Grant of Individual Exemptions; Prudential Insurance Company of America (Prudential), et al.

DEPARTMENT OF LABOR

[Prohibited Transaction Exemption 94-51; Exemption Application No. D-

9341]

Grant of Individual Exemptions; Prudential Insurance Company of

America (Prudential), et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of the notification to interested

persons. No public comments and no requests for a hearing, unless

otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their participants

and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

Prudential Insurance Company of America (Prudential) Located in Newark,

New Jersey

[Prohibited Transaction Exemption 94-51; Exemption Application No. D-

9341]

Exemption

Section I--Exemption for Certain Transactions Involving the Management

of Investments Shared by Two or More Accounts Maintained by Prudential

The restrictions of certain sections of the Act and the sanctions

resulting from the application of certain parts of section 4975 of the

Code shall not apply to the following transactions if the conditions

set forth in Section IV are met:

(a) Transfers Between Accounts

(1) The restrictions of section 406(b)(2) of the Act shall not

apply to the sale or transfer of an interest in a shared investment

(including a shared joint venture interest) between two or more

Accounts (except the General Account), provided that each ERISA-Covered

Account pays no more, or receives no less, than fair market value for

its interest in a shared investment.

(2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the

Code shall not apply to the sale or transfer of an interest in a shared

investment (including a shared joint venture interest) between ERISA-

Covered Accounts and the General Account, provided that such transfer

is made pursuant to stalemate procedures, described in the notice of

proposed exemption, adopted by the independent fiduciary for the ERISA-

Covered Account, and provided further that the ERISA-Covered Account

pays no more or receives no less than fair market value for its

interest in a shared investment.

(b) Joint Sales of Property--The restrictions of sections 406(a),

406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the

application of section 4975 of the Code by reason of section 4975(c)(1)

(A) through (E) of the Code shall not apply to the sale to a third

party of the entire interest in a shared investment (including a shared

joint venture interest) by two or more Accounts, provided that each

ERISA-Covered Account receives no less than fair market value for its

interest in the shared investment.

(c) Additional Capital Contributions--The restrictions of sections

406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting

from the application of section 4975 of the Code by reason of section

4975(c)(1) (A) through (E) of the Code shall not apply either to the

making of a pro rata equity capital contribution by one or more of the

Accounts to a shared investment; or to the making of a Disproportionate

[as defined in Section V(e)] equity capital contribution by one or more

of such Accounts which results in an adjustment in the equity ownership

interests of the Accounts in the shared investment on the basis of the

fair market value of such interests subsequent to such contribution,

provided that each ERISA-Covered Account is given an opportunity to

make a pro rata contribution.

(d) Lending of Funds--The restrictions of sections 406(a),

406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from the

application of section 4975 of the Code by reason of section 4975(c)(1)

(A) through (E) of the Code shall not apply to the lending of funds

from the General Account to an ERISA-Covered Account to enable the

ERISA-Covered Account to make an additional pro rata contribution,

provided that such loan--

(A) is unsecured and non-recourse with respect to participating

plans,

(B) bears interest at a rate not to exceed the prevailing rate on

90-day Treasury Bills,

(C) is not callable at any time by the General Account, and

(D) is prepayable at any time without penalty.

(e) Shared Debt Investments--In the case of a debt investment that

is shared between two or more Accounts, including one or more of the

ERISA-Covered Accounts, (1) the restrictions of sections 406(a) and

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) through (E) of the Code shall not apply to any material

modification in the terms of the loan agreement resulting from a

request by the borrower, any decision regarding the action to be taken,

if any, on behalf of the Accounts in the event of a loan default by the

borrower, or any exercise of a right under the loan agreement in the

event of such default, and (2) the restrictions of section 406(b)(2) of

the Act shall not apply to any decision by Prudential thereof on behalf

of two or more ERISA-Covered Accounts: (A) not to modify a loan

agreement as requested by the borrower; or (B) to exercise any rights

provided in the loan agreement in the event of a loan default by the

borrower, even though the independent fiduciary for one (but not all)

of such Accounts has approved such modification or has not approved the

exercise of such rights.

Section II--Exemption for Certain Transactions Involving the Management

of Joint Venture Interests Shared by Two or More Accounts Maintained by

Prudential

The restrictions of certain sections of the Act and the sanctions

resulting from the application of certain parts of section 4975 of the

Code shall not apply to the following transactions resulting from the

sharing of an investment in a real estate joint venture between two or

more Accounts, if the conditions set forth in Section IV are met:

(a) Additional Capital Contributions--(1) The restrictions of

sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions

resulting from the application of section 4975 of the Code by reason of

section 4975(c)(1) (A) through (E) of the Code shall not apply to the

making of additional pro rata equity capital contributions by one or

more Accounts participating in the joint venture.

(2) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the

Code shall not apply to the lending of funds from the General Account

to an ERISA-Covered Account to enable the ERISA-Covered Account to make

an additional pro rata capital contribution, provided that such loan--

(A) is unsecured and non-recourse with respect to the participating

plans,

(B) bears interest at a rate not to exceed the prevailing rate on

90-day Treasury Bills,

(C) is not callable at any time by the General Account, and

(D) is prepayable at any time without penalty.

(3) The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of

the Act and the sanctions resulting from the application of section

4975 of the Code by reason of section 4975 (c)(1) (A) through (E) of

the Code shall not apply to the making of Disproportionate [as defined

in section V(e)] additional equity capital contributions (or the

failure to make such additional contributions) in the joint venture by

one or more Accounts which result in an adjustment in the equity

ownership interests of the Accounts in the joint venture on the basis

of the fair market value of such joint venture interests subsequent to

such contributions, provided that each ERISA-Covered Account is given

an opportunity to provide its proportionate share of the additional

equity capital contributions; and

(4) In the event a co-venturer fails to provide all or any part of

its pro rata share of an additional equity capital contribution, the

restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and

the sanctions resulting from the application of section 4975 of the

Code by reason of section 4975(c)(1) (A) through (E) of the Code shall

not apply to the making of Disproportionate additional equity capital

contributions to the joint venture by the General Account and an ERISA-

Covered Account up to the amount of such contribution not provided by

the co-venturer which result in an adjustment in the equity ownership

interests of the Accounts in the joint venture on the basis provided in

the joint venture agreement, provided that such ERISA-Covered Account

is given an opportunity to participate in all additional equity capital

contributions on a proportionate basis.

(b) Third Party Purchase Offers--(1) In the case of an offer by a

third party to purchase any property owned by the joint venture, the

restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and

the sanctions resulting from the application of section 4975 of the

Code by reason of section 4975(c)(1) (A) through (E) of the Code shall

not apply to the acquisition by the Accounts, including one or more

ERISA-Covered Account[s], on either a proportionate or Disproportionate

basis of a co-venturer's interest in the joint venture in connection

with a decision on behalf of such Accounts to reject such purchase

offer, provided that each ERISA-Covered Account is first given an

opportunity to participate in the acquisition on a proportionate basis;

and

(2) The restrictions of section 406(b)(2) of the Act shall not

apply to any acceptance by Prudential on behalf of two or more

Accounts, including one or more ERISA-Covered Account[s], of an offer

by a third party to purchase a property owned by the joint venture even

though the independent fiduciary for one (but not all) of such ERISA-

Covered Account[s] has not approved the acceptance of the offer,

provided that such declining ERISA-Covered Account[s] are first

afforded the opportunity to buy out both the co-venturer and

``selling'' Account's interests in the joint venture.

(c) Rights of First Refusal--(1) In the case of the right to

exercise a right of first refusal described in a joint venture

agreement to purchase a co-venturer's interest in the joint venture at

the price offered for such interest by a third party, the restrictions

of sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the

sanctions resulting from the application of section 4975 of the Code by

reason of section 4975(c)(1) (A) through (E) of the Code shall not

apply to the acquisition by such Accounts, including one or more ERISA-

Covered Account[s], on either a proportionate or Disproportionate basis

of a co-venturer's interest in the joint venture in connection with the

exercise of such a right of first refusal, provided that each ERISA-

Covered Account is first given an opportunity to participate on a

proportionate basis; and

(2) The restrictions of section 406(b)(2) of the Act shall not

apply to any decision by Prudential on behalf of the Accounts not to

exercise such a right of first refusal even though the independent

fiduciary for one (but not all) of such ERISA-Covered Accounts has

approved the exercise of the right of first refusal, provided that none

of the ERISA-Covered Accounts that approved the exercise of the right

of first refusal decides to buy-out the co-venturer on its own.

(d) Buy-Sell Options--(1) In the case of the exercise of a buy-sell

option set forth in the joint venture agreement, the restrictions of

sections 406(a), 406(b)(1) and 406(b)(2) of the Act and the sanctions

resulting from the application of section 4975 of the Code by reason of

section 4975(c)(1) (A) through (E) of the Code shall not apply to the

acquisition by one or more of the Accounts on either a proportionate or

Disproportionate basis of a co-venturer's interest in the joint venture

in connection with the exercise of such a buy-sell option, provided

that each ERISA-Covered Account is first given the opportunity to

participate on a proportionate basis; and

(2) The restrictions of section 406(b)(2) of the Act shall not

apply to any decision by Prudential on behalf of two or more Accounts,

including one or more ERISA-Covered Account[s], to sell the interest of

such Accounts in the joint venture to a co-venturer even though the

independent fiduciary for one (but not all) of such ERISA-Covered

Account[s] has not approved such sale, provided that such disapproving

ERISA-Covered Account is first afforded the opportunity to purchase the

entire interest of the co-venturer.

Section III--Exemption for Transactions Involving a Joint Venture or

Persons Related to a Joint Venture

The restrictions of section 406(a) of the Act and the sanctions

resulting from the application of section 4975 of the Code by reason of

section 4975(c)(1)(A) through (D) of the Code shall not apply, if the

conditions in Section IV are met, to any additional equity or debt

capital contributions to a joint venture by an ERISA-Covered Account

that is participating in an interest in the joint venture, or to any

material modification in the terms of, or action taken upon default

with respect to, a loan to the joint venture in which the ERISA-Covered

Account has an interest as a lender, where the joint venture is a party

in interest solely by reason of the ownership on behalf of the General

Account of a 50 percent or more interest in such joint venture.

Section IV--General Conditions

(a) The decision to participate in any ERISA-Covered Account that

shares real estate investments must be made by plan fiduciaries who are

totally unrelated to Prudential and its affiliates. This condition

shall not apply to plans covering employees of Prudential.

(b) Each contractholder or prospective contractholder in an ERISA-

Covered Account which shares or proposes to share real estate

investments is provided with a written description of potential

conflicts of interest that may result from the sharing, a copy of the

notice of pendency, and a copy of the exemption as granted.

(c) An independent fiduciary must be appointed on behalf of each

ERISA-Covered Account participating in the sharing of investments. The

independent fiduciary shall be either

(1) a business organization which has at least five years of

experience with respect to commercial real estate investments,

(2) a committee composed of three to five individuals who each have

at least five years of experience with respect to commercial real

estate investments, or

(3) the plan sponsor (or its designee) of a plan (or plans) that is

the sole participant in an ERISA-Covered Account.

(d) The independent fiduciary or independent fiduciary committee

member shall not be or consist of Prudential or any of its affiliates.

(e) No organization or individual may serve as an independent

fiduciary for an ERISA-Covered Account for any fiscal year if the gross

income (other than fixed, non-discretionary retirement income) received

by such organization or individual (or any partnership or corporation

of which such organization or individual is an officer, director, or

ten percent or more partner or shareholder) from Prudential, its

affiliates and the ERISA-Covered Accounts for that fiscal year exceeds

five percent of its or his or her annual gross income from all sources

for the prior fiscal year. If such organization or individual had no

income for the prior fiscal year, the five percent limitation shall be

applied with reference to the fiscal year in which such organization or

individual serves as an independent fiduciary. The income limitation

shall not include compensation for services rendered to a single-

customer ERISA-Covered Account by an independent fiduciary who is

initially selected by the Plan sponsor for that ERISA-Covered Account.

The income limitation will include income for services rendered to

the Accounts as independent fiduciary under any prohibited transaction

exemption(s) granted by the Department. Notwithstanding the foregoing,

such income limitation shall not include any income for services

rendered to a single customer ERISA-Covered Account by an independent

fiduciary selected by the Plan sponsor to the extent determined by the

Department in any subsequent prohibited transaction exemption

proceeding.

In addition, no organization or individual who is an independent

fiduciary, and no partnership or corporation of which such organization

or individual is an officer, director or ten percent or more partner or

shareholder, may acquire any property from, sell any property to, or

borrow any funds from, Prudential, its affiliates, or any Account

maintained by Prudential or its affiliates, during the period that such

organization or individual serves as an independent fiduciary and

continuing for a period of six months after such organization or

individual ceases to be an independent fiduciary, or negotiate any such

transaction during the period that such organization or individual

serves as independent fiduciary.

(f) The independent fiduciary acting on behalf of an ERISA-Covered

Account shall have the responsibility and authority to approve or

reject recommendations made by Prudential or its affiliates for each of

the transactions in this exemption. In the case of a possible transfer

or exchange of any interest in a shared investment between the General

Account and an ERISA-Covered Account, the independent fiduciary shall

also have full authority to negotiate the terms of the transfer.

Prudential and its affiliates shall involve the independent fiduciary

in the consideration of contemplated transactions prior to the making

of any decisions, and shall provide the independent fiduciary with

whatever information may be necessary in making its determinations.

In addition, the independent fiduciary shall review on an as-needed

basis, but not less than twice annually, the shared real estate

investments in the ERISA-Covered Account to determine whether the

shared real estate investments are held in the best interest of the

ERISA-Covered Account.

(g) Prudential maintains for a period of six years from the date of

the transaction the records necessary to enable the persons described

in paragraph (h) of this Section to determine whether the conditions of

this exemption have been met, except that a prohibited transaction will

not be considered to have occurred if, due to circumstances beyond the

control of Prudential or its affiliates, the records are lost or

destroyed prior to the end of the six-year period.

(h)(1) Except as provided in paragraph (2) of this subsection (h)

and notwithstanding any provisions of subsection (a)(2) and (b) of

section 504 of the Act, the records referred to in subsection (g) of

this Section are unconditionally available at their customary location

for examination during normal business hours by--

(A) Any duly authorized employee or representative of the

Department or the Internal Revenue Service,

(B) Any fiduciary of a plan participating in an ERISA-Covered

Account who has authority to acquire or dispose of the interests of the

plan, or any duly authorized employee or representative of such

fiduciary,

(C) Any contributing employer to any plan participating in an

ERISA-Covered Account or any duly authorized employee or representative

of such employer, and

(D) Any participant or beneficiary of any plan participating in an

ERISA-Covered Account, or any duly authorized employee or

representative of such participant or beneficiary.

(2) None of the persons described in subparagraphs (B) through (D)

of this subsection (h) shall be authorized to examine trade secrets of

Prudential, any of its affiliates, or commercial or financial

information which is privileged or confidential.

Section V--Definitions

For the purposes of this exemption:

(a) An ``affiliate'' of Prudential includes--

(1) Any person directly or indirectly through one or more

intermediaries, controlling, controlled by, or under common control

with Prudential,

(2) Any officer, director or employee of Prudential or person

described in section V(a)(1), and

(3) Any partnership in which Prudential is a partner.

(b) An ``Account'' means the General Account (including the general

accounts of Prudential affiliates which are managed by Prudential), any

separate account managed by Prudential, or any investment advisory

account, trust, limited partnership or other investment account or fund

managed by Prudential.

(c) The ``General Account'' means the general asset account of

Prudential and any of its affiliates which are insurance companies

licensed to do business in at least one State as defined in section

3(10) of the Act.

(d) An ``ERISA-Covered Account'' means any Account (other than the

General Account) in which employee benefit plans subject to Title I or

Title II of the Act participate.

(e) ``Disproportionate'' means not in proportion to an Account's

existing equity ownership interest in an investment, joint venture or

joint venture interest.

The exemption is subject to the express conditions that the

material facts and representations contained in the application are

true and complete, and that the application accurately describes all

material terms of the transactions to be consummated pursuant to the

exemption.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on October 15, 1993 at 58 FR

53565.

EFFECTIVE DATE: This exemption is effective December 20, 1988.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Waterman Medical Center, Inc., Productivity Incentive Program (the

Plan) Located in Eustis, Florida

[Prohibited Transaction Exemption 94-52; Exemption Application No. D-

9587]

Exemption

The restrictions of sections 406(a) and 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) through (E) of the Code,

shall not apply to the sale of a group annuity policy (the Policy) from

the Plan to Florida Hospital/Waterman (the Employer), a party in

interest with respect to the Plan, provided that the following

conditions are met:

1. The fair market value of the Policy is established by a party

independent of the Employer and the Plan;

2. The Employer pays the greater of the current fair market value

of the Policy or the total amount the Plan has expended on the Policy

as of the date of sale;

3. The sale is a one-time transaction for cash; and

4. The Plan pays no fees or commissions in regard to the sale.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on April 22, 1994, at 59 FR

19253.

FOR FURTHER INFORMATION CONTACT: Paul Kelty of the Department,

telephone (202) 219-8883. (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest or disqualified

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, DC, this 24th day of June, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-15797 Filed 6-28-94; 8:45 am]

BILLING CODE 4510-29-P