# Proposed Exemptions From Certain Prohibited Transaction Restrictions

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2011-31741

## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** December 13, 2011
- **Citation:** 76 FR 77594

## Text

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). This notice includes the following proposed exemptions: D-11517, JPMorgan Chase & Co. and its Current and Future Affiliates and Subsidiaries (JPMorgan Chase); D-11579, Delaware Charter Guarantee & Trust Co. d\b\a\ Principle Trust Company (Principle Trust); D-11628, Aztec Well Servicing Company and Related Companies Medical Plan Trust Fund (the Plan); D-11669, Genzyme Corporation 401(k) Plan (the Plan or the Applicant); and Retirement Program for Employees of EnPro Industries (the Plan), D-11662
et al.

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, within 45 days from the date of publication of this
Federal Register
Notice.

ADDRESSES:

Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing. All written comments and requests for a hearing (at least three copies) should be sent to the Employee Benefits Security Administration (EBSA), Office of Exemption Determinations, Room N-5700, U.S. Department of Labor, 200 Constitution Avenue NW., Washington, DC 20210.
Attention:
Application No.__, stated in each Notice of Proposed Exemption. Interested persons are also invited to submit comments and/or hearing requests to EBSA via email or fax. Any such comments or requests should be sent either by email to:
moffitt.betty@dol.gov,
or by fax to (202) 219-0204 by the end of the scheduled comment period. The applications for exemption and the comments received will be available for public inspection in the Public Documents Room of the Employee Benefits Security Administration, U.S. Department of Labor, Room N-1513, 200 Constitution Avenue NW., Washington, DC 20210.

Warning:
If you submit written comments or hearing requests, do not include any personally-identifiable or confidential business information that you do not want to be publicly-disclosed. All comments and hearing requests are posted on the Internet exactly as they are received, and they can be retrieved by most Internet search engines. The Department will make no deletions, modifications or redactions to the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

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

The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed exemption are issued solely by the Department.

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

JPMorgan Chase & Co. and Its Current and Future Affiliates and Subsidiaries (JPMorgan Chase), Located in New York, New York

Application Number D-11517
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 or the Act) 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 (55 FR 32836, 32847, August 10, 1990).
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1
For purposes of this proposed exemption, references to section 406 of ERISA should be read to refer as well to the corresponding provisions of section 4975 of the Code.

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

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

Section II. Conditions Applicable to Transactions Described in Section I

(a) The Plan acquired the Auction Rate Security in connection with brokerage or advisory services provided by JPMorgan Chase;

(b) The last auction for the Auction Rate Security was unsuccessful;

(c) Except in the case of a Plan sponsored by JPMorgan Chase for its own employees (a JPMorgan Chase Plan), the Unrelated Sale is made pursuant to a written offer by JPMorgan Chase (the Offer) containing all of the material terms of the Unrelated Sale, including, but not limited to the most recent rate information for the Auction Rate Security (if reliable information is available). Either the Offer or other materials available to the Plan provide the identity and par value of the Auction Rate Security. Notwithstanding the foregoing, in the case of a pooled

fund maintained or advised by JPMorgan Chase, this condition shall be deemed met to the extent each Plan invested in the pooled fund (other than a JPMorgan Chase Plan) receives written notice regarding the Unrelated Sale, where such notice contains the material terms of the Unrelated Sale, including, but not limited to, the material terms described in the preceding sentence;

(d) The Unrelated Sale is for no consideration other than cash payment against prompt delivery of the Auction Rate Security;

(e) The sales price for the Auction Rate Security is equal to the par value of the Auction Rate Security, plus any accrued but unpaid interest or dividends;
2

2
This proposed exemption does not address tax issues. The Department has been informed by the Internal Revenue Service and the Department of the Treasury that they are considering providing limited relief from the requirements of sections 72(t)(4), 401(a)(9), and 4974 of the Code with respect to retirement plans that hold Auction Rate Securities. The Department has also been informed by the Internal Revenue Service that if Auction Rate Securities are purchased from a Plan in a transaction described in sections I and III at a price that exceeds the fair market value of those securities, then the excess value would be treated as a contribution for purposes of applying applicable contribution and deduction limits under sections 219, 404, 408, and 415 of the Code.

(f) The Plan does not waive any rights or claims in connection with the Unrelated Sale;

(g) The decision to accept the Offer or retain the Auction Rate Security is made by a Plan fiduciary or Plan participant or IRA owner who is independent (as defined in section V(d)) of JPMorgan Chase. Notwithstanding the foregoing: (1) In the case of an individual retirement account (an IRA, as described in section V(e) below) which is beneficially owned by an employee, officer, director or partner of JPMorgan Chase, or a relative of any such persons, the decision to accept the Offer or retain the Auction Rate Security may be made by such employee, officer, director, partner, or relative; or (2) in the case of a JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan Chase, the decision to accept the Offer may be made by JPMorgan Chase after JPMorgan Chase has determined that such purchase is in the best interest of the JPMorgan Chase Plan or pooled fund;
3

3
The Department notes that the Act's general standards of fiduciary conduct also would apply to the transactions described herein. In this regard, section 404 requires, among other things, that a fiduciary discharge his duties respecting a plan solely in the interest of the plan's participants and beneficiaries and in a prudent manner. Accordingly, a plan fiduciary must act prudently with respect to, among other things, the decision to sell the Auction Rate Security to JPMorgan Chase for the par value of the Auction Rate Security, plus any accrued but unpaid interest or dividends. The Department further emphasizes that it expects Plan fiduciaries, prior to entering into any of the proposed transactions, to fully understand the risks associated with this type of transaction following disclosure by JPMorgan Chase of all relevant information.

(h) Except in the case of a JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan Chase, neither JPMorgan Chase nor any affiliate exercises investment discretion or renders investment advice within the meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept the Offer or retain the Auction Rate Security;

(i) The Plan does not pay any commissions or transaction costs with respect to the Unrelated Sale;

(j) The Unrelated Sale is not part of an arrangement, agreement or understanding designed to benefit a party in interest to the Plan;

(k) JPMorgan Chase and its affiliates, as applicable, maintain, or cause to be maintained, for a period of six (6) years from the date of the Unrelated Sale, such records as are necessary to enable the persons described below in paragraph (l)(1), to determine whether the conditions of this exemption, if granted, have been met, except that—

(1) No party in interest with respect to a Plan which engages in an Unrelated Sale, other than JPMorgan Chase and its affiliates, as applicable, shall be subject to a civil penalty under section 502(i) of the Act or the taxes imposed by section 4975(a) and (b) of the Code, if such records are not maintained, or not available for examination, as required, below, by paragraph (l)(1); and

(2) A separate prohibited transaction shall not be considered to have occurred solely because, due to circumstances beyond the control of JPMorgan Chase or its affiliates, as applicable, such records are lost or destroyed prior to the end of the six-year period;

(l)(1) Except as provided below in paragraph (l)(2), and notwithstanding any provisions of subsections (a)(2) and (b) of section 504 of the Act, the records referred to above in paragraph (k) are unconditionally available at their customary location for examination during normal business hours by—

(A) Any duly authorized employee or representative of the Department, the Internal Revenue Service, or the U.S. Securities and Exchange Commission; or

(B) Any fiduciary of any Plan, including any IRA owner, that engages in a Sale, or any duly authorized employee or representative of such fiduciary; or

(C) Any employer of participants and beneficiaries and any employee organization whose members are covered by a Plan that engages in the Unrelated Sale, or any authorized employee or representative of these entities;

(2) None of the persons described above in paragraph (l)(1)(B)-(C) shall be authorized to examine trade secrets of JPMorgan Chase, or commercial or financial information which is privileged or confidential; and

(3) Should JPMorgan Chase refuse to disclose information on the basis that such information is exempt from disclosure, JPMorgan Chase shall, by the close of the thirtieth (30th) day following the request, provide a written notice advising that person of the reasons for the refusal and that the Department may request.

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

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

Section IV. Conditions Applicable to Transactions Described in Section III

(a) The terms and delivery and timing of the Offer are consistent with the requirements set forth in the Settlement Agreement;

(b) The Offer or other documents available to the Plan specifically describe, among other things:

(1) How a Plan may determine: the Auction Rate Securities held by the Plan with JPMorgan Chase, the purchase dates for the Auction Rate Securities, and (if reliable information is available) the most recent rate information for the Auction Rate Securities;

(2) The number of shares and par value of the Auction Rate Securities available for purchase under the Offer;

(3) The background of the Offer;

(4) That participating in the Offer will not result in or constitute a waiver of any claim of the tendering Plan;

(5) The methods and timing by which Plans may accept the Offer;

(6) The purchase dates, or the manner of determining the purchase dates, for

Auction Rate Securities tendered pursuant to the Offer;

(7) The timing for acceptance by JPMorgan Chase of tendered Auction Rate Securities;

(8) The timing of payment for Auction Rate Securities accepted by JPMorgan Chase for payment;

(9) The methods and timing by which a Plan may elect to withdraw tendered Auction Rate Securities from the Offer;

(10) The expiration date of the Offer;

(11) The fact that JPMorgan Chase may make purchases of Auction Rate Securities outside of the Offer and may otherwise buy, sell, hold or seek to restructure, redeem or otherwise dispose of the Auction Rate Securities;

(12) A description of the risk factors relating to the Offer as JPMorgan Chase deems appropriate;

(13) How to obtain additional information concerning the Offer; and

(14) The manner in which information concerning material amendments or changes to the Offer will be communicated to affected Plans;

(c) The terms of the Settlement Sale are consistent with the requirements set forth in the Settlement Agreement; and

(d) All of the conditions in Section II have been met with respect to the Settlement Sale.

Section V. Definitions

For purposes of this proposed exemption:

(a) The term “affiliate” means: Any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with such other person;

(b) The term “control” means: The power to exercise a controlling influence over the management or policies of a person other than an individual;

(c) The term “Auction Rate Security” means a security that:

(1) Is either a debt instrument (generally with a long-term nominal maturity) or preferred stock; and

(2) Has an interest rate or dividend that is reset at specific intervals through a Dutch auction process;

(d) A person is “independent” of JPMorgan Chase if the person is:

(1) Not JPMorgan Chase or an affiliate; and (2) not a relative (as defined in ERISA section 3(15)) of the party engaging in the transaction;

(e) The term “Plan” means: An individual retirement account or similar account described in section 4975(e)(1)(B) through (F) of the Code (an IRA); an employee benefit plan as defined in section 3(3) of ERISA; or an entity holding plan assets within the meaning of 29 CFR 2510.3-101, as modified by ERISA section 3(42); and

(f) The term “Settlement Agreement” means: A legal settlement involving JPMorgan Chase and a U.S. state or federal authority that provides for the purchase of an Auction Rate Security by JPMorgan Chase from a Plan.

Effective Date:
If granted, this proposed exemption will be effective as of February 1, 2008.

Summary of Facts and Representations

1. The applicant is JPMorgan Chase & Co. (hereinafter, either JPMorgan Chase or the Applicant), a financial holding company incorporated under Delaware law in 1968. JPMorgan Chase is a leading global financial services firm, with $2.0 trillion in assets, $165.4 billion in stockholders' equity, and operations in more than 60 countries as of December 31, 2009.

2. The Applicant describes Auction Rate Securities (ARS) and the arrangement by which ARS are bought and sold as follows. ARS are securities (issued as debt or preferred stock) with an interest rate or dividend that is reset at periodic intervals pursuant to a process called a Dutch Auction. Investors submit orders to buy, hold, or sell a specific ARS to a broker-dealer selected by the entity that issued the ARS. The broker-dealers, in turn, submit all of these orders to an auction agent. The auction agent's functions include collecting orders from all participating broker-dealers by the auction deadline, determining the amount of securities available for sale, and organizing the bids to determine the winning bid. If there are any buy orders placed into the auction at a specific rate, the auction agent accepts bids with the lowest rate above any applicable minimum rate and then successively higher rates up to the maximum applicable rate, until all sell orders and orders that are treated as sell orders are filled. Bids below any applicable minimum rate or above the applicable maximum rate are rejected. After determining the clearing rate for all of the securities at auction, the auction agent allocates the ARS available for sale to the participating broker-dealers based on the orders they submitted. If there are multiple bids at the clearing rate, the auction agent will allocate securities among the bidders at such rate on a pro-rata basis.

3. The Applicant states that, under a typical Dutch Auction process, JPMorgan Chase is permitted, but not obligated, to submit orders in auctions for its own account either as a bidder or a seller and routinely does so in the auction rate securities market in its sole discretion. JPMorgan Chase may place one or more bids in an auction for its own account to acquire ARS for its inventory, to prevent: (a) A failed auction (
i.e.,
an event where there are insufficient clearing bids which would result in the auction rate being set at a specified rate, resulting in no ARS being sold through the auction process); or (b) an auction from clearing at a rate that JPMorgan Chase believes does not reflect the market for the particular ARS being auctioned.

4. The Applicant states that for many ARS, JPMorgan Chase has been appointed by the issuer of the securities to serve as a dealer in the auction and is paid by the issuer for its services. JPMorgan Chase is typically appointed to serve as a dealer in the auctions pursuant to an agreement between the issuer and JPMorgan Chase. That agreement provides that JPMorgan Chase will receive from the issuer auction dealer fees based on the principal amount of the securities placed through JPMorgan Chase.

5. The Applicant states further that JPMorgan Chase may share a portion of the auction rate dealer fees it receives from the issuer with other broker-dealers that submit orders through JPMorgan Chase, for those orders that JPMorgan Chase successfully places in the auctions. Similarly, with respect to ARS for which broker-dealers other than JPMorgan Chase act as dealer, such other broker-dealers may share auction dealer fees with JPMorgan Chase for orders submitted by JPMorgan Chase.

6. The Applicant represents that since February, 2008, a significant majority of auctions have been unsuccessful. According to the Applicant, the current state of the ARS market remains illiquid. As a result, Plans holding ARS may not have sufficient liquidity to make benefit payments, mandatory payments and withdrawals and expense payments when due.
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4
The Department notes that Class Exemption 80-26 (45 FR 28545 (Apr. 29, 1980), as amended at 71 FR 17917 (Apr. 7, 2006)) permits interest-free loans or other extensions of credit from a party in interest to a plan if, among other things, the proceeds of the loan or extension of credit are used only— (1) For the payment of ordinary operating expenses of the plan, including the payment of benefits in accordance with the terms of the plan and periodic premiums under an insurance or annuity contract, or (2) for a purpose incidental to the ordinary operation of the plan.

7. The Applicant represents further that, in certain instances, JPMorgan Chase may have previously advised or otherwise caused a Plan to acquire and hold an ARS.
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In connection with JPMorgan Chase's role in the acquisition and holding of ARS by various JPMorgan Chase clients, including the

Plans, JPMorgan Chase entered into Settlement Agreements with certain U.S. states and federal authorities. Pursuant to these Settlement Agreements, among other things, JPMorgan Chase was required to send a written offer to certain Plans that held ARS in connection with the advice and/or brokerage services provided by JPMorgan Chase. As described in further detail below, eligible Plans that accepted the written offer were permitted to sell the ARS to JPMorgan Chase for cash equal to the par value of such securities, plus any accrued interest and/or dividends. According to the Applicant, in connection with an offer issued by JPMorgan Chase pursuant to a Settlement Agreement, JPMorgan Chase has purchased approximately $2 billion dollars in ARS. The Applicant states that, prospectively, additional shares of ARS may be tendered by Plans to JPMorgan Chase pursuant to an offer issued by JPMorgan Chase pursuant to a Settlement Agreement. Accordingly, the Applicant is requesting retroactive and prospective relief for the Settlement Sales. With respect to Unrelated Sales, the Applicant states that to the best of its knowledge, as of January 1, 2011, no Unrelated Sale has occurred. However, the Applicant is requesting retroactive relief (and prospective relief) for Unrelated Sales in the event that a sale of ARS by a Plan to JPMorgan Chase has occurred outside the Settlement process. If granted, the exemption would be effective as of February 1, 2008.

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The relief contained in this proposed exemption does not extend to the fiduciary provisions of section 404 of the Act.

8. Specifically, the Applicant is requesting exemptive relief for the sale of ARS under two different circumstances: (a) Where JPMorgan Chase initiates the sale by sending to a Plan a written offer to acquire the ARS, notwithstanding that such offer is not required under a Settlement Agreement (
i.e.,
an Unrelated Sale); and (b) where JPMorgan Chase is required under a Settlement Agreement to send to Plans a written offer to acquire the ARS (
i.e.,
a Settlement Sale). The Applicant states that the Unrelated Sales and Settlement Sales (hereinafter, either, a Covered Sale) are in the interests of Plans. In this regard, the Applicant states that the Covered Sales would permit Plans to normalize Plan investments. The Applicant represents that each Covered Sale will be for no consideration other than cash payment against prompt delivery of the ARS, and such cash will equal the par value of the ARS, plus any accrued but unpaid interest or dividends. The Applicant represents further that Plans will not pay any commissions or transaction costs with respect to any Covered Sale.

9. The Applicant represents that the proposed exemption is protective of the Plans. The Applicant states that, except in the case of a Plan sponsored by JPMorgan Chase for its own employees (a JPMorgan Chase Plan), each Covered Sale will be made pursuant to a written offer (an Offer); and the decision to accept the Offer or retain the ARS will be made by a Plan fiduciary or Plan participant or IRA owner who is independent of JPMorgan Chase. Additionally, each Offer will be delivered in a manner designed to alert a Plan fiduciary that JPMorgan Chase intends to purchase ARS from the Plan. In connection with an Unrelated Sale, the Offer will describe the material terms of the Unrelated Sale, including the most recent rate information for the ARS (if reliable information is available). Either the Offer or other materials available to the Plan will provide the identity and par value of the ARS. Offers made in connection with a Settlement Agreement will specifically include, among other things: The background of the Offer; the method and timing by which a Plan may accept the Offer; the expiration date of the Offer; a description of certain risk factors relating to the Offer; how to obtain additional information concerning the Offer; and the manner in which information concerning material amendments or changes to the Offer will be communicated to affected Plans. The Applicant states that, except in the case of a JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan Chase, neither JPMorgan Chase nor any affiliate will exercise investment discretion or render investment advice with respect to a Plan's decision to accept the Offer or retain the ARS.
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In the case of a JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan Chase, the decision to engage in a Covered Sale may be made by JPMorgan Chase after JPMorgan Chase has determined that such purchase is in the best interest of the JPMorgan Chase Plan or pooled fund. The Applicant represents further that Plans will not waive any rights or claims in connection with any Covered Sale.

6
The Applicant states that while there may be communication between a Plan and JP Morgan Chase subsequent to an Offer, such communication will not involve advice regarding whether the Plan should accept the Offer.

10. The Applicant represents that the proposed exemption, if granted, would be administratively feasible. In this regard, the Applicant notes that each Covered Sale will occur at the par value of the affected ARS, plus any accrued but unpaid interest or dividends, and such value is readily ascertainable. The Applicant represents further that JPMorgan Chase will maintain the records necessary to enable the Department and Plan fiduciaries, among others, to determine whether the conditions of this exemption, if granted, have been met.

11. In summary, the Applicant represents that the transactions described herein satisfy the statutory criteria of section 408(a) of the Act because, among other things:

(a) Except in the case of a JPMorgan Chase Plan, each Covered Sale shall be made pursuant to a written Offer;

(b) Each Covered Sale shall be for no consideration other than cash payment against prompt delivery of the ARS;

(c) The amount of each Covered Sale shall equal the par value of the ARS, plus any accrued but unpaid interest or dividends;

(d) Plans will not waive any rights or claims in connection with any Covered Sale;

(e) Except in the case of a JPMorgan Chase Plan or a pooled fund maintained or advised by JPMorgan Chase:

(1) The decision to accept an Offer or retain the ARS shall be made by a Plan fiduciary or Plan participant or IRA owner who is independent of JPMorgan Chase; and

(2) Neither JPMorgan Chase nor any affiliate shall exercise investment discretion or render investment advice within the meaning of 29 CFR 2510.3-21(c) with respect to the decision to accept the Offer or retain the ARS;

(f) Plans shall not pay any commissions or transaction costs with respect to any Covered Sale;

(g) A Covered Sale shall not be part of an arrangement, agreement or understanding designed to benefit a party in interest to the affected Plan;

(h) With respect to any Settlement Sale, the terms and delivery and timing of the Offer, and the terms of Settlement Sale, shall be consistent with the requirements set forth in the Settlement Agreement;

(i) JPMorgan Chase shall make available in connection with an Unrelated Sale the material terms of the Unrelated Sale, including the most recent rate information for the ARS (if reliable information is available), and the identity and par value of the ARS;

(j) Each Offer made in connection with a Settlement Agreement shall describe the material terms of the Settlement Sale, including the following:

(1) Information regarding how the Plan can determine: The ARS held by

the Plan with JPMorgan Chase, the number of shares and par value of the ARS, purchase dates for such ARS, and (if reliable information is available) the most recent rate information for the ARS;

(2) The background of the Offer;

(3) That participating in the Offer will not result in or constitute a waiver of any claim of the tendering Plan;

(4) The methods and timing by which the Plan may accept the Offer;

(5) The purchase dates, or the manner of determining the purchase dates, for ARS pursuant to the Offer;

(6) The timing for acceptance by JPMorgan Chase of tendered ARS;

(7) The timing of payment for ARS accepted by JPMorgan Chase for payment;

(8) The methods and timing by which a Plan may elect to withdraw tendered ARS from the Offer;

(9) The expiration date of the Offer;

(10) The fact that JPMorgan Chase may make purchases of ARS outside of the Offer and may otherwise buy, sell, hold or seek to restructure, redeem or otherwise dispose of the ARS;

(11) A description of the risk factors relating to the Offer as JPMorgan Chase deems appropriate;

(12) How to obtain additional information concerning the Offer; and

(13) The manner in which information concerning material amendments or changes to the Offer will be communicated to affected Plans.

Notice to Interested Persons

The Applicant represents that the potentially interested participants and beneficiaries cannot all be identified and therefore the only practical means of notifying such participants and beneficiaries of this proposed exemption is by the publication of this notice in the
Federal Register
.

Comments and requests for a hearing must be received by the Department not later than 30 days from the date of publication of this notice of proposed exemption in the
Federal Register
.

For Further Information Contact:
Chris Motta of the Department, telephone (202) 693-8544. (This is not a toll-free number.)

Delaware Charter Guarantee & Trust Co. d\b\a\ Principal Trust Company (Principal Trust); Principal Life Insurance Company (Principal Life) and Any Affiliates, Thereof (Collectively, Principal or the Applicants), Located in Wilmington, Delaware and in Des Moines, Iowa

[Application No. D-11579].
Proposed Exemption

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

Section I—Transactions

If the exemption is granted, the restrictions of sections 406(a)(1)(D) and 406(b) of the Act and the taxes resulting from the application of section 4975 of the Code, by reason of sections 4975(c)(1)(D) through (F) of the Code,
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shall not apply, as of the effective date of this proposed exemption, to:

7
For purposes of this proposed exemption reference to specific provisions of Title I of the Act, unless otherwise specified, refer also to the corresponding provisions of the Code.

(a) The receipt of a fee by Principal, as Principal is defined, below, in Section IV(a), from an open-end investment company or open-end investment companies (Affiliated Fund(s)), as defined, below, in Section IV(e), in connection with the direct investment in shares of any such Affiliated Fund, by an employee benefit plan or by employee benefit plans (Client Plan(s)), as defined, below, in Section IV(b), where Principal serves as a fiduciary with respect to such Client Plan, and where Principal:

(1) Provides investment advisory services, or similar services to any such Affiliated Fund; and

(2) Provides to any such Affiliated Fund other services (Secondary Service(s)), as defined, below, in Section IV(i); and

(b) In connection with the indirect investment by a Client Plan in shares of an Affiliated Fund through investment in a pooled investment vehicle or pooled investment vehicles (Collective Fund(s)),
8

as defined, below, in Section IV(j), where Principal serves as a fiduciary with respect to such Client Plan, the receipt of fees by Principal from:

8
The Department, herein, is expressing no opinion in this proposed exemption regarding the reliance of the Applicants on the relief provided by section 408(b)(8) of the Act with regard to the purchase and with regard to the sale by a Client Plan of an interest in a Collective Fund and the receipt by Principal, thereby, of any investment management fee, any investment advisory fee, and any similar fee (a Collective Fund-Level Management Fee), as defined, below, in Section IV(n), where Principal serves as an investment manager or investment adviser with respect to such Collective Fund and also serves as a fiduciary with respect to such Client Plan, nor is the Department offering any view as to whether the Applicants satisfy the conditions, as set forth in section 408(b)(8) of the Act.

(1) An Affiliated Fund for the provision of investment advisory services, or similar services by Principal to any such Affiliated Fund; and

(2) an Affiliated Fund for the provision of Secondary Services by Principal to any such Affiliated Fund; provided that the conditions, as set forth, below, in Section II and Section III, are satisfied, as of the effective date of this proposed exemption and thereafter.

Section II—Specific Conditions

(a)(1) Each Client Plan which is invested directly in shares of an Affiliated Fund either:

(i) Does not pay to Principal for the entire period of such investment any investment management fee, or any investment advisory fee, or any similar fee at the plan-level (the Plan-Level Management Fee), as defined, below, in Section IV(m), with respect to any of the assets of such Client Plan which are invested directly in shares of such Affiliated Fund; or

(ii) pays to Principal a Plan-Level Management Fee, based on total assets of such Client Plan under management by Principal at the plan-level, from which a credit has been subtracted from such Plan-Level Management Fee, where the amount subtracted represents such Client Plan's
pro rata share
of any investment advisory fee and any similar fee (the Affiliated Fund-Level Advisory Fee), as defined, below, in Section IV(o), paid by such Affiliated Fund to Principal.

If, during any fee period, in the case of a Client Plan invested directly in shares of an Affiliated Fund, such Client Plan has prepaid its Plan-Level Management Fee, and such Client Plan purchases shares of an Affiliated Fund directly, the requirement of this Section II(a)(1)(ii) shall be deemed met with respect to such prepaid Plan-Level Management Fee, if, by a method reasonably designed to accomplish the same, the amount of the prepaid Plan-Level Management Fee that constitutes the fee with respect to the assets of such Client Plan invested directly in shares of an Affiliated Fund:

(A) Is anticipated and subtracted from the prepaid Plan-Level Management Fee

at the time of the payment of such fee; or

(B) is returned to such Client Plan, no later than during the immediately following fee period; or

(C) is offset against the Plan-Level Management Fee for the immediately following fee period or for the fee period immediately following thereafter.

For purposes of Section II(a)(1)(ii), a Plan-Level Management Fee shall be deemed to be prepaid for any fee period, if the amount of such Plan-Level Management Fee is calculated as of a date not later than the first day of such period.

(2) Each Client Plan invested in a Collective Fund the assets of which are not invested in shares of an Affiliated Fund:

(i) Does not pay to Principal for the entire period of such investment any Plan-Level Management Fee with respect to any assets of such Client Plan invested in such Collective Fund.

The requirements of this Section II(a)(2)(i) do not preclude the payment of a Collective Fund-Level Management Fee by such Collective Fund to Principal, based on the assets of such Client Plan invested in such Collective Fund; or

(ii) does not pay to Principal for the entire period of such investment any Collective Fund-Level Management Fee with respect to any assets of such Client Plan invested in such Collective Fund.

The requirements of this Section II(a)(2)(ii) do not preclude the payment of a Plan-Level Management Fee by such Client Plan to Principal, based on total assets of such Client Plan under management by Principal at the plan-level; or

(iii) such Client Plan pays to Principal a Plan-Level Management Fee, based on total assets of such Client Plan under management by Principal at the plan-level, from which a credit has been subtracted from such Plan-Level Management Fee (the “Net” Plan-Level Management Fee), where the amount subtracted represents such Client Plan's
pro rata share
of any Collective Fund-Level Management Fee paid by such Collective Fund to Principal.

The requirements of this Section II(a)(2)(iii) do not preclude the payment of a Collective Fund-Level Management Fee by such Collective Fund to Principal, based on the assets of such Client Plan invested in such Collective Fund.

(3) Each Client Plan invested in a Collective Fund the assets of which are invested in shares of an Affiliated Fund:

(i) Does not pay to Principal for the entire period of such investment any a Plan-Level Management Fee (including any “Net” Plan-Level Management Fee, as described, above, in Section II(a)(2)(iii)), and does not pay to Principal for the entire period of such investment any Collective Fund-Level Management Fee with respect to the assets of such Client Plan which are invested in such Affiliated Fund; or

(ii) pays to Principal a Collective Fund-Level Management Fee, in accordance with Section II(a)(2)(i), above, based on the total assets of such Client Plan invested in such Collective Fund, from which a credit has been subtracted from such Collective Fund-Level Management Fee, where the amount subtracted represents such Client Plan's
pro rata share
of any Affiliated Fund-Level Advisory Fee paid to Principal by such Affiliated Fund; and does not pay to Principal for the entire period of such investment any Plan-Level Management Fee with respect to any assets of such Client Plan invested in such Collective Fund; or

(iii) pays to Principal a Plan-Level Management Fee, in accordance with Section II(a)(2)(iii), above, based on the total assets of such Client Plan under management by Principal at the plan-level, from which a credit has been subtracted from such Plan-Level Management Fee, where the amount subtracted represents such Client Plan's
pro rata share
of any Affiliated Fund-Level Advisory Fee paid to Principal by such Affiliated Fund; and does not pay to Principal for the entire period of such investment any Collective Fund-Level Management Fee with respect to any assets of such Client Plan invested in such Collective Fund; or

(iv) pays to Principal a “Net” Plan-Level Management Fee, in accordance with Section II(a)(2)(iii), above, from which a further credit has been subtracted from such “Net” Plan-Level Management Fee, where the amount of such further credit which is subtracted represents such Client Plan's
pro rata share
of any Affiliated Fund-Level Advisory Fee paid to Principal by such Affiliated Fund.

Provided that the conditions of this proposed exemption are satisfied, the requirements of Section II(a)(1)(i), (ii), and Section II(a)(3)(i)-(iv) do not preclude the payment of an Affiliated Fund-Level Advisory Fee by an Affiliated Fund to Principal under the terms of an investment advisory agreement adopted in accordance with section 15 of the Investment Company Act of 1940 (the Investment Company Act). Further, the requirements of Section II(a)(1)(i)-(ii), and Section II(a)(3)(i)-(iv) do not preclude the payment of a fee by an Affiliated Fund to Principal for the provision by Principal of Secondary Services to such Affiliated Fund under the terms of a duly adopted agreement between Principal and such Affiliated Fund.

For the purpose of Section II(a)(1)(ii), and Section II(a)(3)(ii)-(iv), in calculating a Client Plan's
pro rata share
of an Affiliated Fund-Level Advisory Fee, Principal must use an amount representing the “gross” advisory fee paid to Principal by such Affiliated Fund. For purposes of this paragraph, the “gross” advisory fee is the amount paid to Principal by such Affiliated Fund, including the amount paid by such Affiliated Fund to sub-advisers.

(b) The purchase price paid and the sales price received by a Client Plan for shares in an Affiliated Fund purchased or sold directly, and the purchase price paid and the sales price received by a Client Plan for shares in an Affiliated Fund purchased or sold indirectly through a Collective Fund, is the net asset value per share (NAV), as defined, below, in Section IV(f), at the time of the transaction, and is the same purchase price that would have been paid and the same sales price that would have been received for such shares by any other shareholder of the same class of shares in such Affiliated Fund at that time.
9

9
The selection of a particular class of shares of an Affiliated Fund as an investment for a Client Plan indirectly through a Collective Fund is a fiduciary decision that must be made in accordance with the provisions of section 404(a) of the Act. In this proposed exemption, the Department is not providing any relief for any fiduciary violations, pursuant to section 404 of the Act, or violations of the prohibited transaction provisions, as set forth in section 406 of the Act that may arise from the selection of one class of shares of an Affiliated Fund over another class of shares.

(c) Principal, including any officer and any director of Principal, does not purchase any shares of an Affiliated Fund from and does not sell any shares of an Affiliated Fund to any Client Plan which invests directly in such Affiliated Fund, and Principal, including any officer and director of Principal, does not purchase any shares of any Affiliated Fund from and does not sell any shares of an Affiliated Fund to any Collective Fund in which a Client Plan invests indirectly in shares of such Affiliated Fund.

(d) No sales commissions, no redemption fees, and no other similar fees are paid in connection with any purchase and in connection with any sale by a Client Plan directly in shares of an Affiliated Fund, and no sales commissions, no redemption fees, and no other similar fees are paid by a Collective Fund in connection with any purchase and in connection with any sale of shares in an Affiliated Fund by a Client Plan indirectly through such

Collective Fund. However, this Section II(d) does not prohibit the payment of a redemption fee, if:

(1) Such redemption fee is paid only to an Affiliated Fund; and

(2) The existence of such redemption fee is disclosed in the summary prospectus for such Affiliated Fund in effect both at the time of any purchase of shares in such Affiliated Fund and at the time of any sale of such shares.

(e) The combined total of all fees received by Principal is not in excess of reasonable compensation within the meaning of section 408(b)(2) of the Act, for services provided:

(1) By Principal to each Client Plan;

(2) By Principal to each Collective Fund in which a Client Plan invests; and

(3) By Principal to each Affiliated Fund in which a Client Plan invests directly in shares of such Affiliated Fund, and

(4) By Principal to each Affiliated Fund in which a Client Plan invests indirectly in shares of such Affiliated Fund through a Collective Fund.

(f) Principal does not receive any fees payable pursuant to Rule 12b-1 under the Investment Company Act in connection with the transactions covered by this proposed exemption;

(g) No Client Plan is an employee benefit plan sponsored or maintained by Principal.

(h)(1) In the case of a Client Plan investing directly in shares of an Affiliated Fund, a second fiduciary (the Second Fiduciary), as defined, below, in Section IV(h), acting on behalf of such Client Plan, receives, in writing, in advance of any investment by such Client Plan directly in shares of such Affiliated Fund, a full and detailed disclosure via first class mail or via personal delivery of (or, if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below) of information concerning such Affiliated Fund, including but not limited to the items listed, below:

(i) A current summary prospectus issued by each such Affiliated Fund;

(ii) A statement describing the fees, including the nature and extent of any differential between the rates of such fees for:

(A) Investment advisory and similar services to be paid to Principal by each Affiliated Fund;

(B) Secondary Services to be paid to Principal by each such Affiliated Fund; and

(C) All other fees to be charged by Principal to such Client Plan and to each such Affiliated Fund and all other fees to be paid to Principal by each such Client Plan and by each such Affiliated Fund;

(iii) The reasons why Principal may consider investment directly in shares of such Affiliated Fund by such Client Plan to be appropriate for such Client Plan;

(iv) A statement describing whether there are any limitations applicable to Principal with respect to which assets of such Client Plan may be invested directly in shares of such Affiliated Fund, and if so, the nature of such limitations; and

(v) Upon the request of the Second Fiduciary acting on behalf of such Client Plan, a copy of the Notice of Proposed Exemption (the Notice), a copy of the final exemption, if granted, and any other reasonably available information regarding the transactions which are the subject of this proposed exemption.

(2) In the case of a Client Plan whose assets are proposed to be invested in a Collective Fund after such Collective Fund has begun investing in shares of an Affiliated Fund, a Second Fiduciary, acting on behalf of such Client Plan, receives, in writing, in advance of any investment by such Client Plan in such Collective Fund, a full and detailed disclosure via first class mail or via personal delivery (or, if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below) of information concerning such Collective Fund and information concerning each such Affiliated Fund in which such Collective Fund is invested, including but not limited to the items listed, below:

(i) A current summary prospectus issued by each such Affiliated Fund;

(ii) A statement describing the fees, including the nature and extent of any differential between the rates of such fees for:

(A) Investment advisory and similar services to be paid to Principal by each Affiliated Fund;

(B) Secondary Services to be paid to Principal by each such Affiliated Fund; and

(C) All other fees to be charged by Principal to such Client Plan, to such Collective Fund, and to each such Affiliated Fund and all other fees to be paid to Principal by such Client Plan, by such Collective Fund, and by each such Affiliated Fund;

(iii) The reasons why Principal may consider investment by such Client Plan in shares of each such Affiliated Fund indirectly through such Collective Fund to be appropriate for such Client Plan;

(iv) A statement describing whether there are any limitations applicable to Principal with respect to which assets of such Client Plan may be invested indirectly in shares of each such Affiliated Fund through such Collective Fund, and if so, the nature of such limitations;

(v) Upon the request of the Second Fiduciary, acting on behalf of such Client Plan, a copy of the Notice, a copy of the final exemption, if granted, and any other reasonably available information regarding the transactions which are the subject of this proposed exemption; and

(vi) A copy of the organizational documents of such Collective Fund which expressly provide for the addition of one or more Affiliated Funds to the portfolio of such Collective Fund.

(3) In the case of a Client Plan whose assets are proposed to be invested in a Collective Fund before such Collective Fund has begun investing in shares of any Affiliated Fund, a Second Fiduciary, acting on behalf of such Client Plan, receives, in writing, in advance of any investment by such Client Plan in such Collective Fund, a full and detailed disclosure via first class mail or via personal delivery (or, if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below) of information, concerning such Collective Fund, including but not limited to the items listed, below:

(i) A statement describing the fees, including the nature and extent of any differential between the rates of such fees for all fees to be charged by Principal to such Client Plan and to such Collective Fund and all other fees to be paid to Principal by such Client Plan, and by such Collective Fund;

(ii) Upon the request of the Second Fiduciary, acting on behalf of such Client Plan, a copy of the Notice, a copy of the final exemption, if granted, and any other reasonably available information regarding the transactions which are the subject of this proposed exemption; and

(iii) A copy of the organizational documents of such Collective Fund which expressly provide for the addition of one or more Affiliated Funds to the portfolio of such Collective Fund.

(i) On the basis of the information described, above, in Section II(h), a Second Fiduciary, acting on behalf of a Client Plan:

(1) Authorizes in writing the investment of the assets of such Client Plan, as applicable:

(i) Directly in shares of an Affiliated Fund;

(ii) Indirectly in shares of an Affiliated Fund through a Collective

Fund where such Collective Fund has already invested in shares of an Affiliated Fund; and

(iii) In a Collective Fund which is not yet invested in shares of an Affiliated Fund but whose organizational document expressly provides for the addition of one or more Affiliated Funds to the portfolio of such Collective Fund; and

(2) Authorizes in writing; as applicable:

(i) The Affiliated Fund-Level Advisory Fee received by Principal for investment advisory services and similar services provided by Principal to such Affiliated Fund;

(ii) The fee received by Principal for Secondary Services provided by Principal to such Affiliated Fund;

(iii) The Collective Fund-Level Management Fee received by Principal for investment management, investment advisory, and similar services provided by Principal to such Collective Fund in which such Client Plan invests;

(iv) The Plan-Level Management Fee received by Principal for investment management and similar services provided by Principal to such Client Plan at the plan-level; and

(v) The selection by Principal of the applicable fee method, as described, above, in Section II(a)(1)-(3).

All authorizations made by a Second Fiduciary, pursuant to this Section II(i), must be consistent with the responsibilities, obligations, and duties imposed on fiduciaries by Part 4 of Title I of the Act;

(j)(1) Any authorization, described, above, in Section II(i), and any authorization made pursuant to negative consent, as described, below, in Section II(k) and in Section II(l), made by a Second Fiduciary, acting on behalf of a Client Plan, shall be terminable at will by such Second Fiduciary, without penalty to such Client Plan, upon receipt by Principal via first class mail, via personal delivery, or via electronic email of a written notification of the intent of such Second Fiduciary to terminate any such authorization.

(2) A form (the Termination Form) expressly providing an election to terminate any authorization, described, above, in Section II(i), or to terminate any authorization made pursuant to negative consent, as described, below, in Section II(k) and in Section II(l), with instructions on the use of such Termination Form must be provided to such Second Fiduciary at least annually, either in writing via first class mail or via personal delivery (or if such Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below). However, if a Termination Form has been provided to such Second Fiduciary, pursuant to Section II(k) or pursuant to Section II(l), below, then a Termination Form need not be provided again, pursuant to this Section II(j), until at least six (6) months but no more than twelve (12) months have elapsed, since a Termination Form was provided;

(3) The instructions for the Termination Form must include the following statements:

(i) Any authorization, described, above, in Section II(i), and any authorization made pursuant to negative consent, as described, below, in Section II(k) or in Section II(l), is terminable at will by a Second Fiduciary, acting on behalf of a Client Plan, without penalty to such Client Plan, upon receipt by Principal via first class mail or via personal delivery or via electronic email of the Termination Form, or some other written notification of the intent of such Second Fiduciary to terminate such authorization;

(ii) Within 30 days from the date the Termination Form is sent to such Second Fiduciary by Principal, the failure by such Second Fiduciary to return such Termination Form or the failure by such Second Fiduciary to provide some other written notification of the Client Plan's intent to terminate any authorization, described in Section II(i), or intent to terminate any authorization made pursuant to negative consent, as described, below, in Section II(k) or in Section II(l), will be deemed to be an approval by such Second Fiduciary;

(4) In the event that a Second Fiduciary, acting on behalf of a Client Plan, at any time returns a Termination Form or returns some other written notification of intent to terminate any authorization, as described, above, in Section II(i), or intent to terminate any authorization made pursuant to negative consent, as described, below, in Section II(k) or in Section II(l);

(i)(A) In the case of a Client Plan which invests directly in shares of an Affiliated Fund, the termination will be implemented by the withdrawal of all investments made by such Client Plan in the affected Affiliated Fund, and such withdrawal will be effected by Principal within one (1) Business day of the date that Principal receives such Termination Form or receives from the Second Fiduciary, acting on behalf of such Client Plan, some other written notification of intent to terminate any such authorization;

(B) From the date a Second Fiduciary, acting on behalf of a Client Plan that invests directly in shares of an Affiliated Fund, returns a Termination Form or returns some other written notification of intent to terminate such Client Plan's investment in such Affiliated Fund, such Client Plan will not be subject to pay a
pro rata share
of any Affiliated Fund-Level Advisory Fee and will not be subject to pay any fees for Secondary Services paid to Principal by such Affiliated Fund;

(ii)(A) In the case of a Client Plan which invests in a Collective Fund, the termination will be implemented by the withdrawal of such Client Plan from all investments in such affected Collective Fund, and such withdrawal will be implemented by Principal within such time as may be necessary for withdrawal in an orderly manner that is equitable to the affected withdrawing Client Plan and to all non-withdrawing Client Plans, but in no event shall such withdrawal be implemented by Principal more than five business (5) days after the day Principal receives from the Second Fiduciary, acting on behalf of such withdrawing Client Plan, a Termination Form or receives some other written notification of intent to terminate the investment of such Client Plan in such Collective Fund; and

(B) Principal will pay to such withdrawing Client Plan interest on the settlement amount calculated at the prevailing Federal funds rate plus two percent (2%) for the period from the day Principal receives from the Second Fiduciary, acting on behalf of such withdrawing Client Plan, a Termination Form or receives some other written notification of intent to terminate the investment of such Client Plan in such Collective Fund, to the date Principal pays such settlement amount in cash, with interest thereon, to such withdrawing Client Plan;

(C) From the date a Second Fiduciary, acting on behalf of a Client Plan that invests in a Collective Fund, returns a Termination Form or returns some other written notification of intent to terminate such Client Plan's investment in such Collective Fund, such Client Plan will not be subject to pay a
pro rata
share of any Collective Fund-Level Management Fee, nor will such Client Plan be subject to any other changes to the portfolio of such Collective Fund, including a
pro rata
share of any Affiliated Fund-Level Advisory Fee arising from the investment by such Collective Fund in an Affiliated Fund.

(k)(1) Principal, at least thirty (30) days in advance of the implementation of each fee increase (Fee Increase(s)), as defined, below, in Section IV(l), must provide, in writing via first class mail or via personal delivery (or if the Second Fiduciary consents to such means of delivery, through electronic email, in

accordance with Section II(q), as set forth, below), a notice of change in fees (the Notice of Change in Fees) (which may take the form of a proxy statement, letter, or similar communication which is separate from the summary prospectus of such Affiliated Fund) and which explains the nature and the amount of such Fee Increase to the Second Fiduciary of each affected Client Plan. Such Notice of Change in Fees shall be accompanied by a Termination Form and by instructions on the use of such Termination Form, as described, above, in Section II(j)(3);

(2) For each Client Plan affected by a Fee Increase, Principal may implement such Fee Increase without waiting for the expiration of the 30-day period, described, above, in Section II(k)(1), provided Principal does not begin implementation of such Fee Increase before the first day of the 30-day period, described, above in Section II(k)(1), and provided further that the following conditions are satisfied:

(i) Principal delivers, in the manner described in Section II(k)(1), to the Second Fiduciary for each affected Client Plan, the Notice of Change of Fees, as described in Section II(k)(1), accompanied by the Termination Form and by instructions on the use of such Termination Form, as described, above, in Section II(j)(3);

(ii) Each affected Client Plan receives from Principal a credit in cash equal to each such Client Plan's
pro rata
share of such Fee Increase to be received by Principal for the period from the date of the implementation of such Fee Increase to the earlier of:

(A) The date when an affected Client Plan, pursuant to Section II(j), terminates any authorization, as described, above, in Section II(i), or, terminates any negative consent authorization, as described, in Section II(k) or in Section II(l); or

(B) The 30th day after the day that Principal delivers to the Second Fiduciary of each affected Client Plan the Notice of Change of Fees, described in Section II(k)(1), accompanied by the Termination Form and by the instructions on the use of such Termination Form, as described, above, in Section II(j)(3).

(iii) Principal pays to each affected Client Plan the cash credit, described, above, in Section II(k)(2)(ii), with interest thereon, no later than five (5) business days following the earlier of:

(A) the date such affected Client Plan, pursuant to Section II(j), terminates any authorization, as described, above, in Section II(i), or terminates, any negative consent authorization, as described, in Section II(k) or in Section II(l); or

(B) the 30th day after the day that Principal delivers to the Second Fiduciary of each affected Client Plan, the Notice of Change of Fees, described in Section II(k)(1), accompanied by the Termination Form and instructions on the use of such Termination Form, as described, above, in Section II(j)(3);

(iv) Interest on the credit in cash is calculated at the prevailing Federal funds rate plus two percent (2%) for the period from the day Principal first implements the Fee Increase to the date Principal pays such credit in cash, with interest thereon, to each affected Client Plan;

(v) An independent accounting firm (the Auditor) at least annually audits the payments made by Principal to each affected Client Plan, audits the amount of each cash credit, plus the interest thereon, paid to each affected Client Plan, and verifies that each affected Client Plan received the correct amount of cash credit and the correct amount of interest thereon;

(vi) Such Auditor issues an audit report of its findings no later than six (6) months after the period to which such audit report relates, and provides a copy of such audit report to the Second Fiduciary of each affected Client Plan; and

(3) Within 30 days from the date Principal sends to the Second Fiduciary of each affected Client Plan, the Notice of Change of Fees and the Termination Form, the failure by such Second Fiduciary to return such Termination Form and the failure by such Second Fiduciary to provide some other written notification of the Client Plan's intent to terminate the authorization, described in Section II(i), or to terminate the negative consent authorization, as described, in Section II(k) or in Section II(l), will be deemed to be an approval by such Second Fiduciary of such Fee Increase.

(l) Effective on the date the final exemption is granted, in the case of a Client Plan which has received the disclosures, as set forth, above, in Section II(h)(2)(i), II(h)(2)(ii)(A), II(h)(2)(ii)(B), II(h)(2)(ii)(C), II(h)(2)(iii), II(h)(2)(iv), II(h)(2)(v), and II(h)(2)(vi), and has authorized the investment by a Client Plan in a Collective Fund, in accordance with Section II(i)(1)(ii), above; and, as applicable, effective on the date the final exemption is granted, in the case of a Client Plan which has received the disclosures, as set forth, above, in Section II(h)(3)(i), II(h)(3)(ii), and II(h)(3)(iii), and has authorized the investment by a Client Plan in a Collective Fund, in accordance with Section II(i)(1)(iii), above, then, the authorization, pursuant to negative consent, in accordance with this Section II(l), applies to:

(1) the proposed purchase, as an addition to the portfolio of such Collective Fund, of shares of an Affiliated Fund (a New Affiliated Fund) where such New Affiliated Fund has not been previously authorized, pursuant to Section II(i)(1)(ii) or, as applicable, Section II(i)(1)(iii), above, and such Collective Fund may commence investing in such New Affiliated Fund without further written authorization from the Second Fiduciary of each Client Plan invested in such Collective Fund provided that:

(i) The organizational documents of such Collective Fund expressly provide for the addition of one or more Affiliated Funds to the portfolio of such Collective Fund, and such documents were disclosed in writing via first class mail or via personal delivery (or, if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below) to the Second Fiduciary of each such Client Plan invested in such Collective Fund, in advance of any investment by such Client Plan in such Collective Fund;

(ii) At least thirty (30) days in advance of the purchase by a Client Plan of shares of such New Affiliated Fund indirectly through a Collective Fund, Principal provides, either in writing via first class or via personal delivery (or if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below), to the Second Fiduciary of each Client Plan having an interest in such Collective Fund, full and detailed disclosures about such New Affiliated Fund, including but not limited to:

(A) A notice of Principal's intent to add a New Affiliated Fund to the portfolio of such Collective Fund. Such notice may take the form of a proxy statement, letter, or similar communication that is separate from the summary prospectus of such New Affiliated Fund to the Second Fiduciary of each affected Client Plan;

(B) Such notice of Principal's intent to add a New Affiliated Fund to the portfolio of such Collective Fund shall be accompanied by the information, as described, above, in Section II(h)(2)(i), II(h)(2)(ii)(A), II(h)(2)(ii)(B), II(h)(2)(ii)(C), II(h)(2)(iii), II(h)(2)(iv), and II(2)(v) with respect to each such New Affiliated Fund proposed to be added to the portfolio of such Collective Fund; and

(C) A Termination Form, and instructions on the use of such

Termination Form, as described, above, in Section II(j)(3); and

(2) Within 30 days from the date Principal sends to the Second Fiduciary of each affected Client Plan, the information described, above, in Section II(l)(1)(ii), the failure by such Second Fiduciary to return the Termination Form or to provide some other written notification of the Client Plan's intent to terminate the authorization, described in Section II(i)(1)(ii), or, as appropriate, to terminate the authorization, described in Section II(i)(1)(iii), or to terminate any authorization, pursuant to negative consent, as described, in this Section II(l), will be deemed to be an approval by such Second Fiduciary of the addition of a New Affiliated Fund to the portfolio of such Collective Fund in which such Client Plan invests, and will result in the continuation of the authorization of Principal to engage in the transactions which are the subject of this proposed exemption with respect to such New Affiliated Fund.

(m) Principal is subject to the requirement to provide within a reasonable period of time any reasonably available information regarding the covered transactions that the Second Fiduciary of such Client Plan requests Principal to provide.

(n) All dealings between a Client Plan and an Affiliated Fund, including all such dealings when such Client Plan is invested directly in shares of such Affiliated Fund and when such Client Plan is invested indirectly in such shares of such Affiliated Fund through a Collective Fund, are on a basis no less favorable to such Client Plan, than dealings between such Affiliated Fund and other shareholders of the same class of shares in such Affiliated Fund.

(o) In the event a Client Plan invests directly in shares of an Affiliated Fund, and, as applicable, in the event a Client Plan invests indirectly in shares of an Affiliated Fund through a Collective Fund, if such Affiliated Fund places brokerage transactions with Principal, Principal will provide to the Second Fiduciary of each such Client Plan, so invested, at least annually a statement specifying:

(1) The total, expressed in dollars of brokerage commissions that are paid to Principal by each such Affiliated Fund;

(2) The total, expressed in dollars, of brokerage commissions that are paid by each such Affiliated Fund to brokerage firms unrelated to Principal;

(3) The average brokerage commissions per share, expressed as cents per share, paid to Principal by each such Affiliated Fund; and

(4) The average brokerage commissions per share, expressed as cents per share, paid by each such Affiliated Fund to brokerage firms unrelated to Principal.

(p)(1) Principal provides to the Second Fiduciary of each Client Plan invested directly in shares of an Affiliated Fund, with the disclosures, as set forth, below, and at the times set forth below, in Section II(p)(1)(i), II(p)(1)(ii), II(p)(1)(iii), II(p)(1)(iv), and II(p)(1)(v), either in writing via first class mail or via personal delivery (or if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below);

(i) Annually, with a copy of the current summary prospectus for each Affiliated Fund in which such Client Plan invests directly in shares of such Affiliated Fund;

(ii) Upon the request of such Second Fiduciary, a copy of the statement of additional information for each Affiliated Fund in which such Client Plan invests directly in shares of such Affiliated Fund which contains a description of all fees paid by such Affiliated Fund to Principal;

(iii) With regard to any Fee Increase received by Principal, pursuant to Section II(k)(2), above, a copy of the audit report referred to in Section II(k)(2)(v), above, within sixty (60) days of the completion of such audit report;

(iv) Oral or written responses to the inquiries posed by the Second Fiduciary of such Client Plan, as such inquiries arise; and

(v) Annually, with a Termination form, as described in Section II(j)(1), and instructions on the use of such form, as described in Section II(j)(3), except that if a Termination Form has been provided to such Second Fiduciary, pursuant to Section II(k) or pursuant to Section II(l), above, then a Termination Form need not be provided again, pursuant to this Section II(p)(1)(v), until at least six (6) months but no more than twelve (12) months have elapsed, since a Termination Form was provided.

(2) Principal provides to the Second Fiduciary of each Client Plan invested in a Collective Fund, with the disclosures, as set forth, below, and at the times set forth below, in Section II(p)(2)(i), II(p)(2)(ii), II(p)(2)(iii), II(p)(2)(iv), II(p)(2)(v), II(p)(2)(vi), II(p)(2)(vii), and II(p)(2)(viii), either in writing via first class mail or via personal delivery (or if the Second Fiduciary consents to such means of delivery, through electronic email, in accordance with Section II(q), as set forth, below);

(i) Annually, with a copy of the current summary prospectus for each Affiliated Fund in which such Client Plan invests indirectly in shares of such Affiliated Fund thorough each such Collective Fund;

(ii) Upon the request of such Second Fiduciary, a copy of the statement of additional information for each Affiliated Fund in which such Client Plan invests indirectly in shares of such Affiliated Fund thorough each such Collective Fund which contains a description of all fees paid by such Affiliated Fund to Principal;

(iii) Annually, with a statement of the Collective Fund-Level Management Fee for investment management, investment advisory or similar services paid to Principal by each such Collective Fund, regardless of whether such Client Plan invests in shares of an Affiliated Fund through such Collective Fund;

(iv) A copy of the annual financial statement of each such Collective Fund in which such Client Plan invests, regardless of whether such Client Plan invests in shares of an Affiliated Fund through such Collective Fund, within sixty (60) days of the completion of such financial statement;

(v) With regard to any Fee Increase received by Principal, pursuant to Section II(k)(2), above, a copy of the audit report referred to in Section II(k)(2)(v), above, within sixty (60) days of the completion of such audit report;

(vi) Oral or written responses to the inquiries posed by the Second Fiduciary of such Client Plan, as such inquiries arise;

(vii) For each Client Plan invested indirectly in shares of an Affiliated Fund through a Collective Fund, a statement of the approximate percentage (which may be in the form of a range) on an annual basis of the assets of such Collective Fund that was invested in Affiliated Funds during the applicable year; and

(viii) Annually, with a Termination form, as described in Section II(j)(1), and instructions on the use of such form, as described in Section II(j)(3), except that if a Termination Form has been provided to such Second Fiduciary, pursuant to Section II(k) or pursuant to Section II(l), above, then a Termination Form need not be provided again, pursuant to this Section II(p)(2)(viii), until at least six (6) months but no more than twelve (12) months have elapsed, since a Termination Form was provided.

(q) Any disclosure required, herein, to be made by Principal to a Second Fiduciary may be delivered by electronic email containing direct hyperlinks to the location of each such document required to be disclosed,

which are maintained on a Web site by Principal, provided:

(1) Principal obtains from such Second Fiduciary prior consent in writing to the receipt by such Second Fiduciary of such disclosure via electronic email;

(2) Such Second Fiduciary has provided to Principal a valid email address; and

(3) The delivery of such electronic email to such Second Fiduciary is provided by Principal in a manner consistent with the relevant provisions of the Department's regulations at 29 CFR 2520.104b-1(c) (substituting the word, “Principal,” for the word, “administrator,” as set forth therein, and substituting the phrase, “Second Fiduciary,” for the phrase, “the participant, beneficiary or other individual,” as set forth therein).

Section III—General Conditions

(a) Principal maintains for a period of six (6) years the records necessary to enable the persons described, below, in Section III(b) to determine whether the conditions of this proposed exemption have been met, except that:

(1) A prohibited transaction will not be considered to have occurred, if solely because of circumstances beyond the control of Principal, the records are lost or destroyed prior to the end of the six-year period; and

(2) No party in interest other than Principal 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 Section III(b); below.

(b)(1) Except as provided in Section III(b)(2) and notwithstanding any provisions of section 504(a)(2) of the Act, the records referred to in Section III(a) 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, or the Securities & Exchange Commission;

(ii) Any fiduciary of a Client Plan invested directly in shares of an Affiliated Fund, any fiduciary of a Client Plan who has the authority to acquire or to dispose of the interest in a Collective Fund in which a Client Plan invests, any fiduciary of a Client Plan invested indirectly in an Affiliated Fund through a Collective Fund where such fiduciary has the authority to acquire or to dispose of the interest in such Collective Fund, and any duly authorized employee or representative of such fiduciary; and

(iii) Any participant or beneficiary of a Client Plan invested directly in shares of an Affiliated Fund or invested in a Collective Fund, and any participant or beneficiary of a Client Plan invested indirectly in shares of an Affiliated Fund through a Collective Fund, and any representative of such participant or beneficiary; and

(2) None of the persons described in Section III(b)(1)(ii) and (iii) shall be authorized to examine trade secrets of Principal, or commercial or financial information which is privileged or confidential.

Section IV—Definitions

For purposes of this proposed exemption:

(a) The term, “Principal,” means Principal Trust, Principal Life, and any affiliate thereof, as defined, below, in Section IV(c).

(b) The term, “Client Plan(s),” means a 401(k) plan(s), an individual retirement account(s), other tax-qualified plan(s), and other plan(s) as defined in the Act and Code, but does not include any employee benefit plan sponsored or maintained by Principal, as defined, above, in Section IV(a).

(c) An “affiliate” of a person includes:

(1) Any person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the person;

(2) Any officer, director, employee, relative, or partner in any such person; and

(3) Any corporation or partnership of which such person is an officer, director, partner, or employee.

(d) The term, “control,” means the power to exercise a controlling influence over the management or policies of a person other than an individual.

(e) The term, “Affiliated Fund(s),” means Principal Funds, Inc., a series of mutual funds managed by Principal Management Corporation (PMC), an affiliate of Principal, as defined, above in Section IV(c), and any other diversified open-end investment company or companies registered with the Securities and Exchange Commission under the Investment Company Act and operated in accordance with Rule 2a-7 under the Investment Company Act, as amended, established and maintained by Principal now or in the future for which Principal serves as an investment adviser.

(f) The term, “net asset value per share,” and the term, “NAV,” means the amount for purposes of pricing all purchases and sales of shares of an Affiliated Fund, calculated by dividing the value of all securities, determined by a method as set forth in the summary prospectus for such Affiliated Fund and in the statement of additional information, and other assets belonging to such Affiliated Fund or portfolio of such Affiliated Fund, less the liabilities charged to each such portfolio or each such Affiliated Fund, by the number of outstanding shares.

(g) The term, “relative,” means a relative as that term is defined in section 3(15) of the Act (or a member of the family as that term is defined in section 4975(e)(6) of the Code), or a brother, a sister, or a spouse of a brother or a sister.

(h) The term, “Second Fiduciary,” means the fiduciary of a Client Plan who is independent of and unrelated to Principal. For purposes of this proposed exemption, the Second Fiduciary will not be deemed to be independent of and unrelated to Principal if:

(1) Such Second Fiduciary, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with Principal;

(2) Such Second Fiduciary, or any officer, director, partner, employee, or relative of such Second Fiduciary, is an officer, director, partner, or employee of Principal (or is a relative of such person); or

(3) Such Second Fiduciary, directly or indirectly, receives any compensation or other consideration for his or her personal account in connection with any transaction described in this proposed exemption.

If an officer, director, partner, or employee of Principal (or relative of such person) is a director of such Second Fiduciary, and if he or she abstains from participation in:

(i) The decision of a Client Plan to invest in and to remain invested in shares of an Affiliated Fund directly, the decision of a Client Plan to invest in shares of an Affiliated Fund indirectly through a Collective Fund, and the decision of a Client Plan to invest in a Collective Fund that may in the future invest in shares of an Affiliated Fund;

(ii) Any authorization in accordance with Section II(i), and any authorization, pursuant to negative consent, as described in Section II(k) or in Section II(l); and

(iii) The choice of such Client Plan's investment adviser; then Section IV(h)(2), above, shall not apply.

(i) The term, “Secondary Service(s),” means a service or services other than an investment management service, investment advisory service, and any similar service which is provided by

Principal to an Affiliated Fund, including but not limited to custodial, accounting, administrative services, and brokerage services. Principal may also serve as a dividend disbursing agent, shareholder servicing agent, transfer agent, fund accountant, or provider of some other Secondary Service, as defined, in this Section IV(i).

(j) The term, “Collective Fund(s),” means a separate account of an insurance company, as defined in section 2510.3-101(h)(1)(iii) of the Department's plan assets regulations,
10

maintained by Principal, and a bank-maintained common or collective investment trust maintained by Principal.

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51 FR 41262 (November 13, 1986).

(k) The term, “business day,” means any day that

(1) Principal is open for conducting all or substantially all of its business; and

(2) The New York Stock Exchange (or any successor exchange is open for trading.

(l) The term, “Fee Increase(s),” includes any increase by Principal in a rate of a fee, previously authorized in writing by the Second Fiduciary of each affected Client Plan, pursuant to Section II(i)(2)(i)-(iv), above, and in addition includes, but is not limited to:

(1) Any increase in any fee that results from the addition of a service for which a fee is charged;

(2) any increase in any fee that results from a decrease in the number of services and any increase in any fee that results from a decrease in the kind of service(s) performed by Principal for such fee over an existing rate of fee for each such service previously authorized by the Second Fiduciary, in accordance with Section II(i)(2)(i)-(iv), above; and

(3) any increase in any fee that results from Principal changing from one of the fee methods, as described, above, in Section II(a)(1)-(3), to using another of the fee methods, as described, above, in Section II(a)(1)-(3).

(m) The term, “Plan-Level Management Fee,” includes any investment management fee, investment advisory fee, and any similar fee paid by a Client Plan to Principal for any investment management services, investment advisory services, and similar services provided by Principal to such Client Plan at the plan-level. The term, “Plan-Level Management Fee” does not include a separate fee paid by a Client Plan to Principal for asset allocation service(s) (Asset Allocation Service(s)), as defined, below, in Section IV(p), provided by Principal to such Client Plan at the plan-level.
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For the receipt by Principal from a Client Plan of a fee for Asset Allocation Services provided by Principal to such Client Plan at the plan-level, Principal relies on the relief provided by the statutory exemption, as set forth in section 408(b)(2) of the Act and the Department's regulations, pursuant to 29 CFR 2550.408b-2. The Department is offering no view, herein, as to whether the receipt by Principal of such an asset allocation fee is covered by such statutory exemption, nor is the Department, herein, offering any view as to whether Principal satisfies the conditions set forth in such statutory exemption.

(n) The term, “Collective Fund-Level Management Fee,” includes any investment management fee, investment advisory fee, and any similar fee paid by a Collective Fund to Principal for any investment management services, investment advisory services, and any similar services provided by Principal to such Collective Fund at the collective fund level.

(o) The term, “Affiliated Fund-Level Advisory Fee” includes any investment advisory fee and any similar fee paid by an Affiliated Fund to Principal under the terms of an investment advisory agreement adopted in accordance with section 15 of the Investment Company Act.

(p) The term, “Asset Allocation Service(s),” means a service or services to a Client Plan relating to the selection of appropriate asset classes or target-date “glidepath,” the selection of specific Collective Funds, and the selection of specific Affiliated Funds (subject to the required consent of the Second Fiduciary) to “populate” the selected asset classes (including rebalancing), and the allocation of the assets of a Client Plan among the selected funds. Such services do not include the management of the underlying assets of a Client Plan, or the selected Affiliated Funds or Collective Funds.

Effective Date:
If granted, this proposed exemption will be effective as of the publication of the final exemption in the
Federal Register
.

Summary of Facts and Representations

1. Principal Life was originally established in 1879. Principal's Affiliates have been founded or acquired from time to time thereafter. Principal offers a variety of financial products and services to businesses, individuals, and institutional clients. Principal has approximately $236.6 billion in assets under management and serves 18.8 million customers worldwide from offices in twelve (12) countries.

2. The Principal Financial Group is a trade name/registered trademark under which various Principal affiliated companies operate. Affiliated companies include Principal Financial Group, Inc., a public (holding) company (NYSE: PFG); numerous direct or indirect subsidiaries including Principal Life, Delaware Charter Guarantee & Trust Company d\b\a Principal Trust Company; PMC, Princor Financial Services Corporation, Principal Financial Services, Inc., Principal Global Investors, LLC, and many other affiliated entities.

3. It is represented that certain Affiliates within Principal make investments available, either directly or indirectly through Collective Funds to Client Plans. Principal has requested that the proposed exemption apply to any Client Plan for which Principal serves as investment fiduciary and for which Principal causes such Client Plan to invest in shares of Affiliated Funds, either directly or indirectly through a Collective Fund. It is represented that Principal places no limits on the minimum or maximum portion of the total assets of each Client Plan that may be invested directly in shares of an Affiliated Fund or invested indirectly in an Affiliated Fund through a Collective Fund.

4. Section 406(a)(1)(D) of the Act prohibits a fiduciary with respect to a plan from causing such plan to engage in a transaction, if he knows or should know, that such transaction constitutes a transfer to, or use by or for the benefit of, a party in interest, of any assets of such plan.

Sections 3(14)(A) and (B) of the Act define the term, “party in interest,” to include, respectively, any fiduciary of a plan and any person providing services to a plan. Under section 3(21)(A)(i) of the Act, a person is a fiduciary with respect to a plan to the extent such person exercises authority or control with respect to the management or disposition of the assets of a plan. Under section 3(21)(A)(ii) a person is a fiduciary with respect to a plan to the extent such person renders investment advice for a fee or other compensation, direct or indirect, with respect to any moneys or other property of a plan or has any authority or responsibility to do so.

Under section 406(b) of the Act, a fiduciary with respect to a plan may not: (1) Deal with the assets of a plan in his own interest or for his own account, (2) in his individual or in any other capacity act in any transaction involving a plan on behalf of a party (or represent a party) whose interests are adverse to the interests of such plan or the interests of its participants or beneficiaries, or (3) receive any consideration for his

own personal account from any party dealing with a plan in connection with a transaction involving the assets of such plan.

Principal entities may currently serve, and may in the future serve, as investment advisors, investment managers, trustees, or other fiduciaries with respect to Client Plans. Accordingly, the Applicants and various other Principal affiliates may currently be, or may in the future be, parties in interest with respect to a Client Plan which engage in the proposed transactions. In this regard, where Principal now or in the future is a fiduciary with respect to a Client Plan, the investment of the assets of such Client Plan in a Collective Fund and/or in an Affiliated Fund advised by Principal may raise issues under sections 406(a)(1)(D), 406(b)(1), 406(b)(2), and 406(b)(3) of the Act, and the corresponding provisions of the Code, unless an exemption is available.

5. Principal's collective investment vehicles currently include various pooled separate accounts. In this regard, Principal Life manages several insurance company separate accounts (the Separate Accounts). Principal Life is a fiduciary with respect to any Separate Accounts that hold plan assets. It is represented that none of the Separate Accounts currently invests in any Affiliated Fund in a manner that requires exemptive relief, hereunder. However, it is represented that existing Separate Accounts or Separate Accounts to be established in the future may do so. Accordingly, the Applicants request that the proposed exemption apply, as of the effective date of this proposed exemption, to Separate Accounts that hold “plan assets” of investor Client Plans.

6. Principal's collective investment vehicles also currently include various bank-maintained collective investment trusts. Any or all of Principal's collective investment vehicles may rely upon one or more statutory or class exemptions in connection with their activities. Principal represents that the proposed exemption, if granted, will apply to Collective Funds, as defined, above, in Section IV(j).

7. It is represented that in 2009, Principal Trust established certain target date collective funds (the Target Date Funds). The Target Date Funds are used as investment options in participant-directed Client Plans. The Target Date Funds are deemed to hold “plan assets” of such investing Client Plans. It is represented that although a Second Fiduciary, as defined, above, in Section IV(h), will select the Target Date Funds as designated investment options, the actual decision to invest in any Target Date Funds is made by individual plan participants, unless such fund is selected by a Second Fiduciary as a qualified default investment option.

The Target Date Funds are bank-maintained collective investment trusts. The Target Date Funds are currently comprised of eleven (11) portfolios. Principal Trust acts as trustee and investment manager for the Target Date Funds. As such, Principal Trust has discretion over the investment of the assets of the Target Date Funds. Principal Trust manages the portfolios of the Target Date Funds in accordance with its own investment objectives and strategies. In this regard, Principal Trust invests the assets of such Target Date Funds in Affiliated Funds and other investments including other Collective Funds. Principal Trust selects the underlying investments and allocates the assets of each of the Target Date Funds among the underlying investments based on the time horizon of each such Target Date Fund and the expected risk tolerance of those investors who have chosen that time horizon. It is represented that the underlying investments include investment in Principal Funds Inc., a series of Affiliated Funds managed by PMC, or may include other Affiliated Funds to be formed in the future. It is represented that the Target Date Funds are the only Principal Collective Funds currently invested in Affiliated Funds.

8. The Affiliated Funds are a series of mutual funds managed by PMC, an affiliate of Principal, and may include other Affiliated Funds to be established in the future by Principal. The Affiliated Funds are open-end investment companies registered with the Securities and Exchange Commission under the Investment Company Act, as amended and operated in accordance with Rule 2a-7 under the Investment Company Act. PMC or Principal serves as an investment adviser with respect to the Affiliated Funds. Principal may also serve as custodian, dividend disbursing agent, shareholder servicing agent, transfer agent, fund accountant, or provider of some other Secondary Services, including brokerage services, to an Affiliated Fund.

Prohibited Transaction Exemption 77-4 (PTE 77-4)

9. It is represented that all of the Principal entities to which the proposed exemption, if granted, would apply are currently part of the same controlled group. In this regard, the Applicants maintain that such Principal entities can rely on the relief provided pursuant to PTE 77-4.
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The Department, herein, is expressing no opinion in this proposed exemption regarding the reliance of the Applicants on the relief provided by PTE 77-4, nor is the Department offering any view as to whether the Applicants satisfy the conditions, as set forth in PTE 77-4.

PTE 77-4 provides an exemption from section 406 of the Act and section 4975 of the Code for the purchase and for the sale by a plan of shares of a registered, open-ended investment company where the investment adviser of such fund: (1) Is a plan fiduciary or affiliated with a plan fiduciary; and (2) is not an employer of employees covered by the plan. The conditions of PTE 77-4 prohibit the payment of commissions by a plan, limit the payment of redemption fees by such plan, require prior disclosures (
e.g.,
fee information and a current prospectus) to a second fiduciary and written authorization from such second fiduciary who is generally the sponsor or other named fiduciary or trustee of such plan, and prohibit the payment of double investment advisory fees and similar fees with respect to plan assets invested in such shares for the entire period of such investment. In addition, PTE 77-4 requires advance written approval from a second fiduciary for any changes in the fund fee rates.

10. The Applicants represent that the requested relief is essentially the same as that afforded by PTE 77-4, except for the use of a “negative consent” procedure, as discussed in the paragraphs, below, for:

(1) Approving Fee Increases received by Principal, and

(2) approving in advance the addition of Affiliated Funds (not previously authorized) as investments “inside” a Principal Collective Fund, subject to notice and a right to terminate the original approval at the time a new Affiliated Fund is proposed to be added.

Principal maintains that obtaining advance written approval from a Second Fiduciary can be difficult, particularly in the case of a Collective Fund, such as a Target Date Fund, where a Second Fiduciary from every investing Client Plan must provide written approval before fees payable to Principal by an Affiliated Fund in which such Client Plans invest indirectly via a Collective Fund can be increased, or before a new investment in an Affiliated Fund that was not previously authorized can be made. If advance written approval is not obtained from the Second Fiduciary of each affected Client Plan, then PTE 77-4 may not apply and Principal may violate the restrictions of section 406(a) and 406(b) of the Act.

Negative Consent for Fee Increases

11. In order to avoid the administrative burden of obtaining advance written approval from a Second Fiduciary of each affected Client Plan, the Applicants request an individual administrative exemption which would allow for a negative consent procedure for obtaining the approval from a Second Fiduciary for Fee Increases payable to Principal. Fee Increases are defined in Section IV(l) and include: (1) Any increase in the rate of a fee previously authorized in writing by the Second Fiduciary of an affected Client Plan, (2) any increase in any fee that results from an addition of services for which a fee is charged, (3) any increase in any fee that results from a decrease in the number or kind of services performed for such fee over an existing rate for such service previously authorized by the Second Fiduciary, and (3) any increase in a fee that results from Principal changing from one of the fee methods, as described, above, in Section II(a)(1)-(3), to using another of the fee methods, as described, above, in Section II(a)(1)-(3).

In order to obtain the negative consent authorization from the Second Fiduciary of each affected Client Plan with regard to a Fee Increase, Principal will have to comply with the provisions, set forth in Section II(k). In this regard, the proposed exemption would require Principal to provide to the Second Fiduciary of a Client Plan invested directly in shares of an Affiliated Fund or indirectly through a Collective Fund certain disclosures in writing thirty (30) days in advance of any proposed Fee Increase, including but not limited to any Fee Increase for Secondary Services, as such services are described, below. The disclosures are delivered by regular mail or personal delivery (or if the Second Fiduciary consents by electronic means), and are accompanied by a Termination Form and instructions on the use of such form.

Notwithstanding the requirement for thirty (30) days advance notice of a Fee Increase, the proposed exemption would permit Principal to implement a Fee Increase, without waiting until the expiration of the 30 day period; provided that implementation of such Fee Increase does not start before Principal delivers to each affected Client Plan the Notice of Intent of Change of Fees, as described in Section II(k), and provided further that any affected Client Plan receives a cash credit equal to its
pro rata share
of such Fee Increase, for the period from the date of the implementation of such Fee Increase to the
earlier of
the date of the termination of the investment or the thirtieth (30th) day after the date Principal delivers the Notice of Change of Fee to the Second Fiduciary of each affected Client Plan. In addition, Principal must pay to each affected Client Plan interest on such cash credit. An Auditor on at least an annual basis will verify the proper crediting of the
pro rata share
of each such Fee Increase and interest. An audit report shall be completed by such Auditor no later than six (6) months after the period to which it relates.

Failure of the Second Fiduciary to return the Termination Form or to provide some other written notification of the intent to terminate within a certain period of time will be deemed to be approval of the proposed Fee Increase, including but not limited to an increase in the fee for Secondary Services.

Negative Consent for New Affiliated Funds

12. Principal further requests that the proposed exemption permit a Principal Collective Fund holding the assets of a Client Plan, such as a Target Date Fund, to purchase shares of an Affiliated Fund not previously affirmatively authorized by the Second Fiduciary of such Client Plan; provided: (1) The organizational document of such Collective Fund expressly provides for the addition of one or more Affiliated Funds to the portfolio of such Collective Fund and such organizational document is disclosed initially to such Client Plan; and (2) Principal satisfies the requirements of the negative consent procedure for obtaining the approval of the Second Fiduciary for each Client Plan invested in such Collective Fund at the time Principal proposes to add an Affiliated Fund to such Collective Fund's portfolio.

Specifically, the negative consent procedure would entail that the Second Fiduciary of each Client Plan invested in such Collective Fund receives in advance: (i) A notice of Principal's intent to add an Affiliated Fund to the portfolio of such Collective Fund; and (ii) certain disclosures in writing, including a summary prospectus of such Affiliated Fund. The disclosures are delivered by regular mail or personal delivery (or if the Second Fiduciary consents by electronic means), and are accompanied by a Termination Form and instructions on the use of such form.

Failure of the Second Fiduciary to return the Termination Form or to provide some other written notification of the intent to terminate within a certain period of time will be deemed to be approval of the investment by such Collective Fund in such Affiliated Fund.

13. Principal represents that the negative consent procedures, described in the paragraphs, above, are more efficient, cost effective, and administratively feasible than the advance written approval from the Second Fiduciary, as described in PTE 77-4. It is represented that the negative consent procedure avoids the administrative delays that would result if advance written approval from the Second Fiduciary were required.

It is further represented that because the Second Fiduciary of each Client Plan will receive all of the necessary disclosures and will have an opportunity to terminate the investment in any Affiliated Fund without penalty, such Client Plan and its participants and beneficiaries are adequately protected. Further, to the extent that Principal may find it desirable from time to time to create an Affiliated Fund with new investment goals, the negative consent procedure will facilitate the addition of an Affiliated Fund into the portfolios of Principal's Collective Funds.

Electronic Disclosures

14. Principal intends to utilize electronic mail with hyperlinks to documents required to be disclosed by this proposed exemption. Principal agrees that it will “actively” satisfy the various disclosure requirements of this proposed exemption by transmitting emails, rather than relying on “passive” postings on a Web site. It is represented that this method of disclosure will be consistent with the Department's regulations at 29 CFR section 2520.104b-1. Client Plans which do not authorize electronic delivery will receive in advance hard copies of the documents required to be disclosed, and hard copies of documents will also be available on request.

Termination

15. A Client Plan invested directly in shares of an Affiliated Fund or invested indirectly through a Collective Fund will have an opportunity to terminate and withdraw from investment in such Affiliated Fund, and, as applicable, to terminate and withdraw from investment in such Collective Fund in the event of a Fee Increase and in the event of the addition of an Affiliated Fund to the portfolio of a Collective Fund.

In this regard, a Second Fiduciary will be provided with a Termination Form at least annually and may terminate the authorization to invest directly in shares of an Affiliated Fund or indirectly

through a Collective Fund, at will, without penalty to a Client Plan. Termination of the authorization by the Second Fiduciary of a Client Plan investing directly in shares of an Affiliated Fund will result in such Client Plan withdrawing from such Affiliated Fund. Termination of the authorization by the Second Fiduciary of a Client Plan investing indirectly in shares of an Affiliated Fund through a Collective Fund will result in such Client Plan withdrawing from such Collective Fund.

Generally, Principal will process timely requests for withdrawal from an Affiliated Fund within one (1) Business day. Withdrawal from a Collective Fund will generally be processed within the same time frame, subject to rules designed to ensure orderly withdrawals and fairness for the withdrawing Client Plans and non-withdrawing Client Plans, but in no event shall such withdrawal be implemented by Principal more than five business (5) days after receipt by Principal of a termination form or other written notification of intent to terminate investment in such Collective Fund from the Second Fiduciary acting on behalf of the withdrawing Client Plan. Principal will pay interest on the settlement amount for the period from receipt by Principal of a termination form or other written notification of intent to terminate from the Second Fiduciary, acting on behalf of the withdrawing Client Plan, to the date Principal pays the settlement amount, plus interest thereon.

From the date a Client Plan terminates its investment in an Affiliated Fund, such Client Plan will not be subject to pay a
pro rata share
of the fees received by Principal from such Affiliated Fund. Likewise, from the date a Client Plan terminates its investment in a Collective Fund, such Client Plan will not be subject to pay a
pro rata share
of the fees received by Principal from such Collective Fund, nor will such Client Plan be subject to changes in the portfolio of such Collective Fund, including a
pro rate share
of any Affiliated Fund-Level Advisory Fee arising from the investment by such Collective Fund in an Affiliated Fund.

Receipt of Fees Pursuant to the Fee Methods

16. The exemption, if granted, includes conditions which detail various methods which ensure that Principal complies with the prohibition against a Client Plan paying double investment management fees, investment advisory, and similar fees for the assets of Client Plans invested directly in shares of an Affiliated Fund or invested indirectly in shares of an Affiliated Fund though a Collective Fund. These methods are described in Section II(a)(1)-(3) of this proposed exemption.

Plan-Level Fees

17. It is represented that currently to the extent that Principal provides discretionary investment management services
13

to any Client Plan that invests directly in shares of an Affiliated Fund or indirectly through a Collective Fund, Principal does not charge any investment management fee, any investment advisory fee, or any similar fee directly to such Client Plan.
14

If in the future, Principal were to do so, this proposed exemption would require Principal to use the methods, as described in Section II(a) of this exemption, as applicable, so as to avoid receiving “double” investment management, investment advisory, and similar fees.

13
Investment management services do not include Asset Allocation Services, as defined, above, in Section IV(p).

14
The Department, herein, is not providing relief for the receipt by Principal of a Plan-Level Management Fee for investment management services provided at the plan-level by Principal to a Client Plan.

Also, services provided by Principal for which a fee is charged involve plan-level and participant-level recordkeeping and administrative services, custody, and other clerical and administrative functions.
15

It is represented that a Second Fiduciary typically will select Principal's Collective Funds in connection with a decision to retain Principal as a service provider to such Client Plan, usually as part of a “bundled” arrangement. It is also possible that a Second Fiduciary of a Client Plan that already uses Principal's products and services may wish to add additional Collective Funds to its investment line-up.

15
The Applicants have not requested and the Department, herein, is not providing any relief for the receipt by Principal at the plan-level of fees for providing recordkeeping and administrative services, custody, and other clerical and administrative functions to a Client Plan.

The Collective Fund-Level Management Fee

18. With regard to the Collective Fund-Level Management Fee, it is represented that the only Collective Funds over which Principal currently exercises fiduciary discretion to invest in Affiliated Funds are the Target Date Funds. Principal currently charges no investment advisory and no similar fees “inside” the Target Date Funds. Fees charged by the Target Date Funds presently are limited to: (i) Four (4) basis points charged by Principal Trust for non-advisory, custodial and administrative services (Collective Fund Administrative Services);
16

and (ii) depending on the specific class of units selected by a sponsor of a Client Plan, certain additional “services fees”
17

that the plan sponsor may direct to be paid over to other plan service providers for services such as recordkeeping, custody, and distribution.
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16
The Department, herein, is not providing relief for the receipt by Principal of fees from a Collective Fund for providing Collective Fund Administrative Services to such Collective Fund.

17
For example, a sponsor of a Client Plan can select a “share” class of a Collective Fund that is subject to a four (4) basis point trustee fee, or may elect to utilize a share class of a Collective Fund that pays (by way of example) fourteen (14) basis points, four (4) basis points of which are paid to Principal Trust and ten (10) basis points of which the sponsor of such Client Plan may direct Principal Trust to pay to such Client Plan's recordkeeper or other service providers.

18
The Department, herein, is not providing relief for any other additional “services fees” received by Principal that the sponsor of a Client Plan may direct to be paid over to other service providers to such Client Plan.

However, it is represented that in the future, Principal may decide to charge investment advisory fees or may decide to charge similar fees “inside” a collective investment vehicle. In that event, Principal will utilize the methods, described in Section II(a)(2) and in Section II(a)(3), as applicable so as to avoid charging “double” investment advisory and similar fees.

The Affiliated Fund-Level Advisory Fee

19. The Affiliated Fund-Level Advisory Fees are described in the summary prospectus for an Affiliated Fund and include fees for investment advisory services and fees for similar services which Principal receives as compensation for the provision of such services to such Affiliated Fund.

As noted, above, Principal currently waives the Plan-Level Management Fees and Collective Fund-Level Management Fees for the provision of investment management services, investment advisory services, and similar services and retains the fees paid to Principal by an Affiliated Fund with regard to a Client Plan that invests directly in shares of such Affiliated Fund or indirectly in shares of such Affiliated Fund through a Collective Fund. Notwithstanding this fact, it is represented that Principal in the future may cease to waive Plan-Level Management Fees and Collective Fund-Level Management Fees. In that event, in order to avoid receiving double fees, Principal must comply with the

conditions, as set forth in Section II(a) of this exemption, as applicable.

Receipt of Fees for Secondary Services

20. Principal also receives from an Affiliated Fund various fees and expenses for custody, transfer agency, and similar services, including brokerage services. It is represented that all such services are treated as “Secondary Services.” The term, “Secondary Services,” is defined, above, in Section IV(i), to mean a service other than an investment management service, an investment advisory service, and any similar service, which is provided by Principal to an Affiliated Fund, including but not limited to custodial, accounting, administrative, brokerage, and other services. It is represented that all fees for Secondary Services received by Principal at this time are paid to Principal directly by the Affiliated Funds. The negative consent procedure applicable for a Fee Increase for Secondary Services is discussed, above, in paragraph 11.

In addition, Principal affiliates may receive commissions for the performance of brokerage services for the mutual funds. Under the conditions of this proposed exemption, if an Affiliated Fund places brokerage transactions with Principal, Principal will provide the Second Fiduciary of each such Client Plan, at least annually with the disclosure described in Section II(o) of this proposed exemption.

21. The Applicants represent that proposed exemption is in the interest of Client Plans, because it will allow Principal to efficiently manage or advise with respect to the assets of such Client Plans invested in shares of an Affiliated Fund, either directly or indirectly through a Collective Fund, in a timely manner and on terms that might not otherwise be available without exemptive relief.

22. It is represented that the proposed exemption contains sufficient safeguards for the protection of the Client Plans invested in shares of an Affiliated Fund either directly or indirectly through a Collective Fund. Prior to any investment by a Client Plan directly or indirectly in shares of an Affiliated Fund, such investment must be authorized by the Second Fiduciary of such Client Plan, based on full and detailed written disclosure concerning such Affiliated Fund.

It is further represented that the proposed exemption is protective of the rights of Client Plans, because any Fee Increase or the addition of an Affiliated Fund to the portfolio of a Collective Fund will be on terms monitored and approved by the Second Fiduciary who will have the ability to avoid the effect of such Fee Increase and the effect of the addition of an Affiliated Fund to the portfolio of a Collective Fund. Furthermore, each investment of the assets of a Client Plan in shares of an Affiliated Fund, either directly, or indirectly through a Collective Fund, will be subject to the ongoing ability of the Second Fiduciary of such Client Plan to terminate the investment in such Affiliated Fund and to terminate the investment in such Collective Fund, without penalty to such Client Plan at any time upon written notice of termination to Principal.

In addition to the initial disclosures, Principal provides to such Second Fiduciary ongoing disclosures regarding such Affiliated Funds. Further, Principal will respond to inquiries from a Second Fiduciary and will provide any other reasonably available information to a Second Fiduciary upon request.

23. It is represented that the proposed exemption is administratively feasible, because the subject transactions will not require continued monitoring or other involvement on behalf of the Department or the Internal Revenue Service. The use of a Termination Form will provide both a record and a regular reminder to the Second Fiduciary of a Client Plan of such plan's rights vis-à-vis investing in Affiliated Funds, either directly or indirectly through a Collective Fund.

24. In summary, the Applicants represent that the proposed transactions satisfy the statutory criteria for an exemption under section 408(a) of the Act for the following reasons:

(a) The Affiliated Funds will provide Client Plans with effective investment vehicles;

(b) The receipt by Principal of an Affiliated Fund-Level Advisory Fee, and the receipt of a fee by Principal for Secondary Services will require an authorization in writing in advance by a Second Fiduciary for each such Client Plan after receipt of full written disclosure;

(c) Any authorization made by a Second Fiduciary, acting on behalf of a Client Plan will be terminable at will by such Second Fiduciary, without penalty to such Client Plan, following receipt by Principal of a Termination Form or any other written notice of termination from such Second Fiduciary of a Client Plan invested directly in shares of an Affiliated Fund or indirectly through a Collective Fund;

(d) The Termination Form will be supplied to such Second Fiduciary at least annually;

(e) No sales commissions will be paid by Client Plans in connection with the acquisition or in connection with the sale of shares of the Affiliated Funds either directly or through a Collective Fund, and only redemption fees disclosed in the summary prospectus of an Affiliated Fund will be paid by a Client Plan;

(f) All dealings among a Client Plan, any Affiliated Fund, and Principal will be on a basis no less favorable to such Client Plan than such dealings with the other shareholders of such Affiliated Fund;

(g) The purchase price paid and the sales price received by a Client Plan for shares in an Affiliated Fund purchased or sold directly, and the purchase price paid and the sales price received by a Client Plan for shares in an Affiliated Fund purchased or sold indirectly through a Collective Fund, will be the NAV at the time of the transaction, and will be the same purchase price paid and the same sales price received for such shares by any other shareholder of the same class of shares in such Affiliated Fund at that time;

(h) A Client Plan investing in shares of an Affiliated Fund, either directly or indirectly, through a Collective Fund, will not pay “double fees” for investment management, investment advisory, and similar fees with respect to the assets of such Client Plan so invested; and

(i) An Auditor on at least an annual basis will verify the proper crediting of any Fee Increase and interest, received by a Client Plan, pursuant to Section II(k)(2), and an audit report shall be completed by such Auditor no later than six (6) months after the period to which it relates.

Notice to Interested Persons

Those persons who may be interested in the publication in the
Federal Register
of the Notice include each Client Plan invested directly in shares of an Affiliated Fund, each Client Plan invested indirectly in shares of an Affiliated Fund through a Collective Fund, and each plan for which Principal provides discretionary management services, via the Target Date Funds or otherwise at the time the proposed exemption is published in the
Federal Register
.

It is represented that notification will be provided to each of these interested persons by first class mail, within fifteen (15) calendar days of the date of the publication of the Notice in the
Federal Register
. Such 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
.

For further information contact
: Angelena C. Le Blanc of the Department, telephone (202) 693-8540 (This is not a toll-free number.)

Aztec Well Servicing Company & Related Companies Medical Plan Trust Fund (the Plan), Located in Aztec, New Mexico

[Application No. D-11628]
Proposed Exemption

The Department of Labor (the Department) is considering granting an exemption under the authority of section 408(a) of the Act in accordance with procedures set forth in 29 CFR part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Section I

If the proposed exemption is granted, the restrictions of sections 406(a)(1)(A), (C) and (D), 406(b)(1), and 406(b)(2) of the Act shall not apply to the payment by the Plan to Basin Occupational & Urgent Care, LLC (BOUC), a party in interest with respect to the Plan, for the on-site provision to the Plan of urgent medical care and wellness services by a nurse-practitioner and a wellness coordinator employed by BOUC, provided that the following conditions are satisfied:

(a) An indepen

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2011-31741. Public record. Not legal advice.