accounts
during the same period and other market data regarding the cost of
property management and leasing services by geographic location and
property types.
(b) The Independent Fiduciary will review ERE's internal survey
referred to in (a) above, and will verify the accuracy of the data by
independently reviewing a sampling of the properties to which such fees
apply. Based upon its review of the survey and its own professional
resources and expertise, the Independent Fiduciary will determine a
typical range of annual fees for property management and leasing
services for the Accounts. The average of the range, as determined from
such survey, will serve as the basis of comparison for determining for
the next five-year period whether continuation of the property
management and leasing services policy (the Property Services Policy)
has provided a cost savings to the Accounts.
(c) Equitable and ERE will demonstrate to the Independent Fiduciary
at the end of the applicable five-year period that the aggregate
property management and leasing fees charged to each Account pursuant
to the Property Services Policy plus the cost of the services of the
Independent Fiduciary under the exemption that are allocated to the
Accounts, are less than the fees that would have been charged using the
benchmark rate established at the beginning of the five year period.
(d) The Independent Fiduciary will review the data supplied by ERE
and, to the extent considered necessary by the Independent Fiduciary,
data collected from the Independent Fiduciary's own surveys, and will
document its findings and analysis of such cost savings in a report to
be delivered to each of the plans participating in the Accounts within
90 days after the end of the five-year period and each subsequent five-
year period and prior to the implementation of the annual confirmation
procedure described in paragraph (5) of Section II with respect to such
period. In the event the Independent Fiduciary finds that cost savings
have not been achieved for the Accounts, it will not approve any
additional services arrangements pursuant to the Property Services
Policy until Equitable and ERE have demonstrated to the satisfaction of
the Independent Fiduciary that policies intended to assure cost savings
to the Accounts have been implemented by Equitable and ERE. The survey,
the Independent Fiduciary's report reviewing the survey, and the final
report of the Independent Fiduciary analyzing whether cost savings had
been achieved during the five-year period to which the survey relates,
will be maintained by Equitable or ERE in accordance with the
recordkeeping requirements of Section III of this exemption.
Accordingly, the Department proposes to modify PTE 91-8 by adopting
the language of the Cost Saving Procedures as stated in (a)-(d) above
into a new paragraph (12) in Section II of this proposed exemption.
Requested Modifications and Changes in Circumstances to PTE 91-8.
A. Tishman Speyer Properties
Equitable represents that Tishman Speyer Properties (TSP), an
affiliate of Equitable at the time PTE 91-8 was issued, is no longer
affiliated with Equitable and, thus, requests that this exemption, if
granted, be inapplicable to TSP. The Department proposes to modify PTE
91-8 by eliminating any references to TSP in this proposed exemption.
B. Legal Services
Equitable represents that the exemption under PTE 91-8 for the
provision of legal services to the Accounts by Equitable in-house Law
Department was never implemented. Accordingly, Equitable requests that
this exemption eliminate reference to the relief for the provision of
such legal services by the Law Department to the Accounts. The
Department proposes to modify PTE 91-8 by eliminating relief for the
provision of legal services by the Law Department to the Accounts.
C. Modification of Acronym for EREIM
Equitable requests that for purposes of this proposed exemption, if
granted, EREIM should be referred to as ERE. Equitable represents that
the change in acronym from EREIM to ERE is a matter of preference and
does not reflect a change in ownership or management of EREIM. The
description of EREIM, as set forth in the original notice of proposed
exemption and in this exemption application, continues to accurately
reflect the ownership and management of EREIM. Accordingly, the
Department proposes to modify PTE 91-8 by substituting the acronym
``ERE'' for the acronym ``EREIM'' in this proposed exemption.
D. Annual Reconfirmation Requirement
Section II(4) of PTE 91-8 provides that the continued retention of
the Independent Fiduciary with respect to the property management and
leasing services arrangement for an Account is subject to the annual
reconfirmation by the holders of a majority of the units of beneficial
interests in that Account.6 An annual report regarding the
Account, which is furnished by Equitable and ERE to the authorizing
plan fiduciaries and the Independent Fiduciary (the Annual Report),
contains a ballot for the annual reconfirmation of the Independent
Fiduciary, which is to be returned to Equitable.
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\6\ The Independent Fiduciary may also be removed with or
without cause by the vote of the holders of a majority of the units
of beneficial interests in an Account voting in favor of such
removal.
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Equitable and ERE represent that while the plans that participate
in the Accounts support the continued service of the Independent
Fiduciary,7 it is often difficult to implement the Independent
Fiduciary reconfirmation requirement. In many cases, these ballots are
not returned by the plans for several months and then only after
repeated reminders. A plan's failure to respond to the reconfirmation
request by returning the ballot in a timely fashion creates uncertainty
as to whether the exemption will continue to be available for ERE and
its affiliates to continue providing property management and leasing
services to the Accounts.
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\7\ In this respect, Equitable notes that at least 99 percent of
the contractholders that have voted in the context of an annual
reconfirmation of the Independent Fiduciary have voted in favor of
such reconfirmation.
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Equitable requests that the procedure for annual client
reconfirmation of the Independent Fiduciary be modified to allow
Equitable to treat a plan's failure to return the ballot within 30 days
after
[[Page 47209]]
receipt of a request for reconfirmation as an indication of such plan's
vote in favor of continued retention of the Independent Fiduciary.
Equitable represents that this procedure will be implemented on an
annual basis. Equitable also states that this proposed modification
will increase efficiency in ensuring the continued service of a
qualified Independent Fiduciary without adversely affecting the
oversight conditions of the exemption.
The Department proposes to modify PTE 91-8 by adding the following
language to the new Section II(4)(a):
``The Annual Report will also contain a ballot regarding the
reconfirmation of the Independent Fiduciary, which is to be returned to
Equitable. In this respect, at the time of delivery of each Annual
Report, Equitable will specifically indicate to each plan that the
Independent Fiduciary may be terminated by a vote in favor of such
termination by the holders of a majority of the units of beneficial
interests in the Account and will request such plan to confirm the
Independent Fiduciary's appointment. Following a plan's receipt of the
Annual Report, Equitable may treat a plan's failure to return the
ballot within thirty (30) days after receipt of a request for
reconfirmation as a vote in favor of continued retention of the
Independent Fiduciary.''
In this regard, to ensure that the plans receive notification of
the annual client reconfirmation procedure, the Department proposes to
add the following language as a new paragraph (b) at the end of the new
Section II(4):
``Equitable or ERE receives confirmation that the notice and the
ballot sent to the authorizing plan fiduciary regarding the continued
retention of the Independent Fiduciary has been received by the
authorizing fiduciary and the Independent Fiduciary. The method used to
confirm notice to the authorizing fiduciaries and the Independent
Fiduciary must be sufficient to ensure that the authorizing fiduciaries
and the Independent Fiduciary actually receive the notice. In all
cases, return receipt for certified mail, printed confirmation of
facsimile transmissions and manifest or computer data entries of
independent courier services will be considered acceptable methods of
confirming receipt.''
The notice of proposed exemption relating to PTE 91-8 also
indicated that Equitable will promptly designate a replacement
Independent Fiduciary in the event of the removal or resignation of the
Independent Fiduciary, but such appointment is also subject to the
affirmative confirmation by the plans participating in the Accounts
vis-a-vis a ballot contained in the Annual Report. Equitable represents
that the need for such affirmative approval could cause delay in
replacing the Independent Fiduciary with a qualified new Independent
Fiduciary. The possibility of such delays requires that contingency
plans be made for using unaffiliated property management and/or leasing
firms (and whose services may not be as advantageous to the Accounts as
those that could be provided by an Equitable affiliate). Therefore,
Equitable represents that the appointment of the replacement
Independent Fiduciary will also be handled in accordance with the
procedure described in Section II(4)(a).
E. Annual Reporting Requirement
Section II(4) of PTE 91-8 requires Equitable or ERE to furnish each
authorizing plan fiduciary and the Independent Fiduciary with the
Annual Report identifying detailed information about the fees incurred
and services provided to the Account pursuant to PTE 91-8.8 The
Annual Report is required to be provided not later than 45 days
following the end of each reporting period. Equitable furnishes the
Annual Report within 45 days after the end of each calendar year.
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\8\ Specifically, under Section II(4) of PTE 91-8 the Annual
Report must include a description of the properties and the services
that have been performed by ERE or its affiliates for an Account and
an indication of the fees that were paid for the preceding reporting
period and which are anticipated to be paid to ERE or its affiliates
in the coming year for services provided by these entities in
connection with the properties held by an Account. The Annual Report
must also contain a description of the method for terminating the
multiple services arrangement and the reconfirmation and/or removal
of the Independent Fiduciary by the plans investing in the Account.
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Equitable represents that providing the Annual Report within the 45
day requirement makes it impossible to include actual year-end data for
the Accounts' properties because this data is not generally available
to Equitable early enough within that time period to allow for
necessary verification, submission to the Independent Fiduciary and
compilation and production of the Annual Reports. In addition,
Equitable must also substantially complete end-of-year financial
statements for the Accounts and other accounts managed by Equitable
during this period.
Equitable requests that the Annual Report requirement of PTE 91-8
be modified to allow Equitable to submit the Annual Report no later
than 90 days following the end of the period to which the Annual Report
relates, and that this modification be effective retroactively, as of
January 13, 1996, the date PTE 91-8 had expired.
In this regard, the Department proposes to modify PTE 91-8 by
substituting ``90 days'' for ``45 days'' in Section II(4)(a), such that
the new Section II(4)(a) should read, in relevant part:
* * * with the Annual Report containing the information
described in this paragraph, not less frequently than once a year
and not later than 90 days following the end of the period to which
the report relates.
This modification will be effective retroactively, as of January
13, 1996.
F. Modification of Investment Limitations of Section II(10)
1. 5 Percent Investment Limitation
Section II(10)(a) of PTE 91-8 limits the percentage of plan assets
that can be invested in an Account by any plans covering employees of
Equitable to 5 percent of the assets of the investing plan. Equitable
believes that the 5 percent limitation unduly restricts the investments
in the Accounts by Equitable's in-house plans and limits the investment
by the trustees of Equitable's pension plan in real estate separate
accounts, such as SA-8,9 which they believe to be prudent
investments that are appropriate for Equitable's plans. Fiduciaries of
Equitable's plans should not be forced to look to competitors for real
estate investment opportunities.
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\9\ Equitable represents that the primary means by which
Equitable's in-house plans invest in real estate is through SA-8.
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Therefore, Equitable is requesting that the percentage limitation
applicable to in-house plans be modified to permit any plan in which
employees of Equitable or an affiliate participate, to invest up to 10
percent of its assets in any Account covered by PTE 91-8. Equitable
represents that a 10 percent limitation would give trustees of the in-
house plans the flexibility necessary to deal with inadvertent
fluctuations in the levels of participation in an Account, and to
invest the assets of such Plans in what they determine are successful
diversified real estate funds.
Accordingly, the Department proposes to modify PTE 91-8 by
substituting ``10 percent'' for ``5 percent'' in Section II(10)(a),
such that the new Section II(10)(a) should read, in relevant part:
Not more than 10 percent of the assets of a plan covering
employees of Equitable will be invested in an Account.
Notwithstanding the foregoing, this percentage requirement will
continue to be satisfied by any plan that exceeds the 10 percent
limitation of this subsection provided that no portion of any excess
results from an increase in the assets transferred by such plan to
the Accounts.
[[Page 47210]]
2. 20 Percent Investment Limitation
Section II(10)(c) of PTE 91-8 imposes a limitation on the
percentage of total plan assets that can be invested in the Accounts by
plans other than those covering Equitable employees.
This limitation has been set at 20 percent of the assets of the
investing plan. PTE 91-8 states that this limitation will apply
prospectively only and on an ``acquisition'' basis, i.e., the 20
percent limitation is tested only when additional investments in an
Account are made by a plan. Equitable believes that it is unclear from
the language of PTE 91-8, which uses the plural ``Accounts'' rather
than ``Account'' to describe the limitation, whether the 20 percent
limitation is intended to be applied on a single Account basis or on
the basis of a plan's aggregate investment in all Accounts combined and
accordingly, Equitable requests that the Department clarify the scope
of this limitation.
The 20 percent limitation test of Section II(10)(c) of PTE 91-8 was
intended to apply to Equitable Accounts on an aggregate basis.
Accordingly, no modification of Section II(10)(c) is hereby necessary.
G. Modifications to Limitations on Fees
Paragraph IV (Fees for Property Services) of the notice of proposed
exemption relating to PTE 91-8 places certain limitations on the fees
that EREIM or TSP 10 are permitted to receive for property
management and leasing services rendered to the Accounts pursuant to
PTE 91-8.
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\10\ For purposes of this exemption, if granted, fee limitations
described in Paragraph IV of the notice of proposed exemption
relating to PTE 91-8 will apply to ERE and its affiliates.
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Specifically, Paragraph IV of the notice of proposed exemption
relating to PTE 91-8 provides, among other things, that the fee for
leases in which outside brokers are involved generally does not exceed
one percent (1%) of the lease amount. This fee is applicable to
circumstances where ERE as property manager is separately compensated
for leasing services where outside brokers are involved. In this
regard, Equitable requests that the 1% limitation be modified to 2.75
percent (2.75%) of the lease amount. Equitable and ERE have determined
that the 1% limitation is not consistent with the current practice of
establishing leasing commissions for transactions involving outside
brokers. Equitable and ERE represent that in most leasing markets such
``co-broker'' leasing fees for the project leasing broker are computed
at fifty percent (50%) of the normal new or renewal lease commission
fee, which is typically somewhere between four (4%) and seven (7%)
percent of the total lease payments. Such a fee structure reflects the
fact that the effort required of the exclusive project leasing broker
is, in most instances, not reduced by the addition of a tenant's
leasing broker, but can actually be more demanding. In this regard,
Equitable and ERE have obtained an opinion from Jackson Cross, the
independent fiduciary for property management and leasing, regarding
modification of this fee limitation. Mr. Seymor from Jackson Cross,
stated that based on their experience and studies, they found that
leasing fees vary with building size and with the competitive situation
in individual markets. In most markets, the project leasing broker
received 50% of the normal new or releasing commission. The outside
broker received the other 50%, but usually an ``override'' sufficient
to pay a full market commission. Because the normal full leasing
commission is typically in the range of 4% to 7% of the one year lease
amount, the project leasing broker usually received 2% to 3.5% of the
one year lease amount. In the opinion of Jackson Cross, restricting ERE
to a maximum of 1% does not provide adequate compensation to cover the
cost of appropriate professional leasing representation. In this
regard, Jackson Cross suggests that this ceiling be raised to 2.75%,
still subject to the market requirement that the Independent Fiduciary
must certify an economic benefit to the Account on a case by case
basis.
In this regard, the Department is proposing to modify PTE 91-8 by
increasing the fee limitation to ERE for leases involving outside
brokers to 2.75% of the lease amount. Additionally, the Department
proposes to further modify PTE 91-8 by incorporating this fee
limitation and other fee limitations as described in Paragraph IV of
the notice of proposed exemption relating to PTE 91-8 into Section II
as an additional condition. Accordingly, a new condition (13) is being
added to Section II as follows:
``(13)(a) The fees paid to ERE and/or its affiliates for property
management services provided in connection with a property held for an
Account shall not exceed for any one year period: (1) In the case of
property management services which include leasing services, 7 percent
of the overall gross receipts of the property; and (2) in the case of
property management services which do not include leasing services, 4
percent of the overall gross receipts of the property.
(b) Where a property manager is separately compensated for leasing
services: (1) the fee for new leases will not exceed 7 percent of the
lease amount; (2) the fee for renewal leases will not exceed 2 percent
of the lease amount; and (3) the fee for leases in which outside
brokers are involved will not exceed 2.75 percent of the lease
amount.''
The Department notes that this proposed exemption, if granted, is
subject to the express condition that the summary of facts and
representations set forth in the notice of proposed exemption relating
to PTE 91-8, as amended by this notice to make permanent PTE 91-8
accurately describe, where relevant, the material terms of the
transactions to be consummated pursuant to this exemption.
After considering Equitable and ERE's application, the Department
is proposing this exemption to make permanent PTE 91-8 pursuant to
section 408(a) of the Act and section 4975 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.)
Notice to Interested Persons
Those persons who may be interested in the pendency of the
requested exemption include fiduciaries and participants of plans which
have invested or may invest in an Account. Because of the large number
of plans which currently invest in the Accounts, the Department has
determined that the only practical form of providing notice to
interested persons is the distribution by Equitable, of a notice to the
fiduciaries of all plans currently invested in any Account. Such notice
will contain a copy of the notice of the proposed exemption published
in the Federal Register, and a statement advising interested persons of
their right to comment and to request a hearing on the proposed
exemption. Such distribution will occur within two (2) weeks of the
date of publication of the notice of the proposed exemption in the
Federal Register. Accordingly, comments and hearing requests on the
proposed exemption are due forty four (44) days after the date of
publication of this proposed exemption in the Federal Register.
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and section 4975(c)(2) of the Code does
not relieve a fiduciary
[[Page 47211]]
or other party in interest or disqualified person from certain other
provisions of the Act and the Code, including any prohibited
transaction provisions to which the exemption does not apply, and to
the extent jurisdiction exists under Title I of the Act, the general
fiduciary responsibility provisions of section 404 of the Act, which
among other things require a fiduciary to discharge his duties
respecting the plan solely in the interest of the participants and
beneficiaries of the plan and in a prudent fashion in accordance with
section 404(a)(1)(B) of the Act; nor does it affect the requirements of
section 401(a) of the Code, e.g., the plan must operate for the
exclusive benefit of the employees of the employer maintaining the plan
and their beneficiaries;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act and section
4975(c)(1)(F) of the Code;
(3) Before an exemption may be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the plan
and of its participants and beneficiaries and protective of the rights
of participants and beneficiaries of the plan;
(4) This proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. Furthermore, the fact
that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(5) This proposed exemption, if granted, is subject to the express
condition that the summary of facts and representations set forth in
the notice of proposed exemption relating to PTE 91-8, as amended by
this notice to make permanent as modified PTE 91-8 accurately describe,
where relevant, the material terms of the transactions to be
consummated pursuant to this exemption.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments on
the pending exemption to the address above, within forty four (44) days
after the date of publication of this proposed exemption in the Federal
Register. All comments will be made a part of the record. Comments
received will be available for public inspection with the application
for exemption at the address set forth above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
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, August 10, 1990).
Section I--Covered Transactions
The restrictions of section 406(a), 406(b)(1) and (b)(2) of the Act
and the sanctions resulting from the application of section 4975 of the
Code by reason of section 4975(c)(1) (A) through (E) of the Code shall
not apply to the provision of property management and/or leasing
services by ERE, Equitable's wholly-owned subsidiary to an Account (as
defined in Section IV), provided that the conditions set forth in
Section II are met.
Section II--Conditions
(1) The arrangement under which the covered transactions is
performed is subject to the prior authorization of an independent plan
fiduciary with respect to each plan whose assets are invested in an
Account, following disclosure of information in the manner described in
paragraph (2) below. For plans which have previously authorized their
participation in the Accounts under PTE 91-8, no reauthorization will
be required.11 In the case of a plan whose assets are proposed to
be invested in an Account subsequent to implementation of the property
management and leasing services (the Property Services Policy), the
plan's investment in the Account is subject to the prior written
authorization of an independent plan fiduciary following disclosure of
the information described in paragraph (2). The requirement that the
authorizing fiduciary be independent of Equitable shall not apply in
the case of plans maintained by Equitable on behalf of its employees.
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\11\ However, during the notification of interested persons
period, Equitable will provide to all interested parties, including
the plans participating in the Accounts, a copy of the notice of
this proposed exemption. Accordingly, the plans will have the
opportunity to submit written comments on the pending exemption
during the comment period.
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(2) In the event Equitable proposes to implement the Property
Services Policy for any additional Account, not less than 45 days prior
to the implementation of the Property Services Policy, Equitable or
ERE, as investment manager, shall furnish the authorizing plan
fiduciary with any reasonably available information which Equitable or
ERE believes to be necessary to determine whether such approval should
be given, as well as such information which is reasonably requested by
the authorizing plan fiduciary. Such information will include: a
description of the services to be performed by ERE; identification of
properties for which services will be required; an estimate of the fees
that would be paid to ERE if it is selected to provide such services;
an explanation of the potential conflicts of interest involved in
selecting ERE; an explanation of the selection process; and a
description of the terms upon which a plan may withdraw from an
Account.
(3) In the event an authorizing plan fiduciary of any plan whose
assets are invested in an Account submits a notice in writing to
Equitable or ERE, as investment manager, at least 15 days prior to
implementation of the Property Services Policy, objecting to the
implementation of the Property Services Policy, the plan on whose
behalf the objection was tendered will be given the opportunity to
terminate its investment in the Account, without penalty. With the
exception of a plan which has invested in a closed-end Account under
which the rights of withdrawal from the Account may be limited as
provided in the plan's written agreement to invest in the Account, if
written objection to the Property Services Policy is submitted to
Equitable or ERE any time after 15 days prior to implementation of the
Property Services Policy (or after implementation), the plan must be
able to withdraw without penalty, within such time as may be necessary
to effect such withdrawal in an orderly manner that is equitable to all
withdrawing plans and to the non-withdrawing plans. However, Equitable
or ERE need not discontinue operating pursuant to the Property Services
Policy, once implemented, by reason of a plan electing to withdraw
after 15 days prior to the scheduled implementation date of the
Property Services Policy. Any plan which has a discretionary asset
management arrangement with Equitable may terminate such arrangement
and withdraw from an Account at any time.
(4)(a) Equitable or ERE shall furnish the authorizing plan
fiduciary and the Independent Fiduciary acting on behalf of the plans
participating in the Account with the Annual Report containing the
information described in this paragraph, not less frequently than once
a year and not later than 90 days following the end
[[Page 47212]]
of the period to which the report relates. Such Annual Report shall
disclose the total of all fees incurred by the Account during the
preceding year under contracts with ERE; include a description of the
properties and the services that have been performed by ERE for an
Account; and delineate the fees that are anticipated to be paid to ERE
in the coming year for services provided by these entities in
connection with properties held by an Account. The Annual Report will
contain a description of a method for the termination of the multiple
services arrangement (see Section II(5)), and for the confirmation and/
or removal of the Independent Fiduciary by investing plans in the
Accounts. The Annual Report will also contain a ballot regarding
reconfirmation of the Independent Fiduciary, which is to be returned to
Equitable. In this respect, at the time of delivery of each Annual
Report, Equitable will specifically indicate to each plan that the
Independent Fiduciary may be terminated by a vote in favor of such
termination by the holders of a majority of the units of beneficial
interests in the Account and will request such plan to confirm the
Independent Fiduciary's appointment. Following a plan's receipt of the
Annual Report, Equitable may treat a plan's failure to return the
ballot within thirty (30) days after receipt of a request for
reconfirmation as a vote in favor of continued retention of the
Independent Fiduciary.
(b) Equitable or ERE receives confirmation that the notice and the
ballot sent to the authorizing plan fiduciary regarding the continued
retention of the Independent Fiduciary has been received by the
authorizing fiduciary and the Independent Fiduciary. The method used to
confirm notice to the authorizing fiduciaries and the Independent
Fiduciary must be sufficient to ensure that the authorizing fiduciaries
and the Independent Fiduciary actually receive the notice. In all
cases, return receipt for certified mail, printed confirmation of
facsimile transmissions and manifest or computer data entries of
independent courier services will be considered acceptable methods of
confirming receipt.
(5) The multiple services arrangement for an Account shall be
subject to annual confirmation following receipt of the Annual Report,
pursuant to which the arrangement shall be terminated by a vote in
favor of such termination by the holders of a majority of the units of
beneficial interests in the Account. In the event of a vote to
terminate the arrangement, Equitable shall cease submitting to the
Independent Fiduciary (as defined in Section IV) any new proposals to
engage in covered transactions and Equitable will not renew or extend
any covered transactions. Moreover, within 180 days after the vote of
the contract holders, Equitable shall cease engaging in any existing
covered transactions.
(6) (a) Each transaction shall be reviewed and approved by an
Independent Fiduciary. However, prior to proposing a transaction to the
Independent Fiduciary, Equitable or ERE shall first determine that such
transaction is in the best interests of the Account.
(b) The Independent Fiduciary shall negotiate the contracts for the
provision of services by ERE. The Independent Fiduciary shall also
consider the cost to the Account of such fiduciary's involvement in
connection with its consideration of whether to approve the particular
transaction.
(c) The Independent Fiduciary shall review, as applicable, the
performance of ERE under each of its contracts with the Accounts at
least once each year and shall instruct Equitable and ERE of any action
which should be taken by Equitable on behalf of the Accounts with
respect to the continuation, termination or other exercise of rights
available to the Account under the terms of the contracts. Equitable
will carry out such instruction from the Independent Fiduciary to the
extent it is legal and permitted by the terms of the service provision
arrangement.
(7) (a) The terms of each such arrangement shall be in writing and
must be reviewed by the Independent Fiduciary prior to implementation.
(b) If Equitable or ERE hold Account properties and general account
properties in the same real estate market during a period when there is
leasing competition between those properties, ERE will hire, during
such period, a third party leasing agent for Account properties.
(c) In the case of any emergency circumstances, ERE may provide
property services to an Account for a period not exceeding 90 days, but
no compensation may be paid by an Account for such services without the
prior approval of the Independent Fiduciary.
(8) (a) Equitable and ERE shall furnish the Independent Fiduciary
with any reasonably available information which Equitable reasonably
believes to be necessary or which the Independent Fiduciary shall
reasonably request to determine whether such approval of the
transactions described above should be given or to accomplish the
Independent Fiduciary's periodic reviews of the performance of ERE
under the contracts.
(b) With respect to ERE, such information will include: a
description of the Property Services Policy for the Account and the
plan clients investing therein; a description of the real estate
services which are required; the qualifications of ERE to do the job; a
statement, supported by appropriate factual representations, of the
reasons for Equitable's belief that ERE is qualified to provide the
services; a copy of the proposed arrangement for services and the terms
on which ERE would provide the services; the reasons why Equitable
believes the retention of ERE would be in the best interests of the
Account; information demonstrating why the fees and other terms of the
arrangement are reasonable and comparable to fees customarily charged
by similar firms for similar services in comparable locales; the
identities of non-affiliated service providers and the terms under
which these service providers might perform the services; and in any
case that it is determined that the property manager will also provide
leasing services, Equitable will disclose whether any affiliated
property manager under consideration by the Independent Fiduciary is a
property manager to any properties that are in competition for tenants
with the property for which ERE is under consideration.
(9) Seventy-five percent or more of the units of beneficial
interests in an Account must be held by plans or other investors having
total assets of at least $50 million. In addition, 50 percent or more
of the plans investing in an Account must have assets of at least $50
million. For purposes of the 50 percent test above, a group of plans
will be counted as a single plan if either the decision to invest in
the Account (or the decision to make investments in the Account
available as an option for an individually directed account) is made by
a fiduciary other than Equitable who exercises such discretion with
respect to plan assets in excess of $50 million.
(10) (a) Not more than 10 percent of the assets of a plan covering
employees of Equitable will be invested in an Account. Notwithstanding
the foregoing, this percentage requirement will continue to be
satisfied by any plan that exceeds the 10 percent limitation of this
subsection provided that no portion of any excess results from an
increase in the assets transferred by such plan to the Accounts.
(b) Not more than 10 percent of the assets of an Account will be
represented by the plans covering employees of Equitable.
[[Page 47213]]
(c) For other plans, not more than 20 percent of the assets of each
such plan can be invested in the Accounts. Notwithstanding the
foregoing, this percentage requirement will continue to be satisfied by
any plan that exceeds the 20 percent limitation of this subsection
provided that no portion of any excess results from an increase in the
assets transferred by such plan to the Accounts. Moreover, this 20
percent limitation shall not apply to any plan which, as of February
28, 1990, the date of the proposed exemption relating to PTE 91-8, had
more than 20 percent of its assets invested in the Accounts provided
that the plan makes no additional contribution to such Accounts
subsequent to that date.
(11) At the time the transactions are entered into, the terms of
the transactions must be at least as favorable to the Accounts as the
terms generally available in arm's length transactions between
unrelated parties. In addition, the compensation paid to ERE for
services under its contracts with any Account must not exceed payments
in an arm's length transaction between unrelated parties for comparable
properties in similar locales, and shall not be in excess of reasonable
compensation within the meaning of section 408(b)(2) of the Act and
regulation 29 CFR 2550.408b-2.
(12) (a) After the fifth anniversary of the grant of this
exemption, and after the beginning of each subsequent five-year period,
ERE will prepare a survey of property management and leasing fees for
the properties that have similar geographic location and property types
to those held by the Accounts. The survey will include data regarding
the fees that have been charged to the Accounts by several property
management firms that are unaffiliated with Equitable or ERE for
services that are contemplated by the exemption during the one year
period prior to the beginning of the new five-year period. Also, the
survey will include data as to the fees paid by Equitable or ERE for
such services performed for the properties not held by the Accounts
during the same period and other market data regarding the cost of
property management and leasing services by geographic location and
property types.
(b) The Independent Fiduciary will review ERE's internal survey
referred to in (a) above, and will verify the accuracy of the data by
independently reviewing a sampling of the properties to which such fees
apply. Based upon its review of the survey and its own professional
resources and expertise, the Independent Fiduciary will determine a
typical range of annual fees for property management and leasing
services for the Accounts. The average of the range, as determined from
such survey, will serve as the basis of comparison for determining for
the next five-year period whether continuation of the property
management and leasing services policy (the Property Services Policy)
has provided cost savings to the Accounts.
(c) Equitable and ERE will demonstrate to the Independent Fiduciary
at the end of the applicable five-year period that the aggregate
property management and leasing fees charged to each Account pursuant
to the Property Services Policy plus the cost of the services of the
Independent Fiduciary under the exemption that are allocated to the
Accounts, are less than the fees that would have been charged using the
benchmark rate established at the beginning of the five year period.
(d) The Independent Fiduciary will review the data supplied by ERE
and, to the extent considered necessary by the Independent Fiduciary,
data collected from the Independent Fiduciary's own surveys, and will
document its findings and analysis of such cost savings in a report to
be delivered to each of the plans participating in the Accounts within
90 days after the end of the five year period and each subsequent five-
year period and prior to the implementation of the annual confirmation
procedure described in paragraph (5) of Section II with respect to such
period. In the event the Independent Fiduciary finds that cost savings
have not been achieved for the Accounts, it will not approve any
additional services arrangements pursuant to the Property Services
Policy until Equitable and ERE have demonstrated to the satisfaction of
the Independent Fiduciary that policies intended to assure cost savings
to the Accounts have been implemented by Equitable and ERE. The survey,
the Independent Fiduciary's report reviewing the survey, and the final
report of the Independent Fiduciary analyzing whether cost savings had
been achieved during the five year period to which the survey relates,
will be maintained by Equitable or ERE in accordance with the
recordkeeping requirements of Section III.
(13) (a) The fees paid to ERE and/or its affiliates for property
management services provided in connection with a property held for an
Account shall not exceed for any one year period: (1) In the case of
property management services which include leasing services, 7 percent
of the overall gross receipts of the property; and (2) in the case of
property management services which do not include leasing services, 4
percent of the overall gross receipts of the property.
(b) Where a property manager is separately compensated for leasing
services; (1) the fee for new leases will not exceed 7 percent of the
lease amount; (2) the fee for renewal leases will not exceed 2 percent
of the lease amount; and (3) the fee for leases in which outside
brokers are involved will not exceed 2.75 percent of the lease amount.
Section III--Recordkeeping
(1) Equitable or ERE will maintain for a period of six years from
the date of the transaction, the records necessary to enable the
persons described in paragraph (2) of this section to determine whether
the conditions of this exemption have been met. Included in these
records maintained by Equitable or ERE will be written records of the
Independent Fiduciary which had been periodically furnished by the
Independent Fiduciary to ERE or Equitable and the records described in
paragraph (12) of Section II. Such records are described in Parts III
and VI of the summary of facts and representations of the notice of
proposed exemption relating to PTE 91-8 and in paragraph (12) of
Section II. However, a prohibited transaction will not be considered to
have occurred if, due to circumstances beyond Equitable's or ERE's
control, the records are lost or destroyed or the records of the
Independent Fiduciary are not maintained or produced prior to the end
of the six-year period.
(2) (a) Except as provided in subsection (b) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (1) of this
section are unconditionally available at their customary location for
examination during normal business hours by:
(1) Any duly authorized employee or representative of the
Department and the Internal Revenue Service;
(2) Any fiduciary of a plan who has authority to acquire or dispose
of the interests of the plan in the Accounts or any duly authorized
employee or representative of such fiduciary;
(3) Any contributing employer to any plan that has an interest in
the Accounts or any duly authorized employee or representative of such
employer;
(4) Any participant or beneficiary of any plan participating in the
Accounts, or any duly authorized employee or representative of such
participant or beneficiary; and
[[Page 47214]]
(5) The Independent Fiduciary.
(b) None of the persons described in subparagraphs (2)-(5) of this
paragraph shall be authorized to examine trade secrets of Equitable,
ERE or commercial or financial information which is privileged or
confidential.
Section IV--Definitions
(1) The Accounts--The Accounts are Equitable's Separate Account No.
8, Separate Account No. 16-I, Separate Account No. 16-II, Separate
Account No. 16-III, Separate Account No. 16-IV, Separate Account No.
16-VII, Separate Accounts Nos. 136, 141, 149 and 174 for the IBM
Retirement Plan, Investment Management Account No. 230 for the
Westinghouse Electric Corporation Pension Plan; and such other pooled
or single-customer accounts, joint ventures, general or limited
partnerships or other real estate investment vehicles that may be
established by Equitable for the investment of employee benefit plan
assets in real estate related investments to the extent disposition of
its assets is subject to the discretionary authority of Equitable.
(2) Equitable--For purposes of this exemption, the term Equitable
includes Equitable and/or affiliates of Equitable as defined in
paragraph (4) of this section which act as investment managers with
respect to an Account.
(3) ERE--For purposes of this exemption, the term ERE includes ERE
and/or affiliates of ERE as defined in paragraph (4) of this section,
which provides services to an Account pursuant to this exemption.
(4) An affiliate of a person means any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with the person.
(5) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual.
(6) Independent Fiduciary--A person who:
(a) is not an affiliate [as defined in Section IV(4)] of Equitable
or ERE;
(b) is not an officer, director, employee of, or partner in,
Equitable or ERE [or affiliates thereof as defined in Section IV(4)];
(c) is not a corporation or partnership in which Equitable or ERE
has an ownership interest or is a partner;
(d) does not have an ownership interest in Equitable or ERE, or its
affiliates;
(e) is not a fiduciary with respect to any plan participating in an
Account; and
(f) has acknowledged in writing acceptance of fiduciary obligations
and has agreed not to participate in any decision with respect to any
transaction in which the Independent Fiduciary has an interest that
might affect its best judgment as a fiduciary.
For purposes of this definition of Independent Fiduciary, no
organization or individual may serve as an Independent Fiduciary for
any fiscal year if the gross income received by such organization or
individual (or partnership or corporation of which such organization or
individual is an officer, director, or 10 percent or more partner or
shareholder) from Equitable or ERE, or their affiliates, (including
amounts received for services as Independent Fiduciary under any
prohibited transaction exemption granted by the Department) for that
fiscal year exceeds 5 percent of its or his annual gross income from
all sources for such fiscal year.
In addition, no organization or individual who is an Independent
Fiduciary, and no partnership or corporation of which such organization
or individual is an officer, director or 10 percent or more partner or
shareholder, may acquire any property from, sell any property to or
borrow any funds from Equitable or ERE, their affiliates, or any
Account maintained by Equitable or ERE, their affiliates, during the
period that such organization or individual serves as an Independent
Fiduciary and continuing for a period of 6 months after such
organization or individual ceases to be an Independent Fiduciary or
negotiates any such transaction during the period that such
organization or individual serves as Independent Fiduciary.
This proposed exemption, if granted, is subject to the express
condition that the summary of facts and representations set forth in
the notice of proposed exemption relating to PTE 91-8, as amended by
this notice to make permanent as modified PTE 91-8 accurately describe,
where relevant, the material terms of the transactions to be
consummated pursuant to this exemption.
Signed at Washington, D.C., this 30th day of August 1996.
Ivan Strasfeld,
Director of the Office of Exemption Determinations, Pension and Welfare
Benefits Administration, U.S. Department of Labor.
[FR Doc. 96-22716 Filed 9-5-96; 8:45 am]
BILLING CODE 4510-29-P
