Notice of Proposed Exemptions, 68102-68129 [E9-30262]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 244 (Tuesday, December 22, 2009)]
[Notices]
[Pages 68102-68129]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-30262]



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Part II





Department of Labor





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Employee Benefits Security Administration



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Notice of Proposed Exemptions; Notice

Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / 
Notices

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[D-11509; D-11532; D-11555; D-11556; L-11558; et al.]


Notice of Proposed Exemptions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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Application Nos. and Proposed Exemptions: D-11509, Goldman, Sachs & 
Co. and its Affiliates (Goldman or the Applicant); D-11532, Louis B. 
Chaykin, M.D., P.A.; D-11555, The Coca-Cola Company (TCCC, or the 
Applicant); D-11556, Columbia Management Advisors, LLC (Columtia, or 
the Applicant) and its Current and Future Affiliates (collectively, 
the Applicants); and L-11558, Boston Carpenters Apprenticeship and 
Training Fund (the Fund); et al.

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. ----, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The applications for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Goldman, Sachs & Co. and Its Affiliates (Goldman or the Applicant), 
Located in New York, New York.
[Application No. D-11509.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code, and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ For purposes of this proposed exemption, references to 
section 406 of the Act should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
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Section I. Sales of Auction Rate Securities From Plans to Goldman: 
Unrelated to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan (as defined in 
Section V(e)) of an Auction Rate Security (as defined in Section V(c)) 
to Goldman, where such sale (an Unrelated Sale) is unrelated to, and 
not made in connection with, a Settlement Agreement (as defined in 
Section V(f)), provided that the conditions set forth in Section II 
have been met.

Section II. Conditions Applicable to Transactions Described in Section 
I

    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by Goldman to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Goldman for its own 
employees (a Goldman Plan), the Unrelated Sale is made pursuant to a 
written offer by Goldman (the Offer) containing all of the material 
terms of the Unrelated Sale. Either the Offer or other materials 
available to the Plan provide: (1) The identity and par value of the 
Auction Rate Security; (2) the interest or dividend amounts that are 
due and unpaid with respect to the Auction Rate Security; and (3) the 
most recent rate information for the Auction Rate Security (if reliable 
information is available). Notwithstanding the foregoing, in the case 
of a pooled fund maintained or advised by Goldman, this condition shall 
be deemed met to the extent each Plan invested in the pooled fund 
(other than a Goldman Plan) receives written notice regarding the 
Unrelated Sale, where such notice contains the material terms of the 
Unrelated Sale;

[[Page 68103]]

    (d) The Unrelated Sale is for no consideration other than cash 
payment against prompt delivery of the Auction Rate Security;
    (e) The sales price for the Auction Rate Security is equal to the 
par value of the Auction Rate Security, plus any accrued but unpaid 
interest or dividends;
    (f) The Plan does not waive any rights or claims in connection with 
the Unrelated Sale;
    (g) The decision to accept the Offer or retain the Auction Rate 
Security is made by a Plan fiduciary or Plan participant or IRA owner 
who is independent (as defined in Section V(d)) of Goldman. 
Notwithstanding the foregoing: (1) In the case of an IRA (as defined in 
Section V(e)) which is beneficially owned by an employee, officer, 
director or partner of Goldman, the decision to accept the Offer or 
retain the Auction Rate Security may be made by such employee, officer, 
director or partner; or (2) in the case of a Goldman Plan or a pooled 
fund maintained or advised by Goldman, the decision to accept the Offer 
may be made by Goldman after Goldman has determined that such purchase 
is in the best interest of the Goldman Plan or pooled fund; \2\
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    \2\ The Department notes that the Act's general standards of 
fiduciary conduct also would apply to the transactions described 
herein. In this regard, section 404 of the Act requires, among other 
things, that a fiduciary discharge his duties respecting a plan 
solely in the interest of the plan's participants and beneficiaries 
and in a prudent manner. Accordingly, a plan fiduciary must act 
prudently with respect to, among other things, the decision to sell 
the Auction Rate Security to Goldman for the par value of the 
Auction Rate Security, plus unpaid interest and dividends. The 
Department further emphasizes that it expects Plan fiduciaries, 
prior to entering into any of the proposed transactions, to fully 
understand the risks associated with this type of transaction 
following disclosure by Goldman of all relevant information.
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    (h) Except in the case of a Goldman Plan or a pooled fund 
maintained or advised by Goldman, neither Goldman nor any affiliate 
exercises investment discretion or renders investment advice within the 
meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept 
the Offer or retain the Auction Rate Security;
    (i) The Plan does not pay any commissions or transaction costs with 
respect to the Unrelated Sale;
    (j) The Unrelated Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest to the Plan;
    (k) Goldman and its affiliates, as applicable, maintain, or cause 
to be maintained, for a period of six (6) years from the date of the 
Unrelated Sale, such records as are necessary to enable the persons 
described below in paragraph (l)(1), to determine whether the 
conditions of this exemption, if granted, have been met, except that:
    (1) No party in interest with respect to a Plan which engages in an 
Unrelated Sale, other than Goldman and its affiliates, as applicable, 
shall be subject to a civil penalty under section 502(i) of the Act or 
the taxes imposed by section 4975(a) and (b) of the Code, if such 
records are not maintained, or not available for examination, as 
required, below, by paragraph (l)(1); and
    (2) A separate prohibited transaction shall not be considered to 
have occurred solely because, due to circumstances beyond the control 
of Goldman or its affiliates, as applicable, such records are lost or 
destroyed prior to the end of the six-year period;
    (l)(1) Except as provided below in paragraph (l)(2), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to above in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by:
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the U.S. Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan, including any IRA owner, that 
engages in a Sale, or any duly authorized employee or representative of 
such fiduciary; or
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
Unrelated Sale, or any authorized employee or representative of these 
entities;
    (2) None of the persons described above in paragraphs (l)(1)(B)-(C) 
shall be authorized to examine trade secrets of Goldman, or commercial 
or financial information which is privileged or confidential; and
    (3) Should Goldman refuse to disclose information on the basis that 
such information is exempt from disclosure, Goldman shall, by the close 
of the thirtieth (30th) day following the request, provide a written 
notice advising that person of the reasons for the refusal and that the 
Department may request such information.

Section III. Sales of Auction Rate Securities From Plans to Goldman: 
Related to a Settlement Agreement

    If the proposed exemption is granted, the restrictions of section 
406(a)(1)(A) and (D) and section 406(b)(1) and (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), (D), and (E) of the Code, shall not 
apply, effective February 1, 2008, to the sale by a Plan of an Auction 
Rate Security to Goldman, where such sale (a Settlement Sale) is 
related to, and made in connection with, a Settlement Agreement, 
provided that the conditions set forth in Section IV have been met.

Section IV. Conditions Applicable to Transactions Described in Section 
III

    (a) The terms and delivery of the Offer are consistent with the 
requirements set forth in the Settlement Agreement and acceptance of 
the offer does not constitute a waiver of any claim of the tendering 
Plan;
    (b) The Offer or other documents available to the Plan specifically 
describe, among other things:
    (1) The securities available for purchase under the Offer;
    (2) The background of the Offer;
    (3) The methods and timing by which Plans may accept the Offer;
    (4) The purchase dates, or the manner of determining the purchase 
dates, for Auction Rate Securities tendered pursuant to the Offer, if 
the Offer had any limitation on such dates;
    (5) The timing for acceptance by Goldman of tendered Auction Rate 
Securities, if there were any limitations on such timing;
    (6) The timing of payment for Auction Rate Securities accepted by 
Goldman for payment, if payment was materially delayed beyond the 
acceptance of the Offer;
    (7) The expiration date of the Offer; and
    (8) How to obtain additional information concerning the Offer;
    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in Section II have been met.

Section V. Definitions

    For purposes of this proposed exemption:
    (a) The term ``affiliate'' means any person directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with such other person;
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (c) The term ``Auction Rate Security'' means a security: (1) That 
is either a debt instrument (generally with a long-term nominal 
maturity) or preferred stock; and (2) with an interest rate or dividend 
that is reset at specific intervals through a Dutch auction process;

[[Page 68104]]

    (d) A person is ``independent'' of Goldman if the person is: (1) 
Not Goldman or an affiliate; and (2) not a relative (as defined in 
section 3(15) of the Act) of the party engaging in the transaction;
    (e) The term ``Plan'' means an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
the Act; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by section 3(42) of the Act; and
    (f) The term ``Settlement Agreement'' means a legal settlement 
involving Goldman and a U.S. State or Federal authority that provides 
for the purchase of an ARS by Goldman from a Plan.
    Effective Date: If granted, this proposed exemption will be 
effective as of February 1, 2008.

Summary of Facts and Representations

    1. The Applicant, Goldman, is a global financial services firm 
headquartered in New York, New York. As of August 29, 2008, Goldman had 
approximately $1 trillion in assets. Among other things, Goldman is 
both a registered investment adviser subject to the Investment Advisers 
Act of 1940 and a broker-dealer registered with the U.S. Securities and 
Exchange Commission. In this last regard, Goldman acts as a broker and 
dealer with respect to the purchase and sale of securities, including 
Auction Rate Securities.
    2. The Applicant describes Auction Rate Securities and the 
arrangement by which ARS are bought and sold as follows. Auction Rate 
Securities are securities (issued as debt or preferred stock) with an 
interest rate or dividend that is reset at periodic intervals pursuant 
to a process called a Dutch Auction. Investors submit orders to buy, 
hold, or sell a specific ARS to a broker-dealer selected by the entity 
that issued the ARS. The broker-dealers, in turn, submit all of these 
orders to an auction agent. The auction agent's functions include 
collecting orders from all participating broker-dealers by the auction 
deadline, determining the amount of securities available for sale, and 
organizing the bids to determine the winning bid. If there are any buy 
orders placed into the auction at a specific rate, the auction agent 
accepts bids with the lowest rate above any applicable minimum rate and 
then successively higher rates up to the maximum applicable rate, until 
all sell orders and orders that are treated as sell orders are filled. 
Bids below any applicable minimum rate or above the applicable maximum 
rate are rejected. After determining the clearing rate for all of the 
securities at auction, the auction agent allocates the ARS available 
for sale to the participating broker-dealers based on the orders they 
submitted. If there are multiple bids at the clearing rate, the auction 
agent will allocate securities among the bidders at such rate on a pro 
rata basis.
    3. The Applicant states that, under a typical Dutch Auction 
process, Goldman is permitted, but not obligated, to submit orders in 
auctions for its own account either as a bidder or a seller and 
routinely does so in the auction rate securities market in its sole 
discretion. Goldman may place one or more bids in an auction for its 
own account to acquire ARS for its inventory, to prevent: (a) A failed 
auction (i.e., an event where there are insufficient clearing bids 
which would result in the auction rate being set at a specified rate, 
resulting in no ARS being sold through the auction process); or (b) an 
auction from clearing at a rate that Goldman believes does not reflect 
the market for the particular ARS being auctioned.
    4. The Applicant states that for many ARS, Goldman has been 
appointed by the issuer of the securities to serve as a dealer in the 
auction and is paid by the issuer for its services. Goldman is 
typically appointed to serve as a dealer in the auctions pursuant to an 
agreement between the issuer and Goldman. That agreement provides that 
Goldman will receive from the issuer auction dealer fees based on the 
principal amount of the securities placed through Goldman.
    5. The Applicant states further that Goldman may share a portion of 
the auction rate dealer fees it receives from the issuer with other 
broker-dealers that submit orders through Goldman, for those orders 
that Goldman successfully places in the auctions. Similarly, with 
respect to ARS for which broker-dealers other than Goldman act as 
dealer, such other broker-dealers may share auction dealer fees with 
Goldman for orders submitted by Goldman.
    6. According to the Applicant, since February 2008, only a minority 
of auctions have cleared, particularly involving municipalities. As a 
result, Plans holding ARS may not have sufficient liquidity to make 
benefit payments, mandatory payments and withdrawals and expense 
payments when due.\3\
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    \3\ The Department notes that Prohibited Transaction Exemption 
80-26 (45 FR 28545 (April 29, 1980), as amended at 71 FR 17917 
(April 7, 2006)) permits interest-free loans or other extensions of 
credit from a party in interest to a plan if, among other things, 
the proceeds of the loan or extension of credit are used only: (1) 
For the payment of ordinary operating expenses of the plan, 
including the payment of benefits in accordance with the terms of 
the plan and periodic premiums under an insurance or annuity 
contract, or (2) for a purpose incidental to the ordinary operation 
of the plan.
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    7. The Applicant represents that, in certain instances, Goldman may 
have previously advised or otherwise caused a Plan to acquire and hold 
an Auction Rate Security.\4\ In connection with Goldman's role in the 
acquisition and holding of ARS by various Goldman clients, including 
the Plans, Goldman entered into Settlement Agreements with certain U.S. 
states and Federal authorities. Pursuant to these Settlement 
Agreements, among other things, Goldman was required to send a written 
offer to certain Plans that held ARS in connection with the advice and/
or brokerage services provided by Goldman. As described in further 
detail below, eligible Plans that accepted the Offer were permitted to 
sell the ARS to Goldman for cash equal to the par value of such 
securities, plus any accrued but unpaid interest and/or dividends. The 
Applicant is requesting retroactive and prospective relief for the 
Settlement Sales. With respect to Unrelated Sales, the Applicant states 
that to the best of its knowledge, no Unrelated Sale has occurred. 
However, the Applicant is requesting retroactive relief (and 
prospective relief) for Unrelated Sales in the event that a sale of 
Auction Rate Securities by a Plan to Goldman has occurred outside the 
Settlement process. If granted, the proposed exemption will be 
effective February 1, 2008.
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    \4\ The relief contained in this proposed exemption does not 
extend to the fiduciary provisions of section 404 of the Act.
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    8. Specifically, the Applicant is requesting exemptive relief for 
the sale of Auction Rate Securities under two different circumstances: 
(a) Where Goldman initiates the sale by sending to a Plan a written 
Offer to acquire the ARS (i.e., an Unrelated Sale), notwithstanding 
that such Offer is not required under a Settlement Agreement; and (b) 
where Goldman is required under a Settlement Agreement to send to Plans 
a written Offer to acquire the ARS (i.e., a Settlement Sale). The 
Applicant states that the Unrelated Sales and Settlement Sales 
(hereinafter, either, a Covered Sale) are in the interests of Plans. In 
this regard, the Applicant states that the Covered Sales would permit 
Plans to normalize Plan investments. The Applicant represents that each 
Covered Sale will be for no consideration other than cash payment 
against prompt delivery of the ARS, and

[[Page 68105]]

such cash will equal the par value of the ARS, plus any accrued but 
unpaid interest or dividends. The Applicant represents further that 
Plans will not pay any commissions or transaction costs with respect to 
any Covered Sale.
    9. The Applicant represents that the proposed exemption is 
protective of the Plans. The Applicant states that: each Covered Sale 
will be made pursuant to a written Offer; and the decision to accept 
the Offer or retain the ARS will be made by a Plan fiduciary or Plan 
participant or IRA owner who is independent of Goldman. Additionally, 
each Offer will be delivered in a manner designed to alert a Plan 
fiduciary that Goldman intends to purchase ARS from the Plan. Offers 
made in connection with an Unrelated Sale will include the material 
terms of the Unrelated Sale and either the Offer or other materials 
available to the Plan describe: The identity and par value of the 
Auction Rate Security; the interest or dividend amounts that are due 
with respect to the Auction Rate Security; and the most recent rate 
information for the Auction Rate Security (if reliable information is 
available). Offers made in connection with a Settlement Agreement will 
specifically include, among other things: The background of the Offer; 
the method and timing by which a Plan may accept the Offer; the 
expiration date of the Offer; and how to obtain additional information 
concerning the Offer. The Applicant states that neither Goldman nor any 
affiliate will exercise investment discretion or render investment 
advice with respect to a Plan's decision to accept the Offer or retain 
the ARS.\5\ In the case of a Goldman Plan or a pooled fund maintained 
or advised by Goldman, the decision to engage in a Covered Sale may be 
made by Goldman after Goldman has determined that such purchase is in 
the best interest of the Goldman Plan or pooled fund. The Applicant 
represents further that Plans will not waive any rights or claims in 
connection with any Covered Sale.
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    \5\ The Applicant states that while there may be communication 
between a Plan and Goldman subsequent to an Offer, such 
communication will not involve advice regarding whether the Plan 
should accept the Offer.
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    10. The Applicant represents that the proposed exemption, if 
granted, would be administratively feasible. In this regard, the 
Applicant notes that each Covered Sale will occur at the par value of 
the affected ARS (plus accrued but unpaid interest and dividends, to 
the extent applicable), and such value is readily ascertainable. The 
Applicant represents further that Goldman will maintain the records 
necessary to enable the Department and Plan fiduciaries, among others, 
to determine whether the conditions of this exemption, if granted, have 
been met.
    11. In summary, the Applicant represents that the transactions 
described herein satisfy the statutory criteria of section 408(a) of 
the Act because, among other things:
    (a) Each Covered Sale shall be made pursuant to a written Offer;
    (b) Each Covered Sale shall be for no consideration other than cash 
payment against prompt delivery of the ARS;
    (c) The amount of each Covered Sale shall equal the par value of 
the ARS, plus any accrued but unpaid interest or dividends;
    (d) Plans will not waive any rights or claims in connection with 
any Covered Sale;
    (e)(1) the decision to accept an Offer or retain the ARS shall be 
made by a Plan fiduciary or Plan participant or IRA owner who is 
independent of Goldman; and (2) neither Goldman nor any affiliate shall 
exercise investment discretion or render investment advice within the 
meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept 
the Offer or retain the ARS;
    (f) Plans shall not pay any commissions or transaction costs with 
respect to any Covered Sale;
    (g) A Covered Sale shall not be part of an arrangement, agreement 
or understanding designed to benefit a party in interest to the 
affected Plan;
    (h) With respect to any Settlement Sale, the terms and delivery of 
the Offer, and the terms of Settlement Sale, shall be consistent with 
the requirements set forth in the Settlement Agreement;
    (i) Goldman shall make available in connection with an Unrelated 
Sale the material terms of the Unrelated Sale, including: (1) The 
identity and par value of the Auction Rate Security; (2) the interest 
or dividend amounts that are due but unpaid with respect to the Auction 
Rate Security; and (3) the most recent rate information for the Auction 
Rate Security (if reliable information is available);
    (j) Each Offer made in connection with a Settlement Agreement shall 
describe the material terms of the Settlement Sale, including the 
following (and shall not constitute a waiver of any claim of the 
tendering Plan): (1) The background of the Offer; (2) the methods and 
timing by which the Plan may accept the Offer; (3) the purchase dates, 
or the manner of determining the purchase dates, for ARS pursuant to 
the Offer; (4) the expiration date of the Offer; and (5) how to obtain 
additional information concerning the Offer.

Notice to Interested Persons

    The Applicant represents that the potentially interested 
participants and beneficiaries cannot all be identified, and, 
therefore, the only practical means of notifying such participants and 
beneficiaries of this proposed exemption is by the publication of this 
notice in the Federal Register. Comments and requests for a hearing 
must be received by the Department not later than 30 days from the date 
of publication of this notice of proposed exemption in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Brian Shiker of the Department, 
telephone (202) 693-8552. (This is not a toll-free number.)

Louis B. Chaykin, M.D., P.A., Cross-Tested Profit Sharing Plan (the 
Plan), Located in Lakewood Ranch, Florida.
[Exemption Application Number: D-11532.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570 Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (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, shall not apply to the proposed sale (the Sale) at fair 
market value by the Plan of certain coins (the Collectibles), to Louis 
B. Chaykin, M.D. (the Applicant), a party in interest with respect to 
the Plan, provided that the following conditions are satisfied:
    (a) The Sale is a one-time transaction for cash;
    (b) The Plan pays no commissions, fees or other expenses in 
connection with the Sale;
    (c) The terms and conditions of the Sale are at least as favorable 
as those obtainable in an arm's length transaction with an unrelated 
third party;
    (d) The fair market value of the Collectibles was determined by a 
qualified, independent appraiser;
    (e) The Plan receives no less than the fair market value of the 
Collectibles at the time of the Sale; and
    (f) All of the participants of the Plan, with the exception of the 
Applicant, have been paid their benefits in full.

Summary of Facts and Representations

    1. The Plan is a profit-sharing plan sponsored by Louis B. Chaykin, 
M.D., P.A., a private professional corporation

[[Page 68106]]

engaged in the practice of medicine in Lakewood Ranch, Florida. The 
Applicant represents that, as of January 1, 2007, there were seven (7) 
participants in the Plan, including five employees, the Applicant, and 
the Applicant's spouse. The Applicant is also the discretionary trustee 
of the Plan. The Plan, which was formally terminated on March 1, 2006, 
received a favorable determination letter from the Internal Revenue 
Service on May 11, 2007. The determination letter stated that the 
termination of the Plan did not adversely affect its qualification for 
Federal tax purposes.
    The Applicant represents that, pursuant to the termination of the 
Plan, all participants (with the exception of the Applicant) have been 
paid their benefits in full. In this regard, the Applicant represents 
that, of the five employees who were participants in the Plan, two 
rolled over cash into their respective individual retirement accounts 
(IRAs), while the other three took lump sum distributions of cash. The 
Applicant's spouse also rolled over cash to her IRA. The Applicant 
himself has received prior distributions of cash to satisfy his minimum 
distribution requirements because he is over age 70 and a half. The 
Applicant has also rolled over some publicly-traded securities in kind 
to his IRA. Apart from the Collectibles, the Plan holds residual assets 
consisting of a limited partnership interest and other coins. The 
Applicant represents that the total value of the non-Collectibles held 
by the Plan as of December 31, 2008 is $63,720.17.
    2. The Applicant represents that the IRA custodial trustee which 
the Applicant has designated to receive his rollover contributions from 
the Plan will not accept the Collectibles as IRA assets. Accordingly, 
the Applicant requests an exemption to permit the Sale of the 
Collectibles and the distribution of the resulting cash proceeds to 
himself, which he would then roll over into his IRA account. The Plan 
had originally purchased the Collectibles from unrelated parties at 
various times between 2005 and 2008. The Applicant also represents that 
the Plan purchased the Collectibles as an investment and held the 
Collectibles for appreciation. The Applicant states that the 
Collectibles have never used by himself, or by any other party in 
interest with respect to the Plan, for personal purposes. The Applicant 
represents that the proposed Sale will maximize the preservation of the 
Plan assets by avoiding the payment of sales commissions, advertising 
costs and other selling expenses which would generally be incurred in 
open market sales.\6\ In addition, the Applicant states that the Plan 
will receive an amount in cash reflecting the fair market value of the 
Collectibles, as established by a qualified, independent appraiser.
---------------------------------------------------------------------------

    \6\ Section 408(m) of the Code stipulates that the acquisition 
by an individual retirement account or by an individually-directed 
account under a plan described in section 401(a) of the Code of any 
collectible shall be treated (for purposes of sections 402 and 408 
of the Code) as a distribution from such account in an amount equal 
to the cost to such account of such collectible. The Applicant 
represents, however, that this provision of the Code is not 
applicable to the proposed transaction because the Plan is trusteed 
by a discretionary trustee (e.g., the Applicant), and does not allow 
for participant direction of Plan investments. The Department is 
providing no determination with respect to the Applicant's 
representation detailed above.
---------------------------------------------------------------------------

    3. The Collectibles were appraised in June of 2009 by Mr. John 
Albanese of Blanchard and Company, an independent qualified appraiser 
located in New Orleans, Louisiana. Mr. Albanese represents that he has 
over 28 years experience in the appraisal of coins. Mr. Albanese 
further states that he has not previously sold or been promised future 
sales of coins to the Applicant. Additionally, Mr. Albanese represents 
that less than 1% of the gross receipts of his business for the past 
year are derived from the Applicant. Mr. Albanese states that he 
examined the Collectibles submitted to him by the Applicant and, after 
evaluating the condition of the Collectibles, he reviewed the Coin Deal 
Newsletter as well as major auction results to arrive at their current 
value. Based on the foregoing methodology, Mr. Albanese determined 
that, as of June 3, 2009, the Collectibles had a fair market value of 
$284,895.
    4. In summary, the applicant represents that the transaction will 
satisfy the statutory requirements for an exemption under section 
408(a) of the Act because: (a) The Sale is a one-time transaction for 
cash; (b) The Plan pays no commissions, fees or other expenses in 
connection with the Sale; (c) The terms and conditions of the Sale are 
at least as favorable as those obtainable in an arm's length 
transaction with an unrelated third party; (d) The fair market value of 
the Collectibles was determined by Mr. Albanese, a qualified, 
independent appraiser; and (e) The Plan receives no less than the fair 
market value of the Collectibles at the time of the Sale.
    Notice to Interested Persons: The Applicant represents that the 
Plan has been terminated and that all participants of the Plan (with 
the exception of the Applicant) have been paid their benefits in full. 
Accordingly, the only practical means of notifying terminated plan 
participants is by publication of the proposed exemption in the Federal 
Register. Therefore, the Department must receive all written comments 
and requests for a hearing no later than forty-five (45) days after 
publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Mark Judge of the Department, 
telephone (202) 693-8550. (This is not a toll-free number).

The Coca-Cola Company (TCCC, or the Applicant), Located in Atlanta, 
Georgia.
[Application No. D-11555.]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a) and (b) of the Act shall not apply to the reinsurance 
of risks and the receipt of premiums therefrom by Red Re Inc. (Red Re), 
in connection with a medical stop-loss insurance policy sold by the 
Prudential Insurance Company of America (Prudential), or any successor 
insurance company to Prudential which is unrelated to TCCC, which would 
pay for certain benefits under the TCCC Retiree Health Plan (the Plan), 
provided the following conditions are met:
    (a) Red Re--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with TCCC that is described in section 
3(14)(E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Insurance 
Commissioner of its domiciliary state that has not been revoked or 
suspended;
    (4)(A) Has undergone an examination by an independent certified 
public accountant for its last completed taxable year immediately prior 
to the taxable year of the reinsurance transaction; or
    (B) Has undergone a financial examination (within the meaning of 
the law of its domiciliary State, by the Insurance Commissioner of the 
State within 5 years prior to the end of the year preceding the year in 
which the reinsurance transaction occurred; and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an

[[Page 68107]]

independent firm of actuaries and reported to the appropriate 
regulatory authority; and
    (b) The Plan pays no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plan with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving Red Re, there 
will be an immediate and objectively determined benefit to the Plan's 
participants and beneficiaries in the form of increased benefits;
    (e) In subsequent years, should the relationship with Prudential be 
terminated, the formula used to calculate premiums by any successor 
insurer will be similar to formulae used by other insurers providing 
comparable stop-loss coverage under similar programs. Furthermore, the 
premium charge calculated in accordance with the formula will be 
reasonable and will be comparable to the premium charged by the insurer 
and its competitors with the same or a better rating providing the same 
coverage under comparable programs;
    (f) To the extent Red Re earns any profit due to favorable claims 
experience, such profit will be promptly returned to the Plan.
    (g) The Plan only contracts with insurers with a rating of A or 
better from A.M. Best Company. The reinsurance arrangement between the 
insurer and Red Re will be indemnity insurance only, i.e., the insurer 
will not be relieved of liability to the Plan should Red Re be unable 
or unwilling to cover any liability arising from the reinsurance 
arrangement;
    (h) The Plan retains an independent fiduciary (the Independent 
Fiduciary), at TCCC's expense, to analyze the transactions and render 
an opinion that the requirements of sections (a) thorough (g) have been 
complied with. For purposes of this exemption, the Independent 
Fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with TCCC or Red Re (this relationship hereinafter referred to as an 
``Affiliate'');
    (2) Is not an officer, director, employee of, or partner in TCCC or 
Red Re (or any Affiliate of either);
    (3) Is not a corporation or partnership in which TCCC or Red Re has 
an ownership interest or is a partner;
    (4) Does not have an ownership interest in TCCC or Red Re, or any 
of either's Affiliates;
    (5) Is not a fiduciary with respect to the Plan prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the Independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``Independent Fiduciary,'' no 
organization or individual may serve as an Independent Fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from TCCC, Red Re, or their Affiliates (including amounts received for 
services as Independent Fiduciary under any prohibited transaction 
exemption granted by the Department) for that fiscal year exceeds 3 
percent of that organization or individual's annual gross income from 
all sources for the prior fiscal year.
    In addition, no organization or individual who is an Independent 
Fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director, or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow funds from TCCC, Red Re, or their Affiliates during the period 
that such organization or individual serves as Independent Fiduciary, 
and continuing for a period of six months after such organization or 
individual ceases to be an Independent Fiduciary, or negotiates any 
such transaction during the period that such organization or individual 
serves as Independent Fiduciary.

Summary of Facts and Representations

    1. TCCC, which is headquartered in Atlanta, Georgia, is the world's 
largest beverage company and markets four of the world's top five non-
alcoholic sparkling brands. In 2008, TCCC employed 92,400 associates 
worldwide with approximately 13,000 associates in the United States. 
TCCC reported revenue of approximately $31.2 billion in 2008.
    2. Red Re is a captive insurance company owned by Coca-Cola Oasis, 
Inc., a consolidated entity of TCCC. Red Re was established on March 
14, 2006 in Charleston, South Carolina. Red Re was issued a Certificate 
of Authority permitting it to transact the business of a captive 
insurance company by the State of South Carolina on April 25, 2006. Red 
Re is a sound, viable insurance company that has been in business since 
2006. Management and administrative services for Red Re are performed 
by Marsh Management Services, Inc. of Charleston, South Carolina. Red 
Re currently provides deductible reimbursement policies to TCCC for 
selected automobile liability, product liability, general liability, 
workers' compensation and terrorism risks. In addition, TCCC's 
international employee benefits for selected countries are reinsured 
with Red Re. As of December 31, 2008, Red Re had total capital and 
surplus of $18.1 million and gross written premium of $46 million.
    3. TCCC provides medical benefits to eligible retired employees in 
the United States under the TCCC Retiree Health Plan (the Plan). The 
Plan provides coverage or reimbursement for major medical expenses, 
treatment of illness, sickness or injury, prescriptions and, in most 
cases, preventative care and vision exams to eligible retired employees 
(and their beneficiaries) of TCCC or its affiliates. Depending on the 
geographic area in which a Plan participant lives, there are a number 
of different coverage options, including an HMO option in some areas. 
As of January 1, 2009, the Plan provided retiree health benefits to 
approximately 5,000 retirees and dependents. TCCC has established a 
Voluntary Employees' Beneficiary Association (VEBA) as a funding 
vehicle for the Plan. However, TCCC retains the option of making 
benefit payments out of its general assets and may then seek 
reimbursement from the VEBA.\7\ Participants make contributions to the 
Plan which vary from year-to-year, but which generally are set at 
levels intended to cover 15-20% of the Plan's costs. However, the 
Applicant represents that no participant contributions will be used to 
pay any premium for the stop-loss policy which is the subject of this 
proposed exemption.
---------------------------------------------------------------------------

    \7\ See representation 16.
---------------------------------------------------------------------------

    4. TCCC has proposed that the VEBA purchase a non-cancellable 
accident and health medical stop-loss policy from the Prudential 
Insurance Company of America (Prudential) to insure benefits under the 
Plan as follows. This policy would pay the sum of all individual 
participant claims that are greater than a certain amount (the 
Attachment Point) in any year, but no more than an upper limit (the 
Upper Corridor Limit) for certain retirees (other than those who have 
either selected an HMO coverage option or are younger than age 55 on 
January 1, 2008) and their dependents as of the purchase date of the 
policy (the Covered Group). The Covered Group consists of approximately 
4,000 individuals (each of whom will be

[[Page 68108]]

specifically identified in an attachment to the stop-loss policy). At 
the time the exemption application for the subject transaction was 
filed, it was anticipated that for those members of the Covered Group 
who are under age 65, the Attachment Point would be $100 and the Upper 
Corridor Limit would be $5,800. For those members of the Covered Group 
aged 65 or higher, the Attachment Point would be $100 and the Upper 
Corridor Limit would be $3,500. (The range of covered benefits between 
the Attachment Point and the Upper Corridor Limit is referred to as 
``the Corridor.'') These coverage limits would apply per participant, 
per year. Claims below the Attachment Point would continue to be paid 
out of TCCC's general assets. It was also anticipated that TCCC through 
the VEBA, would pay a premium to Prudential of approximately $185.3 
million to cover or insure benefits within the Corridor for the 
lifetime of the members of the Covered Group.\8\
---------------------------------------------------------------------------

    \8\ The Upper Corridor Limits were based on an expected premium 
of $185.3 million for the stop-loss policy. However, since the 2006 
TCCC contribution of $216 million to the VEBA, approximately $50 
million in Plan benefits have been paid from the VEBA. Further, the 
VEBA has suffered approximately $23 million in investment losses. 
Thus, it is anticipated that the VEBA will pay a premium lower than 
$185.3 million. As a result, the Upper Corridor Limits for members 
of the Covered Group will be reduced. Because there may be 
additional changes to the value of the VEBA's assets (including 
potential increases due to investment earnings), TCCC is unable to 
predict with certainty the exact dollar amount that the Upper 
Corridor Limits will be until the time the policy is issued. If the 
exemption proposed herein is granted, the premium will be paid at 
that time, the Upper Corridor Limits will be fixed, and the Corridor 
will be guaranteed for the lifetime of the members of the Covered 
Group irrespective of the performance of the investment markets or 
claims experience. The Department expects that TCCC will provide an 
estimate as to the expected Upper Corridor Limits by the end of the 
comment period.
---------------------------------------------------------------------------

    5. The Applicant anticipates that Prudential will enter into a 
reinsurance agreement with Red Re for 100 percent of the risks under 
the stop-loss policy. Specifically, Prudential would provide the 
medical stop-loss insurance policy for the Plan's benefit risks in 
connection with the Covered Group, but Red Re would provide reinsurance 
coverage for 100 percent of those risks pursuant to Red Re's agreement 
with Prudential. Prudential's reinsurance agreement will be ``indemnity 
only''--that is, Prudential will not be relieved of its liability for 
benefits under the Plan if Red Re is unable or unwilling to satisfy the 
liabilities arising from the reinsurance agreements. The overall 
financial strength of Prudential is rated A+ by A.M. Best.
    6. The Applicant represents that in connection with the proposed 
transaction, the Plan will pay no more than adequate consideration for 
the stop-loss insurance contracts with Prudential or any successor 
insurer. The formula that Prudential and any successor insurer will use 
to calculate its premiums will be similar to the formulae used by other 
insurers providing similar insurance coverages under similar insurance 
programs. Moreover, the premium charge resulting from application of 
the formula will be reasonable and comparable to the premium charged by 
the insurer and its competitors with the same rating or better, 
providing the same coverage under comparable programs of insurance. 
Finally, the Plan will not pay any commissions in connection with 
either the direct sale of insurance or the reinsurance transactions 
described herein.
    7. The Applicant represents that the subject transactions have a 
number of advantages for the Plan. Specifically, TCCC will 
substantially improve benefits for members of the Covered Group by 
converting the currently revocable commitment to provide benefits into 
a fully paid-for insured arrangement that will provide them with 
benefits under the Plan for the rest of their lives. Currently, TCCC 
has reserved the right to reduce benefits or terminate the Plan at any 
time. Thus, for any claims not yet accrued, Plan participants do not 
have a guarantee or expectation that benefits will be paid. However, 
the VEBA's purchase of the non-cancellable medical stop-loss policy 
from Prudential will fully fund a contract insuring that members of the 
Covered Group will receive all benefits within the Corridor for the 
rest of their lives. If TCCC were to exercise its right to reduce 
benefits or terminate the Plan as to other participants who are not 
members of the Covered Group sometime in the future, members of the 
Covered Group would continue to receive all benefit payments within the 
Corridor. TCCC represents that this benefit enhancement is not required 
of TCCC as part of a legal proceeding, court order or judgment, or by 
State law.
    8. In connection with this exemption request, Red Re engaged the 
services of U.S. Trust Company, N.A. (U.S. Trust), as the Independent 
Fiduciary for the Plan.\9\ U.S. Trust is a national banking association 
formed under the laws of the United States and authorized to exercise 
all fiduciary powers that may be exercised by State banks and trust 
companies under the laws of the State of Connecticut. In May, 2009, 
BOA's Special Fiduciary Services business was acquired by Evercore 
Trust Company, N.A. (Evercore). All of the BOA personnel who were part 
of the Special Fiduciary Services business joined Evercore. TCCC gave 
its written consent to the transfer of its account from BOA to 
Evercore. Thus, for purposes of the exemption proposed herein, the 
Independent Fiduciary is Evercore.
---------------------------------------------------------------------------

    \9\ The Independent Fiduciary was, in fact, Bank of America, 
N.A. (BOA), which had acquired U.S. Trust effective July 1, 2007. 
BOA continued to do business under the U.S. Trust name.
---------------------------------------------------------------------------

    9. Evercore has represented that it meets the following 
requirements to be an independent fiduciary:
    (a) Evercore is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with TCCC or Red Re;
    (b) Evercore is not an officer, director, employee of, or partner 
in TCCC or Red Re (or any Affiliate of either);
    (c) Evercore is not a corporation or partnership in which TCCC or 
Red Re has an ownership interest or is a partner;
    (d) Evercore does not own any shares of TCCC or Red Re, or any of 
their Affiliates, for its own account;
    (e) Evercore was not a fiduciary to the Plan prior to its 
appointment in connection with the transactions described herein;
    (f) Evercore has acknowledged, in writing, its acceptance of 
fiduciary obligations, and has agreed not to participate in any 
decision with respect to any transaction in which it would have an 
interest that might affect its judgment as a fiduciary;
    (g) The gross income received by Evercore from TCCC or Red Re and 
their Affiliates (including amounts received for services as the 
Independent Fiduciary for the Plans under any prohibited transaction 
exemption granted by the Department), does not exceed 3 percent of 
Evercore's annual gross income from all sources for its prior fiscal 
year; and
    (h) Evercore, and any partnership or corporation of which Evercore 
is an officer, director, or ten (10) percent or more partner or 
shareholder, will not acquire any property from, sell any property to, 
or borrow funds from TCCC or Red Re while it is the Independent 
Fiduciary for the Plan and for a period of six months thereafter.
    10. Evercore represents that: (i) Red Re is licensed to do business 
in the State of South Carolina; and (ii) Red Re obtained a Certificate 
of Authority from the State of South Carolina on April 25, 2006 which 
has neither been revoked nor suspended. Red Re has undergone an audit 
examination by Ernst & Young LLP, certified CPAs, for the year ended

[[Page 68109]]

December 31, 2008. Evercore and its legal advisor have reviewed a copy 
of the audit report, and are satisfied there are no issues outstanding. 
Evercore has determined that Red Re is licensed to conduct reinsurance 
transactions by a State whose law requires that an actuarial review of 
reserves be conducted annually by an independent firm of actuaries, and 
reported to the appropriate regulatory authority.
    11. The Independent Fiduciary has represented that the Plan will 
pay no more than adequate consideration for the insurance contract. In 
addition, the Plan will pay no commissions with respect to the direct 
sale of the insurance contract or the reinsurance thereof.
    12. The Independent Fiduciary has reviewed the proposed 
transactions and determined that they will provide an important 
financial benefit to the Plan's participants and beneficiaries. TCCC 
has reserved the right to modify or eliminate its retiree health 
benefit. By virtue of the proposed transactions, TCCC will effectively 
vest the Covered Group with medical benefits in an amount equal to the 
Corridor.\10\ The terms of the arrangement provide that Prudential 
cannot cancel or terminate the coverage, and this will help assure 
benefit payments, within the coverage parameters, to participants and 
beneficiaries. Thus, the Independent Fiduciary has concluded that this 
protection of the retirees' health benefits provides an immediately and 
objectively determined benefit to the Plan's participants and 
beneficiaries as of the initial year of the contract.
---------------------------------------------------------------------------

    \10\ The Applicant states that since the right of members of the 
Covered Group to have claims within the Corridor paid for the rest 
of their lives will be guaranteed under the proposed transaction, it 
may be said that members of the Covered Group have a vested right to 
receive benefits in that amount. However, the guarantee is to dollar 
amounts, not particular types of medical procedures and treatments 
that may be covered under the Plan.
---------------------------------------------------------------------------

    13. In designing and implementing the proposed transactions, TCCC 
worked with Towers Perrin (TP), one of the largest benefits, insurance 
and reinsurance consulting firms in the world, with extensive 
experience in captive reinsurance transactions. TP has advised TCCC 
that non-cancellable medical stop-loss insurance is not a new product, 
but that it is offered in the market by only one insurer, John Hancock, 
as a method to finance post-retirement medical liabilities. Prudential 
is the only insurer that has developed an insurance product for such 
liabilities that couples a stop-loss policy with captive reinsurance. 
TP introduced the same concept to three other ``A''-rated insurers, but 
none were interested in offering the coverage. TP compared the standard 
cost parameters of the John Hancock stop-loss policy to the Prudential/
Captive product and determined that the latter has lower costs for the 
Plan, as measured by discounted cash flows over 50 years. TP also 
evaluated the costs and risks of other financing options including: 
paying benefits from the general assets of TCCC, trust-owned life 
insurance, and VEBA trusts with no insurance investments, and found 
that the Prudential/Captive product offered the lowest cost solution 
for the Plan.
    14. TP represents that this type of guaranteed, long-term health 
insurance is not available in the market for individuals; it is only 
because Red Re is willing to assume these risks for TCCC retirees that 
the retirees can hope to obtain this valuable coverage. Thus, it is 
difficult to assign an absolute dollar amount to the value of the 
benefit enhancement. However, TP compared the value of the lifetime 
guarantee of coverage within the Corridor to the cost of an annuity 
with annual payments equal to the size of the Corridor. The Applicant 
states that from the perspective of the participant, having an annuity 
that provides cash that is equal to the amount of claims that he or she 
can expect to have paid by the proposed stop-loss insurance is the same 
as having an insurer who is obligated to pay those same claims pursuant 
to a contract for health insurance. TP represents that the average 
expected claims would be approximately $10,000 per year for retirees 
under age 65, and approximately $5,000 per year for retirees over age 
65. Since the proposed coverage Corridors are $5,700 for retirees 
younger than 65 years of age and $3,400 for retirees 65 years of age 
and older,\11\ TP assumes that the participants, on average, will use 
the full Corridor to cover their claims. TP then estimated the value of 
an annuity that would provide payments equal to the amounts the average 
participant will receive in health insurance coverage under the 
proposed transactions. TP used the present value of the expected 
payment each year until death is expected. TP estimates that for an 
individual who retires at age 55 with a life expectancy of age 85, the 
present value of those payments (discounted at 4%) would be 
approximately $77,000. TP estimates that for an individual who retires 
at age 65 with a life expectancy of age 85, the present value of those 
payments (discounted at 4%) would be approximately $46,000.
---------------------------------------------------------------------------

    \11\ The exact coverage limits will be set closer to the time 
the transaction is executed.
---------------------------------------------------------------------------

    15. The Applicant represents that the policy premium charged to the 
Plan by Prudential does not include a profit or risk charge for Red Re. 
There is an assumption in Red Re's business model which anticipates an 
expected return on investments greater than the rate of 4% used to 
price the stop-loss policy. Notably, that investment ``profit'' may 
turn out to be an investment ``loss'' to Red Re if investment returns 
are less than 4%. Moreover, Red Re is taking the risk that there will 
not be mortality improvements that would cause benefits to be paid for 
longer periods than expected. Both scenarios present substantial risks, 
which are not accounted for in the pricing by risk charges. 
Nonetheless, TCCC and Red Re both represent that to the extent Red Re 
earns any profit due to favorable claims experience, such profit will 
be returned to the Plan.
    16. The Applicant represents that the premiums paid to Red Re by 
Prudential pursuant to the proposed reinsurance arrangement, plus any 
investment earnings thereon, will be held in a New York Regulation 114 
Trust (114 Trust). The 114 Trust is a three-way investment trust 
agreement involving the ceding insurance company (i.e., Prudential), a 
financial institution (the trustee), and the reinsurer (i.e., Red 
Re).\12\ The 114 Trust is a method for securing the obligations of an 
insurance company that cedes reserves to reinsurers not admitted in the 
State of the ceding company. It is named after Regulation 114 of the 
Official Compilation of Codes, Rules and Regulations of the New York 
State Insurance Department (11 NYCRR 4). Under Regulation 114, the 
reinsurer (Red Re) establishes a trust of which the ceding company 
(Prudential) is the beneficiary; the beneficiary is entitled to demand 
assets from the trust at any time to satisfy the reinsurer's 
obligations under the reinsurance agreement. Regulation 114 prohibits 
the assets in a 114 Trust from being loaned to any affiliate of the 
reinsurer. Thus, the Applicant represents that no loans will be made by 
Red Re to TCCC using assets held by Red Re as a result of the proposed 
transaction.
---------------------------------------------------------------------------

    \12\ In this proposed exemption, the Department is expressing no 
opinion on whether the assets of the 114 Trust constitute Plan 
assets.
---------------------------------------------------------------------------

    17. TCCC has represented that it will retain the option of making 
benefit payments out of its general assets and may then seek 
reimbursement from the VEBA. TCCC represents that many claims paid 
under the Plan will be paid

[[Page 68110]]

directly by TCCC without expectation of any reimbursement from the 
VEBA. For example, where a claim is paid that falls outside the 
Corridor, TCCC will likely pay the claim out of its general assets 
without seeking any reimbursement from the VEBA. However, because the 
VEBA, and not TCCC, will be the policyholder of the Stop-Loss Policy, 
claims within the Corridor must be submitted by the VEBA to Prudential, 
which will in turn submit them to Red Re. In order to avoid the need 
for a separate administrative mechanism (under which some claims would 
be paid directly by TCCC while others are paid directly by the VEBA), 
TCCC will pay such claims and then submit them to the VEBA for 
reimbursement (with the VEBA submitting them to Prudential in turn).
    The Applicant represents that to the extent that this arrangement 
might be considered an extension of credit between a party in interest 
and a Plan, TCCC will fully comply with the provisions of Prohibited 
Transaction Exemption (PTE) 80-26, as amended (71 FR 17917, April 7, 
2006). In particular, no interest or fee will be charged to the Plan 
when TCCC pays a claim and later seeks reimbursement. Further, the 
proceeds of such extension of credit will be used only to pay operating 
expenses of the Plan, including benefits paid in ac