Proposed Exemptions; Retirement Plan of Plumbers and Steamfitters
Local No. 489 of Cumberland, Maryland (the Plan) et al. [Notices] [04/16/2001]
Proposed Exemptions; Retirement Plan of Plumbers and Steamfitters
Local No. 489 of Cumberland, Maryland (the Plan) et al. [04/16/2001]
Volume 66, Number 73, Page 19532-19539
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10876, et al.]
Proposed Exemptions; Retirement Plan of Plumbers and Steamfitters
Local No. 489 of Cumberland, Maryland (the Plan) et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions 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).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. __, stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
the Pension and Welfare Benefits Administration, U.S. Department of
Labor, Room N-5638, 200 Constitution Avenue, NW., Washington, DC 20210.
Notice to Interested Persons: Notice of the proposed exemptions
will be provided to all interested persons in the manner agreed upon by
the applicant and the Department within 15 days of the date of
publication in the Federal Register. Such notice shall include a copy
of the notice of proposed exemption as published in the Federal
Register and shall inform interested persons of their right to comment
and to request a hearing (where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
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 requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Retirement Plan of Plumbers and Steamfitters Local No. 489 of
Cumberland, Maryland (the Plan) Located in Cumberland, Maryland
[Application No. D-10876]
Proposed Exemption
The Department of Labor is considering granting an exemption under
the authority of section 408(a) of the Act and section 4975(c)(2) of
the Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a) and 406(b)(1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply to the sale (the Sale) of certain real
property (the Property) to the Plan by the Plumbers and Steamfitters
Local No. 489 (the Union), a party in interest with respect to the
Plan, provided the following conditions are satisfied:
(a) The terms and conditions of the transaction are no less
favorable to the Plan than those which the Plan would receive in an
arm's-length transaction with an unrelated party;
(b) The Sale is a one-time transaction for cash;
(c) The Plan incurs no expenses from the Sale;
(d) The Plan pays the lesser of $100 or the fair market value of
the Property; and
(e) An independent fiduciary will approve and enforce the terms of
the proposed transaction, if granted.
Summary of Facts and Representations
1. The Plan is a multiemployer defined benefit pension plan. As of
January 21, 2000, the estimated number of participants and
beneficiaries affected by the proposed transaction is 199 and the
approximate aggregate fair market value of the Plan's total assets is
in excess of $14,000,000. The Plan is a Taft-Hartley trust fund
established pursuant section 302(c)(5) of the Labor Management
Relations Act which is intended to qualify under section 401(a) of the
Code. The Plan is administered by a four member board of trustees (the
Trustees) of whom two members are selected by the Union. The Plan is
for employees covered by collective bargaining agreements between the
participating employers and the Union, and for certain employees of the
Plan and the Union.
2. The Property is located at 2 Park Street, Cumberland, Maryland.
The Property contains an area of 15,751
[[Page 19533]]
square feet. The subject Property is improved by a one story concrete
block and part brick veneer commercial building measuring 126 feet in
width by 50.5 feet deep containing 6,363 square feet.
3. The Property was appraised by Dennis E. Perrin (the Appraiser),
a state of Maryland Certified General Appraiser, employed by Perrin and
Perrin, located in Cumberland, Maryland, who determined that the
Property had a fair market value of $259,000, as of December 17, 1998.
The Appraiser utilized in his valuation the highest and best use
methodology for the Property.
4. The Union proposes to sell the Property to the Plan for cash in
a one-time transaction with no expenses incurred by the Plan. The
agreement between the Plan and the Union permits the Plan for a period
of 365 days from the date of the purchase to nullify the Sale. The
applicant represents that the Union will receive $100 as consideration
for the Sale.\1\
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\1\ The applicant represents that it is contemplated that the
Plan will lease a portion of the Property to the Union; and the
Union will be responsible for all utilities and will perform all
necessary maintenance and/or remodeling for the building, but that
the Plan would pay real estate taxes. Additionally, the applicant
represents that the transaction will satisfy the conditions of PTE
76-1 and PTE 77-10 (41 FR 12740, March 26, 1976 and 42 FR 33918,
July 1, 1977 respectively). The Department expresses no opinion as
to whether or not the lease of a portion of the Property by the Plan
to the Union as described herein satisfies the terms and conditions
of PTE 76-1 and PTE 77-10. Furthermore, the Department is providing
no relief for such lease transaction. Lastly, the Department notes
that, although the Sale of the Property is the subject of a proposed
exemption, the fiduciary of the Plan must still adhere to the
fiduciary responsibility provisions of section 404 of the Act. Thus,
although the proposed purchase price is just $100, the fiduciary of
the Plan has a duty under section 404 to ensure that the purchase of
the Property is prudent, taking into account the costs and benefits
associated with ownership of such Property.
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5. The applicant also represents that compliance with the terms and
conditions of the requested exemption will be monitored and enforced by
an independent fiduciary, Glenn J. Robinette (Mr. Robinette) of the Law
Office of Glenn J. Robinette, located in Cumberland, Maryland. Mr.
Robinette represents that he has extensive experience in the field of
real estate and estate planning manners. Mr. Robinette represents that
the proposed Sale is in the best interests of the Plan and is
protective of the rights of the participants and beneficiaries of the
Plan. Mr. Robinette represents that (i) the Sale will provide the Plan
with an opportunity to acquire a valuable asset which will appreciate
in value; (ii) the Sale will serve to further diversify the portfolio,
since the Plan holds no realty at this time; (iii) the Sale will comply
with the Plan's growth objectives; (iv) the purchase price of $100 is
extremely low; and (v) the 365 days provided to the Plan to nullify the
Sale is beneficial and necessary for the proposed transaction.
6. The applicant represents that the Plan is prompted to take this
action for the following reasons (i) the purchase of the Property would
benefit the Plan in that it is a prudent investment of Plan assets and
has potential for appreciation; (ii) the Plan will purchase the
Property with a value greater than the purchase price; (iii) the value
of the Plan assets will increase substantially upon the purchase of the
Property;
(iv) the purchase would provide diversification since the assets in
the Plan are primarily invested in financial instruments and not real
estate; and (v) the Plan maintaining the Property would provide a
greater assurance that the Union will continue to exist and negotiate
with participating employers so that contributions continue to be made
to the Plan. The proposed transaction will be monitored and enforced by
a qualified, independent fiduciary.
7. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act because
(a) the Sale is a one-time transaction for cash; (b) the Plan will not
incur any expenses from the transaction; (c) the Plan pays the lesser
of $100 or the fair market value of the Property; and (d) the
independent fiduciary will approve and enforce the terms of the
proposed transaction.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the applicant and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Khalif I. Ford of the Department,
telephone (202) 219-8883 (this is not a toll-free number).
THS Profit Sharing Plan (the Plan) Located in Bedford Hills, New
York
[Application No. D-10921]
Proposed Exemption
The Department is considering granting an exemption under the
authority of 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). If the exemption is granted, the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to the proposed
sale (the Sale) by the Plan of two life insurance policies (the
Policies) which insure Tim H. Shoecraft, the sole participant (the
Participant), \2\ to the Shoecraft Family Trust Dated October 9, 1991
(the Trust), which is a disqualified party with respect to the Plan
under section 4975(e)(2) of the Code, provided that the following
conditions are met:
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\2\ Because Tim H. Shoecraft is the sole shareholder of
Shoecraft and Associates and he is the only participant in the Plan,
there is no jurisdiction under Title I of the Employee Retirement
Income Security Act of 1974 (the Act) pursuant to 29 CFR 2510.3-
3(b). However, there is jurisdiction under Title II of the Act
pursuant to section 4975 of the Code.
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(a) The Participant is the insured under the contract;
(b) Prior to the Sale, the Plan will afford the insured notice of
the Sale and the opportunity to purchase the Policies;
(c) The Sale will be for full and adequate consideration, based
upon the cash surrender value of the Policies at the time of the
transaction;
(d) The Plan is authorized to purchase and own life insurance;
(e) The amount received by the Plan as consideration for the Sale
is at least equal to the amount necessary to put the Plan in the same
cash position as it would have been in had it retained the contract,
surrendered it, and made any distribution owing to the Participant of
his vested interest under the Plan; and
(f) The Plan is not required to pay any commissions, costs or other
expenses in connection with the Sale.
Summary of Facts and Representations
1. The Plan is a profit sharing plan which was created effective
December 1, 1991. As of July 11, 2000, the Plan had net assets valued
at approximately $60,000 and one participant, Mr. Shoecraft. The
trustees of the Plan have full investment discretion and are comprised
of the Participant and his wife, Marianne Shoecraft.
The Participant is the sole shareholder of Shoecraft and
Associates, a financial advisory company located in the State of New
York. The Participant is also the settlor of the Trust. The Trust is a
grantor trust, which is defined as a trust that is taxed at the
settlor's tax rate because the settlor has the power to control the
beneficial enjoyment of the trust, retains a reversionary interest in
the trust, has administrative powers over the trust, has the power to
revoke the trust, or benefits from the income of
[[Page 19534]]
the trust. The beneficiaries of the Trust are family members of the
Participant.
2. The Plan, the owner of the Policies, purchased the Policies from
the Participant for their cash surrender values on December 1, 1992.\3\
The Participant is the insured under the Policies. The Policies were
issued by the Massachusetts Mutual Life Insurance Company. The cash
surrender values of the Policies are $2,748 (Policy Number 71042940
valued at $1,375 + Policy Number 71042900 valued at $1,373 = $2,748).
The cash surrender values of the Policies represent 4.58% of the fair
market value of the assets of the Plan.
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\3\ In this regard the Department notes that Prohibited
Transaction Class Exemption 92-5 (PTCE 92-5) (57 FR 5019, February
11, 1992) provides conditional exemptive relief for the sale,
transfer, or exchange of an individual life insurance or annuity
contract to an employee benefit plan from a plan participant on
whose life the contract was issued, or from an employer, any of
whose employees are covered by the plan. The Department is
expressing no opinion as to whether the original acquisition of the
Policies by the Plan satisfied the requirements of PTE 92-5.
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3. The Participant no longer desires to maintain the Plan. He has
not made contributions in several years and wishes to eliminate the
reporting and administrative requirements. Upon termination of the
Plan, the Plan must discontinue, liquidate or sell the Policies. The
Participant, because he is uninsurable, wishes to maintain the Policies
after the termination of the Plan. From an economic perspective, the
Participant represents that the Trust is the ideal entity to purchase
the Policies. Additionally, the Participant represents that the Trust
allows for an allocation of the proceeds between the beneficiaries of
the Policies on a needs basis. Accordingly, the Participant requests an
administrative exemption from the Department in order to permit the
sale of the Policies to the Trust.
4. The Sale will be for adequate consideration, i.e., the greater
of $2,748 or the cash surrender value of the Policies at the time of
the transaction. Prior to the Sale, the Plan will afford the
Participant notice of the Sale and the opportunity to purchase the
Policies. If the Participant decides not to purchase the Policies and
authorizes the Sale to the Trust, only then will the proposed Sale
occur.
5. The Participant represents that the proposed transaction would
be administratively feasible because it would be a one-time transaction
for cash. Furthermore, the Participant states that the proposed
transaction would be in the best interest of the Participant and the
Plan because the Plan would incur no commissions, costs, or other
expenses as a result of the Sale.
6. In summary, the Participant represents that the proposed
transaction satisfies the statutory criteria for an administrative
exemption under section 4975(c)(2) of the Code because:
(a) The Participant is the insured under the contract;
(b) Prior to the Sale, the Plan will afford the Participant notice
of the Sale and the opportunity to purchase the Policies;
(c) The Sale will be for full and adequate consideration, based
upon the cash surrender value of the Policies at the time of the
transaction;
(d) The Plan is authorized to purchase and own life insurance;
(e) The amount received by the Plan as consideration for the Sale
will be at least equal to the amount necessary to put the Plan in the
same cash position as it would have been in had it retained the
contract, surrendered it, and made any distribution owing to the
Participant of his vested interest under the Plan; and
(f) The Plan will not be required to pay any commissions, costs or
other expenses in connection with the Sale.
Notice to Interested Persons
Because Mr. Shoecraft is the only participant in the Plan who will
be affected by the proposed transaction, it has been determined that
there is no need to distribute the notice of proposed exemption (the
Notice) to interested persons. Comments and requests for a hearing are
due thirty (30) days after publication of the Notice in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
Phoenix Home Life Mutual Insurance Company (Phoenix) Located in
Hartford, CT
[Application No. D-10943]
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990).\4\
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\4\ For purposes of this proposed exemption, reference to
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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Section I. Covered Transactions
If the exemption is granted, 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 common stock (Stock) of The
Phoenix Companies, Inc. (the Holding Company), the parent of Phoenix,
or (2) the receipt of cash (Cash) or Policy Credits, by or on behalf of
any Eligible Policyholder of Phoenix which is an employee benefit plan
(a Plan), including any Eligible Policyholder that is a Plan maintained
by Phoenix or its affiliates (Phoenix Plan), in exchange for such
Eligible Policyholder's membership interest in Phoenix, in accordance
with the terms of a plan of reorganization (the Plan of Reorganization)
adopted by Phoenix and implemented pursuant to section 7312 of the New
York Insurance Law.
In addition, if the exemption is granted, the restrictions of
section 406(a)(1)(E) and (a)(2) and section 407(a)(2) of the Act shall
not apply to the receipt and holding of the Stock, by a Phoenix Plan,
whose fair market value exceeds 10 percent of the value of the total
assets held by such Plan.
The proposed exemption is subject to the following conditions set
forth below in Section II.
Section II. General Conditions
(a) The Plan of Reorganization is subject to approval, review and
supervision by the Superintendent of Insurance of the State of New York
(the Superintendent) and is implemented in accordance with procedural
and substantive safeguards that are imposed under New York law.
(b) The Superintendent reviews the terms and options that are
provided to Eligible Policyholders of Phoenix as part of such
Superintendent's review of the Plan of Reorganization and the
Superintendent only approves the Plan of Reorganization following a
determination that the Plan of Reorganization is fair and equitable to
Eligible Policyholders and is not detrimental to the general public.
(c) Each Eligible Policyholder has an opportunity to vote to
approve the Plan of Reorganization after full written disclosure is
given to the Eligible Policyholder by Phoenix.
(d) Any determination to receive Stock, Cash or Policy Credits by
an Eligible Policyholder which is a Plan, pursuant to the Plan of
Reorganization, is made by one or more Plan fiduciaries which are
independent of Phoenix and its affiliates and neither Phoenix nor any
of its affiliates exercises any discretion or provides investment
advice, within the meaning of 29 CFR 2510.3-21(c), with respect to such
decisions.
[[Page 19535]]
(e) In the case of the Phoenix Plans, an independent fiduciary with
respect to the Phoenix Plans:
(1) Exercises its authority and responsibility to vote on behalf of
the Phoenix Plans at the special meeting of Eligible Policyholders on
the proposal to approve the Plan of Reorganization;
(2) Monitors, on behalf of the Phoenix Plans, the acquisition and
holding of any Stock, Cash or Policy Credits received;
(3) Makes determinations on behalf of the Phoenix Plans with
respect to the voting and continued holding of any Stock held by such
Plans until such holding is reduced so that it does not exceed the
limits of section 407(a) of the Act;
(4) Disposes of Stock exceeding the limits of section 407(a) of the
Act within six months of the effective date of the Plan of
Reorganization.
(5) Provides the Department with a complete and detailed final
report as it relates to the Phoenix Plans prior to the effective date
of the demutualization.
(f) After each Eligible Policyholder entitled to receive Stock is
allocated a fixed number 37 shares of Stock (subject to possible
adjustment as provided in the Plan of Reorganization), additional
consideration is allocated to each Eligible Policyholder who owned
participating policies based on actuarial formulas that take into
account each participating policy's contribution to the surplus of
Phoenix, which formula has been approved by the Superintendent.
(g) All Eligible Policyholders that are Plans participate in the
transactions on the same basis as all Eligible Policyholders that are
not Plans.
(h) No Eligible Policyholder pays any brokerage commissions or fees
in connection with the receipt of Stock or in connection with the
implementation of the commission-free purchase and sale program.
(i) All of Phoenix's policyowner obligations remain in force and
are not affected by the Plan of Reorganization.
(j) The terms of the transaction are at least as favorable to the
Plans as an arm's-length transaction with an unrelated party.
Section III. Definitions
For purposes of this proposed exemption:
(a) An ``affiliate'' of Phoenix includes--
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with Phoenix. (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), and
(2) Any officer, director or partner in such person.
(b) The term ``Eligible Policyholder'' means a person who is (or
collectively, persons who are) the owner(s) of one or more policies
that are in force on the date of the adoption of the Plan of
Reorganization.
(c) The term ``Phoenix'' means Phoenix Home Life Mutual Insurance
Company and any of its affiliates, as defined in paragraph (a) of this
Section III.
(d) The term ``Policy Credit'' means (a) for an individual or joint
participating whole life insurance policy, the crediting of paid-up
additions which will increase the cash value and death benefit of the
policy; (b) for supplementary contracts issued under optional modes of
settlement or annuities in the course of installment payment without a
defined account value and that provide for the payment of additional
interest, the crediting of an additional amount in the form of
additional interest; (c) for supplementary contracts issued under
optional modes of settlement or annuities in the course of installment
payment without a defined account value not providing for the payment
of additional interest, an increase in the installment payment amount;
and (d) for all other individual or joint life policies and annuities,
(i) if the policy or contract has a defined account value, an increase
in the account value, to which the Company will apply no sales,
surrender or similar charges, or that will be further increased in
value to offset any of these charges, or (ii) if the policy or contract
does not have a defined account value, the crediting of dividends under
the policy or contract.
Summary of Facts and Representations
1. Phoenix is a mutual life insurance company organized under the
laws of the State of New York and subject to supervision and
examination by the Superintendent. Phoenix is principally engaged in
providing life insurance and annuities to individuals. It is authorized
to transact life and health insurance in 50 states and the District of
Columbia. As of December 31, 1999, Phoenix had total assets of
approximately $19.6 billion (on a statutory accounting basis) and had
more than $261 billion of life insurance in force.
As a mutual life insurance company, Phoenix has no stockholders.
Policyholders of a mutual life insurance company are ``members'' of the
company, and, in that capacity, they are entitled to vote to elect
directors of the company and would be entitled to share in the assets
of the company if it were liquidated.
Phoenix is the sole shareholder of PM Holdings, Inc. (Holdings), a
holding company which is the sole or majority owner of a number of
subsidiaries including life insurance companies, investment management
companies, insurance brokers, broker-dealers, international business
operations and trust companies. Holdings's most significant insurance
company subsidiary is PHL Variable Insurance Company, a wholly-owned
company which is primarily engaged in the sale and underwriting of
variable annuity business. In addition, Holdings is the sole
shareholder of W.S. Griffith & Co. Inc., a broker-dealer engaged in the
sale and distribution of investment products of Phoenix and its
subsidiaries. Holdings is also the sole shareholder of Phoenix Charter
Oak Trust Company, which provides a full range of personal and
institutional fiduciary services and life insurance trust services to
Phoenix policyholders.
Holdings has an approximate 60% ownership interest in publicly
traded Phoenix Investment Partners, Ltd. (PXP). PXP and its
subsidiaries provide a variety of investment management and related
services to a broad base of institutional, corporate and individual
clients. PXP's businesses include investment advisory (for mutual funds
and institutional clients), broker-dealer and investment research
operations, as well as financial consulting services. Holdings is a
direct or indirect owner of numerous other foreign and domestic
corporations and enterprises, none of which has substantial involvement
with U.S. employee pension or welfare plans.
2. As of April 1, 2000, Phoenix sold its group insurance business
and therefore no longer sells or administers products in the employer-
sponsored welfare plan market (e.g., group medical, dental, life and
disability insurance and administrative services only contracts).
Phoenix continues, however, to reflect on its records several thousand
group insurance contracts which have been reinsured on a 100% indemnity
basis with an unrelated insurer which is performing most of the
services for such contracts. It is anticipated that such business will
soon be entirely written on the reinsurer's paper.
While Phoenix remains active in the tax-sheltered annuity and
individual retirement account market, it engages in few insurance
product sales in the corporate qualified market. It maintains a group
annuity product for a limited number of small 401(k) and profit
[[Page 19536]]
sharing plans; it also has a limited marketing effort for the sale of
individual life insurance and annuity products in the corporate
qualified market. The majority of the group and individual annuities
issued by Phoenix to corporate qualified Plans and remaining on its
books represent inactive cases.
Largely as a result of Phoenix' past activity in the employee
benefit plans market, Phoenix had remaining, as of December 31, 1999,
approximately 22,000 in force policies and contracts held on behalf of
employee pension and welfare benefit plans. These included
approximately 15,000 policies and contracts funding pension and profit
sharing (including Sec. 401(k)) plans and approximately 7,000 contracts
providing welfare benefit plan coverage such as group life, short- and
long-term disability, accidental death and dismemberment and group
health coverage. In addition, Phoenix has approximately 24,000 annuity
contracts funding 403(b) plans and individual retirement accounts.
Phoenix no longer sells or administers group insurance policies or
plans.
Phoenix and PXP sponsor the following Plans, which are expected to
be Eligible Policyholders (collectively referred to herein as the
``Phoenix Plans''):
(a) The Phoenix Home Life Mutual Insurance Company Employee Pension
Plan (the Pension Plan) is a defined benefit pension plan. As of
December 31, 1999, the Pension Plan had approximately 6,160
participants.
(b) The Phoenix Home Life Mutual Insurance Company Savings and
Investment Plan (the Savings Plan) is a defined contribution plan. As
of December 31, 1999, the Savings Plan had 3,002 participants.
(c) The Phoenix Home Life Mutual Insurance Company Agent Pension
Plan (the Agent Pension Plan) is a defined contribution plan. As of
December 31, 1999, the Agent Pension Plan had 1,024 participants.
(d) The Phoenix Home Life Mutual Insurance Company Agent Savings
and Investment Plan (the Agent Savings Plan) is a defined contribution
plan. As of December 31, 1999, the Agent Savings Plan had 535
participants.
(e) The Phoenix Home Life Mutual Insurance Company Employee Group
Life Insurance Plan (the Group Life Plan) is a welfare benefit plan. As
of December 31, 1999, the Group Life Plan had 2,889 participants.
(f) The Phoenix Home Life Mutual Insurance Company Agent Group Life
Insurance Plan (the Agent Group Life Plan) is a welfare benefit plan.
As of December 31, 1999, the Agent Group Life Plan had 773
participants.
(g) The Phoenix Investment Partners, Ltd. Group Profit Sharing Plan
and Trust (the PXP Profit Sharing Plan) is a defined contribution plan.
As of December 31, 1999, the PXP Profit Sharing Plan had 193
participants.
(h) The Phoenix Investment Partners, Ltd. Group Life Insurance Plan
(the PXP Group Life Plan) is a welfare benefit plan. As of December 31,
1999, the PXP Group Life Plan had 493 participants.
(i) The Phoenix Investment Partners, Ltd. Group Long Term
Disability Plan (the PXP Long Term Disability Plan) is a welfare
benefit plan. As of December 31, 1999, the PXP Long Term Disability
Plan had 359 participants.
3. On April 20, 2000, Phoenix's Board of Directors (the Board)
authorized management to develop the Plan of Reorganization pursuant to
which Phoenix would be converted from a mutual life insurance company
to a stock life insurance company. Phoenix's Board of Directors adopted
the Plan of Reorganization on December 18, 2000.
Under the Plan of Reorganization, Phoenix will convert from a
mutual life insurance company to a stock life insurance company by
operation of New York law. The ultimate result of the transaction will
be a structure in which all of Phoenix's stock will be held by the
Holding Company, which has been organized under Delaware law for this
purpose. Eligible Policyholders of Phoenix will receive Holding Company
Stock or, in certain cases, Cash or Policy Credits, and the membership
interests and rights to surplus of Phoenix policyholders will be
extinguished.\5\
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\5\ The proceeds of the demutualization will belong to a Plan if
they would be deemed to be owned by the Plan under ordinary notions
of property rights. See ERISA Advisory Opinion 92-02A, January 17,
1992 (assets of plan generally are to be identified on the basis of
ordinary notions of property rights under non-ERISA law). It is the
view of the Department that, in the case of an employee welfare
benefit plan with respect to which participants pay a portion of the
premiums, the appropriate plan fiduciary must treat as plan assets
the portion of the demutualization proceeds attributable to
participant contributions. In determining what portion of the
proceeds are attributable to participant contributions, the plan
fiduciary should give appropriate consideration to those facts and
circumstances that the fiduciary knows or should know are relevant
to the determination, including the documents and instruments
governing the Plan and the proportion of total participant
contributions to the total premiums paid over an appropriate time
period. In the case of an employee pension benefit plan, or where
any type of Plan or trust is the policyholder, or where the policy
is paid for out of trust assets, it is the view of the Department
that all of the proceeds received by the policyholder in connection
with a demutualization would constitute plan assets. If the
demutualization proceeds belong to a Plan, the appropriate plan
fiduciaries must take all necessary steps to safeguard such assets
in order to avoid engaging in a violation of the fiduciary
responsibility provisions of the Act.
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An initial public offering (IPO), in which shares of Stock will be
sold for cash, is to occur on the effective date of the reorganization.
The Holding Company will contribute a portion of the proceeds from the
IPO to Phoenix in an amount at least equal to the amount required to
pay Cash and fund the crediting of Policy Credits to Eligible
Policyholders who are to receive such consideration. As promptly as
possible (but no later than 60 days) after the effective date of the
reorganization, the Holding Company will pay, or cause Phoenix to pay,
Cash or Policy Credits to Eligible Policyholders entitled under the
Plan of Reorganization to receive such consideration.
The Holding Company will be a publicly-traded company, and an
application will be made to list its stock on the New York Stock
Exchange.
4. The main purpose of the reorganization is to demutualize Phoenix
so that, as a stock insurance company subsidiary of the Holding
Company, it can increase its potential for long-term growth and
financial strength. A public structure would best enable Phoenix to
accelerate its wealth management strategy and to grow its existing
business and develop new business opportunities in the insurance and
financial services industries. The Board believes that, by becoming a
stock company, Phoenix will be able to raise money more efficiently and
have greater flexibility to acquire other companies using the Holding
Company Stock as acquisition currency. This would enable Phoenix to
increase its market leadership, financial strength and strategic
position, providing additional security to its policyholders.
Additionally, access to capital markets will enable Phoenix to
invest in new technology, improved customer service, new products and
channels of distribution. The Board also believes that the
reorganization will enable Phoenix to enhance its position as a premier
provider of wealth management products and solutions, distributed
through a wide variety of financial advisors and financial
institutions, and to serve the wealth accumulation, preservation and
transfer needs of the high net worth and affluent markets. Phoenix will
also obtain more financial flexibility with which to maintain its
ratings and financial stability and be able to better attract, retain
and provide incentives to management in a fashion consistent with other
stock life insurance companies. As a mutual life insurer, Phoenix can
increase its capital
[[Page 19537]]
only through retained surplus contributed by its businesses or through
the sale of surplus notes or similar instruments issued by it. Neither
source is fully adequate to generate substantial surplus accumulations
or to provide permanent capital to Phoenix.
The reorganization will make it easier for Phoenix to benefit from
changes in laws relating to affiliations between insurance companies
and other types of companies, such as banks. These changes include the
Gramm-Leach-Bliley Act of 1999, which permits mergers that combine
commercial banks, insurers and securities firms under one holding
company. Until the passage of the Gramm-Leach-Bliley Act, legislation
had limited the ability of banks to engage in securities-related
businesses and had restricted banks from being affiliated with
insurance companies. In addition, Phoenix, as a stock insurer that is a
subsidiary of the Holding Company, will have access through the Holding
Company to the capital markets, enabling Phoenix to obtain capital from
a variety of sources.
5. Phoenix will compensate the Eligible Policyholders for their
respective policyholders' membership interests, which will be
extinguished as part of the reorganization, by giving them shares of
Stock, Cash or Policy Credits. The economic value of this compensation
is not available to the Eligible Policyholders so long as Phoenix
continues its operations as a mutual company. However, the
reorganization will not in any way reduce the benefits, values,
guarantees or dividend eligibility of existing policies or contracts
issued by Phoenix. All of Phoenix's policyowner obligations remain in
force and will not be affected by the Plan of Reorganization.
6. Section 7312 of the New York Insurance Law (Section 7312)
establishes an approval process for the reorganization of a life
insurance company organized under New York law. The Plan of
Reorganization must be approved both by the Superintendent and by the
Eligible Policyholders.
Under Section 7312, the conversion of a mutual life insurance
company to a stock company is initiated by the board of directors of
the mutual company. The Plan of Reorganization may be approved only by
a vote of at least 75% of the entire board of directors. The approval
must include a finding that the Plan of Reorganization is fair and
equitable to Eligible Policyholders.
After approval by the mutual insurance company's board of
directors, the Plan of Reorganization is then required to be submitted
to the Superintendent for his or her review. In order for the Plan of
Reorganization to become effective, the Superintendent must determine
that the Plan of Reorganization does not violate the requirements
imposed by Section 7312.
In order to aid the Superintendent in discharging his or her
duties, Section 7312 permits the Superintendent to appoint an
independent actuary to review actuarial aspects of the Plan of
Reorganization. In addition, Section 7312 permits the Superintendent to
appoint other qualified disinterested persons or institutions to act as
consultants to the Superintendent. In the case of the Phoenix
reorganization, the Superintendent retained The Blackstone Group to
provide financial advice, Clifford Chance Rogers & Wells LLP to provide
legal advice and Arthur Andersen LLP to provide actuarial and auditary
advice.
Section 7312 also requires the Superintendent to hold a public
hearing on a Plan of Reorganization which policyholders and other
interested persons may express views on the Plan of Reorganization.
Notice of the public hearing must be provided to each policyholder of
the insurance company whose policy or contract is in force of the date
of adoption of the Plan of Reorganization, and must be published in
three newspapers of general circulation. The purpose of the public
hearing is to allow interested persons to comment on the fairness of
the terms and conditions of the Plan of Reorganization and the reasons
and purposes for the reorganization of the insurer, and to consider
whether the reorganization is in the interest of the insurer and its
policyholders and is not detrimental to the public.
After the public hearing, the Superintendent must determine whether
or not to approve the Plan of Reorganization. Under Section 7312, the
Superintendent approves the Plan of Reorganization if he or she finds
that it does not violate the insurance law, that it is fair and
equitable to policyholders, that it is not detrimental to the public,
and that, after giving effect to the reorganization, the insurer will
have an amount of capital and surplus that the Superintendent deems to
be reasonably necessary for the company's future solvency.
The Superintendent must also determine that the Plan of
Reorganization does not fail to meet the following requirements of
Section 7312(c):
(a) the Plan of Reorganization demonstrates a purpose and specific
reasons for the proposed reorganization;
(b) the Plan of Reorganization is in the best interest of the
mutual life insurer and its policyholders;
(c) the Plan of Reorganization is fair and equitable to the
policyholders;
(d) the Plan of Reorganization provides for the enhancement of the
operations of the reorganized insurer; and
(e) the Plan of Reorganization will not substantially lessen
competition in any line of insurance business.
The Eligible Policyholders of the mutual insurance company must
also be provided with notice of the Plan of Reorganization and an
opportunity to vote whether to approve the Plan of Reorganization. Each
policyholder is entitled to one vote, and the Plan of Reorganization
must be approved by a vote of at least two-thirds of all votes cast by
policyholders entitled to vote.
A decision by the Superintendent to approve a Plan of
Reorganization pursuant to Section 7312 of the New York Insurance Law
is subject to judicial review in the New York courts.
7. Phoenix's Plan of Reorganization provides for Eligible
Policyholders, whose membership interests in the mutual company will be
extinguished in the reorganization, to receive Stock, Cash or Policy
Credits. For this purpose, an Eligible Policyholder generally is the
owner of one or more policies that are in force on the date of the
adoption of the Plan of Reorganization. In order to determine the
amount of consideration to which each Eligible Policyholder is
entitled, each Eligible Policyholder will be allocated (but, for those
policyholders who do not receive Stock, not issued) a number of shares
of Stock equal to the sum of (i) a fixed number of 37 shares of Stock
(subject, with the approval of the Superintendent, to proportional
adjustment in respect of the initial public offering) and (ii) where
the Eligible Policyholder owns one or more participating policies, an
additional number of shares based on actuarial formulas that take into
account each participating policy's past and expected future
contributions to the surplus of Phoenix.
Certain Eligible Policyholders will receive Cash or Policy Credits
instead of Stock. The amount of Cash or Policy Credits shall be
determined by reference to the price per share at which the Stock is
offered to the public in the initial public offering and the number of
shares allocated to such Eligible Policyholders.
Certain Eligible Policyholders, namely owners of individual
retirement annuities, tax sheltered annuities, or certain other
policies issued directly to participants in qualified pension or
profit-sharing plans, will receive Policy
[[Page 19538]]
Credits equal in value to the Stock allocated to such Eligible
Policyholders.
Certain other Eligible Policyholders will receive Cash instead of
Stock. These Eligible Policyholders include:
(a) Eligible Policyholders who are not required to receive Policy
Credits in accordance with the preceding paragraph and (i) whose
address for mailing purposes is shown on Phoenix's records to be
located outside the United States of America or with respect to whom
Phoenix, after a reasonable effort to locate such Eligible
Policyholder, has a reasonable belief that the most recent address for
mailing purposes as shown on Phoenix's records is an address at which
mail to such Eligible Policyholder is undeliverable or (ii) with
respect to whom Phoenix determines in good faith to the satisfaction of
the Superintendent that it is not reasonably feasible or appropriate to
provide consideration in the form of Stock; and
(b) Eligible Policyholders who are allocated 60 or fewer shares of
Stock and who have affirmatively indicated, on a form provided to such
Eligible Policyholder that has been properly completed and received by
Phoenix prior to a date set by Phoenix and approved by the
Superintendent, a preference to receive Cash in lieu of Stock.
All Eligible Policyholders that are Plans will participate on the
same basis as Eligible Policyholders that are not Plans. The terms of
the transaction will be at least as favorable to the Plans as an arm's-
length transaction with unrelated parties.
The Plan of Reorganization also provides that the Holding Company
will establish a commission-free purchase and sale program which will
begin no sooner than the first business day after the six-month
anniversary of the effective date of the reorganization and no later
than the first business day after the twelve-month anniversary of the
effective date of the reorganization and will continue in either case
for 90 days (and may be extended if the Board determines such extension
to be appropriate and in the best interest of the Holding Company and
its stockholders). Pursuant to such purchase and sale program, each
Eligible Policyholder or other stockholder who holds 99 or fewer shares
of Stock will have the opportunity to sell at prevailing market prices
all, but not less than all, the shares of Stock owned by such
stockholder, without paying brokerage commissions, mailing charges,
registration fees or other administrative or similar expenses. The
Holding Company will concurrently offer each stockholder entitled to
participate in the purchase and sale program the opportunity to
purchase that number of shares of Stock necessary in order to increase
such stockholder's holdings to a 100-share round lot, without paying
brokerage commissions, mailing charges, registration fees or other
administrative or similar expenses. The purchase and sale arrangements
described in the Plan of Reorganization will be subject to such
limitations as are agreed upon between the Holding Company and the SEC.
8. Several Phoenix Plans are expected to be Eligible Policyholders
entitled to receive consideration in connection with the implementation
of the Plan of Reorganization. Phoenix has retained U.S. Trust Co.,
N.A. to serve as independent fiduciary for these Plans in connection
with the implementation of the Plan of Reorganization. U.S. Trust will
determine whether the Plan of Reorganization is in the best interest of
such Plans and their participants and beneficiaries, and it will vote
at the special meeting of Eligible Policyholders on the proposal to
approve or not to approve the Plan of Reorganization. If the vote is to
approve the Plan of Reorganization, U.S. Trust will make, on behalf of
each affected Phoenix Plan, any decisions available under the Plan of
Reorganization regarding the receipt of consideration in the form of
Stock, Cash or Policy Credits. Additionally, U.S. Trust will monitor,
on behalf of the affected Phoenix Plans, the acquisition and holding of
any consideration received, make determinations on behalf of the
Phoenix Plan with respect to voting and the continued holding of the
Stock received by such Plan, dispose of any Stock held by the Phoenix
Plan which exceeds the limitation of section 407(a)(2) of the Act as
reasonably as practicable but in no event later than six months
following the effective date of the demutualization, and take all
actions that are necessary and appropriate to safeguard the interests
of the Phoenix Plans. Further, U.S. Trust will provide the Department
with a complete and detailed final report as it relates to the Phoenix
Plans prior to the effective date of the demutualization. Finally, U.S.
Trust states that it has conducted a preliminary review of Phoenix's
Plan of Reorganization and it sees nothing in the Plan that would
preclude the Department of Labor from proposing the requested
exemption.
9. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The requested exemption will be administratively feasible
because the Plan of Reorganization will be implemented pursuant to
stringent procedural and substantive safeguards imposed under New York
law and supervised by the Superintendent. Furthermore, each Eligible
Policyholder will have an opportunity to determine whether to vote to
approve the terms of the Plan of Reorganization and will also be solely
responsible for any decisions that may be permitted under the Plan of
Reorganization regarding the form of consideration to be received in
the reorganization. Because of the extensive protections afforded to
Plans under New York law, no ongoing involvement by the Department of
Labor is required in order to safeguard the interests of Plan
policyholders.
(b) The requested exemption will be in the interest of the
participants and beneficiaries of the Plans that are policyholders
because the requested exemption would allow ERISA-covered Eligible
Policyholders, whose membership interests in Phoenix are canceled in
the reorganization, to acquire Stock or other valuable property. To the
extent distributions are made in the form of Stock, Eligible
Policyholders that are Plans will have an opportunity to participate in
Phoenix's future earnings through any stock dividends and any
appreciation in the value of their Stock while they hold the Stock,
and, because the Stock will be publicly traded, they will have an
opportunity to sell their holdings of Stock if they decide that it is
appropriate to do so. In addition, because the reorganization is
expected to enhance Phoenix's ability to access the capital markets,
implementation of the Plan of Reorganization will benefit all
policyholders. The reorganization will not, in any way, change premiums
or reduce policy benefits, values, guarantees or other policy
obligations of Phoenix to its policyholders and contract holders.
(c) The proposed transaction will protect the rights of Plans that
are Eligible Policyholders because each such Plan, like other Eligible
Policyholders, will have an opportunity to comment on the Plan of
Reorganization and because one or more independent fiduciaries of each
Eligible Policyholder that is a Plan will have an opportunity to decide
whether to vote to approve the Plan of Reorganization after disclosure
of its terms. Moreover, as discussed above, the Superintendent must
make an independent determination that the Plan of Reorganization is
fair and equitable to
[[Page 19539]]
Phoenix's policyholders, including Plan policyholders.
FOR FURTHER INFORMATION CONTACT: Karen Lloyd of the Department,
telephone (202) 219-8194. (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 of the Act and/or 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, 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) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
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
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 11th day of April, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 01-9347 Filed 4-13-01; 8:45 am]
BILLING CODE 4510-29-P
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