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Pension and Welfare Benefits Administration, Labor.
Grant of individual exemptions.
This document contains exemptions issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency before the Department of proposals to grant such exemptions. The notices set forth a summary of facts and representations contained in each application for exemption and referred interested persons to the respective applications for a complete statement of the facts and representations. The applications have been available for public inspection at the Department in Washington, D.C. The notices also invited interested persons to submit comments on the requested exemptions to the Department. In Start Printed Page 60453addition the notices stated that any interested person might submit a written request that a public hearing be held (where appropriate). The applicants have represented that they have complied with the requirements of the notification to interested persons. No public comments and no requests for a hearing, unless otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions are being granted solely by the Department because, effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type proposed to the Secretary of Labor.
In accordance with section 408(a) of the Act and/or section 4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants and beneficiaries; and
(c) They are protective of the rights of the participants and beneficiaries of the plans.
Columbia Energy Group (Columbia), Located in Herndon, Virginia
The restrictions of section 406(a) and (b) of the Act shall not apply to the reinsurance of risks and the receipt of premiums therefrom by Columbia Insurance Corporation, Ltd. (CICL) in connection with an insurance contract sold by Employers Insurance of Wausau (Wausau), or any successor insurance company to Wausau which is unrelated to Columbia, to provide long-term disability benefits to participants in Columbia's Long Term Disability Plan (the Plan), provided the following conditions are met:
(1) Is a party in interest with respect to the Plan by reason of a stock or partnership affiliation with Columbia that is described in section 3(14)(E) or (G) of the Act;
(2) Is licensed to sell insurance or conduct reinsurance operations in at least one State as defined in section 3(10) of the Act;
(3) Has obtained a Certificate of Authority from the Insurance Commissioner of its domiciliary state which has neither been revoked nor suspended;
(4)(A) Has undergone an examination by an independent certified public accountant for its last completed taxable year immediately prior to the taxable year of the reinsurance transaction; or
(B) Has undergone a financial examination (within the meaning of the law of its domiciliary State, Vermont) by the Insurance Commissioner of the State of Vermont within 5 years prior to the end of the year preceding the year in which the reinsurance transaction occurred; and
(5) Is licensed to conduct reinsurance transactions by a State whose law requires that an actuarial review of reserves be conducted annually by an independent firm of actuaries and reported to the appropriate regulatory authority;
(b) The Plan pays no more than adequate consideration for the insurance contracts;
(c) No commissions are paid by the Plan with respect to the direct sale of such contracts or the reinsurance thereof;
(d) In the initial year of any contract involving CICL, there will be an immediate and objectively determined benefit to the Plan's participants and beneficiaries in the form of increased benefits;
(e) In subsequent years, the formula used to calculate premiums by Wausau or any successor insurer will be similar to formulae used by other insurers providing comparable long-term disability coverage under similar programs. Furthermore, the premium charge calculated in accordance with the formula will be reasonable and will be comparable to the premium charged by the insurer and its competitors with the same or a better rating providing the same coverage under comparable programs;
(f) The Plan only contracts with insurers with a rating of A or better from A.M. Best Company (Best's). The reinsurance arrangement between the insurers and CICL will be indemnity insurance only, i.e., the insurer will not be relieved of liability to the Plan should CICL be unable or unwilling to cover any liability arising from the reinsurance arrangement;
(g) CICL retains an independent fiduciary (the Independent Fiduciary), at Columbia's expense, to analyze the transaction and render an opinion that the requirements of sections (a) through (f) have been complied with. For purposes of this exemption, the Independent Fiduciary is a person who:
(1) Is not directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with Columbia or CICL (this relationship hereinafter referred to as an “Affiliate”);
(2) Is not an officer, director, employee of, or partner in, Columbia or CICL (or any Affiliate of either);
(3) Is not a corporation or partnership in which Columbia or CICL has an ownership interest or is a partner;
(4) Does not have an ownership interest in Columbia or CICL, or any of either's Affiliates;
(5) Is not a fiduciary with respect to the Plan prior to the appointment; and
(6) Has acknowledged in writing acceptance of fiduciary responsibility 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 an “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 individual is an officer, director, or 10 percent or more partner or shareholder) from Columbia, CICL, 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 that organization or individual's 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 funds from Columbia, CICL, or their Affiliates during the period that such organization or individual serves as Independent Fiduciary, and continuing for a period of six 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.
For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the notice of proposed exemption published on August 17, 2000 at 65 FR 50237.Start Further Info
For Further Information Contact:
Gary H. Lefkowitz of the Department, Start Printed Page 60454telephone (202) 219-8881. (This is not a toll-free number.)
Actuarial Sciences Associates, Inc. (ASA) and ASA Fiduciary Counselors Inc. (ASA Counselors), Located in Alexandria, VA
I. General Transactions
The restrictions of section 406(a)(1)(A) through (D) and the sanctions resulting from the application of section 4975 of the Code by reason of section 4975(c)(1)(A) through (D), shall not apply to a transaction between a party in interest with respect to the Plumbers and Pipe Fitters National Pension Fund (the Fund) and an account (the Account) that holds certain assets of the Fund managed by ASA or ASA Counselors, while serving as independent named fiduciary (the Named Fiduciary) in connection with Prohibited Transaction Exemption 99-46 (PTE 99-46)(64 FR 61944, November 15, 1999); provided that the following conditions are satisfied:
(a) ASA or ASA Counselors, as Named Fiduciary of the Account, is an investment adviser registered under the Investment Advisers Act of 1940 that has, as of the last day of its most recent fiscal year, total client assets under its management and control in excess of $50,000,000, and shareholders' equity or partners' equity, as defined in Section III(h), below, in excess of $750,000;
(b) At the time of the transaction, as defined in Section III(i), below, the party in interest or its affiliate, as defined in Section III(a), below, does not have, and during the immediately preceding one (1) year has not exercised, the authority to—
(1) appoint or terminate the Named Fiduciary as a manager of the Account, or
(2) negotiate the terms of the management agreement with the Named Fiduciary (including renewals or modifications thereof) on behalf of the Fund;
(c) The transaction is not described in—
(1) Prohibited Transaction Class Exemption 81-6 (PTCE 81-6)  (relating to securities lending arrangements);
(2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1)  (relating to acquisitions by plans of interests in mortgage pools), or
(3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87)  (relating to certain mortgage financing arrangements);
(d) The terms of the transaction are negotiated on behalf of the Account under the authority and general direction of the Named Fiduciary, and either the Named Fiduciary, or (so long as the Named Fiduciary retains full fiduciary responsibility with respect to the transaction) a property manager acting in accordance with written guidelines established and administered by the Named Fiduciary, makes the decision on behalf of the Account to enter into the transaction, provided that the transaction is not part of an agreement, arrangement, or understanding designed to benefit a party in interest;
(e) The party in interest dealing with the Account is neither the Named Fiduciary nor a person related to the Named Fiduciary, as defined in Section III(f), below;
(f) At the time the transaction is entered into, and at the time of any subsequent renewal or modification thereof that requires the consent of the Named Fiduciary, the terms of the transaction are at least as favorable to the Account as the terms generally available in arm's length transactions between unrelated parties;
(g) Neither the Named Fiduciary nor any affiliate thereof, as defined in Section III(b), below, nor any owner, direct or indirect, of a 5 percent (5%) or more interest in the Named Fiduciary is a person who, within the ten (10) years immediately preceding the transaction, has been either convicted or released from imprisonment, whichever is later, as a result of:
(1) any felony involving abuse or misuse of such person's employee benefit plan position or employment, or position or employment with a labor organization;
(2) any felony arising out of the conduct of the business of a broker, dealer, investment adviser, bank, insurance company, or fiduciary;
(3) income tax evasion;
(4) any felony involving the larceny, theft, robbery, extortion, forgery, counterfeiting, fraudulent concealment, embezzlement, fraudulent conversion, or misappropriation of funds or securities; conspiracy or attempt to commit any such crimes or a crime in which any of the foregoing crimes is an element; or
(5) any other crimes described in section 411 of the Act.
For purposes of this Section I(g), a person shall be deemed to have been “convicted” from the date of the judgment of the trial court, regardless of whether the judgment remains under appeal.
II. Specific Exemption Involving Places of Public Accommodation
The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply, effective November 8, 1999, to the furnishing of services, facilities, and any goods incidental thereto by a place of public accommodation owned by the Account managed by the Named Fiduciary to a party in interest with respect to the Fund, if the services, facilities, and incidental goods are furnished on a comparable basis to the general public.
(a) For purposes of Section I(b), above, of this exemption, an “affiliate” of a person means—
(1) any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person,
(2) any corporation, partnership, trust, or unincorporated enterprise of which such person is an officer, director, 5 percent (5%) or more partner, or employee (but only if the employer of such employee is the plan sponsor), and
(3) any director of the person or any employee of the person who is a highly compensated employee, as described in section 4975(e)(2)(H) of the Code, or who has direct or indirect authority, responsibility, or control regarding the custody, management, or disposition of plan assets. A named fiduciary (within the meaning of section 402(a)(2) of the Act) of a plan, and an employer any of whose employees are covered by the plan will also be considered affiliates with respect to each other for purposes of Section I(b) if such employer or an affiliate of such employer has the authority, alone or shared with others, to appoint or terminate the named fiduciary or otherwise negotiate the terms of the named fiduciary's employment agreement.
(b) For purposes of Section I(g), above, of this exemption, an “affiliate” of a person means—
(1) any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with the person,
(2) any director of, relative of, or partner in, any such person, Start Printed Page 60455
(3) any corporation, partnership, trust, or unincorporated enterprise of which such person is an officer, director, or a 5 percent (5%) or more partner or owner, and
(4) any employee or officer of the person who—
(A) Is a highly compensated employee (as described in section 4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more of the yearly wages of such person) or
(B) Has direct or indirect authority, responsibility or control regarding the custody, management, or disposition of Fund assets.
(c) The term “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual.
(d) The term “goods” includes all things which are movable or which are fixtures used by the Account but does not include securities, commodities, commodities futures, money, documents, instruments, accounts, chattel paper, contract rights, and any other property, tangible or intangible, which, under the relevant facts and circumstances, is held primarily for investment.
(e) The term “party in interest” means a person described in section 3(14) of the Act and includes a “disqualified person,” as defined in section 4975(e)(2) of the Code.
(f) The Named Fiduciary is “related” to a party in interest for purposes of Section I(e), above, of this exemption, if the party in interest (or a person controlling, or controlled by, the party in interest) owns a 5 percent (5%) or more interest in the Named Fiduciary, or if the Named Fiduciary (or a person controlling, or controlled by, the Named Fiduciary) owns a 5 percent (5%) or more interest in the party in interest. For purposes of this definition:
(1) The term “interest” means with respect to ownership of an entity—
(A) The combined voting power of all classes of stock entitled to vote or the total value of the shares of all classes of stock of the entity if the entity is a corporation,
(B) The capital interest or the profits interest of the entity if the entity is a partnership; or
(C) The beneficial interest of the entity if the entity is a trust or unincorporated enterprise; and
(2) A person is considered to own an interest held in any capacity if the person has or shares the authority—
(A) To exercise any voting rights, or to direct some other person to exercise the voting rights relating to such interest, or
(B) To dispose or to direct the disposition of such interest.
(g) The term “relative” means a relative as that term is defined in section 3(15) of the Act, or a brother, sister, or a spouse of a brother or sister.
(h) For purposes of Section I(a) of this exemption, the term “shareholders” equity” or “partners” equity” means the equity shown in the most recent balance sheet prepared within the two (2) years immediately preceding a transaction undertaken pursuant to this exemption, in accordance with generally accepted accounting principles.
(i) The “time” as of which any transaction occurs is the date upon which the transaction is entered into. In addition, in the case of a transaction that is continuing, the transaction shall be deemed to occur until it is terminated. If any transaction is entered into on or after the effective date of this exemption, or a renewal that requires the consent of the Named Fiduciary occurs on or after such effective date, and the requirements of this exemption are satisfied at the time the transaction is entered into or renewed, respectively, the requirements will continue to be satisfied thereafter with respect to the transaction. Nothing in this subsection shall be construed as exempting a transaction which becomes a transaction described in section 406 of the Act or section 4975 of the Code while the transaction is continuing, unless the conditions of this exemption were met either at the time the transaction was entered into or at the time the transaction would have become prohibited but for this exemption.
Temporary Nature of Exemption
The Department has determined that the relief provided to ASA and ASA Counselors by this exemption will be temporary in nature. The exemption is effective for ASA from November 8, 1999, through December 20, 1999, and for ASA Counselors from December 20, 1999, until the resignation of ASA Counselors and the appointment of a replacement independent Named Fiduciary for the Account. In accordance with Section 14 of the Independent Named Fiduciary Agreement (the Agreement), the Department was notified that ASA Counselors intends to resign as Named Fiduciary for the Account and terminate the Agreement on the later of: (a) Thirty (30) days from September 12, 2000; or (b) the appointment of a replacement independent Named Fiduciary for the Account. Accordingly, in order to accommodate the latest effective date of the resignation of ASA Counselors, the Department has determined that the relief provided by this exemption is available until the later of: (a) October 12, 2000, or (b) the effective date of the appointment of a replacement independent Named Fiduciary for the Account that is acceptable to the Department.
In the Notice of Proposed Exemption (the Notice), the Department of Labor (the Department) invited all interested persons to submit written comments and requests for a hearing on the proposed exemption. As set forth in the Notice, interested persons consisted of the Trustees of the Fund and any interested persons who commented in writing to the Department in connection with Prohibited Transaction Exemption 99-46 (PTE 99-46). The deadline for submission of such comments was within forty-five (45) days of the date of the publication of the Notice in the Federal Register on June 26, 2000. All comments and requests for a hearing were due on August 10, 2000.
Prior to August 10, 2000, interested persons contacted the Department by telephone and in writing in order to point out that the documents provided in the notice to interested persons referenced the application number D-10514 for PTE 99-46, rather than the application number D-10879 for the subject case. In light of this error, the Department required, and the applicants agreed, that a corrected copy of these documents would be sent to all interested persons by first class mail. Further, in order to allow interested parties to have the full comment period after receiving the revised notice, the Department required, and the applicants agreed to, an extension of the deadline when comments would be due on the proposed exemption. In a letter dated July 20, 2000, the applicants confirmed that it had re-notified all interested persons, as of July 19, 2000. Accordingly, all comments and requests for a hearing were due on August 31, 2000.
During the comment period, the Department received no requests for a hearing. However, the Department did receive comment letters from eleven (11) commentators. At the close of the comment period, the Department forwarded copies of these letters to the applicant for response. The applicant responded in writing to the various concerns raised by the commentators. A description of the comments and the applicant's responses thereto are summarized below.
A number of commentators objected to the acquisition by the Fund of the Diplomat Resort and Country Club (the Start Printed Page 60456Diplomat Project) which was the subject of PTE 99-46, and expressed concern over the ASA Counselors' authority under the exemption to use assets of the Fund for the operation of the Diplomat Project. In response to the comment, the applicants noted that the Department previously granted PTE 99-46 which permitted the investment. Further, the applicants maintain that the Diplomat Project involves a large hotel, country club, and marina. Given the number of participants, contributing employers, and service providers for the Fund and the scope of the Diplomat Project, in the opinion of the applicants, there would be significant administrative difficulties in identifying and preventing inadvertent prohibited transactions. In the opinion of the applicants, the granting of this exemption to ASA Counselors, the Named Fiduciary, will eliminate the risk that a prohibited transaction will occur during the course of building, selling, or operating the Diplomat Project.
One commentator asked whether CS Capital Management had any ties to Capital Consultants, Inc. or Wilshire Financial Services. In response, CS Capital Management has confirmed that they do not have ties to either organization.
After giving full consideration to the entire record, including the written comments from the commentators, the Department has decided to grant the exemption. In this regard, the comment letters submitted to the Department have been included as part of the public record of the exemption application. The complete application file, including all supplemental submissions received by the Department, is made available for public inspection in the Public Documents Room of the Pension Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, DC 20210.
For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption refer to the Notice published on June 26, 2000, at 65 FR 39435.
For Further Information Contact: Ms. Angelena C. Le Blanc of the Department, telephone (202) 219-8883 (this is not a toll-free number).
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions to which the 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) These exemptions are supplemental to and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transactional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and
(3) The availability of these exemptions is subject to the express condition that the material facts and representations contained in each application accurately describes all material terms of the transaction which is the subject of the exemption.Start Signature
Signed at Washington, D.C., this 4th day of October, 2000.
Director of Exemption Determinations, Pension and Welfare Benefits Administration, U.S. Department of Labor.
1. 46 FR 7527, January 23, 1981.Back to Citation
2. 48 FR 895, January 7, 1983.Back to Citation
3. 47 FR 21331, May 18, 1982.Back to Citation
[FR Doc. 00-26029 Filed 10-10-00; 8:45 am]
BILLING CODE 4510-29-P