[Federal Register: May 5, 2003 (Volume 68, Number 86)]
[Notices]
[Page 23764-23766]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr05my03-103]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-11068] et al.
Prohibited Transaction Exemption 2003-07; Grant of Individual
Exemptions; Archer Daniels Midland Company (Archer)
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: 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).
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.
[[Page 23765]]
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.
Archer Daniels Midland Company (Archer), Located in Decatur, Illinois
[Prohibited Transaction Exemption 2003-07; Exemption Application No. D-
11068]
Exemption
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 Agrinational Insurance Company (Agrinational) in connection with
insurance contracts sold by Minnesota Life Insurance Company (Minnesota
Life), or any successor insurance company to Minnesota Life which is
unrelated to Archer, to provide basic and supplemental life insurance
benefits to participants in Archer's programs to provide such benefits
to its employees (the Plans),\1\ provided the following conditions are
met:
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\1\ Each Plan will be considered an ``employee welfare benefit
plan'' as defined in section 3(1) of the Act.
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(a) Agrinational--
(1) Is a party in interest with respect to the Plans by reason of a
stock or partnership affiliation with Archer 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 Plans pay no more than adequate consideration for the
insurance contracts;
(c) No commissions are paid by the Plans with respect to the direct
sale of such contracts or the reinsurance thereof;
(d) In the initial year of any contract involving Agrinational,
there will be an immediate and objectively determined benefit to the
Plans' participants and beneficiaries in the form of increased
benefits;
(e) In subsequent years, the formula used to calculate premiums by
Minnesota Life or any successor insurer will be similar to formulae
used by other insurers providing comparable 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 Plans only contract with insurers with a rating of A or
better from A. M. Best Company (Best's). The reinsurance arrangement
between the insurers and Agrinational will be indemnity insurance only,
i.e., the insurer will not be relieved of liability to the Plans should
Agrinational be unable or unwilling to cover any liability arising from
the reinsurance arrangement;
(g) Agrinational retains an independent fiduciary (the Independent
Fiduciary), at Archer'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 Archer or Agrinational (this relationship hereinafter referred to
as an ``Affiliate'');
(2) Is not an officer, director, employee of, or partner in, Archer
or Agrinational (or any Affiliate of either);
(3) Is not a corporation or partnership in which Archer or
Agrinational has an ownership interest or is a partner;
(4) Does not have an ownership interest in Archer or Agrinational,
or any of either's Affiliates;
(5) Is not a fiduciary with respect to the Plans 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 Archer, Agrinational, 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 Archer, Agrinational, 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 March 3, 2003 at 68 FR
10043.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 693-8546. (This is not a toll-free number.)
G.D. Castillo, M.D., Ltd, Profit Sharing Plan (the Plan), Located in
Savoy, Illinois
[Prohibited Transaction Exemption 2003-08; Exemption Application Number
D-11107]
Exemption
The restrictions of sections 406(a) and 406(b)(1) and (b)(2) of the
Act and the
[[Page 23766]]
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 August 23, 1999, to the sale of two parcels of
unimproved real property (the Properties) by the Plan to Doctor G.D.
Castillo (the Sales), a party in interest with respect to such Plan,
provided that the following conditions are met: \2\
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\2\ The application for this exemption, which was filed on
January 19, 2001, was initially assigned the number D-10967 before
being reassigned the above-referenced application number on July 22,
2002.
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(a) The terms and conditions of the Sales were at least as
favorable to the Plan as those obtainable in similar arm's-length
transactions involving unrelated parties;
(b) Each Sale was a one-time transaction for cash;
(c) The amount of cash received by the Plan for each Property was
not less than the fair market value of such Property as of the date of
the Sales as determined by a qualified, independent appraiser; and
(d) The Plan did not pay any fees or commissions in connection with
the Sales.
Written Comment
The Department received one comment letter from an accountant (the
Commenter) representing Doctor G.D. Castillo (Dr. Castillo) in response
to the proposed exemption. In the letter, the Commenter noted that in
addition to the Sales, the initial application (see footnote 1 above)
requested relief for the acquisition (the Acquisition) of certain
improved real property located in Golden, Colorado (the Improved
Property) by the Plan and Dr. Laura Diaz Del Castillo Vraney (Dr.
Vraney), the daughter of Dr. Castillo.\3\
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\3\ On August 27, 1999, the Plan (at the direction of Dr.
Castillo) and Dr. Vraney acquired the Improved Property from an
unrelated third party for $690,000. Of this amount, the Plan paid
$650,253.20 and Dr. Vraney paid $36,746.80.
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In the initial application, Dr. Castillo stated that the purpose of
Dr. Vraney's participation in the Acquisition was to enable the Plan to
acquire a suitable investment. In this regard, Dr. Castillo represented
that he directed the Plan to acquire the Improved Property upon
extensively researching improved real properties located in areas of
high growth. In a letter to the Department dated April 27, 2001, Dr.
Castillo stated that, subsequent to the Acquisition, he has retained
control over all decisions relating to the Improved Property. In
addition, Dr. Castillo has represented that Dr. Vraney's role with
respect to such property is limited to that of a passive investor.
The Commenter seeks clarification from the Department regarding
whether the acquisition of the Improved Property by the Plan and Dr.
Vraney requires additional exemptive relief. As the Department noted in
the preamble to a proposed individual exemption (52 FR 30965, 30973
(August 18, 1987)), section 406(a)(1)(D) of the Act prohibits the
transfer to, or use by or for the benefit of, a party in interest
(including the daughter of a plan fiduciary), of the assets of a plan.
The Department further stated that section 406(a)(1)(D) is not violated
merely because the party in interest may derive some incidental benefit
from a transaction involving the simultaneous equity investment in an
asset with the plan. We are assuming, for purposes of this analysis,
that: (1) The fiduciary (or its designee) does not rely upon, and is
not otherwise dependent upon, the participation of the plan in order to
undertake its share of the investment; and (2) the terms of the
transaction that are applicable to the plan are identical to the terms
applicable to the party in interest.
Thus, with respect to the acquisition of the Improved Property
through the co-investment of Plan assets and assets provided by Dr.
Vraney, to the extent that the initial co-investment satisfied the
criteria described above, it is the view of the Department that such
transaction does not require additional relief pursuant to this
exemption.
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 January 22, 2003 at 68 FR
3046.
FOR FURTHER INFORMATION CONTACT: Christopher Motta of the Department,
telephone (202) 693-8544. (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 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 at Washington, DC, this 30th day of April, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 03-11011 Filed 5-2-03; 8:45 am]
BILLING CODE 4510-29-P