Proposed Exemptions From Certain Prohibited Transaction Restrictions, 13314-13329 [2022-04954]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 87, Number 46 (Wednesday, March 9, 2022)]
[Notices]
[Pages 13314-13329]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-04954]


=======================================================================
-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemptions.

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

SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restrictions of the Employee 
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code). If granted, these proposed 
exemptions allow designated parties to engage in transactions that 
would otherwise be prohibited provided the conditions stated there in 
are met. This notice includes the following proposed exemptions: D-
12031, Midlands Management Corporation 401(k) Plan; D-12012, The DISH 
Network Corporation 401(k) Plan and the EchoStar 401(k) Plan; D-12048, 
The Children's Hospital of Philadelphia Pension Plan for Union-
Represented Employees.

DATES: All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, by April 25, 2022.

ADDRESSES: All written comments and requests for a hearing should be 
sent to the Employee Benefits Security Administration (EBSA), Office of 
Exemption Determinations, U.S. Department of Labor, Attention: 
Application No., stated in each Notice of Proposed Exemption via email 
[email protected] or online through https://www.regulations.gov by the 
end of the scheduled comment period. Any such comments or requests 
should be sent by the end of the scheduled comment period. The 
applications for exemption and the comments received will be available 
for public inspection in the Public Disclosure Room of the Employee 
Benefits Security Administration, U.S. Department of Labor, Room N-
1515, 200 Constitution Avenue NW, Washington, DC 20210. See 
SUPPLEMENTARY INFORMATION below for additional information regarding 
comments.

SUPPLEMENTARY INFORMATION:

Comments:

    In light of the current circumstances surrounding the COVID-19 
pandemic

[[Page 13315]]

caused by the novel coronavirus which may result in disruption to the 
receipt of comments by U.S. Mail or hand delivery/courier, persons are 
encouraged to submit all comments electronically and not to follow with 
paper copies. Comments should state the nature of the person's interest 
in the proposed exemption and the manner in which the person would be 
adversely affected by the exemption, if granted. A request for a 
hearing can be requested by any interested person who may be adversely 
affected by an exemption. A request for a hearing must state: (1) The 
name, address, telephone number, and email address of the person making 
the request; (2) the nature of the person's interest in the exemption 
and the manner in which the person would be adversely affected by the 
exemption; and (3) a statement of the issues to be addressed and a 
general description of the evidence to be presented at the hearing. The 
Department will grant a request for a hearing made in accordance with 
the requirements above where a hearing is necessary to fully explore 
material factual issues identified by the person requesting the 
hearing. A notice of such hearing shall be published by the Department 
in the Federal Register. The Department may decline to hold a hearing 
where: (1) The request for the hearing does not meet the requirements 
above; (2) the only issues identified for exploration at the hearing 
are matters of law; or (3) the factual issues identified can be fully 
explored through the submission of evidence in written (including 
electronic) form.
    Warning: All comments received will be included in the public 
record without change and may be made available online at https://www.regulations.gov, including any personal information provided, 
unless the comment includes information claimed to be confidential or 
other information whose disclosure is restricted by statute. If you 
submit a comment, EBSA recommends that you include your name and other 
contact information in the body of your comment, but DO NOT submit 
information that you consider to be confidential, or otherwise 
protected (such as Social Security number or an unlisted phone number) 
or confidential business information that you do not want publicly 
disclosed. However, if EBSA cannot read your comment due to technical 
difficulties and cannot contact you for clarification, EBSA might not 
be able to consider your comment. Additionally, the https://www.regulations.gov website is an ``anonymous access'' system, which 
means EBSA will not know your identity or contact information unless 
you provide it in the body of your comment. If you send an email 
directly to EBSA without going through https://www.regulations.gov, your 
email address will be automatically captured and included as part of 
the comment that is placed in the public record and made available on 
the internet.

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department, unless otherwise stated in the Notice of Proposed 
Exemption, within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
---------------------------------------------------------------------------

    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
---------------------------------------------------------------------------

    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Midlands Management Corporation 401(k) Plan

Oklahoma City, OK

[Application No. D-12031]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of Section 408(a) of the Employee Retirement Income Security 
Act of 1974 (ERISA), in accordance with the procedures set forth in 29 
CFR part 2570, subpart B (76 FR 46637, 66644, October 27, 2011). The 
proposed exemption relates to lawsuits and a Chapter 7 Bankruptcy Claim 
(together, the Lawsuits) filed on behalf of the Midlands Management 
Corporation 401(k) Plan (the Plan) against former Plan service 
providers and related parties.\2\ The exemption would permit the 
payment of $8,292,189 to the Plan on December 18, 2018, by Safety 
National Casualty Corporation (Safety National), the corporate parent 
of Midlands Management Corporation (Midlands or the Applicant),\3\ the 
Plan sponsor, in exchange for the Plan's assignment to Midlands of the 
Plan's right to proceeds from the Lawsuits (the Assigned Interests).
---------------------------------------------------------------------------

    \2\ In proposing this exemption, the Department is not 
expressing an opinion regarding the merits of the Plan's lawsuits 
against its former Plan service providers and related parties, or 
whether Midlands or related parties met their fiduciary duties with 
respect to the Plan assets that are the subject of the lawsuit. 
Among other things, this exemption preserves any right, claim, 
demand and/or cause of action the Plan may have against: (a) Any 
fiduciary of the Plan; (b) Midlands; and/or (c) any person or entity 
related to a person or entity described in (a)-(b).
    \3\ As described in more detail below, the Restorative Payment 
was remitted directly to the Plan by Safety National as part of 
Safety National's 2018 acquisition of Midlands.
---------------------------------------------------------------------------

    The proposed exemption also would permit the potential additional 
cash payment(s) by Midlands to the Plan if the amount(s) Midlands 
recovers from the Assigned Interests exceeds $8,292,189. Midlands would 
be required to immediately transfer the difference to the Plan (i.e., 
an amount equal to the excess between the Assigned Interest proceeds 
and $8,292,189 (the Excess Recovery Amount)).\4\ If Midlands receives 
less than $8,292,189 in proceeds from the Assigned Interests, then 
Midlands would be required to automatically forgive any unrecovered 
shortfall amount. No Plan assets may be transferred to Midlands in 
connection with this exemption, if granted, and Midlands would not be 
permitted to receive or retain any proceeds from the Lawsuits other 
than from the Assigned Interests. All of the transactions that are the 
subject of this exemption (the Covered Transactions) and their terms 
would have to be reviewed and monitored by a qualified, independent 
fiduciary, who, among other things, must complete and submit a report 
to the Department confirming that all of

[[Page 13316]]

the requirements of this exemption, if granted, have been met.\5\
---------------------------------------------------------------------------

    \4\ However, if there is an excess amount, Midlands may reduce 
the amount of the excess paid to the plan by the amount of 
reasonable attorney's fees that Midlands incurred in pursuing the 
Lawsuits, if the fees were paid to unrelated third parties.
    \5\ For purposes of this proposed exemption reference to 
specific provisions of Title I of the ERISA, unless otherwise 
specified, should be read to refer as well to the corresponding Code 
provisions.
---------------------------------------------------------------------------

Summary of Facts and Representations 6
---------------------------------------------------------------------------

    \6\ The Department notes that availability of this exemption 
would be subject to the express condition that the material facts 
and representations contained in application D-12031 are true and 
complete, and accurately describe all material terms of the 
transactions covered by the exemption. If there were any material 
change in a transaction covered by the exemption, or in a material 
fact or representation described in the application, the exemption 
would cease to apply as of the date of the change.
---------------------------------------------------------------------------

Background

    1. Midlands. Midlands is a managing general agent, wholesale 
broker, program administrator and insurance services provider located 
in Oklahoma City, Oklahoma.
    2. The Plan. Midlands sponsors the Plan, which is an individual 
account defined contribution plan. Plan participants may contribute to 
their individual Plan accounts through either pretax or Roth deferrals. 
The Plan is administered by the Retirement Plan Committee (the 
Committee), which is appointed by Midland's board of directors. As of 
December 31, 2020, the Plan covered 147 participants and held 
$15,088,875 in total assets.
    3. Vantage Benefit Administrators. Up until November 30, 2017, 
Vantage Benefit Administrators (Vantage) served as the Plan's 
recordkeeper and third-party administrator. In this capacity, Vantage's 
responsibilities included providing periodic statements to Plan 
participants and maintaining records of participant account balances.
    4. The Unauthorized Transfers. The Applicant represents that, 
beginning as early as 2013, and continuing through 2017, Vantage caused 
the unauthorized transfers of Plan assets directly to an account that 
Vantage used to operate its own business. Vantage caused 180 such 
unauthorized transfers that totaled in excess of $5.5 million. Vantage 
concealed the transfers via false account statements and reports.
    5. RSM and the Failure to Monitor. Beginning in 2013 and continuing 
through 2016, Midlands retained RSM US, LLP (RSM), an audit, tax, and 
consulting firm, to audit the Plan on a regular basis. In this 
capacity, RSM completed annual audit reports of the Plan for the years 
2013 through 2016. The Applicant represents that the Committee relied 
upon RSM's audit findings as a ``critical means'' to monitor Vantage's 
administration of the Plan. The Applicant further represents that RSM's 
audit reports ultimately failed to detect the unauthorized withdrawals 
of Plan assets by Vantage. By Nov. 1, 2017, Vantage's unauthorized 
withdrawals had reduced total Plan assets to $2,406,654.94, an amount 
that was approximately $8 million less than the total reported by RSM 
in an audit report dated two weeks prior (Oct. 13, 2017).
    6. Beasley and the Calculation of Plan Losses. The Applicant 
represents that Midlands first became aware of Vantage's unauthorized 
withdrawals on October 25, 2017. At that time, Midlands engaged Beasley 
& Company of Tulsa, Oklahoma (Beasley) to investigate and assess Plan 
losses incurred in connection with Vantage's unauthorized withdrawals. 
The Applicant represents that Beasley is not affiliated with Midlands, 
Safety National, or the Plan. Beasley ultimately concluded that the 
Plan's total losses incurred in connection with Vantage's unauthorized 
withdrawals was $9,292,189, an amount which includes the principal 
amount misappropriated by Vantage, plus associated lost interest.\7\
---------------------------------------------------------------------------

    \7\ To calculate lost earnings, Beasley applied the higher of 
the Plan's actual rate of return as a whole, or the rate of return 
for the highest performing fund in the Plan's lineup. Beasley 
represents that, because of market volatility, the Plan's rate of 
return was negative for the 4th quarter of 2018. Beasley therefore 
used the fund with the highest rate of return which was the T. Rowe 
Price Blue Chip Growth fund which had returned 5.32% year-to-date. 
In addition, Beasley represents that it calculated lost dividends on 
participant accounts and that the average lost dividends calculation 
was 4.28%.
---------------------------------------------------------------------------

    7. ERISA Lawsuit, Judgment and Bankruptcy. On December 20, 2017, 
the Plan and Midlands filed suit against Vantage and its principals, 
Jeffrey and Wendy Richie, in the United States District Court for the 
Northern District of Texas in Case No.: 3:17-cv-03459. The complaint 
alleges that Vantage improperly transferred assets from the Plan. On 
March 18, 2018, Midlands and the Plan obtained a final judgment (the 
Judgment) against Vantage and the Richies that awarded $10,170,452.00, 
plus post judgment interest, including an award of $297,836.75 in 
attorneys' fees.
    On April 19, 2018, an involuntary Chapter 7 bankruptcy petition was 
filed against Vantage by certain of its creditors in the Northern 
District of Texas (the Vantage Bankruptcy). The Plan and Midlands have 
filed a creditor claim against the bankruptcy estate of Vantage. The 
Vantage Bankruptcy is ongoing.
    8. Other Claims. In addition to the Claims against Vantage and the 
Richies, the Plan and Midlands filed Claims against the following 
entities: (a) Matrix Trust Company (Matrix Trust), formerly known as MG 
Trust, the Plan's custodian; and (b) RSM and Cole & Reed, P.C. (Cole & 
Reed), the Plan's former auditors, for misrepresentation, breach of 
contract, breach of fiduciary duties, violations of state law, aiding 
and abetting, failure to supervise, and common law fraud. Collectively, 
the claims against these parties, as well as against Vantage and the 
Richies, are hereinafter referred to as the Lawsuits.
    9. Plan's Payment from Federal Insurance Company. On November 5, 
2018, the Plan received a $1,000,000 insurance settlement payment in 
connection with the unauthorized transfers. This settlement payment 
came via the Plan's crime policy with Federal Insurance Company and was 
subsequently allocated to participant accounts and reported as ``other 
contributions'' in the Plan's statement of changes in net assets 
available for benefits for the year ended December 31, 2018.
    10. Safety National Acquires Midlands. Before December 18, 2018, 
Midlands was owned by Caldwell & Partners, Inc. (CAP) and certain 
individual shareholders of Caldwell Partners, Inc. (the CAP 
Shareholders). On December 18, 2018, Midlands was acquired by Safety 
National. Under the Stock Purchase Agreement governing the acquisition, 
CAP and Midlands merged, with Midlands surviving the merger. Safety 
National acquired Midlands for a base purchase price of $33 million, 
minus certain itemized expenses. Among these itemized expenses was an 
$8,292,189 restorative payment to the Plan to restore losses caused by 
the unauthorized withdrawals of Plan assets by Vantage (the Restorative 
Payment). This $8,292,189 Restorative Payment was remitted directly to 
the Plan by Safety National as part of Safety National's acquisition of 
Midlands. Midlands currently is a wholly-owned subsidiary of Safety 
National.

Restitution Made to the Plan

    11. The Restorative Payment. The Applicant represents that the 
$8,292,189 Restorative Payment addresses the $9,292,189 in aggregate 
losses incurred by the Plan, as calculated by the Plan's Independent 
Fiduciary, minus the $1,000,000 settlement payment that the Plan 
received from Federal Insurance Company.
    12. The Recovery Rights Agreement. In exchange for the Restorative

[[Page 13317]]

Payment, the Plan transferred the Assigned Interests to Midlands 
pursuant to a Recovery Rights Agreement. As discussed throughout this 
exemption, the Assigned Interests represent the Plan's rights to 
receive proceeds from the Lawsuits, with the limitations described 
below. The Recovery Rights Agreement provides that the Assigned 
Interests consist of the Plan's rights, title, and interests in and to 
all financial recoveries payable with respect to the claims underlying 
the Lawsuits. Under the terms of this proposed exemption, Midlands 
could not receive or retain any proceeds from the Lawsuits other than 
from the Assigned Interests.
    If Midlands recovers more than $8,292,189 (i.e., the Restorative 
Payment amount) from the Assigned Interests, Midlands would be required 
to immediately transfer that excess to the Plan. However, Midlands may 
reduce the excess amount (but not the Restorative Payment Amount) by 
the amount of reasonable attorney's fees that Midlands paid to 
unrelated third parties while pursuing the Assigned Interests. Any 
amount transferred to the Plan must be accurately and properly 
allocated to Plan participants' accounts. Conversely, if Midlands 
recovers less than $8,292,189 from the Assigned Interests (a) the Plan 
would not be required to repay any amount of the Restorative Payment 
back to Midlands, and (b) Midlands would be solely responsible for all 
costs and expenses associated with pursuing the Assigned Interests.
    As required under this exemption and as noted above, in entering 
into the Recovery Rights Agreement, or for any other reason, the Plan 
did not release any claims, demands, and/or causes of action which it 
may have or have had against any fiduciary of the Plan, Midland and/or 
any person or entity related to the Plan or to Midlands. As required 
under this exemption and as the Applicant represents, the Plan has not 
and will not incur any expenses or bear any costs in connection with 
the assignment of its rights under the Recovery Rights Agreement, the 
Lawsuits, or the exemption request submitted on behalf of the Plan. As 
required by this exemption and as stated in the Recovery Rights 
Agreement, the Plan has not and will not pay any interest with respect 
to the Restorative Payment, and no Plan assets were pledged to secure 
the Restorative Payment. Finally, this exemption requires the Covered 
Transactions not to involve any risk of loss to either the Plan or the 
participants and beneficiaries of the Plan.
    13. Efforts to Recover from Vantage and Other Responsible Parties. 
In its initial application for exemptive relief, the Applicant 
estimated that the ultimate recovery amounts from the Assigned 
Interests would be as follows: (a) $1.3 million from Matrix Trust; (b) 
$2.8 million from RSM LLP and Cole & Reed; and (c) between $500,000 and 
$2 million from the Chapter 7 Estate of Vantage. The Applicant has 
since supplemented this information and represents that it anticipates 
recovering up to $4 million total, or approximately 49 percent of the 
Restorative Payment amount. The Applicant represents that the only 
remaining claim is the creditor claim against the bankruptcy estate of 
Vantage, which is not expected to result in any recovery.

Independent Fiduciary Oversight

    14. The Independent Fiduciary. Midlands retained Prudent Fiduciary 
Services, LLC (PFS) of West Covina, California, to serve as the 
independent fiduciary to the Plan with respect to the Covered 
Transactions. The Applicant represents that the selection of PFS was 
based solely on PFS's qualifications to serve as a qualified 
independent fiduciary, and was made after a prudent process, and 
without regard to whether PFS's views were likely to favor the 
interests of Midlands, or related parties. PFS provides Independent 
Fiduciary, ERISA compliance consulting, and expert witness services 
related to employee benefit plans. PFS represents that its duties and 
obligations as the Plan's Independent Fiduciary are being carried out 
by Miguel Paredes. Mr. Paredes is the founder of PFS.
    PFS represents and certifies that neither PFS nor Mr. Paredes has, 
or has had, any material connection or relationship with either 
Midlands or the Plan that would create a conflict of interest or 
prevent PFS or Mr. Paredes from carrying out the duties and obligations 
required of him as Independent Fiduciary to the Plan for the purposes 
of the Covered Transactions. PFS also represents that the total revenue 
it has received in each year, from all parties in interest to this 
exemption, including Midlands and the Plan, represents approximately 
0.25% of PFS's total revenue from its prior tax year.
    15. In connection with its engagement as Independent Fiduciary, PFS 
represents the following: (a) No party related to this exemption has, 
or will, indemnify PFS in whole or in part for negligence and/or for 
any violation of state or federal law that may be attributable to PFS 
in performing its duties as Independent Fiduciary on behalf of the 
Plan; (b) no contract or instrument that PFS enters into with respect 
to the Covered Transactions that are the subject of the exemption 
purports to waive any liability under state or federal law for any such 
violation by PFS; (c) neither PFS, nor any parties related to PFS, have 
performed any prior work on behalf of Midlands, or on behalf of any 
party related to Midlands; (d) neither PFS, nor any parties related to 
PFS, have any financial interest with respect to PFS's work as 
Independent Fiduciary, apart from the express fees and reimbursement 
for reasonable expenses paid to PFS to represent the Plan with respect 
to the Covered Transactions that are the subject of this exemption; (e) 
neither PFS, nor any parties related to PFS, have received any 
compensation or entered into any financial or compensation arrangements 
with Midlands, or any parties related to Midlands; and (f) that PFS has 
not and will not enter into any agreement or instrument that violates 
ERISA Section 410 or the Department's Regulations Section 2509.75-4.\8\ 
The Department notes that PFS's continued compliance with each of these 
representations is a condition of the exemption.
---------------------------------------------------------------------------

    \8\ ERISA Section 410 provides, in part, that ``except as 
provided in ERISA sections 405(b)(1) and 405(d), any provision in an 
agreement or instrument which purports to relieve a fiduciary from 
responsibility or liability for any responsibility, obligation, or 
duty under this part [meaning ERISA Section 410(a)] shall be void as 
against public policy.''
---------------------------------------------------------------------------

    16. Independent Fiduciary Duties. As Independent Fiduciary, PFS 
must: (a) Review the terms and conditions of the Restorative Payment, 
the Recovery Rights Agreement, and the proposed and final exemption; 
(b) determine that the Covered Transactions are prudent, in the 
interest of, and protective of the Plan and its participants and 
beneficiaries; (c) confirm that the Restorative Payment amount has been 
made to the Plan and appropriately allocated; (d) continually monitor 
the Lawsuits and the Assigned Interests on an ongoing basis to 
determine whether any excess recovery amount should be remitted to and 
retained by the Plan; and (e) represent that it has not and will not 
enter into any agreement or instrument that violates ERISA Section 410 
or the Department's Regulations Section 2509.75-4.
    Additionally, not later than 90 days after the resolution of 
Midland's efforts to collect proceeds from the Assigned Interests, the 
Independent Fiduciary must submit a written statement to the Department 
demonstrating that all of the

[[Page 13318]]

terms and conditions of the exemption have been met.
    17. The Independent Fiduciary Report. On September 4, 2020, Mr. 
Paredes completed his Independent Fiduciary Report (the Independent 
Fiduciary Report), wherein he determined that the Covered Transactions 
were prudent, in the interest of, and protective of the Plan and its 
participants and beneficiaries. In developing his Independent Fiduciary 
Report, Mr. Paredes represents that he: (a) Conducted a review of 
documents related to the litigation involving the Plan, as well as the 
Assigned Interests; (b) reviewed documents related to the terms and 
conditions of the Recovery Rights Agreement; (c) conducted discussions 
with Midland's counsel; and (d) reviewed applicable laws and guidance.
    In the Independent Fiduciary Report, Mr. Paredes states that the 
Covered Transactions are reasonable, prudent, and in the best interest 
of the Plan and its participants and beneficiaries. Mr. Paredes states 
that the Recovery Rights Agreement presents a recovery scenario that 
appears to come with no risk of loss to the Plan and its participants 
and appears overall to be fair and reasonable from the Plan's 
perspective. Mr. Paredes states that the Plan will not be responsible 
for, nor bear any of the expenses or costs associated with, the 
litigation to recover on the Assigned Interests. Mr. Paredes states 
that the Covered Transactions benefit the Plan's participants and 
beneficiaries by allowing them to immediately receive the benefit of 
the Restorative Payment amount, as opposed to having to wait for the 
Lawsuits to run their normal course, which could be quite lengthy.
    Mr. Paredes states that the Plan and its participants and 
beneficiaries will benefit from provisions in the Recovery Rights 
Agreement that would protect them if the actual recovery amounts 
obtained from the Assigned Interests were different than the 
Restorative Payment amount received by the Plan. In this regard, Mr. 
Paredes explains that if the actual recovery amount obtained by 
Midlands from the Assigned Interests were less than the Restorative 
Payment amount, Midlands would automatically forgive any unrecovered 
shortfall amount. However, if the actual recovery amount received were 
more than the Restorative Payment amount, the Plan would receive and 
retain any such excess recovery amount. As noted above, this proposed 
exemption would require the Independent Fiduciary to continually 
monitor the Lawsuits and the Assigned Interests on an ongoing basis to 
determine whether there is an excess recovery amount that would be 
remitted to and retained by the Plan.
    In sum, Mr. Paredes concludes that, under the terms of the Recovery 
Rights Agreement, the Covered Transactions allow the Plan to receive 
the immediate benefit of the Restorative Payment while preserving the 
right to retain any excess recovery amounts associated with the 
Assigned Interests. Mr. Paredes states that the terms and conditions of 
the Recovery Rights Agreement are at least equivalent to, and for all 
intents and purposes, more favorable than the terms and conditions the 
Plan would have been able to obtain in an arm's length transaction with 
an unrelated party. Mr. Paredes further states that, as a result of the 
Covered Transactions, the Plan's participants and beneficiaries, would 
not lose any benefits, and the Plan would not be harmed or legally or 
financially impaired.

ERISA Analysis

    18. ERISA Section 406(a)(1)(A) prohibits a plan fiduciary from 
causing the plan to engage in a transaction if the fiduciary knows or 
should know that such transaction constitutes a direct or indirect sale 
or exchange of any property between the plan and a party-in-interest. 
Midlands, as an employer whose employees are covered by the Plan, is a 
party-in-interest with respect to the Plan under ERISA Section 
3(14)(C). Midlands's contribution of the Restorative Payments to the 
Plan and the Plan's potential repayment to Midlands with litigation or 
settlement proceeds would constitute impermissible exchanges between 
the Plan and a party-in-interest in violation of ERISA Section 
406(a)(1)(A).
    ERISA Section 406(a)(1)(D) prohibits a plan fiduciary from causing 
a plan to engage in a transaction if the fiduciary knows or should know 
that the transaction constitutes a direct or an indirect transfer to, 
or use by or for the benefit of, a party-in-interest, of the income or 
assets of the plan. The Committee is a party-in-interest with respect 
to the Plan under ERISA Section 3(14)(A), because it is plan fiduciary. 
The Restorative Payment to the Plan and the Plan's corresponding 
assignment of Lawsuit proceeds to Midlands pursuant to the Recovery 
Rights Agreement violate ERISA Section 406(a)(1)(D).

Statutory Findings

    19. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for 
the Department to make the following findings to grant an exemption 
under ERISA Section 408(a).
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible. In this regard the Department notes that the 
Independent Fiduciary must represent the interests of the Plan for all 
purposes with respect to the Covered Transactions. Further, not later 
than 90 days after the resolution of Midland's efforts to collect 
proceeds from the Assigned Interests, the Independent Fiduciary must 
submit a written statement to the Department demonstrating that the 
Covered Transactions have met all of the terms and conditions of the 
exemption.
    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interests of the Plan and its participants. The Restorative Payment 
immediately provided the Plan with $8,292,189 in cash. If the Plan did 
not receive the immediate Restorative Payment, the individual account 
balances of Plan participants would have remained underfunded in the 
aggregate by $8,292,189 until the Lawsuits were resolved.
    c. The Proposed Exemption Is ``Protective of the Plan.'' The 
Department has tentatively determined that the proposed exemption is 
protective of the rights of Plan participants and beneficiaries. Among 
other things, if Midlands ultimately receives more than $8,292,189 from 
the Assigned Interests, Midlands must immediately transfer the excess 
between the Assigned Interest proceeds and $8,292,189 to the Plan. If 
Midlands receives less than $8,292,189 from the Assigned Interest, then 
Midlands must automatically forgive any unrecovered shortfall amount.

Summary

    20. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for an 
exemption under ERISA Section 408(a).

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of ERISA Section 408(a) and Code Section 4975(c)(2) and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(55 FR 32836, 32847, August 10, 1990).

[[Page 13319]]

Section I. Definitions

    (a) The term ``Assigned Interests'' means the Plan's right to 
proceeds from the Lawsuits, which were transferred to Midlands in 
return for the Restorative Payment.
    (b) The term ``Independent Fiduciary'' means Prudent Fiduciary 
Services, LLC or a successor Independent Fiduciary, to the extent PFS 
or the successor Independent Fiduciary continues to serve in such 
capacity, and who:
    (1) Is not an affiliate of Midlands and does not hold an ownership 
interest in Midlands or affiliates of Midlands;
    (2) Was not a fiduciary with respect to the Plan before its 
appointment to serve as the Independent Fiduciary;
    (3) Has acknowledged in writing that it:
    (i) Is a fiduciary with respect to the Plan and has agreed not to 
participate in any decision regarding any transaction in which it has 
an interest that might affect its best judgment as a fiduciary; and
    (ii) Has appropriate technical training or experience to perform 
the services contemplated by the exemption;
    (4) Has not entered into any agreement or instrument that violates 
the prohibitions on exculpatory provisions in ERISA Section 410 or the 
Department's regulation relating to indemnification of fiduciaries at 
29 CFR 2509.75-4;
    (5) Has not received gross income from Midlands or affiliates of 
Midlands for that fiscal year in an amount that exceeds two percent 
(2%) of the Independent Fiduciary's gross income from all sources for 
the prior fiscal year. This provision also applies to a partnership or 
corporation of which the Independent Fiduciary is an officer, director, 
or 10 percent (10%) or more partner or shareholder, and includes as 
gross income amounts received as compensation for services provided as 
an independent fiduciary under any prohibited transaction exemption 
granted by the Department; and
    (6) No organization or individual that is an Independent Fiduciary, 
and no partnership or corporation of which such organization or 
individual is an officer, director, or ten percent (10%) or more 
partner or shareholder, may acquire any property from, sell any 
property to, or borrow any funds from Midlands or from affiliates of 
Midlands while serving as an Independent Fiduciary. This prohibition 
will continue for a period of six months after the party ceases to be 
an Independent Fiduciary and/or the Independent Fiduciary negotiates 
any transaction on behalf of the Plan during the period that the 
organization or individual serves as an Independent Fiduciary.
    (c) The term ``Lawsuits'' means the suit filed by the Plan and 
Midlands against Vantage and its principals, Jeffrey and Wendy Richie 
in Case No.: 3:17-cv-03459, the bankruptcy claims filed against the 
Chapter 7 Estate of Vantage, and the claims filed against Matrix Trust, 
RSM and Cole & Reed, for misrepresentation, breach of contract, breach 
of fiduciary duties, violations of state law, aiding and abetting, 
failure to supervise, and common law fraud.
    (d) The term ``Midlands'' includes the following entities: (i) 
Midlands Management Corporation, (ii) the CAP Shareholders, and (iii) 
Cap Managers, LLC.
    (e) The ``Plan'' means the Midlands Management Corporation 401(k) 
Plan.
    (f) The term ``Recovery Rights Agreement'' means the written 
agreement under which the Plan agreed to transfer its rights to the 
Assigned Interests in exchange for the Restorative Payment.
    (g) The term ``Restorative Payment'' means the $8,292,189 payment 
that was remitted to the Plan by Safety National as part of Safety 
National's acquisition of Midlands.

Section II. Covered Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A) and (D) shall not apply to: (1) The December 18, 
2018 Restorative payment of $8,292,189 to the Plan by Safety National 
in exchange for the Plan's assignment to Midlands of the Assigned 
Interests; and (2) the potential additional cash payment(s) by Midlands 
to the Plan if the amount(s) Midlands receives from the Assigned 
Interests exceeds $8,292,189, provided the conditions described below 
are met.

Section III. Conditions

    (a) The Restorative Payment and any Excess Recovery Amount payment, 
described below, are properly allocated to the Plan's participants' 
accounts;
    (b) If Midlands receives more than $8,292,189 from the Assigned 
Interests, Midlands must immediately transfer to the Plan the Excess 
Recovery Amount, which is the difference between the amount of Assigned 
Interest proceeds and $8,292,189. Midlands may reduce the Excess 
Recovery Amount (but not the Restorative Payment amount) paid to the 
Plan only by the amount of reasonable attorney's fees that Midlands 
incurred in pursuing the Assigned Interests, if the fees were paid to 
unrelated third parties;
    (c) If Midlands receives less than $8,292,189 from the Assigned 
Interests, then Midlands must automatically forgive any unrecovered 
shortfall amount, with no Plan assets transferred to Midlands;
    (d) In connection with its receipt of the Restorative Payment, the 
Plan has not and will not release any claims, demands and/or causes of 
action it may have against: (1) Any fiduciary of the Plan; (2) 
Midlands; and/or (3) any person or entity related to a person or entity 
identified in (1)-(2) of this paragraph;
    (e) A qualified, independent fiduciary (the Independent Fiduciary), 
which is unrelated to Midlands and/or its affiliates and is acting 
solely on behalf of the Plan in full accordance with its obligations of 
prudence and loyalty under ERISA sections 404(a)(1)(A) and (B):
    (1) Reviewed the terms and conditions of the Restorative Payment, 
the Recovery Rights Agreement, the proposed exemption and final 
exemption;
    (2) Determined that the Covered Transactions were prudent, in the 
interest of, and protective of the Plan and its participants and 
beneficiaries;
    (3) Confirms that the Restorative Payment amount was properly made 
to the Plan and appropriately allocated;
    (4) Monitors the Plan's Assigned Interests on an ongoing basis to 
ensure that all recovery amounts due the Plan were immediately and 
properly remitted to the Plan;
    (5) Monitors and ensures that legal fees paid in connection with 
the Assigned Interests and the Lawsuits are limited to reasonable 
attorney's fees paid to unrelated third parties that Midlands incurred 
in pursuing recoveries from the Assigned Interests and the Lawsuits;
    (6) Has not entered into any agreement or instrument that violates 
ERISA section 410 or Department's Regulations codified at 29 CFR 
Section 2509.75-4;
    (f) No party associated with this exemption has or will indemnify 
the Independent Fiduciary and the Independent Fiduciary will not 
request indemnification from any party associated with this exemption, 
in whole or in part, for negligence and/or any violation of state or 
federal law that may be attributable to the Independent Fiduciary in 
performing its duties to the Plan with respect to the Proposed 
Transactions. In addition, no contract or instrument may purport to 
waive any liability under state or federal law for any such violation;
    (g) Not later than 90 days after the resolution of Midlands' 
collection efforts with respect to the Assigned

[[Page 13320]]

Interests, the Independent Fiduciary must submit a written statement to 
the Department confirming and demonstrating that all of the 
requirements of the exemption have been met;
    (h) If an Independent Fiduciary resigns, is removed, or is unable 
to serve as an Independent Fiduciary for any reason, the Independent 
Fiduciary must be replaced by a successor entity that: (1) Meets the 
definition of Independent Fiduciary detailed above in Section II(b); 
and (2) otherwise meets all of the qualification, independence, 
prudence and diligence requirements set out in this exemption. Further, 
any such successor Independent Fiduciary must assume all of the duties 
of the outgoing Independent Fiduciary. As soon as possible before the 
appointment of a successor Independent Fiduciary, the Applicant must 
notify the Department's Office of Exemption Determinations of the 
change in Independent Fiduciary and such notification must contain all 
material information including the qualifications of the successor 
Independent Fiduciary;
    (i) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have performed any prior work on behalf of 
Midlands, or on behalf of any party related to Midlands;
    (j) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have any financial interest with respect to 
the Independent Fiduciary's work as Independent Fiduciary, apart from 
the express fees and reimbursement for reasonable expenses paid to the 
Independent Fiduciary to represent the Plan with respect to the Covered 
Transactions that are the subject of this exemption;
    (k) Neither the Independent Fiduciary, nor any parties related to 
the Independent Fiduciary, have received any compensation or entered 
into any financial or compensation arrangements with Midlands, or any 
parties related to Midlands;
    (l) The Plan pays no interest in connection with the Restorative 
Payment;
    (m) No Plan assets are pledged to secure the Restorative Payment;
    (n) The Covered Transactions do not involve any risk of loss to 
either the Plan or its participants and beneficiaries;
    (o) The Plan has no liability for the Restorative Payment, even in 
the event that the amount recovered by Midlands with respect to the 
Assigned Interests is less than $8,292,189;
    (p) The Plan does not incur any expenses, commissions or 
transaction costs in connection with the Covered Transactions and this 
exemption;
    (q) Midlands may not receive or retain any proceeds from the 
Lawsuits other than from the Assigned Interests;
    (r) All terms of the Covered Transactions are and will remain at 
least as favorable to the Plan as the terms and conditions the Plan 
could obtain in a similar transaction negotiated at arm's-length with 
unrelated third parties; and
    (s) All of the material facts and representations set forth in the 
Summary of Facts and Representation are true and accurate.
    Effective Date: If granted, the exemption will be in effect as of 
December 18, 2018.

Notice to Interested Persons

    Those persons who may be interested in the publication in the 
Federal Register of the notice of proposed exemption (the Notice) 
include participants and beneficiaries of the Plan. The Applicant will 
provide notification to interested persons, and to representatives of 
all the parties to the litigation described above, by electronic mail 
and first-class mail within fifteen (15) calendar days of the date of 
the publication of the Notice in the Federal Register. The mailing will 
include a copy of the Notice, as it appears in the Federal Register on 
the date of publication, plus a copy of the Supplemental Statement, as 
required, pursuant to 29 CFR 2570.43(b)(2), which will advise 
interested persons of their right to comment and/or to request a 
hearing.
    The Department must receive all written comments and requests for a 
hearing no later than forty-five (45) calendar days from the date of 
the publication of the Notice in the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as a name, address, Social Security number, or other contact 
information) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the internet and can 
be retrieved by most internet search engines.
    Further Information Contact: Mr. Joseph Brennan of the Department, 
telephone (202) 693-8456. (This is not a toll-free number.)

The DISH Network Corporation 401(k) Plan and the EchoStar 401(k) Plan

Located in Englewood, CO

[Application No. D-12012]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 
66644, October 27, 2011). The proposed exemption would permit the 
acquisition and holding by the DISH Network Corporation 401(k) Plan 
(the DISH Plan) and the EchoStar 401(k) Plan (the EchoStar Plan) of 
subscription rights that were issued on November 26, 2019, by the DISH 
Network Corporation (DISH or the Applicant), a party in interest with 
respect to the Plans.\9\
---------------------------------------------------------------------------

    \9\ For purposes of this proposed exemption, references to the 
provisions of Title I of ERISA, unless otherwise specified, should 
be read to refer as well to the corresponding provisions of Code 
Section 4975.
---------------------------------------------------------------------------

Summary of Facts and Representations \10\
---------------------------------------------------------------------------

    \10\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect factual findings or 
opinions of the Department, unless indicated otherwise. The 
Department notes that availability of this exemption, if granted, is 
subject to the express condition that the material facts and 
representations contained in application D-12012 are true and 
complete, and accurately describe all material terms of the 
transactions covered by the exemption. If there is any material 
change in a transaction covered by the exemption, or in a material 
fact or representation described in the application, the exemption 
will cease to apply as of the date of such change.
---------------------------------------------------------------------------

The Parties

    1. DISH and EchoStar. DISH is a live-linear television programming 
provider. Charles W. Ergen is the Chairman and controlling shareholder 
of DISH. In addition, Mr. Ergen beneficially owns greater than 50% of 
the total combined voting power of EchoStar Corporation (EchoStar). 
EchoStar is a global provider of satellite communications solutions.
    2. The DISH Plan. The DISH Plan is a defined contribution 401(k) 
plan, with $683,135,811.95 in total assets and 18,936 participants, as 
of November 25, 2019. In the past, DISH made discretionary employer 
profit sharing contributions to the DISH Plan, in the form of DISH 
common stock. The DISH common stock (DISH Stock) is held within a DISH 
Stock fund (the DISH Stock Fund) in the DISH Plan. Each

[[Page 13321]]

participant eligible to receive a discretionary profit-sharing 
contribution under the terms of the DISH Plan is allocated a balance in 
the DISH Stock Fund when the contribution is made. As of November 25, 
2019, the DISH Plan held 3,333,185.696 shares of Class A DISH common 
stock, with a fair market value of $118,261,428.49, representing 
approximately 1.3% of DISH's 254,626,165 outstanding shares of Class A 
common stock.
    3. The EchoStar Plan. The EchoStar Plan is a defined contribution 
401(k) Plan, with $496,363,649.64 in total assets and 2,572 
participants, as of November 25, 2019. As of that same date, the 
EchoStar Plan held 167,634.586 shares of Class A DISH common stock 
within the DISH Stock Fund of the EchoStar Plan, with a fair market 
value of $5,938,915.24. The DISH Stock held by the EchoStar Plan, 
represented approximately 0.03% of DISH's 254,626,165 outstanding 
shares of Class A common stock.

The Rights Offering

    4. On November 7, 2019, DISH announced its intent to conduct a 
rights offering (the Offering), for general corporate purposes, 
including investments in DISH's wireless business. Under the Offering, 
all holders of record of DISH's Class A and B common stock and 
outstanding convertible notes (as of November 17, 2019 (the Record 
Date)), would automatically receive certain rights (the Rights), at no 
charge. Specifically, each holder would receive one (1) Right for every 
18.475 shares of DISH Class A or B common stock, or Class A common 
stock equivalent (as applicable). \11\ Fractional Rights were not 
issued. If an eligible holder would have received a fractional Right, 
DISH rounded down to the nearest whole number.
---------------------------------------------------------------------------

    \11\ According to the Applicant, DISH has no other classes of 
stock with outstanding shares. DISH's certificate of incorporation 
authorizes the issuance of Class C shares and preferred shares of 
stock in addition to Class A and Class B shares, but there are no 
outstanding shares of Class C common stock or preferred stock.
---------------------------------------------------------------------------

    5. A total of 29,834,992 Rights to purchase 29,834,992 Class A 
shares of DISH common stock were issued in the Offering. Each Right 
entitled the holder to purchase one share of DISH's Class A Common 
Stock for $33.52 per whole share of Class A Common Stock.\12\ Rights 
could only be exercised in aggregate for whole numbers of shares of 
DISH's Class A Common Stock. DISH did not include an oversubscription 
offer to purchase additional shares of Class A Common Stock that may 
have remained unsubscribed as a result of any unexercised Rights after 
the expiration of the Offering.
---------------------------------------------------------------------------

    \12\ The Applicant represents that the closing price of DISH 
Stock on November 21, 2019 was $35.91.
---------------------------------------------------------------------------

    6. On November 22, 2019, DISH distributed the Rights to registered 
holders of eligible securities. According to the Applicant, the 
National Association of Securities Dealer Automated Quotation system 
(NASDAQ) determined that shares of DISH Class A common stock would 
continue to trade with the right to receive the Rights until November 
25, 2019 (the Ex-Date).\13\
---------------------------------------------------------------------------

    \13\ The Applicant represents that if Holder A sold shares of 
Class A DISH common stock on November 24 to Holder B, who retained 
the shares through the end of the Offering, then Holder B would 
receive the Rights. Holder A would not receive Rights because it 
sold the shares before the Ex-Date for the Offering.
---------------------------------------------------------------------------

    7. The Applicant states that all eligible holders held the Rights 
until the Rights expired, were exercised, or were sold. A holder had 
the right to exercise some, all, or none of its Rights. The Rights 
could be exercised commencing on November 22, 2019, and elections to 
exercise the Rights had to be received by the subscription agent 
(Computershare Trust Company, N.A.) by 5:00 p.m., Eastern Time, on 
December 9, 2019. All exercises of the Rights by Rights holders were 
irrevocable.
    8. The Rights were transferable, and they began to trade on the 
NASDAQ Global Select Market on a ``when-issued'' basis under the symbol 
``DISHV'' beginning on November 22, 2019, and on a ``regular way'' 
basis under the symbol ``DISHR'' beginning on November 25, 2019, the 
Ex-Date.\14\ The Rights continued to trade until the trading deadline 
at the close of business on December 9, 2019. According to data 
reported by FactSet, the volume-weighted average price was $0.33 per 
Right, based on the sale of 15,237,856 Rights during the trading 
period.
---------------------------------------------------------------------------

    \14\ According to the Applicant, the term ``when-issued'' refers 
to transactions involving securities that have been announced but 
not yet issued. The transactions only settle after the security has 
been issued. The Applicant also states that ``regular-way'' trading 
is conducted on the normal timeframe for purchases and sales of 
securities on an exchange.
---------------------------------------------------------------------------

    9. The Applicant represents that approximately 81% of the 
29,834,992 Rights to purchase 29,834,992 Class A shares of DISH common 
stock issued in the Offering were exercised and all shareholders of 
DISH and EchoStar, including the Plans, were treated exactly the same. 
In addition, the Applicant represents that DISH received gross proceeds 
of approximately $1 billion from the Offering, and DISH used or will 
use these proceeds for general corporate purposes.
    10. The Applicant represents that each Plan was amended to: (a) 
Allow for the temporary acquisition and holding of the Rights, pending 
their orderly disposition; (b) confirm that participants were not 
entitled to direct the holding, exercise, sale or other disposition of 
the Rights; and (c) authorize the designated independent fiduciary to 
exercise discretionary authority with respect to the holding, exercise, 
sale or other disposition of the Rights.
    11. The DISH Plan received 180,084 Rights in connection with the 
Offering, and the EchoStar Plan received 9,073 rights in connection 
with the Offering. All decisions regarding the holding and disposition 
of the Rights by each Plan were made in accordance with the Plan 
provisions, by a qualified independent fiduciary acting solely in the 
interest of Plan participants.

The Independent Fiduciary

    12. Under the terms of an agreement, dated November 15, 2019 (the 
Independent Fiduciary Agreement), the DISH Plan's 401(k) Committee and 
the Investment Committee for the EchoStar Plan, appointed Newport Trust 
Company (Newport) to act as the independent fiduciary (the Independent 
Fiduciary) on behalf of the Plans, in connection with the Offering and 
with respect to the subject exemption request. Newport's 
responsibilities included determining whether and when to exercise or 
sell each Right held by the DISH Plan and the EchoStar Plan.
    13. Newport is a New Hampshire state-chartered trust company with 
$90 billion in assets under management and administration as of 
September 30, 2019. Newport represents that it understands and 
acknowledges its duties and responsibilities under ERISA in acting as a 
fiduciary on behalf of the Plans in connection with the Offering.
    14. Further, Newport represents that it is independent of and 
unrelated to DISH and EchoStar, and that it has not directly or 
indirectly received any compensation or other consideration for its own 
account in connection with the Offering, except for compensation from 
DISH in accordance with and for performing services described in the 
Independent Fiduciary Agreement. Newport represents that the revenue it 
has received (or expected to receive) did not exceed 1% of its 2018 
annual revenue.
    15. Newport was chosen to act as Independent Fiduciary by the 
401(k) Committee with respect to the DISH Network Corporation 401(k) 
Plan, and the 401(k) Investment Committee for the EchoStar 401(k) Plan 
with respect to the EchoStar 401(k) Plan (the Committees),

[[Page 13322]]

the Plan fiduciaries responsible for making such decisions. According 
to the Committees, Newport's selection was based solely on its 
qualifications to serve as an independent fiduciary after a prudent 
process, and without regard to whether Newport's views were likely to 
favor the interests of DISH Network and EchoStar, or related parties.
    Newport represents that: (a) Neither it nor any related parties 
have performed any work in connection with the Rights Offering on 
behalf of the DISH Network and/or its related parties; (b) it does not 
have any financial interest with respect to the work as the Independent 
Fiduciary for the Rights Offering, apart from its express fees for work 
as the Independent Fiduciary for the Plans; (c) neither it nor any 
related parties have received any compensation or entered into any 
financial or compensation arrangements with the DISH Network and 
related parties; and (d) it has not entered into any agreement or 
instrument regarding the Rights Offering that violates ERISA Section 
410 or the Department's regulations at 29 CFR Section 2509.75-4.\15\ 
Newport also represents that it has not been indemnified, in whole or 
in part for negligence of any kind, or for any violation of state or 
federal law in performing its duties and responsibilities to the Plans 
under the terms of the requested exemption, and that there is no cap or 
limitation on its liability for negligence of any kind in performing 
its duties as the independent fiduciary for the Plans.
---------------------------------------------------------------------------

    \15\ ERISA Section 410 provides, in part, that ``except as 
provided in ERISA Sections 405(b)(1) and 405(d), any provision in an 
agreement or instrument which purports to relieve a fiduciary from 
responsibility or liability for any responsibility, obligation, or 
duty under this part [meaning ERISA Section 410(a)] shall be void as 
against public policy.''
---------------------------------------------------------------------------

    16. As stated in Newport's independent fiduciary report, dated 
January 10, 2020 (the Independent Fiduciary Report), Newport conducted 
a due diligence process in evaluating the Offering on behalf of the 
Plans. This process included discussions and correspondence with 
representatives of the Plans, DISH, DISH's counsel, and representatives 
of the Plans' trustees of the Plans, that enabled Newport to better 
understand a number of important elements related to the Offering. 
Newport also reviewed publicly-available information and information 
provided by DISH.
    17. With regard to the Offering, Newport represents that it 
considered four options on behalf of the Plans: (a) To continue holding 
the Rights within the DISH Stock Funds in the Plans; (b) to exercise 
all of the Rights to acquire DISH Stock; (c) to sell all of the Rights 
on the NASDAQ Global Select Market at the prevailing market price; or 
(d) to sell a portion of the Rights and use the proceeds to exercise 
the remaining Rights to purchase Class A shares of DISH common stock.
    18. Newport represents that although it considered the advantages 
and disadvantages of these options, it determined that selling some of 
the Rights and exercising other Rights would expose the Plans to 
significant risk and uncertainty. Newport also determined that the 
process of exercising the Rights would have taken several days, during 
which the market price of the Rights and DISH Stock could have declined 
to a level below the $33.52 exercise price for the Rights. Therefore, 
Newport elected not to sell some of the Rights and exercise others.
    19. Further, Newport represents that it could not exercise all of 
the Rights because, as with any participant-directed individual account 
plan, the Plans did not maintain significant pools of uninvested cash 
that could be used to purchase the additional shares of DISH Stock. 
Exercising all of the Rights, according to Newport, would have required 
the liquidation of other investments held within participant accounts 
to generate cash necessary for the purchase of the additional DISH 
Stock. Doing so, according to Newport, would have been: (a) 
Inconsistent with the provisions of the Plans calling for individually-
directed investment of participant accounts; and (b) a time-consuming 
process that would have taken several days and exposed the Plans to the 
same risks and uncertainties that selling some of the Rights and 
exercising others would have imposed.
    20. Newport represents that it ultimately decided to sell the 
Rights to capture their value quickly and then to redeploy the proceeds 
into the participants' accounts. Newport represents that although the 
Plans would incur some transaction costs through this option ($0.005 
per Right traded), selling the Rights would be prudent given that the 
Plans did not have sufficient cash to exercise the Rights and the other 
options carried too many risks. Therefore, Newport concluded that 
selling the Rights was in the interests of the Plans and the Plans' 
participants and beneficiaries, and protective of the rights of the 
participants and beneficiaries of the Plans.

Sale of the Rights

    21. According to the Applicant, Fidelity informed Newport at 10:20 
a.m. on November 26, 2019, that the Rights were available for trading. 
Newport sold the EchoStar Plan's 9,073 Rights in ``blind transactions'' 
on the NASDAQ Global Select Market on November 26, 2019, and realized 
an average selling price of $1.43 per Right.
    22. Because of the amount of Rights the DISH Plan received, Newport 
directed the sale of the DISH Plan's Rights over the course of three 
days to avoid negatively impacting the market price of the Rights 
through sale activity. For the DISH Plan, Newport directed: (a) The 
sale of 17,110 Rights on November 26, 2019, at an average sale price of 
$1.41; (b) the sale of 122,799 Rights on November 27, 2019, at an 
average price of $1.25; and (c) the sale of 40,175 Rights on November 
29, 2019, at an average price of $0.72. According to the Applicant, 
each of the DISH Plan's sales was conducted in blind transactions on 
the NASDAQ Global Select Market.
    23. The Applicant represents that no brokerage fees, commissions, 
subscription fees, or other charges were paid by the Plans with respect 
to the acquisition and holding of the Rights. With respect to the sale 
of the Rights, the DISH Plan paid $900.42 in commissions and $4.29 in 
SEC fees, and the EchoStar Plan paid $45.37 in brokerage commissions 
and $0.27 in SEC fees.
    24. The Applicant represents that the total net proceeds generated 
in connection with the sale of the Rights was $205,319.79 for the DISH 
Plan, and $12,930.57 for the EchoStar Plan. According to the Applicant, 
the proceeds were invested in accordance with participants' elections 
for the investment of their contributions to the Plans, or to the 
extent the participants had not made investment elections, in the 
Plans' default investment vehicles.

ERISA Analysis

    25. ERISA Section 406(a)(1)(E) provides that a fiduciary with 
respect to a plan shall not cause the plan to engage in a transaction 
if he or she knows or should know that such transaction constitutes the 
acquisition, on behalf of the plan, of any employer security in 
violation of ERISA Section 407(a). ERISA Section 407(a)(1)(A) provides 
that a plan may not acquire or hold any ``employer security'' which is 
not a ``qualifying employer security.'' Under ERISA Section 407(d)(1), 
``employer securities'' are defined, in relevant part, as securities 
issued by an employer of employees covered by the plan, or by an

[[Page 13323]]

affiliate of the employer. ERISA Section 407(d)(5) provides, in 
relevant part, that ``qualifying employer securities'' are stock or 
marketable obligations. ERISA Section 406(a)(2) provides that a 
fiduciary of a plan shall not permit the plan to hold any employer 
security if he or she knows or should know that holding such security 
violates ERISA Section 407(a).
    26. The Applicant represents that the Rights would not be 
considered ``qualifying'' employer securities because they are not 
stock, marketable obligations, or interests in a publicly-traded 
partnership. Therefore, the Applicant requests retroactive exemptive 
relief from ERISA Sections 406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) 
for the acquisition and holding of the Rights by the Plan in connection 
with the Rights Offering.

Statutory Findings

    27. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for an 
exemption under ERISA Section 408(a).
    a. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the proposed exemption is 
administratively feasible since, among other things, a qualified 
independent fiduciary, Newport, must represent the Plans for all 
purposes with respect to the acquisition, holding and sale of the 
Rights, and documented its findings in a written report to the 
Department. The Department notes that, under the terms of this proposed 
exemption, Newport may not be indemnified, in whole or in part, for an 
act of negligence by Newport in performing its duties and 
responsibilities to the Plans.
    b. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined that the proposed exemption is in 
the interests of the participants and beneficiaries of the Plans since, 
among other things: (a) The Rights were automatically issued to all 
holders of Class A and B DISH common stock (and holders of convertible 
notes convertible to Class A DISH common stock) as of the Ex- Date, 
including the Plans; and (b) the Plans held and disposed the Rights, 
and realized their fair market value in blind transactions on the open 
market.
    c. The Proposed Exemption Is ``Protective of the Plan.'' The 
Department has tentatively determined that the proposed exemption is 
protective of the rights of participants and beneficiaries since, among 
other things: (a) The acquisition and holding of the Rights occurred as 
a result of the Rights Offering which was approved by the DISH Board of 
Directors, in which all shareholders of DISH and EchoStar, including 
their Plans, were treated exactly the same; (b) the acquisition of the 
Rights by the Plans occurred on the same terms available to other 
eligible holders of DISH Stock and convertible notes, and the Plans 
received the same proportionate number of Rights as such other eligible 
holders; (c) the Plans did not pay any fees or commissions in 
connection with the acquisition or holding of the Rights; (d) all 
decisions regarding the holding and disposition of the Rights by the 
Plans were made, in accordance with the provisions of the Plans, by 
Newport, the Independent Fiduciary, which concluded that the sales were 
in the interest of the Plans and their participants; and (e) Newport 
concluded that the Plans' holdings and participant accounts had 
increased. In this regard, net of brokerage and SEC fees, the DISH Plan 
received $205,319.79 and the EchoStar Plan $12,930.57, for a total of 
$218,250.36 between the Plans.

Summary

    30. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant would satisfy the statutory requirements for an 
exemption under ERISA Section 408(a).

Proposed Exemption

Section I. Covered Transactions

    If the proposed exemption is granted, the restrictions imposed by 
ERISA section 406(a)(1)(A), 406(a)(1)(E), 406(a)(2), and 407(a)(1)(A), 
and Code sections 4975(c)(l)(A) and (E), by reason of section 
4975(c)(1) of the Code, will not apply to the past acquisition and 
holding by the Plans of certain subscription rights (the Rights) that 
were issued by the DISH Network Corporation (DISH or the Applicant) to 
the individually-directed accounts of participants in the DISH Network 
Corporation 401(k) Plan (the DISH Plan) and the EchoStar 401(k) Plan 
(the EchoStar Plan; together, the Plans) during a rights offering (the 
Rights Offering) that occurred from November 26-29, 2019, provided that 
the conditions described in Section II below have been met.

Section II. Conditions

    (a) The Plans acquired the Rights as a result of an independent act 
of DISH as a corporate entity, and without any participation on the 
part of the Plans;
    (b) The acquisition and holding of the Rights occurred as a result 
of a rights offering approved by the DISH board of directors, in which 
all shareholders of DISH, including the Plans, were treated exactly the 
same;
    (c) The acquisition of the Rights by the Plans occurred on the same 
terms made available to other eligible holders of DISH Stock and 
convertible notes, and the Plans received the same proportionate number 
of Rights as such other eligible holders;
    (d) The Plans did not pay any fees or commission in connection with 
the acquisition or holding of the Rights. The Plans paid commissions 
and SEC fees to third parties solely in connection with the sale of the 
Rights;
    (e) All decisions regarding the holding and disposition of the 
Rights by the Plans were made, in accordance with the provisions of the 
Plans, by Newport, acting solely in the interest of the participants of 
the Plans as the qualified independent fiduciary (the Independent 
Fiduciary);
    (f) As the Independent Fiduciary, Newport:
    (1) Has not been indemnified, in whole or in part, for negligence 
of any kind or for any violation of state or federal law in performing 
its duties and responsibilities to the Plans under the terms of this 
proposed exemption, and there is no cap or limitation on its liability 
for negligence of any kind in performing its duties as the Independent 
Fiduciary for the Plans;
    (2) Has not entered into any agreement or instrument that violates 
ERISA Section 410 or the DOL's regulations at 29 CFR Section 2509.75-4; 
and
    (3) Has acknowledged that there is no instrument or contractual 
arrangement that purports to waive or release it from liability for any 
violation of state or federal law; and
    (g) All the facts and representations set forth in the Summary of 
Facts and Representations are true and accurate.
    Effective Date: The proposed exemption, if granted, will be in 
effect from November 26, 2019, the date that the Plans received the 
Rights, until November 29, 2019, the last date the Rights were sold by 
the Plans on the NASDAQ Global Select Market.

Notice to Interested Persons

    Notice of the proposed exemption (the Notice) will be given to all 
interested persons within 15 days of the date of publication of the 
Notice in the Federal Register, by first class U.S. mail to the last 
known address of all such

[[Page 13324]]

individuals. It will contain a copy of the Notice, as published in the 
Federal Register, and a supplemental statement, as required pursuant to 
29 CFR 2570.43(a)(2). The supplemental statement will inform interested 
persons of their right to comment on the pending exemption. Written 
comments are due within 45 days of the publication of the Notice in the 
Federal Register. All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the internet and can be retrieved by most 
internet search engines.
    Further Information Contact: Blessed Chuksorji-Keefe of the 
Department, telephone (202) 693-8567. (This is not a toll-free number.)

The Children's Hospital of Philadelphia Pension Plan for Union-
Represented Employees

Located in Philadelphia, PA

[Application No. D-12048]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of Section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA) and Section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 46637, 
66644, October 27, 2011).\16\ This proposed exemption permits the sale 
(the Sale) of certain illiquid private fund interests (the Interests) 
by the Children's Hospital of Philadelphia Pension Plan for Union-
Represented Employees (the Plan or the Applicant) to the Children's 
Hospital of Philadelphia Foundation, provided certain conditions are 
met.
---------------------------------------------------------------------------

    \16\ For purposes of this proposed exemption, references to the 
provisions of Title I of ERISA, unless otherwise specified, should 
be read to refer as well to the corresponding provisions of Code 
Section 4975. Further, this proposed exemption, if granted, does not 
provide relief from the requirements of, or specific sections of, 
any law not noted above. Accordingly, the Applicant is responsible 
for ensuring compliance with any other laws applicable to this 
transaction.
---------------------------------------------------------------------------

Summary of Facts and Representations \17\
---------------------------------------------------------------------------

    \17\ The Summary of Facts and Representations is based on the 
Applicant's representations provided in its exemption application 
and does not reflect factual findings or opinions of the Department, 
unless indicated otherwise. The Department notes that availability 
of this exemption, if granted, is subject to the express condition 
that the material facts and representations contained in Application 
D-12048 are true and complete, and accurately describe all material 
terms of the transactions covered by the exemption. If there is any 
material change in a transaction covered by the exemption, or in a 
material fact or representation described in the application, the 
exemption will cease to apply as of the date of such change.
---------------------------------------------------------------------------

Background

    1. The Children's Hospital of Philadelphia (CHOP) is a hospital 
devoted exclusively to the care of children, with its primary campus 
located in Philadelphia, Pennsylvania. The Children's Hospital of 
Philadelphia Foundation (the Foundation) is the parent entity of CHOP 
and supports the activities of CHOP through fund-raising and endowment-
management. CHOP and the Foundation are both Pennsylvania nonprofit 
corporations and Code Section 50l(c)(3) charitable organizations. They 
are separate legal entities but are related because the members of the 
Board of Trustees of each entity (together, the Boards of Trustees, and 
individually the CHOP Board and the Foundation Board) are comprised of 
the same individuals who meet and often act jointly.
    2. The Plan is a noncontributory defined benefit plan that covers 
employees under a collective bargaining agreement between CHOP and the 
National Union of Hospital and Health Care Employees, AFSCME, AFL-CIO 
District 1199C. As of August 31, 2021, the Plan covered 1,636 
participants and held $102,000,000 in total assets.
    3. The Plan is administered by the Members of the Administrative 
Committee of the Children's Hospital of Philadelphia (the Committee). 
The Committee is comprised of nine individual members who concurrently 
serve as officers and employees of CHOP. The Committee has 
responsibility for the operation and administration of the Plan, 
determines the appropriateness of the Plan's investment offerings, and 
monitors the Plan's investment performance.

The Interests

    4. The Interests that are proposed to be sold consist of private 
fund limited partnership interests and one illiquid ``side pocket'' 
portion of an original hedge fund investment.\18\ The Interests consist 
of 18 funds that are spread among 14 managers and have varying 
durations, ranging from ``currently in liquidation'' to December 2022. 
The 18 Funds can be further broken down into 24 Fund Vehicles. The 
Plan's investment duration in the Interests ranges from 7-18 years. As 
of December 31, 2019, the Interests represented approximately 8.5% of 
the Plan's assets. The Foundation also currently is invested in all of 
the same Interests, except for the Adams Street Interests.\19\
---------------------------------------------------------------------------

    \18\ As referenced below, Varde VIP represents the illiquid 
``side pocket'' portion of an original hedge fund investment.
    \19\ The Department notes that a fiduciary to a plan must not 
rely upon or otherwise depend upon the participation of the plan in 
a particular investment in order for the fiduciary (or persons in 
which the fiduciary has an interest) to undertake, or to continue, 
his or her share in the same investment.
---------------------------------------------------------------------------

    The following table provides a complete list of the Interests, 
including the fair market value of each Interest, as of May 21, 2021:

------------------------------------------------------------------------
                          Interest                               FMV
------------------------------------------------------------------------
Adams Street U.S. Fund.....................................     $990,321
Adams Street Non U.S. Fund.................................      440,058
Adams Street Direct Fund...................................      275,554
Charterhouse IX............................................      130,737
FORTRESS CREDIT OPPS.......................................      123,933
FORTRESS CREDIT OPPS II....................................      344,955
Hellman & Friedman VII.....................................      136,119
H&F Shield.................................................         0.00
H&F Willis AV III..........................................         0.00
H&F Wand AIV III...........................................       35,218
H&F EFS AIV III............................................       36,381
IDG-ACCEL CHINA CAP........................................      771,450
IDG ACCEL CHINA II.........................................      601,354
IDG-ACCEL CHINA GRTH FD III................................      757,027
NORDIC CAPITAL VII.........................................        5,781
SANKATY COPS IV............................................       16,899
SIGULER GUFF BRIC II.......................................      218,477
VARDE X....................................................      202,691
ENERGY CAPITAL PARTNERS II-B...............................       42,297
BEP LEGACY C...............................................        4,404
LIME ROCK RESOURCES........................................         0.00
LIQUID REALTY PARTNERS IV TOTAL............................       38,559
METROPOLITAN REAL ESTATE PARTNERS GLOBAL...................       45,034
VARDE INVESTMENT PARTNERS (VIP)............................      549,790
------------------------------------------------------------------------

    The Interests include investments in private equity funds, real 
estate funds, and natural resource funds. The Applicant represents that 
the Plan invested in the Interests because each Interest provided 
significant risk-adjusted rate of return potential and appropriate 
investment diversification.
    As noted in the chart, it is possible that three of the twenty-four 
Interests will be appraised as having no value. However, this proposed 
exemption requires the Independent Fiduciary to separately consider the 
likelihood that one or more of these three Interests will receive 
trailing distributions, and to attribute a positive value as 
appropriate. The Independent Fiduciary's analysis regarding whether or 
not any positive value is attributable to each of these three Interests 
must be included in the Independent Fiduciary's written report to the 
Department, as described below.

[[Page 13325]]

Prior Exemption Request

    5. On October 1, 2018, the Plan, along with the Children's Hospital 
of Philadelphia Pension Account Plan (the Non-Union Plan) \20\ 
submitted a request for exemptive relief that was substantially similar 
to the relief requested herein (the Prior Exemption Request). At the 
time the Prior Exemption Request was filed, the Board of Trustees had 
recently approved the termination of the Non-Union Plan. In connection 
with its planned termination, the Non-Union Plan sought to liquidate 
its noncash assets, including the Interests, as a means to increase 
liquidity and fund lump sum payments and annuity purchases for 
participants. At the time that the Prior Exemption Request was filed, 
the assets of the Plan and the Union Plan were both held in the Master 
Trust, where each Plan held a proportional ownership stake in the 
Interests.
---------------------------------------------------------------------------

    \20\ At the time of the Prior Exemption Request, the Plan and 
the Non-Union Plan were related entities. In this regard, the two 
Plans shared the same plan sponsor (CHOP) and were administered by 
the Committee.
---------------------------------------------------------------------------

The Department's Denial of the Prior Exemption Request

    6. In a letter dated August 25, 2020, the Department denied the 
Prior Exemption Request (the Denial Letter). As stated in the Denial 
Letter, the Department was not able to find that the Prior Exemption 
request was in the interest of, and protective of, the participants and 
beneficiaries of the Plan and the Non-Union Plan. In this regard, the 
Denial Letter noted that the independent fiduciary, acting on behalf of 
the Plan and the Non-Union Plan, had engaged an independent appraiser 
pursuant to an agreement that limited the appraiser's liability for 
acts of negligence. The Denial Letter further stated that the 
appraiser's insistence on limiting its responsibility for negligent 
work, and the independent fiduciary's acceptance of this limitation, 
raised concerns regarding whether sufficient protections were in place 
to warrant the requested exemption.
    7. In the context of a prohibited transaction exemption, the 
Department expects independent fiduciaries to exercise special care 
when hiring an appraiser to value hard-to-value assets, and those 
appraisers to perform their work in accordance with expert standards 
and without special releases from liability for work that fails to 
adhere to those standards. Adequate protection for the plan in this 
context requires an appraiser and its work product to adhere to a high 
standard of care, diligence, and accuracy. Liability releases and work 
limitations that fail to meet these standards do not support an 
expectation of competent services and the protection of plan 
participants and beneficiaries. Therefore, the independent fiduciary's 
decision to hire an expert that is unwilling to stand behind its work 
calls into question the prudence of the independent fiduciary's hiring 
decision, reduces the reliability of the appraisal report, and negates 
the purpose of requiring an independent appraisal of the subject 
assets.

New Exemption Request

    8. On May 28, 2021, the Plan filed another exemption request, 
citing material developments that had occurred since the Department's 
Denial of the Prior Exemption Request. To address the issues raised in 
the Department's Denial Letter, Newport Trust Company (Newport), in its 
role as the qualified independent fiduciary (the Independent 
Fiduciary), engaged a new qualified independent appraiser, SB Advisors 
LLC (SB Advisors or the Independent Appraiser). The Applicant 
represents that Newport's engagement of SB Advisors is not subject to 
any provision that limits SB Advisor's liability for any acts of 
negligence, as more fully described below. The Applicant further notes 
that the Non-Union Plan no longer requires an exemption because it has 
been terminated and liquidated. Therefore, the exemption is now sought 
only by the Plan.

Loan to Master Trust

    9. The Applicant states that, after the termination of the Non-
Union Plan, the Foundation loaned $12 million to the Master Trust (the 
Loan). The Loan permitted the Master Trust to pay certain expenses, 
including expenses for the payment of ordinary operating expenses of 
the Plan, such as the purchase of annuity contracts for the benefit of 
Plan Participants, the lump sum payment of benefits to participants, 
and expenses incidental to the same.
    10. The Applicant represents that the Loan is intended to comply 
with the applicable provisions of ERISA, including PTE 80-26, and the 
Code.\21\ Among other things, the Foundation made the Loan without 
interest and without the Master Trust providing any security for the 
Loan. The Committee and the Foundation intend the Master Trust to repay 
the Loan as soon as reasonably possible after either the Foundation 
submits a written request for repayment or the exemption is granted and 
the Plan sells the Interests to the Foundation.
---------------------------------------------------------------------------

    \21\ PTE 80-26, as amended at 71 FR 17917, April 7, 2006, allows 
a party in interest to make an interest-free loan to a plan if the 
proceeds of the loan are used for the payment of the plan's ordinary 
operating expenses, including the payment of benefits, or for a 
purpose incidental to the ordinary operation of the plan. In 
addition, the loan must be unsecured and not made by an employee 
benefit plan. The Department expresses no opinion herein on whether 
the Loan satisfies the requirements of PTE 80-26.
---------------------------------------------------------------------------

Proposed Sale of the Interests and ERISA Analysis

    11. The requested exemption would permit the Plan to sell the 
Interests to the Foundation. ERISA Section 406(a)(1)(A) prohibits a 
plan fiduciary from causing a plan to engage in a transaction if the 
fiduciary knows or should know that such transaction constitutes a 
direct or indirect sale of any property between a plan and a party in 
interest. The Foundation is a party in interest with respect to the 
Plan under ERISA Section 3(14)(G) because it is an entity that has a 
50% or greater ownership interest in CHOP, the Plan's Sponsor. ERISA 
Section 406(a)(1)(D) prohibits a plan fiduciary from causing a plan to 
engage in a transaction if the fiduciary knows or should know that such 
transaction constitutes a direct or indirect transfer to, or use by or 
for the benefit of, a party in interest, of any assets of the plan. The 
Committee is a party in interest with respect to the Plan under ERISA 
Section 3(14)(A) because it is a fiduciary to the Plan.
    12. ERISA Section 406(b)(1) prohibits a plan fiduciary from dealing 
with the assets of the plan in his or her own interest or for his or 
her own account. ERISA Section 406(b)(2) prohibits a plan fiduciary, in 
his or her individual or in any other capacity, from acting in any 
transaction involving the plan on behalf of a party whose interests are 
adverse to the interests of the plan or the interests of its 
participants or beneficiaries.
    13. The Sale by the Plan of the Interests to the Foundation would 
violate ERISA Section 406(b)(1) and 406(b)(2). The Committee shares 
common individuals with the Foundation's Investment Office, and the 
Foundation's Investment Office is responsible for approving the 
Foundation's purchase of the Interests from the Plan. Moreover, the 
CHOP Board and the Foundation Board are comprised of the same 
individuals. The CHOP Board may have residual authority over the 
Committee's decision, as a fiduciary, to sell the Interests on behalf 
of the Plan. Similarly, the Foundation's Board may have residual 
authority over the Foundation's decision to purchase the Interests from 
the Plan.

[[Page 13326]]

The Qualified Independent Fiduciary

    14. The Committee retained Newport of New York, NY to serve as the 
Plans' Independent Fiduciary. The Committee represents that it selected 
and engaged Newport based solely on Newport's qualifications to serve 
as Independent Fiduciary after a prudent process, and that the 
Committee made the selection without regard to whether Newport's views 
were likely to favor the interests of CHOP, the Foundation, or any 
parties related to CHOP or the Foundation. The Committee represents 
that it selected Newport following a robust Request for Proposal (RFP) 
process, because of Newport's qualifications, including its significant 
history of serving as independent fiduciary in past transactions and 
positive references.
    15. Newport represents that it possesses the appropriate technical 
training and proficiency with Title I of ERISA to serve as the Plan's 
Independent Fiduciary, and that it has the specific experience 
necessary to evaluate the Sale of the Interests on behalf of the Plan. 
Newport represents that it understands, acknowledges, and accepts its 
duties and responsibilities under ERISA in acting as Independent 
Fiduciary on behalf of the Plan, and that it is required to act solely 
in the interest of the Plan's participants and beneficiaries while 
exercising care, skill, and prudence in discharging its duties.
    16. Newport represents that it is independent of, does not control, 
is not controlled by, and is unrelated to any parties in interest to 
the Sale, and that it will not directly or indirectly receive any 
compensation or other consideration in connection with the Sale, except 
for compensation for performing Independent Fiduciary services on 
behalf of the Plan. Newport also represents that the sum of its annual 
compensation received pursuant to its engagement as Independent 
Fiduciary, and from parties in interest with respect to the Plan and 
affiliates of CHOP and/or the Foundation, would not exceed two percent 
(2%) of Newport's annual gross revenues. Newport further represents 
that the receipt of its fee is not contingent upon, nor in any way 
affected by, Newport's ultimate decisions on behalf of the Plan in 
connection with the Sale.
    17. Newport represents: (a) That no party related to CHOP or the 
Foundation has, or will, indemnify Newport in whole or in part for 
negligence and/or for any violation of state or federal law that may be 
attributable to Newport in performing its duties as Independent 
Fiduciary on behalf of the Plan; (b) that it has not performed any 
prior work on behalf of CHOP or the Foundation, or on behalf of any 
party related to CHOP or the Foundation; (c) that it has no financial 
interest with respect to its work as Independent Fiduciary, apart from 
the express fees paid to Newport to represent the Plan with respect to 
the Sale; (d) that it has not received any compensation or entered into 
any financial or compensation arrangements with CHOP or the Foundation, 
or any parties related to CHOP or the Foundation; and (e) that it will 
not enter into any agreement or instrument regarding the Sale that 
violates ERISA Section 410 or the Department's regulations at 29 CFR 
Section 2509.75-4.\22\
---------------------------------------------------------------------------

    \22\ ERISA Section 410 provides, in part, that ``except as 
provided in ERISA Sections 405(b)(1) and 405(d), any provision in an 
agreement or instrument which purports to relieve a fiduciary from 
responsibility or liability for any responsibility, obligation, or 
duty under this part [meaning ERISA Section 410(a)] shall be void as 
against public policy.''
---------------------------------------------------------------------------

    18. As Independent Fiduciary, Newport is responsible for: (a) 
Representing the Plan's interests for all purposes with respect to the 
Sale; (b) determining that the Sale is in the interests of, and 
protective of, the Plan and the participants of the Plan; (c) reviewing 
and approving the terms and conditions of the Sale; (d) independently 
and prudently selecting and engaging the Independent Appraiser 
(described below) to value the Interests for the purposes of the Sale; 
(e) reviewing the Independent Appraisal Report, confirming that the 
underlying methodology is reasonable and accurate, and confirming that 
the Independent Appraiser has reasonably determined the fair market 
valuation of the Interests in accordance with professional standards; 
(f) ensuring that the independent appraiser renders an updated fair 
market valuation of the Interests as of the date of the Sale that 
includes a separate assessment regarding the likelihood that any 
Interest reported as having no value will receive trailing 
distributions, and the extent to which that likelihood affects the 
Interest's value; and (g) determining whether it is prudent for the 
Plan to proceed with the Sale. Additionally, not later than 90 days 
after the Sale is completed, the Independent Fiduciary must submit a 
written statement to the Department demonstrating that the Sale has met 
all the requirements of this exemption, which are described below.

The Qualified Independent Appraiser

    19. On January 15, 2021, Newport engaged SB Advisors to appraise 
the Interests for purposes of the Sale. Newport represents that it: (a) 
Prudently selected SB Advisors to appraise the Interests on behalf of 
the Plan; (b) ensured SB Advisor's independence from CHOP, the 
Foundation, and any other related parties; and (c) confirmed that all 
information given to SB Advisors was complete, current, and accurate.
    20. SB Advisors represents that it is independent of, and unrelated 
to, any party in interest to the Plan and that its revenues for 2021 
from parties in interest and affiliates in connection with its 
engagement as Independent Appraiser would be less than two percent (2%) 
of its projected revenues for 2021. SB Advisors represents that it is 
qualified to serve as Independent Appraiser for purposes of the Sale, 
because of its comprehensive valuation experience specifically related 
to the valuation of alternative and illiquid investments for which 
there are no ``active market'' quotations. SB Advisors states that its 
principals have performed in-depth valuation analyses of various 
alternative and illiquid asset types, including limited partnership 
interests in private funds, intangible assets, direct loans, private 
debt securities, and preferred stock and common stock. Finally, SB 
Advisors represents that its principals have been retained to value 
limited partnership interests in funds for ERISA plans over the course 
of the past five years.
    21. In connection with its engagement as Independent Appraiser, SB 
Advisors represents that: (a) No party related to this exemption 
request has, or will, indemnify SB Advisors in whole or in part for 
negligence and/or for any violation of state or federal law that may be 
attributable to SB Advisors in performing its duties as Independent 
Appraiser on behalf of the Plan; (b) no contract or instrument that SB 
Advisors enters into with respect to the transactions that are the 
subject of the exemption purports to waive any liability under state or 
federal law for any such violation by SB Advisors; (c) neither SB 
Advisors, nor any parties related to SB Advisors, have performed any 
prior work on behalf of CHOP or the Foundation, or on behalf of any 
party related to CHOP or the Foundation; (d) neither SB Advisors, nor 
any parties related to SB Advisors, have any financial interest with 
respect to SB Advisors' work as Independent Appraiser, apart from the 
express fees paid to SB Advisors to value the Interests; and (e) 
neither SB Advisors, nor any parties related to SB Advisors, have 
received any compensation or entered into any financial or compensation 
arrangements with CHOP

[[Page 13327]]

or the Foundation, or any parties related to CHOP or the Foundation.

The Independent Appraisal Report

    22. In the Independent Appraisal Report, dated May 14, 2021, SB 
Advisors concludes that the Interests have a fair market value of 
$5,793,018, and a book value of $7,907,091. SB Advisors represents that 
it performed its appraisal of the Interests by gathering information 
about the Interests, reviewing each general partnership's valuation 
policy, determining the book value by subtracting distributions from 
the net asset value (NAV) and applying a price to NAV multiple to each 
of the Interests based on indicative secondary market pricing and 
comparable publicly traded funds. SB Advisors represents that it 
reviewed: (a) LPA and/or LLC agreements; (b) the private placement 
memorandum; (c) unaudited quarterly reports and financial statements; 
(d) general partner reports regarding capital accounts and holdings; 
(e) distribution notices; and (f) other internal documents relating to 
formation, history, current operations, and probable future outlook.
    23. SB Advisors represents that it utilized two appraisal 
approaches: (a) Secondary market pricing indications; and (b) selected 
public funds price to NAV analysis. SB Advisors represents that it 
considered and eliminated other approaches deemed to be either 
unreliable or irrelevant based on the available information, including 
the income approach, market approach, and cost approach.
    24. In addition to completing the Independent Appraisal Report 
described above, SB Advisors will issue a final Independent Appraisal 
Report to coincide with the date of the Sale.

The Independent Fiduciary Report

    25. In the Independent Fiduciary Report, dated May 26, 2021, 
Newport concludes that the Sale is in the interest and protective of 
the Plan because it provides for immediate liquidity, favorable 
pricing, and the elimination of future cash liabilities. To reach its 
conclusions, Newport represents that it conducted a thorough and 
prudent process that involved numerous discussions and correspondence 
with personnel from the Committee, the Independent Appraiser, and its 
advisors.
    26. In the Independent Fiduciary Report, Newport concludes that SB 
Advisors' valuation methodology is consistent with sound valuation 
principles. Newport also concludes that, in accordance with fiduciary 
standards, it was reasonable to rely upon SB Advisor's Appraisal under 
the circumstances.
    27. Newport states that SB Advisors applied its valuation 
methodology in a consistent and objective manner and exercised 
professional judgment to account for the specific characteristics of 
each of the Interests. In Newport's view, SB Advisor's employed 
reasonable underlying assumptions and market observations based on 
relevant third-party research.
    28. To ensure that SB Advisors properly applied its appraisal 
methodology, Newport represents that it: (a) Reviewed the qualitative 
description of the methodology against calculations reflected in 
various tables included in the Appraisal Report; (b) confirmed that the 
concluded price to NAV multiple of each Interest was consistent with 
price to NAV figures stated in other areas of the Appraisal Report; (c) 
recalculated the concluded price to NAV multiple for the Interests 
based on the price to NAV results from both of the valuation techniques 
outlined in the Appraisal Report; (d) assessed the reasonableness of 
the underlying assumptions; (e) reviewed public fund pricing reports 
and calculations utilized by the Independent Appraiser; (f) confirmed 
that the discount to NAV for each of the Interests was appropriately 
determined; and (g) reviewed secondary market pricing reports.
    29. Newport states that the Sale is favorable to the Plan because 
it provides immediate liquidity, favorable pricing, and eliminates 
future cash liabilities. Newport states that an all-cash transaction is 
in the interest of the Plan and its participants because it provides 
liquidity for the Plan to immediately reinvest in other assets that are 
aligned with the Plan's investment policy statement. Newport further 
states that the Plan will sell the Interests to the Foundation for 
their fair market value. The Plan will not be responsible for any 
commissions, fees, or other expenses associated with the Sale and will 
not bear any costs associated with the exemption request, including the 
professional fees of outside counsel, the Independent Fiduciary, and 
the Independent Appraiser, which amount to at least $315,000. Newport 
notes that transaction commission and other fees can be significant, 
ranging between $125,000 and $165,000, and would otherwise have reduced 
the net proceeds received by the Plan in any sale to an unrelated third 
party.
    30. Newport states the Sale, in and of itself, does not constitute 
an agreement, arrangement, or understanding designed to benefit the 
Foundation, and that its analysis does not suggest that the Interests 
have significant upside that would be forfeited by the Plan because of 
the Sale.
    31. Based on its analysis, Newport states that it has determined 
that the terms and conditions of the Sale are fair to the Plan and are 
no less favorable than terms the Plan would receive through arm's-
length negotiations with an unrelated third party. Newport states that 
the terms and conditions of the Sale are in the interest of, and 
protective of, the participants and beneficiaries of the Plan. 
Therefore, Newport has determined that it is prudent to proceed with 
the Sale. Finally, within 90 days after the Sale is completed, Newport 
will submit a written report to the Department demonstrating that each 
exemption condition has been met.

Other Conditions of the Proposed Exemption

    32. The Plan will receive cash for each Interest based on the fair 
market value of the Interests as of the date of the Sale based upon an 
appraisal report prepared by the Independent Appraiser. The terms and 
conditions of the Sale will be no less favorable to the Plan than the 
terms the Plan would have received under similar circumstances in an 
arm's-length transaction with an unrelated third party. Further, the 
Foundation will assume any remaining capital commitments in connection 
with the Interests, and the Plan will pay no commissions, fees, or 
other expenses in connection with the Sale. The Foundation will obtain 
written consent from each Fund manager to purchase the Interests from 
the Plan prior to engaging in the Sale of the Interests.

Statutory Findings

    33. ERISA Section 408(a) provides, in part, that the Department may 
not grant an exemption unless the Department finds that the exemption 
is administratively feasible, in the interest of affected plans and of 
their participants and beneficiaries, and protective of the rights of 
such participants and beneficiaries. Each of these criteria are 
discussed below.
    34. The Proposed Exemption Is ``Administratively Feasible.'' The 
Department has tentatively determined that the Sale is administratively 
feasible because, among other things, an Independent Fiduciary will 
represent the interests of the Plan for all purposes with respect to 
the Sale and ensure that the Interests are sold for their full fair 
market value as of the date of the sale.
    35. The Proposed Exemption Is ``In the Interests of the Plan.'' The 
Department has tentatively determined

[[Page 13328]]

that the proposed exemption is in the interest of the Plan. Among other 
things, the Sale would enable the Plan to sell an illiquid asset at its 
full fair market value for cash, which will provide added liquidity for 
the Plan.
    36. The Proposed Exemption Is ``Protective of the Plan.'' The 
Department has tentatively determined that the proposed exemption is 
protective of the rights of the Plans' participants and beneficiaries. 
Among other things, Newport, as Independent Fiduciary, must prudently 
represent the Plan's interests for all purposes with respect to the 
Sale, and must ensure that the protective conditions that are mandated 
under this exemption are met. In addition, not later than 90 days after 
the Sale is completed, Newport must submit a written statement to the 
Department demonstrating that the Sale has met all of the exemption 
conditions.

Summary

    34. Based on the conditions that are included in this proposed 
exemption, the Department has tentatively determined that it can find 
that the relief sought by the Applicant would satisfy the statutory 
requirements for the Department to grant an administrative exemption 
under ERISA Section 408(a).

Proposed Exemption

Section I. Proposed Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
Sections 406(a)(1)(A) and (D), and 406(b)(1) and (b)(2), and the 
sanctions resulting from the application of Code Section 4975, by 
reason of Code Sections 4975(c)(1)(A), (D) and (E), shall not apply to 
the Sale of the Interests by the Plan to the Foundation, provided the 
conditions set forth in Section II are met.

Section II. Conditions

    (a) The Sale of each Interest is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Plan as those the Plan could obtain in an arm's-length 
transaction with an unrelated third party;
    (c) The Sale price for each Interest will be the fair market value 
of the Interest as of the date of the Sale, as determined by the 
Independent Fiduciary, based upon an updated Independent Appraisal 
Report prepared by the Independent Appraiser that values the Interest 
as of the date of the Sale;
    (d) The Foundation assumes any remaining capital commitments in 
connection with the Interests;
    (e) The Plan pays no commissions, fees, or other expenses in 
connection with the Sale;
    (f) The Independent Fiduciary:
    (1) Represents the Plan's interests for all purposes with respect 
to the Sale;
    (2) Determines that the Sale is in the interests of, and protective 
of, the Plan and the participants of the Plan;
    (3) Reviews and approves the terms and conditions of the Sale;
    (4) Independently and prudently engages the Independent Appraiser 
for the Sale;
    (5) Reviews the Independent Appraisal Report, confirms that the 
underlying methodology is reasonable and accurate, and confirms that 
the Independent Appraiser has reasonably determined the fair market 
valuation of the Interests in accordance with professional standards;
    (6) Ensures that the Independent Appraiser renders an updated fair 
market valuation of the Interests as of the date of the Sale. The 
updated market valuation must include a separate assessment as to the 
likelihood that any Interest reported as having no value may 
nonetheless receive trailing distributions. The Independent Appraiser 
must consider this likelihood when valuing any Interest, and address 
the extent to which this likelihood affects the Interest's value;
    (7) Determines whether it is prudent for the Plan to proceed with 
the Sale;
    (8) Has not and will not enter into any agreement or instrument 
that violates ERISA Section 410;
    (9) Confirms that each condition of the exemption has been met; and
    (10) Submits a written report to the Department not later than 90 
days after the Sale has been completed demonstrating that each 
exemption condition has been met. The written report must include the 
Independent Fiduciary's determinations regarding whether any Interest 
is likely to receive trailing distributions, and the extent to which to 
any anticipated trailing distributions increased the Interest's value.
    (g) The Plan does not bear the costs of: (1) The exemption 
application; (2) obtaining the exemption; (3) the Independent 
Fiduciary; or (4) the Independent Appraiser;
    (h) The Foundation receives written consent from each Fund manager 
to purchase the Interests from the Plan prior to engaging in the Sale 
of the respective Interests;
    (i) The Sale is not part of an agreement, arrangement, or 
understanding designed to benefit CHOP or the Foundation; and
    (j) All the material facts and representations set forth in the 
Summary of Facts and Representations are true and accurate.
    Effective Date: If granted, the exemption will in effect as of the 
date the grant notice is published in the Federal Register.

Notice to Interested Persons

    Those persons who may be interested in the publication in the 
Federal Register of the Notice include participants in the Plans who 
are actively employed by CHOP or another employer participating in the 
Plans, participants in the Plans who are no longer actively employed by 
CHOP or other employers that have participated in a Plan, and Plan 
beneficiaries in pay status. The Applicant will provide notification to 
interested persons by electronic mail and first-class mail within 
fifteen (15) calendar days of the date of the publication of the Notice 
in the Federal Register. The mailing will contain a copy of the Notice, 
as it appears in the Federal Register on the date of publication, plus 
a copy of the Supplemental Statement, as required, pursuant to 29 CFR 
2570.43(b)(2), which will advise such interested persons of their right 
to comment and to request a hearing.
    The Department must receive all written comments and requests for a 
hearing no later than forty-five (45) days from the date of the 
publication of the Notice in the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the internet and can be retrieved by most 
internet search engines.
    Further Information Contact: Mr. Joseph Brennan of the Department, 
telephone (202) 693-8456. (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 of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404

[[Page 13329]]

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) Before an exemption may be granted under section 408(a) of the 
Act and/or section 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) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or 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; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 3rd day of March 2022.
George Christopher Cosby,
Acting Director, Office of Exemption Determinations, Employee Benefits 
Security Administration, U.S. Department of Labor.
[FR Doc. 2022-04954 Filed 3-8-22; 8:45 am]
BILLING CODE 4510-29-P