Grant of Individual Exemptions; The UNITE National Retirement Fund, 47236-47246 [05-16046]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 70, Number 155 (Friday, August 12, 2005)]
[Notices]
[Pages 47236-47246]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 05-16046]



[[Page 47236]]

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2005-11; Exemption Application No. D-
11185, et al.


Grant of Individual Exemptions; The UNITE National Retirement 
Fund

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

The UNITE National Retirement Fund Located in New York, New York

[Prohibited Transaction Exemption 2005-11; Exemption Application No. D-
11185]

Exemption

I. Covered Transactions

    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 Code,\1\ shall not apply to the 
purchase(s) by UNITE-HERE \2\ and certain regional entities affiliated 
with and chartered by UNITE-HERE (the UNITE-HERE Affiliates) from the 
UNITE National Retirement Fund (the Pension Fund) of shares of 
perpetual cumulative convertible preferred stock (the Preferred Stock) 
representing fifteen percent (15%) of the outstanding equity interests 
in the ALICO Services Corporation (ASC), a wholly-owned entity of the 
Pension Fund; provided the conditions set forth in section II, below, 
are satisfied.
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    \1\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
    \2\ The applicant represents that the union's official name has 
been changed from the Union of Needletrades, Industrial, and Textile 
Employees to UNITE. In addition, the applicant has informed the 
Department that, effective July 12, 2004, UNITE merged with the 
Hotel Employees and Restaurant Employees International Union (HERE) 
to form UNITE-HERE.
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II. Conditions \3\

    (a) Prior to entering into the transactions,
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    \3\ In order to provide more clarity, the Department notes that 
the numbering of the subparagraphs in section II, in the final 
exemption has been changed from the system used to number the 
subparagraphs of section II, as set forth in the Notice.
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    (1) An independent, qualified fiduciary (the Independent 
Fiduciary), as defined in section III (a), below, determines, on behalf 
of the Pension Fund, whether the Preferred Stock should be sold to 
UNITE-HERE and to the UNITE-HERE Affiliates;
    (2) The Independent Fiduciary approves of the terms underlying the 
Preferred Stock to be issued by ASC;
    (3) The Independent Fiduciary negotiates and approves of the terms 
of the sales of the Preferred Stock to UNITE-HERE and to the UNITE-HERE 
Affiliates; and
    (4) The Independent Fiduciary determines that the terms of the 
sales of the Preferred Stock are no less favorable to ASC than terms 
that would be offered to an unrelated third party under similar 
circumstances;
    (b) The Independent Fiduciary determines that the purchase price 
for the Preferred Stock paid by UNITE-HERE and by the UNITE-HERE 
Affiliates is no less than the fair market value of such Preferred 
Stock, as of the date each of the transactions is entered;
    (c) The Independent Fiduciary determines the fair market value of 
the Preferred Stock, as of the date each of the transactions is 
entered; and
    (d) In determining the fair market value of the Preferred Stock, 
the Independent Fiduciary obtains an appraisal from an independent, 
qualified appraiser selected by the Independent Fiduciary and ensures 
that the appraisal and the Independent Fiduciary's analysis of the 
appraisal are consistent with sound principles of valuation and the 
elements described in paragraph 8 in the Summary of Facts and 
Representations in the Notice of Proposed Exemption (the Notice);
    (e) The Independent Fiduciary monitors the terms of the 
transactions and ensures that ASC, UNITE-HERE, and the UNITE-HERE 
Affiliates comply with the approved terms of the sales of the Preferred 
Stock; and
    (f) The Pension Fund incurs no fees, commissions, or other charges 
or expenses as a result of its participation in the transactions other 
than the fees incurred in requesting this exemption and the fee payable 
to the Independent Fiduciary.

III. Definitions

    For purposes of this exemption:
    (a) The term, ``Independent Fiduciary,'' means an individual or 
firm which is independent of and unrelated to ASC, UNITE-HERE, the 
UNITE-HERE Affiliates, and any other party to the subject transactions 
(the Parties), and which has acknowledged and agreed that it is a 
fiduciary appointed to act on behalf of the Pension Fund for all 
purposes related to the subject transactions. For purposes of this 
exemption:
    (1) A fiduciary will not be deemed to be independent of and 
unrelated to the Parties, if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by or is under common control with such Parties;
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration from such Parties in connection 
with the transactions

[[Page 47237]]

described in this exemption; except that an Independent Fiduciary may 
receive compensation for acting as an Independent Fiduciary in 
connection with the transactions contemplated herein, if the amount or 
payment of such compensation is not contingent upon or in any way 
affected by the Independent Fiduciary's ultimate decisions with regard 
to the subject transactions;
    (2) No individual or firm shall serve as an Independent Fiduciary 
during any year in which annual gross revenues received from business 
with the Parties for that year exceeds five (5) percent of such 
individual's or firm's annual gross revenues from all sources for the 
prior tax year; and
    (3) The individual or firm selected as an Independent Fiduciary 
must be qualified to serve as fiduciary and to carry out the duties and 
responsibilities, as set forth herein.

Written Comments

    In the Notice, the Department of Labor (the Department) invited all 
interested persons to submit written comments and requests for a 
hearing on the proposed exemption within forty-five (45) days of the 
date of the publication of the Notice in the Federal Register on March 
24, 2004. Because the forty-five (45 day) comment period concluded on a 
weekend, all comments and requests for a hearing were due by Monday, 
May 10, 2004.
    During the comment period, the Department received comment letters, 
facsimiles, and/or e-mails from 132 commentators. At the close of the 
comment period, the Department forwarded a copy of each of these 
comment letters, facsimiles, and e-mails to the applicant and requested 
that the applicant and the Independent Fiduciary respond in writing to 
the issues raised by the commentators. The concerns expressed by the 
commentators and the applicant's and the Independent Fiduciary's 
responses thereto are summarized in the paragraphs below.
    Generally, the comments from commentators have been classified into 
the following categories: (1) Comments from individuals asking about 
benefits under the Pension Fund, including but not limited to, benefit 
entitlement, the level of benefit payments, and missed benefit 
payments; (2) comments from individuals requesting an explanation of 
the subject transactions or requesting confirmation that the subject 
transactions will not affect benefits under the Pension Fund; (3) 
comments from Cintas Corporation (Cintas) supporting its request that 
the exemption be denied; (4) comments from Cintas requesting that if 
the exemption were granted, additional safeguards be incorporated into 
the conditions of the exemption; (5) substantive comments from other 
interested persons; and (6) requests for hearing from interested 
persons.

I. Comments Concerning Benefits

    With regard to the first category of comments, the applicant 
represents that all e-mails, facsimiles, and comment letters concerning 
benefits were forwarded to UNITE Fund Administrators (UFA), the plan 
administrator for the Pension Fund. It is further represented that UFA 
has responded in writing either by mail or by e-mail to each of the 
commentators who expressed concern about benefits under the Pension 
Fund. In addition, the applicant represents that UFA provided 
interested persons with a telephone number to call with questions 
regarding benefits and made available to English, Chinese, and Spanish 
speaking individuals to answer such calls. In this regard, it is 
represented that UFA received and responded to more than 4,000 
telephone inquiries.
    With regard to the first category of comments, the Independent 
Fiduciary is of the opinion that since the sale of the Preferred Stock 
does not impact individual benefit determinations these comments are 
outside the scope of its assignment as independent fiduciary.

II. Comments Requesting an Explanation

    With respect to the second category of comments, it is represented 
that the applicant either posted or mailed copies of (1) the Notice, 
(2) the supplemental statement required pursuant to the Department's 
Regulation section 29 CFR 2570.43, and (3) a cover memorandum which 
explained the subject transactions in summary form and informed 
interested persons that the proposed transactions would not affect such 
persons' entitlement to benefits under the Pension Fund. It is 
represented that the applicant also posted at the union hall and in 
other locations customarily used for employee benefits matters Spanish 
versions of the supplemental statement and the cover memorandum. Based 
on the foregoing, the applicant maintains that it has provided a clear 
explanation and adequate notice regarding the subject transactions and 
should not be required to respond further to comment letters, 
facsimiles, and e-mails from commentators requesting clarification.
    With respect to the second category of comments, the Independent 
Fiduciary represents that it does not believe that the subject 
transactions will threaten the security of the plan participants. In 
this regard, the Independent Fiduciary represents that it believes the 
terms of the sale of the Preferred Stock are no less favorable to the 
Pension Fund than terms negotiated at arm's-length with an unrelated 
third party under similar circumstances. In fact, the Independent 
Fiduciary negotiated the terms of the sales, and the Independent 
Fiduciary's approval of the sales is required under the subject 
exemption. In this regard, the Independent Fiduciary represents that it 
will not permit ASC to consummate the transactions, unless the 
Independent Fiduciary believes ASC is receiving consideration that is 
no less than fair market value and on terms no less favorable than the 
terms that would be offered to an unrelated third party under similar 
circumstances.

III. Cintas' Comments Supporting Denial of the Exemption

    The most extensive comment letter, which included many of the 
issues raised by other commentators, was filed by Cintas, a 
contributing employer to the Pension Fund and to other related 
multiemployer plans. Cintas requests denial of the exemption or, in the 
alternative, additional safeguards for the protection of the Pension 
Fund and its participants and beneficiaries.
    As a general response, the applicant maintains that Cintas' 
comments were made within the context of an ongoing labor dispute, and 
were intended to serve as an indirect attack on UNITE-HERE, rather than 
to provide meaningful comments regarding the subject transactions.
    The specific comments requesting denial of the exemption which were 
raised by Cintas, and the applicant's and the Independent Fiduciary's 
responses thereto, are set forth in the numbered paragraphs below.
    (1) In its comment, Cintas expresses concern about the proposed 
sale of the Preferred Stock to UNITE-HERE and about other transactions 
among UNITE-HERE and its affiliates, the Pension Fund (including ASC 
and its subsidiaries), and other multiemployer plans that have UNITE-
HERE trustees. Cintas believes that the interrelationships among UNITE-
HERE and the related plans may raise prohibited transactions issues 
under sections 406(a) and (b) of the Act. Most of these relate to on-
going service relationships among the parties that may be impacted by 
the proposed ownership of ASC by UNITE-HERE.
    Further, Cintas believes that the subject transactions may have

[[Page 47238]]

ramifications beyond those present in a sale between a plan and a party 
in interest. In this regard, Cintas believes it is inappropriate to 
consider any one of the particular transactions between UNITE-HERE and 
the related plans by itself without considering the implications raised 
by other interrelationships.
    Cintas maintains that in order to fully evaluate the proposed 
transactions, it is critical that the Department have an understanding 
of the many interrelationships among UNITE-HERE and its affiliates, the 
Pension Fund (including ASC and its subsidiaries), and other 
multiemployer funds that have UNITE-HERE trustees, some of which Cintas 
claims it does not know and some of which Cintas notes were not 
mentioned in the proposed exemption. In Cintas' view, a full review of 
all of these activities may well be warranted through an audit of these 
plans.
    In response to Cintas' comment, the applicant maintains that it has 
heretofore disclosed all relevant relationships to the Department in 
its April 8, 2003, application letter with respect to the proposed 
transactions and in a prior application for Prohibited Transaction 
Exemption 2001-13 (PTE 2001-13) \4\ for which relief was granted.
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    \4\ 66 FR 7810 (Jan. 25, 2001).
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    In response to the questions raised by Cintas concerning the sale 
of the Preferred Stock and the relationships between the Pension Fund, 
UNITE-HERE and its affiliates, and other clients of ASC that are plans 
whose participants are represented by one or more of such affiliates, 
the Independent Fiduciary states that it is because of these 
relationships that it was appointed. In this regard, the Independent 
Fiduciary represents that it has no relationship with UNITE-HERE and 
its affiliates. Further, the Independent Fiduciary points out that its 
only responsibilities have been to the Pension Fund and its 
participants, and then only with respect to the original acquisition of 
ASC by the Pension Fund in 2001, pursuant to PTE 2001-13, and to the 
purchases of the Preferred Stock that are the subject of this 
exemption.
    (2) Cintas expresses concern about the services rendered by 
affiliates of UNITE-HERE and/or by ASC and its subsidiaries and focuses 
on the fees charged for such services to various funds sponsored by 
UNITE-HERE, including the Pension Fund. In this regard, Cintas 
maintains that the fees paid by such funds are high. In support of its 
position, Cintas points out the amount of fees paid to UFA by an 
underfunded predecessor to the Pension Fund, notwithstanding the fact 
that UFA is represented to be a tax-exempt, not-for-profit subsidiary 
of ASC.
    In response, the applicant maintains that Cintas' claims are 
unsubstantiated, reflect a lack of understanding regarding the 
operation of multiemployer plans and are misleading. In the opinion of 
the applicant, Cintas fails to provide any support for its assertion 
concerning the amount of fees charged by UFA. It is the applicant's 
position that the fees charged are reasonable, particularly considering 
the complex nature of these multiemployer plans and the level of 
services provided. In addition, the applicant represents that UFA 
administers the complicated benefit structures resulting from the 
numerous fund mergers that have occurred. Further, it is represented 
that UFA provides services, which are time-intensive and labor-
intensive, in an efficient and cost-effective manner.
    (3) Cintas is concerned that the amount of fees paid by an 
underfunded predecessor to the Pension Fund were twice the level of the 
contributions received by such fund.
    In response, the applicant maintains that an evaluation of 
administrative efficiency or reasonableness of fees using a comparison 
of fund expenses to employer contributions is misleading. According to 
the applicant, the amount of contributions to a multiemployer pension 
fund are, in many cases, driven by factors that are not closely 
connected with the effort involved in administering the fund. The 
applicant represents that contribution rates are established through 
collective bargaining and are not necessarily correlated to costs. It 
is represented that many related funds have had little or no 
contribution requirements and that in the past the contribution rate 
for a significant portion of contributing employers to a predecessor of 
the Pension Fund was set at a de minimis rate that bore no relation to 
the administrative services required by such fund. It is further 
represented that these employers now contribute at a higher rate and 
that contributions currently exceed UFA fees.
    (4) Cintas is concerned that a related fund paid UFA in excess of 
$5 million in administrative and investment management fees, 
notwithstanding the fact that such fund was subject to an agreement 
with the Pension Benefit Guaranty Corporation and was in poor financial 
condition.
    In response, the applicant represents that the fund in question was 
terminated on December 31, 2003, and that a significant portion of the 
fees involved legal issues arising from the termination, the collection 
of delinquent contributions, and employer withdrawal liability, all of 
which are cost-intensive undertakings. It is represented that the 
Pension Benefit Guaranty Corporation is fully aware of the arrangement 
pursuant to which UFA handles the administration of the fund and has 
never raised any concerns regarding UFA, its administration of the 
fund, or the amount of fees charged.
    (5) Cintas is concerned that funds affiliated with UNITE-HERE pay 
fees for services provided by ASC or its affiliates where directors or 
executives of such subsidiaries are related to UNITE-HERE or its 
affiliates. For example, Cintas cites to certain funds that receive 
services or purchase insurance products from a subsidiary of ASC, the 
Amalgamated Life Insurance Company (ALICO), where Cintas asserts that 
Mr. Bruce Raynor, the President of UNITE-HERE is the chairman of ALICO, 
and his son either is or was on the Board of Directors.
    In response, the applicant points out that Mr. Bruce Raynor and his 
brother, Harris Raynor, are members of the Board of Directors of ALICO 
and ASC, but Mr. Raynor's son has not been and is not on the Board of 
ALICO.
    With regard to the provision of insurance services and products to 
the related funds by ALICO and the participation of the Raynor brothers 
on the Board of ALICO, the applicant states that it understands Cintas' 
concern about the potential conflicts. The applicant believes, however, 
that if the conflicted trustees recuse themselves from the decision-
making process regarding the retention of ALICO, and the services are 
provided in accordance with section 408(b)(2) of the Act, there should 
be no prohibited transaction under the Act.\5\
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    \5\ In support of its view, the applicant relies on: (a) 
Advisory Opinion 99-09A issued on May 21, 1999, in a letter to 
Patricia A. Shlonsky (the Shlonsky Letter); (b) Advisory Opinion 79-
72A issued on October 19, 1979, in a letter to William D. Watters, 
Esq. (the Watters Letter); and (c) Section 408(b)(2) of the Act.
    The Shlonsky Letter cites to the Watters Letter for support for 
the proposition that a fiduciary may avoid engaging in a transaction 
described in section 406(b)(1) and 406(b)(2) of the Act ``by 
removing himself or herself from all consideration by the plan of 
whether or not to engage in such transaction, and by not otherwise 
exercising, with respect to such transaction, any of the authority, 
control or responsibility which makes him or her a fiduciary, absent 
any arrangement, agreement, or understanding with respect to who 
will ultimately provide the services in question. * * *''
    Section 408(b)(2) of the Act provides a statutory exemption for 
``contracting or making reasonable arrangements with a party in 
interest for office space, or legal, accounting, or other services 
necessary for the establishment or operation of the plan, if no more 
than reasonable compensation is paid therefor.''
    The Department is offering no view, herein, as to the 
applicant's reliance on the Shlonsky Letter, the Watters Letter, 
and/or the statutory exemption, as set forth in section 408(b)(2) of 
the Act and 29 CFR 2550.408(b)(2) of the Department's regulations. 
Further, the Department is providing no relief, herein, for any 
prohibited transaction that may arise after the sale of the 
Preferred Stock, including but not limited to, any that may arise in 
connection with the participation by members of the Board of 
Directors of ASC and/or members of the Board of Trustees of the 
Pension Fund in the decision making process regarding the retention 
of affiliates of UNITE-HERE and/or ASC and its subsidiaries to 
provide services to the Pension Fund, or related funds. In this 
regard the Department notes that these transactions are outside the 
scope of relief offered by this exemption.

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[[Page 47239]]

    (6) Cintas is concerned about the fact that the Amalgamated Bank, 
an entity owned by UNITE-HERE and certain of its affiliates, provides 
services to, and receives significant fees from, various funds 
affiliated with UNITE-HERE, including the Pension Fund. Cintas points 
out that certain funds, sponsored by the International Ladies Garment 
Workers Union (ILGWU) prior to the merger of Amalgamated Clothing and 
Textile Workers Union (ACTWU) and the ILGWU, obtained an exemption for 
services provided by Amalgamated Bank, but Cintas is unaware of any 
similar exemption for funds sponsored by ACTWU prior to its merger with 
ILGWU. Further, Cintas points out that Schedule C of Form 5500 of a 
predecessor to the Pension Fund and certain other related funds fail to 
note that UFA and Amalgamated Bank are parties in interest.
    In response, the applicant states that Amalgamated Bank is a 
commercial bank chartered by the State of New York in 1923. Amalgamated 
Bank is subject to the supervision and examination authority of the New 
York State Banking Department. It is also subject to supervision and 
examination by the Federal Deposit Insurance Corporation. As of May 31, 
2004, Amalgamated Bank had total assets under custody of approximately 
$16.7 billion and total assets under management of approximately $7.7 
billion. It provides certain services to the Pension Fund and to 
various related funds. Amalgamated Bank also provides investment 
management and custodial services to more than 150 Taft-Hartley and 
other labor union-related funds unrelated to or unaffiliated with 
UNITE-HERE.
    With regard to Cintas' concerns, the applicant maintains that the 
Department was made aware of the relationship between Amalgamated Bank 
and related funds and the Pension Fund in communications with 
representatives from the Department.\6\
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    \6\ On January 17, 2003, attorneys for UNITE met with 
representatives of the Department in connection with the submission 
on August 11, 2003, of a request for an opinion letter concerning 
the continued utilization by plans sponsored by UNITE of the 
services provided by Amalgamated Bank (formerly, Amalgamated Bank of 
New York).
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    Further, in connection with the recusal discussion in paragraph 8, 
below, the applicant maintains that the relationship between 
Amalgamated Bank and several other funds related to a predecessor of 
UNITE, have been governed by the terms of a letter issued in 1981 by 
the Department.\7\ Among these terms, a ``banking committee'' composed 
of conflict-free employer and union trustees was required to make all 
policy decisions with respect to Amalgamated Bank and to manage the 
relationship between Amalgamated Bank and such funds.
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    \7\ Letter from Ian Lanoff, Administrator of Pension Welfare 
Benefit Programs at the Department, to Harry Huge, Esq., on behalf 
of the Amalgamated Clothing and Textile Workers of America (January 
15, 1981).
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    (7) Cintas also expresses a concern that the ``potential for future 
abuse'' will increase as a result of the merger between UNITE and HERE. 
In this regard, Cintas believes that funds sponsored by HERE may enter 
into service relationships with UFA, ALICO, and Amalgamated Bank as a 
result of such merger.
    In response, the applicant states that both ALICO and Amalgamated 
Bank already maintain relationships with certain funds sponsored by 
HERE. Second, the applicant believes that if the trustees of any fund 
sponsored by UNITE-HERE exercise their fiduciary duties in accordance 
with the Act and in a manner that does not violate the prohibited 
transaction provisions of the Act, the applicant can see no reason why 
such funds should be prohibited from engaging UFA, ALICO, or 
Amalgamated Bank whenever such engagement would be to the benefit of 
the funds and their participants and beneficiaries.
    (8) Cintas notes that recusal by union trustees of the Pension Fund 
who serve on the Board of Directors of ASC is inadequate. Accordingly, 
in the opinion of Cintas, the union members serving on the boards of 
trustees of various related funds should also be required to recuse 
themselves before entering into service arrangements with ASC or its 
subsidiaries.
    In response, the applicant believes that the Department should not 
disregard established precedent that recusal by an interested party 
works to eliminate self-dealing concerns under section 406(b) of the 
Act. In this regard, the applicant notes that the Department has long 
taken the position that a fiduciary may avoid engaging in an act 
described in section 406(b)(1) of the Act, if such fiduciary does not 
use the authority, control, or responsibility which makes such person a 
fiduciary to cause the fund to pay a fee for a service furnished by a 
person in which the fiduciary has an interest which may affect the 
exercise of the fiduciary's best judgment as a fiduciary. The applicant 
points out that the Department has on numerous occasions, considered 
recusal an acceptable means to avoid triggering a breach of sections 
406(b)(1) and (b)(2) of the Act, so long as such fiduciary (1) has 
removed himself or herself from all consideration of whether to engage 
in such activity and (2) does not otherwise exercise, with respect to 
the proposed transaction, any of the authority, control, or 
responsibility which makes him or her a fiduciary, provided there is no 
arrangement, agreement, or understanding with respect to who will 
ultimately provide the services in question. It is the applicant's view 
that so long as the trustees of the Pension Fund and/or the trustees of 
any related funds act in accordance with the foregoing mandates with 
respect to the selection and retention of UFA or the selection and 
retention of any other ASC subsidiary to provide services for such 
funds, the applicant sees no reason why recusal would not work.
    (9) Cintas maintains that, while the applicant asserts otherwise, 
``it is hardly clear that the Labor Management Relations Act is not 
violated by recusal of the union trustees.''
    In response, the applicant states that it has provided supporting 
authority for its position in the form of a United States Supreme Court 
decision,\8\ while Cintas has failed to provide any support for its 
statement.
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    \8\ Local 144 Nursing Home Pension Fund v. Demisay et.al., 508 
U.S. 581 (1993).
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    (10) Cintas is concerned that, even if union trustees of the 
Pension Fund recuse themselves, there will be enormous pressure on 
management trustees of the Pension Fund to approve a transaction, 
unless such transaction were completely unjustified, and to agree to 
service arrangements and fees in order to avoid acrimony with the union 
trustees and to avoid hostile collective bargaining negotiations with 
UNITE-HERE.
    It is the applicant's view that Cintas fails to understand that the 
non-interested trustees remain subject to the fiduciary responsibility 
provisions of the Act and are required, among other

[[Page 47240]]

things, to act for the benefit of the participants and beneficiaries 
when making decisions that affect the Pension Fund. If the trustees 
fail to act properly, they face liability under the Act for breaching 
their fiduciary duties.
    (11) Cintas is concerned that, if the exemption were granted and 
UNITE-HERE were to have an interest in ASC, there would be a bias for 
union trustees to increase fees charged for services provided by ASC or 
its affiliates to funds sponsored by UNITE-HERE. Even if fees charged 
by ASC were determined on a not-for-profit basis, Cintas believes that 
such union trustees may take a more aggressive position in determining 
what costs can be passed through to such funds.
    In response, the applicant maintains that as UFA is a non-profit 
organization, it is treated as having ``zero'' value when calculating 
the enterprise value of ASC. In this regard, only the for-profit 
businesses are assigned any value. Accordingly, the applicant maintains 
that a fee increase caused by union trustees, acting as directors of 
ASC, as set forth in Cintas' hypothetical, would not affect the 
underlying value of the investment in ASC by UNITE-HERE.
    (12) Cintas requested that its comment letter be distributed to the 
other participating employers and possibly all parties in interest.
    Although the applicant failed to respond to Cintas' request that 
its comment letter be distributed to participating employers and 
parties in interest, the Department notes that the complete application 
file, including the comment letters, facsimiles, and e-mails from all 
commentators and the applicant's and Independent Fiduciary's responses 
thereto are available for public inspection in the Public Disclosure 
Room of the Employee Benefits Security Administration, Room N-1513, 
U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 
20210.

IV. Cintas Comments Requesting Additional Safeguards

    In addition to the issues discussed above, Cintas also commented on 
the terms of the proposed transactions, the structure of the 
transactions, and requested modifications to the conditions of the 
exemption.
    Notwithstanding the fact that the applicant acknowledges that the 
Independent Fiduciary is in the best position to address these issues, 
the applicant responded to Cintas' comments. Both the applicant's 
response and the response of the Independent Fiduciary are discussed in 
the numbered paragraphs below:
    (1)(a) In its comment, Cintas questions the need to structure the 
transactions as sales of the Preferred Stock to related parties. In the 
opinion of Cintas, such sales may well strip some of the value of ASC 
from the Pension Fund and give it to UNITE-HERE and its affiliates by 
virtue of the convertible nature of the Preferred Stock.
    In response, the applicant states that, prior to approaching UNITE-
HERE and the UNITE-HERE Affiliates about purchasing an interest in the 
company, ASC offered on two prior occasions to sell minority interests 
to unrelated third-party purchasers. In this regard, it is represented 
that every firm approached was offered the same terms as were offered 
to UNITE-HERE and the UNITE-HERE Affiliates. It is represented that ASC 
was unsuccessful in finding a buyer because the Pension Fund wanted to 
maintain control of the operations of ASC. No purchaser was willing to 
buy a small piece of an illiquid insurance company in which such 
purchaser would have little or no control.
    (b) Cintas acknowledges that the purported motivations for the 
proposed transactions are the desire of ASC for an increase in working 
capital, as well as the potential to increase profitability. Cintas 
also acknowledges that the motivation of UNITE-HERE and its affiliates 
generally is to invest in vehicles with a fixed rate of return. 
However, Cintas suggests that there are ways other than the proposed 
transactions to achieve these goals. In this regard, Cintas suggests 
that: (i) ASC could have obtained a loan of capital from an unrelated 
financial institution; (ii) UNITE-HERE or an affiliate could have made 
a loan to ASC at a fixed rate of return; or (iii) the Pension Fund 
could have made a direct capital infusion into ASC.
    With regard to the purported motivations for the subject 
transactions, the applicant maintains that Cintas ignores two important 
reasons for the transactions proffered in the application. First, the 
applicant wishes to sell a portion of ASC, so that ASC will no longer 
constitute a plan asset look-through vehicle for purposes of the 
Department's plan asset regulation. In this regard, the applicant is 
concerned that other unrelated entities would be unwilling to engage in 
joint ventures with ASC, if ASC is treated as a plan asset look-through 
vehicle subject to the Act. Second, while the applicant has existing 
relationships with over 125 benefit funds unaffiliated with UNITE-HERE, 
it believes that the addition of UNITE-HERE and the UNITE-HERE 
Affiliates as co-owners of ASC will enhance the standing of ASC with 
existing trade union customers and will serve as an effective tool for 
obtaining business from other trade unions or trade union sponsored 
groups that do not currently maintain relationships with ASC or its 
subsidiaries. In support of this assertion, the applicant points out 
that Amalgamated Bank has benefited from its affiliation with UNITE-
HERE and has developed a significant amount of business from 
organizations and employee benefit funds not affiliated with UNITE-
HERE.
    With regard to Cintas' suggestion that ASC borrow the funds needed 
for working capital from an unrelated financial institution or from 
UNITE-HERE or its affiliates, the applicant maintains that the rating 
agencies view debt financing negatively. In the opinion of the 
applicant, debt financing would affect adversely the risk factors taken 
into account by the rating agencies when ascertaining the ability of 
ALICO, a subsidiary of ASC, to satisfy claims. The applicant believes 
this could jeopardize ALICO's ``A'' rating. It is represented that 
ALICO's ``A'' rating is extremely important for attracting and 
retaining business.
    The Independent Fiduciary confirms that ASC's primary business 
unit, ALICO, currently has an ``A'' rating from A.M. Best, which gives 
ALICO a competitive advantage. Further, the Independent Fiduciary 
states that this rating is based, in part, on the fact that ASC has no 
debt.
    With regard to Cintas' suggestion that the Pension Fund provide 
additional capital to fund the expansion of ASC, the applicant 
represents that the trustees of the Pension Fund have determined that 
because ASC already represents approximately 2.3 percent (2.3%) of the 
assets of the Pension Fund, the trustees would prefer not to increase 
the Pension Fund's investment in this valuable, but illiquid asset.
    The Independent Fiduciary acknowledges that the decision to invest 
additional funds into ASC rests with the trustees of the Pension Fund, 
not with the Independent Fiduciary. However, the Independent Fiduciary 
notes that ASC already represents the largest single investment by the 
Pension Fund in any single privately-held company. In this regard, the 
Independent Fiduciary estimates that ASC represents approximately 2.7 
percent (2.7%) of the Pension Fund's assets, rather than the 2.3 
percent figure suggested by the applicant. Notwithstanding the 
difference in the estimated percentage involved, the Independent 
Fiduciary acknowledges that the percent of the Pension Fund's assets 
committed to

[[Page 47241]]

ASC is within the limits imposed by the Pension Fund's investment 
guidelines and is well within the limits on a single investment in the 
investment guidelines of most large pension plans. Accordingly, the 
Independent Fiduciary represents that it would endorse the decision by 
the trustees of the Pension Fund not to increase the Pension Fund's 
commitment to ASC.
    (c) Cintas notes that one of the conditions of the exemption is 
that an Independent Fiduciary determines whether the Preferred Stock 
should be sold to UNITE-HERE. If the exemption were to be granted, 
Cintas requests that this condition of the exemption be modified to 
contain an express requirement that the Independent Fiduciary determine 
that a $9 million dollar capital infusion is desirable. In this regard, 
Cintas notes that the Pension Fund has $1.5 billion in assets and that 
a capital infusion of $9 million would constitute less than 1 percent 
(1%) of the Pension Fund's assets.
    In response, the applicant maintains that the authority currently 
possessed by the Independent Fiduciary is more than adequate to protect 
the Pension Fund from abuse. The Independent Fiduciary has complete 
authority to determine whether the Preferred Stock should be sold under 
the terms of the proposed transactions. Further, assuming the 
Independent Fiduciary determines that the Preferred Stock may be sold 
to UNITE-HERE and the UNITE-HERE Affiliates, the Independent Fiduciary 
may also accept or reject any or all terms applicable to such stock. 
The purpose of the Independent Fiduciary is to protect the Pension Fund 
and its participants and beneficiaries from abuse. In the opinion of 
the applicant, the role of the Independent Fiduciary is not and should 
not be to run ASC.
    Furthermore, in a letter to the Department, dated, August 14, 2003, 
the Independent Fiduciary represented that the subject transactions, as 
currently structured, are prudent, in the interest of the participants 
and beneficiaries of the Pension Fund and are protective of the rights 
of the participants and beneficiaries of the Pension Fund.
    (2) Cintas requests that the Department impose a condition of the 
exemption that would require that ASC continue to operate as a plan 
asset look-through vehicle, even after the sales of the Preferred Stock 
to UNITE-HERE and its affiliates. In this way, Cintas believes that any 
potential transactions between UNITE-HERE, and its affiliates, and the 
Pension Fund \9\ will be subject to all applicable regulation under the 
Act, including the fiduciary prudence requirements, as well as the 
party in interest rules. The failure to include this condition in the 
exemption, in Cintas' view, could lead to abuses in potential 
transactions between UNITE-HERE and the Pension Fund. Further, Cintas 
maintains that state corporate laws do not provide the same degree of 
protection from potential abuse that the Act provides with regard to 
future transactions between UNITE-HERE and the Pension Fund.
---------------------------------------------------------------------------

    \9\ In making reference in this paragraph to potential 
transactions between UNITE-HERE and the Pension Fund, the 
Department, understands that Cintas meant to refer to potential 
transactions between UNITE-HERE and ASC, as the Pension Fund owns 
all of the common stock of ASC.
---------------------------------------------------------------------------

    In response, the applicant is concerned that unrelated entities 
will be unwilling to engage in joint ventures with ASC, if ASC were to 
be treated as a plan asset look-through vehicle subject to the Act. In 
the view of the applicant, the unprecedented step of imposing this 
condition on ASC would unnecessarily impede ASC's ability to engage in 
potential advantageous business opportunities. Furthermore, the 
applicant maintains that Cintas articulates no reason for imposing such 
a condition other than an assertion that the condition would prevent 
abuses in the case of transactions between UNITE-HERE and the Pension 
Fund.
    The Independent Fiduciary does not support Cintas' recommendation 
that ASC's underlying assets should continue to be treated as plan 
assets after the sales of the Preferred Stock to UNITE-HERE and its 
affiliates. In this regard, the Independent Fiduciary points out that 
the prohibited transactions rules under the Act were designed primarily 
for passive investments, not operating companies. The Independent 
Fiduciary believes that plan asset treatment would impede the ability 
of ASC to grow; and therefore, would not be in the best interest of the 
Pension Fund, as the principal owner of ASC. In the opinion of the 
Independent Fiduciary, the Board of Directors of ASC will still be 
subject to the fiduciary responsibilities to ASC's shareholders under 
corporate law, and the trustees of the Pension Fund, in exercising 
their rights and responsibilities as shareholders of ASC, will still be 
subject to the fiduciary prudence requirements under the Act.
    (3) While the applicant has represented that: (a) Each trustee of 
the Pension Fund affiliated with UNITE-HERE and its affiliates will 
recuse himself from any decision to vote the common stock of ASC when 
the vote concerns the Preferred Stock and where participation by such 
trustee would give rise to a conflict of interest, and (b) each 
director of ASC affiliated with UNITE-HERE and its affiliates will 
recuse himself from participating in any decision or action concerning 
the Preferred Stock, Cintas questions whether such a representation 
(rather than a condition of the exemption) offers adequate protection 
for participants. In this regard, Cintas suggests that the Department 
require, as a condition of the exemption, that an independent fiduciary 
be appointed whenever trustees of the Pension Fund vote the common 
stock of ASC, if the vote concerns the Preferred Stock, as well as, on 
matters pertaining to the payment of dividends or the redemption of 
Preferred Stock. Similarly, Cintas suggests that other funds that hire 
ASC or its subsidiaries should be required to obtain an independent 
fiduciary when determining whether to do so.
    In response, the applicant believes that this proposed condition is 
unnecessary, because the applicant already addressed this issue in 
response to the Department's questions. In this regard, the applicant, 
in a February 10, 2004, letter, stated that once the Preferred Stock 
has been sold the trustees of the Pension Fund that serve on the ASC 
Board of Directors will be acting as directors of an operating company. 
As such, they will be subject to the mandates of New York State law 
when making decisions, for example, to issue dividends with respect to 
the Preferred Stock or to redeem the Preferred Stock. The applicant 
takes the position that New York State corporate laws, with their 
provisions addressing interested party transactions, provide adequate 
protection to ASC and the Pension Fund as a shareholder in ASC. 
Nevertheless, the applicant agrees that all conflicted ASC directors 
will not participate in any vote regarding the issuance of Preferred 
Stock dividends or the redemption of the Preferred Stock. For reasons 
already expressed herein, the applicant does not believe that the 
Department should ignore years of precedent that allows the use of 
recusal.
    Further, the applicant represents that the Board of Trustees of the 
Pension Fund, and the Board of Directors of ASC have each issued 
resolutions stating that each such board shall maintain, or cause to be 
maintained within the United States for a period of six (6) years in a 
manner that is convenient and accessible for audit and examination, 
contemporaneous and comprehensive records of any portion of the 
meetings of such boards, during which any

[[Page 47242]]

decision or action is taken with respect to ASC or any of its 
subsidiaries involving the Preferred Stock to enable such records to be 
available for inspection and review by any duly authorized employee or 
representative of the Department of Labor, the Internal Revenue 
Service, or any other applicable Federal or state regulatory agency.
    Such records shall include but not be limited to documents 
supporting any decision made or action voted upon, who was present at 
the meeting in which such decision was made or action was voted on, who 
voted on and who abstained from voting on such decision or action, the 
result of any such vote, and a summary of any discussion surrounding a 
decision made or action taken, setting forth an explanation of why a 
particular decision was made or action was taken.
    The Department does not concur with Cintas' comment that an 
independent fiduciary be appointed whenever trustees of the Pension 
Fund vote the common stock of ASC in matters concerning the Preferred 
Stock, or that an independent fiduciary be appointed by the Board of 
Directors of ASC to make decisions on matters pertaining to the payment 
of dividends or the redemption of Preferred Stock. Furthermore, the 
Department does not concur with Cintas' suggestion that related funds 
that hire ASC or its subsidiaries should be required to obtain an 
independent fiduciary when determining whether to do so.
    The Department notes that the relief provided by this exemption is 
limited to the purchase by UNITE-HERE from the Pension Fund of the 
Preferred Stock representing 15% of the outstanding equity interests in 
ASC. Although commentators have raised a number of issues which are 
unrelated to the exemption and other issues which have been addressed 
by the applicant and/or by the Independent Fiduciary, the Department 
wishes to emphasize that nothing in this exemption should be construed 
as exempting any of the prohibited transactions described in section 
406(a) or 406(b) of the Act other than the sale of the Preferred Stock. 
Furthermore, the Department is not expressing any views as to whether 
the administration of the Pension Fund, the operation of ASC and/or its 
affiliates, or the operation of entities affiliated with or chartered 
by UNITE-HERE raise issues under ERISA's fiduciary responsibility 
provisions.

V. Substantive Comments From Other Interested Persons

    In addition to the comment letter filed by Cintas, the Department 
also received other comment letters expressing substantive concerns 
regarding the subject transactions. Set forth below in summary form are 
the issues raised by the commentators and the responses from the 
applicant and the Independent Fiduciary to these concerns:
    (1) Certain commentators expressed concerns regarding the funding 
status of the Pension Fund and the impact of the subject transactions 
on such funding.
    In response, the applicant represents that the Pension Fund is 85% 
funded for vested benefits, estimated as of January 1, 2004, and is 
financially stable. Further, the applicant represents that the sale of 
Preferred Stock by ASC will have no impact on the funding status of the 
Pension Fund;
    (2) Certain commentators raised concerns regarding self-dealing, 
including a comment that the only purpose of the subject transactions 
was to benefit UNITE-HERE.
    In response, the applicant maintains that the self-dealing issue 
has been addressed at length above in response to Cintas' comment 
letter;
    (3) One commentator expressed concerns regarding the loyalty of 
Willamette Management Associates (WMA), because it was ``hired by 
ASC.''
    The applicant responds that WMA was retained by the Pension Fund 
and is independent in that the average percentage of its annual income 
derived from the Pension Fund over the previous six (6) years has been 
less than one percent (1%). Further, both the Pension Fund and ASC 
represent to the Department that compensation received by WMA is not 
contingent upon the opinion expressed in its valuation reports.
    The Independent Fiduciary, in response to this comment, represents 
that WMA has been retained by the Pension Fund to perform the annual 
valuations since the Pension Fund acquired ASC in 2001, and that WMA 
receives less than one percent (1%) of its annual revenue from the 
Pension Fund. It is represented that WMA is a nationally recognized 
valuation firm with significant experience valuing closely-held 
business. The Independent Fiduciary has determined that it is 
appropriate to retain WMA to perform the valuation for purposes of 
determining the price of the Preferred Stock. It is represented that 
this valuation will be reviewed by an officer of the Independent 
Fiduciary who is a Chartered Financial Analyst with significant 
valuations experience, including valuing minority interests, closely-
held business, and special situations. In this regard, the Independent 
Fiduciary represents that any valuation issues will be resolved to this 
officer's satisfaction before the subject transactions are consummated.
    In addition to its response to the commentator, the Independent 
Fiduciary informed the Department of changes to the preliminary 
valuation of ASC, effective as of May 31, 2003, but performed by WMA in 
July 2003. In this regard, it is represented that WMA's preliminary 
valuation was an estimate of one percent (1%) and fifteen percent 
(15%), respectively, of the value of ASC on a pre-transaction basis. In 
December 2003, after the Independent Fiduciary negotiated the terms of 
the transaction, including the formula for the price of the Preferred 
Stock based on the value of ASC, WMA provided an updated estimate of 
the value of ASC on a post-transaction basis, as if the transactions 
had been consummated on May 31, 2003. As a result of WMA's December 
2003 valuation, the Independent Fiduciary represents that the figures, 
as set forth in the Notice, 69 FR 13897, col. 3, lines 3-49, should 
have read, as follows:
     118 shares should have been 101 shares;
     The value of a one percent (1%) ownership interest of 
$536,000 and $624,000, respectively, should have been $541,000 and 
$630,000;
     The aggregate and per share values based on a $33 million 
enterprise value and a 15 percent (15%) ownership interest of 
$8,040,000 and $4,557 per share should have been $9,465,000 and $5,363 
per share; and
     The aggregate and per share values based on a $38.4 
million enterprise value and 15 percent (15%) ownership interest of 
$9,360,000 and $5,303 per share should have been $11,014,000 and $6,240 
per share.
    The Independent Fiduciary further represents that these figures 
will not affect the price paid for the Preferred Stock, which will be 
based on the final valuation of ASC at closing, as indicated in the 
proposed exemption.
    (4) Certain comment letters asked how the proceeds of the sale of 
the Preferred Stock would be utilized.
    In this regard, the applicant represents that the proceeds from the 
sale of Preferred Stock shall be utilized ``to invest in the continued 
growth of ASC and the development of new product lines and markets with 
the goal of further increasing the value of ASC.''
    (5) Certain individual commentators requested that the exemption be 
denied,

[[Page 47243]]

because such individuals were denied benefits from the Pension Fund and 
other funds affiliated with UNITE-HERE.
    In response, the applicant maintains that such concerns have no 
relevance to the subject transactions. Nevertheless, the applicant 
represents that each commentator's concern was forwarded to UFA for 
appropriate action.
    (6) Two commentators expressed concerns regarding the cancellation 
of their prescription drug benefits.
    The applicant maintains that these comments are not relevant to the 
subject transactions, because these comments involve the health 
benefits of the individuals. The applicant represents that such 
letters, however, were forwarded to UFA for appropriate action.

VI. Requests for Hearing

    During the comment period, the Department received seven (7) 
requests from commentators that the Department hold a hearing. These 
comments were generally from individuals concerned as to how the 
subject transactions would affect their benefits under the Pension 
Fund. In this regard, the commentators requested that the Department 
hold a hearing if, as a result of the requested exemption, pension 
benefits were to be reduced or eliminated.
    In response to the commentators' requests for a hearing, the 
applicant maintains that because these individuals were notified that 
the subject transactions would not affect adversely their benefits, and 
because the parties requesting the hearings failed to demonstrate how 
they would be adversely affected by the grant of the exemption, a 
hearing is unwarranted.
    The Department has carefully considered the concerns expressed by 
the commentators who requested a hearing. After a review of these 
concerns, and the applicant's response, the Department does not believe 
that there are material factual issues relating to the exemption that 
were raised by commentators during the comment period which would 
require the convening of a hearing. Thus, the Department has determined 
not to delay consideration of the final exemption by holding a hearing 
on application D-11185. The comments submitted by the commentators to 
the Department and the responses by the Independent Fiduciary and by 
the applicant thereto have been included as part of the public 
administrative record of the exemption application. The complete 
application file, including all supplemental submissions received by 
the Department, is available for public inspection in the Public 
Disclosure Room of the Employee Benefits Security Administration, Room 
N-1513, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210.
    Accordingly, after full consideration and review of the entire 
administrative record, including the written comments from the 
commentators and the responses thereto by the applicant and the 
Independent Fiduciary, the Department has determined to grant the 
exemption. For a more complete statement of the facts and 
representations supporting the Department's decision to grant this 
exemption refer to the Notice published on March 24, 2004, at 69 FR 
13894.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

BNP Paribas S.A. (BNP Paribas) and Its French Affiliates (the French 
Affiliates) Located in Paris, France

[Prohibited Transaction Exemption 2005-12; Exemption Application No. D-
11249]

Exemption

Section I. Covered Transactions

    A. The restrictions of section 406(a)(1)(A) through (D) of the Act 
\10\ and the sanctions resulting from the application of section 4975 
of the Code, by reason of section 4975(c)(1)(A) through (D) of the 
Code, shall not apply to any purchase or sale of a security between BNP 
Paribas, a bank established under the laws of France and any French 
Affiliate or branch of BNP Paribas which is a bank regulated by the 
Commission Bancaire (CB) or a broker-dealer holding a securities 
dealers license issued by the Comit[eacute] des Etablissements de 
Cr[eacute]dit et des Enterprises d'Investissement or registered with 
the Autorit[eacute] des Marches Financiers (AMF) (each, a BNP Entity), 
and employee benefit plans (the Plans) with respect to which the BNP 
Entity is a party in interest, including options written by a Plan or 
the BNP Entity, provided that the following conditions and the General 
Conditions of Section II, are satisfied:
---------------------------------------------------------------------------

    \10\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
to corresponding provisions of the Code.
---------------------------------------------------------------------------

    (1) The BNP Entity customarily purchases and sells securities for 
its own account in the ordinary course of its business as a bank or 
broker-dealer, as the case may be;
    (2) The terms of any transaction are at least as favorable to the 
Plan as those which the Plan could obtain in a comparable arm's length 
transaction with an unrelated party; and
    (3) Neither the BNP Entity nor any of its affiliates has 
discretionary authority or control with respect to the investment of 
the Plan assets involved in the transaction, or renders investment 
advice (within the meaning of 29 CFR 2510.3-21(c)) with respect to 
those assets, and the BNP Entity is a party in interest or disqualified 
person with respect to the Plan assets involved in the transaction 
solely by reason of section 3(14)(B) of the Act or section 
4975(e)(2)(B) of the Code, or by reason of a relationship to a person 
described in such sections. For purposes of this paragraph, the BNP 
Entity shall not be deemed to be a fiduciary with respect to Plan 
assets solely by reason of providing securities custodial services for 
a Plan.
    B. The restrictions of sections 406(a)(1)(A) through (D) 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 
(D) of the Code, shall not apply to any extension of credit to a Plan 
by a BNP Entity to permit the settlement of securities transactions, 
regardless of whether they are effected on an agency or a principal 
basis, or in connection with the writing of options contracts, provided 
that the following conditions and the General Conditions of Section II, 
are satisfied:
    (1) The BNP Entity is not a fiduciary with respect to the Plan 
assets involved in the transaction, unless no interest or other 
consideration is received by the BNP Entity or any of its affiliates in 
connection with such extension of credit; and
    (2) Any extension of credit would be lawful under the Securities 
Exchange Act of 1934, as amended (the 1934 Act), and any rules or 
regulations thereunder, if the 1934 Act, rules or regulations were 
applicable and is lawful under applicable foreign law.
    C. The restrictions of sections 406(a)(1)(A) through (D) of the Act 
and the sanctions resulting from the application of section 4975 of the 
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall 
not apply to the lending of securities that are assets of a Plan to a 
BNP Entity, provided that the following conditions and the General 
Conditions of Section II are satisfied:
    (1) Neither the BNP Entity nor any of its affiliates has 
discretionary authority or control with respect to the investment of 
Plan assets involved in the transaction, or renders investment advice 
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those 
assets;

[[Page 47244]]

    (2) The Plan receives from the BNP Entity, either by physical 
delivery or by book entry in a securities depository located in the 
U.S., by the close of business on the day on which the securities lent 
are delivered to the BNP Entity, collateral consisting of U.S. 
currency, securities issued or guaranteed by the U.S. Government or its 
agencies or instrumentalities, or irrevocable U.S. bank letters of 
credit issued by persons other than the BNP Entity (or any of its 
affiliates), or any combination thereof having, as of the close of 
business on the preceding business day, a market value (or, in the case 
of letters of credit, a stated amount) equal to not less than 100 
percent of the then market value of the securities lent. All collateral 
shall be held in U.S. dollars, or dollar denominated securities or bank 
letters of credit and shall be held in physical or book entry form in 
the United States.
    (3) The loan is made pursuant to a written loan agreement (the Loan 
Agreement), which may be in the form of a master agreement covering a 
series of securities lending transactions, and which contains terms at 
least as favorable to the Plan as those the Plan could obtain in an 
arm's length transaction with an unrelated party;
    (4) In return for lending securities, the Plan either (a) receives 
a reasonable fee which is related to the value of the borrowed 
securities and the duration of the loan, or (b) has the opportunity to 
derive compensation through the investment of cash collateral. In the 
latter case, the Plan may pay a loan rebate or similar fee to the BNP 
Entity, if such fee is not greater than the Plan would pay an unrelated 
party in a comparable arm's length transaction with an unrelated party;
    (5) The Plan receives at least the equivalent of all distributions 
made to holders of the borrowed securities during the term of the loan, 
including, but not limited to, cash dividends, interest payments, 
shares of stock as a result of stock splits and rights to purchase 
additional securities that the Plan would have received (net of tax 
withholdings) had it remained the record owner of such securities. 
Where dividends and other distributions on foreign securities payable 
to a lending Plan are subject to foreign tax withholdings, the BNP 
Entity will put the Plan back in at least as good a position as it 
would have been in had it not lent the securities;
    (6) If the market value of the collateral as of the close of 
trading on a business day falls below 100% of the market value of the 
borrowed securities as of the close of trading on that day, the BNP 
Entity delivers additional collateral, by the close of business on the