[Federal Register: April 16, 2003 (Volume 68, Number 73)]
[Notices]
[Page 18704-18710]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16ap03-114]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2003-05; Exemption Application No. D-
11061]
Grant of Individual Exemptions; John Hancock Life Insurance
Company
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of individual exemption.
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SUMMARY: This document contains an exemption 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).
A notice was published in the Federal Register of the pendency
before the Department of a proposal to grant such exemption. The notice
set forth a summary of facts and representations contained in the
application for exemption and referred interested persons to the
application for a complete statement of the facts and representations.
The application has been available for public inspection at the
Department in Washington, DC. The notice also invited interested
persons to submit comments on the requested exemption to the
Department. In addition the notice stated that any interested person
might submit a written request that a public hearing be held (where
appropriate). The applicant has represented that it has complied with
the requirements of the notification to interested persons. No requests
for a hearing were received by the Department. Public comments were
received by the Department as described in the granted exemption.
The notice of proposed exemption was issued and the exemption is
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.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemption is administratively feasible;
(b) The exemption is in the interests of the plan and its
participants and beneficiaries; and
(c) The exemption is protective of the rights of the participants
and beneficiaries of the plan.
John Hancock Life Insurance Company, Located in Boston, MA (Prohibited
Transaction Exemption 2003-05, Application No. D-11061)
Exemption
Section I: Transactions
The restrictions of sections 406(a)(1)(A) and 406(a)(1)(D) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of sections 4975(c)(1)(A) and 4975(c)(1)(D) of the
Code shall not apply to: \1\
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\1\ For purposes of this exemption, references to specific
provisions of title I of the Act, unless otherwise specified, refer
to the corresponding provisions of the Code.
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(a) The purchase of a timber asset (Timber Asset(s)), as defined in
section III(f), below, from International Paper Company or any
affiliate, as defined in section III(a), below, (collectively,
International Paper) by a certain insurance company separate account
(ForesTree IP), as defined in section III(d), below, maintained and
managed by Hancock, as defined in section III(e), below, for the
investment of the assets of one or more employee pension benefit plans
sponsored by International Paper (the IP Plan or IP Plans); provided
that the following conditions are satisfied:
(1) The fair market value of the Timber Asset sold to ForesTree IP
is determined by an independent, qualified appraiser, as defined in
section III(h), below, as of the date of the transaction,
(2) The fair market value of the Timber Asset sold to ForesTree IP
must be documented by an appraisal report in writing issued, as of the
date of the transaction, by the independent, qualified appraiser;
(3) The price paid by ForesTree IP for the Timber Asset does not
exceed the fair market value of such asset, as determined by an
independent, qualified appraiser, as of the date of the transaction,
but can be at a price that is less than the fair market value of such
asset, as of the date of the transaction; and
(4) The general conditions set forth in section II, below, are
satisfied.
(b) The sale of a timber product (Timber Product(s)), as defined in
section III(g), below, to International Paper by ForesTree IP; provided
that the following conditions are satisfied:
[[Page 18705]]
(1) Prior to soliciting bids for the sale of a Timber Product,
Hancock (or its designee) establishes a minimum bid (the Minimum Bid)
based on its assessment of the fair market value of the Timber Product
offered for sale;
(2) Hancock (or its designee) solicits from each party on the
buyers list (the Buyer's List), as defined in section III(c), below,
for the relevant geographic area in which the Timber Product is
located, a written bid for the purchase of the Timber Product offered
for sale;
(3) The highest price bid for the Timber Product offered for sale
must meet or exceed the Minimum Bid established by Hancock (or its
designee) and must not be less than the fair market value of such
Timber Product at the time the contract for sale is legally binding on
the parties involved;
(4) Where International Paper is the highest price bidder for the
Timber Product offered for sale, the transaction may not go forward,
unless Hancock (or its designee) has received bids on such Timber
Product from at least two (2) other bidders, in addition to
International Paper, provided that each such bidder satisfies the
definition of a bona fide bidder, as set forth in section III(i),
below; and provided further that neither Hancock's general account nor
any other account managed by Hancock is either of the two other
bidders; and
(5) The general conditions set forth in section II, below, are
satisfied.
Section II: General Conditions
(a) Any IP Plan that invests in ForesTree IP has total assets in
excess of $100 million;
(b) Hancock acts as a discretionary investment manager for
ForesTree IP;
(c) Hancock (or its designee) negotiates on behalf of ForesTree IP
the terms and conditions of any purchase of a Timber Asset by ForesTree
IP from International Paper and the terms and conditions of any sale of
a Timber Product by ForesTree IP to International Paper;
(d) Prior to ForestTree IP entering into any purchase of a Timber
Asset or any sale of a Timber Product, Hancock determines on behalf of
such account that each such transaction is feasible, in the interest of
the account based on the investment policy and objectives of the
account, and protective of the participants in the account;
(e) The terms and conditions of each transaction involving the sale
of a Timber Asset by International Paper to ForesTree IP or the
purchase of a Timber Product by International Paper from ForesTree IP
are at least as favorable to ForesTree IP as the terms obtainable by
ForesTree IP in a similar transaction negotiated at arm's length with
an unrelated third party;
(f) The transactions subject to this exemption are not part of an
agreement, arrangement, or understanding designed to benefit a party in
interest;
(g) Each transaction subject to this exemption is exclusively a
cash transaction;
(h) The investment of plan assets by any IP Plan in ForesTree IP
does not exceed 20 percent (20%) of the total assets of such plan;
(i) The total amount of contributions received by Hancock from
International Paper on behalf of the IP Plans and allocated to
ForesTree IP must not in the aggregate exceed $100 million; and
(j) Hancock maintains, or causes to be maintained, within the
United States for a period of six (6) years from the date of each
transaction which is subject to this exemption, in a manner that is
convenient and accessible for audit and examination, such records as
are necessary to enable the persons described, below in paragraph
(k)(1), to determine whether the conditions of the exemption have been
met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Hancock, the
records are lost or destroyed prior to the end of the six (6) year
period; and
(2) No party in interest other than Hancock shall be subject to the
civil penalty that may be assessed under section 502(i) of the Act, or
to the taxes imposed by section 4975(a) and (b) of the Code, if the
records are not maintained, or are not available for examination as
required below by paragraph (k)(1).
(k)(1) Except as provided in subparagraph (2) of this paragraph (k)
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (j),
above, are unconditionally available at their customary location for
examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, or the Internal Revenue Service;
(ii) Any fiduciary of an IP Plan or any duly authorized
representative of such fiduciary;
(iii) Any contributing employer to an IP Plan or any duly
authorized employee representative of such employer; and
(iv) Any participant or beneficiary of an IP Plan, or any duly
authorized representative of such participant or beneficiary.
(2) None of the persons described above in subparagraphs
(k)(1)(ii)-(iv) are authorized to examine the trade secrets of Hancock
or its affiliates or commercial or financial information which is
privileged or confidential.
Section III: Definitions
(a) The term, ``affiliate'' or ``affiliates,'' 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 officer, director, employee, relative of, or partner in any
such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(b) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(c) The term, ``Buyer's List,'' means a comprehensive and current
list of the names of the active forest products companies and
prospective buyers of Timber Products in the geographic area in which
such Timber Products are located, which is compiled and maintained by
Hancock (or its designee) for each such geographic area for the purpose
of selling Timber Products in such area on behalf of any of the timber
accounts managed by Hancock, provided that, with respect to the Buyer's
List utilized by ForesTree IP:
(1) International Paper's name may not be added to the Buyer's List
for a geographic area solely for the purpose of a sale by ForesTree IP
of Timber Products in such area; and
(2) The name of a prospective buyer of Timber Products in a
geographic area may not be removed by Hancock from the Buyer's List for
such geographic area, unless such buyer:
(A) Has failed to perform satisfactorily in a previous transaction;
(B) Is no longer in business;
(C) Requests, orally or in writing, to be removed from such list;
or
(D) Has failed to respond for a period of two (2) years to previous
solicitations by ForesTree IP to bid on Timber Products offered for
sale in the geographic area;
(d) The term, ``ForesTree IP,'' refers to the non-pooled insurance
company separate account maintained and managed by Hancock for the
investment of assets of one or more of the IP Plans, as well as to any
partnership, limited liability company, or corporation in which
ForesTree IP invests. The term, ``ForesTree IP,'' does not include the
other ForesTree Separate Accounts managed by Hancock.
[[Page 18706]]
(e) The term, ``Hancock,'' means John Hancock Financial Services
(Financial Services); John Hancock Life Insurance Company (JHLIC); John
Hancock Variable Life Insurance Company (Variable Life); Hancock
Natural Resource Group (Resource Group); John Hancock Timber Resource
Group (Timber Resource); or other affiliates of JHLIC, as defined in
section III(a), above, as well as the employees of Resource Group and
Timber Resource.
(f) The term, ``Timber Asset(s),'' means a fee simple in timberland
(and appurtenant rights), \2\ or a timber lease, or a timber deed,
provided that, with respect to any timber lease, or timber deed:
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\2\ It is represented that certain property rights, including
mineral rights, easements, and recreational leases, are appurtenant
to a fee simple and are brought and sold, and appraised along with
the fee simple.
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(1) The underlying fee simple is owned by a person other than
International Paper, Hancock, or any other account managed by Hancock
at the time of the sale; and
(2) The entire deed or lease held by International Paper is
purchased by ForesTree IP.
(g) The term, ``Timber Product(s),'' means standing timber or
timber in the form of logs.
(h) The term, ``independent, qualified appraiser,'' means an
individual or firm which is qualified to serve in the capacity as an
appraiser; is independent of the parties in interest engaging in the
transaction and their affiliates; and satisfies the following
conditions:
(1) Other than serving as the independent, qualified appraiser for
a transaction which is subject to this exemption, the individual or
firm has no current employment relationship with Hancock or with
International Paper;
(2) No individual or firm may serve as an independent, qualified
appraiser during any year in which the gross receipts such individual
or firm received from business with Hancock exceeds 5 percent (5%) of
such individual's or firm's gross receipts from all sources for the
prior year, and from business with International Paper for that year
exceeds 5 percent (5%) of such individual's or firm's gross receipts
from all sources for the prior year;
(3) If an individual is selected to serve as the independent,
qualified appraiser, then such individual must:
(A) Have a forestry degree; and
(B) Have a minimum of five (5) years of experience as a timberland
appraiser; or
(C) Otherwise demonstrate proficiency in timberland appraisal work
which is equivalent to the level of expertise demonstrated by the
requirements, as set forth in section III(h)(3)(A) and (B), above;
(4) If a firm is selected to serve as the independent, qualified
appraiser, then such firm must have:
(A) A minimum of five (5) years of experience as a timberland
appraiser; or
(B) Otherwise demonstrate proficiency in timberland appraisal work;
and
(5) The individual or the firm that serves as the independent,
qualified appraiser for transactions covered by this exemption must
have the ability to access appropriate timberland sales comparison
data.
(i) The term, ``bona fide bidder,'' means a bidder on a Timber
Product offered for sale by ForesTree IP, only if
(1) The bidder has made an offer to purchase the Timber Product, in
accordance with the terms of the bid solicitation;
(2) The bidder's name appears on the Buyer's List at the time of
bid solicitation and at the time of the bid;
(3) Hancock neither knows or should know of any impediment to the
bidder's consummation of the purchase of the Timber Product offered for
sale upon which the bidder has bid; and
(4) Hancock has no reason to believe that the bid was not made in
good faith by the bidder with the present intent of procuring the
Timber Product offered for sale by ForesTree IP.
Written Comments
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 within 45
days of the date of the publication of the notice in the Federal
Register on January 22, 2003. All comments and requests for a hearing
were due by March 14, 2003.
During the comment period, the Department received no requests for
a hearing. However, the Department did receive comment letters from
four (4) commentators. At the close of the comment period, the
Department forwarded a copy of each of these comment letters to the
applicant and requested that the applicant respond in writing to the
issues raised by the commentators. The concerns expressed by the
commentators and the applicant's response thereto are summarized in the
numbered paragraphs below.
1. One commentator objected to the proposed exemption because he
views the proposed transactions as Enron-like deceptive transactions
between two International Paper entities. The commentator suggested
that the Timber Assets should remain with International Paper as a long
term investment, and that International Paper would suffer if it does
not.
In response, the applicant notes that the commentator appears to
believe that the proposed transactions would constitute a
``repurchase'' by International Paper of assets it already owns-- a
``scheme'' for transferring assets among International Paper entities.
In this regard, the IP Plan and ForesTree IP are independent of
International Paper and a transfer to the IP Plan from International
Paper is in no way a ``repurchase'' of the assets by International
Paper.
Further, the applicant maintains that there is no ``scheme'' here.
The filing of this exemption was initiated by Hancock to obtain relief
from the prohibited transaction provisions of the Act. Hancock is a
professional timber manager unaffiliated with International Paper.
Hancock, and not International Paper, sought the exemption so that if
the investment attributes of the Timber Assets International Paper
offered for sale were consistent with the investment objectives of
ForesTree, the account would have an opportunity to acquire those
Timber Assets.
In addition, the applicant points out that the commentator seems
more concerned with the fact that International Paper is selling the
Timber Assets than with the fact that Hancock will be permitted to bid
on those assets that International Paper offers for sale. In this
regard, it is the applicants understanding that the sale of
International Paper timberlands is part of its strategic plan to
monetize non-strategic timberland following its merger with Champion
International.
Hancock, and not International Paper, will decide whether ForesTree
IP will engage in a transaction with International Paper, and Hancock
is subject to the fiduciary duties of the Act. It is represented that
Hancock will cause ForesTree IP to engage in a transaction only if the
transaction is in the interest of ForesTree IP (that is, the IP Plan).
It is further represented that Hancock's acquisition sourcing will in
no way take the interests of International Paper into account in
considering the merits of each such transaction.
The commentator also indicated a lack of confidence in the third
party appraisal that Hancock is required to obtain, pursuant to a
condition of this exemption, citing the ``sample intensity.'' In this
context, the applicant understands ``sample intensity'' to refer to the
extent of the samples of timber
[[Page 18707]]
inventory used by an appraiser (or prospective buyer) to assess the
value of that inventory. The commentator's concern regarding sample
intensity is addressed by Hancock's due diligence process, including
the timber inventory verification described below, and the appraisal
methodology that uses multiple valuation approaches to independently
establish market value.
In this regard, the applicant notes that the purchase price of
Timber Assets is established through Hancock's intensive due diligence
process, that includes, among other things, timber inventory
verification through an actual on-the-ground survey of the timber,
using a statistically sound sampling methodology. Hancock uses the
timber inventory analysis together with information regarding timber
markets, timber price forecast, forest management expenses, timber
growth models, and harvesting plans among other things to develop a
discount cash flow analysis, projected total return and purchase price
given the relative riskiness of the market area. The purchase price
established through this process is the starting basis for prices
offered by Hancock in competitive bids or negotiated sale transactions.
A third-party appraisal verifies that the purchase price, established
through the process noted above, is not more than fair market value.
In doing so, the third-party appraiser will typically use multiple
valuation methodologies to estimate the market value of Timber Assets.
These include the cost approach, the sales comparison approach, and the
income approach (discount cash flow analysis). The different approaches
help to establish the most probable value range based on the
differences between buyers and sellers in the marketplace. The
appraiser then, based on the data presented, determines a value in the
range that represents the most probable price assuming the property
were offered for sale.
2. One commentator noted his opposition to the proposed exemption
on the grounds that International Paper's domination of the relevant
timber markets could make the fair market value, and thus the price,
obtained by Hancock for Timber Products artificially low.
In response the applicant notes that this comment does not appear
to be a criticism of the sale by the IP Plan of Timber Products to
International Paper, so much as a criticism of the IP Plan's allocation
to timber in the first place. In this regard, the applicant maintains
that whether or not the IP Plan invests in timber is not the subject of
this exemption. Rather, this exemption is designed to ensure that
ForesTree IP has access to all market outlets in a competitive manner.
In the opinion of the applicant, participation by International
Paper in the bid process increases, not decreases, the chances of
ForesTree IP of obtaining a favorable price, because it expands the
universe of potential timber purchasers. One of Hancock's objectives in
seeking this exemption is to increase the potential buyers, and thus
the price, of ForesTree IP's Timber Products. It is the applicant's
view that the mergers to which the commentator refers would make it
even more important to include International Paper in the Timber
Products bidding process so as to have as many potential bidders as
possible.
The commentator also asserts that the proposed exemption would
permit ``incestuous dealings'' between the IP Plan and International
Paper. The applicant maintains that there is no conflict of interest in
this case, because the IP Plan is represented by an independent
investment manager. In this regard, Hancock manages the entire
ForesTree IP account in its sole discretion and will determine if, and
when, it is in the interest of ForesTree IP to enter into a transaction
with International Paper, pursuant to the procedures established as
part of this exemption. Furthermore, Hancock will be fully responsible
and liable for that decision.
3. One commentator objected to the proposed exemption because, in
his view, International Paper does not provide sufficient pension
benefits to IP Plan participants and beneficiaries.
In response the applicant, points out that the IP Plan is a defined
benefit plan, and Hancock has no control over the plan of benefits
provided to plan participants under the IP Plan. Rather, Hancock is
charged with investing the assets of the IP Plan allocated to timber as
effectively as it can. In the view of the applicant, the commentator's
complaint is with the design of the IP Plan and not the manner in which
it is invested.
4. One commentator believes that the fact that Hancock must seek an
exemption for the proposed transactions indicates that the transactions
are ``ill-advised.''
In response the applicant points out that the drafters of the Act
recognized that exemptions to prohibited transaction provisions would
certainly be required and, in fact, incorporated more than ten such
statutory exemptions into the Act. More importantly, Congress
authorized the Department to issue individual exemptions where an
individual plan's interest could be adequately protected. In the
applicant's view, the fact that Hancock has applied for this exemption
indicates only that it seeks to obtain the best return possible for
ForesTree IP by expanding the account's potential pool of
counterparties.
The commentator also objected to the proposal on the grounds that
recent corporate scandals have cast doubt upon the ``investment
schemes'' of ``corporate financial officers.''
In this regard, the applicant points out that Hancock, and not the
financial officers of International Paper, is responsible for deciding
whether or not ForesTree IP enters into transactions with International
Paper. In addition, the applicant maintains that the subject
transactions will be effected, if at all, in a straightforward and
transparent manner. In this regard, the exemption requires that
specified conditions be met and that records of the transactions and
conditions be maintained.
Lastly, the applicant notes that the commentator provided no
support for his assertion that the subject transactions (routine types
of transactions under a professionally managed timber program)
constitute a ``speculation venture of unknown risk.'' The commentator
objected to the fact the IP Plan invests in timber at all, which, as
the applicant noted above, is the result of a reasonable asset
allocation decision on the part of the plan fiduciaries. Moreover,
there is nothing to suggest that timber is a speculative investment.
The applicant maintains that Hancock and its affiliates are in the
business of prudently managing the risks associated with timber
investments. As discussed above, Hancock's due diligence process is
thorough and is designed to assess risk.
5. During the comment period, the Department also received a
comment from the applicant. In this regard, in a letter dated March 14,
2003, the applicant requested certain amendments to the operant
language of the exemption and changes to the representations which were
set forth in the Summary of Facts and Representations (the SFR)
published in the notice. A discussion of the applicant's comments and
the Department's responses, thereto are also set forth in the
subparagraphs, below.
A. For the sake of consistency with the language in section I(a)(1)
and (2) of the exemption, the applicant proposes a revision of section
I(a)(3), as set forth in the notice, on page 3040, column 3, line 26-
27, to replace the phrase, ``at the time of purchase,'' with the
phrase, ``as of the date of the transaction.''
[[Page 18708]]
The Department concurs and in the final exemption has amended the
language of section I(a)(3), accordingly.
B. Section I(a)(1) requires that the price paid by ForesTree IP for
the Timber Asset be determined by an independent, qualified appraiser,
as defined in section III(h), below, as of the date of the transaction.
Section I(a)(2) provides that the fair market value of the Timber
Assets sold to ForesTree IP must be documented in a written appraisal
report by an independent, qualified appraiser, as of the date of the
transaction. Section I(a)(3) provides that the price paid by ForesTree
IP for the Timber Asset may not exceed the fair market value of such
asset at the time of the purchase.
It is the applicant's view that, given the conditions in sections
I(a)(2) and (3) of the exemption, it is not necessary to require that
the Timber Asset price be determined by the independent, qualified
appraiser. In this regard, the applicant maintains that the other
conditions make it impossible for ForesTree IP to purchase a Timber
Asset for more than fair market value and that the condition in section
I(a)(1) does not provide any additional protection to the IP Plans and
their participants and beneficiaries. Moreover, the applicant believes
that section I(a)(1) would interfere with Hancock's duty to negotiate
the best price for ForesTree IP, including a price that is less than
the appraised value of the Timber Asset. Accordingly, the applicant
requests that section I(a)(1), as set forth in the notice, on page
3040, column 3, lines 13-17, be deleted and that the remaining three
(3) subparagraphs in section I(a) be renumbered.
In the view of the Department, a determination by an independent,
qualified appraiser of the fair market value of a Timber Asset at the
time of the transaction provides a safeguard which insures that the IP
Plan through ForesTree IP does not pay to much for such asset.
Accordingly, the Department has decided not to delete section I(a)(1)
of the exemption and has decided not to renumber section I(a)(2),
section I(a)(3), or section I(a)(4).
However, the Department does not intend that compliance with the
language of section (I)(a)(1)would preclude Hancock from negotiating on
behalf of ForesTree IP a price for a Timber Asset which is less than
the fair market value of such asset at the time of the transaction.
Accordingly, the Department has determined in the final exemption to
amend the language of section I(a)(1), as set forth in the notice, on
page 3040, column 3, lines 13-17, to delete the bracketed words and add
the italicized words as follows:
The [price paid by ForesTree IP for] fair market value of the
Timber Asset sold to ForesTree IP is determined by an independent,
qualified appraiser, as defined in section III(h), below, as of the
date of the transaction.
Further the Department has determined in the final exemption to
amend the language of section I(a)(3), as set forth in the notice, on
page 3040, column 3, lines 24-27, to delete the bracketed phrase and
add the italicized phrases as follows:
The price paid by ForesTree IP for the Timber Asset does not
exceed the fair market value of such asset, [at the time of the
purchase] as determined by an independent, qualified appraiser as of
the date of the transaction, but can be at a price that is less than
the fair market value of such asset, as of the date of the
transaction.
C. Because Hancock utilizes affiliated and unaffiliated timber
managers in managing ForesTree IP, the applicant believes that it would
be more accurate to reference Hancock's ``designees,'' as is currently
reflected in section I(b)(2). Accordingly, the applicant requests that
the phrase, ``(or its designee),'' be inserted after the word,
``Hancock,'' in the following sections of the final exemption, section
I(b)(1), section I(b)(3), section I(b)(4), section II(c), and section
III(c).
The Department concurs and has amended the language, as set forth
in the notice, to insert the parenthetical phrase, ``(or its
designee),'' after the word, ``Hancock,'' in the following locations:
(1) In section I(b)(1)on page 3040, column 3, line 36;
(2) In section I(b)(3)on page 3040, column 3, line 51;
(3) In section I(b)(4)on page 3040, column 3, line 59;
(4) In section II(c)on page 3041, column 1, line 9; and
(5) In section III(c)on page 3041, column 2, line 68.
D. The applicant has suggested that the Department delete section
II(h), as set forth in the notice, on page 3041, column 1, lines 42-46.
Section II(h) precludes ForesTree IP from purchasing Timber Assets from
or selling Timber Products to Hancock's general account or any other
account managed by Hancock. In this regard, the applicant expressed
concern that section II(h)suggests that ForesTree IP could not use
Prohibited Transaction Exemption 98-61 (PTE 98-61), in an appropriate
case, for transactions between ForesTree IP and other Hancock separate
accounts. In this regard, PTE 98-61 provides relief from section
406(b)(2) of the Act, for purchases and sales of Timber Assets between
certain separate accounts, as defined in PTE 98-61, that are managed by
Resource Group and Timber Resource or other affiliates of JHLIC. In
support of the request that section II(h) be deleted, the applicant
notes that: (1) The exemption provides relief only for transactions
between ForesTree IP and International Paper; (2) Hancock is not
seeking relief for transactions between ForesTree IP and the general
account or other Hancock separate accounts; and (3) section I(b)(4) of
the exemption already provides that neither Hancock's general account
nor any other account managed by Hancock may be counted as one of the
two bona fide bidders required where International Paper is the highest
price bidder for the Timber Products offered for sale by ForesTree IP.
The Department concurs with the applicant's request, and
accordingly, has deleted section II(h) from the final exemption. As a
result of the deletion of section II(h)from the final exemption,
subsections (i), (j), (k), and (l) of section II have, accordingly,
been reordered as subsections (h), (i), (j), and (k) of section II.
Conforming changes have also been made to cross references within these
subsections.
Further, the Department wishes to note that for transactions
between ForesTree IP and other Hancock separate accounts, ForesTree IP
may rely on PTE 98-61 only for transactions, as described therein, and
only if the conditions, as set forth in PTE 98-61 are satisfied.
E. The applicant notes that section II(k), as set forth in the
notice, makes reference on page 3041, column 1, line 64, to paragraph
(1)(1) (the numeral ``one'' followed by the numeral ``one''). The
applicant requests that the reference be changed so as to refer to
paragraph(l)(1) (the letter ``l'' and then the numeral ``one''). The
applicant also notes that, if the Department accepts the proposed
deletion of section II(h), as discussed above, this reference will
actually become paragraph(k)(1).
The Department concurs with the applicant's request. As the
Department did decide to delete section II(h) from the final exemption,
the reference to paragraph (1)(1), as set forth in the notice, on page
3041, column 1, line 64, had been changed to paragraph (k)(1) in the
final exemption.
F. The applicant requests a revision to the language of section
III(e), as set forth in the notice, on page 3041, column 3, lines 38-
48. Section II(e), states:
The term, ``Hancock,'' means John Hancock Financial Services
(Financial Services); John
[[Page 18709]]
Hancock Life Insurance Company (JHLIC); John Hancock Variable Life
Insurance Company (Variable Life); Hancock Natural Resources Group
(Resources Group); John Hancock Timber Resource Corporation (Timber
Resource); or other affiliates of JHLIC, as defined in section
III(a), above.
Pursuant to section III(a), the term, ``affiliate'' or ``affiliates,''
of a person includes ``any officer, director, employee, relative of, or
partner in any such person.'' The applicant is concerned that the
combination of these two definitions omits from the term, ``Hancock,''
(and perhaps from relief) employees of Hancock affiliated entities,
other than JHLIC. In this regard, the applicant seeks to ensure that
the exemption provides relief for the individual employees of those
entities making decisions with respect to ForesTree IP. Accordingly,
the applicant suggested a revision to section III(e) to add the phrase,
``as well as the employees of such entities,'' to the language of
section III(e) in the final exemption. Subsequently, in an e-mail to
the Department, dated April 2, 2003, the applicant clarified that in
addition to employees of JHLIC, incorporated into the definition of
affiliate, as set forth in section III(a)(2), the term, ``Hancock''
should include employees of Resource Group, and Timber Resource.
The Department concurs with the applicant's request. Accordingly,
the language of section III(e), as set forth in the Notice, on page
3041, column 3, line 48, has been amended to add the phrase, ``as well
as the employees of Resource Group and Timber Resource,'' after the
word, ``above.''
The applicant also suggested a few corrections to the names of the
entities listed in the definition of the term, ``Hancock,'' as set
forth in section III(e) in the Notice, on page 3041, column 3, lines
43-46. In this regard, ``Hancock Natural Resources Group'' should be
``Hancock Natural Resource Group,'' and ``(Resources Group)'' should
become ``(Resource Group).'' In the same paragraph, ``John Hancock
Timber Resource Corporation'' should be changed to ``John Hancock
Timber Resource Group.''
The Department concurs and in the final exemption has amended the
language of section III(e), accordingly.
G. Section III(h)(2), as set forth in the Notice, on page 3042,
column 1, lines 18-27, requires that:
No individual or firm may serve as an independent, qualified
appraiser during any year in which the gross receipts such
individual or firm received from business with Hancock and from
business with International Paper for that year exceeds 5 percent
(5%) of such individual's or firm's gross receipts from all sources
for the prior year.
The applicant seeks confirmation that the ``5 percent gross receipt
test'' in section III(h)(2) applies separately with respect to Hancock
and to International Paper. In this regard, it is the applicant's
understanding that an individual appraiser may not have gross receipts
from Hancock in excess of 5 percent (5%) or from International Paper in
excess of 5 percent (5%).
The Department confirms the applicant's understanding of section
III(h)(2). In addition, the Department has decided to amend the
language of section III(h)(2), as set forth in the notice, on page
3042, column 1, line 22, to insert the phrase, ``exceeds 5 percent (5%)
of such individual's or firm's gross receipts from all sources for the
prior year,'' after the word, ``Hancock.''
H. The applicant has requested and the Department concurs with the
following modifications, corrections, or updates to the information
that appeared in the SFR of the notice:
(1) References to ``Resources Group'' that appeared in the SFR
throughout representations 2, 4, 5 and 6 should have been references to
``Resource Group;''
(2) A reference to ``.5 million'' that appeared in the second
paragraph of representation 2 in the SFR should have been a reference
to ``0.5 million;''
(3) The reference to Olympic Resource Management that appeared in
the fifth paragraph of representations 4 in the SFR should be revised.
In this regard, the applicant has informed the Department that Resource
Group recently chose not to renew its contract with Olympic Resource
Management. It is represented that Hancock Forest Management, Inc., a
recently formed affiliate of Resource Group, has taken over the duties
of Olympic Resource Management with respect to the western United
States and Canada;
(4) The eighth sentence in the first paragraph of representation 5
of the SFR, should be revised to delete the bracketed words and add the
italicized words as follows:
John Hancock [expects that] allocated the remaining $15 million
[will be allocated before] for investment near the end of the year
2002;
(5) The reference to ``$1 million to $2 million'' that appeared in
the second sentence of representation 6 in the SFR should have been a
reference to ``$1 billion to $2 billion;''
(6) The second sentence in representation 6 of the SFR should be
further revised to delete the bracketed words and add the italicized
words as follows:
In this regard, John Hancock, at the time of its application,
originally anticipated [anticipates] that $1 billion to $2 billion
worth of Timber Assets [will] would be marketed by International
Paper for sale over the next two (2) years, as a result of the May
2000 merger of International Paper and Champion International;
(7) After the second sentence in representation 6 of the SFR, the
applicant has requested the addition of the following sentence:
Since the filing of the exemption application, John Hancock has
learned that International Paper's business strategy with respect to
these assets may have changed, but John Hancock does not yet know
what the new divestment strategy will be; and
(8) The reference to ``section III (i) below'' that appeared in
representation 10(f) should have been a reference to ``section III
(i)'' as that section actually comes before representation 10(f) in the
SFR.
After giving full consideration to the entire record, including the
written comments from the commentators and the applicant's response to
such comments and the comment from the applicant, the Department has
decided to grant the exemption, as described and amended, above. In
this regard, the comment letters, the applicant's response thereto, and
the applicant's comment letter 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 Employee Benefits Security
Administration, Room N-1513, U.S. Department of Labor, 200 Constitution
Avenue, NW., 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 January 22, 2003, at 68 FR 3040.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemption does not
apply and the general fiduciary
[[Page 18710]]
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) This exemption is 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 this exemption is subject to the express
condition that the material facts and representations contained in the
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed in Washington, DC, this 11th day of April, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 03-9353 Filed 4-15-03; 8:45 am]
BILLING CODE 4510-29-P