[Application Nos. D-11324, Deutsche Bank AG (DB); D-11383, L-11384 and
D-11385]
[02/13/2007]
Volume 72, Number 29, Page 6747-6768
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Nos. D-11324, Deutsche Bank AG (DB); D-11383, L-11384 and
D-11385]
Kern County Electrical Pension Trust (the Pension Plan), Kern
County Electrical Joint Apprenticeship and Training Trust (the
Apprenticeship Plan), Kern County Electrical Health and Welfare Plan
(the Welfare Plan), The International Brotherhood of Electrical Workers
Local Union 428 (the Local Union); L-11302 and L-11303, OPET Health
Care and Life Insurance Plans RM3A and RM5A (Together the H&L Plans);
and OPET Prescription Drug Plan RRx (Plan RRx; All Three Together, the
Plans), et al.; Proposed Exemptions: Involving Deutsche Bank, Kern
County and OPET Health Care
AGENCY: Employee Benefits Security 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 (ERISA or 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 Employee Benefits Security
Administration (EBSA), 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. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 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.
[[Page 6748]]
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.
Deutsche Bank AG (DB), Located in Germany, With Affiliates in New York,
New York and Other Locations
[Application No. D-11324]
Proposed Exemption
Under the authority of section 408(a) of the Employee Retirement
Income Security Act of 1974 (the Act) and section 4975(c)(2) of the
Internal Revenue Code of 1986 (the Code) and in accordance with the
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836,
32847, August 10, 1990), the Department of Labor (the Department) is
considering granting an exemption to DB and its affiliates (the
Applicants) which will supersede Prohibited Transaction Exemption 2003-
24 (PTE 2003-24) (68 FR 48637, August 14, 2003, as amended, 68 FR
55993, September 29, 2003).\1\
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\1\ For a discussion of how this proposed exemption will affect
other applicants that are entitled to relief under PTE 2003-24, see
the discussion in paragraph number 4 in the Summary of Facts and
Representations of this proposed exemption.
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Section I--Transactions
If the proposed exemption is granted, the restrictions of section
406 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
(F) of the Code, shall not apply:
(a) To the purchase of certain securities (the Securities), as
defined, below in section III(h), by an asset management affiliate of
DB, as ``affiliate'' is defined, below, in section III(c), from any
person other than such asset management affiliate of DB or any
affiliate thereof, during the existence of an underwriting or selling
syndicate with respect to such Securities, where a broker-dealer
affiliated with DB (the Affiliated Broker-Dealer), as defined, below,
in section III(b), is a manager or member of such syndicate and the
asset management affiliate of DB purchases such Securities, as a
fiduciary:
(1) On behalf of an employee benefit plan or employee benefit plans
(Client Plan(s)), as defined, below, in section III(e) and/or on behalf
of a Master Trust or Master Trusts (Master Trust(s)), as defined,
below, in section III(o); or
(2) On behalf of Client Plans, Master Trusts, and/or In-House
Plans, as defined, below, in section III(q), which are invested in a
pooled fund or in pooled funds (Pooled Fund(s)), as defined, below, in
section III(f); or
(3) On behalf of Client Plans, Master Trusts, and/or In-House Plans
which are invested in a fund or in funds (Advised Fund(s)), as defined,
below, in section III(a); provided that the conditions as set forth,
below, in section II, are satisfied. (An affiliated underwriter
transaction (AUT)); and/or
(b) to the purchase of Securities by an asset management affiliate
of DB from any person other than such asset management affiliate of DB
or any affiliate thereof, where a trustee affiliated with DB (the
Affiliated Trustee), as defined, below, in section III(l), serves as a
trustee of a trust that issued the Securities (whether or not such
Securities are debt securities) or serves as an indenture trustee of
Securities that are debt securities and where the asset management
affiliate of DB purchases such Securities:
(1) On behalf of a Client Plan or Client Plans and/or on behalf of
a Master Trust or Master Trusts; or
(2) On behalf of Client Plans, Master Trusts, and/or In-House Plans
which are invested in a Pooled Fund or in Pooled Funds; or
(3) On behalf of Client Plans, Master Trusts, and/or In-House Plans
which are invested in an Advised Fund or in Advised Funds; provided
that the conditions as set forth, below, in section II, are satisfied
(an affiliated trustee transaction (ATT)).\2\
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\2\ For purposes of this proposed exemption, an In-House Plan
may engage in AUT's and ATT's only through investment in a Pooled
Fund or an Advised Fund.
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Section II--Conditions
The proposed exemption is conditioned upon adherence to the
material facts and representations described herein and upon
satisfaction of the following requirements:
(a)(1) The Securities to be purchased are either--
(i) Part of an issue registered under the Securities Act of 1933
(the 1933 Act) (15 U.S.C. 77a et seq.). If the Securities to be
purchased are part of an issue that is exempt from such registration
requirement, such Securities:
(A) Are issued or guaranteed by the United States or by any person
controlled or supervised by and acting as an instrumentality of the
United States pursuant to authority granted by the Congress of the
United States,
(B) Are issued by a bank,
(C) Are exempt from such registration requirement pursuant to a
Federal statute other than the 1933 Act, or
(D) Are the subject of a distribution and are of a class which is
required to be registered under section 12 of the Securities Exchange
Act of 1934 (the 1934 Act) (15 U.S.C. 781), and are issued by an issuer
that has been subject to the reporting requirements of section 13 of
the 1934 Act (15 U.S.C. 78m) for a period of at least ninety (90) days
immediately preceding the sale of such Securities and that has filed
all reports required to be filed thereunder with the Securities and
Exchange Commission (SEC) during the preceding twelve (12) months; or
(ii) Part of an issue that is an Eligible Rule 144A Offering, as
defined in SEC Rule 10f-3 (17 CFR 270.10f-3(a)(4)). Where the Eligible
Rule 144A Offering of the Securities is of equity securities, the
offering syndicate shall obtain a legal opinion regarding the adequacy
of the disclosure in the offering memorandum;
(2) The Securities to be purchased are purchased prior to the end
of the first day on which any sales are made, pursuant to that
offering, at a price that is not more than the price paid by each other
purchaser of the Securities in that offering or in any concurrent
offering of the Securities, except that--
(i) If such Securities are offered for subscription upon exercise
of rights, they may be purchased on or before the fourth day preceding
the day on which the rights offering terminates; or
(ii) If such Securities are debt securities, they may be purchased
at a price that is not more than the price paid by each other purchaser
of the Securities in that offering or in any concurrent offering of the
Securities and may be purchased on a day subsequent to the end of the
first day on which any sales are made, pursuant to that offering,
provided that the interest rates, as of the date of such purchase, on
comparable debt securities offered to the public subsequent to the end
of the first day on which any sales are made and prior to the purchase
date are less than the interest rate of the debt Securities being
purchased; and
(3) The Securities to be purchased are offered pursuant to an
underwriting or selling agreement under which the members of the
syndicate are committed to purchase all of the Securities being
offered, except if--
(i) Such Securities are purchased by others pursuant to a rights
offering; or
(ii) Such Securities are offered pursuant to an over-allotment
option.
[[Page 6749]]
(b) The issuer of the Securities to be purchased pursuant to this
exemption must have been in continuous operation for not less than
three years, including the operation of any predecessors, unless the
Securities to be purchased--
(1) Are non-convertible debt securities rated in one of the four
highest rating categories by Standard & Poor's Rating Services, Moody's
Investors Service, Inc., FitchRatings, Inc., Dominion Bond Rating
Service Limited, Dominion Bond Rating Service, Inc., or any successors
thereto (collectively, the Rating Organizations); provided that none of
the Rating Organizations rates such securities in a category lower than
the fourth highest rating category; or
(2) Are debt securities issued or fully guaranteed by the United
States or by any person controlled or supervised by and acting as an
instrumentality of the United States pursuant to authority granted by
the Congress of the United States; or
(3) Are debt securities which are fully guaranteed by a person (the
Guarantor) that has been in continuous operation for not less than
three years, including the operation of any predecessors, provided that
such Guarantor has issued other securities registered under the 1933
Act; or if such Guarantor has issued other securities which are exempt
from such registration requirement, such Guarantor has been in
continuous operation for not less than three years, including the
operation of any predecessors, and such Guarantor:
(a) Is a bank; or
(b) Is an issuer of securities which are exempt from such
registration requirement, pursuant to a Federal statute other than the
1933 Act; or
(c) Is an issuer of securities that are the subject of a
distribution and are of a class which is required to be registered
under section 12 of the Securities Exchange Act of 1934 (the 1934 Act)
(15 U.S.C. 781), and are issued by an issuer that has been subject to
the reporting requirements of section 13 of the 1934 Act (15 U.S.C.
78m) for a period of at least ninety (90) days immediately preceding
the sale of such securities and that has filed all reports required to
be filed thereunder with the Securities and Exchange Commission (SEC)
during the preceding twelve (12) months.
(c) The aggregate amount of Securities of an issue purchased,
pursuant to this exemption, by the asset management affiliate of DB
with: (i) The assets of all Client Plans and all Master Trusts; and
(ii) the assets, calculated on a pro-rata basis, of all Client Plans,
Master Trusts, and In-House Plans investing in Pooled Funds managed by
the asset management affiliate of DB and investing in Advised Funds;
and (iii) the assets of plans to which the asset management affiliate
of DB renders investment advice within the meaning of 29 CFR 2510.3-
21(c)) does not exceed:
(1) 10 percent (10%) of the total amount of such Securities being
offered in an issue, if such Securities are equity securities;
(2) 35 percent (35%) of the total amount of such Securities being
offered in an issue, if such Securities are debt securities rated in
one of the four highest rating categories by at least one of the Rating
Organizations; provided that none of the Rating Organizations rates
such Securities in a category lower than the fourth highest rating
category; or
(3) 25 percent (25%) of the total amount of such Securities being
offered in an issue, if such Securities are debt securities rated in
the fifth or sixth highest rating categories by at least one of the
Rating Organizations; provided that none of the Rating Organizations
rates such Securities in a category lower than the sixth highest rating
category; and
(4) The assets of any single Client Plan, any Master Trust (and the
assets of any Client Plans, any Master Trusts and any In-House Plans
investing in Pooled Funds and in Advised Funds) may not be used to
purchase any Securities being offered, if such Securities are debt
securities rated lower than the sixth highest rating category by any of
the Rating Organizations;
(5) Notwithstanding the percentage of Securities of an issue
permitted to be acquired, as set forth in Section II(c)(1), (2), and
(3), above, of this exemption, the amount of Securities in any issue
(whether equity or debt securities) purchased, pursuant to this
exemption, by the asset management affiliate of DB on behalf of any
single Client Plan or any Master Trust, either individually or through
investment, calculated on a pro-rata basis, in a Pooled Fund or Advised
Fund may not exceed three percent (3%) of the total amount of such
Securities being offered in such issue, and;
(6) If purchased in an Eligible Rule 144A Offering, the total
amount of the Securities being offered for purposes of determining the
percentages, described, above, in Section II(c)(1)--(3) and (5), is the
total of:
(i) The principal amount of the offering of such class of
Securities sold by underwriters or members of the selling syndicate to
``qualified institutional buyers'' (QIBs), as defined in SEC Rule 144A
(17 CFR 230.144A(a)(1)); plus
(ii) The principal amount of the offering of such class of
Securities in any concurrent public offering.
(d) The aggregate amount to be paid by any single Client Plan or
Master Trust in purchasing any Securities which are the subject of this
exemption, including any amounts paid by any Client Plan, Master Trust,
or In-House Plan in purchasing such Securities through a Pooled Fund or
an Advised Fund, calculated on a pro-rata basis, does not exceed three
percent (3%) of the fair market value of the net assets of such Client
Plan, Master Trust, or In-House Plan, as of the last day of the most
recent fiscal quarter of such Client Plan, Master Trust, or In-House
Plan prior to such transaction.
(e) The covered transactions are not part of an agreement,
arrangement, or understanding designed to benefit the asset management
affiliate of DB or an affiliate.
(f) If the transaction is an AUT, the Affiliated Broker-Dealer does
not receive, either directly, indirectly, or through designation, any
selling concession, or other compensation or consideration that is
based upon the amount of Securities purchased by any single Client Plan
or Master Trust or that is based on the amount of Securities purchased
by Client Plans, Master Trusts, or In-House Plans through Pooled Funds
or Advised Funds, pursuant to this exemption. In this regard, the
Affiliated Broker-Dealer may not receive, either directly or
indirectly, any compensation or consideration that is attributable to
the fixed designations generated by purchases of the Securities by the
asset management affiliate of DB on behalf of any single Client Plan or
Master Trust or any Client Plan, Master Trust, or In-House Plan in
Pooled Funds or Advised Funds.
(g) If the transaction is an AUT,
(1) The amount the Affiliated Broker-Dealer receives in management,
underwriting, or other compensation or consideration is not increased
through an agreement, arrangement, or understanding for the purpose of
compensating the Affiliated Broker-Dealer for foregoing any selling
concessions for those Securities sold pursuant to this exemption.
Except as described above, nothing in this Section II(g)(1) shall be
construed as precluding the Affiliated Broker-Dealer from receiving
management fees for serving as manager of the underwriting or selling
syndicate, underwriting fees for assuming the responsibilities of an
underwriter in the underwriting or selling syndicate, or other
compensation
[[Page 6750]]
or consideration that is not based upon the amount of Securities
purchased by the asset management affiliate of DB on behalf of any
single Client Plan or Master Trust or on behalf of any Client Plan,
Master Trust, or In-House Plan participating in Pooled Funds and in
Advised Funds, pursuant to this exemption; and
(2) The Affiliated Broker-Dealer shall provide to the asset
management affiliate of DB a written certification, signed by an
officer of the Affiliated Broker-Dealer, stating the amount that the
Affiliated Broker-Dealer received in compensation or consideration
during the past quarter, in connection with any offerings covered by
this exemption, was not adjusted in a manner inconsistent with Section
II(e), (f), or (g) of this exemption.
(h) The covered transactions are performed under a written
authorization executed in advance by an independent fiduciary of each
single Client Plan (the Independent Fiduciary), as defined, below, in
Section III(g), or by a master trustee (the Master Trustee), as
defined, below, in Section III(n), of each Master Trust).
If an Independent Fiduciary acting on behalf of a single Client
Plan (or if a Master Trustee acting on behalf of a Master Trust, as the
case may be) executed a written authorization with respect of AUTs, as
required under another prohibited transaction exemption covering the
same asset management affiliate of DB, prior to publication of this
exemption in the Federal Register, the written authorization
requirement of this Section II(h) shall be deemed satisfied with
respect to ATTs and AUTs, if such asset management affiliate of DB
provides to the same Independent Fiduciary (or the same Master Trustee)
the materials described, below in Section II(i), together with a
termination form expressly providing an election for the Independent
Fiduciary (or Master Trustee) to terminate the authorization with
respect to AUTs or ATTs, or both, and a statement to the effect that
the asset management affiliate of DB proposes to engage in ATTs on a
specified date, unless the Independent Fiduciary (or Master Trustee)
signs and returns the termination form to such asset management
affiliate of DB prior to such specified date. Such specified date shall
not be less than 45 days after the date the asset management affiliate
of DB sent the notice of the intent to engage in ATTs to the
Independent Fiduciary (or to the Master Trustee).
(i) Prior to the execution by an Independent Fiduciary of a single
Client Plan (or by a Master Trustee of a Master Trust, as the case may
be) of the written authorization described, above, in Section II(h),
the following information and materials (which may be provided
electronically) must be provided by the asset management affiliate of
DB to such Independent Fiduciary (and to such Master Trustee):
(1) A copy of the Notice of Proposed Exemption (the Notice) and a
copy of the final exemption as published in the Federal Register; and
(2) Any other reasonably available information regarding the
covered transactions that such Independent Fiduciary (or such Master
Trustee) requests the asset management affiliate of DB to provide.
(j) Subsequent to the initial authorization by an Independent
Fiduciary of a single Client Plan (or by a Master Trustee of a Master
Trust, as the case may be) permitting the asset management affiliate of
DB to engage in the covered transactions on behalf of such single
Client Plan (or on behalf of such Master Trust), the asset management
affiliate of DB will continue to be subject to the requirement to
provide within a reasonable period of time any reasonably available
information regarding the covered transactions that the Independent
Fiduciary (or the Master Trustee) requests the asset management
affiliate of DB to provide.
(k)(1) In the case of an existing employee benefit plan investor
(or existing Master Trust investor, or existing In-House Plan investor,
as the case may be) in a Pooled Fund, such Pooled Fund may not engage
in any covered transactions pursuant to this exemption, unless the
asset management affiliate of DB provides the written information, as
described, below, and within the time period described, below, in this
Section II(k)(3), to the Independent Fiduciary of each such plan
participating in such Pooled Fund (and to the Master Trustee of each
such Master Trust and to the fiduciary of each such In-House Plan
participating in such Pooled Fund).
(2) In the case of an existing employee benefit plan investor (or
existing Master Trust investor or existing In-House Plan investor, as
the case may be) in an Advised Fund, such Advised Fund may not engage
in any covered transactions pursuant to this exemption, unless the
asset management affiliate of DB provides the written information, as
described, below, and within the time period described, below, in this
Section II(k)(3), to the fiduciary who establishes and maintains the
Advised Fund (the Appointing Fiduciary), as defined, below, in Section
III(m); provided that: (i) Such Appointing Fiduciary is contractually
obligated pursuant to a written agreement with the asset management
affiliate of DB to distribute to the Independent Fiduciary of each such
plan participating in such Advised Fund (and to the Master Trustee of
each such Master Trust, and to the fiduciary of each such In-House Plan
participating in such Advised Fund) the written information, described,
below, in this Section II(k)(3); and (ii) after completing the
distribution of such written information, such Appointing Fiduciary
confirms in writing to the asset management affiliate of DB the date
that the written information, described, below, in this Section
II(k)(3), was sent to the Independent Fiduciary of each such plan
participating in such Advised Fund (and to the Master Trustee of each
such Master Trust and to the fiduciary of each such In-House Plan
participating in such Advised Fund).
(3) The following information and materials (which may be provided
electronically) shall be provided by the asset management affiliate of
DB not less than 45 days prior to such asset management affiliate of DB
engaging in the covered transactions on behalf of a Pooled Fund or on
behalf of an Advised Fund, as the case may be, pursuant to this
exemption:
(i) A notice of the intent of such Pooled Fund or such Advised Fund
to purchase Securities pursuant to this exemption, a copy of this
Notice, and a copy of the final exemption, as published in the Federal
Register;
(ii) Any other reasonably available information regarding the
covered transactions that the Independent Fiduciary of a plan (or
Master Trustee of a Master Trust or fiduciary of an In-House Plan)
participating in a Pooled Fund requests the asset management affiliate
of DB to provide or in the case of a plan (or Master Trust or In-House
Plan) participating in an Advised Fund, any other reasonably available
information that the Independent Fiduciary of such plan (or Master
Trustee of such Master Trust or fiduciary of such In-House Plan) has
requested the Appointing Fiduciary of such Advised Fund to provide; and
(iii) A termination form expressly providing an election for the
Independent Fiduciary of a plan (or Master Trustee of a Master Trust or
fiduciary of an In-House Plan) participating in a Pooled Fund or in an
Advised Fund to terminate such plan's (or Master Trust's or In-House
Plan's) investment in such Pooled Fund or in such Advised Fund without
penalty to such plan (or to such Master Trust or to such In-House
Plan). Such form shall
[[Page 6751]]
include instructions specifying how to use the form. Specifically, the
instructions will explain that such plan (or such Master Trust or such
In-House Plan) has an opportunity to withdraw its assets from a Pooled
Fund or an Advised Fund for a period of no more than 30 days after such
plan's (or such Master Trust's or such In-House Plan's) receipt of the
initial notice of intent, described, above, in Section II(k)(3)(i), and
that the failure of the Independent Fiduciary of such plan (or Master
Trustee of such Master Trust or fiduciary of such In-House Plan) to
return the termination form to the asset management affiliate of DB in
the case of a plan (or Master Trust or In-House Plan) participating in
a Pooled Fund or to return the termination form to the Appointing
Fiduciary in the case of a plan (or Master Trust or In-House Plan) in
an Advised Fund by the specified date shall be deemed to be an approval
by such plan (or such Master Trust or such In-House Plan) of its
participation in the covered transactions as an investor in such Pooled
Fund or in such Advised Fund.
Further, the instructions will identify DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, and the Affiliated
Trustee and will provide the address of the asset management affiliate
of DB and the address of the Appointing Fiduciary, if applicable. The
instructions will state that this exemption may be unavailable, unless
the fiduciary of each plan (and the Master Trustee of each Master
Trust) participating in the covered transactions as an investor in a
Pooled Fund or as an investor in an Advised Fund is, in fact,
independent of DB, the asset management affiliate of DB, the Affiliated
Broker-Dealer, and the Affiliated Trustee. The instructions will also
state that the fiduciary of each such plan must advise the asset
management affiliate of DB and the Appointing Fiduciary, if applicable,
in writing, if it is not an ``Independent Fiduciary,'' as that term is
defined, below, in Section III(g). The instructions will also state
that each Master Trustee of a Master Trust must advise the asset
management affiliate of DB and the Appointing Fiduciary, if applicable,
in writing, if it is not ``independent,'' as the term, ``Master
Trustee,'' is defined, below, in Section III(n).
For purposes of this Section II(k), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this exemption for each plan be
independent of the asset management affiliate of DB shall not apply in
the case of an In-House Plan.
(l)(1) In the case of each plan (and in the case of each Master
Trust and each In-House Plan) whose assets are proposed to be invested
in a Pooled Fund after such Pooled Fund has satisfied the conditions
set forth in this exemption to engage in the covered transactions, the
investment by such plan (or by such Master Trust or such In-House Plan)
in the Pooled Fund is subject to the prior written authorization of an
Independent Fiduciary representing such plan (or the prior written
authorization by the Master Trustee of such Master Trust or by the
fiduciary of such In-House Plan, as the case may be), following the
receipt by such Independent Fiduciary of such plan (or by the Master
Trustee of such Master Trust or the fiduciary of such In-House Plan, as
the case may be) of the written information described, above, in
Section II(k)(3)(i) and (ii).
(2) In the case of each plan (and in the case of each Master Trust
and each In-House Plan) whose assets are proposed to be invested in an
Advised Fund after such Advised Fund has satisfied the conditions set
forth in this exemption to engage in the covered transactions:
(i) The investment by such plan (or Master Trust or In-House Plan)
in such Advised Fund is subject to the prior written authorization of
the Independent Fiduciary representing such plan (or the prior written
authorization by the Master Trustee of such Master Trust or by the
fiduciary of such In-House Plan, as the case may be), following the
receipt by such Independent Fiduciary (or by such Master Trustee or by
such fiduciary of such In-House Plan) of the written information
described, above, in Section II(k)(3)(i) and (ii), which information
the asset management affiliate of DB is required to provide, not less
than 30 days prior to the investment of such plan (or such Master Trust
or such In-House Plan) in such Advised Fund, to the Appointing
Fiduciary of such Advised Fund; and
(ii) The investment by such plan (or Master Trust or In-House Plan)
in such Advised Fund is subject further to the requirement that,
pursuant to a written agreement with the asset management affiliate of
DB, the Appointing Fiduciary is contractually obligated to distribute
the written information described, above, in Section II(k)(3)(i) and
(ii) to the Independent Fiduciary of each plan proposing to invest in
such Advised Fund (or to the Master Trustee of each Master Trust or to
the fiduciary of each In-House Plan proposing to invest in such Advised
Fund, as the case may be) and is contractually obligated to confirm in
writing to the asset management affiliate of DB the date that such
information was sent to the Independent Fiduciary of each plan (or
Master Trustee of each Master Trust or fiduciary of each In-House Plan,
as the case may be) proposing to invest in such Advised Fund, and is
contractually obligated to confirm in writing to the asset management
affiliate of DB the date that the Appointing Fiduciary obtained the
written authorization of the Independent Fiduciary of each plan (or the
Master Trustee of each Master Trust or fiduciary of each In-House Plan,
as the case may be); provided that such date is not less than 30 days
prior to the date of the investment by such plan (or Master Trust or
In-House Plan, as the case may be) in such Advised Fund.
(3) For purposes of this Section II(l), the requirement that the
fiduciary responsible for the decision to authorize the transactions
described, above, in Section I of this exemption for each plan
proposing to invest a Pooled Fund or in an Advised Fund be independent
of DB and its affiliates shall not apply in the case of an In-House
Plan.
(m)(1) Subsequent to the initial authorization by an Independent
Fiduciary of a plan (or by a Master Trustee of a Master Trust or
fiduciary of an In-House Plan) to invest in a Pooled Fund that engages
in the covered transactions, the asset management affiliate of DB will
continue to be subject to the requirement to provide within a
reasonable period of time any reasonably available information
regarding the covered transactions that the Independent Fiduciary of
such plan (or the Master Trustee of such Master Trust or the fiduciary
of such In-House Plan, as the case may be) requests the asset
management affiliate of DB to provide; and
(2) Subsequent to the initial authorization by an Independent
Fiduciary of a plan (or by a Master Trustee of a Master Trust or
fiduciary of an In-House Plan) to invest in an Advised Fund that
engages in the covered transactions, the asset management affiliate of
DB will continue to be subject to the requirement to provide within a
reasonable period of time to the Appointing Fiduciary any reasonably
available information regarding the covered transactions that the
Independent Fiduciary of such Plan (or the Master Trustee of such
Master Trust or the fiduciary of such In-House Plan, as the case may
be) requests the Appointing Fiduciary to provide.
(n) At least once every three months, and not later than 45 days
following the three (3) month period, the asset
[[Page 6752]]
management affiliate of DB shall furnish:
(1) In the case of each single Client Plan (and in the case of each
Master Trust) that engages in the covered transactions, the information
described, below, in this Section II(n)(4)-(8), to the Independent
Fiduciary of each such single Client Plan (and to the Master Trustee of
each such Master Trust, as the case may be).
(2) In the case of each Pooled Fund in which a Client Plan (or in
which a Master Trust or in which an In-House Plan) invests, the
information described, below, in this Section II(n)(4)-(7) and (9), to
the Independent Fiduciary of each such Client Plan (and to the Master
Trustee of each such Master Trust and to the fiduciary of each such In-
House Plan) invested in such Pooled Fund.
(3) In the case of each Advised Fund in which a Client Plan (or in
which a Master Trust or in which an In-House Plan) invests, the
information described, below, in this Section II(n)(4)-(7) and (9), to
the Appointing Fiduciary of such Advised Fund who is contractually
obligated to distribute such information, not later than 30 days
following receipt of such information, to the Independent Fiduciary of
each such Client Plan (and to the Master Trustee of each such Master
Trust and to the fiduciary of each such In-House Plan) invested in such
Advised Fund, and is contractually obligated to confirm in writing to
DB the date when such distribution was sent to the Independent
Fiduciary of each such Client Plan (and to the Master Trustee of each
such Master Trust and to the fiduciary of each such In-House Plan)
invested in such Advised Fund).
(4) A quarterly report (a Quarterly Report) (which may be provided
electronically) which discloses all the Securities purchased pursuant
to the exemption during the period to which such report relates on
behalf of the Client Plan, Master Trust, In-House Plan, Pooled Fund, or
Advised Fund to which such report relates and which discloses the terms
of each of the transactions described in such report, including:
(i) The type of Securities (including the rating of any Securities
which are debt securities) involved in each transaction;
(ii) The price at which the Securities were purchased in each
transaction;
(iii) The first day on which any sale was made during the offering
of the Securities;
(iv) The size of the issue of the Securities involved in each
transaction;
(v) The number of Securities purchased by the asset management
affiliate of DB for the Client Plan, Master Trust, In-House Plan,
Pooled Fund, or Advised Fund to which the transaction relates;
(vi) The identity of the underwriter from whom the Securities were
purchased for each transaction;
(vii) In the case of an AUT, the underwriting spread in each
transaction (i.e., the difference, between the price at which the
underwriter purchases the securities from the issuer and the price at
which the securities are sold to the public);
(viii) In the case of an ATT, the basis upon which the Affiliated
Trustee was compensated in each transaction;
(ix) The price at which any of the Securities purchased during the
period to which such report relates were sold; and
(x) The market value at the end of the period to which such report
relates of the Securities purchased during such period and not sold;
(5) The Quarterly Report contains: (i) In the case of AUTs, a
representation that the asset management affiliate of DB has received a
written certification signed by an officer of the Affiliated Broker-
Dealer, as described, above, in Section II(g)(2), affirming that, as to
each AUT covered by this exemption during the past quarter, the
Affiliated Broker-Dealer acted in compliance with Section II(e), (f),
and (g) of this exemption, and a representation that copies of such
certifications will be provided upon request, and
(ii) In the case of ATTs, a representation of the asset management
affiliate of DB, affirming that, as to each ATT, the transaction was
not part of an agreement, arrangement, or understanding designed to
benefit the Affiliated Trustee;
(6) A disclosure in the Quarterly Report that states that any other
reasonably available information regarding a covered transaction that
an Independent Fiduciary (or Master Trustee or fiduciary of an In-House
Plan) requests will be provided, including, but not limited to:
(i) The date on which the Securities were purchased on behalf of
the Client Plan (or Master Trust or In-House Plan) to which the
disclosure relates (including Securities purchased by Pooled Funds or
Advised Funds in which such Client Plan, (or such Master Trust or such
In-House Plan) invests;
(ii) The percentage of the offering purchased on behalf of all
Client Plans and Master Trusts (and the pro-rata percentage purchased
on behalf of Client Plans, Master Trusts, and In-House Plans investing
in Pooled Funds or Advised Funds); and
(iii) The identity of all members of the underwriting syndicate;
(7) The Quarterly Report discloses any instance during the past
quarter where the asset management affiliate of DB was precluded for
any period of time from selling Securities purchased under this
exemption in that quarter because of its status as an affiliate of an
Affiliated Broker-Dealer or of an Affiliated Trustee and the reason for
this restriction;
(8) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each single Client Plan
(and to the Master Trustee of each Master Trust) that engages in the
covered transactions that the authorization to engage in such covered
transactions may be terminated, without penalty to such single Client
Plan (or such Master Trust), within five (5) days after the date that
the Independent Fiduciary of such single Client Plan (or the Master
Trustee of such Master Trust) informs the person identified in such
notification that the authorization to engage in the covered
transactions is terminated; and
(9) Explicit notification, prominently displayed in each Quarterly
Report sent to the Independent Fiduciary of each Client Plan (and to
the Master Trustee of each Master Trust and to the fiduciary of each
In-House Plan) that engages in the covered transactions through a
Pooled Fund or an Advised Fund that the investment in such Pooled Fund
or such Advised Fund may be terminated, without penalty to such Client
Plan (or such Master Trust or such In-House Plan), within such time as
may be necessary to effect the withdrawal in an orderly manner that is
equitable to all withdrawing plans and to the non-withdrawing plans,
after the date that that the Independent Fiduciary of such Client Plan
(or the Master Trustee of such Master Trust or the fiduciary of such
In-House Plan, as the case may be) informs the person identified in
such notification that the investment in such Pooled Fund or such
Advised Fund is terminated.
(o) For purposes of engaging in covered transactions, each Client
Plan (and each Master Trust and each In-House Plan) shall have total
net assets with a value of at least $50 million (the $50 Million Net
Asset Requirement). For purposes of engaging in covered transactions
involving an Eligible Rule 144A Offering,\3\ each Client Plan (and
[[Page 6753]]
each Master Trust and each In-House Plan) shall have total net assets
of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (such Master Trust or such In-House
Plan, as the case may be) (the $100 Million Net Asset Requirement).
---------------------------------------------------------------------------
\3\ SEC Rule 10f-3(a)(4), 17 CFR 270.10f-3(a)(4), states that
the term ``Eligible Rule 144A Offering'' means an offering of
securities that meets the following conditions:
(i) The securities are offered or sold in transactions exempt
from registration under section 4(2) of the Securities Act of 1933
[15 U.S.C. 77d(d)], rule 144A thereunder [Sec. 230.144A of this
chapter], or rules 501-508 thereunder [Sec. Sec. 230.501-230-508 of
this chapter];
(ii) The securities are sold to persons that the seller and any
person acting on behalf of the seller reasonably believe to include
qualified institutional buyers, as defined in Sec. 230.144A(a)(1)
of this chapter; and
(iii) The seller and any person acting on behalf of the seller
reasonably believe that the securities are eligible for resale to
other qualified institutional buyers pursuant to Sec. 230.144A of
this chapter.
---------------------------------------------------------------------------
For purposes of a Pooled Fund or an Advised Fund engaging in
covered transactions, each Client Plan (and each Master Trust and each
In-House Plan) in such Pooled Fund or Advised Fund shall have total net
assets with a value of at least $50 million. Notwithstanding the
foregoing, if each such Client Plan (and each such Master Trust and
each such In-House Plan) in such Pooled Fund or Advised Fund does not
have total net assets with a value of at least $50 million, the $50
Million Net Asset Requirement will be met, if 50 percent (50%) or more
of the units of beneficial interest in such Pooled Fund or in such
Advised Fund are held by Client Plans (or by Master Trusts, or by In-
House Plans), each of which has total net assets with a value of at
least $50 million. For purposes of a Pooled Fund or an Advised Fund
engaging in covered transactions involving an Eligible Rule 144A
Offering, each Client Plan (and each Master Trust and each In-House
Plan) in such Pooled Fund or in such Advised Fund shall have total net
assets of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (or such Master Trust or such In-House
Plan, as the case may be). Notwithstanding the foregoing, if each such
Client Plan (and each such Master Trust and each such In-House Plan) in
such Pooled Fund or in such Advised Fund does not have total net assets
of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (Master Trust or In-House Plan, as the
case may be), the $100 Million Net Asset Requirement will be met if 50
percent (50%) or more of the units of beneficial interest in such
Pooled Fund or in such Advised Fund are held by Client Plans (or by
Master Trusts or by In-House Plans), each of which has total net assets
of at least $100 million in securities of issuers that are not
affiliated with such Client Plan (or such Master Trust or such In-House
Plan, as the case may be), and the Pooled Fund or the Advised Fund
itself qualifies as a QIB, as determined pursuant to SEC Rule 144A (17
CFR 230.144A(a)(F)).
Solely for purposes of applying this Section II(o) in calculating
whether 50 percent (50%) or more of the units of beneficial interest in
a Pooled Fund or in an Advised Fund is held by ``Client Plans'' each of
which has total net asset with a value of at least $50 million (or in
the case of an Eligible Rule 144A Offering, has total net assets of at
least $100 million in securities of issuers that are not affiliated
with such Client Plan (such Master Trust or such In-House Plan, as the
case may be)), the word, ``Client Plans,'' includes governmental plans
within the meaning of section 3(32) of the Act; provided that each such
government plan has total net assets with a value of at least $50
million (or in the case of an Eligible Rule 144A Offering, has total
net assets of at least $100 million in securities of issuers that are
not affiliated with such government plan).
For purposes of the net asset requirements described, above, in
this Section II(o), where a group of Client Plans is maintained by a
single employer or controlled group of employers, as defined in section
407(d)(7) of the Act, the $50 Million Net Asset Requirement (or in the
case of an Eligible Rule 144A Offering, the $100 Million Net Asset
Requirement) may be met by aggregating the assets of such Client Plans,
if the assets of such Client Plans are pooled for investment purposes
under a Master Trustee, as defined, below, in Section III(n), in a
single Master Trust, as defined, below, in Section III(o) of this
exemption.
For purposes of complying with the net asset requirements, as set
forth in this Section II(o), the Appointing Fiduciary with respect to
an Advised Fund which engages in the transactions described, above, in
Section I of this exemption, must enter into a contractual obligation,
pursuant to a written agreement with the asset management affiliate of
DB, to ensure that the $50 Million Net Asset Requirement and the $100
Million Net Asset Requirement, as set forth in this Section II(o), is
satisfied; to maintain records with respect thereto; and to provide
written confirmation of compliance with Section II(o) upon request from
the asset management affiliate of DB.
(p) The asset management affiliate of DB qualifies as a ``qualified
professional asset manager'' (QPAM), as that term is defined under Part
V(a) of PTE 84-14. Notwithstanding the fact that the asset management
affiliate of DB satisfies the requirements, as set forth in Part V(a)
of PTE 84-14, such asset management affiliate of DB must also have
total client assets under its management and control in excess of $5
billion, as of the last day of it most recent fiscal year and
shareholders' or partners' equity in excess of $1 million. Furthermore,
the requirement that the asset management affiliate of DB must have
total client asset under its management and control in excess of $5
billion, as of the last day of it most recent fiscal year and
shareholders' or partners' equity in excess of $1 million, as set forth
in this Section II(p), applies whether such asset management affiliate
of DB, qualifies as a QPAM, pursuant to Part V(a)(1), (a)(2), (a)(3) or
(a)(4) of PTE 84-14.
(q) No more than 20 percent (20%) of the assets of a Pooled Fund or
of an Advised Fund, at the time of a covered transaction, are comprised
of assets of In-House Plans, for which DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, or an affiliate
exercises investment discretion.
(r) The asset management affiliate of DB, and the Affiliated
Broker-Dealer, as applicable, maintain, or cause to be maintained, for
a period of six (6) years from the date of any covered transaction such
records as are necessary to enable the persons, described, below, in
Section II(s), to determine whether the conditions of this exemption
have been met, except that--
(1) No party in interest with respect to a plan which engages in
the covered transactions, other than DB, the asset management affiliate
of DB, and the Affiliated Broker-Dealer, or Affiliated Trustee, as
applicable, shall be subject to a civil penalty under section 502(i) of
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if
such records are not maintained, or not available for examination, as
required, below, by Section II(s); and
(2) A prohibited transaction shall not be considered to have
occurred if, due to circumstances beyond the control of the asset
management affiliate of DB, the Affiliated Broker-Dealer, or Affiliated
Trustee, as applicable, such records are lost or destroyed prior to the
end of the six-year period.
(s)(1) Except as provided, below, in Section II(s)(2), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to, above, in Section II(r) are
unconditionally available at their customary location for examination
during normal business hours by--
(i) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the SEC; or
[[Page 6754]]
(ii) Any fiduciary of any plan (and any Master Trustee of a Master
Trust) that engages in the covered transactions, or any duly authorized
employee or representative of such fiduciary or Master Trustee; or
(iii) Any employer of participants and beneficiaries and any
employee organization whose members are covered by a plan that engages
in the covered transactions, or any authorized employee or
representative of these entities; or
(iv) Any participant or beneficiary of a plan that engages in the
covered transactions, or duly authorized employee or representative of
such participant or beneficiary;
(2) None of the persons described, above, in Section II(s)(1)(ii)-
(iv) shall be authorized to examine trade secrets of the asset
management affiliate of DB, or the Affiliated Broker-Dealer, or the
Affiliated Trustee, or commercial or financial information which is
privileged or confidential; and
(3) Should the asset management affiliate of DB, or the Affiliated
Broker-Dealer, or the Affiliated Trustee refuse to disclose information
on the basis that such information is exempt from disclosure, pursuant
to Section II(s)(2), above, the asset management affiliate of DB shall,
by the close of the thirtieth (30th) day following the request, provide
a written notice advising that person of the reasons for the refusal
and that the Department may request such information.
(t) An indenture trustee whose affiliate has, within the prior 12
months, underwritten any Securities for an obligor of the indenture
securities will resign as indenture trustee if a default occurs upon
the indenture securities.
(u) The Appointing Fiduciary of an Advised Fund must enter into a
written contractual obligation with the asset management affiliate of
DB to distribute the written disclosures, as required by Section II(k),
(l), (m), and the written reports, as required by Section II(n), to
each investor participating in such Advised Fund which is an employee
benefit plan subject to the fiduciary responsibility provisions of the
Act or which is established pursuant to section 4975 of the Code or
which is a Master Trust, as defined in Section III(o).
Section III--Definitions
(a) The term, ``Advised Fund(s),'' means a common or collective
trust fund(s) or pooled investment fund(s), in which employee benefit
plan(s) subject to the Act and/or Code invest, which is established and
maintained by an Appointing Fiduciary, as defined, below, in Section
III(m), and such Appointing Fiduciary (and not an affiliate thereof) is
directly responsible for the selection of an asset management affiliate
of DB to exercise discretionary authority or discretionary control over
the management or disposition of some or all of the assets in such
fund; or to render investment advice, as described in section
3(21)(A)(ii) of the Act, with respect to some or all of the assets in
such fund. The term, ``Advised Fund(s),'' does not include any common
or collective trust fund(s) or pooled investment fund(s) in which
employee benefit plan(s) subject to the Act and/or Code invest, which
is established and maintained by an Appointing Fiduciary but for which
an entity, other than such Appointing Fiduciary, has selected an asset
management affiliate of DB to exercise discretionary authority or
discretionary control over the management or disposition of some or all
of the assets of such plan(s) or to render investment advice, as
defined in section 3(21)(A)(ii) of the Act, with respect to some or all
of the assets invested in such fund, and for which such entity serves
as a fiduciary, as defined in section 3(21) of the Act.
In addition to the foregoing, the proposed exemption does not apply
to any AUT and ATT transactions involving plan assets which are
invested in certain multi-tiered pooled arrangements. In this regard,
if a common or collective trust fund or other pooled investment fund
(except for a Master Trust, as defined, below, in Section III(o))
containing the assets of employee benefit plans(s) subject to the Act
and/or the Code, invests, directly or indirectly, some or all such plan
assets in a Pooled Fund, as defined, below, in Section III(f), or in an
Advised Fund, as defined, in this Section III(a), then the exemption
does not apply to any AUT or ATT transactions engaged in by such Pooled
Fund or such Advised Fund.
(b) The term, ``Affiliated Broker-Dealer,'' means any broker-dealer
affiliate, as ``affiliate'' is defined, below, in Section III(c), of
the Applicants, as ``Applicants'' are defined, below, in Section
III(p), that meets the requirements of this exemption. Such Affiliated
Broker-Dealer may participate in an underwriting or selling syndicate
as a manager or member. The term, ``manager,'' means any member of an
underwriting or selling syndicate who, either alone or together with
other members of the syndicate, is authorized to act on behalf of the
members of the syndicate in connection with the sale and distribution
of the Securities, as defined, below, in Section III(h), being offered
or who receives compensation from the members of the syndicate for its
services as a manager of the syndicate.
(c) The term ``affiliate'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with such person;
(2) Any officer, director, partner, employee, or relative, as
defined in section 3(15) of the Act, of such person; and
(3) Any corporation or partnership of which such person is an
officer, director, partner, or employee.
(d) The term, ``control,'' means the power to exercise a
controlling influence over the management or policies of a person other
than an individual.
(e) The term, ``Client Plan(s),'' means an employee benefit plan(s)
that is subject to the Act and/or the Code, and for which plan(s) an
asset management affiliate of DB exercises discretionary authority or
discretionary control respecting management or disposition of some or
all of the assets of such plan(s), but excludes In-House Plans, as
defined, below, in Section III(q) and Master Trusts, as defined below,
in Section III(o).
(f) The term, ``Pooled Fund(s),'' means a common or collective
trust fund(s) or a pooled investment fund(s): (i) In which employee
benefit plan(s) subject to the Act and/or Code invest, (ii) which is
maintained by an asset management affiliate of DB, (as the term,
``affiliate'' is defined, above, in Section III(c)), and (iii) for
which such asset management affiliate of DB exercises discretionary
authority or discretionary control respecting the management or
disposition of the assets of such fund(s).
(g)(1) The term, ``Independent Fiduciary,'' means a fiduciary of a
plan who is unrelated to, and independent of DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, and the Affiliated
Trustee. For purposes of this exemption, a fiduciary of a plan will be
deemed to be unrelated to, and independent of DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, and the Affiliated
Trustee, if such fiduciary represents that neither such fiduciary, nor
any individual responsible for the decision to authorize or terminate
authorization for the transactions described, above, in Section I of
this exemption, is an officer, director, or highly compensated employee
(within the meaning of section 4975(e)(2)(H) of the Code) of DB, the
asset management affiliate of DB, the Affiliated Broker-Dealer, or the
Affiliated Trustee, and represents that such fiduciary shall
[[Page 6755]]
advise the asset management affiliate of DB, and if applicable, the
Appointing Fiduciary, as defined, below, in Section III(m), within a
reasonable period of time after any change in such facts occur.
(2) Notwithstanding anything to the contrary in this Section
III(g), a fiduciary of a plan is not independent:
(i) If such fiduciary directly or indirectly controls, is
controlled by, or is under common control with DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, or the Affiliated
Trustee;
(ii) If such fiduciary directly or indirectly receives any
compensation or other consideration from DB, the asset management
affiliate of DB, the Affiliated Broker-Dealer, or the Affiliated
Trustee for his or her own personal account in connection with any
transaction described in this exemption;
(iii) If any officer, director, or highly compensated employee
(within the meaning of section 4975(e)(2)(H) of the Code) of the asset
management affiliate of DB responsible for the transactions described,
above, in Section I of this exemption, is an officer, director, or
highly compensated employee (within the meaning of section
4975(e)(2)(H) of the Code) of the sponsor of the plan or of the
fiduciary responsible for the decision to authorize or terminate
authorization for the transactions described, above, in Section I.
However, if such individual is a director of the sponsor of the plan or
of the responsible fiduciary, and if he or she abstains from
participation in: (A) the choice of the plan's investment manager/
adviser; and (B) the decision to authorize or terminate authorization
for transactions described, above, in Section I, then Section
III(g)(2)(iii) shall not apply.
(3) The term, ``officer,'' means a president, any vice president in
charge of a principal business unit, division, or function (such as
sales, administration, or finance), or any other officer who performs a
policy-making function for DB or any affiliate thereof.
(h) The term, ``Securities,'' shall have the same meaning as
defined in section 2(36) of the Investment Company Act of 1940 (the
1940 Act), as amended (15 U.S.C. 80a-2(36)(1996)). For purposes of this
exemption, mortgage-backed or other asset-backed securities rated by
one of the Rating Organizations, as defined, below, in Section III(k),
will be treated as debt securities.
(i) The term, ``Eligible Rule 144A Offering,'' shall have the same
meaning as defined in SEC Rule 10f-3(a)(4) (17 CFR 270. 10f-3(a)(4))
under the 1940 Act.
(j) The term, ``qualified institutional buyer,'' or the term,
``QIB,'' shall have the same meaning as defined in SEC Rule 144A (17
CFR 230.144A(a)(1)) under the 1933 Act.
(k) The term, ``Rating Organizations,'' means Standard & Poor's
Rating Services, Moody's Investors Service, Inc., FitchRatings, Inc.,
Dominion Bond Rating Service Limited, and Dominion Bond Rating Service,
Inc.; or any successors thereto.
(l) The term, ``Affiliated Trustee,'' means any bank or trust
company affiliate, as defined, above, in Section III(c)(1), of the
Applicants, as defined, below, in Section III(p), that serves as
trustee of a trust that issues Securities, as defined, above, in
Section III(h), which are asset-backed securities or as indenture
trustee of Securities which are either asset-backed securities or other
debt securities that meet the requirements of this exemption. For
purposes of this exemption, other than Section II(t), performing
services as custodian, paying agent, registrar, or in similar
ministerial capacities is also considered serving as trustee or
indenture trustee.
(m)(1) The term, ``Appointing Fiduciary,'' means the fiduciary that
establishes and maintains an ``Advised Fund,'' as defined, above, in
Section III(a), that is directly responsible for the selection and
termination of an asset management affiliate of DB to exercise
discretionary authority or discretionary control over the management or
disposition of some or all of the assets of employee benefit plan(s)
subject to the Act and/or Code which are invested in such Advised Fund,
or to render investment advice, as described in section 3(21)(A)(ii) of
the Act with respect to some or all of the assets of such Advised Fund,
and which fiduciary is unrelated to and independent of DB, the asset
management affiliate of DB, the Affiliated Broker-Dealer, and the
Affiliated Trustee. For purposes of this exemption, an Appointing
Fiduciary of an Advised Fund will be deemed to be unrelated to, and
independent of DB, the asset management affiliate of DB, the Affiliated
Broker-Dealer, and the Affiliated Trustee, if such Appointing Fiduciary
represents that it is not an officer, director, or highly compensated
employee (within the meaning of section 4975(e)(2)(H) of the Code) of
DB, the asset management affiliate of DB, the Affiliated Broker-Dealer,
or the Affiliated Trustee, and represents that such Appointing
Fiduciary shall advise the asset management affiliate of DB within a
reasonable period of time after any change in such facts occur.
(2) Notwithstanding anything to the contrary in Section III(m), an
Appointing Fiduciary is not independent:
(i) If any provision, as set forth, above, in Section III(g)(2)(i)-
(ii), in the definition of an Independent Fiduciary, is applicable to
such Appointing Fiduciary, if the term, ``Appointing Fiduciary,'' were
substituted for the term, ``fiduciary'' in such provision; or
(ii) If any officer, director, or highly compensated employee
(within the meaning of section 4975(e)(2)(H) of the Code) of DB, the
asset management affiliate of DB, the Affiliated Broker-Dealer, or the
Affiliated Trustee is an officer, director, or highly compensated
employee (within the meaning of section 4975(e)(2)(H) of the Code) of
such Appointing Fiduciary.
(3) The term, ``officer,'' is defined as in Section III(g)(3),
above.
(4) An Appointing Fiduciary:
(i) Must have been in continuous operation for not less than three
years, including the operation of any predecessors;
(ii) Must qualify as a ``qualified professional asset manager''
(QPAM), as that term is defined under Part V(a) of PTE 84-14.
Notwithstanding the fact that the Appointing Fiduciary satisfies the
requirements, as set forth in Part V(a) of PTE 84-14, such Appointing
Fiduciary must also have total client assets under its management and
control in excess of $5 billion, as of the last day of it most recent
fiscal year and shareholders' or partners' equity in excess of $1
million. Furthermore, the requirement that the Appointing Fiduciary
must have total client asset under its management and control in excess
of $5 billion, as of the last day of it most recent fiscal year and
shareholders' or partners' equity in excess of $1 million, as set forth
in this Section II(m), applies whether such Appointing Fiduciary
qualifies as a QPAM, pursuant to Part V(a)(1), V(a)(2), V(a)(3) or
V(a)(4) of PTE 84-14.
(n)(1) the term, ``Master Trustee,'' means a fiduciary with respect
to a group of Client Plans maintained by a single employer or
controlled group of employers, as defined in section 407(d)(7) of the
Act, which Client Plans are pooled for investment purposes in a single
Master Trust, (as the term, ``Master Trust,'' is defined, below, in
Section III(o)), and which fiduciary is unrelated to, and independent
of DB, the asset management affiliate of DB, the Affiliated Broker-
Dealer, and the Affiliated Trustee. For purposes of this exemption, a
Master Trustee will be deemed to be unrelated to, and independent of
DB, the asset
[[Page 6756]]
management affiliate of DB, the Affiliated Broker-Dealer, and the
Affiliated Trustee, if such Master Trustee satisfies the requirements
set forth, above, in Section III(g)(1) of this exemption in the
definition of an Independent Fiduciary, if the term, ``Master
Trustee,'' were substituted for the term, ``fiduciary,'' in such
provision.
(2) Notwithstanding anything to the contrary in this Section
III(n), the Master Trustee is not independent, if any provision, as set
forth, above, in Section III(g)(2)(i) through (iii), in the definition
of an Independent Fiduciary, is applicable to such Master Trustee, if
the term, ``Master Trustee,'' were substituted for the term,
``fiduciary,'' in such provision.
(3) The term, ``officer,'' is defined as in Section III(g)(3),
above.
(4) The Master Trustee: (i) Must be any officer, director, partner,
or employee of an employer or controlled group of employers, as defined
in section 407(d)(7) of the Act which sponsor a group of Client Plans
the assets of which are commingled for investment purposes in the
Master Trust, (as the term, ``Master Trust,'' is defined, below, in
Section III(o); or an affiliate, as defined, above, in Section
III(c)(1) of such employer or controlled group of employers which has
been in continuous operation for not less than three (3) years,
including the operation of any predecessor; and
(ii) in the case of an affiliate of such employer or controlled
group of employers, must have, as of the last day of its most recent
fiscal year total assets under its management and control in excess of
$50 million, exclusive of the $50 Million Net Asset Requirement, (or,
in the case of an Eligible Rule 144A Offering, the $100 Million Net
Asset Requirement), as set forth in Section II(o), above, attributable
to the aggregate assets of the Client Plans which are commingled in
such Master Trust;
(o) The term, ``Master Trust,'' means a trust in which the assets
of a group of Client Plans maintained by a single employer or
controlled group of employers, as defined in section 407(d)(7) of the
Act are commingled for investment purposes, and which trust satisfies
the net asset requirements, as set forth, above, in Section II(o).
(p) The term, ``the Applicants,'' means DB and its affiliates, as
defined, above, in Section III(c).
(q) The term, ``In-House Plan(s),'' means an employee benefit
plan(s) that is subject to the Act and/or the Code, and that is
sponsored by the Applicants, as defined, above, in Section III(p) for
their own employees.
Effective Date: If granted, this proposed exemption will be
effective as of the date the final exemption is published in the
Federal Register.
Preamble
This document contains a Notice of pendency (the Notice) before the
Department of a proposed individual exemption filed on behalf of DB and
its affiliates (the Applicants), which, if granted, would supersede
Prohibited Transaction Exemption 2003-24 (PTE 2003-24) (68 FR 48637,
August 14, 2003, as amended, 68 FR 55993, September 29, 2003) with
respect to the Applicants. Accordingly, the entire text of this
proposed exemption is set forth in this Notice.
PTE 2003-24 permits purchases of securities by an asset manager on
behalf of employee benefit plans (or entities that hold plan assets)
for which such asset manager acts as a fiduciary: (i) From any person
other than the asset manager or an affiliate during the existence of an
underwriting or selling syndicate where a broker-dealer affiliated with
the asset manager participates as a manager or a member of such
syndicate (affiliated underwriter transactions); and/or (ii) from a
trust that issues asset-backed securities where a trustee affiliated
with the asset manager serves as trustee of the trust (affiliated
trustee transactions).
The Department notes that on June 23, 2001, an authorization (FAN
2001-19E) was issued, pursuant to PTE 96-62 (61 FR 39988, July 31,
1996), to DB and its affiliates with regard to affiliated underwriter
transactions. FAN 2001-19E was based on five (5) individual exemptions,
granted by the Department in June 2000, which permitted the following
entities to engage in affiliated underwriter transactions: (a) PTE
2000-25 issued to Morgan Guaranty Trust Company of New York, and to
J.P. Morgan Investment Management, Inc., (65 FR 35129, June 1, 2000);
(b) PTE 2000-26 issued to Goldman, Sachs & Co., and its Affiliates, (65
FR 35129, June 1, 2000); (c) PTE 2000-27 issued to the Chase Manhattan
Bank, (65 FR 35129, June 1, 2000); (d) PTE 2000-28 issued to Citigroup
Inc., (65 FR 35129, June 1, 2000); and (e) PTE 2000-29 issued to Morgan
Stanley Dean Witter & Co. and its Affiliates, (65 FR 35129, June 1,
2000).
The Department notes that in 2002, DB and its affiliates and
JPMorgan Chase Bank (formerly, Morgan Guaranty Trust Company of New
York and the Chase Manhattan Bank) each submitted an application for
exemption (D-11004 and D-11106, respectively) requesting additional
relief for affiliated trustee transactions. The relief requested by
both financial institutions was encompassed in one exemption, PTE 2003-
24, which provided relief for affiliated underwriter transactions and
for affiliated trustee transactions. In this regard, PTE 2003-24
amended and replaced PTE 2000-27, PTE 2000-25, and FAN 2001-19E that
had previously been issued to Morgan Guaranty Trust Company of New York
and J.P. Morgan Investment Management, Inc., to the Chase Manhattan
Bank, and to DB and its affiliates, respectively.
In June 2005, DB and its affiliates submitted to the Department the
subject application for exemption (D-11324) proposing to amend PTE
2003-24. The Department will separately consider exemptions requesting
similar relief from the following entities or from any other applicant:
(a) JPMorgan Chase Bank, relating to PTE 2003-24, (b) Goldman, Sachs &
Co. and its affiliates, relating to PTE 2000-26; (c) Citigroup Inc.,
relating to PTE 2000-28; (d) Morgan Stanley Dean Witter, & Co.,
relating to PTE 2000-29; (e) Barclays Global Investors N.A., Barclays
Capital, Inc. and their Affiliates, relating to FAN 2001-24E issued
October 6, 2001; (f) TCW Group, Inc., and its Affiliates, relating to
FAN 2002-09E issued September 14, 2002; (g) Rothchild Asset Management,
Inc., relating to FAN 2005-09E issued May 7, 2005; and (h) Lehman
Brothers Holding Inc., and Lehman Brothers Inc., et al., relating to
PTE 2003-22 (68 FR 40694, July 8, 2003).
The proposed exemption would provide relief similar to the relief
provided by PTE 2003-24. In addition, the proposed exemption also: (a)
Would permit covered transactions by certain plans invested in common
or collective trust funds or pooled investment funds which are not
established and maintained by DB or an affiliate but for which an asset
management affiliate of DB exercises discretionary control or
discretionary authority over the management or disposition of some or
all of the plan assets in a fund or renders investment advice, as
described in section 3(21)(A)(ii) of the Act with respect to some or
all of the assets of such fund, provided certain conditions are
satisfied; (b) would permit a master trustee of a master trust, as the
terms, ``master trustee,'' and ``master trust,'' are defined herein, to
receive disclosures and to consent to covered transactions on behalf of
certain employee benefit plans invested in such master trust; and (c)
would permit, for purposes of satisfying the net asset requirement of
PTE 2003-24 in the case of certain funds, as defined herein, the
inclusion
[[Page 6757]]
of government plans within the meaning of section 3(32) of the Act. If
adopted, this proposed exemption would affect the participants and
beneficiaries of the plans involved in such transactions and the
fiduciaries with respect to such plans.
Summary of Facts and Representations
The facts and representations contained in the application are
summarized below. Interested persons are referred to the application on
file with the Department for the complete representations of the
Applicants.
1. DB is a German banking corporation and a leading commercial
bank. DB provides a wide range of banking, fiduciary, record keeping,
custodial, brokerage, and investment services to corporations,
institutions, governments, employee benefit plans, governmental
retirement plans, and private investors worldwide. As of December 31,
2004, DB had total assets of over 840 billion euros and shareholders'
equity equaling 25.9 billion euros. Deutsche Bank's Institutional Asset
Management Division had 3,722 customers in 2004 and was ranked among
the top five asset managers in the world. DB is regulated by the
Bundesanstalt fuer inanzdienstleistungsaufsicht in Germany.
2. The Applicants seek a new exemption which would amend an
existing individual exemption, PTE 2003-24. PTE 2003-24 deals with the
situation where an asset manager purchases securities acting as a
fiduciary on behalf of employee benefit plans, including plans invested
in pooled funds maintained by the asset manager or an affiliate, from
any person other than the asset manager or an affiliate during the
existence of an underwriting or selling syndicate with respect to such
securities: (i) Where the asset manager's affiliate is a manager or a
member of the underwriting syndicate for such securities; and/or (ii)
where a trustee affiliated with the asset manager serves as trustee of
a trust that issues asset-backed securities.
3. DB and its affiliates initially requested an effective date of
August 14, 2003, for the proposed exemption. In this regard, August 14,
2003, is the date that the Department published in the Federal Register
the final exemption for PTE 2003-24. Subsequently, DB notified the
Department that it does not require retroactive relief and withdrew the
request. Accordingly, if this proposed exemption is granted, the final
exemption, will be effective as of the date such final exemption is
published in the Federal Register.
4. The proposed exemption, if granted, will supersede PTE 2003-24
with regard to DB and its affiliates and will apply to DB and its
affiliates only. It is the Department's position that the relief
provided by PTE 2003-24 will remain available to JPMorgan Chase Bank,
provided the conditions set forth therein are satisfied by JPMorgan
Chase Bank.
5. The Applicants have requested that the proposed exemption be
applicable only to DB, its current and future branches, and its current
and future affiliates and subsidiaries, throughout the world.
With regard to current and future branches of DB, it is the
Department's opinion that any reference to DB in the proposed exemption
would include a reference to the current and future branches of DB.
With regard to the current and future affiliates of DB, it is the
Department's position that the proposed exemption would include any
current or future affiliate of DB that satisfies the definition of the
term, ``affiliate,'' as set forth in Section III(c) of the proposed
exemption.
6. The description of covered transactions, as set forth in PTE
2003-24, rather than refer individually to DB and its affiliates, and/
or to JPMorgan Chase Bank, refers instead to an Asset Manager. The
term, ``Asset Manager,'' as defined in Section II(a) of PTE 2003-24,
means ``any asset management affiliate of the Applicants (as
``affiliate'' is defined in paragraph (c)) that meets the requirements
of this exemption.'' To make clear that the proposed exemption applies
only to DB and its affiliates, the Department has throughout the
proposed exemption substituted the phrase, ``an asset management
affiliate of DB,'' instead of the words, ``Asset Manager,'' which
appeared in PTE 2003-24. In addition, in this proposed exemption the
Department has deleted the definition of the term, ``Asset Manager,''
as set forth in Section II(a) of PTE 2003-24, and has substituted
instead in Section III(a) of the proposed exemption a definition of the
term, ``Advised Fund(s).''
7. The Applicants request relief for situations where DB or an
affiliate has discretionary authority over the assets of a common or
collective trust fund or a pooled investment fund as an advisor or as a
sub-advisor.
The Department has determined to provide additional exemptive
relief and to require additional safeguards with respect to the
transactions described herein. In this regard, the proposed exemption
provides relief for AUT and/or ATT transactions engaged in by common or
collective funds or pooled investment funds maintained by an asset
management affiliate of DB. The proposed exemption also provides relief
for AUT and ATT transactions engaged in by common or collective funds
or pooled investment funds which are established and maintained by an
Appointing Fiduciary, as defined in Section III(m). Such Appointing
Fiduciary must have the power to appoint and terminate an asset
management affiliate of DB to exercise discretionary control or
discretionary authority over the management or disposition of some or
all of the assets of plans in such fund, or to render investment
advice, as described in section 3(21)(A)(ii) of the Act with respect to
some or all of the assets of such fund. However, the Department did not
propose relief for AUT and/or ATT transactions in situations engaged in
by a common or collective trust fund or pooled investment fund in which
employee benefit plan(s) subject to the Act and/or Code invest, which
is established and maintained by an Appointing Fiduciary but for which
an entity, other than the Appointing Fiduciary, has selected an asset
management affiliate of DB to exercise discretionary control or
discretionary authority over the management or disposition of plan
assets or to render investment advice, as described in section
3(21)(A)(ii) of the Act with respect to some or all of the assets of
such fund and for which such entity serves as a fiduciary. In addition
to the foregoing, the proposed exemption does not apply to any AUT and
ATT transactions involving plan assets which are invested in certain
multi-tiered pooled arrangements. In this regard, if a common or
collective trust fund or other pooled investment fund (except for a
Master Trust, as defined, below, in Section III(o)) containing the
assets of employee benefit plans(s) subject to the Act and/or the Code,
invests, directly or indirectly, some or all such plan assets in
another Pooled Fund, as defined, below, in Section III(f), or in an
Advised Fund, as defined, in this Section III(a), then the exemption
does not apply to any AUT or ATT transactions engaged in by such Pooled
Fund or such Advised Fund.
8. The Applicants request that the definition of ``Pooled Fund,''
be expanded in the proposed exemption. Specifically, the Applicants
request that Section III(f) of the proposed exemption should read as
follows:
The term, ``Pooled Fund,'' means a common or collective trust
fund or pooled investment fund maintained, advised or sub-advised by
the Asset Manager.
[[Page 6758]]
The Department has decided not to accept the Applicants' suggestion
to expand of definition of the term, ``Pooled Fund'' to include funds
advised or sub-advised by DB or its affiliate. Instead, the Department
has adopted the definition of ``Pooled Fund,'' as set forth in Section
III(f) of the proposed exemption.
9. As discussed above, the Department has determined to propose
relief for situations where DB or an affiliate exercises discretionary
control or discretionary authority over the management or disposition
of some or all of the assets of employee benefit plans subject to the
Act and/or Code invested in a common or collective trust funds or
pooled investment funds or renders investment advice, as described in
section 3(21)(A)(ii) of the Act with respect to some or all of the
assets of such fund which is established and maintained by an entity
other than DB or its affiliates. In this regard, the Department has
introduced the term, ``Advised Fund,'' and has adopted the definition
of the term, ``Advised Fund,'' as set forth in Section III(a) of the
proposed exemption.
10. In the view of the Department, the definition of the term,
``Appointing Fiduciary,'' applies to the individual or entity that
selects DB or an affiliate as an advisor but does not apply to the
individual or entity that selects DB or an affiliate to serve as a sub-
advisor. Accordingly, the Department has adopted the language, as set
forth in Section III(m) of the proposed exemption which defines the
term, ``Appointing Fiduciary.'' The definition also describes the
independence of the Appointing Fiduciary. With regard to the
qualifications of the Appointing Fiduciary, the Department believes
that the Appointing Fiduciary must have been in continuous operation
for not less than three years, including the operation of any
predecessors. Further, the Department has determined that the
Appointing Fiduciary must qualify as a ``qualified professional asset
manager'' (QPAM), as that term is defined under Part V(a) of PTE 84-14.
In addition, the Appointing Fiduciary must have total client asset
under its management and control in excess of $5 billion, as of the
last day of it most recent fiscal year and shareholders' or partners'
equity in excess of $1 million, as set forth in Section II(m), whether
such Appointing Fiduciary, qualifies as a QPAM, pursuant to Part
V(a)(1), V(a)(2), V(a)(3) or V(a)(4) of PTE 84-14.
11. The Applicants request that the Appointing Fiduciary be
permitted to receive disclosures and to consent to the covered
transactions on behalf of a fund that is not maintained by DB or an
affiliate.
The Department has limited the definition of Advised Funds to funds
established and maintained by the Appointing Fiduciary for which DB or
an affiliate exercises discretionary authority or discretionary control
over the management or disposition of some or all of the assets of
plans invested in such fund, or renders investment advice, as described
in section 3(21)(A)(ii) of the Act with respect to some or all of the
assets of such fund. Further, the Department has decided that consent
for an Advised Fund to engage in any covered transaction may not be
obtained from the Appointing Fiduciary that establishes and maintains
such Advised Fund. Instead, in the case of existing plan investors or
Master Trust investors or In-House Plan investors in an Advised Fund,
Section II(k) of the proposed exemption provides that an Advised Fund
may not engage in any covered transactions pursuant to this proposed
exemption, unless the independent fiduciary of such existing plan
investors, the Master Trustee of such Master Trust investors, or the
fiduciary of such In-House Plan investors, as the case may be, receive
certain disclosures and are given the opportunity to withdraw from such
fund prior to such fund engaging in the covered transactions. Existing
plan investors, Master Trust investors, or In-House investors that do
not withdraw within a certain period of time will be deemed to have
authorized the covered transactions. Further, in the case of plan
investors, or the Master Trust investors, or In-House Plan investors
whose assets are proposed to be invested in an Advised Fund after such
fund has begun to engage in the covered transactions, Section II(l) of
the proposed exemption provides that the Appointing Fiduciary must
obtain written authorization from the independent fiduciary of each
such prospective plan investor, from the Master Trustee of each such
prospective Master Trust investor, and from the fiduciary of each such
prospective In-House Plan investor after providing such independent
fiduciary, Master Trustee, or fiduciary of such In-House Plan, as the
case may be, with certain disclosures prior to investment in such fund
by such plan, Master Trust, or In-House Plan.
12. The Department has not provided relief in this proposed
exemption for funds sub-advised by DB or its affiliates to engage in
affiliated underwriter transactions or affiliated trustee transactions,
nor has the Department provided relief in this proposed exemption for
certain multi-tiered pooled arrangements, as discussed above. The
Department has determined that the Appointing Fiduciary who establishes
and maintains the Advised Fund and who selects DB or an affiliate to
exercise discretionary control or discretionary authority over the
management or disposition of the assets of plans in such fund or to
render investment advice, as described in section 3(21)(A)(ii) of the
Act with respect to some or all of the assets of such fund, must
contractually obligate itself to distribute the written disclosures and
reports required by the proposed exemption. In this regard, the
Department believes that the contractual agreement must bind the
Appointing Fiduciary to provide not only the disclosures, required by
Section II(k), but also the disclosures, required by Section II(l).
Further, the Appointing Fiduciary must be contractually obligated
to provide the report, required by Section II(n), and must also be
subject to the requirement of Section II(m) to provide reasonably
available information regarding the covered transactions upon request.
Accordingly, the Department has included Section II(u), as set forth in
the proposed exemption.
13. The Department has altered the definition of the term, ``Client
Plan,'' in the proposed exemption. In this regard, in Section II(e) of
PTE 2003-24, the definition of the term, ``Client Plan,'' reads as
follows:
The term ``Client Plan'' means an employee benefit plan that is
subject to the fiduciary responsibility provisions of the Act and
whose assets [sic.] under the management of the Asset Manager,
including a plan investing in a Pooled Fund (as ``Pooled Fund'' is
defined in paragraph (f) below).
The Department has deleted from the definition above, the phrase,
``including a plan investing in a Pooled Fund (as ``Pooled Fund'' is
defined in paragraph (f) below).'' In this regard, the Department has
determined to clarify that the term, ``Client Plan,'' refers only to
the singular or the plural for such plan(s). With regard to Client
Plans investing in a Pooled Fund or investing in an Advised Fund, the
Department has separately made reference to such funds, as appropriate
in the proposed exemption. The Department has also decided to clarify
that, in addition to plans subject to the fiduciary responsibility
provisions of the Act, the term, ``Client Plans,'' includes plans which
are subject to 4975 of the Code. Accordingly, the Department has
defined the term, ``Client Plan,'' as set forth in Section III(e) of
the proposed exemption.
[[Page 6759]]
14. The Department agrees with the Applicant's request that a
master trustee may consent on behalf of plans whose assets are pooled
in a master trust. Specifically, a master trustee may engage in the
covered transactions on behalf of a master trust or may consent to such
master trust investing in Pooled Funds and in Advised Funds which
engage in the covered transactions, provided that such master trustee
and such master trust satisfy certain definitional requirements. The
Department has included a definition for the term, ``Master Trust,'' in
Section III(o) of this proposed exemption.
Further, the Department has also included a definition of the term,
``Master Trustee,'' in Section III(n) of this proposed exemption.
Specifically, among other requirements, this definition of the term,
``Master Trustee,'' states: (i) that the Master Trustee must be an
officer, director, partner, employee of an employer or controlled group
of employers that sponsor such Client Plans or an affiliate of such
employer or controlled group of employers, and (ii) that the Master
Trustee must satisfy certain independence, sophistication, and
experience requirements.
15. The Department, as discussed more fully below, has made certain
changes to the net asset requirements, as set forth in Section II(o) of
the proposed exemption, which will apply to single Client Plans and
Master Trusts and will apply to Client Plans, Master Trusts, and In-
House Plan whether participating in a Pooled Fund maintained by DB or
an affiliate or participating in an Advised Fund, as defined herein,
which is established and maintained by an Appointing Fiduciary, as
defined herein.
Under Section I(o) of PTE 2003-24, in order to engage in covered
transactions, a Client Plan must have total net assets with a value of
at least $50 million (or in the case of an Eligible Rule 144A Offering,
total net assets of at least $100 million in securities, as determined
pursuant to SEC Rule 144A (17 CFR 230.144A)). For Pooled Funds, PTE
2003-24 contains an exception to the $50 million net asset requirement,
described above, which, in part, reads, as follows,
In the case of a Pooled Fund, the $50 million requirement will
be met, if 50 percent (50%) or more of the units of beneficial
interest in such Pooled Fund as [sic.] held by plans having total
net assets with a value of at least $50 million, or if each such
Client Plan in the Pooled Fund has total assets of at least $50
million.
Further, the language in PTE 2003-24 indicates that for purchases
involving an Eligible Rule 144A Offering on behalf of a Pooled Fund,
the $100 million requirement is met if 50 percent or more of the units
of beneficial interest in such Pooled Fund are held by plans having at
least $100 million in assets, or if each such Client Plan in the Pooled
Fund has total assets of at least $100 million, and the Pooled Fund
itself qualifies as a ``QIB,'' as determined pursuant to SEC Rule 144A.
In the proposed exemption, the Department has made clear that the
50 percent (50%) exception to the net asset requirement is applicable
to an Advised Fund, as well as to a Pooled Fund, and also has clarified
the language of the net asset requirements in the proposed exemption.
Specifically, the Department has adopted the language, as set forth in
Section II(o) in the proposed exemption.
Further, the Department has determined that for purposes of the 50
percent (50%) exception to the net asset requirement, that government
plans be considered ``Client Plans'' under the proposed exemption;
provided that each such government plan has net assets with a value of
at least $50 million (or in the case of an Eligible Rule 144A Offering,
$100 million in securities of issuers that are not affiliated with such
government plan). Accordingly, the Department has adopted the language
in Section II(o), as set forth in this proposed exemption.
16. The Department believes that the net asset requirements set
forth in Section II(o) of this proposed exemption provide an important
safeguard for the protection of plans which engage in AUT and/or ATT
transactions, either individually or through a Master Trust, a Pooled
Fund, or an Advised Fund.
With regard to an Advised Fund which is established and maintained
by an entity other than DB, the Department believes that the Appointing
Fiduciary of such Advised Fund should be contractually obligated,
pursuant to a written agreement with the asset management affiliate of
DB, to ensure compliance with Section II(o) of this proposed exemption,
to maintain records thereto, and to provide written confirmation of
compliance with the net asset requirements, as set forth in Section
II(o) of this exemption, upon request from the asset management
affiliate of DB. In this regard, the Department has modified Section
II(o) of the proposed exemption accordingly.
17. The proposed exemption is in the interest of participants and
beneficiaries of plans that engage in the covered transactions. In this
regard, it is represented that the proposed exemption will increase
investment opportunities and will reduce administrative costs for such
plans.
18. The proposed exemption will expand the ability of Pooled Funds
and Advised Funds to participate in the covered transactions. With
respect to the authorization requirements for Master Trusts, the
proposed exemption will allow a Master Trustee who acts on behalf of
the individual plans invested in a Master Trust to approve the covered
transactions.
19. The proposed exemption is protective of the rights of the
participants and beneficiaries of affected plans. In this regard, the
proposed exemption contains sufficient safeguards that apply to the
covered transactions engaged in by plan investors under the proposed
exemption.
20. In summary, the Applicants represent that the proposed
exemption satisfies the statutory criteria for an exemption under
section 408(a) of the Act because:
(a) The proposed exemption will increase investment opportunities
and will reduce administrative costs for plans that engage in the
covered transactions;
(b) The proposed exemption will expand the ability of Pooled Funds
and Advised Funds to participate in the covered transactions;
(c) The proposed exemption recognizes the practical aspects of a
Master Trustee acting on behalf on each of the plans invested in a
Master Trust that engages in the covered transactions;
(d) Prior to engaging in any of the covered transactions, an
Independent Fiduciary of each plan, (or Master Trustee of each Master
Trust or fiduciary of each In-House Plan) will receive certain
disclosures and will be given an opportunity to consent to the covered
transactions, either through affirmative or negative consent;
(e) The Independent Fiduciary of each Client Plan (or the Master
Trustee of each Master Trust or the fiduciary of each In-House Plan)
will receive periodic reports with respect to all Securities purchased
pursuant to the proposed exemption;
(f) Each Client Plan, In-House Plan, Master Trust, Pooled Fund, or
Advised Fund participating in the covered transactions will be subject
to certain net asset requirements;
(g) The asset management affiliate of DB and the Appointing
Fiduciary must each qualify as a QPAM, in addition to satisfying
certain additional requirements; and
(h) The proposed exemption contains sufficient safeguards for the
protection
[[Page 6760]]
of the rights of the participants and beneficiaries of affected plans.
Interested persons are referred to application number D-11324 on
file with the Department for the complete discussion of the facts and
representations of the Applicants relating to this proposed exemption.
Copies of all documents with respect to this proposed exemption and
all documents relating to PTE 2003-24 are available for public
inspection and may be obtained by interested persons from the Public
Documents Room, Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
The Applicants believe that the number of potentially affected
plans is so large that notice by mailing is impracticable and
inadequate. Accordingly, the only practical means of notifying such
plans of this proposed exemption is by the publication of this Notice
in the Federal Register. Comments and requests for a hearing must be
received by the Department not later than 30 days from the date of
publication of this Notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540. (This is not a toll-free number).
Kern County Electrical Pension Trust (the Pension Plan); Kern County
Electrical Joint Apprenticeship and Training Trust (the Apprenticeship
Plan); Kern County Electrical Health and Welfare Plan (the Welfare
Plan) \4\ and The International Brotherhood of Electrical Workers Local
Union 428 (the Local Union), Located in Bakersfield, California
---------------------------------------------------------------------------
\4\ The Apprenticeship Plan, the Pension Plan, and the Welfare
Plan are, herein, collectively referred to as the Plans.
---------------------------------------------------------------------------
[Exemption Application Nos: D-11383; L-11384; and D-11385]
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 procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990).
Section I: Transactions
If the proposed exemption is granted:
(a) the restrictions of sections 406(a)(1) (A) through (D),
406(b)(1), and 406(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) \5\ shall not apply to the sale by the
Pension Plan of a parcel of unimproved real property (Parcel
1) to the Local Union, a party in interest with respect to the
Pension Plan; provided that the conditions in Section II (a), (d), (f),
(h), and (i), as set forth below, are satisfied;
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\5\ For purposes of this proposed exemption, references to
specific provisions of Title I of the Act, unless otherwise
specified, refer also to the corresponding provisions of the Code.
---------------------------------------------------------------------------
(b) the restrictions of sections 406(a)(1) (A) through (D),
406(b)(1), and 406(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) shall not apply to the sale to the
Apprenticeship Plan by the Pension Plan of a parcel of unimproved real
property (Parcel 2) which is adjacent to Parcel 1;
provided that the conditions in Section II (b), (c), (e), (g), (h),
(i), and (j), as set forth below, are satisfied; and
(c) the restrictions of sections 406(a)(1) (A) through (D),
406(b)(1), and 406(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 Act shall not apply to the lease (the
Lease) by the Apprenticeship Plan of office space (the Premises) in a
training facility (the Training Center) to be constructed by the
Apprenticeship Plan on (Parcel 2) to Construction Benefits
Administration, Inc. (CBA), a party in interest with respect to the
Plans, as service provider, whose directors are also trustees of the
Plans and officers of the Local Union; provided that the conditions in
Section II (i), (k), (l), (m), (n), and (o), as set forth below, are
satisfied.
Section II: Conditions
The relief proposed, herein, is conditioned upon the adherence to
the material facts and representations set forth in the application
files and upon compliance with the conditions, as set forth in this
proposed exemption.
(a) The sale by the Pension Plan of Parcel 1 to the Local
Union is a one-time transaction for cash;
(b) The sale by the Pension Plan of Parcel 2 to the
Apprenticeship Plan is a one-time transaction for cash;
(c) An independent, qualified fiduciary (the I/F), acting on behalf
of the Apprenticeship Plan:
(1) after negotiating, reviewing, and analyzing the terms of the
purchase of Parcel 2, approves such purchase by the
Apprenticeship Plan;
(2) after negotiating, reviewing, and analyzing the construction of
the Training Center on Parcel 2, approves the construction of
the Training Center by the Apprenticeship Plan;
(3) determines that the acquisition of Parcel 2 and the
construction of the Training Center by the Apprenticeship Plan would be
feasible, in the interest of, and protective of the Apprenticeship Plan
and its participants and beneficiaries; and
(4) is responsible for monitoring compliance with the terms and
condition of this exemption and the terms and conditions of the
acquisition of Parcel 2 and the construction of the Training
Center by the Apprenticeship Plan;
(d) The purchase price paid by the Local Union for Parcel
1 is equal to the fair market value of such parcel, as
determined by an independent, qualified appraiser, as of the date of
the sale;
(e) The purchase price paid by the Apprenticeship Plan for Parcel
2 is equal to the fair market value of such parcel, as
determined by an independent, qualified appraiser, as of the date of
the sale;
(f) The terms of the sale by the Pension Plan of Parcel 1
to the Local Union are no less favorable to the Pension Plan than terms
negotiated under similar circumstances at arm's length with unrelated
third parties;
(g) The terms of the sale by the Pension Plan of Parcel 2
to the Apprenticeship Plan are no less favorable to the Pension Plan
and no less favorable to the Apprenticeship Plan than terms negotiated
under similar circumstances at arm's length with unrelated third
parties;
(h) The Plans will not provide any construction financing or
permanent financing to the Local Union in connection with the
acquisition by the Local Union of Parcel 1 and the
construction of a building on Parcel 1 (the Union Building) by
the Local Union, nor will the Pension Plan, the Welfare Plan, or the
Local Union provide any construction financing or permanent financing
to the Apprenticeship Plan in connection with the acquisition by the
Apprenticeship Plan of Parcel 2 and the construction of the
Training Center on Parcel 2 by the Apprenticeship Plan;
(i) The Plans will not pay any commissions, fees, or other similar
payments to any party in connection with any of the subject
transactions;
(j) The terms of any loan from an unrelated third party obtained by
the Apprenticeship Plan for the purpose of acquiring Parcel 2
or constructing the
[[Page 6761]]
Training Center provides recourse to such unrelated third party lender
only against the Apprenticeship Plan's interest in Parcel 2
and not against the general assets of the Apprenticeship Plan;
(k) Prior to entering into the Lease, the I/F, acting on behalf of
the Apprenticeship Plan, determines that the leasing transaction is
feasible, in the interest of, and protective of the Apprenticeship Plan
and its participants and beneficiaries; and approves the leasing
transaction in accordance with the fiduciary provisions of the Act;
(l) Throughout the duration of the Lease, the I/F, acting on behalf
of the Apprenticeship Plan, monitors compliance with the terms and
conditions of the Lease, ensures that such terms and conditions are at
all times satisfied, and is responsible for legally enforcing the
payment of the rent and the proper performance by CBA under the terms
of the Lease and for taking any and all steps necessary to ensure that
the Apprenticeship Plan is protected, including but not limited to
reviewing, negotiating, and approving the initial Lease and any
amendment, renewal, or extension of such Lease;
(m) Under the provisions of the Lease, the leasing transaction is
at all times on terms that are at least as favorable to the
Apprenticeship Plan and to CBA, as terms that would have been
negotiated under similar circumstances at arm's length with unrelated
third parties;
(n) The rental rate under the terms of the initial Lease and under
the terms of any amendment, renewal, or extension of the Lease, is
adjusted at least every three (3) years in which such Lease is in
effect, and the rental rate reflects the fair market rental value of
the Premises, as determined by an independent, qualified appraiser; and
(o) Notwithstanding anything to the contrary in the Lease, the
Apprenticeship Plan may at any time upon ninety (90) days prior written
notice given to CBA, terminate the Lease and CBA's occupancy of the
Premises, effective as of the date specified in such written notice,
which date shall be at least ninety (90) days after the date such
written notice is given to CBA.
Summary of Facts and Representations
1. The Pension Plan, the Apprenticeship Plan, and the Welfare Plan
are Taft-Hartley governed multi-employer plans established and
maintained under a collective bargaining agreement between the Local
Union and various electrical contractors who are members of the
National Electrical Contractors Association, Bakersfield Chapter, Inc.
(NECA).
2. The Pension Plan is a defined benefit pension plan located in
Bakersfield, California. The Pension Plan was established in 1964. The
Pension Plan has approximately 849 plan participants, both active and
retired. As of April 2006, the Pension Plan had assets with a value of
$75,445,820. The fair market value of the Property which is the subject
of this exemption constitutes 1.4 percent (1.4%) of the assets of the
Pension Plan.
3. The Apprenticeship Plan is an employee welfare benefit plan
located in Bakersfield, California. The Apprenticeship Plan was
established in 1962. The Apprenticeship Plan is designed to provide
programs to recruit and train electrical workers and to provide
continuing education for journeymen.
It is represented that currently, the Apprenticeship Plan offers
training to between 80 to 105 apprentices on an annual basis. The
Apprenticeship Plan operates a five-year program for inside wiremen
apprentices which is approved and regulated by the Division of
Industrial Relations in the State of California. In addition, the
Apprenticeship Plan also provides a three-year training program to
apprentices in voice-data-video.
The Apprenticeship Plan also offers training to between 50 to 100
journeymen on an annual basis. In this regard, journeymen receive
training in instrumentation, PLC, advanced motor controls, advanced
conduit bending, National Electrical Code, certification prep classes,
as well as OSHA training and welding from the Apprenticeship Plan.
As of April 30, 2006, the Apprenticeship Plan had assets with a
value of $2,762,025. The fair market value of Parcel 2, if
acquired by the Apprenticeship Plan, would constitute approximately
9.29 percent (9.29%) of the assets of such plan. It is represented that
the preliminary budget, including the cost of acquiring Parcel
2 and the cost of constructing the Training Center is
$2,143,400 dollars which amount would constitute approximately 77.6
percent (77.6%) of the assets of the Apprenticeship Plan.
4. The Welfare Plan is an employee welfare benefit plan located in
Bakersfield, California. The Welfare Plan is designed to provide health
and welfare benefits to participants. The Welfare Plan has
approximately 406 plan participants. As of September 30, 2006, the
Welfare Plan had assets with a value of $2,452,435.
5. The Pension Plan is managed by a Board of Trustees (the Pension
Board). The members of the Pension Board are parties in interest and
fiduciaries with respect to the Pension Plan, pursuant to section
3(14)(A) of the Act. The Pension Board consists of six (6) individuals
with three (3) members selected by the Local Union and three (3)
members selected by NECA.
The Apprenticeship Plan is managed by a Board of Trustees (the
Apprenticeship Board). The members of the Apprenticeship Board are
parties in interest and fiduciaries with respect to the Apprenticeship
Plan, pursuant to section 3(14)(A) of the Act. The Apprenticeship Board
consists of six (6) individuals with three (3) members selected by the
Local Union and three (3) members selected by NECA.
The Welfare Plan is managed by a Board of Trustees (the Welfare
Board). The members of the Welfare Board are parties in interest and
fiduciaries with respect to the Welfare Plan, pursuant to section
3(14)(A) of the Act. The Welfare Board consists of six (6) individuals
with three (3) members selected by the Local Union and three (3)
members selected by NECA.
It is represented that the same six (6) individuals serve on the
Pension Board, the Apprenticeship Board, and the Welfare Board. The
members of the Pension Board, the Apprenticeship Board, and the Welfare
Board that have been selected by NECA are James A. Chilko, Carl
Jarrett, and Rodney Bailey. Mr. Chilko is employed by NECA and is the
business director of the Pension Fund. Mr. Jarrett is a self-employed
electrical contractor. Mr. Bailey is a non-bargaining participant in
the Pension Plan and a self-employed electrical contractor.
The members of the Pension Board, the Apprenticeship Board, and the
Welfare Board that have been selected by the Local Union are Don Rush,
Danny Kane, and Jim S. Elrod. Mr. Kane, Mr. Elrod, and Mr. Rush are
members of the Local Union and also participants in both the Pension
Plan and the Apprenticeship Plan. Mr. Kane is an elected, paid official
of the Local Union and serves in the capacity as business director. Mr.
Elrod is the training director of the Apprenticeship Plan, President of
the Local Union, and is employed by the Local Union as business agent.
Mr. Rush is employed by various electrical contractors who are
signatory to a collective bargaining agreement with the Local Union and
works for an hourly wage in the trade.
6. The Local Union was chartered in 1903. It is represented that
the Local Union currently has approximately 515 members. The members of
the Local Union are covered by the Pension Plan, the Apprenticeship
Plan, and the
[[Page 6762]]
Welfare Plan. As an employee organization any of whose members are
covered by the Pension Plan, the Apprenticeship Plan, and the Welfare
Plan, the Local Union is a party in interest with respect each of these
Plans, pursuant to section 3(14)(D) of the Act.
The organizational structure of the Local Union is typical of most
electrical unions. The business manager is elected by the general
membership and functions as the CEO. The business manager appoints
business agents to assist him in his duties. The President, Vice
President, Recording Secretary, and Treasurer of the Local Union are
also elected by the general membership along with an Executive Board.
The Executive Board is composed of members of the Local Union. The
Executive Board handles disciplinary matters, operations, and finances
of the Local Union.
7. The Pension Plan owns real estate (the Property) located at the
corner of Sillect Avenue and Arrow Street in an incorporated area of
central Bakersfield, California, within the Rio Mirada Industrial Park
(the Industrial Park). The Industrial Park totals approximately 120
acres. It is represented that the Industrial Park is approximately 80
percent (80%) to 85 percent (85%) built out. The size of the remaining
parcels in the Industrial Park typically range from two (2) to fifteen
(15) acres and are held by individual investors. Existing uses within
the Industrial Park consist of light manufacturing, office-warehouse,
and commercial office uses.
The Property which is the subject of this proposed exemption is
vacant and unimproved. The Property is zoned for light manufacturing,
professional office, and neighborhood commercial and general commercial
uses in conformity with surrounding development.
The Property comprises an area of 7.95 acres. The Property
originally comprised 29.04 acres and was purchased by the Pension Plan
in August of 1988, at a price of $1,581,772 from an unrelated third
party. It is represented that since 1988 a majority of the Property has
been sold to various unrelated third parties. It is represented that
the Pension Plan now retains title to only 7.95 acres of the original
29.04 acres. It is represented that although the remaining portion of
the Property has been actively marketed over the years, no dispositions
have resulted.
8. The Pension Plan and the Local Union have requested an
administrative exemption which would permit the Pension Plan to sell a
portion of the Property (Parcel 1), consisting of 6.05 acres
to the Local Union. It is anticipated that the Local Union will
construct the Union Building, consisting of a 10,000 square foot office
building and meeting hall, on approximately 1.5 acres of the 6.05 acres
of Parcel 1 to be acquired by the Local Union from the Pension
Plan. The Local Union intends to hold the remaining 4.55 acres of
Parcel 1 for investment purposes.
9. The Pension Plan and the Apprenticeship Plan have also requested
an administrative exemption which would permit the Pension Plan to sell
to the Apprenticeship Plan a portion of the Property (Parcel
2), consisting of 1.9 acres, of the remaining 7.95 acres of
the Property owned by the Pension Plan. It is anticipated that the
Apprenticeship Plan will build a new 15,000 square foot Training Center
on Parcel 2.
As discussed more fully below, the aggregate fair market value of
the entire 7.9 acre Property has been determined to be $1,074,000. The
Local Union will pay a purchase price for Parcel 1 of $816,968
or $3.10 per square foot. The Apprenticeship Plan will pay a purchase
price for Parcel 2 of $256,568 or $3.10 per square foot. Based
on these figures, it is represented that the Local Union and the
Apprenticeship Plan will pay 76.2 percent (76.2%) and 23.8 percent
(23.8%), respectively of the fair market value of the Property.
10. It is represented that the purchase price to be paid for Parcel
1 by the Local Union to the Pension Plan and the purchase
price to be paid for Parcel 2 by the Apprenticeship Plan to
the Pension Plan will be the fair market value of each such parcel, as
determined by an independent, qualified appraiser, as of the date each
of the proposed sale transactions is entered.
The application files contain an appraisal report, dated February
23, 2005, of the fair market value of a fee simple interest in the
Property in ``as is'' condition. This appraisal report was prepared by
Michael C. Burger (Mr. Burger), MAI, of Michael Burger & Associates in
Bakersfield, California. Mr. Burger is qualified to appraise the
Property in that since 1987 he has engaged in appraising all types of
real estate, including single family homes, apartments, agricultural,
commercial and industrial properties, and right-of-way properties. Mr.
Burger holds an MAI designation from the Appraisal Institute. Mr.
Burger is registered with the State of California, as a Certified
General Real Estate Appraiser.
Mr. Burger is independent in that he has no present or prospective
interest in the Property and no personal interest or bias with respect
to the parties involved in the subject transactions. In addition, Mr.
Burger's assignment and compensation were not contingent upon
developing or reporting a predetermined value or direction in value.
Less than one percent (1%) of Mr. Burger's gross income is from
business with the Union and the Plans.
In his February 23, 2005, appraisal report, Mr. Burger represents
that he previously appraised the Property on December 31, 2001, for the
Pension Plan. In narrating the marketing history of the Property, Mr.
Burger states that the Property has been on and off the market within
the last several years. In this regard, according to Mr. Burger, the
Property was listed in January 28, 1998, for $949,000 and was taken off
the market in January 4, 1999. The Property was re-listed in October
14, 2000, for $948,000. As of February 23, 2005, the Property was
listed for $1,250,000 or $3.61 per square foot, which in the opinion of
Mr. Burger was excessive.
After inspecting the Property, and based only on the sales
comparison approach to value, Mr. Burger determined that, as of
February 23, 2005, the fair market value of the Property was $952,000
or $2.75 per square foot. Subsequently, in a letter dated June 15,
2005, Mr. Burger updated the February 23, 2005, appraisal report of the
fair market value of the Property, based on two (2) new comparable
sales in the area. In this regard, as of June 15, 2005, Mr. Burger
estimated that the fair market value of the Property was $1,040,000 or
$3.00 per square foot.
11. It is represented that the proposed purchase of Parcel
1 by the Local Union and the proposed purchase of Parcel
2 by the Apprenticeship Plan are feasible in that each
purchase will be a one-time transaction for cash. Further, neither the
Pension Plan nor the Apprenticeship Plan will pay any commissions,
sales fees, or other similar payments to any party in connection with
the subject transactions.
12. It is represented that the proposed sale of the Property is in
the interest of the participants and beneficiaries of the Pension Plan.
In this regard, it is represented that the Pension Plan will benefit
from additional cash proceeds from the sale of Parcel 1 to the
Local Union and the sale of Parcel 2 to the Apprenticeship
Plan. Further, the Pension Plan will be divesting itself of the
Property which will reduce the percentage of the Pension Plan's
portfolio dedicated to illiquid, undeveloped real estate. It is
represented that such divestiture will help the Pension Plan meet its
investment goals.
13. It is represented that the proposed purchase of Parcel
2 by the Apprenticeship Plan, the construction
[[Page 6763]]
of the Training Center, and the leasing of the Premises in the Training
Center to CBA is protective of the Apprenticeship Plan, because
American Realty Advisors (ARA) has been retained to serve as the I/F to
act on behalf of the Apprenticeship Plan. In general, ARA, acting as
the I/F, has acknowledged that it is acting as a fiduciary under the
Act with regard to all decision making responsibility for the
Apprenticeship Plan, including the purchase of Parcel 2, the
development of Parcel 2, the construction of the Training
Center on Parcel 2, and any leasing arrangements of space in
such Training Center.
It is represented that ARA is qualified to serve as the I/F, in
that since 1988 when it was founded, ARA has developed significant
expertise in property acquisition and disposition, acting as an
independent fiduciary on behalf of Taft-Hartley clients. Specifically,
ARA represents that it has acted on behalf of more than 200 multi-
employer clients and has been involved as the fiduciary investment
manager under the Act in real estate transactions worth over $3
billion. ARA assumes and acknowledges its status as a fiduciary for its
plan clients, as defined in section 3(21)(A) of the Act. ARA has
completed numerous assignments as a QPAM and satisfies all of the
requirements of a QPAM, as defined in PTCE 84-14. In addition, ARA is a
registered investment advisor with the Securities and Exchange
Commission.
It is represented that ARA is independent in that it has no
business or personal relationship with any of the parties to the
subject transactions. In addition ARA is independent in that amounts
paid or to be paid to ARA by the Apprenticeship Plan constitute less
than one percent (1%) of ARA's gross annual revenues in the year that
the subject transactions are entered.
With regard to the purchase of Parcel 2 by the
Apprenticeship Plan, ARA evaluated the appraisal reports submitted by
Mr. Burger, dated February 23, 2005, and June 15, 2005. In the opinion
of ARA, given the fact that the Property is vacant land, Mr. Burger's
use of only the sales comparable approach in arriving at the value of
the Property in both appraisals is appropriate, as the cost and income
approaches to value are not warranted for this type of real estate. It
is represented by ARA that although Mr. Burger considered the entire
site in the valuation, as opposed to only the portion of the Property
to be purchased by the Apprenticeship Plan, uniform conditions exist
throughout the site.
However, with regard to the February 23, 2005 appraisal report
prepared by Mr. Burger, in the opinion of ARA, the sales price per
square foot appears to be overstated in three of the five comparables,
while in two of the five comparables the sales price per square foot
appears to be understated. With regard to the updated appraisal report
of June 15, 2005, prepared by Mr. Burger, ARA states that it is
difficult to tell whether the comparable sales had closed at the prices
stated in such report. In conclusion, ARA has determined that the fair
market value of the Property, as of March 10, 2006, was $1,074,000 or
$3.10 per square foot.
Included in its duties as the I/F, ARA is responsible for providing
a written report to the Department. In preparing the written report for
the Department, ARA represents that it: (a) Collected all available
information from the Apprenticeship Plan, including financial
information; (b) visited the Property, as well as visited the
Apprenticeship Plan's existing training facility; (c) interviewed
various individuals, including the training director of the
Apprenticeship Plan, the business director of the Pension Fund, the
business director of the Local Union, CBA, the Pension Plan's real
estate broker, several other real estate brokers, and an attorney; (d)
evaluated both of the appraisals reports prepared by Mr. Burger of the
fair market value of the Property; (e) evaluated the real estate market
to determine land values, rents, and values for comparable properties
in the market; (f) evaluated the Property in terms of zoning, setback
requirements, site coverage, covenants, conditions, and restrictions,
access, and location for the purpose of assessing the value of the
Property in relation to the needs of the Apprenticeship Plan; (g)
reviewed all development drawings and documented discussions pertaining
to the development of the Property; (h) derived a value for the
Property on a per square foot basis; (i) evaluated the potential
development costs of Parcel 2; (j) evaluated the development
feasibility of Parcel 2; (k) evaluated the financial capacity
of the Apprenticeship Plan to potentially acquire and proceed with the
development of Parcel 2; (l) determined whether the proposed
acquisition and development of Parcel 2 is in the best
interests of the beneficiaries of the Apprenticeship Plan; (m)
determined whether the proposed acquisition and development of Parcel
2 is feasible and protective of the Apprenticeship Plan; and
(n) provided an opinion on whether the Apprenticeship Plan should
acquire and develop Parcel 2.
Further, ARA represents that it will perform the following tasks if
the proposed exemption is granted: (a) Monitor the acquisition of
Parcel 2 through completion; (b) engage, if necessary, a Phase
I Environmental Site Assessment of Parcel 2; (c) engage, if
necessary, a survey of Parcel 2; (d) obtain a preliminary
title report for Parcel 2 with copies of all title exceptions;
(e) evaluate any legal or title issues relating to Parcel 2;
(f) review and evaluate any and all architectural drawings; and (g)
review and evaluate all the financial statements of the Apprenticeship
Plan on an ongoing basis through the development of Parcel 2.
In addition, ARA represents that the sales contract will be made
contingent upon obtaining a satisfactory Geotechnical Analysis of
Parcel 2 which confirms the suitability of the soil for
development.
14. In fullfilling its duties as the I/F, ARA evaluated the
existing Apprenticeship Plan training facility to help ascertain the
amount and type of space needed for the new Training Center. In this
regard, ARA represents that the existing facility of the Apprenticeship
Plan consists of two (2) buildings (Building A and Building B;
collectively the Existing Buildings) located, respectively, at 401 and
325 19th Street in Bakersfield, California. Building A, constructed in
1967, contains approximately 4,500 square feet. Building B, constructed
in 1962, contains approximately 4,300 square feet, for a combined total
of 8,800 square feet.
ARA represents that the Existing Buildings are inadequate for the
following reasons: (a) The Existing Buildings are functionally
inadequate due to small classroom size and layout, given that training
needs have changed over time; (b) the Existing Buildings are over 30
years old and exhibit major wear; (c) upgrading the Existing Buildings
is not feasible due to the small size of the underlying land area and
the functional obsolescence of the Existing Buildings; (d) the Existing
Buildings have 28 parking spaces which are inadequate for the number of
apprentices using such buildings, especially during times of outdoor
training where a portion of the parking lot is occupied by a trailer
that accommodates the training activities; (e) the classroom space in
the Existing Buildings enables only a small number of students per
class and also requires significant ``clean-up'' time to reorganize
class materials at the end of every class; (f) there is limited shop
[[Page 6764]]
space in the Existing Buildings, requiring daily that equipment used in
certain activities must be moved to accommodate training with other
equipment; (g) the Existing Buildings have inadquate ventilation and
lack of air conditioning in the shop areas; (h) the Existing Buildings
lack storage areas which results in equipment and learning materials
being placed in any available open area, only to be moved to
accommodate training; and (i) the location of the Existing Buildings is
no longer as close to the pool of potential apprentices as such
buildings once were.
The architectural firm of Ordiz Melby Architects Inc. has provided
preliminary drawings containing options for the layout and design of
the new Training Center to be constructed for the Apprenticeship Plan
on Parcel 2. It is represented that no detailed drawings of
such Training Center have been finalized due to the fact that ARA
believes it is not in the best interest of the Apprenticeship Plan to
expend significant additional costs prior to obtaining a final
exemption.
ARA has also prepared a preliminary development budget for the new
Training Center. ARA considered the cost of acquiring Parcel
2, as well as construction costs for the Training Center. In
this regard, ARA has as a preliminary matter budgeted a total project
cost of $2,143,400 for the acquisition of Parcel 2 and the
construction of the Training Center.
ARA has reviewed income statements for the Apprenticeship Plan for
the past five years, as well as the most recent balance sheet, dated
July 31, 2006. In the opinion of ARA the Apprenticeship Plan has
sufficient assets to acquire Parcel 2 and to construct the new
Training Center. In this regard, ARA represents that approximately
$2,500,000 of the total assets of the Apprenticeship Plan are being
held in cash. ARA notes that the Apprenticeship Plan will obtain a cash
inflow when the Existing Buildings are sold. In the opinion of ARA, a
reasonable value estimate for both of the Existing Buildings ranges
from $300,000 to $400,000 or $35 to $45 per square foot based on
approximately 8,800 square feet.
ARA represents that net income of the Apprenticeship Plan for July
31, 2006, totaled approximately $53,000 with year-to-date income of
approximately $133,000. Further, ARA represents that operating expenses
for the Apprenticeship Plan totaled approximately $33,000 for July 31,
2006, and $241,000 year-to-date.
It is represented that labor and management agreed several years
ago to an increased hourly assessment for the Apprenticeship Plan so
that funds could be accumulated for the construction of the new
Training Center. For this reason, a significant cash balance is being
held by the Apprenticeship Plan. In the opinion of ARA, this balance is
more than adequate to construct the new Training Center without the
Apprenticeship Plan incurring any debt. Further, in the opinion of ARA,
the hourly contributions are now far more than adequate to operate the
Apprenticeship Plan. Further, according to ARA, the Apprenticeship Plan
is expected to be in a solid financial footing even after investing the
majority of its cash reserves in the new Training Center.
In summary, ARA collected, reviewed, and evaluated all available
information on Parcel 2, financial information from the
Apprenticeship Plan, market information pertaining to land and building
values, as well as evaluated the Apprenticeship Plan's Existing
Buildings and need for space. ARA also evaluated the potential
development costs and feasibility of acquiring Parcel 2. ARA
believes the purchase price of Parcel 2 is reflective of
current market conditions and represents a fair market price. To
maintain efficient operations while accommodating the growth of the
Apprenticeship Plan, it is ARA's opinion that it is in the best
interest of the Apprenticeship Plan and its participants and
beneficiaries, to develop Parcel 2, since the transaction is
reflective of the market and it is unlikely that a less costly and
equally beneficial solution can be found. It is ARA's judgment that the
acquisition of Parcel 2 and the construction of a Training
Center would be beneficial to the participants and beneficiaries of the
Apprenticeship Plan. ARA has determined that the development of Parcel
2 is within the financial capacity of the Apprenticeship Plan
and would be protective of the Apprenticeship Plan in this regard.
Accordingly, ARA recommends the acquisition and development of Parcel
2 and will oversee and monitor all aspects of the sale of
Parcel 2 and the construction of the new Training Center.
15. It is represented that the proposed purchase of Parcel
2 and the development of Parcel 2 are in the interest
of the Apprenticeship Plan. In this regard, it is represented that the
Apprenticeship Plan will obtain additional space in the new Training
Center for classroom and training facilities and will obtain room for
expansion in the future. In this regard, it is represented that the
increase in population in the Bakersfield area of California and the
need to train new technologies require an increased capacity in the
Existing Buildings to accommodate the programs offered by the
Apprenticeship Plan.
It is further represented that the Apprenticeship Plan will
exercise control over the improvements, costs of operation, and
maintenance of the Training Center to be constructed on Parcel
2. In this regard, it is represented that the new Training
Center will incorporate underground conduit systems in shop areas to
teach wire pulling. The new Training Center will have solar generating
panels which will be used to teach solar installations. Car swipe
access systems will be added in the new Training Center to teach new
security technologies. In addition, various HVAC and lighting controls
will be offered in order to teach new energy saving systems. Mock-ups
of actual electrical installations and new shop space will be
constructed in the Training Center and used for instructional purposes.
16. The applicants have requested an administrative exemption which
would permit the Lease between the Apprenticeship Plan and CBA upon
completion of construction of the Training Center. CBA (formerly, known
as Kern County Electrical Workers Benefits Administration, Inc.) was
established in 1977 from seed money from all three Plans, in the amount
of $5,000 from each of the Plans. It is represented that CBA is
qualified under California law as a non-profit mutual benefit
corporation, and as such has no shareholders. It is represented that
CBA's only asset is office equipment.
The Board of Directors of CBA (the CBA Board) is composed of the
same individuals who serve as trustees of the Pension Board, the
Apprenticeship Board, and the Welfare Board. It is represented that the
members of the CBA Board receive no compensation for their services.
CBA provides third party administrator services to each of the
Plans, pursuant to separate written agreements containing identical
provisions between each such plan and CBA.\6\ As a service provider to
the
[[Page 6765]]
Plans, CBA is a party in interest with respect to each of the Plans,
pursuant to section 3(14)(B) of the Act.
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\6\ The applicants rely on the relief provided by the statutory
exemption, pursuant to section 408(b)(2) of the Act for the
provision of services by CBA to the Plans. The Department, herein,
is offering no view, as to whether the provisions of services
rendered to the Plans by CBA is covered by the statutory exempetion
provided in section 408(b)(2) of the Act and the Department's
regulations, there-under, pusuant to 29 CFR 2550.408b-2. Further,
the Department is not providing, herein, any relief with respect to
the provision of services to the Plans by CBA.
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CBA employs three (3) individuals to provide record keeping
services and administrative services to each of the Plans. The wages of
such employees are paid weekly from CBA's bank account. It is
represented that the only source of income to CBA is through billing
each of the Plans for services provided to each such plan. It is
represented that CBA bills only actual expenses for operation and
employee wages. The expenses are allocated to and paid by each of the
Plans. It is represented that CBA performs cost accounting time studies
quarterly to determine the percentage of the expenses to be charged to
each of the Plans, based upon how much time is spent in any one quarter
by the employees of CBA in providing services to each such plan. It is
represented that currently the allocation of expenses is 41 percent
(41%) to the Pension Plan, 19 percent (19%) to the Apprenticeship Plan,
40 percent (40%) to the Welfare Plan. The allocation of expenses to
each of the Plans is reviewed by and must be approved by the auditor of
such plan.
17. Although CBA presently leases office space from an unrelated
third party, CBA desires to lease certain Premises in the new Training
Center to facilitate the provision of services to the Plans in the new
location.
It is represented that the Premises to be occupied by CBA will
constitute approximately 350 to 450 rentable square feet of office
space out of a total of 15,000 square feet of space in the Training
Center. The Lease provisions include a three (3) year initial term that
can be renewed for an additional term of three (3) years by both
parties upon a ninety (90) days written notice. Under the provisions of
the Lease, the leasing transaction will be on terms and at all times
will remain on terms that are at least as favorable to the
Apprenticeship Plan and to CBA, as terms that would have been
negotiated under similar circumstances at arm's length with unrelated
third parties. The rental rate under the terms of the Lease and under
the terms of any amendment, renewal, or extension of the Lease will be
adjusted at least every three (3) years in which the Lease is in
effect. Further, the rental rate will reflect the fair market rental
value of the Premises, as determined by an independent, qualified
appraiser. Notwithstanding anything to the contrary in the Lease, the
Apprenticeship Plan may without penalty at any time upon ninety (90)
days prior written notice given to CBA terminate the Lease and CBA's
occupancy of the Premises, effective as of the date specified in such
written notice, which date shall be at least ninety (90) days after the
date such written notice is given to CBA.
It is represented that the Lease will be protective in that ARA,
the I/F acting on behalf of the Apprenticeship Plan, will represent the
interests of the Apprenticeship Plan, and will in accordance with the
fiduciary provisions of the Act determine that the Lease is feasible,
in the interest of, and protective of the Apprenticeship Plan.
Specifically, prior to entering into the Lease, the terms of such Lease
will be reviewed, negotiated, and approved by ARA. Further, ARA will
monitor compliance with the terms of the Lease throughout the duration
of the Lease and will be responsible for legally enforcing the proper
performance under the terms of such Lease. Further, ARA will be
responsible for reviewing, negotiating, approving, and monitoring the
initial lease and any amendment, renewal, or extension of the Lease.
18. The applicants maintain that the proposed transactions are in
the interest of the Plans. In this regard, it is represented that
acquisition of Parcel 1 and construction by the Local Union
the Union Building, the acquisition of Parcel 2 and
construction of the Training Center by the Apprenticeship Plan on an
adjacent site, and the leasing of the Premises in the Training Center
to CBA will lend continuity of operation and training and consolidation
of administration to the participants of the Apprenticeship Plan, as
well as participants in the Pension Plan and the Welfare Plan.
Specifically, the offices of the Local Union, the Pension Plan, the
Apprenticeship Plan, CBA, and the Training Center will be consolidated
in one location.
19. In summary, the applicants represent that the proposed
transactions meet the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The sale by the Pension Plan of Parcel 1 to the Local
Union and the sale of Parcel 2 by the Pension Plan to the
Apprenticeship Plan will be one-time transactions for cash;
(b) ARA, acting as the I/F on behalf of the Apprenticeship Plan,
will negotiate, review, analyze, and approve the terms of the purchase
of Parcel 2; the construction of the Training Center; and the
Lease of the Premises to CBA.
(c) ARA will determine whether the acquisition of Parcel
2, the construction of the Training Center, and the Lease of
the Premises to CBA will be feasible, in the interest of, and
protective of the participants and beneficiaries of the Apprenticeship
Plan;
(d) ARA will be responsible for monitoring compliance with the
terms and condition of this exemption and the terms and conditions of
the acquisition of Parcel 2 by the Apprenticeship Plan, the
construction of the Training Center, and the Lease of the Premises to
CBA;
(e) The purchase price paid by the Local Union for Parcel
1 and the purchase price paid by the Apprenticeship Plan for
Parcel 2 will be equal to the fair market value of each such
parcel, as determined by an independent, qualified appraiser, as of the
date of each sale;
(f) The terms of the sale by the Pension Plan of Parcel 1
to the Local Union and the sale by the Pension Plan of Parcel
2 to the Apprenticeship Plan will be no less favorable to the
Pension Plan and the Apprenticeship Plan, respectively, than terms
negotiated under similar circumstances at arm's length with unrelated
third parties;
(g) The Plans will not provide any construction financing or
permanent financing to the Local Union in connection with the
acquisition by the Local Union of Parcel 1 and the
construction of the Union Building, nor will the Pension Plan, the
Welfare Plan, or the Local Union provide any construction financing or
permanent financing to the Apprenticeship Plan in connection with the
acquisition by the Apprenticeship Plan of Parcel 2 and the
construction of the Training Center;
(h) The Plans will not pay any commissions, fees, or other similar
payments to any party in connection with any of the subject
transactions;
(i) The terms of any loan from an unrelated third party obtained by
the Apprenticeship Plan for the purpose of acquiring Parcel 2
or constructing the Training Center will provide recourse to such
unrelated third party lender only against the Apprenticeship Plan's
interest in Parcel 2 and not against the general assets of the
Apprenticeship Plan;
(j) the leasing transaction will be on terms and at all times
remains on terms that are at least as favorable to the Apprenticeship
Plan and to CBA, as terms that would have been negotiated under similar
circumstances at arm's length with unrelated third parties;
(k) The rental rate under the terms of the Lease and under the
terms of any amendment, renewal, or extension of the Lease will be
adjusted at least every three (3) years in which the Lease is in
[[Page 6766]]
effect and the rental rate will reflect the fair market rental value of
the Premises, as determined by an independent, qualified appraiser; and
(m) Notwithstanding anything to the contrary in the Lease, the
Apprenticeship Plan may without penalty at any time upon ninety (90)
days prior written notice given to CBA terminate the Lease and CBA's
occupancy of the Premises.
Notice to Interested Persons
Those persons who may be interested in the publication in the
Federal Register of the Notice of Proposed Exemption (the Notice)
include all contributing employers to the Pension Plan, the
Apprenticeship Plan, and the Welfare Plan and all participants and
beneficiaries of the Pension Plan, the Apprenticeship Plan, and the
Welfare Plan.
It is represented that these several classes of interested persons
will be notified of the publication of the Notice through different
methods. In this regard, notification will be provided within 15 (15)
calendar days of the date of publication of the Notice in the Federal
Register, by posting at locations customarily used for notices
regarding labor-management matters for review at the hiring hall and at
the business office of the Local Union, at the office of the
Apprenticeship Plan and at the Existing Buildings of the Apprenticeship
Plan; at the administrative offices for the Pension Plan,
Apprenticeship Plan, and the Welfare Plan, and at the offices of NECA.
Such postings will contain a copy of the Notice, as it appears in the
Federal Register on the date of publication, plus a copy of the
supplemental statement (the Supplemental Statement), as required,
pursuant to 29 CFR 2570.43(b)(2), which will advise interested persons
of their right to comment and to request a hearing.
It is represented that notification will also be provided to all
participants and beneficiaries of the Pension Plan, the Apprenticeship
Plan, and the Welfare Plan by first class mail, within fifteen (15)
calendar days of publication of the Notice in the Federal Register.
Such mailing will contain a copy of the Notice, as it appears in the
Federal Register on the date of publication, plus a copy of the
Supplemental Statement, as required, pursuant to 29 CFR 2570.43(b)(2),
which will advise all participants and beneficiaries of the Pension
Plan, the Apprenticeship Plan, and the Welfare Plan of their right to
comment and to request a hearing.
It is represented that notification will also be provided to all
contributing employers to the Pension Plan, the Apprenticeship Plan,
and the Welfare Plan by first class mail. Such mailing will contain a
copy of the Notice, as it appears in the Federal Register on the date
of publication, plus a copy of the Supplemental Statement, as required,
pursuant to 29 CFR 2570.43(b)(2), and a letter to such contributing
employers requesting that the Notice and Supplemental Statement be
posted immediately upon receipt in the locations within the principal
places of employment of such contributing employers which are
customarily used for notices regarding labor-management matters for
review.
The Department must receive all written comments and requests for a
hearing no later than thirty (30) days from the later of: (1) The date
a copy of the Notice and a copy the Supplemental Statement are posted;
or (2) the date of the mailing of a copy of the Notice and a copy of
the Supplemental Statement to all contributing employers of the Pension
Plan, the Apprenticeship Plan, and the Welfare Plan; or (3) the date of
the mailing of a copy of the Notice and a copy of the Supplemental
Statement to all participants and beneficiaries of the Pension Plan,
the Apprenticeship Plan, and the Welfare Plan.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540 (This is not a toll-free number).
OPET Health Care and Life Insurance Plans RM3A and RM5A (Together, the
H&L Plans); and OPET Prescription Drug Plan RRx (Plan RRx; All Three
Together, the Plans), Located in Portland, Oregon
[Application Nos. L-11302 and L-11303]
Proposed Exemption
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). If the exemption is granted, the restrictions
of section 406(a) of the Act shall not apply to the purchase by the
Plans' participants and beneficiaries of prescription drugs from the
Labor Center Pharmacy (LCP), a party in interest with respect to the
Plans, provided the following conditions are satisfied:
(a) The terms of the transactions are at least as favorable to the
Plans as those the Plans could obtain in similar transactions with an
unrelated party;
(b) any decisions by the Plans to enter into agreements governing
the subject purchases have been and will be made by Plan fiduciaries
independent of LCP;
(c) at least 50% of the preferred providers participating in the
Preferred Provider Network (PPN) involving LCP are unrelated to LCP or
any other party in interest with respect to the Plans;
(d) LCP will be treated no differently than any other pharmacy
participating in the PPN (e.g., subject to the same reimbursement rates
and oversight as the other participating pharmacies); and
(e) the transactions are not part of an agreement, arrangement or
understanding designed to benefit LCP or any other party in interest
with respect to the Plans.
Effective Date: The proposed exemption, if granted, will be
effective as of January 1, 2001.
Summary of Facts and Representations
1. The Plans are multi-employer welfare benefit plans. The H&L
Plans have been in existence since July 1, 1982. Plan RRx has been in
existence since May 1, 1978. The Plans provide health and welfare
benefits, including prescription drug coverage, to eligible employees
and their dependents. The Plans are directed by an eight person Board
of Trustees. The four trustees representing labor are appointed by the
participating unions, which are: (a) Teamsters Food Processors,
Drivers, Warehousemen, and Helpers Local Union No. 670 (Teamsters Local
670); (b) Teamsters Dairy, Bakery and Food Processors, Industrial,
Technical, and Automotive Local Union No. 305; (c) General Teamsters,
Warehousemen, and Cannery Workers Local Union No. 556; and (d)
Chauffeurs, Teamsters and Helpers Union No. 58. The four employer
trustees are appointed by participating employers in the food
processing industry. The Plans currently have approximately 2,700
participants and $9.1 million in total assets.
2. Teamsters Local 670 Health Division Cannery Distributors Co.,
Inc. (the Health Division) is a taxable corporation that is wholly
owned by Teamsters Local 670. The applicant represents that Teamsters
Local 670 is a party in interest because it is an employee organization
whose members participate in the Plans. The applicant represents that
the Health Division is a party in interest with respect to the Plans
because it is wholly owned by an employee organization whose members
participate in the Plans. The Health Division operates the LCP.
3. Under the Plans, participants have three alternative ways to
receive a prescription drug benefit. One, a participant may have a
prescription filled at a non-participating pharmacy,
[[Page 6767]]
pay the pharmacy the full charge at the time of dispensing, and then
submit a claim to the claims administrator. The Plans would then
reimburse the participant the lesser of: (a) 80% of the average
wholesale price (AWP); or (b) the actual cost of the drug. Two, a
participant in Tillamook, Oregon, may have a prescription filled at the
local pharmacy, pay an amount up to the Plan's annual deductible to the
pharmacy, and have any balance submitted to the claims administrator by
the pharmacy for payment directly to the pharmacy. This special
arrangement is designed to serve a group of participants who work at a
local creamery in Tillamook, which is approximately 74 miles from the
nearest preferred provider pharmacy. Three, a participant may have a
prescription filled at any of the preferred provider pharmacies and pay
a co-pay of $16 for brand name drugs and $6 for generic drugs.
4. Effective September 1, 1992, the trustees of the Plans
implemented the Plans' first preferred provider network (PPN) for
prescription drugs to manage prescription drug prices and costs,
provide ready participant access to reliable pharmacy services and
professional advice, and to minimize eligibility policing problems. The
trustees had obtained opinion of ERISA counsel dated November 25, 1991
that such an arrangement would be permissible under the Act if, among
other things, all amounts paid by the Plans to a union-sponsored
pharmacy were reasonable, and all decisions made by the Plans to enter
into agreements with party in interest pharmacies were made by
fiduciaries independent of the party in interest. Despite the reliance
by the trustees on the advice of ERISA counsel, the Department's San
Francisco Regional Office determined that the subject transactions
constituted prohibited transactions. Accordingly, the applicant has
requested retroactive relief for the transactions described herein.
5. The trustees entered into agreements with four preferred
provider pharmacies: The LCP in Salem, Oregon; Baker City Pill Box in
Baker City, Oregon; Hi-School Pharmacy in Hood River, Oregon; and
Safeway Pharmacy in The Dalles, Oregon. Each of the preferred provider
pharmacies is located in an agricultural area where a significant
number of the Plans' participants live and work. The LCP is operated by
the Health Division, which is a party in interest with respect to the
Plans. The other three pharmacies are not parties in interest, and the
agreements were negotiated at arm's-length. All four agreements are
identical. The applicant represents that as of January 1, 2007, the
Safeway Pharmacy in the Dalles, Oregon, has withdrawn from the PPN. The
other three pharmacies, including the LCP, remain in the PPN.
6. The preferred provider pharmacies agree to provide prescription
drugs to participants and beneficiaries in the Plans at a lower cost
than they charge other purchasers in exchange for the potential to
realize an expanded customer base due to their status as preferred
provider pharmacies with respect to the Plans. The material terms of
the agreements are:
(a) Participants and beneficiaries pay a $6 co-payment for generic
drugs and a $16 co-payment for brand name drugs;
(b) The Pharmacy does not (and cannot) charge the participants and
beneficiaries any amount in excess of the co-payment;
(c) The pharmacy must use its best efforts to provide generic drugs
whenever legally possible, and must, when filling prescriptions,
achieve a generic frequency rate of 20% or higher;
(d) OPET pays the pharmacy the lesser of:
(i) the actual dispensing cost to the pharmacy for the drug; or
(ii) a $2 dispensing fee plus the following amount based on the AWP
for the specified type of drug:
(A) for a generic drug, AWP minus 20%;
(B) for a brand name drug, AWP minus 12%.
(e) The pharmacy's billings to OPET must provide adequate
information to enable OPET to monitor payments and generic frequency
rates;
(f) The pharmacy must submit to an audit at the request of the OPET
trustees; and
(g) The agreement may be terminated by either party without cause
with 30 days advance written notice.
7. The applicant represents that OPET's reimbursement rates for the
preferred pharmacies are reasonable and are consistent with the
reimbursement rates that other similar plans are negotiating with their
preferred provider pharmacies. OPET's consultant, Mr. Jackson A. Loos,
Chief Consulting Officer--Health and Welfare, with the firm of Rael &
Letson in Edmonds, Washington, has confirmed this representation.
8. The Plans seek to maximize the benefits that can be provided to
participants and their beneficiaries. Reducing the costs paid by the
Plans for prescription drugs assists the Plans in meeting this goal. In
addition, the applicant represents that including the LCP in the PPN
provides substantial benefits to participants and beneficiaries,
including:
(a) The claims administrator for the Plans maintains a claims
processing office in the same office as the LCP, which means the LCP
can immediately confirm the eligibility of participants and
beneficiaries. Because the on-site claims analysts are familiar with
the Plans, the LCP can direct the participant or beneficiary to the
claims processing office for assistance in resolving any eligibility or
coverage questions;
(b) The access mentioned in Paragraph (a), immediately above, is
especially important because many participants speak Spanish as their
first language and do not understand English. The on-site claims
processing office is staffed with claims analysts who are familiar with
the Plans, giving people ready access to people who are fluent in
Spanish; and
(c) The LCP, like the other preferred provider pharmacies, agrees
to process participants' prescriptions upon receiving from the
individual a brief form setting forth information necessary to verify
eligibility and the amount of co-payment prescribed by the Plans.
Participants are required to pay only the co-payment in order to fill a
prescription. Therefore, participants (most of whom have low incomes)
do not have to pay the full cost of the prescriptions at the pharmacy
and wait for later reimbursement from the Plans.
9. The applicant represents that at least 50% of the pharmacies in
the PPN will be pharmacies that are not parties in interest with
respect to the Plans. Currently, only one of the three preferred
provider pharmacies is operated by a party in interest with respect to
the Plans. All decisions made by the Plans with respect to the LCP have
been made, and in the future will be made, only by trustees unrelated
to the LCP, the Health Division, and Teamsters Local 670. In this
regard, any trustee affiliated with the LCP, the Health Division, or
Teamsters Local 670 will remove himself or herself from all
consideration by the Plans whether or not to engage in any transaction
with the Health Division and/or the LCP. Lastly, the applicant
represents that the transactions between the Plans and the Health
Division are not part of an agreement, arrangement or understanding
designed to benefit a party in interest with respect to the Plans.
10. In summary, the applicant represents that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The terms of the transactions are at least as
[[Page 6768]]
favorable to the Plans as those the Plans could obtain in similar
transactions with an unrelated party; (b) any decision by the Plan to
enter into the agreements governing the subject purchases have been and
will be made by fiduciaries of the Plans who are not related to LCP,
the Health Division, or Teamsters Local 670; (c) at least 50% of the
preferred provider pharmacies participating in the PPN are and will be
unrelated to LCP, the Health Division and any other party in interest
with respect to the Plans; (d) the LCP will provide prescription drugs
to eligible participants under the identical conditions and for the
identical prices as will be the case for any pharmacy participating in
the PPN; and (e) the transactions are not part of an agreement,
arrangement or understanding designed to benefit a party in interest.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 693-8546. (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 6th day of February, 2007.
Ivan Strasfel,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E7-2243 Filed 2-12-07; 8:45 am]
BILLING CODE 4510-29-P
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