Exemptions From Certain Prohibited Transaction Restrictions, 27356-27363 [2011-11440]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 76, Number 91 (Wednesday, May 11, 2011)]
[Notices]
[Pages 27356-27363]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-11440]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Exemptions From Certain Prohibited Transaction Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code). 
This notice includes the following: D-11528, 2011-06, Wachovia 
Corporation and Its Current and Future Affiliates or Successors 
(collectively, Wachovia or the Applicant), D-11580, 2011-07, Robert W. 
Baird and Co. Incorporated and its Future Affiliates and Subsidiaries 
(collectively, Baird); D-11621, 2011-08, Security Benefit Mutual 
Holding Company (MHC) and Security Benefit Life Insurance Company (SBL, 
and together with MHC the Applicants); and D-11635, 2011-09, The Parvin 
Nahvi, M.D. Inc. 401(k) Profit Sharing Trust (the Plan).

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

Statutory Findings

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

Wachovia Corporation and Its Current and Future Affiliates or 
Successors (Collectively, Wachovia or the Applicant); Located in San 
Francisco, California; [Prohibited Transaction Exemption 2011-06; 
Exemption Application No. D-11528]

Exemption

Section I. Sales of Auction Rate Securities From Plans to Wachovia: 
Unrelated to a Settlement Agreement

    The restrictions of section 406(a)(1)(A) and (D) and section 
406(b)(1) and (2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A), (D), and (E) of the Code, shall not apply, effective 
February 1, 2008, to the sale by a Plan (as defined in Section V(e)) of 
an Auction Rate Security (as defined in Section V(c)) to Wachovia, 
where such sale (an Unrelated Sale) is unrelated to, and not made in 
connection with, a Settlement Agreement (as defined in Section V(f)), 
provided that the conditions set forth in Section II have been met.

Section II. Conditions Applicable to Transactions Described in Section 
I

    (a) The Plan acquired the Auction Rate Security in connection with 
brokerage or advisory services provided by Wachovia to the Plan;
    (b) The last auction for the Auction Rate Security was 
unsuccessful;
    (c) Except in the case of a Plan sponsored by Wachovia for its own 
employees (a Wachovia Plan), the

[[Page 27357]]

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

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

    The restrictions of section 406(a)(1)(A) and (D) and section 
406(b)(1) and (2) of the Act and the sanctions resulting from the 
application of section 4975 of the Code, by reason of section 
4975(c)(1)(A), (D), and (E) of the Code, shall not apply, effective 
February 1, 2008, to the sale by a Plan of an Auction Rate Security to 
Wachovia, where such sale (a Settlement Sale) is related to, and made 
in connection with, a Settlement Agreement, provided that the 
conditions set forth in Section IV have been met.

Section IV. Conditions Applicable to Transactions Described in Section 
III

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

[[Page 27358]]

    (c) The terms of the Settlement Sale are consistent with the 
requirements set forth in the Settlement Agreement; and
    (d) All of the conditions in Section II have been met.

Section V. Definitions

    For purposes of this exemption:
    (a) The term ``affiliate'' means any person directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with such other person;
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual;
    (c) The term ``Auction Rate Security'' or ``ARS'' means a security: 
(1) that is either a debt instrument (generally with a long-term 
nominal maturity) or preferred stock; and (2) with an interest rate or 
dividend that is reset at specific intervals through a Dutch auction 
process;
    (d) A person is ``independent'' of Wachovia if the person is: (1) 
not Wachovia or an affiliate; and (2) not a relative (as defined in 
section 3(15) of the Act) of the party engaging in the transaction;
    (e) The term ``Plan'' means an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); an employee benefit plan as defined in section 3(3) of 
the Act; or an entity holding plan assets within the meaning of 29 CFR 
2510.3-101, as modified by section 3(42) of the Act; and
    (f) The term ``Settlement Agreement'' means a legal settlement 
involving Wachovia and a U.S. state or Federal authority that provides 
for the purchase of an ARS by Wachovia from a Plan.
    Effective Date: This exemption is effective February 1, 2008.
    For Further Information Contact: Gary Lefkowitz of the Department, 
telephone (202) 693-8546. (This is not a toll-free number.)

Robert W. Baird and Co. Incorporated and Its Current and Future 
Affiliates and Subsidiaries (Collectively, Baird); Located in 
Milwaukee, Wisconsin; [Prohibited Transaction Exemption 2011-07; 
Exemption Application No. D-11580]

Exemption

Section I.--Transactions

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code, shall not apply, 
effective October 9, 2009, to the cash sale (the Sale) by a Plan (as 
defined in Section II(d)) of an Auction Rate Security (as defined in 
Section II(b)) to Baird, provided that the following conditions are 
met: \2\
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    \2\ For purposes of this exemption, references to section 406 of 
ERISA refer as well to the corresponding provisions of section 4975 
of the Code.
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    (a) The Sale was a one-time transaction made on a delivery versus 
payment basis in the amount described in paragraph (b);
    (b) The Plan received an amount equal to the par value of the 
Auction Rate Securities (the ARS or the Securities) plus accrued but 
unpaid income (interest or dividends, as applicable) as of the date of 
the Sale;
    (c) The last auction for the Securities was unsuccessful;
    (d) The Sale was made in connection with a written offer (the 
Offer) by Baird containing all of the material terms of the Sale;
    (e) The Plans did not bear any commissions or transaction costs 
with respect to the Sale;
    (f) The decision to accept the Offer or retain the Auction Rate 
Security was made by a Plan fiduciary or Plan participant or an 
individual retirement account (an IRA (as defined in Section II(d)) 
owner who is independent (as defined in Section II(c)) of Baird. 
Notwithstanding the foregoing, in the case of an IRA which is 
beneficially owned by an employee, officer, director or partner of 
Baird, the decision to accept the Offer or retain the Auction Rate 
Security may be made by such employee, officer, director or partner if 
all of the other conditions of this Section I have been met;
    (g) The Plan does not waive any rights or claims in connection with 
the Sale;
    (h) The Sale is not part of an arrangement, agreement or 
understanding designed to benefit a party in interest with respect to 
the Plan;
    (i) If the exercise of any of Baird's rights, claims or causes of 
action in connection with its ownership of the Securities results in 
Baird recovering from the issuer of the Securities, or any third party, 
an aggregate amount that is more than the sum of:
    (1) The purchase price paid to the Plan for the Securities by 
Baird; and
    (2) The income (interest or dividends, as applicable) due on the 
Securities from and after the date Baird purchased the Securities from 
the Plan, at the rate specified in the respective offering documents 
for the Securities or determined pursuant to a successful auction with 
respect to the Securities, Baird will refund such excess amount 
promptly to the Plan (after deducting all reasonable expenses incurred 
in connection with the recovery);
    (j) Neither Baird nor any affiliate exercises investment discretion 
or renders investment advice (within the meaning of 29 CFR 2510.3-
21(c)) with respect to the decision to accept the written Offer or 
retain the Security (unless the Sale involves an IRA whose owner is an 
employee, officer, director or partner of Baird);
    (k) Baird and its affiliates, as applicable, maintain, or cause to 
be maintained, for a period of six (6) years from the date of the Sale 
such records as are necessary to enable the person described below in 
paragraph (l)(i), to determine whether the conditions of this exemption 
have been met, except that--
    (i) No party in interest with respect to a Plan which engages in a 
Sale, other than Baird and its affiliates, shall be subject to a civil 
penalty under section 502(i) of the Act or the taxes imposed by section 
4975(a) and (b) of the Code, if such records are not maintained, or not 
available for examination, as required, below, by paragraph (l)(i);
    (ii) A separate prohibited transaction shall not be considered to 
have occurred solely because due to circumstances beyond the control of 
Baird, such records are lost or destroyed prior to the end of the six-
year period.
    (l)(i) Except as provided, below, in paragraph (l)(ii), and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to, above, in paragraph (k) are 
unconditionally available at their customary location for examination 
during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department, the Internal Revenue Service, or the Securities and 
Exchange Commission;
    (B) Any fiduciary of any Plan that engages in the covered 
transactions, or any duly authorized employee or representative of such 
fiduciary;
    (C) Any employer of participants and beneficiaries and any employee 
organization whose members are covered by a Plan that engages in the 
covered transactions, or any authorized employee or representative of 
these entities; or
    (D) Any IRA owner, participant or beneficiary of a Plan that 
engages in the Sale, or duly authorized representative of such IRA 
owner, Plan participant or beneficiary;
    (ii) None of the persons described, above, in paragraph (l)(i)(B)-
(D) shall be authorized to examine trade secrets of

[[Page 27359]]

Baird, or commercial or financial information which is privileged or 
confidential; and
    (iii) Should Baird refuse to disclose information on the basis that 
such information is exempt from disclosure, Baird shall, by the close 
of the thirtieth (30th) day following the request, provide a written 
notice advising that person of the reasons for the refusal and that the 
Department may request such information.

Section II--Definitions

    (a) The term ``affiliate'' of another person means: Any person 
directly or indirectly, through one or more intermediaries, 
controlling, controlled by, or under common control with such other 
person;
    (b) The term ``Auction Rate Security'' means a security:
    (1) That is either a debt instrument (generally with a long-term 
nominal maturity) or preferred stock; and
    (2) with an interest rate or dividend that is reset at specific 
intervals through a ``Dutch Auction'' process.
    (c) The term ``Independent'' means a person who is not Baird or an 
affiliate (as defined in Section II(a)).
    (d) The term ``Plan'' means an individual retirement account or 
similar account described in section 4975(e)(1)(B) through (F) of the 
Code (an IRA); or an employee benefit plan as defined in section 3(3) 
of the Act.
    Effective Date: This exemption is effective October 9, 2009.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on January 19, 2011 at 76 FR 
3165.
    Notice to Interested Persons: Baird represents that it was unable 
to comply with the notice to interested persons requirement within the 
time frame set forth in its application. However, Baird has represented 
that it notified all interested persons, in the manner agreed upon 
between Baird and the Department, by February 9, 2011. Interested 
persons were notified that they had until March 14, 2011, to submit 
comments to the Department with respect to the proposed exemption. No 
comments were received by the Department.
    For Further Information Contact: Mr. Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (This is not a toll-free number.)

Security Benefit Mutual Holding Company (MHC) and Security Benefit Life 
Insurance Company (SBL, and Together With MHC, the Applicants); Located 
in Topeka, Kansas; [Prohibited Transaction Exemption 2011-08; Exemption 
Application No. D-11621]

Exemption

Section I. Covered Transaction

    The restrictions of section 406(a) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) through (D) of the Code,\3\ shall not apply, 
effective July 30, 2010, to the receipt of cash or policy credits 
(Policy Credits), by or on behalf of a policy owner of SBL 
(Policyholder) that is an Eligible Member, which is an employee benefit 
plan or retirement arrangement that is subject to section 406 of the 
Act and/or section 4975 of the Code (a Plan), other than a Plan 
maintained by MHC and/or its affiliates, in exchange for the 
extinguishment of such Eligible Member's membership interest in MHC, in 
accordance with the terms of a plan of demutualization and dissolution 
(the D&D Plan), adopted by MHC and implemented in accordance with 
Kansas Insurance Law.
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    \3\ For purposes of this exemption, references to the provisions 
of Title I of the Act, unless otherwise specified, refer also to the 
corresponding provisions of the Code.
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    This exemption is subject to the general conditions set forth below 
in Section II.

Section II. General Conditions

    (a) The D&D Plan was implemented in accordance with procedural and 
substantive safeguards that were imposed under the laws of the State of 
Kansas and was subject to review, approval, and supervision by the 
Kansas Commissioner of Insurance (the Commissioner).
    (b) The Commissioner reviewed the terms that were provided to 
Eligible Members as part of the Commissioner's review of the D&D Plan, 
and the Commissioner approved the D&D Plan following a determination 
that such D&D Plan was fair and equitable to all Eligible Members.
    (c) Each Eligible Member had an opportunity to comment on the D&D 
Plan at the Commissioner's public comment meeting or evidentiary 
hearing on the D&D Plan.
    (d) Each Eligible Member had an opportunity to vote to approve the 
D&D Plan after full written disclosure was given to the Eligible 
Members by MHC.
    (e) Pursuant to the D&D Plan, an Eligible Member generally received 
cash, except that an Eligible Member received or will receive Policy 
Credits, and not cash, to the extent that--
    (1) Consideration was allocable to the Eligible Member based on 
ownership of a Tax-Qualified Contract; or
    (2) SBL made an objective determination that payment of 
Consideration in the form of cash would be disadvantageous to such 
Eligible Member in respect of applicable income or other taxation 
provisions.
    (f) Any determination made by SBL under Paragraphs (e)(1) or (e)(2) 
above was based upon objective criteria that was applied consistently 
to similarly situated Eligible Members.
    (g) Any act or determination undertaken by an Eligible Member that 
was a Plan with respect to attending and/or submitting comments for the 
Commissioner's public comment meeting and/or evidentiary hearing, 
attending MHC's special meeting to consider the D&D Plan, and/or voting 
on the D&D Plan, was made by one or more Plan fiduciaries that were 
independent of SBL and its affiliates, and neither SBL nor any of its 
affiliates provided investment advice within the meaning of 29 CFR 
2510.3-21(c) or exercised investment discretion with respect to such 
act or determination.
    (h) All Eligible Members that were Plans participated in the 
demutualization of MHC (the Demutualization) on the same basis as all 
other Eligible Members that were not Plans.
    (i) No Eligible Member paid any brokerage commissions or fees in 
connection with the receipt of Policy Credits.
    (j) All of SBL's Policyholder obligations remained in force and 
were not affected by the D&D Plan.
    (k) The terms of the Demutualization were at least as favorable to 
the Plans as the terms of an arm's length transaction between unrelated 
parties.
    (l) Any Plan Eligible Member whose Consideration was placed in a 
trust, escrow account, or other similar arrangement (the Escrow 
Arrangement), pursuant to the D&D Plan, will receive a distribution of 
such Consideration from the Escrow Arrangement, and will not forfeit 
such Consideration.
    (m) SBL maintains or causes to be maintained, for a period of (6) 
six years, the records necessary to enable the persons described in 
paragraph (n)(1) of this section to determine whether the applicable 
conditions of this exemption have been met. Such records are readily 
available to assure accessibility by the persons identified in 
paragraph (n)(1) of this section.

[[Page 27360]]

    (n)(1) Notwithstanding any provisions of section 504(a)(2) and (b) 
of the Act, the records referred to in paragraph (m) of this section 
are unconditionally available at their customary location for 
examination during normal business hours by--
    (A) Any duly authorized employee or representative of the 
Department or the Internal Revenue Service;
    (B) Any fiduciary of an Eligible Member that is a Plan or any duly 
authorized representative of such fiduciary;
    (C) Any contributing employer to any Eligible Member that is a Plan 
or any duly authorized employee representative of such employer; and
    (D) Any participant or beneficiary of any Eligible Member that is a 
Plan, or any duly authorized representative of such participant or 
beneficiary.
    (2) A prohibited transaction is not deemed to have occurred if, due 
to circumstances beyond the control of SBL, the records are lost or 
destroyed prior to the end of the six-year period, and no party in 
interest other than SBL is subject to the civil penalty that may be 
assessed under section 502(i) of the Act or to the taxes imposed by 
sections 4975(a) and (b) of the Code if the records are not maintained 
or are not available for examination as required by paragraph (n)(1) of 
this section.
    (3) None of the persons described in paragraphs (B)-(D) of section 
(n)(1) are authorized to examine the trade secrets of SBL or commercial 
or financial information which is privileged or confidential.
    (4) Should SBL refuse to disclose information on the basis that 
such information is exempt from disclosure, SBL shall, by the close of 
the thirtieth (30th) day following the request, provide written notice 
advising that person of the reason for the refusal and that the 
Department may request such information.

Section III. Definitions

    For purposes of this exemption:
    (a) The term ``MHC'' means Security Benefit Mutual Holding Company, 
and any affiliate of MHC, as defined below in Section III(b).
    (b) An ``affiliate'' of a person includes--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with such entity (for purposes of this paragraph, the term ``control'' 
means the power to exercise a controlling influence over the management 
or policies of a person other than an individual); and
    (2) Any officer of, director of, or partner in such person.
    (c) The ``Adoption Date'' refers to March 2, 2010, the date that 
MHC's Board of Directors adopted the D&D Plan.
    (d) The term ``Consideration'' means the cash or Policy Credits 
receivable by an Eligible Member in exchange for the extinguishment of 
such Eligible Member's membership interest in MHC, in accordance with 
the terms of the D&D Plan.
    (e) The ``D&D Plan'' means the plan of demutualization and 
dissolution adopted by MHC and implemented in accordance with Kansas 
Insurance Law, dated as of March 2, 2010.
    (f) The term ``Eligible Member'' means a person, other than MHC or 
its subsidiaries, who, as reflected in the records of SBL or other 
relevant entities, is the owner of one or more Eligible Policies on the 
Adoption Date.
    (g) The term ``Eligible Policy'' or ``Eligible Policies'' means a 
policy that, as reflected in the records of SBL or other relevant 
entities, is in force on the Adoption Date, unless the policy is 
excluded pursuant to the D&D Plan.
    (h) The term ``Policy Credit'' means consideration to be paid in 
the form of an increase in cash value, account value, dividend 
accumulations or benefit payment, as appropriate, depending upon the 
policy.
    (i) The term ``SBL'' means Security Benefit Life Insurance Company 
and any affiliate of SBL, as defined in Section III(b).
    (j) The term ``Tax-Qualified Contract'' means an Eligible Policy in 
one of the following forms, that is held, other than through a trust, 
on the date that Consideration is distributed--
    (1) An annuity contract that qualifies for the treatment described 
in section 403(b) of the Code;
    (2) An individual retirement annuity within the meaning of section 
408(b) of the Code;
    (3) An individual annuity contract or an individual life insurance 
policy issued directly to a Plan participant pursuant to a Plan 
qualified under section 401(a) or section 403(a) of the Code;
    (4) A group annuity contract issued to an employer, designed to 
fund benefits under a Plan sponsored by the employer that qualifies 
under section 401(a) or section 403(a) of the Code;
    (5) An annuity contract issued in connection with a Plan 
established by a governmental entity that qualifies for the treatment 
described in section 457 of the Code; or
    (6) Any other form of contract MHC determines must receive Policy 
Credits in order to retain the contract's tax-favored status.

Section IV. Effective Date

    This exemption is effective as of July 30, 2010.

Written Comments

    The Department invited all interested persons to submit written 
comments with respect to the notice of proposed exemption on or before 
March 4, 2011. During the comment period, the Department received 30 
telephone inquiries, 1 e-mail inquiry, and 2 written comments from 
Policyholders. Furthermore, the Department received a written comment 
from the Applicants, which supported the exemption and requested 
certain modifications and/or clarifications regarding the Summary of 
Facts and Representations (the Summary) in the notice of proposed 
exemption.
    Following is a discussion of the aforementioned comments, including 
the responses made by the Applicants or the Department to address the 
issues raised therein. Any capitalized terms herein not otherwise 
defined have the meanings ascribed to them in the Summary.

Policyholder Comments and Applicants' Responses

    The majority of Policyholder inquiries and/or written comments 
concerned the commenters' difficulties in understanding the notice of 
proposed exemption or the effect of the proposed exemption on such 
Policyholders' policies. The Department also received written comments 
from two Eligible Members which generally concerned the benefit of the 
Covered Transaction to Policyholders and whether there were adequate 
protections for Plan Eligible Members.
A. First Commenter
    The first commenter questioned the benefit of the proposed 
exemption to Policyholders as compared to the benefit to the 
Applicants. In response, the Applicants state that holders of Eligible 
Policies will benefit more from the Department's grant of the proposed 
exemption than from denial of it. The Applicants explain that, if the 
proposed exemption is granted, the Policyholders that are Plan Eligible 
Members will receive the Consideration allotted to them and now held in 
the Escrow Arrangement in the form of cash or Policy Credits. If, 
however, the proposed exemption is denied, (1) the Policyholders that 
are Plan Eligible Members will be unable to receive the Consideration 
allotted to them in the

[[Page 27361]]

Escrow Arrangement; and (2) the Applicants will be unable to distribute 
such Consideration to such Plans because of the risk of committing a 
prohibited transaction. Instead, the Applicants state, the 
Consideration will be paid to, and will add to the capital of, SBL.\4\ 
Furthermore, the Applicants suggest that, although enhancing SBL's 
capital may have some benefit to the Policyholders, such capital 
ultimately belongs to the Applicants' shareholders. Thus, the 
Applicants state that payment of the Consideration to the Policyholders 
would be more beneficial to them.
---------------------------------------------------------------------------

    \4\ As stated in Representation 36 of the Summary, the 
Department views the mechanism in the D&D Plan whereby Consideration 
in the Escrow Arrangement allotted to Plan Eligible Members is 
returned to SBL if no exemption is received by June 30, 2011 (the 
failsafe mechanism), as contrary to the protections afforded to plan 
assets and the parties who are entitled to such assets under the 
Act. Moreover, the Department believes that the failsafe mechanism 
is violative of Section II(h) of the exemption, which provides that 
Plan Eligible Members that participated in the Demutualization be 
treated in the same manner as Eligible Members that were not Plans, 
and Section II(l) of the exemption, which prohibits the forfeiture 
of Consideration.
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B. Second Commenter
    The second commenter suggested that the proposed exemption does not 
adequately protect the interests of Plan Eligible Members. In this 
regard, the second commenter inquired about (1) How Plan Eligible 
Members' financial interests would be protected; (2) what assurances 
exist that SBL's policies would not be changed as a result of the 
exemption; (3) what prudent measures would new management undertake to 
ensure SBL's future; and (4) what other courses of action are available 
to protect Plan Eligible Members that would also benefit SBL's long-
term survival.
    In response to the second commenter's inquiry about the protection 
of Plan Eligible Members' financial interests, the Applicants state 
that MHC's Board of Directors believed its approval of MHC's (1) sale 
of SBC to Guggenheim and (2) concurrent Demutualization and dissolution 
(cumulatively, the Transaction) to be in the best interests of SBL's 
Policyholders, as it expected the Transaction to provide SBL with a 
significantly improved financial condition that would allow SBL to 
mitigate liquidity and regulatory concerns and permit SBL to operate 
with a stronger capital position, better prospects, higher financial 
strength ratings and thus greater assurance it would fulfill its 
obligations to its Policyholders. The Applicants note that, as had been 
anticipated, S&P improved its financial strength rating for SBL upon 
announcement of the Transaction, again upon completion of the Interim 
Recapitalization, and yet again, as the Department noted in Footnote 4 
of the Summary, immediately following the closing of the Transaction. 
In contrast, the Applicants point out that, without the Transaction, 
MHC's Board of Directors could not, given the condition of SBL, 
guarantee that the Kansas Insurance Department (KID) would refrain from 
taking regulatory action that could adversely affect the Policyholders 
of SBL.
    Furthermore, the Applicants emphasize that the Transaction was 
monitored from its inception by the KID and, as part of the KID's 
approval process for the D&D Plan, the Commissioner determined that the 
D&D Plan was fair and equitable to Eligible Members and Policyholders. 
The Applicants note that the Commissioner's order approving the 
Transaction found that the evidence established that the D&D Plan would 
not unjustly enrich any director, officer, agent, or employee of 
SBL.\5\ The Applicants also relate that Policyholders, as Members of 
MHC, likewise demonstrated their support for the Transaction, noting 
that approximately 90% of the Eligible Members voting at the May 26, 
2010 meeting voted in favor of the D&D Plan.
---------------------------------------------------------------------------

    \5\ See In re Security Benefit Mutual Holding Company, Docket 
No. 4103-DM, paragraphs 91-92.
---------------------------------------------------------------------------

    In response to the second commenter's inquiry regarding guarantees 
that the Transaction would not change the policies of SBL to the 
detriment of the Policyholders, the Applicants note that the preamble 
of the D&D Plan, which was distributed to Eligible Members with the 
MIB, provides that: ``[t]he Transaction will not, in any way, change 
premiums or reduce policy benefits, values, guarantees or other policy 
obligations of SBL to its Policyholders.'' Further, the Applicants note 
that the Commissioner determined that the evidence established that the 
Investor had no plans to make any ``material change in [SBL's] business 
or corporate structure or management that would be unfair and 
unreasonable to SBL's Policyholders and not in the public interest.'' 
\6\ The Applicants also stress that SBL's actions with respect to 
Policyholders' policies continue to be subject to oversight and 
regulation by the KID and, as binding contractual agreements, such 
policies cannot be unilaterally changed by SBL except as expressly 
permitted pursuant to the terms thereof.
---------------------------------------------------------------------------

    \6\ See In re Security Benefit Mutual Holding Company, Docket 
No. 4103-DM, paragraph 77.
---------------------------------------------------------------------------

    In response to the second commenter's inquiry regarding the ability 
to ensure future prudent operational practices of management, the 
Applicants reiterate that SBL remains subject to oversight and 
regulation by the KID. Moreover, according to the Applicants, SBL's new 
owners, whose representatives now comprise a majority of the board of 
directors of Security Benefit Corporation (SBC), SBL's parent, have a 
substantial investment in SBL, indirectly through SBC,\7\ and thus a 
significant financial interest in SBL being well operated and managed 
lest they lose on their investment.
---------------------------------------------------------------------------

    \7\ The Applicants note that approximately $350 million of the 
$400 million paid by the Investors to acquire SBC was contributed by 
SBC as equity capital to SBL, and the Investors are limited by law 
in their ability to remove such capital from SBL. In this regard, 
the Applicants explain that section 40-3306(f) of the Kansas 
Insurance Code prevents a Kansas life insurer from paying a dividend 
to its shareholders without the prior approval of the Commissioner 
if the dividend is more than (A) 10% of its surplus as regards 
Policyholders as of December 31 immediately preceding; or (B) the 
net gain from operations of such insurer, not including realized 
capital gains for the 12-month period ending December 31 immediately 
preceding.
---------------------------------------------------------------------------

    Finally, in response to the second commenter's inquiry regarding 
other courses of action available to protect Policyholders and benefit 
the long term survival of SBL, the Applicants suggest that, as the 
Transaction closed on July 30, 2010, there are currently no alternative 
courses of action available. However, the Applicants stress that MHC's 
Board of Directors, the Commissioner and an overwhelming majority of 
Eligible Members supported the D&D Plan. In addition, the Applicants 
note that MHC's Board of Directors previously considered possible 
alternatives and determined that the Transaction was in the best 
interests of Policyholders. The Applicants state further that it is in 
the best interests of the Policyholders for the exemption to be granted 
by the Department so that the Consideration can be distributed to the 
Plan Eligible Members in accordance with the D&D Plan.

The Applicants' Comment

    The Applicants also delivered a written comment to the Department 
which was meant to clarify some of the information provided in the 
Summary. The comment generally clarifies the status of Consideration 
held in the Escrow Arrangement, the corporate structure of SBL and SBC, 
the timing of certain key events in the Transaction, developments in 
the allocation of

[[Page 27362]]

Consideration pursuant to the D&D Plan, and the description of the 
failsafe mechanism employed in the D&D Plan.
A. Distribution of Consideration Held in the Escrow Arrangement
    Section II(e) of the proposed exemption provides that pursuant to 
the D&D Plan, an Eligible Member generally received cash, except that 
an Eligible Member received Policy Credits, and not cash, to the extent 
that (1) Consideration was allocable to the Eligible Member based on 
ownership of a Tax-Qualified Contract; or (2) SBL made an objective 
determination that payment of Consideration in the form of cash would 
be disadvantageous to such Eligible Member in respect of applicable 
income or other taxation provisions. The Applicants explain that while 
Section II(e) of the proposed exemption uses the past tense to describe 
the Eligible Members' receipt of Consideration pursuant to the D&D 
Plan, a portion of available Consideration, payable in Policy Credits, 
continues to be held in the Escrow Arrangement, as described in 
Representations 29 though 36 of the Summary, and will not be 
distributed until the exemption is granted.
    In response to the Applicants' comment, the Department has revised 
Section II(e) of the operative language by including the phrase ``or 
will receive'' after the word ``received'' and before the term ``policy 
credits.'' Section II(e) of the exemption now reads, in relevant part, 
as follows:

    (e) Pursuant to the D&D Plan, an Eligible Member generally 
received cash, except that an Eligible Member received or will 
receive Policy Credits, and not cash, to the extent that * * *

In addition, the Department notes corresponding revisions to 
Representations 29-36 of the Summary.
B. Corporate Structure of MHC and SBC
    In Representation 1 and Footnote 3 of the Summary, the Applicants 
suggest certain technical corrections to clarify their corporate 
structure. In this regard, the Applicants suggest that the first 
sentence in Representation 1 of the Summary should be revised to read 
``MHC, which is no longer in existence, was the Topeka, Kansas-based, 
former parent of Security Benefit Corporation (SBC), which in turn was 
the parent corporation of Security Benefit Life Insurance Company 
(SBL).'' Furthermore, the Applicants state that ``Security 
Distributors, Inc.'' should be removed from the list of entities in 
Footnote 3 because it is a subsidiary of SBL rather than SBC, and 
``Security Benefit Academy, Inc.'' should be inserted in its place. The 
Department takes note of the foregoing clarifications and revisions to 
Representation 1 and Footnote 3 of the Summary.
C. Timing of Key Events in the Transaction
    In Representation 17 of the Summary, the Applicants suggest that 
the date on which the MIB was mailed to Eligible Members be changed to 
more accurately reflect the timing of the mailing of the MIB. Thus, the 
Applicants state that ``April 5, 2010'' be inserted in place of ``March 
31, 2010,'' so that the first sentence of Representation 17 now reads, 
``On or before April 5, 2010, at least 20 days in advance of the Public 
Comment Meeting to be held by the Commissioner, MHC provided each 
Eligible Member with a copy of the Security Benefit Member Information 
Booklet (MIB), describing in detail the transactions described 
herein.''
    Representation 30 of the Summary explains that the Escrow 
Arrangement was necessary to protect Plan Eligible Members from adverse 
consequences in the event that the exemption or IRS Rulings were not 
received by the time Consideration was payable to such Policyholders. 
The Applicants note that while delivery of Consideration to certain 
members was conditioned upon the grant of the exemption, the 
Transaction itself was not. Thus, the Applicants suggest that in the 
penultimate sentence of Representation 30 of the Summary, the phrase 
``delivery of Consideration to Eligible Members'' be replaced with the 
word ``Transaction,'' to reflect that the Transaction was not 
contingent upon the receipt of the exemption or the IRS Rulings and 
proceeded to closing on July 30, 2010. The Department takes note of the 
foregoing clarifications and revisions to Representations 17 and 30 of 
the Summary.
D. Allocation of Consideration Pursuant to the D&D Plan
    As described in the Summary, the D&D Plan provides that 
Consideration was generally paid to Eligible Members in cash; however, 
Consideration was paid by the crediting of Policy Credits to each 
Eligible Member whose Eligible Policy was held in a Tax-Qualified 
Contract. The Applicants suggest a new footnote to be added to 
Representation 32, which clarifies that, as a result of the allocation 
process, it was determined that all of the Eligible Members holding 
ERISA Contracts will receive Policy Credits, because the ERISA 
Contracts are all also Tax-Qualified Contracts. Thus, the suggested 
footnote would read, ``SBL determined during the allocation process 
that (1) all of the ERISA Contracts held by Eligible Members were Tax-
Qualified Contracts and (2) the Consideration allocable to such ERISA 
Contracts would consist solely of Policy Credits.'' The Department 
concurs and takes note of the Applicants' clarification and update to 
the Summary.
E. Description of the Failsafe Mechanism in the D&D Plan
    Representation 33 of the Summary characterizes the December 31, 
2010 deadline for receipt of the IRS Rulings or the exemption as the 
``failsafe'' mechanism. The Applicants suggest a technical correction 
to Representation 33 to clarify that the failsafe mechanism was not 
just the December 31, 2010 deadline for receipt of the IRS Rulings and 
the exemption, subject to extension by the Commissioner, but also the 
associated release of the amounts remaining in the Escrow Arrangement 
to the general account of SBL for the benefit of all Policyholders. 
Thus, the first sentence of Representation 33, as modified, would read 
as follows:

    According to the Applicants, the December 31, 2010 deadline for 
receipt of the IRS Rulings or the exemption, following which the 
amounts remaining in the Escrow Arrangement would be released to the 
general account of SBL in the absence of, as applicable, the IRS 
Rulings only, the exemption only or both of the IRS Rulings and the 
exemption, constitutes a ``failsafe'' mechanism, in that it is 
designed to protect Plans from potential adverse tax consequences or 
disqualification in the event that Consideration is paid to Eligible 
Members holding Tax-Qualified Contracts or ERISA Contracts without 
the requisite regulatory approvals.

    The Applicants also suggest a technical correction to the 
penultimate sentence in Representation 33 which would clarify that the 
Applicants believed that there was a ``possibility,'' not a 
``probability,'' that only the exemption or the IRS Rulings would be 
approved (but not the other). Thus, the sentence, as modified, would 
read, ``Furthermore, the Applicants claim that there was a possibility 
that only the exemption or the IRS Rulings would be approved (but not 
the other), thereby creating a ``catch-22'' where Consideration could 
neither be paid to Eligible Members nor kept in the Escrow Arrangement 
indefinitely.'' The Department takes note of the Applicants' 
clarifications and concurs with the foregoing revisions of 
Representation 33.
    Finally, the Department notes that, due to a publication error, the 
reference to the date of issuance of the IRS Rulings in Footnote 17 of 
the Summary

[[Page 27363]]

erroneously refers to ``Footnote 13,'' and that such reference should 
be re-designated as ``Footnote 14.''
    After giving full consideration to the entire record, including the 
written comments, the Department has decided to grant the exemption, as 
described above. The complete application file is made available for 
public inspection in the Public Documents Room of the Employee Benefits 
Security Administration, Room N-1513, US Department of Labor, 200 
Constitution Avenue, NW., Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the proposed exemption published in the Federal Register on January 19, 
2011 at 76 FR 3167.

FOR FURTHER INFORMATION CONTACT:  Warren Blinder of the Department, 
telephone (202) 693-8553. (This is not a toll-free number.)

The Parvin Nahvi, M.D., Inc. 401(k) Profit Sharing Trust (the Plan); 
Located in Templeton, CA; [Prohibited Transaction Exemption 2011-09; 
Exemption Application No. D-11635]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply, in connection with the cash sale by the Plan (the Sale) of a 
parcel of improved real property (the Property), to Dr. Parvin Nahvi 
and Dr. Javad Sani (the Applicants), the 100% owners of the Plan 
sponsor, Parvin Nahvi, M.D., Inc. (the Employer), and parties in 
interest with respect to the Plan; provided that:
    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's length 
transaction with an unrelated party;
    (b) The Plan's obligations with respect to the remaining principal 
balance of a loan (the Loan) on the Property that is secured by a first 
deed of trust (the Deed of Trust) with Santa Lucia Bank, an unrelated 
lender, are:
    (1) satisfied in full out of the proceeds of the Sale, or
    (2) assumed in full by the Applicants, who indemnify and hold the 
Plan harmless for any further payment on, or any claims arising in 
connection with, the Loan;
    (c) The Plan receives an amount in cash, equal to the greater of:
    (1) the original purchase price paid by the Plan for the Property, 
plus additional contributions or expenses paid by the Plan relating to 
the holding of the Property, less any income generated by the Property 
and paid to the Plan, less the Loan principal assumed by the Applicants 
pursuant to Section (b)(2), or
    (2) the Property's appraised value of $1,825,000, which represents 
the fair market value of the Property, less the Loan principal assumed 
by the Applicants pursuant to Section (b)(2);
    (d) The fair market value of the Property has been determined by a 
qualified independent appraiser (the Appraiser) and is updated by such 
appraiser on the date the Sale is consummated;
    (e) The Sale is a one-time transaction for cash;
    (f) The Plan incurs no real estate fees, or commissions, in 
connection with the Sale; and
    (g) The Plan fiduciaries (1) Determine whether it is in the 
interest of the Plan to proceed with the Sale, (2) review and approve 
the methodology used in the appraisal that is being relied upon, and 
(3) ensure that such methodology is applied by the Appraiser in 
determining the fair market value of the Property on the date of the 
Sale.
    After giving full consideration to the entire record, the 
Department has decided to grant the exemption, as described above. The 
complete application file is made available for public inspection in 
the Public Documents Room of the Employee Benefits Security 
Administration, Room N-1513, US Department of Labor, 200 Constitution 
Avenue, NW, Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the proposed exemption published in the Federal Register on February 
17, 2011, at 76 FR 9370.

FOR FURTHER INFORMATION CONTACT: Warren Blinder of the Department, 
telephone (202) 693-8553. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemption does not 
apply and the general fiduciary responsibility provisions of section 
404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(B) of the Act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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; and
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC this 5th day of May, 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-11440 Filed 5-10-11; 8:45 am]
BILLING CODE 4510-29-P