Grant of Individual Exemption To Amend and Replace Prohibited
Transaction Exemption (PTE) 2000-34, Involving the Fidelity Mutual Life
Insurance Company (FML), Located in Radnor, PA
[07/02/2007]
Volume 72, Number 126, Page 36045-36048
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Prohibited Transaction Exemption 2007-08; Exemption Application No. D-
11345]
Grant of Individual Exemption To Amend and Replace Prohibited
Transaction Exemption (PTE) 2000-34, Involving the Fidelity Mutual Life
Insurance Company (FML), Located in Radnor, PA
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Grant of individual exemption to amend and replace PTE 2000-34.
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This document contains a final exemption before the Department of
Labor (the Department) that amends and replaces PTE 2000-34 (65 FR
41732, July 6, 2000), an exemption granted to FML. PTE 2000-34, relates
to (1) the receipt of certain stock (Plan Stock) issued by Fidelity
Insurance Group, Inc., a wholly owned subsidiary of FML, or (2) the
receipt of plan credits by or on behalf of a FML mutual member (the
Mutual Member), which is an employee
[[Page 36046]]
benefit plan (the Plan), other than the Employee Pension Plan of
Fidelity Mutual Life Insurance Company, in exchange for such Mutual
Member's membership interest in FML, in accordance with the terms of a
plan of rehabilitation (the Third Amended Plan), approved by the
Pennsylvania Commonwealth Court (the Court) and supervised by both the
Court and a rehabilitator appointed by the Pennsylvania Insurance
Commissioner. These transactions are described in a notice of proposed
exemption (65 FR 18359, April 7, 2000), which underlies PTE 2000-34.
The final exemption incorporates by reference many of the
conditions contained in PTE 2000-34. The exemption also revises and
updates certain facts and representations set forth in PTE 2000-34 to
include the terms of the Fourth Amended Plan of Rehabilitation (the
Fourth Amended Plan) which supersedes the Third Amended Plan upon which
PTE 2000-34 is based.
DATES: Effective Date: This exemption is effective as of the date the
grant notice is published in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of
Exemptions Determinations, Employee Benefits Security Administration,
U.S. Department of Labor, telephone (202) 693-8552. (This is not a
toll-free number.)
SUPPLEMENTARY INFORMATION: On March 22, 2007, the Department published
a notice of proposed exemption in the Federal Register at 72 FR 13519.
The document contained a notice of proposed individual exemption from
the prohibited transaction restrictions of section 406(a) 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), as amended, by reason of
section 4975(c)(1)(A) through (D) of the Code. The proposed exemption
has been requested in an application filed on behalf of FML 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, this exemption is being issued solely by the Department.
The proposed exemption gave interested persons an opportunity to
comment and to request a hearing. In this regard, all interested
persons were invited to submit written comments or requests for a
hearing on the pending exemption on or before April 24, 2007. All
comments were made part of the record.
During the comment period, the Department received 2 written
comments that were submitted by electronic mail. One comment was
submitted by FML and it is intended to clarify that FML is located in
``Radnor'' rather than in ``Pittsburgh,'' Pennsylvania. In response to
the comment, the Department has modified the text in the heading at the
beginning of the grant notice to read ``Radnor, Pennsylvania'' in order
to denote FML's correct location.
The second comment was submitted by the trustee of a Plan that is a
Mutual Member of FML. Specifically, the commenter wished to know
whether (1) FML is nearing dissolution and its assets are close to
depletion; (2) FML has any knowledge of a prospective purchaser which
has expressed an interest in protecting the current policyholders if
the Fourth Amended Plan is granted; and (3) the ``numbers'' cited in
the proposed exemption are factual. The commenter also sought
clarification on the percentage of likelihood that the Fourth Amended
Plan would be implemented and whether the commenter's own Plan would be
permitted to acquire ``mutual fund stock'' of an insurance company.
In response to this comment, FML explains that the sale of its
assets (or possibly its conversion to a stock company and the sale of
its stock) is expected to occur in the near future. FML also states
that its assets are not nearing depletion. In addition, FML represents
that a third party has submitted a bid to purchase its assets and that
the protections of its policyholders are the protections that are built
into the Fourth Amended Plan, which must be implemented and approved by
the Court. Moreover, FML indicates that the numbers cited in the
proposal are actual numbers. With respect to the implementation of the
Fourth Amended Plan, FML has declined to specify a percentage, but
states that it believes this plan ``is highly likely to be
implemented.'' Finally, in response to the commenter's question about
allowing the commenter's own Plan to acquire mutual fund shares, FML
states it does not understand the comment and that the requested
exemption has nothing to do with mutual funds.
For further information regarding the comments or other matters
discussed herein, interested persons are encouraged to obtain copies of
the exemption application file (Exemption Application No. D-11345) the
Department is maintaining in this case. The complete application file,
as well as all supplemental submissions received by the Department, is
made available for public inspection in the Public Disclosure Room of
the Employee Benefits Security Administration, Room N-1513, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210.
Accordingly, after giving full consideration to the entire record,
including the written comments received, the Department has decided to
grant the exemption.
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 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 the general fiduciary responsibility provisions of section
404 of the Act, which require, among other things, a fiduciary to
discharge his or her 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;
(2) The exemption does not extend to transactions prohibited under
section 406(b) of the Act and section 4975(c)(1)(E)-(F) of the Code;
(3) In accordance with section 408(a) of the Act, the Department
makes the following determinations:
(a) The exemption is administratively feasible;
(b) The exemption is in the interest of the plan and of its
participants and beneficiaries; and
(c) The exemption is protective of the rights of participants and
beneficiaries of the plans.
(4) The exemption is 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.
[[Page 36047]]
Accordingly, the following exemption is granted under the authority
of section 408(a) of the Act and section 4975(c)(2) of the Code and in
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B
(55 FR 32836, 32847, August 10, 1990).
Section I. Covered Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to
(1) the receipt of certain stock (the Investor Stock) issued by the
corporation (the Stock Purchaser) which acquires Post-Conversion
Fidelity Mutual Life Insurance Company (Post-Conversion FML) by stock
purchase or by merger, (2) the receipt of plan credits (the Plan
Credits), or (3) the receipt of cash, by or on behalf of a mutual
member (the Mutual Member) of FML which is an employee benefit plan (a
Plan), in exchange for such Mutual Member's membership interest (the
Membership Interest) in FML, in accordance with the terms of a plan of
rehabilitation of FML (the Fourth Amended Plan) approved by the
Pennsylvania Commonwealth Court (the Court) and supervised by both the
Court and the Pennsylvania Insurance Commissioner (the Commissioner),
who is acting as the rehabilitator of FML (the Rehabilitator).
This exemption is subject to the following conditions set forth
below in Section II.
Section II. General Conditions
(a) The Fourth Amended Plan is approved by the Court, implemented
in accordance with procedural and substantive safeguards that are
imposed under Pennsylvania law and is subject to review and/or
supervision by the Commissioner (both in her own capacity and in her
capacity as Rehabilitator of FML). The Court determines whether the
Fourth Plan--
(1) Properly conserves and equitably administers the assets of FML,
in the interests of investors, the public, and others in accordance
with the legislatively-stated purpose of protecting the interests of
the insured, creditors, and the public; and
(2) Equitably apportions any unavoidable loss through imposed
methods for rehabilitating FML. (The Court will retain exclusive
jurisdiction over the implementation, interpretation, and enforcement
of the Fourth Amended Plan of Reorganization.)
(b) The Fourth Amended Plan provides for either:
(1) The transfer of FML's assets to an independent purchaser (the
Asset Purchaser) in exchange for cash; or
(2) The conversion of FML from a mutual life insurance company into
a stock life insurance company and either (A) the transfer of the stock
of Post-Conversion FML to the independent Stock Purchaser or (B) the
merger of Post-Conversion FML into the independent Stock Purchaser or
an affiliate of the Stock Purchaser.
(c) Each Mutual Member has an opportunity to comment on the Fourth
Amended Plan at hearings held by the Court after full written
disclosure of the terms of the Plan is given to such Mutual Member by
FML.
(d) Participation by all Mutual Members in the Fourth Amended Plan,
if approved by the Court, is mandatory, although Mutual Members may
disclaim the Investor Stock, cash, and/or Plan Credits which they would
otherwise receive.
(e) The decision by a Mutual Member which is a Plan to receive or
disclaim Investor Stock, cash, and/or Plan Credits allocated to such
Mutual Member is made by one or more independent fiduciaries of such
Plan, and not by FML or any affiliate of FML. Consequently, neither FML
nor any of its affiliates will exercise discretion nor render
``investment advice'' within the meaning of 29 CFR 2510.3-21(c) with
respect to an independent Plan fiduciary's decision to receive or
disclaim Investor Stock, cash, and/or Plan Credits.
(f) Twenty percent (20%) of the net assets which are available for
distribution to the Mutual Members is allocated among the Mutual
Members based upon voting rights, and eighty percent (80%) of such net
assets is allocated among the Mutual Members on the basis of the
contribution of the Mutual Members' respective insurance or annuity
contracts (the Contracts) to the surplus of FML. The contribution to
FML's surplus is the actuarial calculation of both the historical and
expected future profit contribution of the Contracts that have
contributed to the surplus (i.e., the net earnings) of FML. The
actuarial formulas are approved by the Court and the Commissioner.
(g) The amount and value of the Investor Stock, cash, and/or Plan
Credits received by a Mutual Member reflect the aggregate consideration
paid by the Stock Purchaser or Asset Purchaser, which is independent of
FML.
(h) All Mutual Members that are Plans participate in the
transactions on the same basis as all other Mutual Members that are not
Plans, except that Mutual Members which hold Non-Trusteed Tax-Qualified
Retirement Funding Contracts receive Plan Credits in exchange for their
membership interests, rather than cash and/or Investor Stock.
(i) No Mutual Member pays any brokerage commissions or fees in
connection with the receipt of Investor Stock, cash, and/or Plan
Credits.
(j) Mutual Members are not restricted from selling or otherwise
transferring any Investor Stock which they receive. If Investor Stock
comprises part of the consideration paid by the Stock Purchaser, the
Stock Purchaser is required to establish a commission-free purchase or
sales program which will allow Mutual Members who receive a small
number of shares of Investor Stock to ``round up'' such shares or sell
such shares free of sales commissions.
(k) The Fourth Amended Plan does not adversely affect the rights of
a contractholder of the company (the Contractholder) which is a Mutual
Member. In this regard,
(1) If Post-Conversion FML is acquired by the Stock Purchaser, the
obligations of FML to a Contractholder are retained by Post-Conversion
FML; and
(2) If FML's assets are purchased by the Asset Purchaser, FML's
obligations to a Contractholder are discharged and terminated upon
their endorsement and assumption by the Asset Purchaser, thereby making
the Asset Purchaser liable for the obligations under the Contract.
Section III. Definitions
For purposes of this exemption:
(a) An ``affiliate'' of FML, Post-Conversion FML, the Stock
Purchaser, or the Asset Purchaser includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such entity. (For purposes of this paragraph, the term ``control''
means the power to exercise a controlling influence over the management
or policies of a person other than an individual.); or
(2) Any officer, director or partner in such person.
(b) The term ``Asset Purchaser'' means the person (e.g.,
individual, corporation, partnership, joint venture, etc.) selected by
the Rehabilitator and approved by the Court to purchase FML's assets
under an assumption reinsurance agreement.
(c) The term ``FML'' means the Fidelity Mutual Life Insurance
Company (In Rehabilitation) and any affiliate of FML, as defined in
paragraph (a) of this Section III, as they exist before
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FML is converted from a mutual life insurance company into a stock life
insurance company.
(d) The term ``Investor Stock'' means the common stock of the Stock
Purchaser that will be allocated to Mutual Members if Post-Conversion
FML is acquired by the Stock Purchaser in exchange for consideration
that includes common stock of the Stock Purchaser.
(e) The term ``Mutual Member'' means a Contractholder whose name
appears on FML's records as an owner of an FML Contract on the Record
Date of the Fourth Amended Plan.
(f) The term ``Non-Trusteed Tax-Qualified Retirement Funding
Contracts'' means FML insurance contracts which are held in connection
with retirement plans or arrangements described in section 403(a) or
408 of the Internal Revenue Code or non-trusteed retirement plans
described in Section 401(a) of the Internal Revenue Code.
(g) The term ``Plan'' means an employee benefit plan.
(h) The term ``Plan Credit'' means either (1) additional paid up
insurance for a traditional life policy or (2) credits to the account
values for Contracts that are not traditional (such as a flexible
premium policy). Under FML's Fourth Amended Plan, Plan Credits are to
be allocated to Mutual Members who hold Non-Trusteed Tax-Qualified
Retirement Funding Contracts, in lieu of Investor Stock and/or cash.
(i) The term ``Post-Conversion FML'' means the Fidelity Mutual Life
Insurance Company (In Rehabilitation) and any affiliate of FML, as
defined in paragraph (a) of this Section III, as they exist after FML
is converted from a mutual life insurance company into a stock life
insurance company.
(j) The term ``Stock Purchaser'' means the person (e.g.,
individual, corporation, partnership, joint venture, etc.) selected by
the Rehabilitator and approved by the Court to purchase the stock of
Post-Conversion FML, or to acquire Post-Conversion FML by merger, under
a stock purchase agreement or merger agreement.
This exemption is available to FML for as long as the terms and
conditions of the exemption are satisfied with respect to each Mutual
Member that is a Plan.
For a more complete statement of the facts and representations
supporting the Department's decision to grant PTE 2000-34, refer to the
proposed exemption and the grant notice which are cited above.
Signed at Washington, DC, June 26, 2007.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E7-12673 Filed 6-29-07; 8:45 am]
BILLING CODE 4510-29-P
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