Grant of Individual Exemptions; Financial Institutions Retirement Fund., et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 95-31; Exemption Application No. D-

09469, et al.]

Grant of Individual Exemptions; Financial Institutions Retirement

Fund., 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, D.C. The notices also

invited interested persons to submit comments on the requested

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

interested person might submit a written request that a public hearing

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

have 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.

Financial Institutions Retirement Fund (the Fund) and Financial

Institutions Thrift Plan (the Thrift Plan) Located in White Plains, New

York

[Prohibited Transaction Exemption 95-31; Exemption Application No. D-

09469]

Exemption

Section I. Covered Transactions

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

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to the provision of certain services, and the receipt

of compensation for such services, by Pentegra Services, Inc.

(Pentegra), a wholly-owned, for-profit subsidiary corporation of the

Fund, to employee benefit plans (the Plans) and to their sponsoring

employers (the Employers) that participate in the Fund and the Thrift

Plan; provided that the following conditions are met:

(a) A qualified, independent fiduciary of the Fund determines that

the services provided by Pentegra are in the best interests of the Fund

and are protective of the rights of the participants and beneficiaries

of the Fund;

(b) At the time the transactions are entered into, the terms of the

transactions are not less favorable to Pentegra than the terms

generally available in comparable arm's-length transactions between

unrelated parties;

(c) Pentegra receives reasonable compensation for the provision of

its services, as determined by the independent fiduciary;

(d) Prior to the offering of services, the independent fiduciary

will initially review the services to be provided by Pentegra and will

determine that such services are reasonable and appropriate for

Pentegra, taking into account such factors as: whether Pentegra has the

capability to perform such services, whether the fees to be charged

reflect arm's length terms, whether Pentegra personnel have the

qualifications to provide such services, and whether such arrangements

are reasonable based upon a comparison with similarly qualified firms

in the same or similar locales in which Pentegra proposes to operate;

(e) No services will be provided by Pentegra without the prior

review and approval of the independent fiduciary;

(f) Not less frequently than quarterly, the independent fiduciary

will perform periodic reviews to ensure that the services offered by

Pentegra remain appropriate for Pentegra and that the fees charged by

Pentegra represent reasonable compensation for such services;

(g) Not less frequently than annually, Pentegra will provide a

written report to the board of directors of the Fund describing in

detail the services it provided to employee benefit plans and/or their

sponsoring employers that participated in the Fund and the Thrift Plan,

a detailed accounting of the fees received for such services, and an

estimate of the fees Pentegra anticipates it will receive during the

following year from such plans and their sponsoring employers;

(h) Not less frequently than annually, the independent fiduciary

will conduct a detailed review of approximately 10 percent of all

completed transactions, which will include a reasonable cross-section

of all services performed; such transactions will be reviewed for

compliance with the terms and conditions of this exemption;

(i) Pentegra's financial statements will be audited each year by an

independent certified public accountant, and such audited statements

will be reviewed by the independent fiduciary;

(j) The independent fiduciary shall have the authority to prohibit

Pentegra from performing services that such fiduciary deems

inappropriate and not in the best interests of Pentegra and the Fund;

and

(k) Each Pentegra contract with a Fund or Thrift Plan employer, or

a plan of such employer, will be subject to termination without penalty

by Pentegra for any reason upon not more than 90 days written notice to

such employer or plan. [[Page 18620]]

Section II. Recordkeeping

(1) The independent fiduciary and the Fund will maintain, or cause

to be maintained, for a period of 6 years, the records necessary to

enable the persons described in paragraph (2) of this Section II to

determine whether the conditions of this exemption have been met,

except that (a) a prohibited transaction will not be considered to have

occurred if, due to circumstances beyond the control of the independent

fiduciary and the Fund or their agents, the records are lost or

destroyed before the end of the six year period, and (b) no party in

interest other than the independent fiduciary and the Board of

Directors of the Fund shall be subject to the civil penalty that may be

assessed under section 502(i) of the Act, or to the taxes imposed by

section 4975 (a) and (b) of the Code, if the records are not

maintained, or are not available for examination as required by

paragraph (2) below.

(2)(a) Except as provided in section (b) of this paragraph and

notwithstanding any provisions of subsections (a)(2) and (b) of section

504 of the Act, the records referred to in paragraph (1) of this

Section II shall be unconditionally available at their customary

location during normal business hours by:

(1) Any duly authorized employee or representative of the

Department or the Internal Revenue Service;

(2) Any employer participating in the Fund or any duly authorized

employee or representative of such employer; and

(3) Any participant or beneficiary of the Fund or any duly

authorized representative of such participant or beneficiary.

(b) None of the persons described above in subparagraphs (a)(2) and

(a)(3) of this paragraph (2) shall be authorized to examine trade

secrets of the independent fiduciary, the Fund, or their affiliates, or

commercial or financial information which is privileged or

confidential.

(3) For purposes of this Section II, references to the Fund shall

also include Pentegra.

For a more complete statement of the facts and representations

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

the notice of proposed exemption published on January 30, 1995, at 60

FR 5700.

Written Comments: With respect to the Notice of Proposed Exemption,

the Department did not receive any requests for a hearing but did

receive 8 telephone inquiries and 10 written comments. With regard to

the telephone inquiries, a representative of the Department spoke to

the callers and provided the information sought by the callers. Most of

the commentators did not raise specific objections with regard to the

proposed transactions, but sought further information from the

Department. A representative of the Department contacted such

commentators and responded to their requests for additional

information.

Several of the commentators raised the following issues:

(a) That as the Fund broadens its reach to employers other than

banks and thrifts, the safety and soundness of a financially secure

retirement fund should not be impaired;

(b) An objection to the additional expenses to be incurred by the

Fund in connection with Pentagra; and

(c) Using the Fund as a foundation for launching a for-profit

venture that may or may not be successful.

The applicant responded by stating that in its effort to maintain

favorable economies of scale in its performance, it seeks, by means of

the exemption to increase the number of employers and employee benefit

plans using the services of the Fund, and thereby, ensure the sound

financial condition of the Fund and its ability to meet its benefit

obligations to participants. In addition, the applicant states that the

operation of Pentegra will be under the aegis of the qualified,

independent fiduciary who is required to provide its prior review and

approval of any new service offered by Pentegra to employee benefit

plans sponsored by employers that participate in the Fund or the Thrift

Plan, or to such employers themselves. In addition to its initial

review of the services performed by Pentegra, the independent fiduciary

will be required to perform periodic and annual reviews of such

services to ensure that the services offered by Pentegra remain

appropriate for Pentegra to provide. Also, the independent fiduciary

will have the authority to prohibit Pentegra from undertaking and

performing services that the independent fiduciary deems inappropriate

and not in the best interests of Pentegra and the Fund.

The applicant has requested that the exemption be effective as of

January 30, 1995, the date the Notice of Pendency was published in the

Federal Register. The Department has agreed to the applicant's request.

Accordingly, after consideration the entire record, including the

telephone inquiries and written comments submitted, and the applicant's

response, the Department has determined to grant the exemption as it

was proposed.

EFFECTIVE DATE: This exemption is effective on January 30, 1995.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,

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

Profit Sharing Plan for Employees of Annis, Mitchell, Cockey, Edwards &

Roehn, P.A. (the Plan) Located in Tampa, Florida

[Prohibited Transaction Exemption 95-32; Exemption Application No. D-

09906]

Exemption

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

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to the sale by the Plan to Annis, Mitchell, Cockey,

Edwards & Roehn, P.A. (the Employer), of the Plan's interest (the

Interest) in a limited partnership (the Partnership), for $40,000 in

cash, provided the following conditions are satisfied: (a) The sale is

a one-time transaction for cash; (b) no commissions or other expenses

are paid by the Plan in connection with the sale; and (c) the Plan

receives not less than the fair market value of the Interest as of the

date of the sale as determined by a qualified, independent expert.

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 February 10, 1995 at 60

FR 8092.

Written Comments: The Department received one written comment with

respect to the proposed exemption, which was submitted by the applicant

to correct an erroneous representation. The applicant had represented

that no shareholder or employee of the Employer individually purchased

an interest in the Partnership (see rep. 2 of the notice of proposed

exemption). Subsequent to the publication of the proposed exemption,

the applicant learned that one shareholder (the SH) of the Employer

owns a one-quarter unit interest in the Partnership. The SH acquired

his interest at the same time that the Plan acquired its interest, on

June 30, 1988. At that time, the SH was not a shareholder of the

Employer, but he became one in March of the following year. The

applicant represents that the SH was not a trustee of the Plan, nor was

he otherwise involved in making investment decisions on behalf of the

Plan in 1988, when the Plan acquired its Interest. The applicant

further represents that the SH has not participated in any deliberation

or decision on behalf of the Plan as to [[Page 18621]] whether to

retain or sell the Plan's Interest.

The Department has considered the entire record, including the

written comment submitted by the applicant, and has determined to grant

the exemption as it was proposed.

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

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

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

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

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

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

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

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

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

prohibited transaction; and

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

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, D.C., this 6th day of April, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 95-8915 Filed 4-11-95; 8:45 am]

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