Proposed Amendment to Prohibited Transaction Exemption (PTE) 96-23 for Plan Asset Transactions Determined by In-House Asset Managers, 33642-33651 [2010-14205]
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Federal Register / Vol. 75, No. 113 / Monday, June 14, 2010 / Notices
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FOR FURTHER INFORMATION CONTACT:
Michael Harding, Room 4510–C
Employment and Training
Administration, 200 Constitution
Avenue, NW., Washington, DC 20210.
Telephone number: 202–693–2921 (this
is not a toll-free number). Fax: 202–693–
3015. E-mail: Harding.Michael@dol.gov
Signed at Washington, DC this 8th day of
June 2010.
Jane Oates,
Assistant Secretary, Employment and
Training Administration.
[FR Doc. 2010–14141 Filed 6–11–10; 8:45 am]
BILLING CODE 4510–FN–P
DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Application Number D–11221]
ZRIN 1210–ZA09
Proposed Amendment to Prohibited
Transaction Exemption (PTE) 96–23 for
Plan Asset Transactions Determined
by In-House Asset Managers
AGENCY: Employee Benefits Security
Administration.
ACTION: Notice of Proposed Amendment
to PTE 96–23.
SUMMARY: This document contains a
notice of pendency before the
Department of Labor (the Department) of
a proposed amendment to PTE 96–23.
The exemption permits various
transactions involving employee benefit
plans whose assets are managed by inhouse asset managers (INHAMs),
provided the conditions of the
exemption are met. The proposed
amendment would affect participants
and beneficiaries of employee benefit
plans, the sponsoring employers of such
plans, INHAMs, and other persons
engaging in the described transactions.
DATES: Written comments must be
received by the Department on or before
August 13, 2010.
ADDRESSES: All written comments and
requests for a public hearing concerning
the proposed amendment should be sent
to the Office of Exemption
Determinations, Employee Benefits
Security Administration, Room N–5700,
U.S. Department of Labor, 200
Constitution Avenue, NW., Washington
DC 20210, Attention: PTE 96–23
Amendment. Interested persons are also
invited to submit comments and hearing
requests to EBSA via e-mail to:
moffitt.betty@dol.gov or by fax to 202–
219–0204 by the end of the scheduled
comment period. The comments
received will be available for public
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inspection in the Public Disclosure
Room of the Employee Benefits Security
Administration, U.S. Department of
Labor, Room N–1513, 200 Constitution
Avenue, NW., Washington, DC 20210.
Comments and hearing requests will
also be available online at https://
www.regulations.gov and https://
www.dol.gov/ebsa, at no charge.
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 publiclydisclosed. 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.
FOR FURTHER INFORMATION CONTACT:
Chris Motta, Office of Exemption
Determinations, Employee Benefits
Security Administration, U.S.
Department of Labor, Room N–5700,
200 Constitution Avenue NW.,
Washington DC 20210, (202) 693–8540
(not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is
hereby given of the pendency before the
Department of a proposed amendment
to PTE 96–23 (61 FR 15975, April 10,
1996). PTE 96–23 provides an
exemption from certain of the
restrictions of sections 406 and 407(a) of
ERISA, and from certain taxes imposed
by section 4975(a) and (b) of the Code,
by reason of section 4975(c)(1) of the
Code. The Department is proposing this
amendment to PTE 96–23 on its own
motion, pursuant to section 408(a) of
ERISA 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
Executive Order 12866 Statement
Under Executive Order 12866 (58 FR
51735), the Department must determine
whether a regulatory action is
‘‘significant’’ and therefore subject to
review by the Office of Management and
Budget (OMB). Section 3(f) of the
Executive Order defines a ‘‘significant
regulatory action’’ as an action that is
likely to result in a rule (1) having an
annual effect on the economy of $100
1 Section 102 of the Reorganization Plan No. 4 of
1978, 5 U.S.C. App. at 214 (2000 ed.), 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. For purposes of this exemption, references
to specific provisions of Title I of the Act, unless
otherwise specified, refer also to the corresponding
provisions of the Code.
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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 designated this Notice as a
significant action under Executive Order
12866 and has reviewed its contents.
Paperwork Reduction Act Analysis
As part of its continuing effort to
reduce paperwork and respondent
burden, the Department of Labor
conducts a preclearance consultation
program to provide the general public
and Federal agencies with an
opportunity to comment on proposed
and continuing collections of
information in accordance with the
Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This 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 Department is soliciting
comments concerning the proposed
information collection request (ICR)
included in the Proposed Amendment
to Prohibited Transaction Exemption
(PTE) 96–23 for Plan Asset Transactions
Determined by In-House Asset
Managers. A copy of the ICR may be
obtained by contacting the PRA
addressee shown below or at https://
www.RegInfo.gov. PRA Addressee: G.
Christopher Cosby, Office of Policy and
Research, U.S. Department of Labor,
Employee Benefits Security
Administration, 200 Constitution
Avenue, NW., Room N–5718,
Washington, DC 20210. Telephone (202)
693–8410; Fax: (202) 219–5333. These
are not toll-free numbers. ICRs
submitted to OMB are also available at
reginfo.gov (https://www.reginfo.gov/
public/do/PRAMain).
The Department has submitted a copy
of the proposed amendment to OMB in
accordance with 44 U.S.C. 3507(d) for
review of its information collections.
The Department and OMB are
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particularly interested in comments
that:
• Evaluate whether the collection of
information is necessary for the proper
performance of the functions of the
agency, including whether the
information will have practical utility;
• Evaluate the accuracy of the
agency’s estimate of the burden of the
collection of information, including the
validity of the methodology and
assumptions used;
• Enhance the quality, utility, and
clarity of the information to be
collected; and
• Minimize the burden of the
collection of information on those who
are to respond, including through the
use of appropriate automated,
electronic, mechanical, or other
technological collection techniques or
other forms of information technology,
e.g., permitting electronic submission of
responses.
Comments should be sent to the
Office of Information and Regulatory
Affairs, Office of Management and
Budget, Room 10235, New Executive
Office Building, Washington, DC 20503;
Attention: Desk Officer for the
Employee Benefits Security
Administration. Comments also may be
submitted by using the Federal
eRulemaking portal at https://
www.regulations.gov (follow
instructions for submission of
comments). OMB requests that
comments be received within 30 days of
publication of the proposed amendment
to ensure their consideration. Please
note that comments submitted to OMB
are a matter of the public record.
The Department notes that a Federal
agency cannot conduct or sponsor a
collection of information unless it is
approved by OMB under the PRA, and
displays a currently valid OMB control
number, and the public is not required
to respond to a collection of information
unless it displays a currently valid OMB
control number.2 Also, notwithstanding
any other provisions of law, no person
shall be subject to penalty for failing to
comply with a collection of information
if the collection of information does not
display a currently valid OMB control
number.3
The INHAM exemption permits
various parties in interest to employee
benefit plans to engage in transactions
involving plan assets if, among other
requirements, the assets are managed by
an INHAM. The Department included in
the exemption certain requirements
intended to preserve plan assets and
protect plan participant benefits. The
25
35
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CFR 1320.5 and 1320.3(c).
CFR 1320.6.
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33643
exemption includes a requirement for
written guidelines between an INHAM
and a property manager that an INHAM
has retained to act on its behalf. Because
it is a customary business practice for
agreements related to the investment of
plan assets or transactions relating to
the leasing of space to be described in
writing, no burden was estimated for
this provision. The information
collection requirements included in this
paperwork burden estimate consist of
the requirements that the INHAM
develop written policies and procedures
designed to assure compliance with the
conditions of the exemption, and have
an independent auditor conduct an
annual INHAM exemption audit and
issue a written audit report.
The Department has made certain
specific basic assumptions in order to
establish a reasonable estimate of the
paperwork burden of this information
collection.
First, the Department assumes that
INHAMs, which are large, sophisticated
financial institutions, will use existing
in-house resources to prepare the
policies and procedures, rather than
hiring outside service providers to do
this work. This assumption does not
apply to the audit requirements.
Second, given the nature of the
information collection requirements, the
Department assumes a combination of
personnel will perform the information
collection. Using data from the Bureau
of Labor Statistics, the Department
assumes an hourly wage rate of $107 for
2010, including both wages and
benefits, for a financial manager and an
hourly wage rate of $26, similarly
including wages and benefits, for
clerical personnel.4 Legal professional
time is similarly assumed to be $119 per
hour.
Third, the Department assumes that
maintenance of records of the policies
and procedures and the audits is
generally a usual and customary
business practice that would be
undertaken regardless of the exemption.
The proposed amendment does not
contain any additional recordkeeping
requirements; no additional burden has
been assumed for recordkeeping costs.
4 EBSA estimates of labor rates include wages,
other benefits, and overhead based on the National
Occupational Employment Survey (May 2008,
Bureau of Labor Statistics) and the Employment
Cost Index (June 2009, Bureau of Labor Statistics).
Figures are projected forward to 2010. Financial
manager wage and benefits estimates of $107.23 are
based on metropolitan wage estimates for financial
managers. Clerical wage and benefits estimates of
$26.14 are based on metropolitan wage rates for
executive secretaries and administrative assistants.
Legal professional wage and benefits estimates of
$119.03 are based on metropolitan wage rates for
lawyers.
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Further, given the sophisticated nature
of the parties involved, the Department
assumes that communications between
the parties will occur electronically via
means already in existence. Therefore,
the costs arising from electronic
communications will be negligible.
The Department estimates that there
will be approximately 20 INHAMs that
will utilize the amended prohibited
transaction exemption. Information
provided by CIEBA, an industry trade
group, indicates that approximately 24
of CIEBA’s members manage plan assets
in-house and approximately 14–16 of
those currently maintain INHAMs and
utilize the exemptive relief provided in
PTE 96–23.5 CIEBA’s membership is
estimated to include about 80 percent of
all the large firms that manage plan
assets in-house. That leads to an
estimate of approximately 18 INHAMs.
In addition, the Department expects
approximately two more INHAMs to be
established due to proposed changes to
the definition of an INHAM. The
number of INHAMs is assumed to be
constant over time.
Written Policies and Procedures
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The Department assumes that
INHAMs will use existing in-house
resources to prepare the written policies
and procedures. The Department
estimates that each INHAM will use 15
hours of a legal professional’s time to
develop policies and procedures. This
leads to an hour burden in the first year
of 300 hours.6 At $119 per hour, the
equivalent cost will be $35,700 for the
first year.7
For subsequent years, the Department
assumes that INHAMs will change their
policies and procedures very
infrequently. Therefore, the hour burden
for subsequent years is estimated to be
negligible. The Department invites
comments from interested persons on
the appropriateness of this assumption.
5 CIEBA is a trade association whose membership
includes corporate financial officers who serve as
fiduciaries of employee benefit plans subject to
ERISA and the Code. CIEBA’s approximately 115
member companies collectively oversee about $1.4
trillion of defined benefit and defined contribution
plan assets for about 16 million plan participants
and beneficiaries. For defined benefit plans in 2008,
the member companies oversaw more than $652
billion in plan assets for more than 10.2 million
plan participants. CIEBA 2008 Membership Profile
Executive Summary. This figure represents
approximately 35 percent of the defined benefit
plan assets in the United States. This calculation is
based on a projection computed by applying
percentage changes in pension assets derived from
the Federal Reserve Board’s Flow of Funds
Accounts to the 2006 Form 5500 filings with the
U.S. Department of Labor.
6 20 INHAMs x 15 hours = 300 hours.
7 300 hours x $119 per hour = $35,700.
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Audit Requirements
INHAMs are assumed to use either a
law firm or an accounting firm to
conduct the annual audit required by
the proposed amendment. The
Department has received information
from industry representatives that the
cost of the annual audit required by PTE
96–23 may range from approximately
$10,000 to $25,000, depending on asset
size and how many years the INHAM
has used the auditing firm. The
Department has used a conservative
estimate for the cost of the outside
auditing firm for each audit of $20,000.
This leads to a cost estimate for the
annual audits of $400,000.8
For purposes of the hour burden, the
Department estimates that each INHAM
will use in-house legal professional,
financial manager, and clerical time to
provide documents and respond to
questions from the auditor. Each annual
audit will require about ten hours of a
legal professional’s time, 25 hours of a
financial manager’s time, and twelve
hours of clerical time. This leads to an
hour burden of 940 hours.9 The
equivalent cost of this hour burden for
the annual audits is approximately
$83,700.10
Summary
For the first year, the Department
estimates that the total hour burden
imposed by the information collection is
about 1,240 hours.11 The total
equivalent cost of this hour burden is
approximately $119,400.12 The total
cost burden is $400,000.
For subsequent years, the total annual
hour burden is approximately 940
hours. The total equivalent annual cost
of this hour burden is about $83,700.
The total annual outside cost is
$400,000.
The paperwork burden estimates are
summarized as follows:
Type of Collection: New collection
(Request for new OMB Control
Number).
Agency: Employee Benefits Security
Administration, Department of Labor.
Title: Proposed Amendment to PTE
96–23 for Plan Asset Transactions
Determined by In-House Asset
Managers.
OMB Control Number: New.
Affected Public: Business or other forprofit; not-for-profit institutions.
× 20 INHAMs = $400,000.
hours + 25 hours + 12 hours) × 20 INHAMs
= 940 hours.
10 (10 hours × $119 per hour + 25 hours × $107
per hour + 12 hours × $26 per hour) × 20 INHAMs
= $83,700.
11 300 hours + 940 hours = 1,240 hours.
12 $35,700 + $83,700 = $119,400.
8 $20,000
9 (10
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Estimated Number of Respondents:
20.
Estimated Number of Annual
Responses: 40 in the first year, 20 in
each subsequent year.
Frequency of Response: Annually;
occasionally.
Estimated Total Annual Burden
Hours: 1,240 in the first year, 940 in
each subsequent year.
Estimated Total Annual Burden Cost:
$400,000.
Background
On March 13, 1984, the Department
granted Prohibited Transaction
Exemption (PTE) 84–14 for Plan Asset
Transactions Determined by
Independent Qualified Professional
Asset Managers (49 FR 9494), a class
exemption that permits various parties
who are related to employee benefit
plans to engage in transactions
involving plan assets if, among other
conditions, the assets are managed by a
‘‘qualified professional asset manager’’
(QPAM). The Department recently
amended the QPAM exemption.13
The QPAM exemption granted in
1984 did not provide relief for
transactions involving the assets of
plans managed by in-house asset
managers. The Committee on
Investment of Employee Benefit Assets
(CIEBA) subsequently requested such
relief. CIEBA represented that in-house
managers encountered technical
problems under the prohibited
transaction rules of ERISA in the course
of considering arm’s-length transactions
that would be in the interests of their
plans.
CIEBA stated, in its original
exemption application, that in-house
managers have become an established
part of many large companies that
manage some or all of their plan assets
in-house. According to CIEBA, many of
the large corporations that made up its
membership maintained one or more
employee benefit plans holding, in the
aggregate, assets in excess of $250
million. These large corporations
determined that they could reduce costs
and maintain high quality management
by developing an in-house asset
management capability rather than
relying exclusively on outside managers
or consultants. CIEBA represented that,
in addition to providing reduced costs
13 See Amendment to Prohibited Transaction
Exemption (PTE) 84–14 for Plan Asset Transactions
Determined by Independent Qualified Professional
Asset Managers, 70 FR 49305 (August 23, 2005). See
also Proposed Amendment to Prohibited
Transaction Exemption (PTE) 84–14 for Plan Asset
Transactions Determined by Independent Qualified
Professional Asset Managers, 70 FR 49312 (August
23, 2005).
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for comparable or better quality
management, in-house managers were
attractive to employers because they
devoted their time solely to the plan’s
asset management activities, while
outside managers had other clients and
responsibilities. The applicant also
asserted that the named plan fiduciaries
benefited from having access to inhouse expertise and advice to assist
them in carrying out their fiduciary
responsibilities.
CIEBA represented that, unless the
Department provided broad exemptive
relief for in-house asset managers, inhouse plans would be disadvantaged
because of the restrictions on the types
of transactions an in-house manager
could engage in on behalf of such a
plan. The applicant explained that very
large plans may have thousands of
parties in interest, making the task of
determining whether a particular
transaction was prohibited a
considerable burden for the plan
fiduciaries. According to the applicant,
if the in-house manager wished to enter
into a transaction he or she believed
would be beneficial to the plan but
which also involved a party in interest,
that manager would be required to
either: (1) Seek an individual prohibited
transaction exemption; (2) retain a
QPAM for the transaction; or (3) forgo
the transaction. The applicant argued
that seeking an individual exemption
involved time and legal expenses. In
addition, the use of a QPAM entailed
additional expenses for the plan despite
the fact that the in-house manager had
already done most of the work required
for the transaction, including
performing the necessary due diligence
as to, for example, the creditworthiness
of the other parties to the transaction.14
Finally, the applicant argued that
forgoing the transaction might cause the
plan to miss out on a beneficial
opportunity. CIEBA argued that a class
exemption for in-house asset managers
was necessary because these limitations
on a plan’s investment choices could
raise a plan’s investment costs in the
short run by limiting the parties with
whom it may deal, and could adversely
affect investment performance in the
long run. Based on the record
developed, the Department determined
that relief would be appropriate and
granted the Class Exemption for Plan
Asset Transactions Determined by InHouse Asset Managers (INHAMs).15
14 The Department is expressing no opinion as to
whether the above described transaction would
come within the scope of relief provided by PTE
84–14, as amended.
15 61 FR 15975 (April 10, 1996).
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Description of Existing Relief
The INHAM exemption consists of
four separate parts. Part I sets forth the
general exemption and enumerates
certain conditions applicable to the
transactions described therein. The
general exemption allows that portion of
a plan which is managed by an INHAM
to engage in all transactions described
in section 406(a)(1)(A) through (D) of
ERISA with virtually all party in interest
service providers except the INHAM or
a person related to the INHAM. The
general exemption does not extend to
transactions that would give rise to
violations of section 406(b) of ERISA.
Part II of the exemption provides
limited relief under both sections 406(a)
and (b), and 407(a), of ERISA for certain
transactions involving employers and
their affiliates who cannot qualify for
the general exemption provided by Part
I. Section II(a) provides limited relief for
the leasing of office or commercial space
by a plan to an employer if the plan
acquired the property subject to an
outstanding lease with an employer or
affiliate as a result of foreclosure on a
mortgage or deed of trust. Section II(b)
permits a plan to lease residential space
to an employee of an employer any of
whose employees are covered by such
plan, or to any employee of a 50% or
more parent or subsidiary of the
employer.
Part III of the exemption provides
relief from sections 406(a)(1)(A) through
(D), 406(b)(1) and (b)(2) of ERISA for the
furnishing of services, facilities and any
goods incidental thereto by a place of
accommodation owned by a plan
managed by an INHAM to a party in
interest with respect to the plan, if the
services, facilities or incidental goods
are furnished on a comparable basis to
the general public.
Part IV contains definitions of certain
terms used in the exemption.
Description of the Proposed
Amendments
Definition of INHAM
The Department is proposing to
amend several provisions of the INHAM
exemption, including the definition of
INHAM in section IV(a). Section IV(a)
currently provides that:
The term ‘‘in-house asset manager’’ or
‘‘INHAM’’ means an organization which is—
(1) Either (A) a direct or indirect whollyowned subsidiary of an employer, or a direct
or indirect wholly-owned subsidiary of a
parent organization of such employer, or (B)
a membership nonprofit corporation a
majority of whose members are officers or
directors of such an employer or parent
organization; and
(2) an investment adviser registered under
the Investment Advisers Act of 1940 that, as
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33645
of the last day of its most recent fiscal year,
has under its management and control total
assets attributable to plans maintained by
affiliates of the INHAM (as defined in section
IV(b)) in excess of $50 million; provided that
if it has no prior fiscal year as a separate legal
entity as a result of it constituting a division
or group within the employer’s
organizational structure, then this
requirement will be deemed met as of the
date during its initial fiscal year as a separate
legal entity that responsibility for the
management of such assets in excess of $50
million was transferred to it from the
employer.
In addition, plans maintained by affiliates
of the INHAM and/or the INHAM, must have,
as of the last day of each plan’s reporting
year, aggregate assets of at least $250 million.
The Department has been informed by
interested persons that the requirement
that an INHAM be a wholly owned
subsidiary of an employer or its parent
organization unduly limited some
entities from serving as INHAMs.
Interested parties requested, in
comments submitted in connection with
the proposed amendment to the QPAM
class exemption [68 FR 52419,
September 3, 2003], that the Department
consider broadening the definition of
INHAM to permit a greater number of
entities to take advantage of the relief
provided by the exemption.
In response to such comments, the
Department proposes to expand the
definition of INHAM to include a
subsidiary that is 80% or more owned
by the employer or parent company.
Additionally, the plan assets under
management requirement would be
increased from $50 million to $85
million, effective as of the last day of the
first fiscal year beginning on or after the
date of publication in the Federal
Register of the final amendment to this
exemption. The increase reflects the
change in the Consumer Price Index.
Requested Clarifications
The Department has also been asked
informally to clarify several issues
regarding the definition of an INHAM
and the scope of the exemption. First,
the Department has been asked whether
an INHAM can act on behalf of its own
plans. The exemption provides relief for
transactions involving a ‘‘plan’’ as
defined in section IV(h). As noted by the
Department in the preamble to the
original exemption, the definition of
plan adopted by the Department
includes a plan maintained by the
INHAM or an affiliate of the INHAM.
Accordingly, the exemption currently
provides relief for an INHAM to act on
behalf of its own plans.
Additionally, interested persons have
asked the Department to clarify certain
aspects of transactions involving both
INHAMs and QPAMs. The Department
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was asked whether a QPAM could be
employed to negotiate the specific terms
of a deal after an employer or its
INHAM have agreed on general terms
with the counterparty. The Department
stated in the preamble to the original
QPAM class exemption that, while a
QPAM may adhere to investment
guidelines established by persons with
the power to appoint it, the retention of
a veto or approval power by the plan
sponsor or its designee would be
inconsistent with the underlying
concept of the QPAM exemption, that
is, the transfer of plan assets to an
independent, discretionary, manager.16
In the Department’s view, an INHAM
directing a QPAM to negotiate specific
terms of a deal that has already been
generally agreed upon by the INHAM or
the employer represents a more
significant limitation on the QPAM’s
discretion than the imposition of
investment guidelines. Similar to a veto
or approval power, this amount of
involvement would be inconsistent with
the basic premise of the QPAM
exemption.
Interested persons also asked the
Department to clarify that a transaction
that is entered into by an INHAM, but
subsequently overseen by a QPAM, or
vice versa, may satisfy the terms of the
INHAM and the QPAM exemption, as
applicable. The Department believes
that, unlike the situation described in
the previous paragraph, the INHAM and
the QPAM may each operate
independently of one another and have
discretionary authority for different
aspects of the same plan investment.
Thus, for example, the INHAM may
exercise its discretionary authority to
purchase an office building on behalf of
the plan. Pursuant to an investment
management agreement with the plan,
the QPAM may have independent
discretionary authority to operate the
building on a day to day basis,
including negotiating all lease
agreements. Under those circumstances,
the Department agrees that the QPAM
and the INHAM exemptions would be
available for the transactions
independently negotiated by the
INHAM and QPAM, respectively,
provided that the conditions of the
relevant exemption are satisfied.
Interested persons also requested that
the Department clarify section I(b) of
PTE 96–23 in a manner similar to the
clarification made by the Department in
the proposed amendment to the QPAM
class exemption.17 Section I(b) of PTE
96–23 excludes from exemptive relief
those transactions described in PTEs
16 49
FR 9497.
68 FR 52422, September 3, 2003.
17 See
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81–6 (relating to securities lending
arrangements), 83–1 (relating to
acquisitions by plans of interests in
mortgage pools) and 88–59 (relating to
certain mortgage financing
arrangements). The Department
understands that there is uncertainty
regarding the application of the INHAM
class exemption to certain types of
transactions that, although similar to the
transactions that are the subject of the
three specialized exemptions, are
beyond the scope of relief provided by
those exemptions. It is the view of the
Department that the INHAM class
exemption would provide relief for such
transactions if the conditions of the
exemption are otherwise satisfied. The
Department cautions, however, that the
INHAM class exemption would not be
available for any transaction specifically
described in PTEs 81–6, 83–1 or 88–59,
if a person determines not to satisfy one
or more of the conditions of the
specialized exemptions solely in order
to take advantage of the relief provided
by the INHAM class exemption.
The Department notes that on October
31, 2006, it amended and replaced PTEs
81–6 and 82–63, relating to securities
lending arrangements (PTE 2006–16, 71
FR 63786). That amendment extended
the relief provided under PTEs 81–6 and
82–63 to additional parties and
additional forms of collateral, subject to
modified conditions. Recognizing that
class exemptions are often amended
over time to reflect changes in the
marketplace, the Department intends
that section I(b)(1) of the INHAM class
exemption will continue to exclude
from relief transactions described in
PTE 2006–16 as it is amended or
superseded. Accordingly, the
Department proposes to amend the
reference to PTE 2006–16 in section I(b),
as well as the references in that section
to the other class exemptions, to include
the phrase ‘‘as amended or superseded.’’
Permitted Counterparties
The Department also received
requests from interested persons to
amend section I(e) of the exemption,
which as currently drafted provides that
the party in interest dealing with the
plan: (1) Is a party in interest with
respect to the plan (including a
fiduciary) solely by reason of providing
services to the plan, or solely by reason
of a relationship to a service provider
described in section 3(14)(F), (G), (H), or
(I) of ERISA; and (2) does not have
discretionary authority or control with
respect to the investment of the plan
assets involved in the transaction and
does not render investment advice
(within the meaning of 29 CFR 2510.3–
21(c)) with respect to those assets.
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On occasion, since the issuance of
PTE 96–23, the Department has at times
been asked to remove all limits on the
types of parties in interest that could
engage in transactions with the plan
pursuant to the exemption. The
Department also received a more limited
request to permit the plan to engage in
transactions with ‘‘co-joint venturers.’’
Such entities own at least 10% of a joint
venture in which an employer (or its
parent) has at least a 50% interest and
are parties in interest pursuant to
section 3(14)(I) of ERISA. The interested
person represented that it is
administratively burdensome for
INHAMs to monitor every joint venture
in which employers may participate.
The Department has determined not
to remove all restrictions on the types of
parties in interest that may engage in
transactions with plans pursuant to the
exemption. In this regard, the
Department notes that a commenter on
the original INHAM exemption
requested that the restrictions on parties
in interest be removed, and at that time
the Department stated that there had not
been a sufficient showing that the
safeguards contained in the proposed
exemption would adequately discourage
the exercise of undue influence upon
the INHAM if the exemption were
expanded in such manner. For that
reason, the Department is not persuaded
at this time that such an amendment is
warranted.
However, the Department has
determined to propose the more limited
relief requested for entities that are
parties in interest because they are ‘‘cojoint venturers.’’ Section I(e) would
provide as follows:
(e) The party in interest dealing with the
plan: (1) Is a party in interest with respect to
the plan (including a fiduciary) either (i)
solely by reason of providing services to the
plan, or solely by reason of a relationship to
a service provider described in section
3(14)(F), (G), (H) or (I) of ERISA, or (ii) solely
by reason of being a 10 percent or more
shareholder, partner or joint venturer, in a
person, which is 50 percent or more owned
by an employer of employees covered by the
plan (directly or indirectly in capital or
profits), or the parent company of such an
employer, provided that such person is not
controlled by, controlling, or under common
control with such employer, or (iii) by reason
of both (i) and (ii) only, and (2) does not have
discretionary authority or control with
respect to the investment of the plan assets
involved in the transaction and does not
render investment advice (within the
meaning of 29 CFR 2510.3–21(c)) with
respect to those assets.
The Department cautions that, under
section I(e), a co-joint venturer may
engage in a transaction with a plan only
if the joint venture relationship is the
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entity’s sole relationship to the
employer, or if the entity is both a joint
venturer and a service provider or an
entity with a relationship to a service
provider as described above. If a person
has any other relationship with the
employer described in section 3(14) of
the Act, the person would not fall
within the scope of section I(e), and,
therefore, could not take advantage of
the relief provided by the exemption. In
addition, the co-joint venturer may not
be controlled by, controlling, or under
common control with such employer.
Finally, section I(e) clarifies that the cojoint venturer may not have
discretionary authority or control with
respect to the investment of the plan
assets involved in the transaction and
may not render investment advice
(within the meaning of 29 CFR 2510.3–
21(c)) with respect to those assets.
Parties Related to the INHAM
The Department proposes to amend
the definition of ‘‘related’’ to in section
IV(d) of the exemption. Under section
I(f), the party in interest dealing with
the plan may not be the INHAM nor a
person related to the INHAM. Section
IV(d) currently provides that an INHAM
is related to a party in interest.
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If the party in interest (or a person
controlling, or controlled by, the party in
interest) owns a five percent or more interest
in the INHAM or if the INHAM (or a person
controlling, or controlled by, the INHAM)
owns a five percent or more interest in the
party in interest.
The Department understands that
compliance with the ‘‘related’’ to
requirement may create administrative
burdens for a number of INHAMs. In
order to ease such burdens, the
Department determined to increase the
five percent threshold in section IV(d) to
ten percent.
The Department notes that, under the
proposed amendment, the requirements
in section I(f) may overlap with the
limitations contained in section I(e)
under certain circumstances. Thus, for
example, if the party in interest owns a
10 percent interest in the INHAM, the
party in interest would fail section I(e)
because, as a 10% shareholder of the
INHAM, it would no longer be a party
in interest solely by reason of being a
service provider to the plan. In addition,
it would fail section I(f) as it would be
considered ‘‘related’’ to the INHAM
because of its ownership interest.
Conversely, under the proposed
amendment, relief would be available to
a service provider that is 9% owned by
the parent corporation of the INHAM.
In addition, the Department is
proposing to make several other
amendments to section IV(d) to ease
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compliance burdens. As amended, that
section would require ownership
interests to be calculated only as of the
last day of the entity’s most recent
calendar quarter. Finally, ownership
interests held in a fiduciary capacity
would not have to be considered in
applying the percentage limitation in
section IV(d) of the exemption.
Continuing Transactions
The Department has received several
inquiries about section IV(e) of PTE
96–23, which defines ‘‘the time as of
which any transaction occurs.’’ The
Department understands that there is
uncertainty regarding the role of an
INHAM in a continuing transaction.
Section IV(e) states the following with
respect to a continuing transaction:
[I]n the case of a transaction that is
continuing, the transaction shall be deemed
to occur until it is terminated. If any
transaction is entered into on or after April
10, 1996, or any renewal that requires the
consent of the INHAM occurs on or after
April 10, 1996, and the requirements of this
exemption are satisfied at the time the
transaction is entered into or renewed,
respectively, the requirements will continue
to be satisfied thereafter with respect to the
transaction. Nothing in this paragraph shall
be construed as exempting a transaction
entered into by a plan which becomes a
transaction described in section 406 of the
Act or section 4975 of the Code while the
transaction is continuing, unless the
conditions of the exemption were met either
at the time the transaction was entered into
or at the time the transaction would have
become prohibited but for this exemption. In
determining compliance with the conditions
of the exemption at the time that the
transaction was entered into for purposes of
the preceding sentence, section I(e) will be
deemed satisfied if the transaction was
entered into between a plan and a person
who was not then a party in interest.
In the Department’s view, the
exemption would be available for a
continuing transaction (e.g., a loan or
lease), provided that all the conditions
of the exemption are satisfied on the
date on which the transaction is entered
into (or on the date of a renewal that
requires the consent of the INHAM),
notwithstanding the subsequent failure
to satisfy one or more of the conditions
of the exemption. Nonetheless, the
Department cautions that, although Part
I may continue to be available for the
entire term of a continuing transaction
which subsequently fails to satisfy one
or more of the conditions of that Part,
no relief would be provided for an act
of self-dealing described in section
406(b)(1) of ERISA if the INHAM has an
interest in the person which may affect
the exercise of its best judgment as a
fiduciary. Although Part I provides an
exemption from section 406(a)(1)(A)
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33647
through (D) of ERISA, it does not
provide relief from acts described in
section 406(b) of ERISA. The
Department urges fiduciaries to take
appropriate steps to avoid engaging in
406(b) violations should circumstances
change during the course of a
continuing transaction.
Exemption Audit
It has come to the Department’s
attention that practitioner uncertainty
exists regarding certain aspects of the
exemption audit, as required by section
I(h), and defined in section IV(f), of PTE
96–23. The Department is therefore
proposing to amend the class
exemption, and is offering the following
views, to provide clarity to those
sections.
Section IV(f) of PTE 96–23 currently
requires, in part, an auditor to test a
representative sample of a plan’s
transactions covered by the exemption
in order to make findings regarding
whether the INHAM is in compliance
with the INHAM’s policies and
procedures, and with the objective
requirements of the exemption. The
Department notes, however, that in
certain instances, an auditor may need
to construct and test more than one
sample of transactions. For example, an
auditor may initially believe that the
most appropriate way to make the
required findings is to construct a
sample that represents a subset of the
total universe of relevant transactions
engaged in by the INHAM under the
exemption. In testing the sample,
however, the auditor should look for,
and may find, patterns of compliance
failures that indicate that certain types
of transactions are more prone to
compliance failures than others. If such
patterns appear, the auditor may need to
test additional transactions to more
accurately assess the extent and causes
of non-compliant transactions.
Ultimately, an auditor must construct
and test a sampling of transactions that
is sufficient in size (i.e., number of
transactions) and nature (i.e., type of
transactions) to afford the auditor a
reasonable basis to make its required
determinations under the class
exemption. Since, as noted in the
preamble to PTE 96–23, the sole
purpose of the audit is to assure
compliance with the exemption, the
sample should also be sufficient in size
and nature for the auditor to render an
overall opinion regarding whether the
INHAM’s program complied with the
objective requirements of the
exemption, and with the INHAM’s own
policies and procedures.
Accordingly, the Department is
proposing to amend section IV(f)(2) of
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the exemption in a manner that is
consistent with the views expressed
above.
Section I(h) of the exemption requires
that an independent auditor conduct an
exemption audit on an annual basis, and
issue a written report to the plan
presenting its specific findings
regarding the level of compliance with
the policies and procedures adopted by
the INHAM. However, the exemption
does not currently specify the date by
which each audit must be completed.
To avoid any uncertainty on this issue,
the Department is proposing to amend
section I(h) of the exemption to
expressly provide that the audit must be
completed within six months following
the end of the year to which it relates.
The Department is further proposing to
amend section I(h) to clarify that the
written report must contain both
specific findings required under section
IV(f)(2), and an overall opinion
regarding the level of compliance of the
INHAM’s program with the objective
requirements of the exemption.
The preamble to the original INHAM
class exemption points out that relief is
not available under the exemption for
those transactions that did not satisfy its
conditions. As a result, the Department
anticipates that an auditor’s report will
clearly identify each transaction
examined by the auditor that does not
comply with the INHAM’s policies and
procedures or the exemption. In this
regard, the report should identify the
specific policies, procedures or
exemption conditions that were not
satisfied. The Department expects
further that each written report will
include a description of the steps, if
any, taken by the INHAM to remedy
transactions that did not comply with
the objective requirements of the
exemption. The report should also
contain a description of the steps taken
by the auditor to construct the sample(s)
and an explanation as to why the
auditor believes that the sample on
which the required findings are based is
an adequate representation of the total
universe of transactions engaged in by
the INHAM.
The INHAM retains responsibility for
reviewing the written report and taking
any appropriate actions deemed
necessary for assuring compliance with
the exemption. The Department
cautions that the failure of the INHAM
to take appropriate steps to address any
adverse findings or prohibited
transactions in an audit would raise
issues under the fiduciary responsibility
provisions of section 404 of ERISA.
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Section II Transactions
Finally, the Department was asked by
CIEBA, the original applicant, to amend
section II(a) of the exemption, which
provides relief for the leasing of office
or commercial space owned by a plan
managed by an INHAM to an employer
with respect to the plan or an affiliate
of such employer. As originally granted,
the relief provided in section II(a) was
limited to situations in which the plan
acquired the space subject to an existing
lease as a result of a foreclosure on a
mortgage or deed of trust. CIEBA noted
that situations other than a foreclosure
can give rise to a lease relationship
between a plan and an employer or its
affiliate. For example, CIEBA noted that
the plan may purchase a building
subject to a pre-existing lease.
Alternatively, the employer could
acquire a company with an existing
lease in a building owned by the plan.
CIEBA asserted that in both situations,
the terms of the existing lease were
negotiated by a third party at arm’s
length. CIEBA additionally requested
that section II(a) of the exemption be
expanded to cover all situations in
which the plan’s lease to the employer
or an affiliate arises as a result of a
corporate transaction outside the
INHAM’s control.
The Department concurs with CIEBA
that it is appropriate to expand the relief
provided by section II(a) to include
additional situations involving existing
leases with an employer or an affiliate
beyond foreclosure situations, provided
that the decision to acquire the office or
commercial space subject to the lease is
made by the INHAM. The Department
has proposed to amend section II(a)
accordingly. In the case of a transaction
involving the employer’s acquisition of
a company with an existing lease in a
building purchased by the plan, the
Department notes that the last sentence
of section IV(e) provides that:
[i]n determining compliance with the
conditions of the exemption at the time that
the transaction was entered into for purposes
of the preceding sentence, section I(e) will be
deemed satisfied if the transaction was
entered into between a plan and a person
who was not then a party in interest.
Accordingly, it is the view of the
Department that section II(a) would be
available for the entire lease term,
notwithstanding the employer’s
subsequent acquisition of the lessee,
provided that the conditions of the
exemption were met at the time the
transaction first was entered into.
Finally, in light of the fact that the
INHAM is affiliated with the employer
maintaining the plan, the Department is
not convinced that it is appropriate to
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provide broad relief for all situations in
which the plan’s lease to the employer
or an affiliate arises as a result of a
corporate transaction outside of the
INHAM’s control.
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 ERISA and section 4975(c)(2)
of the Code does not relieve a fiduciary
or other party in interest or 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 and the
general fiduciary responsibility
provisions of section 404 of ERISA
which require, among other things, that
a fiduciary discharge his or her duties
respecting plan solely in the interests of
the participants and beneficiaries of the
plan. Additionally, the fact that a
transaction is the subject of an
exemption does not affect the
requirement of section 401(a) of the
Code that the plan must operate for the
exclusive benefit of the employees of
the employer maintaining the plan and
their beneficiaries;
(2) Before an exemption may be
granted under section 408(a) of ERISA
and 4975(c)(2) of the Code, the
Department must find that the
exemption is administratively feasible,
in the interests of the plan and of its
participants and beneficiaries, and
protective of the rights of participants
and beneficiaries of the plan;
(3) If granted, the proposed
amendment is applicable to a particular
transaction only if the transaction
satisfies the conditions specified in the
exemption; and
(4) The proposed amendment, if
granted, will be supplemental to, and
not in derogation of, any 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.
Written Comments and Hearing
Requests
The Department invites all interested
persons to submit written comments or
requests for a public hearing on the
proposed amendment to the address and
within the time period set forth above.
All comments received will be made a
part of the record. Comments and
requests for a public hearing should
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state the reasons for the writer’s interest
in the proposed amendment. Comments
received will be available for public
inspection at the above address.
emcdonald on DSK2BSOYB1PROD with NOTICES
Proposed Amendment
Under 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), the
Department proposes to amend PTE 96–
23, effective as of the date of publication
of the final class exemption in the
Federal Register, as set forth below:
Part I—Basic Exemption
Effective as of the date of publication
of the final class exemption in the
Federal Register, the restrictions of
section 406(a)(1)(A) through (D) of the
Act and the taxes imposed by section
4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(A) through (D) of
the Code, shall not apply to a
transaction between a party in interest
with respect to a plan (as defined in
section IV(h)) and such plan, provided
that an in-house asset manager (INHAM)
(as defined in section IV(a)) has
discretionary authority or control with
respect to the plan assets involved in
the transaction and the following
conditions are satisfied:
(a) The terms of the transaction are
negotiated on behalf of the plan by, or
under the authority and general
direction of, the INHAM, and either the
INHAM, or (so long as the INHAM
retains full fiduciary responsibility with
respect to the transaction) a property
manager acting in accordance with
written guidelines established and
administered by the INHAM, makes the
decision on behalf of the plan to enter
into the transaction. Notwithstanding
the foregoing, a transaction involving an
amount of $5,000,000 or more, which
has been negotiated on behalf of the
plan by the INHAM will not fail to meet
the requirements of this section I(a)
solely because the plan sponsor or its
designee retains the right to veto or
approve such transaction;
(b) The transaction is not described
in–
(1) Prohibited Transaction Exemption
2006–16 (71 FR 63786, October 31,
2006) (relating to securities lending
arrangements) (as amended or
superseded);
(2) Prohibited Transaction Exemption
83–1 (48 FR 895, January 7, 1983)
(relating to acquisitions by plans of
interests in mortgage pools)(as amended
or superseded); or
(3) Prohibited Transaction Exemption
88–59 (53 FR 24811, June 30, 1988)
(relating to certain mortgage financing
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arrangements) (as amended or
superseded);
(c) The transaction is not part of an
agreement, arrangement or
understanding designed to benefit a
party in interest;
(d) At the time the transaction is
entered into, and at the time of any
subsequent renewal or modification
thereof that requires the consent of the
INHAM, the terms of the transaction are
at least as favorable to the plan as the
terms generally available in arm’s length
transactions between unrelated parties;
(e) The party in interest dealing with
the plan: (1) Is a party in interest with
respect to the plan (including a
fiduciary) either (i) solely by reason of
providing services to the plan, or solely
by reason of a relationship to a service
provider described in section 3(14)(F),
(G), (H) or (I) of ERISA, or (ii) solely by
reason of being a 10 percent or more
shareholder, partner or joint venturer, in
a person, which is 50 percent or more
owned by an employer of employees
covered by the plan (directly or
indirectly in capital or profits), or the
parent company of such an employer,
provided that such person is not
controlled by, controlling, or under
common control with such employer, or
(iii) by reason of both (i) and (ii) only,
and (2) does not have discretionary
authority or control with respect to the
investment of the plan assets involved
in the transaction and does not render
investment advice (within the meaning
of 29 CFR 2510.3–21(c)) with respect to
those assets.
(f) The party in interest dealing with
the plan is neither the INHAM nor a
person related to the INHAM (within
the meaning of section IV(d));
(g) The INHAM adopts written
policies and procedures that are
designed to assure compliance with the
conditions of the exemption; and
(h) An independent auditor, who has
appropriate technical training or
experience and proficiency with
ERISA’s fiduciary responsibility
provisions and so represents in writing,
conducts an exemption audit (as
defined in section IV(f)) on an annual
basis. Following completion of the
exemption audit, the auditor shall issue
a written report to the plan presenting
its specific findings regarding the level
of compliance: (1) With the policies and
procedures adopted by the INHAM in
accordance with section I(g); and (2)
with the objective requirements of the
exemption. The written report shall also
contain the auditor’s overall opinion
regarding whether the INHAM’s
program complied: (1) With the policies
and procedures adopted by the IHNAM;
and (2) with the objective requirements
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33649
of the exemption. The exemption audit
and the written report must be
completed within six months following
the end of the year to which the audit
relates.
Part II—Specific Exemptions
Effective as of the date of publication
of the final class exemption in the
Federal Register, the restrictions of
sections 406(a), 406(b)(1), 406(b)(2) and
407(a) of the Act and the taxes imposed
by section 4975(a) and (b) of the Code,
by reason of Code section 4975(c)(1)(A)
through (E), shall not apply to:
(a) The leasing of office or commercial
space owned by a plan managed by an
INHAM to an employer any of whose
employees are covered by the plan or an
affiliate of such employer (as defined in
section 407(d)(7) of the Act), if —
(1) The plan acquires the office or
commercial space subject to an existing
lease with the employer or its affiliate;
(2) The lease was negotiated by a
party unrelated to the employer or its
affiliate;
(3) The INHAM makes the decision on
behalf of the plan to acquire the office
or commercial space as part of the
exercise of its discretionary authority;
(4) The exemption provided for
transactions engaged in with a plan
pursuant to section II(a) is effective until
the later of the expiration of the lease
term or any renewal thereof which does
not require the consent of the plan
lessor;
(5) The amount of space covered by
the lease does not exceed fifteen (15)
percent of the rentable space of the
office building or the commercial
center; and
(6) The requirements of sections I(c),
I(g) and I(h) are satisfied with respect to
the transaction.
(b) The leasing of residential space by
a plan to a party in interest if —
(1) The party in interest leasing space
from the plan is an employee of an
employer any of whose employees are
covered by the plan or an employee of
an affiliate of such employer (as defined
in section 407(d)(7) of the Act);
(2) The employee who is leasing space
does not have any discretionary
authority or control with respect to the
investment of the assets involved in the
lease transaction and does not render
investment advice (within the meaning
of 29 CFR 2510.3–21(c)) with respect to
those assets;
(3) The employee who is leasing space
is not an officer, director, or a 10% or
more shareholder of the employer or an
affiliate of such employer;
(4) At the time the transaction is
entered into, and at the time of any
subsequent renewal or modification
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thereof that requires the consent of the
INHAM, the terms of the transaction are
not less favorable to the plan than the
terms afforded by the plan to other,
unrelated lessees in comparable arm’s
length transactions;
(5) The amount of space covered by
the lease does not exceed five percent
(5%) of the rentable space of the
apartment building or multi-unit
residential subdivision [townhouses or
garden apartments], and the aggregate
amount of space leased to all employees
of the employer or an affiliate of such
employer does not exceed ten percent
(10%) of such rentable space; and
(6) The requirements of sections I(a),
I(c), I(d), I(g) and I(h) are satisfied with
respect to the transaction.
emcdonald on DSK2BSOYB1PROD with NOTICES
Part III—Places of Public
Accommodation
Effective as of the date of publication
of the final class exemption in the
Federal Register, the restrictions of
sections 406(a)(1)(A) through (D) and
406(b)(1) and (2) of ERISA and the taxes
imposed by Code section 4975(a) and
(b), by reason of Code section
4957(c)(1)(A) through (E), shall not
apply to the furnishing of services and
facilities (and goods incidental thereto)
by a place of public accommodation
owned by a plan and managed by an
INHAM to a party in interest with
respect to the plan, if the services and
facilities (and incidental goods) are
furnished on a comparable basis to the
general public.
Part IV—Definitions
For purposes of this exemption:
(a) The term ‘‘in-house asset manager’’
or ‘‘INHAM’’ means an organization
which is—
(1) either (A) a direct or indirect 80
percent or more owned subsidiary of an
employer, or a direct or indirect 80
percent more owned subsidiary of a
parent organization of such an
employer, or (B) a membership
nonprofit corporation a majority of
whose members are officers or directors
of such an employer or parent
organization; and
(2) an investment adviser registered
under the Investment Advisers Act of
1940 that, as of the last day of its most
recent fiscal year, has under its
management and control total assets
attributable to plans maintained by
affiliates of the INHAM (as defined in
section IV(b)) in excess of $50 million;
provided that if it has no prior fiscal
year as a separate entity as a result of
it constituting a division or group
within the employer’s organizational
structure, then this requirement will be
deemed met as of the date during its
VerDate Mar<15>2010
16:40 Jun 11, 2010
Jkt 220001
initial fiscal year as a separate legal
entity that responsibility for the
management of such assets in excess of
$50 million was transferred to it from
the employer. Effective as of the last day
of the first fiscal year of the investment
adviser beginning on or after the date of
publication of this amendment to PTE
96–23 in the Federal Register, substitute
‘‘$85 million’’ for ‘‘$50 million’’ in (a)(2)
of section IV above.
In addition, plans maintained by
affiliates of the INHAM and/or the
INHAM must have, as of the last day of
each plan’s reporting year, aggregate
assets of at least $250 million.
(b) For purposes of sections IV(a) and
IV(h), an ‘‘affiliate’’ of an INHAM means
a member of either (1) a controlled
group of corporations (as defined in
section 414(b) of the Code) of which the
INHAM is a member, or (2) a group of
trades or businesses under common
control (as defined in section 414(c) of
the Code) of which the INHAM is a
member; provided that ‘‘50 percent’’
shall be substituted for ‘‘80 percent’’
wherever ‘‘80 percent’’ appears in
section 414(b) or 414(c) or the rules
thereunder.
(c) The term ‘‘party in interest’’ means
a person described in the Act section
3(14) and includes a ‘‘disqualified
person’’ as defined in Code section
4975(e)(2).
(d) An INHAM is ‘‘related’’ to a party
in interest for purposes of section I(f) of
this exemption if, as of the last day of
its most recent calendar quarter: (i) the
INHAM (or a person controlling, or
controlled by, the INHAM) owns a ten
percent or more interest in the party in
interest; or (ii) the party in interest (or
a person controlling, or controlled by,
the party in interest) owns a ten percent
or more interest in the INHAM. For
purposes of this definition:
(1) The term ‘‘interest’’ means with
respect to ownership of an entity—
(A) The combined voting power of all
classes of stock entitled to vote or the
total value of the shares of all classes of
stock of the entity if the entity is a
corporation,
(B) The capital interest or the profits
interest of the entity if the entity is a
partnership, or
(C) The beneficial interest of the
entity if the entity is a trust or
unincorporated enterprise; and
(2) A person is considered to own an
interest if, other than in a fiduciary
capacity, the person has or shares the
authority—
(A) To exercise any voting rights or to
direct some other person to exercise the
voting rights relating to such interest, or
(B) To dispose or to direct the
disposition of such interest; and
PO 00000
Frm 00078
Fmt 4703
Sfmt 4703
(3) The term ‘‘control’’ means the
power to exercise a controlling
influence over the management or
policies of a person other than an
individual.
(e) For purposes of this exemption,
the time as of which any transaction
occurs is the date upon which the
transaction is entered into. In addition,
in the case of a transaction that is
continuing, the transaction shall be
deemed to occur until it is terminated.
If any transaction is entered into on or
after April 10, 1996, or any renewal that
requires the consent of the INHAM
occurs on or after April 10, 1996, and
the requirements of this exemption are
satisfied at the time the transaction is
entered into or renewed, respectively,
the requirements will continue to be
satisfied with respect to the transaction.
Nothing in this paragraph shall be
construed as exempting a transaction
entered into by a plan which becomes
a transaction described in section 406 of
the Act or section 4975 of the Code
while the transaction is continuing,
unless the conditions of the exemption
were met either at the time the
transaction was entered into or at the
time the transaction would have become
prohibited but for this exemption. In
determining compliance with the
conditions of the exemption at the time
that the transaction was entered into for
purposes of the preceding sentence,
section I(e) will be deemed satisfied if
the transaction was entered into
between a plan and a person who was
not then a party in interest.
(f) Exemption Audit. An ‘‘exemption
audit’’ of a plan must consist of the
following:
(1) A review of the written policies
and procedures adopted by the INHAM
pursuant to section I(g) for consistency
with each of the objective requirements
of this exemption (as described in
section IV(g)).
(2) A test of a sample of the INHAM’s
transactions during the audit period that
is sufficient in size and nature to afford
the auditor a reasonable basis: (A) To
make specific findings regarding
whether the INHAM is in compliance
with (i) the written policies and
procedures adopted by the INHAM
pursuant to section I(g) of the exemption
and (ii) the objective requirements of the
exemption; and (B) to render an overall
opinion regarding the level of
compliance of the INHAM’s program
with section IV(f)(2)(A)(i) and (ii) of the
exemption.
(3) A determination as to whether the
INHAM satisfied the definition of an
INHAM under the exemption; and
(4) Issuance of a written report
describing the steps performed by the
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14JNN1
emcdonald on DSK2BSOYB1PROD with NOTICES
Federal Register / Vol. 75, No. 113 / Monday, June 14, 2010 / Notices
auditor during the course of its review
and the auditor’s findings.
(g) For purposes of section IV(f), the
written policies and procedures must
describe the following objective
requirements of the exemption and the
steps adopted by the INHAM to assure
compliance with each of these
requirements:
(1) The definition of an INHAM in
section IV(a).
(2) The requirements of Part I and
section I(a) regarding the discretionary
authority or control of the INHAM with
respect to the plan assets involved in
the transaction, in negotiating the terms
of the transaction, and with regard to
the decision on behalf of the plan to
enter into the transaction.
(3) That any procedure for approval or
veto of the transaction meets the
requirements of section I(a).
(4) For a transaction described in Part
I:
(A) That the transaction is not entered
into with any person who is excluded
from relief under section I(e)(1), section
I(e)(2), to the extent such person has
discretionary authority or control over
the plan assets involved in the
transaction, or section I(f), and
(B) that the transaction is not
described in any of the class exemptions
listed in section I(b).
(5) For a transaction described in Part
II:
(A) If the transaction is described in
section II(a),
(i) that the transaction is with a party
described in section II(a);
(ii) that the transaction occurs under
the circumstances described in section
II(a)(1), (2) and (3);
(iii) that the transaction does not
extend beyond the period of time
described in section II(a)(4); and
(iv) that the percentage test in section
II(a)(5) has been satisfied or
(B) If the transaction is described in
section II(b),
(i) that the transaction is with a party
described in section II(b)(1);
(ii) that the transaction is not entered
into with any person excluded from
relief under section II(b)(2) to the extent
such person has discretionary authority
or control over the plan assets involved
in the lease transaction or section
II(b)(3); and
(iii) that the percentage test in section
II(b)(5) has been satisfied.
(h) The term ‘‘plan’’ means a plan
maintained by the INHAM or an affiliate
of the INHAM.
VerDate Mar<15>2010
16:40 Jun 11, 2010
Jkt 220001
Signed at Washington, DC this 9th day of
June 2010.
Ivan L. Strasfeld,
Director of Exemption Determinations,
Employee Benefits Security Administration,
U.S. Department of Labor.
[FR Doc. 2010–14205 Filed 6–11–10; 8:45 am]
BILLING CODE 4510–29–P
NATIONAL CREDIT UNION
ADMINISTRATION
Sunshine Act; Notice of Agency
Meeting
TIME AND DATE:
10 a.m., Thursday, June
17, 2010.
PLACE: Board Room, 7th Floor, Room
7047, 1775 Duke Street, Alexandria, VA
22314–3428.
STATUS:
Open.
MATTERS TO BE CONSIDERED:
1. Final Rule—Part 701 of NCUA’s
Rules and Regulations, Interpretive
Ruling and Policy Statement (IRPS) 10–
1, NCUA’s Chartering and Field of
Membership Policies.
2. Delegations of Authority—
Chartering.
3. Proposed Rule—Part 741 of
NCUA’s Rules and Regulations,
Requirements for Insurance, Interest
Rate Risk Policy and Program.
4. Insurance Fund Report.
5. Temporary Corporate Credit Union
Stabilization Fund Accounting
Standard.
6. Temporary Corporate Credit Union
Stabilization Fund Payment of Insured
Shares.
7. Temporary Corporate Credit Union
Stabilization Fund Assessment.
RECESS:
11:30 a.m.
TIME AND DATE: 11:45 a.m., Thursday,
June 17, 2010.
PLACE: Board Room, 7th Floor, Room
7047, 1775 Duke Street, Alexandria, VA
22314–3428.
STATUS:
Closed.
MATTERS TO BE CONSIDERED:
1. Consideration of Supervisory
Activities (2). Closed pursuant to some
or all of the following exemptions: (8),
(9)(A)(ii) and 9(B).
FOR FURTHER INFORMATION CONTACT:
Mary Rupp, Secretary of the Board,
Telephone: 703–518–6304.
Mary Rupp,
Board Secretary.
[FR Doc. 2010–14402 Filed 6–10–10; 4:15 pm]
BILLING CODE P
PO 00000
Frm 00079
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33651
THE NATIONAL FOUNDATION ON THE
ARTS AND THE HUMANITIES
Meetings of Humanities Panel
AGENCY: The National Endowment for
the Humanities.
ACTION: Notice of meetings.
SUMMARY: Pursuant to the provisions of
the Federal Advisory Committee Act
(Pub. L. 92–463, as amended), notice is
hereby given that the following
meetings of Humanities Panels will be
held at the Old Post Office, 1100
Pennsylvania Avenue, NW.,
Washington, DC 20506.
FOR FURTHER INFORMATION CONTACT:
Michael P. McDonald, Advisory
Committee Management Officer,
National Endowment for the
Humanities, Washington, DC 20506;
telephone (202) 606–8322. Hearingimpaired individuals are advised that
information on this matter may be
obtained by contacting the
Endowment’s TDD terminal on
(202) 606–8282.
SUPPLEMENTARY INFORMATION: The
proposed meetings are for the purpose
of panel review, discussion, evaluation
and recommendation on applications
for financial assistance under the
National Foundation on the Arts and the
Humanities Act of 1965, as amended,
including discussion of information
given in confidence to the agency by the
grant applicants. Because the proposed
meetings will consider information that
is likely to disclose trade secrets and
commercial or financial information
obtained from a person and privileged
or confidential and/or information of a
personal nature the disclosure of which
would constitute a clearly unwarranted
invasion of personal privacy, pursuant
to authority granted me by the
Chairman’s Delegation of Authority to
Close Advisory Committee meetings,
dated July 19, 1993, I have determined
that these meetings will be closed to the
public pursuant to subsections (c)(4),
and (6) of section 552b of Title 5, United
States Code.
1. Date: July 13, 2010.
Time: 8:30 a.m. to 5 p.m.
Room: 315.
Program: This meeting will review
applications for Musicology in
Fellowships, submitted to the Division
of Research Programs at the May 4, 2010
deadline.
2. Date: July 13, 2010.
Time: 9 a.m. to 5 p.m.
Room: 421.
Program: This meeting will review
applications for Colleges and
Universities I, submitted to the Office of
E:\FR\FM\14JNN1.SGM
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]]>Agencies
[Federal Register Volume 75, Number 113 (Monday, June 14, 2010)]
[Notices]
[Pages 33642-33651]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-14205]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application Number D-11221]
ZRIN 1210-ZA09
Proposed Amendment to Prohibited Transaction Exemption (PTE) 96-
23 for Plan Asset Transactions Determined by In-House Asset Managers
AGENCY: Employee Benefits Security Administration.
ACTION: Notice of Proposed Amendment to PTE 96-23.
-----------------------------------------------------------------------
SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed amendment to PTE 96-
23. The exemption permits various transactions involving employee
benefit plans whose assets are managed by in-house asset managers
(INHAMs), provided the conditions of the exemption are met. The
proposed amendment would affect participants and beneficiaries of
employee benefit plans, the sponsoring employers of such plans, INHAMs,
and other persons engaging in the described transactions.
DATES: Written comments must be received by the Department on or before
August 13, 2010.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed amendment should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington DC 20210, Attention: PTE 96-23 Amendment. Interested persons
are also invited to submit comments and hearing requests to EBSA via e-
mail to: moffitt.betty@dol.gov or by fax to 202-219-0204 by the end of
the scheduled comment period. The comments received will be available
for public inspection in the Public Disclosure Room of the Employee
Benefits Security Administration, U.S. Department of Labor, Room N-
1513, 200 Constitution Avenue, NW., Washington, DC 20210. Comments and
hearing requests will also be available online at https://www.regulations.gov and https://www.dol.gov/ebsa, at no charge.
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.
FOR FURTHER INFORMATION CONTACT: Chris Motta, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, Room N-5700, 200 Constitution Avenue NW.,
Washington DC 20210, (202) 693-8540 (not a toll-free number).
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed amendment to PTE 96-23 (61 FR
15975, April 10, 1996). PTE 96-23 provides an exemption from certain of
the restrictions of sections 406 and 407(a) of ERISA, and from certain
taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1) of the Code. The Department is proposing this
amendment to PTE 96-23 on its own motion, pursuant to section 408(a) of
ERISA 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\
---------------------------------------------------------------------------
\1\ Section 102 of the Reorganization Plan No. 4 of 1978, 5
U.S.C. App. at 214 (2000 ed.), 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. For
purposes of this exemption, references to specific provisions of
Title I of the Act, unless otherwise specified, refer also to the
corresponding provisions of the Code.
---------------------------------------------------------------------------
Executive Order 12866 Statement
Under Executive Order 12866 (58 FR 51735), the Department must
determine whether a regulatory action is ``significant'' and therefore
subject to review by the Office of Management and Budget (OMB). Section
3(f) of the Executive Order defines a ``significant regulatory action''
as an action that is likely to result in a rule (1) having an annual
effect on the economy of $100
[[Page 33643]]
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 designated this Notice as a significant action under
Executive Order 12866 and has reviewed its contents.
Paperwork Reduction Act Analysis
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This 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 Department is soliciting comments concerning the
proposed information collection request (ICR) included in the Proposed
Amendment to Prohibited Transaction Exemption (PTE) 96-23 for Plan
Asset Transactions Determined by In-House Asset Managers. A copy of the
ICR may be obtained by contacting the PRA addressee shown below or at
https://www.RegInfo.gov. PRA Addressee: G. Christopher Cosby, Office of
Policy and Research, U.S. Department of Labor, Employee Benefits
Security Administration, 200 Constitution Avenue, NW., Room N-5718,
Washington, DC 20210. Telephone (202) 693-8410; Fax: (202) 219-5333.
These are not toll-free numbers. ICRs submitted to OMB are also
available at reginfo.gov (https://www.reginfo.gov/public/do/PRAMain).
The Department has submitted a copy of the proposed amendment to
OMB in accordance with 44 U.S.C. 3507(d) for review of its information
collections. The Department and OMB are particularly interested in
comments that:
Evaluate whether the collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
Comments should be sent to the Office of Information and Regulatory
Affairs, Office of Management and Budget, Room 10235, New Executive
Office Building, Washington, DC 20503; Attention: Desk Officer for the
Employee Benefits Security Administration. Comments also may be
submitted by using the Federal eRulemaking portal at https://www.regulations.gov (follow instructions for submission of comments).
OMB requests that comments be received within 30 days of publication of
the proposed amendment to ensure their consideration. Please note that
comments submitted to OMB are a matter of the public record.
The Department notes that a Federal agency cannot conduct or
sponsor a collection of information unless it is approved by OMB under
the PRA, and displays a currently valid OMB control number, and the
public is not required to respond to a collection of information unless
it displays a currently valid OMB control number.\2\ Also,
notwithstanding any other provisions of law, no person shall be subject
to penalty for failing to comply with a collection of information if
the collection of information does not display a currently valid OMB
control number.\3\
---------------------------------------------------------------------------
\2\ 5 CFR 1320.5 and 1320.3(c).
\3\ 5 CFR 1320.6.
---------------------------------------------------------------------------
The INHAM exemption permits various parties in interest to employee
benefit plans to engage in transactions involving plan assets if, among
other requirements, the assets are managed by an INHAM. The Department
included in the exemption certain requirements intended to preserve
plan assets and protect plan participant benefits. The exemption
includes a requirement for written guidelines between an INHAM and a
property manager that an INHAM has retained to act on its behalf.
Because it is a customary business practice for agreements related to
the investment of plan assets or transactions relating to the leasing
of space to be described in writing, no burden was estimated for this
provision. The information collection requirements included in this
paperwork burden estimate consist of the requirements that the INHAM
develop written policies and procedures designed to assure compliance
with the conditions of the exemption, and have an independent auditor
conduct an annual INHAM exemption audit and issue a written audit
report.
The Department has made certain specific basic assumptions in order
to establish a reasonable estimate of the paperwork burden of this
information collection.
First, the Department assumes that INHAMs, which are large,
sophisticated financial institutions, will use existing in-house
resources to prepare the policies and procedures, rather than hiring
outside service providers to do this work. This assumption does not
apply to the audit requirements.
Second, given the nature of the information collection
requirements, the Department assumes a combination of personnel will
perform the information collection. Using data from the Bureau of Labor
Statistics, the Department assumes an hourly wage rate of $107 for
2010, including both wages and benefits, for a financial manager and an
hourly wage rate of $26, similarly including wages and benefits, for
clerical personnel.\4\ Legal professional time is similarly assumed to
be $119 per hour.
---------------------------------------------------------------------------
\4\ EBSA estimates of labor rates include wages, other benefits,
and overhead based on the National Occupational Employment Survey
(May 2008, Bureau of Labor Statistics) and the Employment Cost Index
(June 2009, Bureau of Labor Statistics). Figures are projected
forward to 2010. Financial manager wage and benefits estimates of
$107.23 are based on metropolitan wage estimates for financial
managers. Clerical wage and benefits estimates of $26.14 are based
on metropolitan wage rates for executive secretaries and
administrative assistants. Legal professional wage and benefits
estimates of $119.03 are based on metropolitan wage rates for
lawyers.
---------------------------------------------------------------------------
Third, the Department assumes that maintenance of records of the
policies and procedures and the audits is generally a usual and
customary business practice that would be undertaken regardless of the
exemption. The proposed amendment does not contain any additional
recordkeeping requirements; no additional burden has been assumed for
recordkeeping costs.
[[Page 33644]]
Further, given the sophisticated nature of the parties involved, the
Department assumes that communications between the parties will occur
electronically via means already in existence. Therefore, the costs
arising from electronic communications will be negligible.
The Department estimates that there will be approximately 20 INHAMs
that will utilize the amended prohibited transaction exemption.
Information provided by CIEBA, an industry trade group, indicates that
approximately 24 of CIEBA's members manage plan assets in-house and
approximately 14-16 of those currently maintain INHAMs and utilize the
exemptive relief provided in PTE 96-23.\5\ CIEBA's membership is
estimated to include about 80 percent of all the large firms that
manage plan assets in-house. That leads to an estimate of approximately
18 INHAMs. In addition, the Department expects approximately two more
INHAMs to be established due to proposed changes to the definition of
an INHAM. The number of INHAMs is assumed to be constant over time.
---------------------------------------------------------------------------
\5\ CIEBA is a trade association whose membership includes
corporate financial officers who serve as fiduciaries of employee
benefit plans subject to ERISA and the Code. CIEBA's approximately
115 member companies collectively oversee about $1.4 trillion of
defined benefit and defined contribution plan assets for about 16
million plan participants and beneficiaries. For defined benefit
plans in 2008, the member companies oversaw more than $652 billion
in plan assets for more than 10.2 million plan participants. CIEBA
2008 Membership Profile Executive Summary. This figure represents
approximately 35 percent of the defined benefit plan assets in the
United States. This calculation is based on a projection computed by
applying percentage changes in pension assets derived from the
Federal Reserve Board's Flow of Funds Accounts to the 2006 Form 5500
filings with the U.S. Department of Labor.
---------------------------------------------------------------------------
Written Policies and Procedures
The Department assumes that INHAMs will use existing in-house
resources to prepare the written policies and procedures. The
Department estimates that each INHAM will use 15 hours of a legal
professional's time to develop policies and procedures. This leads to
an hour burden in the first year of 300 hours.\6\ At $119 per hour, the
equivalent cost will be $35,700 for the first year.\7\
---------------------------------------------------------------------------
\6\ 20 INHAMs x 15 hours = 300 hours.
\7\ 300 hours x $119 per hour = $35,700.
---------------------------------------------------------------------------
For subsequent years, the Department assumes that INHAMs will
change their policies and procedures very infrequently. Therefore, the
hour burden for subsequent years is estimated to be negligible. The
Department invites comments from interested persons on the
appropriateness of this assumption.
Audit Requirements
INHAMs are assumed to use either a law firm or an accounting firm
to conduct the annual audit required by the proposed amendment. The
Department has received information from industry representatives that
the cost of the annual audit required by PTE 96-23 may range from
approximately $10,000 to $25,000, depending on asset size and how many
years the INHAM has used the auditing firm. The Department has used a
conservative estimate for the cost of the outside auditing firm for
each audit of $20,000. This leads to a cost estimate for the annual
audits of $400,000.\8\
---------------------------------------------------------------------------
\8\ $20,000 x 20 INHAMs = $400,000.
---------------------------------------------------------------------------
For purposes of the hour burden, the Department estimates that each
INHAM will use in-house legal professional, financial manager, and
clerical time to provide documents and respond to questions from the
auditor. Each annual audit will require about ten hours of a legal
professional's time, 25 hours of a financial manager's time, and twelve
hours of clerical time. This leads to an hour burden of 940 hours.\9\
The equivalent cost of this hour burden for the annual audits is
approximately $83,700.\10\
---------------------------------------------------------------------------
\9\ (10 hours + 25 hours + 12 hours) x 20 INHAMs = 940 hours.
\10\ (10 hours x $119 per hour + 25 hours x $107 per hour + 12
hours x $26 per hour) x 20 INHAMs = $83,700.
---------------------------------------------------------------------------
Summary
For the first year, the Department estimates that the total hour
burden imposed by the information collection is about 1,240 hours.\11\
The total equivalent cost of this hour burden is approximately
$119,400.\12\ The total cost burden is $400,000.
---------------------------------------------------------------------------
\11\ 300 hours + 940 hours = 1,240 hours.
\12\ $35,700 + $83,700 = $119,400.
---------------------------------------------------------------------------
For subsequent years, the total annual hour burden is approximately
940 hours. The total equivalent annual cost of this hour burden is
about $83,700. The total annual outside cost is $400,000.
The paperwork burden estimates are summarized as follows:
Type of Collection: New collection (Request for new OMB Control
Number).
Agency: Employee Benefits Security Administration, Department of
Labor.
Title: Proposed Amendment to PTE 96-23 for Plan Asset Transactions
Determined by In-House Asset Managers.
OMB Control Number: New.
Affected Public: Business or other for-profit; not-for-profit
institutions.
Estimated Number of Respondents: 20.
Estimated Number of Annual Responses: 40 in the first year, 20 in
each subsequent year.
Frequency of Response: Annually; occasionally.
Estimated Total Annual Burden Hours: 1,240 in the first year, 940
in each subsequent year.
Estimated Total Annual Burden Cost: $400,000.
Background
On March 13, 1984, the Department granted Prohibited Transaction
Exemption (PTE) 84-14 for Plan Asset Transactions Determined by
Independent Qualified Professional Asset Managers (49 FR 9494), a class
exemption that permits various parties who are related to employee
benefit plans to engage in transactions involving plan assets if, among
other conditions, the assets are managed by a ``qualified professional
asset manager'' (QPAM). The Department recently amended the QPAM
exemption.\13\
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\13\ See Amendment to Prohibited Transaction Exemption (PTE) 84-
14 for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers, 70 FR 49305 (August 23, 2005). See also
Proposed Amendment to Prohibited Transaction Exemption (PTE) 84-14
for Plan Asset Transactions Determined by Independent Qualified
Professional Asset Managers, 70 FR 49312 (August 23, 2005).
---------------------------------------------------------------------------
The QPAM exemption granted in 1984 did not provide relief for
transactions involving the assets of plans managed by in-house asset
managers. The Committee on Investment of Employee Benefit Assets
(CIEBA) subsequently requested such relief. CIEBA represented that in-
house managers encountered technical problems under the prohibited
transaction rules of ERISA in the course of considering arm's-length
transactions that would be in the interests of their plans.
CIEBA stated, in its original exemption application, that in-house
managers have become an established part of many large companies that
manage some or all of their plan assets in-house. According to CIEBA,
many of the large corporations that made up its membership maintained
one or more employee benefit plans holding, in the aggregate, assets in
excess of $250 million. These large corporations determined that they
could reduce costs and maintain high quality management by developing
an in-house asset management capability rather than relying exclusively
on outside managers or consultants. CIEBA represented that, in addition
to providing reduced costs
[[Page 33645]]
for comparable or better quality management, in-house managers were
attractive to employers because they devoted their time solely to the
plan's asset management activities, while outside managers had other
clients and responsibilities. The applicant also asserted that the
named plan fiduciaries benefited from having access to in-house
expertise and advice to assist them in carrying out their fiduciary
responsibilities.
CIEBA represented that, unless the Department provided broad
exemptive relief for in-house asset managers, in-house plans would be
disadvantaged because of the restrictions on the types of transactions
an in-house manager could engage in on behalf of such a plan. The
applicant explained that very large plans may have thousands of parties
in interest, making the task of determining whether a particular
transaction was prohibited a considerable burden for the plan
fiduciaries. According to the applicant, if the in-house manager wished
to enter into a transaction he or she believed would be beneficial to
the plan but which also involved a party in interest, that manager
would be required to either: (1) Seek an individual prohibited
transaction exemption; (2) retain a QPAM for the transaction; or (3)
forgo the transaction. The applicant argued that seeking an individual
exemption involved time and legal expenses. In addition, the use of a
QPAM entailed additional expenses for the plan despite the fact that
the in-house manager had already done most of the work required for the
transaction, including performing the necessary due diligence as to,
for example, the creditworthiness of the other parties to the
transaction.\14\ Finally, the applicant argued that forgoing the
transaction might cause the plan to miss out on a beneficial
opportunity. CIEBA argued that a class exemption for in-house asset
managers was necessary because these limitations on a plan's investment
choices could raise a plan's investment costs in the short run by
limiting the parties with whom it may deal, and could adversely affect
investment performance in the long run. Based on the record developed,
the Department determined that relief would be appropriate and granted
the Class Exemption for Plan Asset Transactions Determined by In-House
Asset Managers (INHAMs).\15\
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\14\ The Department is expressing no opinion as to whether the
above described transaction would come within the scope of relief
provided by PTE 84-14, as amended.
\15\ 61 FR 15975 (April 10, 1996).
---------------------------------------------------------------------------
Description of Existing Relief
The INHAM exemption consists of four separate parts. Part I sets
forth the general exemption and enumerates certain conditions
applicable to the transactions described therein. The general exemption
allows that portion of a plan which is managed by an INHAM to engage in
all transactions described in section 406(a)(1)(A) through (D) of ERISA
with virtually all party in interest service providers except the INHAM
or a person related to the INHAM. The general exemption does not extend
to transactions that would give rise to violations of section 406(b) of
ERISA.
Part II of the exemption provides limited relief under both
sections 406(a) and (b), and 407(a), of ERISA for certain transactions
involving employers and their affiliates who cannot qualify for the
general exemption provided by Part I. Section II(a) provides limited
relief for the leasing of office or commercial space by a plan to an
employer if the plan acquired the property subject to an outstanding
lease with an employer or affiliate as a result of foreclosure on a
mortgage or deed of trust. Section II(b) permits a plan to lease
residential space to an employee of an employer any of whose employees
are covered by such plan, or to any employee of a 50% or more parent or
subsidiary of the employer.
Part III of the exemption provides relief from sections
406(a)(1)(A) through (D), 406(b)(1) and (b)(2) of ERISA for the
furnishing of services, facilities and any goods incidental thereto by
a place of accommodation owned by a plan managed by an INHAM to a party
in interest with respect to the plan, if the services, facilities or
incidental goods are furnished on a comparable basis to the general
public.
Part IV contains definitions of certain terms used in the
exemption.
Description of the Proposed Amendments
Definition of INHAM
The Department is proposing to amend several provisions of the
INHAM exemption, including the definition of INHAM in section IV(a).
Section IV(a) currently provides that:
The term ``in-house asset manager'' or ``INHAM'' means an
organization which is--
(1) Either (A) a direct or indirect wholly-owned subsidiary of
an employer, or a direct or indirect wholly-owned subsidiary of a
parent organization of such employer, or (B) a membership nonprofit
corporation a majority of whose members are officers or directors of
such an employer or parent organization; and
(2) an investment adviser registered under the Investment
Advisers Act of 1940 that, as of the last day of its most recent
fiscal year, has under its management and control total assets
attributable to plans maintained by affiliates of the INHAM (as
defined in section IV(b)) in excess of $50 million; provided that if
it has no prior fiscal year as a separate legal entity as a result
of it constituting a division or group within the employer's
organizational structure, then this requirement will be deemed met
as of the date during its initial fiscal year as a separate legal
entity that responsibility for the management of such assets in
excess of $50 million was transferred to it from the employer.
In addition, plans maintained by affiliates of the INHAM and/or
the INHAM, must have, as of the last day of each plan's reporting
year, aggregate assets of at least $250 million.
The Department has been informed by interested persons that the
requirement that an INHAM be a wholly owned subsidiary of an employer
or its parent organization unduly limited some entities from serving as
INHAMs. Interested parties requested, in comments submitted in
connection with the proposed amendment to the QPAM class exemption [68
FR 52419, September 3, 2003], that the Department consider broadening
the definition of INHAM to permit a greater number of entities to take
advantage of the relief provided by the exemption.
In response to such comments, the Department proposes to expand the
definition of INHAM to include a subsidiary that is 80% or more owned
by the employer or parent company. Additionally, the plan assets under
management requirement would be increased from $50 million to $85
million, effective as of the last day of the first fiscal year
beginning on or after the date of publication in the Federal Register
of the final amendment to this exemption. The increase reflects the
change in the Consumer Price Index.
Requested Clarifications
The Department has also been asked informally to clarify several
issues regarding the definition of an INHAM and the scope of the
exemption. First, the Department has been asked whether an INHAM can
act on behalf of its own plans. The exemption provides relief for
transactions involving a ``plan'' as defined in section IV(h). As noted
by the Department in the preamble to the original exemption, the
definition of plan adopted by the Department includes a plan maintained
by the INHAM or an affiliate of the INHAM. Accordingly, the exemption
currently provides relief for an INHAM to act on behalf of its own
plans.
Additionally, interested persons have asked the Department to
clarify certain aspects of transactions involving both INHAMs and
QPAMs. The Department
[[Page 33646]]
was asked whether a QPAM could be employed to negotiate the specific
terms of a deal after an employer or its INHAM have agreed on general
terms with the counterparty. The Department stated in the preamble to
the original QPAM class exemption that, while a QPAM may adhere to
investment guidelines established by persons with the power to appoint
it, the retention of a veto or approval power by the plan sponsor or
its designee would be inconsistent with the underlying concept of the
QPAM exemption, that is, the transfer of plan assets to an independent,
discretionary, manager.\16\ In the Department's view, an INHAM
directing a QPAM to negotiate specific terms of a deal that has already
been generally agreed upon by the INHAM or the employer represents a
more significant limitation on the QPAM's discretion than the
imposition of investment guidelines. Similar to a veto or approval
power, this amount of involvement would be inconsistent with the basic
premise of the QPAM exemption.
---------------------------------------------------------------------------
\16\ 49 FR 9497.
---------------------------------------------------------------------------
Interested persons also asked the Department to clarify that a
transaction that is entered into by an INHAM, but subsequently overseen
by a QPAM, or vice versa, may satisfy the terms of the INHAM and the
QPAM exemption, as applicable. The Department believes that, unlike the
situation described in the previous paragraph, the INHAM and the QPAM
may each operate independently of one another and have discretionary
authority for different aspects of the same plan investment. Thus, for
example, the INHAM may exercise its discretionary authority to purchase
an office building on behalf of the plan. Pursuant to an investment
management agreement with the plan, the QPAM may have independent
discretionary authority to operate the building on a day to day basis,
including negotiating all lease agreements. Under those circumstances,
the Department agrees that the QPAM and the INHAM exemptions would be
available for the transactions independently negotiated by the INHAM
and QPAM, respectively, provided that the conditions of the relevant
exemption are satisfied.
Interested persons also requested that the Department clarify
section I(b) of PTE 96-23 in a manner similar to the clarification made
by the Department in the proposed amendment to the QPAM class
exemption.\17\ Section I(b) of PTE 96-23 excludes from exemptive relief
those transactions described in PTEs 81-6 (relating to securities
lending arrangements), 83-1 (relating to acquisitions by plans of
interests in mortgage pools) and 88-59 (relating to certain mortgage
financing arrangements). The Department understands that there is
uncertainty regarding the application of the INHAM class exemption to
certain types of transactions that, although similar to the
transactions that are the subject of the three specialized exemptions,
are beyond the scope of relief provided by those exemptions. It is the
view of the Department that the INHAM class exemption would provide
relief for such transactions if the conditions of the exemption are
otherwise satisfied. The Department cautions, however, that the INHAM
class exemption would not be available for any transaction specifically
described in PTEs 81-6, 83-1 or 88-59, if a person determines not to
satisfy one or more of the conditions of the specialized exemptions
solely in order to take advantage of the relief provided by the INHAM
class exemption.
---------------------------------------------------------------------------
\17\ See 68 FR 52422, September 3, 2003.
---------------------------------------------------------------------------
The Department notes that on October 31, 2006, it amended and
replaced PTEs 81-6 and 82-63, relating to securities lending
arrangements (PTE 2006-16, 71 FR 63786). That amendment extended the
relief provided under PTEs 81-6 and 82-63 to additional parties and
additional forms of collateral, subject to modified conditions.
Recognizing that class exemptions are often amended over time to
reflect changes in the marketplace, the Department intends that section
I(b)(1) of the INHAM class exemption will continue to exclude from
relief transactions described in PTE 2006-16 as it is amended or
superseded. Accordingly, the Department proposes to amend the reference
to PTE 2006-16 in section I(b), as well as the references in that
section to the other class exemptions, to include the phrase ``as
amended or superseded.''
Permitted Counterparties
The Department also received requests from interested persons to
amend section I(e) of the exemption, which as currently drafted
provides that the party in interest dealing with the plan: (1) Is a
party in interest with respect to the plan (including a fiduciary)
solely by reason of providing services to the plan, or solely by reason
of a relationship to a service provider described in section 3(14)(F),
(G), (H), or (I) of ERISA; and (2) does not have discretionary
authority or control with respect to the investment of the plan assets
involved in the transaction and does not render investment advice
(within the meaning of 29 CFR 2510.3-21(c)) with respect to those
assets.
On occasion, since the issuance of PTE 96-23, the Department has at
times been asked to remove all limits on the types of parties in
interest that could engage in transactions with the plan pursuant to
the exemption. The Department also received a more limited request to
permit the plan to engage in transactions with ``co-joint venturers.''
Such entities own at least 10% of a joint venture in which an employer
(or its parent) has at least a 50% interest and are parties in interest
pursuant to section 3(14)(I) of ERISA. The interested person
represented that it is administratively burdensome for INHAMs to
monitor every joint venture in which employers may participate.
The Department has determined not to remove all restrictions on the
types of parties in interest that may engage in transactions with plans
pursuant to the exemption. In this regard, the Department notes that a
commenter on the original INHAM exemption requested that the
restrictions on parties in interest be removed, and at that time the
Department stated that there had not been a sufficient showing that the
safeguards contained in the proposed exemption would adequately
discourage the exercise of undue influence upon the INHAM if the
exemption were expanded in such manner. For that reason, the Department
is not persuaded at this time that such an amendment is warranted.
However, the Department has determined to propose the more limited
relief requested for entities that are parties in interest because they
are ``co-joint venturers.'' Section I(e) would provide as follows:
(e) The party in interest dealing with the plan: (1) Is a party
in interest with respect to the plan (including a fiduciary) either
(i) solely by reason of providing services to the plan, or solely by
reason of a relationship to a service provider described in section
3(14)(F), (G), (H) or (I) of ERISA, or (ii) solely by reason of
being a 10 percent or more shareholder, partner or joint venturer,
in a person, which is 50 percent or more owned by an employer of
employees covered by the plan (directly or indirectly in capital or
profits), or the parent company of such an employer, provided that
such person is not controlled by, controlling, or under common
control with such employer, or (iii) by reason of both (i) and (ii)
only, and (2) does not have discretionary authority or control with
respect to the investment of the plan assets involved in the
transaction and does not render investment advice (within the
meaning of 29 CFR 2510.3-21(c)) with respect to those assets.
The Department cautions that, under section I(e), a co-joint
venturer may engage in a transaction with a plan only if the joint
venture relationship is the
[[Page 33647]]
entity's sole relationship to the employer, or if the entity is both a
joint venturer and a service provider or an entity with a relationship
to a service provider as described above. If a person has any other
relationship with the employer described in section 3(14) of the Act,
the person would not fall within the scope of section I(e), and,
therefore, could not take advantage of the relief provided by the
exemption. In addition, the co-joint venturer may not be controlled by,
controlling, or under common control with such employer. Finally,
section I(e) clarifies that the co-joint venturer may not have
discretionary authority or control with respect to the investment of
the plan assets involved in the transaction and may not render
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets.
Parties Related to the INHAM
The Department proposes to amend the definition of ``related'' to
in section IV(d) of the exemption. Under section I(f), the party in
interest dealing with the plan may not be the INHAM nor a person
related to the INHAM. Section IV(d) currently provides that an INHAM is
related to a party in interest.
If the party in interest (or a person controlling, or controlled
by, the party in interest) owns a five percent or more interest in
the INHAM or if the INHAM (or a person controlling, or controlled
by, the INHAM) owns a five percent or more interest in the party in
interest.
The Department understands that compliance with the ``related'' to
requirement may create administrative burdens for a number of INHAMs.
In order to ease such burdens, the Department determined to increase
the five percent threshold in section IV(d) to ten percent.
The Department notes that, under the proposed amendment, the
requirements in section I(f) may overlap with the limitations contained
in section I(e) under certain circumstances. Thus, for example, if the
party in interest owns a 10 percent interest in the INHAM, the party in
interest would fail section I(e) because, as a 10% shareholder of the
INHAM, it would no longer be a party in interest solely by reason of
being a service provider to the plan. In addition, it would fail
section I(f) as it would be considered ``related'' to the INHAM because
of its ownership interest. Conversely, under the proposed amendment,
relief would be available to a service provider that is 9% owned by the
parent corporation of the INHAM.
In addition, the Department is proposing to make several other
amendments to section IV(d) to ease compliance burdens. As amended,
that section would require ownership interests to be calculated only as
of the last day of the entity's most recent calendar quarter. Finally,
ownership interests held in a fiduciary capacity would not have to be
considered in applying the percentage limitation in section IV(d) of
the exemption.
Continuing Transactions
The Department has received several inquiries about section IV(e)
of PTE 96-23, which defines ``the time as of which any transaction
occurs.'' The Department understands that there is uncertainty
regarding the role of an INHAM in a continuing transaction. Section
IV(e) states the following with respect to a continuing transaction:
[I]n the case of a transaction that is continuing, the
transaction shall be deemed to occur until it is terminated. If any
transaction is entered into on or after April 10, 1996, or any
renewal that requires the consent of the INHAM occurs on or after
April 10, 1996, and the requirements of this exemption are satisfied
at the time the transaction is entered into or renewed,
respectively, the requirements will continue to be satisfied
thereafter with respect to the transaction. Nothing in this
paragraph shall be construed as exempting a transaction entered into
by a plan which becomes a transaction described in section 406 of
the Act or section 4975 of the Code while the transaction is
continuing, unless the conditions of the exemption were met either
at the time the transaction was entered into or at the time the
transaction would have become prohibited but for this exemption. In
determining compliance with the conditions of the exemption at the
time that the transaction was entered into for purposes of the
preceding sentence, section I(e) will be deemed satisfied if the
transaction was entered into between a plan and a person who was not
then a party in interest.
In the Department's view, the exemption would be available for a
continuing transaction (e.g., a loan or lease), provided that all the
conditions of the exemption are satisfied on the date on which the
transaction is entered into (or on the date of a renewal that requires
the consent of the INHAM), notwithstanding the subsequent failure to
satisfy one or more of the conditions of the exemption. Nonetheless,
the Department cautions that, although Part I may continue to be
available for the entire term of a continuing transaction which
subsequently fails to satisfy one or more of the conditions of that
Part, no relief would be provided for an act of self-dealing described
in section 406(b)(1) of ERISA if the INHAM has an interest in the
person which may affect the exercise of its best judgment as a
fiduciary. Although Part I provides an exemption from section
406(a)(1)(A) through (D) of ERISA, it does not provide relief from acts
described in section 406(b) of ERISA. The Department urges fiduciaries
to take appropriate steps to avoid engaging in 406(b) violations should
circumstances change during the course of a continuing transaction.
Exemption Audit
It has come to the Department's attention that practitioner
uncertainty exists regarding certain aspects of the exemption audit, as
required by section I(h), and defined in section IV(f), of PTE 96-23.
The Department is therefore proposing to amend the class exemption, and
is offering the following views, to provide clarity to those sections.
Section IV(f) of PTE 96-23 currently requires, in part, an auditor
to test a representative sample of a plan's transactions covered by the
exemption in order to make findings regarding whether the INHAM is in
compliance with the INHAM's policies and procedures, and with the
objective requirements of the exemption. The Department notes, however,
that in certain instances, an auditor may need to construct and test
more than one sample of transactions. For example, an auditor may
initially believe that the most appropriate way to make the required
findings is to construct a sample that represents a subset of the total
universe of relevant transactions engaged in by the INHAM under the
exemption. In testing the sample, however, the auditor should look for,
and may find, patterns of compliance failures that indicate that
certain types of transactions are more prone to compliance failures
than others. If such patterns appear, the auditor may need to test
additional transactions to more accurately assess the extent and causes
of non-compliant transactions. Ultimately, an auditor must construct
and test a sampling of transactions that is sufficient in size (i.e.,
number of transactions) and nature (i.e., type of transactions) to
afford the auditor a reasonable basis to make its required
determinations under the class exemption. Since, as noted in the
preamble to PTE 96-23, the sole purpose of the audit is to assure
compliance with the exemption, the sample should also be sufficient in
size and nature for the auditor to render an overall opinion regarding
whether the INHAM's program complied with the objective requirements of
the exemption, and with the INHAM's own policies and procedures.
Accordingly, the Department is proposing to amend section IV(f)(2)
of
[[Page 33648]]
the exemption in a manner that is consistent with the views expressed
above.
Section I(h) of the exemption requires that an independent auditor
conduct an exemption audit on an annual basis, and issue a written
report to the plan presenting its specific findings regarding the level
of compliance with the policies and procedures adopted by the INHAM.
However, the exemption does not currently specify the date by which
each audit must be completed. To avoid any uncertainty on this issue,
the Department is proposing to amend section I(h) of the exemption to
expressly provide that the audit must be completed within six months
following the end of the year to which it relates. The Department is
further proposing to amend section I(h) to clarify that the written
report must contain both specific findings required under section
IV(f)(2), and an overall opinion regarding the level of compliance of
the INHAM's program with the objective requirements of the exemption.
The preamble to the original INHAM class exemption points out that
relief is not available under the exemption for those transactions that
did not satisfy its conditions. As a result, the Department anticipates
that an auditor's report will clearly identify each transaction
examined by the auditor that does not comply with the INHAM's policies
and procedures or the exemption. In this regard, the report should
identify the specific policies, procedures or exemption conditions that
were not satisfied. The Department expects further that each written
report will include a description of the steps, if any, taken by the
INHAM to remedy transactions that did not comply with the objective
requirements of the exemption. The report should also contain a
description of the steps taken by the auditor to construct the
sample(s) and an explanation as to why the auditor believes that the
sample on which the required findings are based is an adequate
representation of the total universe of transactions engaged in by the
INHAM.
The INHAM retains responsibility for reviewing the written report
and taking any appropriate actions deemed necessary for assuring
compliance with the exemption. The Department cautions that the failure
of the INHAM to take appropriate steps to address any adverse findings
or prohibited transactions in an audit would raise issues under the
fiduciary responsibility provisions of section 404 of ERISA.
Section II Transactions
Finally, the Department was asked by CIEBA, the original applicant,
to amend section II(a) of the exemption, which provides relief for the
leasing of office or commercial space owned by a plan managed by an
INHAM to an employer with respect to the plan or an affiliate of such
employer. As originally granted, the relief provided in section II(a)
was limited to situations in which the plan acquired the space subject
to an existing lease as a result of a foreclosure on a mortgage or deed
of trust. CIEBA noted that situations other than a foreclosure can give
rise to a lease relationship between a plan and an employer or its
affiliate. For example, CIEBA noted that the plan may purchase a
building subject to a pre-existing lease. Alternatively, the employer
could acquire a company with an existing lease in a building owned by
the plan. CIEBA asserted that in both situations, the terms of the
existing lease were negotiated by a third party at arm's length. CIEBA
additionally requested that section II(a) of the exemption be expanded
to cover all situations in which the plan's lease to the employer or an
affiliate arises as a result of a corporate transaction outside the
INHAM's control.
The Department concurs with CIEBA that it is appropriate to expand
the relief provided by section II(a) to include additional situations
involving existing leases with an employer or an affiliate beyond
foreclosure situations, provided that the decision to acquire the
office or commercial space subject to the lease is made by the INHAM.
The Department has proposed to amend section II(a) accordingly. In the
case of a transaction involving the employer's acquisition of a company
with an existing lease in a building purchased by the plan, the
Department notes that the last sentence of section IV(e) provides that:
[i]n determining compliance with the conditions of the exemption
at the time that the transaction was entered into for purposes of
the preceding sentence, section I(e) will be deemed satisfied if the
transaction was entered into between a plan and a person who was not
then a party in interest.
Accordingly, it is the view of the Department that section II(a) would
be available for the entire lease term, notwithstanding the employer's
subsequent acquisition of the lessee, provided that the conditions of
the exemption were met at the time the transaction first was entered
into. Finally, in light of the fact that the INHAM is affiliated with
the employer maintaining the plan, the Department is not convinced that
it is appropriate to provide broad relief for all situations in which
the plan's lease to the employer or an affiliate arises as a result of
a corporate transaction outside of the INHAM's control.
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 ERISA and section 4975(c)(2) of the Code does
not relieve a fiduciary or other party in interest or 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 and the general fiduciary responsibility
provisions of section 404 of ERISA which require, among other things,
that a fiduciary discharge his or her duties respecting plan solely in
the interests of the participants and beneficiaries of the plan.
Additionally, the fact that a transaction is the subject of an
exemption does not affect the requirement of section 401(a) of the Code
that the plan must operate for the exclusive benefit of the employees
of the employer maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of
ERISA and 4975(c)(2) of the Code, the Department must find that the
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) If granted, the proposed amendment is applicable to a
particular transaction only if the transaction satisfies the conditions
specified in the exemption; and
(4) The proposed amendment, if granted, will be supplemental to,
and not in derogation of, any 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.
Written Comments and Hearing Requests
The Department invites all interested persons to submit written
comments or requests for a public hearing on the proposed amendment to
the address and within the time period set forth above. All comments
received will be made a part of the record. Comments and requests for a
public hearing should
[[Page 33649]]
state the reasons for the writer's interest in the proposed amendment.
Comments received will be available for public inspection at the above
address.
Proposed Amendment
Under 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), the Department
proposes to amend PTE 96-23, effective as of the date of publication of
the final class exemption in the Federal Register, as set forth below:
Part I--Basic Exemption
Effective as of the date of publication of the final class
exemption in the Federal Register, the restrictions of section
406(a)(1)(A) through (D) of the Act and the taxes imposed by section
4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) through
(D) of the Code, shall not apply to a transaction between a party in
interest with respect to a plan (as defined in section IV(h)) and such
plan, provided that an in-house asset manager (INHAM) (as defined in
section IV(a)) has discretionary authority or control with respect to
the plan assets involved in the transaction and the following
conditions are satisfied:
(a) The terms of the transaction are negotiated on behalf of the
plan by, or under the authority and general direction of, the INHAM,
and either the INHAM, or (so long as the INHAM retains full fiduciary
responsibility with respect to the transaction) a property manager
acting in accordance with written guidelines established and
administered by the INHAM, makes the decision on behalf of the plan to
enter into the transaction. Notwithstanding the foregoing, a
transaction involving an amount of $5,000,000 or more, which has been
negotiated on behalf of the plan by the INHAM will not fail to meet the
requirements of this section I(a) solely because the plan sponsor or
its designee retains the right to veto or approve such transaction;
(b) The transaction is not described in-
(1) Prohibited Transaction Exemption 2006-16 (71 FR 63786, October
31, 2006) (relating to securities lending arrangements) (as amended or
superseded);
(2) Prohibited Transaction Exemption 83-1 (48 FR 895, January 7,
1983) (relating to acquisitions by plans of interests in mortgage
pools)(as amended or superseded); or
(3) Prohibited Transaction Exemption 88-59 (53 FR 24811, June 30,
1988) (relating to certain mortgage financing arrangements) (as amended
or superseded);
(c) The transaction is not part of an agreement, arrangement or
understanding designed to benefit a party in interest;
(d) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of the INHAM, the terms of the transaction are at least as
favorable to the plan as the terms generally available in arm's length
transactions between unrelated parties;
(e) The party in interest dealing with the plan: (1) Is a party in
interest with respect to the plan (including a fiduciary) either (i)
solely by reason of providing services to the plan, or solely by reason
of a relationship to a service provider described in section 3(14)(F),
(G), (H) or (I) of ERISA, or (ii) solely by reason of being a 10
percent or more shareholder, partner or joint venturer, in a person,
which is 50 percent or more owned by an employer of employees covered
by the plan (directly or indirectly in capital or profits), or the
parent company of such an employer, provided that such person is not
controlled by, controlling, or under common control with such employer,
or (iii) by reason of both (i) and (ii) only, and (2) does not have
discretionary authority or control with respect to the investment of
the plan assets involved in the transaction and does not render
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets.
(f) The party in interest dealing with the plan is neither the
INHAM nor a person related to the INHAM (within the meaning of section
IV(d));
(g) The INHAM adopts written policies and procedures that are
designed to assure compliance with the conditions of the exemption; and
(h) An independent auditor, who has appropriate technical training
or experience and proficiency with ERISA's fiduciary responsibility
provisions and so represents in writing, conducts an exemption audit
(as defined in section IV(f)) on an annual basis. Following completion
of the exemption audit, the auditor shall issue a written report to the
plan presenting its specific findings regarding the level of
compliance: (1) With the policies and procedures adopted by the INHAM
in accordance with section I(g); and (2) with the objective
requirements of the exemption. The written report shall also contain
the auditor's overall opinion regarding whether the INHAM's program
complied: (1) With the policies and procedures adopted by the IHNAM;
and (2) with the objective requirements of the exemption. The exemption
audit and the written report must be completed within six months
following the end of the year to which the audit relates.
Part II--Specific Exemptions
Effective as of the date of publication of the final class
exemption in the Federal Register, the restrictions of sections 406(a),
406(b)(1), 406(b)(2) and 407(a) of the Act and the taxes imposed by
section 4975(a) and (b) of the Code, by reason of Code section
4975(c)(1)(A) through (E), shall not apply to:
(a) The leasing of office or commercial space owned by a plan
managed by an INHAM to an employer any of whose employees are covered
by the plan or an affiliate of such employer (as defined in section
407(d)(7) of the Act), if --
(1) The plan acquires the office or commercial space subject to an
existing lease with the employer or its affiliate;
(2) The lease was negotiated by a party unrelated to the employer
or its affiliate;
(3) The INHAM makes the decision on behalf of the plan to acquire
the office or commercial space as part of the exercise of its
discretionary authority;
(4) The exemption provided for transactions engaged in with a plan
pursuant to section II(a) is effective until the later of the
expiration of the lease term or any renewal thereof which does not
require the consent of the plan lessor;
(5) The amount of space covered by the lease does not exceed
fifteen (15) percent of the rentable space of the office building or
the commercial center; and
(6) The requirements of sections I(c), I(g) and I(h) are satisfied
with respect to the transaction.
(b) The leasing of residential space by a plan to a party in
interest if --
(1) The party in interest leasing space from the plan is an
employee of an employer any of whose employees are covered by the plan
or an employee of an affiliate of such employer (as defined in section
407(d)(7) of the Act);
(2) The employee who is leasing space does not have any
discretionary authority or control with respect to the investment of
the assets involved in the lease transaction and does not render
investment advice (within the meaning of 29 CFR 2510.3-21(c)) with
respect to those assets;
(3) The employee who is leasing space is not an officer, director,
or a 10% or more shareholder of the employer or an affiliate of such
employer;
(4) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification
[[Page 33650]]
thereof that requires the consent of the INHAM, the terms of the
transaction are not less favorable to the plan than the terms afforded
by the plan to other, unrelated lessees in comparable arm's length
transactions;
(5) The amount of space covered by the lease does not exceed five
percent (5%) of the rentable space of the apartment building or multi-
unit residential subdivision [townhouses or garden apartments], and the
aggregate amount of space leased to all employees of the employer or an
affiliate of such employer does not exceed ten percent (10%) of such
rentable space; and
(6) The requirements of sections I(a), I(c), I(d), I(g) and I(h)
are satisfied with respect to the transaction.
Part III--Places of Public Accommodation
Effective as of the date of publication of the final class
exemption in the Federal Register, the restrictions of sections
406(a)(1)(A) through (D) and 406(b)(1) and (2) of ERISA and the taxes
imposed by Code section 4975(a) and (b), by reason of Code section
4957(c)(1)(A) through (E), shall not apply to the furnishing of
services and facilities (and goods incidental thereto) by a place of
public accommodation owned by a plan and managed by an INHAM to a party
in interest with respect to the plan, if the services and facilities
(and incidental goods) are furnished on a comparable basis to the
general public.
Part IV--Definitions
For purposes of this exemption:
(a) The term ``in-house asset manager'' or ``INHAM'' means an
organization which is--
(1) either (A) a direct or indirect 80 percent or more owned
subsidiary of an employer, or a direct or indirect 80 percent more
owned subsidiary of a parent organization of such an employer, or (B) a
membership nonprofit corporation a majority of whose members are
officers or directors of such an employer or parent organization; and
(2) an investment adviser registered under the Investment Advisers
Act of 1940 that, as of the last day of its most recent fiscal year,
has under its management and control total assets attributable to plans
maintained by affiliates of the INHAM (as defined in section IV(b)) in
excess of $50 million; provided that if it has no prior fiscal year as
a separate entity as a result of it constituting a division or group
within the employer's organizational structure, then this requirement
will be deemed met as of the date during its initial fiscal year as a
separate legal entity that responsibility for the management of such
assets in excess of $50 million was transferred to it from the
employer. Effective as of the last day of the first fiscal year of the
investment adviser beginning on or after the date of publication of
this amendment to PTE 96-23 in the Federal Register, substitute ``$85
million'' for ``$50 million'' in (a)(2) of section IV above.
In addition, plans maintained by affiliates of the INHAM and/or the
INHAM must have, as of the last day of each plan's reporting year,
aggregate assets of at least $250 million.
(b) For purposes of sections IV(a) and IV(h), an ``affiliate'' of
an INHAM means a member of either (1) a controlled group of
corporations (as defined in section 414(b) of the Code) of which the
INHAM is a member, or (2) a group of trades or businesses under common
control (as defined in section 414(c) of the Code) of which the INHAM
is a member; provided that ``50 percent'' shall be substituted for ``80
percent'' wherever ``80 percent'' appears in section 414(b) or 414(c)
or the rules thereunder.
(c) The term ``party in interest'' means a person described in the
Act section 3(14) and includes a ``disqualified person'' as defined in
Code section 4975(e)(2).
(d) An INHAM is ``related'' to a party in interest for purposes of
section I(f) of this exemption if, as of the last day of its most
recent calendar quarter: (i) the INHAM (or a person controlling, or
controlled by, the INHAM) owns a ten percent or more interest in the
party in interest; or (ii) the party in interest (or a person
controlling, or controlled by, the party in interest) owns a ten
percent or more interest in the INHAM. For purposes of this definition:
(1) The term ``interest'' means with respect to ownership of an
entity--
(A) The combined voting power of all classes of stock entitled to
vote or the total value of the shares of all classes of stock of the
entity if the entity is a corporation,
(B) The capital interest or the profits interest of the entity if
the entity is a partnership, or
(C) The beneficial interest of the entity if the entity is a trust
or unincorporated enterprise; and
(2) A person is considered to own an interest if, other than in a
fiduciary capacity, the person has or shares the authority--
(A) To exercise any voting rights or to direct some other person to
exercise the voting rights relating to such interest, or
(B) To dispose or to direct the disposition of such interest; and
(3) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person othe
