[Federal Register: December 30, 2002 (Volume 67, Number 250)]
[Notices]
[Page 79655-79658]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr30de02-118]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 2002-55; Exemption Application No. D-
10958, et al.]
Grant of Individual Exemptions; Fidelity Management Trust Company
and Its Affiliates (Collectively Fidelity)
AGENCY: Pension and Welfare Benefits 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
[[Page 79656]]
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.
Fidelity Management Trust Company and Its Affiliate (Collectively
Fidelity) Located in Boston, Massachusetts
[Prohibited Transaction Exemption 2002-55; Application No. D-10958]
Exemption
Section I--Covered Transactions
The restrictions of section 406(a)(1)(A) through (D) of ERISA 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 certain lines of credit (the Line of Credit or Lines of
Credit), and the Loan and repayment of funds, including accrued
interest, thereunder (the Loan or Loans), involving certain employee
benefit plans (the Plan or Plans) with respect to which Fidelity acts
as directed trustee, investment manager or other administrative service
provider; provided that the following conditions are satisfied.
Section II--General Conditions
(a) Each Loan is made to the Plan in connection with the
administration of a unitized fund (Unitized Fund) as defined in section
III (e) in order to facilitate redemptions from the Unitized Fund.
(b) Each Line of Credit will be negotiated by Fidelity on behalf of
the Plan with a bank, as defined under the Investment Advisers Act of
1940, as amended, having total assets of at least $5 billion (the
Lender or Lenders);
(c) Each Loan is initiated, accounted for and administered by
Fidelity, which will monitor the transactions on behalf of the Plans to
ensure that the terms and conditions of the exemption are met at all
times;
(d) The Line of Credit provides that each Loan thereunder,
including accrued interest thereon, will be repaid by the Unitized Fund
promptly in the ordinary course of business upon settlement of the
transaction that triggered the need for the Loan;
(e) The maximum amount loaned with respect to a Unitized Fund on
any business day that a Loan is initiated does not, after the Loan is
made, exceed 25% of the total fair market value of the Unitized Fund
(such value determined as of the most recent close of the New York
Stock Exchange or as otherwise provided in the applicable Line of
Credit, provided such determination is substantially contemporaneous
with the Loan);
(f) The fair market value of the assets in the Unitized Fund is
determined by an objective method specified in the Line of Credit;
(g) The Lender's recourse with respect to any Loan from a Unitized
Fund is limited to the assets of such Unitized Fund. No commitment
fees, or commissions are paid by the Plan and no compensating balance
is required by the Lenders in connection with these loans. Any set-off
will be limited to the assets of the Unitized Fund borrowing the funds;
(h) Interest payable by the Plan on each Loan is based on rates
quoted to Fidelity by the Lenders under the Lines of Credit and
accepted by Fidelity on behalf of the Plan in accordance with the Lines
of Credit;
(i) The Plan enters into a written agreement with Fidelity pursuant
to which Fidelity is authorized to borrow on behalf of the Plan. Prior
to borrowing on behalf of a Plan pursuant to this exemption, Fidelity
provides the Plan with written notice explaining the Line of Credit
program. The notice shall state that Fidelity agrees to act as a
fiduciary on behalf of the Plan in connection with the following
activities involving the Line of Credit agreements with the Lenders:
the negotiation of the Plan's participation in the Line of Credit
agreements; the negotiation of interest rates; the terms of the Loans,
and the terms of repayment under the Lines of Credit agreements. The
notice shall set forth Fidelity's objective methodology for allocating
favorable interest rates or credit availability equitably among those
Unitized Funds seeking to borrow under the Line of Credit agreements on
any given day, i.e., ``the applicable ordering rules and limitations.''
Each notice shall also address under what circumstances Fidelity may
exclude the Plan from participation in the program, either temporarily
or permanently;
(j) Fidelity, on behalf of the Plan, enters into a written
agreement with each of the Lenders offering these Line of Credit
Agreements to the Plan. The agreement shall address, among other
things, the maximum Line of Credit available, the terms for the Loan
and repayment, the formula or method for determining the interest rate
payable with respect to each Loan, and the conditions for terminating
the agreement;
(k) The Plan may elect to terminate participation in the Lines of
Credit at any time, without penalty and subject to the Plan's repayment
of any outstanding Loan;
(l) No later than 15 business days after month end, Fidelity shall
provide the Plan Sponsor of each Plan that has any outstanding Loan
during a calendar month with a written report showing the Plan's
outstanding Loans on each day during such month, the amount repaid on
each such day, the interest rate and the amount of interest paid on
each such day, the aggregate balance of all Loans outstanding on the
last business day of such month and the aggregate amount of interest
paid during such month;
(m) The Loans are made on terms at least as favorable to the Plan
as those the Plan could obtain in an arm's-length transaction with an
unrelated party;
(n) Each Lender is not related to Fidelity and is a party in
interest (including a fiduciary), solely by reason
[[Page 79657]]
of providing services to the Plan, or solely by reason of a
relationship to a service provider to the Plan described in section
3(14)(F), (G), (H) or (I) of the Act;
(o) The agreements and the any loans contemplated thereunder are
not a part of an agreement, arrangement, or understanding designed to
benefit any party in interest with respect to any plan;
(p) No fees, or other compensation are paid to Fidelity in
connection with the Loans by either the Plan or the Lenders;
(q) Where a Unitized Fund covered by this exemption invests in
employer securities, such securities constitute ``qualifying employer
securities'' as defined in section 407(d)(5) of the Act (QES) for which
market quotations are readily available from independent sources within
the meaning of Rule 17a-7, of the Investment Advisers Act of 1940, 17
CFR 270.17a-7. The exemption shall also apply to convertible preferred
stock that qualifies as QES and is convertible, under an objective
formulation, into securities for which market quotations are readily
available as described above.
(r) Where a Unitized Fund, other than an employer securities fund
or a stable value fund, invests directly or indirectly in securities,
no less than 75 percent of such securities are securities for which
market quotations are readily available from independent sources,
within the meaning of Rule 17a-7, of the Investment Advisers Act of
1940, 17 CFR 270.17a-7;
(s) Fidelity maintains for a period of six years, in a manner that
is accessible for audit and examination, the records necessary to
enable the persons described in paragraph (t) to determine whether the
conditions of this 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 Fidelity, such
records are lost or destroyed prior to the end of such six year period;
and
(2) No party in interest, other than Fidelity, shall be subject to
the civil penalty that may be assessed under section 502(i) of the Act,
or the taxes imposed by sections 4975(a) and (b) of the Code, if the
records are not maintained, or are not available for examination as
required by paragraph (t);
(t)(1) Except as provided in paragraph (t)(2) and notwithstanding
anything to the contrary in sections 504(a)(2) and (b) of the Act, the
records referred to in paragraph (s) are unconditionally available for
examination during normal business hours by--
(A) Any duly authorized employees or representatives of the
Department or the Internal Revenue Service;
(B) Any fiduciary of the Plan or any duly authorized employee or
representative of such fiduciary;
(C) Any employer of participants and beneficiaries in the Plan and
any employee organization whose members are covered by the Plan, or any
authorized employee or representative of these entities; and
(D) Any participant or beneficiary of the Plan or any duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described above in paragraph (t)(1)(B), (C)
or (D) shall be authorized to examine the trade secrets of Fidelity or
commercial or financial information that is privileged or confidential;
(3) Should Fidelity refuse to disclose information on the basis
that such information is exempt from disclosure pursuant to paragraph
(t)(2) above, Fidelity shall, by the close of the thirtieth (30th) day
following the request, provide a written or electronic notice advising
that person (i) of the reasons for the refusal and (ii) that the
Department may request such information.
Section III--Definitions
(a) ``Fidelity'' refers to Fidelity Management Trust Company and
its affiliates.
(b) ``Affiliate'' means (i) any person, directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with such other person; (ii) any officer,
director, or partner, employee or relative (as defined in section 3(15)
of the Act) of such other person; and (iii) any corporation or
partnership of which such other person is an officer, director or
partner.
(c) ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
(d) Fidelity is ``related'' to a Lender if the Lender (or a person
controlling, or controlled by, the Lender) owns a five percent or more
interest in Fidelity or if Fidelity (or a person controlling, or
controlled by, Fidelity) owns a five percent or more interest in the
Lender. For purposes of this definition: (1) The term ``interest''
means with respect to ownership of an entity (A) the combined voting
power of all classes of stock entitled to vote or the total value of
the shares of all classes of stock of the entity if the entity is a
corporation, (B) the capital interest or the profits interest of the
entity if the entity is a partnership, or (C) the beneficial interest
of the entity if the entity is a trust or unincorporated enterprise;
and (2) a person is considered to own an interest held in any capacity
if the person has or shares the authority (A) to exercise any voting
rights or to direct some other person to exercise the voting rights
relating to such interest, or (B) to dispose or to direct the
disposition of such interest.
(e) A ``Unitized Fund'' is a fund that, to facilitate trading and/
or accounting, has established ``units'' representing undivided
interests in all of the assets of such fund.
EFFECTIVE DATE: The exemption is effective as of the date this notice
of final exemption is published in the Federal Register.
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 (the Proposal) published on October 8,
2002, at 67 FR 62818.
Clarification: Based on discussions with the applicant, the
Department hereby wishes to clarify that all written communications
that may be made by Fidelity pursuant to the requirements of this
exemption can be made electronically (e.g., e-mail) in lieu of regular
mail, provided that the Plans agree to receive such communications in
that form.
Notice to Interested Persons: The Proposal indicated that notice
would be provided to interested persons by first class mail (see 67 FR
at 62822, column 2). However, the applicant informed the Department
after the publication of the Proposal that it also wished to provide
notice to interested persons electronically via electronic mail on or
before November 2, 2002. In this regard, the Department notes that all
interested persons were notified of the Proposal and informed of their
right to comment thereon, either by first class mail or electronic
mail, by November 2, 2002. No written comments on the Proposal were
received by the Department. Accordingly, the Department hereby grants
the exemption as proposed.
For Further Information Contact: Ms. Andrea W. Selvaggio of the
Department, telephone (202) 693-8540. (This is not a toll-free number.)
The Profit Sharing Trust of Dr. Ferdinand G. Mainolfi (the Plan)
Located in Baltimore, MD
[Prohibited Transaction Exemption 2002-56 Exemption Application No. D-
11108]
Exemption
The sanctions resulting from the application of section 4975 of the
Code,
[[Page 79658]]
by reason of section 4975(c)(1)(A) through (E) of the Code \1\ shall
not apply to the sale of parcels of improved real property (the
Property) by the Plan to Ferdinand G. Mainolfi, a disqualified person
with respect to the Plan; provided that: (1) The sale will be a one-
time transaction for cash; (2) as a result of the sale, the Plan will
receive the fair market value of the Property, as determined by an
independent, qualified appraiser, as of the date of the transaction;
(3) the Plan will pay no commissions, fees, or other expenses in
connection with the sale; and (4) the terms of the sale will be no less
favorable to the Plan than terms it would have received under similar
circumstances in arm's length negotiations with unrelated third
parties.
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\1\ Pursuant to 29 CFR 2510.3-2(d), the Plan is not within the
jurisdiction of Title I of the Act. However, there is jurisdiction
under Title II of the Act, pursuant to section 4975 of the Code.
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After giving full consideration to the entire record, the
Department has decided to grant the exemption, as described above. The
complete application file, including all supplemental submissions
received by the Department, is made available for public inspection in
the Public Documents Room of the Pension Welfare Benefits
Administration, Room N-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 of Proposed Exemption published on November 18, 2002, at 67
FR 69569.
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 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 24th day of December, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 02-32895 Filed 12-27-02; 8:45 am]
BILLING CODE 4510-29-P