Prohibited Transaction Exemption 97-63; Exemption Application No. D-10159, et al.; Grant of Individual Exemptions; State Street Bank [Notices] [12/19/1997]
Prohibited Transaction Exemption 97-63; Exemption Application No.
D-10159, et al.; Grant of Individual Exemptions; State Street Bank [12/19/1997]
Volume 62, Number 244, Page 66689-66692-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
Prohibited Transaction Exemption 97-63; Exemption Application No.
D-10159, et al.; Grant of Individual Exemptions; State Street Bank
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have compiled with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section 4975 of
the Code, by reason of section 4975(c)(2) of the Code and the
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
32847, August 10, 1990) and based upon the entire record, the
Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
State Street Bank and Trust Company Located in Boston, Massachusetts
[Prohibited Transaction Exemption 97-63; Application No. D-10159
Exemption
The restrictions of sections 406(a)(1)(A) through (D) and 406(b)(1)
and (b)(2) of the Act and the sanctions resulting from the application
of section 4975(c)(1)(A) through (E) of the Code,\1\ shall not apply to
the lending of securities to State Street Bank and Trust Company (State
Street), acting through its Financial Markets Group (FMG) (formerly the
Money Market Division of the Capital Markets Area) or acting through
any other division or U.S. affiliate of State Street that is a
successor to the activities of FMG; and shall not apply to the lending
of securities to any U.S. registered broker-dealers affiliated with
State Street (the Affiliated Broker Dealers) \2\ by employee benefit
plans (the Client Plans or the Client Plan), including commingled
investment funds holding plan assets for which State Street, through
its Master Trust Services Division (the Trust Division) acts as
directed trustee or custodian, and for which State Street, through its
Global Securities Lending Division or any other similar division of
State Street or U.S. affiliate of State Street or of its parent
(collectively, GSL) acts as securities lending agent (or sub-agent);
and shall not apply to the receipt of compensation by GSL in connection
with the transactions; provided that the following conditions are met:
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\1\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
\2\ FMG, any division or U.S. affiliate of State Street that
becomes a successor to the activities of FMG, and the Affiliated
Broker Dealers are collectively referred to, herein, as the SSB
Group.
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a. Neither State Street, the SSB Group, GSL, nor any other division
or affiliate of State Street has or exercises
[[Page 66690]]
discretionary authority or control with respect to the investment of
the assets of Client Plans involved in the transaction (other than with
respect to the investment of cash collateral after securities have been
loaned and collateral received) or renders investment advice (within
the meaning of 29 CFR 2510.3-21(c)) with respect to such assets,
including decisions concerning a Client Plan's acquisition or
disposition of securities available for loan;
b. Before a Client Plan participates in a securities lending
program and before any loan of securities to the SSB Group is effected,
the fiduciary of such plan who is independent of State Street, GSL, the
SSB Group, and any other division or affiliate of State Street must
have:
(1) Authorized and approved the securities lending authorization
agreement with GSL (the Agency Agreement), where GSL is acting as the
direct securities lending agent; or
(2) Authorized and approved the primary securities lending
authorization agreement (the Primary Lending Agreement) with the
primary lending agent, where GSL is lending securities under a sub-
agency arrangement with the primary lending agent \3\; and
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\3\ The Department, herein, is not providing relief for
securities lending transactions engaged in by primary lending
agents, other than GSL, beyond that provided, pursuant to Prohibited
Transaction Class Exemption 81-6 (PTCE 81-6) and Prohibited
Transaction Class Exemption 82-63 (PTCE 82-63). PTCE 81-6 was
granted 46 FR 7527, January 23, 1981, as amended at 52 FR 18754, May
19, 1987. The Notice of Proposed Exemption for application numbers
D-5598 and D-5776 was published at 46 FR 10570, February 3, 1981.
PTCE 82-63 was granted 47 FR 14804, April 6, 1982. The Notice of
Proposed Class Exemption was published at 46 FR 7518, January 23,
1981, as amended at 46 FR 10570, February 3, 1981.
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(3) Approved the general terms of the securities loan agreement
(the Loan Agreement) between such Client Plan and the borrower, the SSB
Group, the specific terms of which are negotiated and entered into by
GSL;
c. A Client Plan may terminate the Agency Agreement or the Primary
Lending Agreement at any time, without penalty to such plan, on five
(5) business days notice;
d. The Client Plan will receive from the SSB Group (either by
physical delivery or by book entry in a securities depository, wire
transfer or similar means) by the close of business on or before the
day the loaned securities are delivered to the SSB Group, collateral
consisting of cash, securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities, or irrevocable bank
letters of credit issued by a person other than State Street or an
affiliate thereof, or any combination thereof, or other collateral
permitted under PTCE 81-6 (as amended from time to time or,
alternatively, any additional or superseding class exemption that may
be issued to cover securities lending by employee benefit plans);
e. The market value of the collateral must, as of the close of
business on the preceding business day, initially equal at least 102
percent (102%) of the market value of the loaned securities. If the
market value of the collateral falls below 100 percent (100%) (or such
greater percentage agreed to by the parties) of the loaned securities,
GSL will require the SSB Group to deliver additional collateral by the
close of business on the following day such that the market value of
the collateral will again equal at least 102 percent (102%). The Loan
Agreement will give the Client Plans a continuing security interest in,
title to, or the rights of a secured creditor with respect to the
collateral and a lien on the collateral. GSL will monitor the level of
the collateral daily;
f. All GSL's procedures regarding the securities lending activities
will at a minimum conform to the applicable provisions of PTCE 81-6 and
PTCE 82-63;
g. State Street will agree to indemnify and hold harmless each
lending Client Plan (including the sponsor and fiduciaries of such
Client Plan) against any and all damages, losses, liabilities, costs,
and expenses (including attorneys' fees) which the Client Plan may
incur or suffer directly arising out of the lending of the securities
of such Client Plan to the SSB Group;
h. The Client Plan will receive the equivalent of all distributions
made to holders of the borrowed securities during the term of any loan,
including, but not limited to, cash dividends, interest payments,
shares of stock as a result of stock splits and rights to purchase
additional securities, or other distributions;
i. Prior to any Client Plan's approval of the lending of its
securities to the SSB Group, a copy of the Notice of Proposed Exemption
(the Notice) and a copy of the final exemption will be provided to the
Client Plan;
j. Only Client Plans with total assets having an aggregate market
value of at least $50 million will be permitted to lend securities to
the SSB Group;
k. The terms of each loan of securities by the Client Plans to the
SSB Group will be at least as favorable to such plans as those of a
comparable arm's-length transaction between unrelated parties;
l. Each Client Plan will receive monthly reports on the
transactions, including but not limited to the information described in
paragraph 26 of the Notice, so that an independent fiduciary of such
plan may monitor the securities lending transactions with the SSB
Group;
m. Before entering into the Loan Agreement and before a Client Plan
lends any securities to the SSB Group, an independent fiduciary of such
Client Plan will receive sufficient information, concerning the
financial condition of State Street, including but not limited to
audited and unaudited financial statements of State Street's parent
corporation; and
n. The SSB Group will provide to a Client Plan prompt notice at the
time of each loan by such plan of any material adverse changes in State
Street's financial condition, since the date of the most recently
furnished financial statements.
For a complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on October 2, 1997, 62 FR 51684.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Crown American Properties L.P., Retirement Savings Plan (the Plan),
Located in Johnstown, PA
[Prohibited Transaction Exemption No. 97-64; Exemption Application No.
D-10454]
Exemption
The restrictions of section 406(a), 406(b)(1) and (b)(2), and
section 407(a) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1) (A) through (E) of the Code, shall not apply to the
purchase, holding or sale by participant-directed accounts in the Plan
of shares of Crown American Realty Trust (the Crown REIT), an affiliate
of Crown American Properties L.P. (Crown American), the Plan's sponsor
and, as such, a party in interest with respect to the Plan, provided
that the following conditions are met:
(A) Any purchase or sale of the Crown REIT shares by a participant
account (an Account) is made solely in accordance with the directions
of the participant whose account is making the purchase or sale;
(B) Immediately following any purchase of the Crown REIT shares by
an Account, the percentage of the total value of the Account invested
in the Crown REIT shares does not exceed 25 percent, as measured based
on the value of the assets held by such Account as of the close of the
prior business day;
[[Page 66691]]
(C) Compliance with the terms and conditions of this exemption,
including the 25 percent limit described in Paragraph (B) above, is
monitored by PNC Bank, National Association, as the Plan's trustee,
which is independent of the Crown REIT and Crown American or any
affiliate thereof;
(D) With respect to any decisions made by a Plan participant for a
purchase or sale of Crown REIT shares by an Account, neither Crown
American, PNC, nor any of their affiliates has discretionary authority
or control with respect to the investment of the Plan assets involved
in the transaction, other than as required for PNC to monitor and
enforce compliance with the 25 percent limit described in Paragraph (C)
above, or renders any investment advice [within the meaning of 29 CFR
2510.3-21(c)] with respect to those assets;
(E) All purchases and sales of the Crown REIT shares by the Plan
are executed:
(1) For cash;
(2) On the national exchange on which the Crown REIT shares are
primarily traded (the Primary Exchange);\4\ and
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\4\ The Primary Exchange is currently the New York Stock
Exchange (NYSE).
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3) At the prevailing market price for the Crown REIT shares on the
Primary Exchange at the time of the transaction;
(F) Notwithstanding the provisions contained in (E) above,
purchases and sales of the Crown REIT shares may occur between the
Accounts within the Plan in order to avoid brokerage commissions and
other transaction costs, provided that the price received by each
Account is equal to the closing price for the Crown REIT shares on the
Primary Exchange on the date of the transaction;
(G) Crown American maintains for a period of six years the records
necessary to enable the persons described below in paragraph (H) to
determine whether the conditions of this exemption have been met,
except that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Crown American,
the records are lost or destroyed prior to the end of the six-year
period, and (2) no party in interest other than Crown American or
affiliate shall be subject to the civil penalty that may be assessed
under section 502(i) of the Act or to the taxes imposed by section 4975
(a) and (b) of the Code if the records are not maintained or are not
available for examination as required by paragraph (H) below; and
(H)(1) Except as provided below in paragraph (H)(2) and
notwithstanding any provisions of section 504(a)(2) of the Act, the
records referred to in paragraph (G) are unconditionally available at
their customary location for examination during normal business hours
by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(ii) Any fiduciary of the Plan or any duly authorized employee or
representative of such fiduciary, and
(iii) Any participant or beneficiary of the Plan or duly authorized
employee or representative of such participant or beneficiary;
(2) None of the persons described in paragraph (H)(1) (ii) and
(iii) shall be authorized to examine trade secrets of crown American,
or commercial or financial information which is privileged or
confidential.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on October 2, 1997 at 62 FR
51693.
Written Comments: The applicant submitted a comment letter noting
that Condition (F) in the notice of proposed exemption (the Proposal)
refers to the NYSE, which is an undefined term in the text of the
operative language of the Proposal. The term ``NYSE'' is defined in
paragraph 3 of the summary of facts and representations for the
Proposal (see 62 FR at 51694) as being the New York Stock Exchange,
which is currently the Primary Exchange for purposes of the
requirements contained in Condition (E)(2) and (E)(3) as well as
Condition (F). Thus, the Department has deleted the reference to
``NYSE'' in Condition (F) and substituted the term ``Primary Exchange''
in order to be consistent with other references to that term in the
exemption text (also see footnote).
The applicant's letter has also provided some minor clarifications
for the record, as discussed in the summary of facts and
representations for the Proposal, concerning the average daily trading
volume of the Crown REIT shares, the current percentage ownership of
Crown American, and the outstanding stock of the Crown REIT. Interested
persons may obtain copies of this information from the exemption
application file, which is available to the public in the Public
Disclosure Room of the Pension and Welfare Benefits Administration,
Room N-5638, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Valley Forge Consulting Corporation, Profit Sharing Trust (the Plan),
Located in King of Prussia, PA
[Prohibited Transaction Exemption 97-65; Exemption Application No. D-
10466]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to the proposed sale of a first mortgage note (the
Note) by the individually-directed account (the Account) in the Plan of
Steven R. Eyer to Mr. Eyer, provided--
(a) The terms of the transaction are at least as favorable to the
Account as those obtainable in an arm's length transaction with an
unrelated party.
(b) The Account is not required to pay any fees, commissions or
other expenses in connection with the sale.
(c) The sale of Note represents a one-time transaction for cash.
(d) The fair market value of the Note is determined by a qualified,
independent appraiser.
(e) As consideration for the Note, the Account receives an amount
that is no less than the fair market value of the Note as of the date
of the sale.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on October 20, 1997 at 62 FR
54478.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Profit Sharing Keogh Plan of Richard D. Wickerham, Esq. (the Plan),
Located in Schenectady, New York
[Prohibited Transaction Exemption 97-66; Exemption Application No. D-
10505]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall
not apply to: (1) Two loans (the Loans) (the Loans) totaling $50,000 by
the Plan to Mr. Richard D. Wickerham (Mr. Wickerham), a disqualified
person with respect to the Plan, and (2) the personal guarantee of the
Loans by Mr. Wickerham, provided the following conditions are
satisfied: (1) The terms of the Loans are at least as favorable to the
[[Page 66692]]
Plan as those obtainable in arm's-length transactions with an unrelated
party; (b) the Loans do not exceed 25% of the assets of the Plan; (c)
the first Loan (Loan 1) is secured by a second mortgage on certain real
property which has been appraised by a qualified independent appraiser
to have a fair market value not less than 150% of the amount of Loan 1
plus the balance of the first mortgage which it secures; (d) the second
Loan (Loan 2) is secured by certain personal property which has a fair
market value, as determined by a qualified independent appraiser, of
not less than 200% of Loan 2; (e) the fair market value of the
collateral remains at least equal to the percentages described in
conditions (c) and (d), above, throughout the duration of the Loans;
and (f) Mr. Wickerham is the only Plan participant to be affected by
the Loan transactions.\5\
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\5\ Since Mr. Wickerham is the sole owner of the Plan sponsor
and the only participant in the Plan, there is no jurisdiction under
Title I of the act pursuant to 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on November 4, 1997 at 62 FR
59742.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 16th day of December, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 97-33181 Filed 12-18-97; 8:45 am]
BILLING CODE 4510-29-M
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