Grant of Individual Exemption To Amend and Replace Prohibited Transaction Exemption (PTE) 2000-34, Involving the Fidelity Mutual Life Insurance Company (FML), Located in Radnor, PA, 36045-36048 [E7-12673]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 72, Number 126 (Monday, July 2, 2007)]
[Notices]
[Pages 36045-36048]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-12673]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Prohibited Transaction Exemption 2007-08; Exemption Application No. D-
11345]


Grant of Individual Exemption To Amend and Replace Prohibited 
Transaction Exemption (PTE) 2000-34, Involving the Fidelity Mutual Life 
Insurance Company (FML), Located in Radnor, PA

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Grant of individual exemption to amend and replace PTE 2000-34.

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    This document contains a final exemption before the Department of 
Labor (the Department) that amends and replaces PTE 2000-34 (65 FR 
41732, July 6, 2000), an exemption granted to FML. PTE 2000-34, relates 
to (1) the receipt of certain stock (Plan Stock) issued by Fidelity 
Insurance Group, Inc., a wholly owned subsidiary of FML, or (2) the 
receipt of plan credits by or on behalf of a FML mutual member (the 
Mutual Member), which is an employee

[[Page 36046]]

benefit plan (the Plan), other than the Employee Pension Plan of 
Fidelity Mutual Life Insurance Company, in exchange for such Mutual 
Member's membership interest in FML, in accordance with the terms of a 
plan of rehabilitation (the Third Amended Plan), approved by the 
Pennsylvania Commonwealth Court (the Court) and supervised by both the 
Court and a rehabilitator appointed by the Pennsylvania Insurance 
Commissioner. These transactions are described in a notice of proposed 
exemption (65 FR 18359, April 7, 2000), which underlies PTE 2000-34.
    The final exemption incorporates by reference many of the 
conditions contained in PTE 2000-34. The exemption also revises and 
updates certain facts and representations set forth in PTE 2000-34 to 
include the terms of the Fourth Amended Plan of Rehabilitation (the 
Fourth Amended Plan) which supersedes the Third Amended Plan upon which 
PTE 2000-34 is based.

DATES: Effective Date: This exemption is effective as of the date the 
grant notice is published in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan, Office of 
Exemptions Determinations, Employee Benefits Security Administration, 
U.S. Department of Labor, telephone (202) 693-8552. (This is not a 
toll-free number.)

SUPPLEMENTARY INFORMATION: On March 22, 2007, the Department published 
a notice of proposed exemption in the Federal Register at 72 FR 13519. 
The document contained a notice of proposed individual exemption from 
the prohibited transaction restrictions of section 406(a) of the 
Employee Retirement Income Security Act of 1974 (the Act) and from the 
sanctions resulting from the application of section 4975 of the 
Internal Revenue Code of 1986 (the Code), as amended, by reason of 
section 4975(c)(1)(A) through (D) of the Code. The proposed exemption 
has been requested in an application filed on behalf of FML pursuant to 
section 408(a) of the Act and section 4975(c)(2) of the Code, and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(55 FR 32836, August 10, 1990). Effective December 31, 1978, section 
102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 
1978) transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type requested to the Secretary of Labor. 
Accordingly, this exemption is being issued solely by the Department.
    The proposed exemption gave interested persons an opportunity to 
comment and to request a hearing. In this regard, all interested 
persons were invited to submit written comments or requests for a 
hearing on the pending exemption on or before April 24, 2007. All 
comments were made part of the record.
    During the comment period, the Department received 2 written 
comments that were submitted by electronic mail. One comment was 
submitted by FML and it is intended to clarify that FML is located in 
``Radnor'' rather than in ``Pittsburgh,'' Pennsylvania. In response to 
the comment, the Department has modified the text in the heading at the 
beginning of the grant notice to read ``Radnor, Pennsylvania'' in order 
to denote FML's correct location.
    The second comment was submitted by the trustee of a Plan that is a 
Mutual Member of FML. Specifically, the commenter wished to know 
whether (1) FML is nearing dissolution and its assets are close to 
depletion; (2) FML has any knowledge of a prospective purchaser which 
has expressed an interest in protecting the current policyholders if 
the Fourth Amended Plan is granted; and (3) the ``numbers'' cited in 
the proposed exemption are factual. The commenter also sought 
clarification on the percentage of likelihood that the Fourth Amended 
Plan would be implemented and whether the commenter's own Plan would be 
permitted to acquire ``mutual fund stock'' of an insurance company.
    In response to this comment, FML explains that the sale of its 
assets (or possibly its conversion to a stock company and the sale of 
its stock) is expected to occur in the near future. FML also states 
that its assets are not nearing depletion. In addition, FML represents 
that a third party has submitted a bid to purchase its assets and that 
the protections of its policyholders are the protections that are built 
into the Fourth Amended Plan, which must be implemented and approved by 
the Court. Moreover, FML indicates that the numbers cited in the 
proposal are actual numbers. With respect to the implementation of the 
Fourth Amended Plan, FML has declined to specify a percentage, but 
states that it believes this plan ``is highly likely to be 
implemented.'' Finally, in response to the commenter's question about 
allowing the commenter's own Plan to acquire mutual fund shares, FML 
states it does not understand the comment and that the requested 
exemption has nothing to do with mutual funds.
    For further information regarding the comments or other matters 
discussed herein, interested persons are encouraged to obtain copies of 
the exemption application file (Exemption Application No. D-11345) the 
Department is maintaining in this case. The complete application file, 
as well as all supplemental submissions received by the Department, is 
made 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 giving full consideration to the entire record, 
including the written comments received, the Department has decided to 
grant the exemption.

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and section 4975(c)(2) of the Code does 
not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and the Code, including 
any prohibited transaction provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which require, among other things, a fiduciary to 
discharge his or her duties respecting the plan solely in the interest 
of the participants and beneficiaries of the plan and in a prudent 
fashion in accordance with section 404(a)(1)(B) of the Act;
    (2) The exemption does not extend to transactions prohibited under 
section 406(b) of the Act and section 4975(c)(1)(E)-(F) of the Code;
    (3) In accordance with section 408(a) of the Act, the Department 
makes the following determinations:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interest of the plan and of its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of participants and 
beneficiaries of the plans.
    (4) The exemption is supplemental to, and not in derogation of, any 
other provisions of the Act and the Code, including statutory or 
administrative exemptions. 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.

[[Page 36047]]

    Accordingly, the following exemption is granted under the authority 
of section 408(a) of the Act and section 4975(c)(2) of the Code and in 
accordance with the procedures set forth in 29 CFR Part 2570, Subpart B 
(55 FR 32836, 32847, August 10, 1990).

Section I. Covered Transactions

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply to 
(1) the receipt of certain stock (the Investor Stock) issued by the 
corporation (the Stock Purchaser) which acquires Post-Conversion 
Fidelity Mutual Life Insurance Company (Post-Conversion FML) by stock 
purchase or by merger, (2) the receipt of plan credits (the Plan 
Credits), or (3) the receipt of cash, by or on behalf of a mutual 
member (the Mutual Member) of FML which is an employee benefit plan (a 
Plan), in exchange for such Mutual Member's membership interest (the 
Membership Interest) in FML, in accordance with the terms of a plan of 
rehabilitation of FML (the Fourth Amended Plan) approved by the 
Pennsylvania Commonwealth Court (the Court) and supervised by both the 
Court and the Pennsylvania Insurance Commissioner (the Commissioner), 
who is acting as the rehabilitator of FML (the Rehabilitator).
    This exemption is subject to the following conditions set forth 
below in Section II.

Section II. General Conditions

    (a) The Fourth Amended Plan is approved by the Court, implemented 
in accordance with procedural and substantive safeguards that are 
imposed under Pennsylvania law and is subject to review and/or 
supervision by the Commissioner (both in her own capacity and in her 
capacity as Rehabilitator of FML). The Court determines whether the 
Fourth Plan--
    (1) Properly conserves and equitably administers the assets of FML, 
in the interests of investors, the public, and others in accordance 
with the legislatively-stated purpose of protecting the interests of 
the insured, creditors, and the public; and
    (2) Equitably apportions any unavoidable loss through imposed 
methods for rehabilitating FML. (The Court will retain exclusive 
jurisdiction over the implementation, interpretation, and enforcement 
of the Fourth Amended Plan of Reorganization.)
    (b) The Fourth Amended Plan provides for either:
    (1) The transfer of FML's assets to an independent purchaser (the 
Asset Purchaser) in exchange for cash; or
    (2) The conversion of FML from a mutual life insurance company into 
a stock life insurance company and either (A) the transfer of the stock 
of Post-Conversion FML to the independent Stock Purchaser or (B) the 
merger of Post-Conversion FML into the independent Stock Purchaser or 
an affiliate of the Stock Purchaser.
    (c) Each Mutual Member has an opportunity to comment on the Fourth 
Amended Plan at hearings held by the Court after full written 
disclosure of the terms of the Plan is given to such Mutual Member by 
FML.
    (d) Participation by all Mutual Members in the Fourth Amended Plan, 
if approved by the Court, is mandatory, although Mutual Members may 
disclaim the Investor Stock, cash, and/or Plan Credits which they would 
otherwise receive.
    (e) The decision by a Mutual Member which is a Plan to receive or 
disclaim Investor Stock, cash, and/or Plan Credits allocated to such 
Mutual Member is made by one or more independent fiduciaries of such 
Plan, and not by FML or any affiliate of FML. Consequently, neither FML 
nor any of its affiliates will exercise discretion nor render 
``investment advice'' within the meaning of 29 CFR 2510.3-21(c) with 
respect to an independent Plan fiduciary's decision to receive or 
disclaim Investor Stock, cash, and/or Plan Credits.
    (f) Twenty percent (20%) of the net assets which are available for 
distribution to the Mutual Members is allocated among the Mutual 
Members based upon voting rights, and eighty percent (80%) of such net 
assets is allocated among the Mutual Members on the basis of the 
contribution of the Mutual Members' respective insurance or annuity 
contracts (the Contracts) to the surplus of FML. The contribution to 
FML's surplus is the actuarial calculation of both the historical and 
expected future profit contribution of the Contracts that have 
contributed to the surplus (i.e., the net earnings) of FML. The 
actuarial formulas are approved by the Court and the Commissioner.
    (g) The amount and value of the Investor Stock, cash, and/or Plan 
Credits received by a Mutual Member reflect the aggregate consideration 
paid by the Stock Purchaser or Asset Purchaser, which is independent of 
FML.
    (h) All Mutual Members that are Plans participate in the 
transactions on the same basis as all other Mutual Members that are not 
Plans, except that Mutual Members which hold Non-Trusteed Tax-Qualified 
Retirement Funding Contracts receive Plan Credits in exchange for their 
membership interests, rather than cash and/or Investor Stock.
    (i) No Mutual Member pays any brokerage commissions or fees in 
connection with the receipt of Investor Stock, cash, and/or Plan 
Credits.
    (j) Mutual Members are not restricted from selling or otherwise 
transferring any Investor Stock which they receive. If Investor Stock 
comprises part of the consideration paid by the Stock Purchaser, the 
Stock Purchaser is required to establish a commission-free purchase or 
sales program which will allow Mutual Members who receive a small 
number of shares of Investor Stock to ``round up'' such shares or sell 
such shares free of sales commissions.
    (k) The Fourth Amended Plan does not adversely affect the rights of 
a contractholder of the company (the Contractholder) which is a Mutual 
Member. In this regard,
    (1) If Post-Conversion FML is acquired by the Stock Purchaser, the 
obligations of FML to a Contractholder are retained by Post-Conversion 
FML; and
    (2) If FML's assets are purchased by the Asset Purchaser, FML's 
obligations to a Contractholder are discharged and terminated upon 
their endorsement and assumption by the Asset Purchaser, thereby making 
the Asset Purchaser liable for the obligations under the Contract.

Section III. Definitions

    For purposes of this exemption:
    (a) An ``affiliate'' of FML, Post-Conversion FML, the Stock 
Purchaser, or the Asset Purchaser includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such entity. (For purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual.); or
    (2) Any officer, director or partner in such person.
    (b) The term ``Asset Purchaser'' means the person (e.g., 
individual, corporation, partnership, joint venture, etc.) selected by 
the Rehabilitator and approved by the Court to purchase FML's assets 
under an assumption reinsurance agreement.
    (c) The term ``FML'' means the Fidelity Mutual Life Insurance 
Company (In Rehabilitation) and any affiliate of FML, as defined in 
paragraph (a) of this Section III, as they exist before

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FML is converted from a mutual life insurance company into a stock life 
insurance company.
    (d) The term ``Investor Stock'' means the common stock of the Stock 
Purchaser that will be allocated to Mutual Members if Post-Conversion 
FML is acquired by the Stock Purchaser in exchange for consideration 
that includes common stock of the Stock Purchaser.
    (e) The term ``Mutual Member'' means a Contractholder whose name 
appears on FML's records as an owner of an FML Contract on the Record 
Date of the Fourth Amended Plan.
    (f) The term ``Non-Trusteed Tax-Qualified Retirement Funding 
Contracts'' means FML insurance contracts which are held in connection 
with retirement plans or arrangements described in section 403(a) or 
408 of the Internal Revenue Code or non-trusteed retirement plans 
described in Section 401(a) of the Internal Revenue Code.
    (g) The term ``Plan'' means an employee benefit plan.
    (h) The term ``Plan Credit'' means either (1) additional paid up 
insurance for a traditional life policy or (2) credits to the account 
values for Contracts that are not traditional (such as a flexible 
premium policy). Under FML's Fourth Amended Plan, Plan Credits are to 
be allocated to Mutual Members who hold Non-Trusteed Tax-Qualified 
Retirement Funding Contracts, in lieu of Investor Stock and/or cash.
    (i) The term ``Post-Conversion FML'' means the Fidelity Mutual Life 
Insurance Company (In Rehabilitation) and any affiliate of FML, as 
defined in paragraph (a) of this Section III, as they exist after FML 
is converted from a mutual life insurance company into a stock life 
insurance company.
    (j) The term ``Stock Purchaser'' means the person (e.g., 
individual, corporation, partnership, joint venture, etc.) selected by 
the Rehabilitator and approved by the Court to purchase the stock of 
Post-Conversion FML, or to acquire Post-Conversion FML by merger, under 
a stock purchase agreement or merger agreement.
    This exemption is available to FML for as long as the terms and 
conditions of the exemption are satisfied with respect to each Mutual 
Member that is a Plan.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant PTE 2000-34, refer to the 
proposed exemption and the grant notice which are cited above.

    Signed at Washington, DC, June 26, 2007.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E7-12673 Filed 6-29-07; 8:45 am]
BILLING CODE 4510-29-P