Amendment to Prohibited Transaction Exemption 2002-51 (PTE 2002-51) to Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program, 20135-20139 [06-3675]

Download as PDF Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices September 11, 1993. These Customer Satisfaction Surveys provide information on customer attitudes about the delivery and quality of agency products/services and are used as part of an ongoing process to improve DOL programs. This generic clearance allows agencies to gather information from both Federal and non-Federal users. In addition to conducting Customer Satisfaction Surveys, the Department also includes the use of evaluation forms for those DOL agencies conducting conferences. These evaluations are helpful in determining the success of the current conference, in developing future conferences, and in meeting the needs of the Department’s product/service users. cchase on PROD1PC60 with NOTICES II. Current Actions Over the past three years the DOL has conducted more than two dozen customer satisfaction surveys and conference evaluations, which have helped assess the Department’s products and services and has led to improvements in areas deemed necessary. Office of Management and Budget approval for this collection of information expires July 31, 2006. DOL proposes to seek continued approval for this collection of information for an additional three years. Type of Review: Extension of a currently approved collection. Agency: Office of the Assistant Secretary for Administration and Management. Title: Customer Satisfaction Surveys and Conference Evaluations Generic Clearance. OMB Number: 1225–0059. Affected Public: Individuals and households; business or other for-profit; not-for-profit institutions; Farms; Federal Government; and State, Local, or Tribal Government. Estimated Total Respondents/ Responses: 200,000. Frequency: On occasion and usually only one-time per respondent. Average Time per Response: Varies by survey/evaluation generally ranging from 3 to 15 minutes with an average of approximately 6 minutes. Total Burden Hours: 20,000. Total Burden Cost (Capital/Startup): $0. Total Burden Cost (Operating/ Maintenance): $0. Comments submitted in response to this notice will be summarized and/or included in the request for Office of Management and Budget approval of the information collection request; they also will become a matter of public record. VerDate Aug<31>2005 17:09 Apr 18, 2006 Jkt 208001 Signed at Washington, DC, this 13th day of April, 2006. Darrin A. King, Agency Clearance Officer, Office of the Assistant Secretary for Administration and Management. [FR Doc. E6–5860 Filed 4–18–06; 8:45 am] BILLING CODE 4510–23–P DEPARTMENT OF LABOR Employee Benefits Security Administration [Application No. D–11261] RIN 1210–A05 Amendment to Prohibited Transaction Exemption 2002–51 (PTE 2002–51) to Permit Certain Transactions Identified in the Voluntary Fiduciary Correction Program Employee Benefits Security Administration, Department of Labor. ACTION: Adoption of Amendment to PTE 2002–51. AGENCY: SUMMARY: This document amends PTE 2002–51 (67 FR 70623 November 25, 2002), a class exemption that provides relief from certain prohibited transaction restrictions imposed by section 4975 of the Internal Revenue Code of 1986 (the Code) for certain eligible transactions identified in the Department of Labor’s (the Department) Voluntary Fiduciary Correction (VFC) Program, which was adopted on March 28, 2002. This amendment is being adopted in conjunction with the Department’s adoption of the updated VFC Program (final VFC Program), which is being published simultaneously in this issue of the Federal Register. The VFC Program allows certain persons to avoid potential civil actions under the Employee Retirement Income Security Act of 1974 (ERISA) initiated by the Department and the assessment of civil penalties under section 502(l) or 502(i) of ERISA in connection with an investigation or civil action by the Department. The amendment affects plans, participants and beneficiaries of such plans and certain other persons engaging in such transactions. EFFECTIVE DATE: The class exemption is effective May 19, 2006. FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski, Office of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor, Room N–5649, 200 Constitution Avenue, NW., Washington, DC 20210, (202) 693–8545 (this is not a toll free number). PO 00000 Frm 00069 Fmt 4703 Sfmt 4703 20135 On April 6, 2005, a notice was published in the Federal Register (70 FR 17476) of the pendency before the Department of a proposed amendment to PTE 2002–51. PTE 2002–51 provides relief from the sanctions resulting from the application of section 4975 (a) and (b) of the Code, by reason of section 4975(c)(1) (A) through (E) of the Code. The amendment expands the relief under the exemption to additional transactions included in the final VFC Program. The amendment to PTE 2002–51 adopted by this notice was proposed by the Department on its own motion pursuant to section 4975(c)(2) of the Code, and in accordance with the procedures set forth in 29 CFR 2570, subpart B (55 FR 32836, 32847, August 10, 1990).1 The notice of pendency gave interested persons an opportunity to comment on the proposed amendment. The Department received two comment letters. Upon consideration of all the comments received, the Department has determined to grant the proposed amendment, subject to certain modifications. These modifications and the comments are discussed below. SUPPLEMENTARY INFORMATION: Executive Order 12866 Statement Under Executive Order 12866, the Department must determine whether a regulatory action is ‘‘significant’’ and therefore subject to the requirements of the Executive Order and subject to review by the Office of Management and Budget (OMB). Under section 3(f) of the Executive Order, a ‘‘significant regulatory action’’ is an action that is likely to result in a rule: (1) Having an annual effect on the economy of $100 million or more, or adversely and materially affecting a sector of the economy, productivity, competition, jobs, the environment, public health or safety, or State, local or tribal governments or communities (also referred to as ‘‘economically significant’’); (2) creating serious inconsistency or otherwise interfering with an action taken or planned by another agency; (3) materially altering the budgetary impacts of entitlement grants, user fees, or loan programs or the rights and obligations of recipients thereof; or (4) raising novel legal or policy issues arising out of legal mandates, the President’s priorities, or the principles set forth in the Executive Order. OMB has determined that the final VFC Program is significant under 1 Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978, 5 U.S.C. App. 1 [1996]) generally transferred the authority of the Secretary of the Treasury to issue administrative exemptions under section 4975(c)(2) of the Code to the Secretary of Labor. E:\FR\FM\19APN1.SGM 19APN1 cchase on PROD1PC60 with NOTICES 20136 Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices section 3(f)(4) because it raises novel legal or policy issues arising from the President’s priorities. The amended PTE 2002–51 provides excise tax relief for six of the transactions identified in the final VFC Program. Parties who wish to take advantage of the exemption must have met all of the applicable requirements of the final VFC Program and the conditions of the exemption. One of those conditions is receipt of a no action letter from the Employee Benefits Security Administration (EBSA) with respect to the transaction at issue. In conjunction with the final VFC Program, PTE 2002–51, as amended, has also been determined to be significant under section 3(f)(4) of the Executive Order. Accordingly the Department has assessed the costs and benefits of this amendment to PTE 2002–51. PTE 2002–51 provides relief from the sanctions resulting from the application of section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code. In general, the exemption enhances the benefits of participation in the VFC Program by granting relief from excise taxes under section 4975 for certain breaches of fiduciary duty that are prohibited transactions. The purpose of the VFC Program is to encourage the correction of breaches of fiduciary duty, resulting in the recovery of lost earnings or profits for the benefit of plan participants and beneficiaries. The class exemption will have positive economic effects by eliminating excise taxes and promoting increased participation in the VFC Program. The amendment to PTE 2002–51 is being adopted in connection with the final VFC Program, which is published in this issue of the Federal Register. The class exemption has been amended to provide relief for two additional transactions. One of the transactions was introduced in the April 2005 VFC Program and the proposed Amendment to PTE 2002–51. That transaction has now become effective in the amended exemption. The transaction concerns the purchase of an asset (including real property) by a plan where the asset has later been determined to be illiquid as described in the final VFC Program, and/or the subsequent sale of the illiquid asset by the plan in a transaction that was prohibited pursuant to section 4975(c)(1) of the Code. The second transaction included in this amendment covers the use of plan assets to pay expenses to a service provider for services that are properly characterized as settlor expenses, provided such payments were not VerDate Aug<31>2005 17:09 Apr 18, 2006 Jkt 208001 expressly prohibited in the plan documents. The Department has assumed, based on experience, that not all applicants who apply to the final VFC Program will take advantage of the excise tax relief provided under the exemption, either by choice or because the exemption does not provide relief for the transaction they are correcting under the final VFC Program. The Department has more specifically calculated that the number of applicants who will rely on the class exemption will equal approximately one-fifth of the total number of applicants, or 250 applicants (.2 × 1,250). Paperwork Reduction Act The amendment to PTE 2002–51 engenders no significant new paperwork burden for the notification and other written documentation requirements in comparison with the previous version of this exemption. Applicants to the final VFC Program who rely on the amended class exemption may be eligible, as well, for a new optional provision. Under this option, qualifying applicants may choose not to send notices to interested persons. The conditions of the optional provision are described in detail in the amendment to PTE 2002–51. However, while these particular parties would be relieved of the responsibility to send notices to interested persons, they do need to provide the Department with certain additional documentation on their calculations and the payment they remitted to the plan when submitting their application to the VFC Program. Documentation of the calculation of the amount of excise tax otherwise due consists of a copy of a completed IRS Form 5330 or equivalent written evidence containing the information required by IRS Form 5330; proof of payment to the plan is required. The Department has determined that the difference between the paperwork burden of plans using the optional provision versus the burden of those that do not is negligible. Service providers will likely do the work on behalf of parties relying on PTE 2002–51. For parties who do not rely on the optional provision, service providers will prepare and send out notices to interested persons. A copy of the notice must be provided to the Department. As to those parties that opt not to provide notice, service providers will submit to the Department evidence of the required calculations described in IRS Form 5330 and evidence of the payment to the plan of the excise tax otherwise payable along with the application to the final VFC program. These respective tasks should require no more than an hour for PO 00000 Frm 00070 Fmt 4703 Sfmt 4703 each service provider to complete. Assuming that as many as one-fifth of the annual 1,250 applicants to the VFC Program (250) also use the class exemption, the burden cost posed by PTE 2002–51 equals $8,625 ($34.50 × 1 hr. × 250). One-half of the parties using the exemption (125) are estimated to be eligible to take advantage of PTE 2002– 51’s new optional provision, thereby being relieved of the notice requirement, while the other half of the parties using the exemption (125) are estimated as being required to send notices to interested persons. Notices will be sent, on average, to 136 interested persons for each plan. PTE 2002–51 permits notification of interested persons by electronic means. The Department assumes that only 62 percent of the parties using the exemption will send notices to interested persons by first class mail. Therefore, the total number of notices sent by mail will be 10,540 (136 × 125 × 62 percent). The remaining 38 percent will be delivered electronically. The total mailing costs arising from the class exemption will equal roughly $4,427 ($0.42 × 10,540 mailings). The Department assumes, however, that all applicants who send interested party notices will send the Department its copy of the notice by mail, using certified or overnight delivery services and that this copy will be included in the application package described above under costs for the VFC Program. The annual mailing costs for notice to interested persons and the Department is therefore estimated at $4,427. In sum, the burden costs attributable to the amended PTE 2002– 51 will be approximately $13,052 ($8,625 + $4,427). Persons are not required to respond to the revised information collection unless it displays a currently valid OMB control number 1210–0118. Description of the Exemption Title I of ERISA, which establishes certain standards of conduct for fiduciaries of employee benefit plans covered by ERISA, includes provisions prohibiting fiduciaries from causing a plan to engage in certain classes of transactions with persons defined as parties in interest. Similarly, Title II of ERISA prohibits plans described in section 4975(e)(1) of the Code from engaging in certain classes of transactions with persons defined under the Code as disqualified persons. Generally, such transactions are subject to taxation under section 4975 of the Code. The VFC Program was adopted by the Department on a permanent basis in E:\FR\FM\19APN1.SGM 19APN1 Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices cchase on PROD1PC60 with NOTICES March 2002.2 Under the VFC Program, persons who are potentially liable for a breach of fiduciary duty can avoid the possibility of civil investigations and/or civil actions initiated by the Department for that breach and the imposition of civil penalties under section 502(l) or 502(i) of ERISA if they satisfy the conditions for correcting the breach as described in the VFC Program. The VFC Program was based on the Department’s experience with the Pension Payback Program, 61 FR 9203 (March 7, 1996), and continued public interest in such correction programs. In response to comments received on the VFC Program requesting that the Department provide relief from the excise taxes imposed by section 4975 of the Code for prohibited transactions, the Department proposed a class exemption for four of the eligible transactions described in the VFC Program. A final exemption, PTE 2002– 51, was published in the Federal Register on November 25, 2002. The four eligible transactions described in the exemption are as follows: (A) The failure to transmit participant contributions to a pension plan within the time frames described in the Department’s regulations at 29 CFR section 2510.3–102 and/or the failure to transmit participant loan repayments to a pension plan within a reasonable time after withholding or receipt by the employer. (B) The making of a loan by a plan at a fair market interest rate to a disqualified person 3 with respect to the plan. (C) The purchase or sale of an asset (including real property) between a plan and a disqualified person at fair market value. (D) The sale of real property to a plan by the employer and leaseback of such property to the employer, at fair market value and fair market rental value, respectively. Based on growing public utilization and experience in administering the VFC Program, EBSA decided to amend and modify the VFC Program to expand the categories of eligible transactions and to make it more useful to employers 2 67 FR 15062 (Mar. 28, 2002). Prior to adoption in March 2002, the VFC Program was made available on an interim basis during which the Department invited and considered public comments on the Program. (See 65 FR 14164, Mar. 15, 2000). 3 The Department notes that the term ‘‘party in interest’’ was used in the description of the eligible transactions covered under PTE 2002–51 although that exemption provided, and this amendment will provide, relief only from the sanctions imposed under section 4975 of the Code, which prohibits certain transactions between a plan and a ‘‘disqualified person.’’ For purposes of clarity, references in the exemption to a ‘‘party in interest’’ are changed to ‘‘disqualified person.’’ VerDate Aug<31>2005 17:09 Apr 18, 2006 Jkt 208001 and others who wish to avail themselves of the relief provided. Specifically, the VFC Program now includes relief under Title I of ERISA for the purchase of an asset by a plan where the asset was later determined to be illiquid as described under the final VFC Program. In this regard, the final VFC Program provides relief for both the plan’s original acquisition of the asset that was later determined to be illiquid under the final VFC Program, as well as the correction involving the sale of such asset in a transaction that violates the prohibited transaction rules under Title I of ERISA, and section 4975 of the Code provides that all of the requirements of the final VFC Program are met. Similarly, the class exemption has been amended to provide relief from the excise taxes imposed by section 4975 of the Code for both the plan’s original acquisition and/or the subsequent sale of the illiquid asset by the plan in a transaction prohibited pursuant to section 4975(c)(1), provided all the requirements of the class exemption are met. Moreover, as distinguished from the other eligible transactions covered in the VFC Program 4 and PTE 2002–51, correction in the VFC Program for this category of eligible transactions will involve a prohibited transaction. The other category of transactions being restructured under the final VFC Program (see Section 7.6) includes the use of plan assets to pay expenses, including commissions or fees, that should have been paid by the plan sponsor, to a service provider for: (i) services provided in connection with the administration and maintenance of the plan, in circumstances where a plan provision requires that such plan expenses be paid by the plan sponsor, or (ii) services provided in connection with the establishment, design, or termination, of the plan, which relate to the activities of the plan sponsor in its capacity as settlor. The class exemption is being amended to provide excise tax relief where plan assets are used to pay for services appropriately characterized as settlor expenses, which relate to the activities of the plan sponsor in its capacity as settlor. Discussion of Written Comments Received The Department received two letters commenting on the proposed amendments to PTE 2002–51. One commenter suggested expanding the scope of the VFC Program to include 4 Under the VFC Program prior to the current revision, correction could not be achieved by engaging in a new prohibited transaction. See VFC Program, 67 FR 15073 (Mar. 28, 2002) Section 2(d). PO 00000 Frm 00071 Fmt 4703 Sfmt 4703 20137 relief for plans that are subject to the prohibited transaction excise tax described in section 4975 of the Code, but are not subject to Title I of ERISA, including individual retirement accounts (IRAs) described in section 408 of the Code. This commenter suggested that certain VFC Program applicants (e.g., financial institutions) may have caused ERISA–covered plans, as well as plans that are subject only to the prohibited transaction provisions of the Code, to engage in prohibited transactions. According to the commenter, plan officials with respect to these IRAs and certain other plans are unable to participate in the VFC Program and, therefore, are not eligible for relief under PTE 2002–51. Accordingly, these plan officials must seek excise tax relief through an individual exemption application submitted to the Department.5 The commenter believes that it would be administratively convenient if the Department extended VFC Program eligibility to encompass the full range of plans that are subject to section 4975 of the Code. The Department has determined that it cannot expand the VFC Program as requested by the commenter, since it lacks jurisdiction to issue a no action letter under the VFC Program with respect to violations of the prohibited transaction provisions under the Code. Consequently, in light of the decision not to expand the VFC Program to include plans only subject to section 4975 of the Code, the Department does not believe that it would be appropriate to modify the final exemption as requested by the commenter. Notwithstanding the foregoing, the Department wishes to take the opportunity to state that the grant of this amendment does not foreclose its future consideration of individual exemption requests for transactions involving IRAs that are outside the scope of relief provided by both the VFC Program and the class exemption under circumstances when, for example, a financial institution received a no action letter applicable only to plans subject to the Program for a transaction(s) that involved both plans and such IRAs. The Department cannot provide assurances in advance that an individual exemption will be issued with respect to a particular transaction involving an IRA, however, interested persons are encouraged to contact the Department to discuss the particular facts of their case. 5 PTE 2002–51 requires that a VFC Program applicant comply with all of the applicable requirements of the VFC Program and receive a no action letter with respect to transactions corrected under the VFC Program. E:\FR\FM\19APN1.SGM 19APN1 20138 Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices cchase on PROD1PC60 with NOTICES The Internal Revenue Service (the Service) submitted a comment requesting a modification to the current requirement in PTE 2002–51 which provides that an applicant must notify interested persons in writing of the transactions for which relief is being sought pursuant to the VFC Program and this exemption.6 The Service requested that the notice requirement not apply in those situations where: (a) The excise tax due under section 4975 of the Code for a failure to timely transmit participant contributions and loan repayments is less than or equal to $100.00; (b) the excise tax that otherwise would be owed and payable to the United States Treasury is contributed to the plan; and (c) the contribution is allocated to the accounts of the plan’s participants and beneficiaries in a manner consistent with the plan’s provisions concerning the allocation of plan earnings. Lastly, the Service noted that, under the circumstances outlined above, employers that meet the applicable conditions of the class exemption would not be required to file a Return of Excise Taxes Related to Employee Benefit Plans (IRS Form 5330) with the IRS. After considering the issue, the Department has determined to modify the final exemption as requested by the Service. The Department notes that, for the purpose of determining whether the excise tax due under section 4975 of the Code for failing to timely transmit participant contributions and loan repayments is less than or equal to $100, and determining the amount to be contributed to the plan, an applicant may calculate the excise tax that would otherwise be imposed by section 4975 of the Code based upon the Lost Earnings amount computed using the Online Calculator. 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 4975(c)(2) of the Code does not relieve a fiduciary or other disqualified person with respect to a plan from certain other provisions of ERISA and the Code, including any prohibited transaction provisions to which the exemption does not apply, the requirement that all assets of an employee benefit plan be held in trust by one or more trustees, and the general fiduciary responsibility provisions of ERISA which require, among other things, that a fiduciary 6 The class exemption mandates that notice be provided to interested persons of the transaction and the method of correction. VerDate Aug<31>2005 17:09 Apr 18, 2006 Jkt 208001 discharge his or her duties respecting the plan solely in the interests of the participants and beneficiaries of the plan and in a prudent fashion; 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) The amendment will not extend to transactions prohibited under section 4975(c)(1)(F) of the Code. (3) In accordance with section 4975(c)(2) of the Code, the Department finds that the amendment is administratively feasible, in the interests of plans and their participants and beneficiaries, and protective of the rights of participants and beneficiaries of such plans. (4) The amendment is supplemental to and not in derogation of other provisions of ERISA and 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. (5) The amendment is applicable to a transaction only if the conditions specified in the class exemption are satisfied. Amendment Accordingly, the following amendment to Sections I and II of PTE 2002–51 is granted under the authority of section 4975(c)(2) of the Code and in accordance with the procedures set forth in 29 CFR 2570, subpart B (55 FR 32836, Aug. 10, 1990). Section I. Eligible Transactions The sanctions resulting from the application of section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to the following eligible transactions described in Section 7 of the Voluntary Fiduciary Correction (VFC) Program, published simultaneously in this issue of the Federal Register, provided that the applicable conditions set forth in Sections II., III. and IV. are met: A. Failure to transmit participant contributions to a pension plan within the time frames described in the Department’s regulation at 29 CFR section 2510.3–102, and/or the failure to transmit participant loan repayments to a pension plan within a reasonable time after withholding or receipt by the employer. (See VFC Program, Section 7.1(a)). B. Loan at a fair market interest rate to a disqualified person with respect to PO 00000 Frm 00072 Fmt 4703 Sfmt 4703 a plan. (See VFC Program, Section 7.2(a)). C. Purchase or sale of an asset (including real property) between a plan and a disqualified person at fair market value. (See VFC Program, Sections 7.4(a) and 7.4(b)). D. Sale of real property to a plan by the employer and the leaseback of the property to the employer, at fair market value and fair market rental value, respectively. (See VFC Program, Section 7.4(c)). E. Purchase of an asset (including real property) by a plan where the asset has later been determined to be illiquid as described under the VFC Program in a transaction which was a prohibited transaction pursuant to section 4975(c)(1) of the Code, or in which the asset was acquired from an unrelated third party, and/or the subsequent sale of such asset in a transaction prohibited pursuant to section 4975(c)(1). (See VFC Program, Section 7.4(f)). F. Use of plan assets to pay expenses, including commissions or fees, to a service provider (e.g., attorney, accountant, recordkeeper, actuary, financial advisor, or insurance agent) for services provided in connection with the establishment, design or termination of the plan (settlor expenses) 7, which relate to the activities of the plan sponsor in its capacity as settlor, provided that the payment of the settlor expense was not expressly prohibited by a plan provision relating to the payment of expenses by the plan. (See VFC Program, section 7.6(b)). Section II. Conditions A. With respect to a transaction involving participant contributions or loan repayments to pension plans described in Section I.A., the contributions or repayments were transmitted to the pension plan not more than 180 calendar days from the date the amounts were received by the employer (in the case of amounts that a participant or beneficiary pays to an employer) or the date the amounts otherwise would have been payable to the participant in cash (in the case of amounts withheld by an employer from a participant’s wages). B. With respect to the transactions described in Sections I.B., I.C., I.D., or I.E., the plan assets involved in the transaction, or series of related transactions, did not, in the aggregate, exceed 10 percent of the fair market value of all the assets of the plan at the time of the transaction. C. The fair market value of any plan asset involved in a transaction described 7 See E:\FR\FM\19APN1.SGM Advisory Opinion 2001–01A (Jan. 18, 2001). 19APN1 cchase on PROD1PC60 with NOTICES Federal Register / Vol. 71, No. 75 / Wednesday, April 19, 2006 / Notices in Sections I.C., I.D., or I.E. was determined in accordance with section 5 of the VFC Program. D. The terms of a transaction described in Sections I.B., I.C., I.D., I.E., or I.F., were at least as favorable to the plan as the terms generally available in arm’s-length transactions between unrelated parties. E. With respect to any transaction described in Section I., the transaction was not part of an agreement, arrangement or understanding designed to benefit a disqualified person. F. (1) With respect to any transaction described in Section I., the applicant has not taken advantage of the relief provided by the VFC Program and this exemption for a similar type of transaction(s) identified in the current application during the period which is three years prior to submission of the current application. (2) Notwithstanding the foregoing, Section II.F.(1) shall not apply to an applicant provided that: (a) The applicant was a broker-dealer registered under the Securities Exchange Act of 1934, a bank supervised by the United States or a State thereof, a broker-dealer or bank subject to foreign government regulation, an insurance company qualified to do business in a State, or an affiliate thereof; (b) The applicant was a disqualified person (including a fiduciary) solely by reason of providing services to the plan or solely by reason of a relationship to such service provider described in section 4975(e)(2)(F) and (G) of the Code; (c) Neither the applicant nor any affiliate (i) was a fiduciary (within the meaning of section 3(21)(A) of ERISA and 4975(e)(3)of the Code) with respect to the assets of the plan involved in the transaction and (ii) used its discretion to cause the plan to engage in the transaction; (d) Individuals acting on behalf of the applicant had no actual knowledge or reason to know that the transaction was not exempt pursuant to a statutory or administrative exemption under ERISA and/or the Code; and (e) Prior to the transaction, the applicant established written policies and procedures that were reasonably designed to ensure compliance with the prohibited transaction rules and the applicant engaged in periodic monitoring for compliance. G. With respect to a transaction involving a sale of an illiquid asset under the VFC Program described in Section I.E., the plan paid no brokerage fees, or commissions in connection with the sale of the asset. VerDate Aug<31>2005 17:09 Apr 18, 2006 Jkt 208001 H. With respect to any transaction described in Section I.F., the amount of plan assets involved in the transaction or series of related transactions did not, in the aggregate, exceed the lesser of $10,000 or 5% of the fair market value of all the assets of the plan at the time of the transaction. Section III. Compliance With the VFC Program A. The applicant has met all of the applicable requirements of the VFC Program. B. EBSA has issued a no action letter to the applicant pursuant to the VFC Program with respect to a transaction described in Section I. Section IV. Notice A. Written notice of the transaction(s) for which the applicant is seeking relief pursuant to the VFC Program, and this exemption, and the method of correcting the transaction, was provided to interested persons within 60 calendar days following the date of the submission of an application under the VFC Program. A copy of the notice was provided to the appropriate Regional Office of the United States Department of Labor, Employee Benefits Security Administration, within the same 60-day period, and the applicant indicated the date upon which notice was distributed to interested persons. Plan assets were not used to pay for the notice. The notice included an objective description of the transaction and the steps taken to correct it, written in a manner reasonably calculated to be understood by the average Plan participant or beneficiary. The notice provided for a period of 30 calendar days, beginning on the date the notice was distributed, for interested persons to provide comments to the appropriate Regional Office. The notice included the address and telephone number of such Regional Office. B. Notice was given in a manner that was reasonably calculated, taking into consideration the particular circumstances of the plan, to result in the receipt of such notice by interested persons, including but not limited to posting, regular mail, or electronic mail, or any combination thereof. The notice informed interested persons of the applicant’s participation in the VFC Program as amended and intention of availing itself of relief under the exemption. C. Notwithstanding the foregoing, Section IV.A. and B. shall not apply to a transaction described in Section I.A., provided that (i) the applicant under the VFC Program has met all of the other Program requirements; (ii) the amount PO 00000 Frm 00073 Fmt 4703 Sfmt 4703 20139 of the excise tax that otherwise would be imposed by section 4975 of the Code with respect to any transaction(s) described in Section I.A. would be less than or equal to $100.00; (iii) the amount of the excise tax that otherwise would be imposed by section 4975 of the Code was paid to the plan and allocated to the participants and beneficiaries in the same manner as provided under the plan with respect to plan earnings; and (iv) the applicant under the VFC Program provides a copy of a completed IRS Form 5330 or written documentation containing the information required by IRS Form 5330 and proof of payment with the submission of the application to the appropriate EBSA Regional Office. For the sole purpose of determining whether the excise tax due under section 4975 of the Code on the ‘‘amount involved’’ with respect to the prohibited transaction involving the failure to timely transmit participant contributions and loan repayments is less than or equal to $100, an applicant may calculate the excise tax due based upon the Lost Earnings amount computed using the Online Calculator. Signed at Washington, DC, this 12th day of April, 2006. Ivan L. Strasfeld, Director of Exemption Determinations, Employee Benefits Security Administration, U.S. Department of Labor. [FR Doc. 06–3675 Filed 4–18–06; 8:45 am] BILLING CODE 4510–29–P DEPARTMENT OF LABOR Bureau of Labor Statistics Proposed Collection; Comment Request ACTION: Notice. SUMMARY: The Department of Labor, as part of its continuing effort to reduce paperwork and respondent burden, conducts a pre-clearance consultation program to provide the general public and Federal agencies with an opportunity to comment on proposed and/or continuing collections of information in accordance with the Paperwork Reduction Act of 1995 (PRA95) [44 U.S.C. 3506(c)(2)(A)]. This program helps to ensure that requested data can be provided in the desired format, reporting burden (time and financial resources) is minimized, collection instruments are clearly understood, and the impact of collection requirements on respondents can be properly assessed. Currently, the Bureau of Labor Statistics (BLS) is soliciting E:\FR\FM\19APN1.SGM 19APN1

Agencies

[Federal Register Volume 71, Number 75 (Wednesday, April 19, 2006)]
[Notices]
[Pages 20135-20139]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 06-3675]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11261]
RIN 1210-A05


Amendment to Prohibited Transaction Exemption 2002-51 (PTE 2002-
51) to Permit Certain Transactions Identified in the Voluntary 
Fiduciary Correction Program

AGENCY: Employee Benefits Security Administration, Department of Labor.

ACTION: Adoption of Amendment to PTE 2002-51.

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SUMMARY: This document amends PTE 2002-51 (67 FR 70623 November 25, 
2002), a class exemption that provides relief from certain prohibited 
transaction restrictions imposed by section 4975 of the Internal 
Revenue Code of 1986 (the Code) for certain eligible transactions 
identified in the Department of Labor's (the Department) Voluntary 
Fiduciary Correction (VFC) Program, which was adopted on March 28, 
2002. This amendment is being adopted in conjunction with the 
Department's adoption of the updated VFC Program (final VFC Program), 
which is being published simultaneously in this issue of the Federal 
Register. The VFC Program allows certain persons to avoid potential 
civil actions under the Employee Retirement Income Security Act of 1974 
(ERISA) initiated by the Department and the assessment of civil 
penalties under section 502(l) or 502(i) of ERISA in connection with an 
investigation or civil action by the Department. The amendment affects 
plans, participants and beneficiaries of such plans and certain other 
persons engaging in such transactions.

EFFECTIVE DATE: The class exemption is effective May 19, 2006.

FOR FURTHER INFORMATION CONTACT: Brian J. Buyniski, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-5649, 200 Constitution Avenue, NW., 
Washington, DC 20210, (202) 693-8545 (this is not a toll free number).

SUPPLEMENTARY INFORMATION: On April 6, 2005, a notice was published in 
the Federal Register (70 FR 17476) of the pendency before the 
Department of a proposed amendment to PTE 2002-51. PTE 2002-51 provides 
relief from the sanctions resulting from the application of section 
4975 (a) and (b) of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code. The amendment expands the relief under the 
exemption to additional transactions included in the final VFC Program. 
The amendment to PTE 2002-51 adopted by this notice was proposed by the 
Department on its own motion pursuant to section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR 2570, 
subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978, 5 U.S.C. App. 1 [1996]) generally 
transferred the authority of the Secretary of the Treasury to issue 
administrative exemptions under section 4975(c)(2) of the Code to 
the Secretary of Labor.
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    The notice of pendency gave interested persons an opportunity to 
comment on the proposed amendment. The Department received two comment 
letters. Upon consideration of all the comments received, the 
Department has determined to grant the proposed amendment, subject to 
certain modifications. These modifications and the comments are 
discussed below.

Executive Order 12866 Statement

    Under Executive Order 12866, the Department must determine whether 
a regulatory action is ``significant'' and therefore subject to the 
requirements of the Executive Order and subject to review by the Office 
of Management and Budget (OMB). Under section 3(f) of the Executive 
Order, a ``significant regulatory action'' is an action that is likely 
to result in a rule: (1) Having an annual effect on the economy of $100 
million or more, or adversely and materially affecting a sector of the 
economy, productivity, competition, jobs, the environment, public 
health or safety, or State, local or tribal governments or communities 
(also referred to as ``economically significant''); (2) creating 
serious inconsistency or otherwise interfering with an action taken or 
planned by another agency; (3) materially altering the budgetary 
impacts of entitlement grants, user fees, or loan programs or the 
rights and obligations of recipients thereof; or (4) raising novel 
legal or policy issues arising out of legal mandates, the President's 
priorities, or the principles set forth in the Executive Order. OMB has 
determined that the final VFC Program is significant under

[[Page 20136]]

section 3(f)(4) because it raises novel legal or policy issues arising 
from the President's priorities.
    The amended PTE 2002-51 provides excise tax relief for six of the 
transactions identified in the final VFC Program. Parties who wish to 
take advantage of the exemption must have met all of the applicable 
requirements of the final VFC Program and the conditions of the 
exemption. One of those conditions is receipt of a no action letter 
from the Employee Benefits Security Administration (EBSA) with respect 
to the transaction at issue. In conjunction with the final VFC Program, 
PTE 2002-51, as amended, has also been determined to be significant 
under section 3(f)(4) of the Executive Order. Accordingly the 
Department has assessed the costs and benefits of this amendment to PTE 
2002-51.
    PTE 2002-51 provides relief from the sanctions resulting from the 
application of section 4975(a) and (b) of the Code, by reason of 
section 4975(c)(1)(A) through (E) of the Code. In general, the 
exemption enhances the benefits of participation in the VFC Program by 
granting relief from excise taxes under section 4975 for certain 
breaches of fiduciary duty that are prohibited transactions. The 
purpose of the VFC Program is to encourage the correction of breaches 
of fiduciary duty, resulting in the recovery of lost earnings or 
profits for the benefit of plan participants and beneficiaries. The 
class exemption will have positive economic effects by eliminating 
excise taxes and promoting increased participation in the VFC Program.
    The amendment to PTE 2002-51 is being adopted in connection with 
the final VFC Program, which is published in this issue of the Federal 
Register. The class exemption has been amended to provide relief for 
two additional transactions. One of the transactions was introduced in 
the April 2005 VFC Program and the proposed Amendment to PTE 2002-51. 
That transaction has now become effective in the amended exemption. The 
transaction concerns the purchase of an asset (including real property) 
by a plan where the asset has later been determined to be illiquid as 
described in the final VFC Program, and/or the subsequent sale of the 
illiquid asset by the plan in a transaction that was prohibited 
pursuant to section 4975(c)(1) of the Code. The second transaction 
included in this amendment covers the use of plan assets to pay 
expenses to a service provider for services that are properly 
characterized as settlor expenses, provided such payments were not 
expressly prohibited in the plan documents.
    The Department has assumed, based on experience, that not all 
applicants who apply to the final VFC Program will take advantage of 
the excise tax relief provided under the exemption, either by choice or 
because the exemption does not provide relief for the transaction they 
are correcting under the final VFC Program. The Department has more 
specifically calculated that the number of applicants who will rely on 
the class exemption will equal approximately one-fifth of the total 
number of applicants, or 250 applicants (.2 x 1,250).

Paperwork Reduction Act

    The amendment to PTE 2002-51 engenders no significant new paperwork 
burden for the notification and other written documentation 
requirements in comparison with the previous version of this exemption. 
Applicants to the final VFC Program who rely on the amended class 
exemption may be eligible, as well, for a new optional provision. Under 
this option, qualifying applicants may choose not to send notices to 
interested persons. The conditions of the optional provision are 
described in detail in the amendment to PTE 2002-51. However, while 
these particular parties would be relieved of the responsibility to 
send notices to interested persons, they do need to provide the 
Department with certain additional documentation on their calculations 
and the payment they remitted to the plan when submitting their 
application to the VFC Program. Documentation of the calculation of the 
amount of excise tax otherwise due consists of a copy of a completed 
IRS Form 5330 or equivalent written evidence containing the information 
required by IRS Form 5330; proof of payment to the plan is required. 
The Department has determined that the difference between the paperwork 
burden of plans using the optional provision versus the burden of those 
that do not is negligible.
    Service providers will likely do the work on behalf of parties 
relying on PTE 2002-51. For parties who do not rely on the optional 
provision, service providers will prepare and send out notices to 
interested persons. A copy of the notice must be provided to the 
Department. As to those parties that opt not to provide notice, service 
providers will submit to the Department evidence of the required 
calculations described in IRS Form 5330 and evidence of the payment to 
the plan of the excise tax otherwise payable along with the application 
to the final VFC program. These respective tasks should require no more 
than an hour for each service provider to complete. Assuming that as 
many as one-fifth of the annual 1,250 applicants to the VFC Program 
(250) also use the class exemption, the burden cost posed by PTE 2002-
51 equals $8,625 ($34.50 x 1 hr. x 250). One-half of the parties using 
the exemption (125) are estimated to be eligible to take advantage of 
PTE 2002-51's new optional provision, thereby being relieved of the 
notice requirement, while the other half of the parties using the 
exemption (125) are estimated as being required to send notices to 
interested persons. Notices will be sent, on average, to 136 interested 
persons for each plan. PTE 2002-51 permits notification of interested 
persons by electronic means. The Department assumes that only 62 
percent of the parties using the exemption will send notices to 
interested persons by first class mail. Therefore, the total number of 
notices sent by mail will be 10,540 (136 x 125 x 62 percent). The 
remaining 38 percent will be delivered electronically. The total 
mailing costs arising from the class exemption will equal roughly 
$4,427 ($0.42 x 10,540 mailings). The Department assumes, however, that 
all applicants who send interested party notices will send the 
Department its copy of the notice by mail, using certified or overnight 
delivery services and that this copy will be included in the 
application package described above under costs for the VFC Program. 
The annual mailing costs for notice to interested persons and the 
Department is therefore estimated at $4,427. In sum, the burden costs 
attributable to the amended PTE 2002-51 will be approximately $13,052 
($8,625 + $4,427).
    Persons are not required to respond to the revised information 
collection unless it displays a currently valid OMB control number 
1210-0118.

Description of the Exemption

    Title I of ERISA, which establishes certain standards of conduct 
for fiduciaries of employee benefit plans covered by ERISA, includes 
provisions prohibiting fiduciaries from causing a plan to engage in 
certain classes of transactions with persons defined as parties in 
interest. Similarly, Title II of ERISA prohibits plans described in 
section 4975(e)(1) of the Code from engaging in certain classes of 
transactions with persons defined under the Code as disqualified 
persons. Generally, such transactions are subject to taxation under 
section 4975 of the Code.
    The VFC Program was adopted by the Department on a permanent basis 
in

[[Page 20137]]

March 2002.\2\ Under the VFC Program, persons who are potentially 
liable for a breach of fiduciary duty can avoid the possibility of 
civil investigations and/or civil actions initiated by the Department 
for that breach and the imposition of civil penalties under section 
502(l) or 502(i) of ERISA if they satisfy the conditions for correcting 
the breach as described in the VFC Program. The VFC Program was based 
on the Department's experience with the Pension Payback Program, 61 FR 
9203 (March 7, 1996), and continued public interest in such correction 
programs. In response to comments received on the VFC Program 
requesting that the Department provide relief from the excise taxes 
imposed by section 4975 of the Code for prohibited transactions, the 
Department proposed a class exemption for four of the eligible 
transactions described in the VFC Program. A final exemption, PTE 2002-
51, was published in the Federal Register on November 25, 2002. The 
four eligible transactions described in the exemption are as follows:
---------------------------------------------------------------------------

    \2\ 67 FR 15062 (Mar. 28, 2002). Prior to adoption in March 
2002, the VFC Program was made available on an interim basis during 
which the Department invited and considered public comments on the 
Program. (See 65 FR 14164, Mar. 15, 2000).
---------------------------------------------------------------------------

    (A) The failure to transmit participant contributions to a pension 
plan within the time frames described in the Department's regulations 
at 29 CFR section 2510.3-102 and/or the failure to transmit participant 
loan repayments to a pension plan within a reasonable time after 
withholding or receipt by the employer.
    (B) The making of a loan by a plan at a fair market interest rate 
to a disqualified person \3\ with respect to the plan.
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    \3\ The Department notes that the term ``party in interest'' was 
used in the description of the eligible transactions covered under 
PTE 2002-51 although that exemption provided, and this amendment 
will provide, relief only from the sanctions imposed under section 
4975 of the Code, which prohibits certain transactions between a 
plan and a ``disqualified person.'' For purposes of clarity, 
references in the exemption to a ``party in interest'' are changed 
to ``disqualified person.''
---------------------------------------------------------------------------

    (C) The purchase or sale of an asset (including real property) 
between a plan and a disqualified person at fair market value.
    (D) The sale of real property to a plan by the employer and 
leaseback of such property to the employer, at fair market value and 
fair market rental value, respectively.
    Based on growing public utilization and experience in administering 
the VFC Program, EBSA decided to amend and modify the VFC Program to 
expand the categories of eligible transactions and to make it more 
useful to employers and others who wish to avail themselves of the 
relief provided. Specifically, the VFC Program now includes relief 
under Title I of ERISA for the purchase of an asset by a plan where the 
asset was later determined to be illiquid as described under the final 
VFC Program.
    In this regard, the final VFC Program provides relief for both the 
plan's original acquisition of the asset that was later determined to 
be illiquid under the final VFC Program, as well as the correction 
involving the sale of such asset in a transaction that violates the 
prohibited transaction rules under Title I of ERISA, and section 4975 
of the Code provides that all of the requirements of the final VFC 
Program are met. Similarly, the class exemption has been amended to 
provide relief from the excise taxes imposed by section 4975 of the 
Code for both the plan's original acquisition and/or the subsequent 
sale of the illiquid asset by the plan in a transaction prohibited 
pursuant to section 4975(c)(1), provided all the requirements of the 
class exemption are met. Moreover, as distinguished from the other 
eligible transactions covered in the VFC Program \4\ and PTE 2002-51, 
correction in the VFC Program for this category of eligible 
transactions will involve a prohibited transaction.
---------------------------------------------------------------------------

    \4\ Under the VFC Program prior to the current revision, 
correction could not be achieved by engaging in a new prohibited 
transaction. See VFC Program, 67 FR 15073 (Mar. 28, 2002) Section 
2(d).
---------------------------------------------------------------------------

    The other category of transactions being restructured under the 
final VFC Program (see Section 7.6) includes the use of plan assets to 
pay expenses, including commissions or fees, that should have been paid 
by the plan sponsor, to a service provider for: (i) services provided 
in connection with the administration and maintenance of the plan, in 
circumstances where a plan provision requires that such plan expenses 
be paid by the plan sponsor, or (ii) services provided in connection 
with the establishment, design, or termination, of the plan, which 
relate to the activities of the plan sponsor in its capacity as 
settlor. The class exemption is being amended to provide excise tax 
relief where plan assets are used to pay for services appropriately 
characterized as settlor expenses, which relate to the activities of 
the plan sponsor in its capacity as settlor.

Discussion of Written Comments Received

    The Department received two letters commenting on the proposed 
amendments to PTE 2002-51. One commenter suggested expanding the scope 
of the VFC Program to include relief for plans that are subject to the 
prohibited transaction excise tax described in section 4975 of the 
Code, but are not subject to Title I of ERISA, including individual 
retirement accounts (IRAs) described in section 408 of the Code. This 
commenter suggested that certain VFC Program applicants (e.g., 
financial institutions) may have caused ERISA-covered plans, as well as 
plans that are subject only to the prohibited transaction provisions of 
the Code, to engage in prohibited transactions. According to the 
commenter, plan officials with respect to these IRAs and certain other 
plans are unable to participate in the VFC Program and, therefore, are 
not eligible for relief under PTE 2002-51. Accordingly, these plan 
officials must seek excise tax relief through an individual exemption 
application submitted to the Department.\5\ The commenter believes that 
it would be administratively convenient if the Department extended VFC 
Program eligibility to encompass the full range of plans that are 
subject to section 4975 of the Code. The Department has determined that 
it cannot expand the VFC Program as requested by the commenter, since 
it lacks jurisdiction to issue a no action letter under the VFC Program 
with respect to violations of the prohibited transaction provisions 
under the Code. Consequently, in light of the decision not to expand 
the VFC Program to include plans only subject to section 4975 of the 
Code, the Department does not believe that it would be appropriate to 
modify the final exemption as requested by the commenter. 
Notwithstanding the foregoing, the Department wishes to take the 
opportunity to state that the grant of this amendment does not 
foreclose its future consideration of individual exemption requests for 
transactions involving IRAs that are outside the scope of relief 
provided by both the VFC Program and the class exemption under 
circumstances when, for example, a financial institution received a no 
action letter applicable only to plans subject to the Program for a 
transaction(s) that involved both plans and such IRAs. The Department 
cannot provide assurances in advance that an individual exemption will 
be issued with respect to a particular transaction involving an IRA, 
however, interested persons are encouraged to contact the Department to 
discuss the particular facts of their case.
---------------------------------------------------------------------------

    \5\ PTE 2002-51 requires that a VFC Program applicant comply 
with all of the applicable requirements of the VFC Program and 
receive a no action letter with respect to transactions corrected 
under the VFC Program.

---------------------------------------------------------------------------

[[Page 20138]]

    The Internal Revenue Service (the Service) submitted a comment 
requesting a modification to the current requirement in PTE 2002-51 
which provides that an applicant must notify interested persons in 
writing of the transactions for which relief is being sought pursuant 
to the VFC Program and this exemption.\6\ The Service requested that 
the notice requirement not apply in those situations where: (a) The 
excise tax due under section 4975 of the Code for a failure to timely 
transmit participant contributions and loan repayments is less than or 
equal to $100.00; (b) the excise tax that otherwise would be owed and 
payable to the United States Treasury is contributed to the plan; and 
(c) the contribution is allocated to the accounts of the plan's 
participants and beneficiaries in a manner consistent with the plan's 
provisions concerning the allocation of plan earnings. Lastly, the 
Service noted that, under the circumstances outlined above, employers 
that meet the applicable conditions of the class exemption would not be 
required to file a Return of Excise Taxes Related to Employee Benefit 
Plans (IRS Form 5330) with the IRS. After considering the issue, the 
Department has determined to modify the final exemption as requested by 
the Service. The Department notes that, for the purpose of determining 
whether the excise tax due under section 4975 of the Code for failing 
to timely transmit participant contributions and loan repayments is 
less than or equal to $100, and determining the amount to be 
contributed to the plan, an applicant may calculate the excise tax that 
would otherwise be imposed by section 4975 of the Code based upon the 
Lost Earnings amount computed using the Online Calculator.
---------------------------------------------------------------------------

    \6\ The class exemption mandates that notice be provided to 
interested persons of the transaction and the method of correction.
---------------------------------------------------------------------------

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 4975(c)(2) of the Code does not relieve a fiduciary or 
other disqualified person with respect to a plan from certain other 
provisions of ERISA and the Code, including any prohibited transaction 
provisions to which the exemption does not apply, the requirement that 
all assets of an employee benefit plan be held in trust by one or more 
trustees, and the general fiduciary responsibility provisions of ERISA 
which require, among other things, that a fiduciary discharge his or 
her duties respecting the plan solely in the interests of the 
participants and beneficiaries of the plan and in a prudent fashion; 
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) The amendment will not extend to transactions prohibited under 
section 4975(c)(1)(F) of the Code.
    (3) In accordance with section 4975(c)(2) of the Code, the 
Department finds that the amendment is administratively feasible, in 
the interests of plans and their participants and beneficiaries, and 
protective of the rights of participants and beneficiaries of such 
plans.
    (4) The amendment is supplemental to and not in derogation of other 
provisions of ERISA and 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.
    (5) The amendment is applicable to a transaction only if the 
conditions specified in the class exemption are satisfied.

Amendment

    Accordingly, the following amendment to Sections I and II of PTE 
2002-51 is granted under the authority of section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR 2570, 
subpart B (55 FR 32836, Aug. 10, 1990).

Section I. Eligible Transactions

    The sanctions resulting from the application of section 4975(a) and 
(b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the following eligible transactions described 
in Section 7 of the Voluntary Fiduciary Correction (VFC) Program, 
published simultaneously in this issue of the Federal Register, 
provided that the applicable conditions set forth in Sections II., III. 
and IV. are met:
    A. Failure to transmit participant contributions to a pension plan 
within the time frames described in the Department's regulation at 29 
CFR section 2510.3-102, and/or the failure to transmit participant loan 
repayments to a pension plan within a reasonable time after withholding 
or receipt by the employer. (See VFC Program, Section 7.1(a)).
    B. Loan at a fair market interest rate to a disqualified person 
with respect to a plan. (See VFC Program, Section 7.2(a)).
    C. Purchase or sale of an asset (including real property) between a 
plan and a disqualified person at fair market value. (See VFC Program, 
Sections 7.4(a) and 7.4(b)).
    D. Sale of real property to a plan by the employer and the 
leaseback of the property to the employer, at fair market value and 
fair market rental value, respectively. (See VFC Program, Section 
7.4(c)).
    E. Purchase of an asset (including real property) by a plan where 
the asset has later been determined to be illiquid as described under 
the VFC Program in a transaction which was a prohibited transaction 
pursuant to section 4975(c)(1) of the Code, or in which the asset was 
acquired from an unrelated third party, and/or the subsequent sale of 
such asset in a transaction prohibited pursuant to section 4975(c)(1). 
(See VFC Program, Section 7.4(f)).
    F. Use of plan assets to pay expenses, including commissions or 
fees, to a service provider (e.g., attorney, accountant, recordkeeper, 
actuary, financial advisor, or insurance agent) for services provided 
in connection with the establishment, design or termination of the plan 
(settlor expenses) \7\, which relate to the activities of the plan 
sponsor in its capacity as settlor, provided that the payment of the 
settlor expense was not expressly prohibited by a plan provision 
relating to the payment of expenses by the plan. (See VFC Program, 
section 7.6(b)).
---------------------------------------------------------------------------

    \7\ See Advisory Opinion 2001-01A (Jan. 18, 2001).
---------------------------------------------------------------------------

Section II. Conditions

    A. With respect to a transaction involving participant 
contributions or loan repayments to pension plans described in Section 
I.A., the contributions or repayments were transmitted to the pension 
plan not more than 180 calendar days from the date the amounts were 
received by the employer (in the case of amounts that a participant or 
beneficiary pays to an employer) or the date the amounts otherwise 
would have been payable to the participant in cash (in the case of 
amounts withheld by an employer from a participant's wages).
    B. With respect to the transactions described in Sections I.B., 
I.C., I.D., or I.E., the plan assets involved in the transaction, or 
series of related transactions, did not, in the aggregate, exceed 10 
percent of the fair market value of all the assets of the plan at the 
time of the transaction.
    C. The fair market value of any plan asset involved in a 
transaction described

[[Page 20139]]

in Sections I.C., I.D., or I.E. was determined in accordance with 
section 5 of the VFC Program.
    D. The terms of a transaction described in Sections I.B., I.C., 
I.D., I.E., or I.F., were at least as favorable to the plan as the 
terms generally available in arm's-length transactions between 
unrelated parties.
    E. With respect to any transaction described in Section I., the 
transaction was not part of an agreement, arrangement or understanding 
designed to benefit a disqualified person.
    F. (1) With respect to any transaction described in Section I., the 
applicant has not taken advantage of the relief provided by the VFC 
Program and this exemption for a similar type of transaction(s) 
identified in the current application during the period which is three 
years prior to submission of the current application.
    (2) Notwithstanding the foregoing, Section II.F.(1) shall not apply 
to an applicant provided that:
    (a) The applicant was a broker-dealer registered under the 
Securities Exchange Act of 1934, a bank supervised by the United States 
or a State thereof, a broker-dealer or bank subject to foreign 
government regulation, an insurance company qualified to do business in 
a State, or an affiliate thereof;
    (b) The applicant was a disqualified person (including a fiduciary) 
solely by reason of providing services to the plan or solely by reason 
of a relationship to such service provider described in section 
4975(e)(2)(F) and (G) of the Code;
    (c) Neither the applicant nor any affiliate (i) was a fiduciary 
(within the meaning of section 3(21)(A) of ERISA and 4975(e)(3)of the 
Code) with respect to the assets of the plan involved in the 
transaction and (ii) used its discretion to cause the plan to engage in 
the transaction;
    (d) Individuals acting on behalf of the applicant had no actual 
knowledge or reason to know that the transaction was not exempt 
pursuant to a statutory or administrative exemption under ERISA and/or 
the Code; and
    (e) Prior to the transaction, the applicant established written 
policies and procedures that were reasonably designed to ensure 
compliance with the prohibited transaction rules and the applicant 
engaged in periodic monitoring for compliance.
    G. With respect to a transaction involving a sale of an illiquid 
asset under the VFC Program described in Section I.E., the plan paid no 
brokerage fees, or commissions in connection with the sale of the 
asset.
    H. With respect to any transaction described in Section I.F., the 
amount of plan assets involved in the transaction or series of related 
transactions did not, in the aggregate, exceed the lesser of $10,000 or 
5% of the fair market value of all the assets of the plan at the time 
of the transaction.

Section III. Compliance With the VFC Program

    A. The applicant has met all of the applicable requirements of the 
VFC Program.
    B. EBSA has issued a no action letter to the applicant pursuant to 
the VFC Program with respect to a transaction described in Section I.

Section IV. Notice

    A. Written notice of the transaction(s) for which the applicant is 
seeking relief pursuant to the VFC Program, and this exemption, and the 
method of correcting the transaction, was provided to interested 
persons within 60 calendar days following the date of the submission of 
an application under the VFC Program. A copy of the notice was provided 
to the appropriate Regional Office of the United States Department of 
Labor, Employee Benefits Security Administration, within the same 60-
day period, and the applicant indicated the date upon which notice was 
distributed to interested persons. Plan assets were not used to pay for 
the notice. The notice included an objective description of the 
transaction and the steps taken to correct it, written in a manner 
reasonably calculated to be understood by the average Plan participant 
or beneficiary. The notice provided for a period of 30 calendar days, 
beginning on the date the notice was distributed, for interested 
persons to provide comments to the appropriate Regional Office. The 
notice included the address and telephone number of such Regional 
Office.
    B. Notice was given in a manner that was reasonably calculated, 
taking into consideration the particular circumstances of the plan, to 
result in the receipt of such notice by interested persons, including 
but not limited to posting, regular mail, or electronic mail, or any 
combination thereof. The notice informed interested persons of the 
applicant's participation in the VFC Program as amended and intention 
of availing itself of relief under the exemption.
    C. Notwithstanding the foregoing, Section IV.A. and B. shall not 
apply to a transaction described in Section I.A., provided that (i) the 
applicant under the VFC Program has met all of the other Program 
requirements; (ii) the amount of the excise tax that otherwise would be 
imposed by section 4975 of the Code with respect to any transaction(s) 
described in Section I.A. would be less than or equal to $100.00; (iii) 
the amount of the excise tax that otherwise would be imposed by section 
4975 of the Code was paid to the plan and allocated to the participants 
and beneficiaries in the same manner as provided under the plan with 
respect to plan earnings; and (iv) the applicant under the VFC Program 
provides a copy of a completed IRS Form 5330 or written documentation 
containing the information required by IRS Form 5330 and proof of 
payment with the submission of the application to the appropriate EBSA 
Regional Office. For the sole purpose of determining whether the excise 
tax due under section 4975 of the Code on the ``amount involved'' with 
respect to the prohibited transaction involving the failure to timely 
transmit participant contributions and loan repayments is less than or 
equal to $100, an applicant may calculate the excise tax due based upon 
the Lost Earnings amount computed using the Online Calculator.

    Signed at Washington, DC, this 12th day of April, 2006.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 06-3675 Filed 4-18-06; 8:45 am]
BILLING CODE 4510-29-P