Grant of Individual Exemptions; Aetna Inc. (Aetna)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 99-36; Exemption Application No. D-

10504, et al.]

Grant of Individual Exemptions; Aetna Inc. (Aetna)

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.

Aetna Inc. (Aetna), Located In Hartford, Connecticut

[Prohibited Transaction Exemption 99-36; Application No. D-10504]

Exemption

I. Transactions

The restrictions of section 406(a)(1)(A) through (D) and 406(b) 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 (F) of the

Code shall not apply to the following transactions, if the conditions

set forth in Section II and Section III, below, are satisfied:

1

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\1\ For purposes of this exemption, references to specific

provisions of Title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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(a) The receipt, directly or indirectly, by a sales agent (Sales

Agent or Sales Agents), as defined in Section IV(l) below, of a sales

commission from Aetna in connection with the purchase, with plan

assets, of an insurance contract (the Insurance Contract or Insurance

Contracts), as defined in Section IV(h) below;

(b) The receipt of a sales commission by Aetna, as principal

underwriter for a mutual fund registered under the Investment Company

Act of 1940, in connection with the purchase, with plan assets, of

securities issued by such mutual fund (the Aetna Fund or Aetna Funds),

as defined in Section IV(c) below;

(c) The effecting by Aetna, as a principal underwriter, of a

transaction for the purchase, with plan assets, of securities issued by

an Aetna Fund, and the effecting by a Sales Agent of a transaction for

the purchase, with plan assets, of an Insurance Contract; and

(d) The purchase, with plan assets, of an Insurance Contract from

Aetna.

II. General Conditions

(a) The transactions are effected by Aetna in the ordinary course

of Aetna's business as an insurance company, or as a principal

underwriter to an Aetna Fund, or in the case of a Sales Agent, in the

ordinary course of the Sales Agent's business as a Sales Agent.

(b) The transactions are on terms at least as favorable to the plan

as an arm's length transaction with an unrelated party would be.

(c) The combined total of all fees, sales commissions, and other

consideration received by Aetna or a Sales Agent: (1) For the provision

of services to the plan, and (2) in connection with a purchase of an

Insurance Contract or securities issued by an Aetna Fund, is not in

excess of ``reasonable compensation'' within the contemplation of

section 408(b)(2) and (c)(2) of the Act and section 4975(d)(2) and

(d)(10) of the Code. If such total is in excess of ``reasonable

compensation'' the ``amount involved'' for purposes of the civil

penalties of section 502(i) of the Act and excise taxes imposed by

section 4975(a) and (b) of the Code is the amount of compensation in

excess of ``reasonable compensation.''

III. Specific Conditions

(a) Aetna or the Sales Agent is not--

[[Page 52547]]

(1) A trustee of the plan (other than a non-discretionary trustee

who does not render investment advice with respect to any assets of the

plan, or a trustee to an investment trust (the Investment Trust), as

defined in Section IV(g) below, which will not purchase Insurance

Contracts or securities issued by an Aetna Fund pursuant to this

exemption);

(2) A plan administrator (within the meaning of section 3(16)(A) of

the Act and section 414(g) of the Code);

(3) A fiduciary who is expressly authorized in writing to manage,

acquire, or dispose of, on a discretionary basis, those assets of the

plan that are or could be invested in Insurance Contracts, securities

issued by an Aetna Fund, or an Investment Trust; or

(4) An employer any of whose employees are covered by the plan.

(b) (1) Prior to the execution of a transaction involving the

receipt of sales commissions by a Sales Agent in connection with the

plan's purchase of an Insurance Contract, Aetna or the Sales Agent

provides to an independent plan fiduciary (the Independent Plan

Fiduciary), as defined in Section IV(f) below, disclosures of the

following information concerning the Insurance Contract in writing and

in a form calculated to be understood by a plan fiduciary who has no

special expertise in insurance or investment matters:

(A) An explanation of: (i) The nature of the affiliation or

relationship between Aetna and the Sales Agent recommending the

Insurance Contract; and, (ii) the nature of any limitations that such

affiliation or relationship, or any agreement between the Sales Agent

and Aetna places on the Sales Agent's ability to recommend Insurance

Contracts;

(B) The sales commission, expressed as a percentage of gross annual

premium payments for the first year and for each of the succeeding

renewal years, that will be paid by Aetna to the Sales Agent in

connection with the purchase of the recommended Insurance Contract,

together with a description of any factors that may affect the

commission; and

(C) A full and detailed description of any charges, fees,

discounts, penalties, or adjustments which may be paid by the plan

under the recommended Insurance Contract in connection with the plan's

purchase, holding, exchange, termination, or sale of the Insurance

Contract, including a description of any factors that may affect the

level of charges, fees, discounts, or penalties paid by the plan.

(2) Following receipt of the information required to be provided to

the Independent Plan Fiduciary, as described in Section III(b)(1)

above, and before the execution of the transaction, the Independent

Plan Fiduciary acknowledges in writing receipt of such information and

approves the transaction on behalf of the plan. The Independent Plan

Fiduciary may be an employer of employees covered by the plan but may

not be a Sales Agent involved in the transaction. The Independent Plan

Fiduciary may not receive, directly or indirectly (e.g. through an

affiliate), any compensation or other consideration for his or her own

personal account from any party dealing with the plan in connection

with the transaction.

(3) With respect to additional purchases of Insurance Contracts,

the written disclosure required under Section III(b)(1) need not be

repeated, unless--

(A) More than three years have passed since such disclosure was

made with respect to the same kind of Insurance Contract, or

(B) The Insurance Contract being recommended for purchase or the

commission with respect thereto is materially different from that for

which the approval described under Section III(b)(2) was obtained.

(c)(1) With respect to purchases with plan assets of securities

issued by an Aetna Fund, or the receipt of sales commissions by Aetna

in connection with such purchases, Aetna provides to an Independent

Plan Fiduciary prior to the execution of the transaction the following

information concerning the Aetna Fund in writing and in a form

calculated to be understood by a plan fiduciary who has no special

expertise in insurance or investment matters:

(A) A description of: (i) The investment objectives and policies of

the Aetna Fund, (ii) the principal investment strategies that the Aetna

Fund may use to obtain its investment objectives, (iii) the principal

risk factors associated with investing in the Aetna Fund, (iv)

historical investment return information for the Aetna Fund, (v) fees

and expenses of the Aetna Fund, including annual operating expenses

(e.g., management fees, distribution fees, service fees, and other

expenses) and fees paid by shareholders (e.g., sales charges and

redemption fees), (vi) the identity of the Aetna Fund adviser, and

(vii) the procedures for purchases of securities issued by the Aetna

Fund (including any applicable minimum investment requirements and

sales charges);

(B) A description of: (i) The expenses of the recommended Aetna

Fund, including investment management, investment advisory, or similar

services, any fees for secondary services (e.g., for services other

than investment management, investment advisory, or similar services,

including but not limited to custodial, administrative, or other

services), and (ii) any charges, fees, discounts, penalties, or

adjustments that may be paid by the plan in connection with the

purchase, holding, exchange, termination, or sale of shares of the

recommended Aetna Fund securities, together with a description of any

factors that may affect the level of charges, fees, discounts, or

penalties paid by the plan or the Aetna Fund;

(C) An explanation of (i) the nature of the affiliation or

relationship between Aetna and the Aetna Fund, and (ii) the limitation,

if any, that such affiliation, relationship, or any agreement between

Aetna and the Aetna Fund places on Aetna's ability to recommend

securities issued by other investment companies;

(D) The sales commission, if any, that Aetna will receive in

connection with the purchase of securities of the recommended Aetna

Fund, expressed as either (i) a percentage of the dollar amount of the

plan's gross payments and the amount actually invested, (ii) a

percentage of the average daily net assets under investment in

securities issued by the Aetna Fund, or (iii) both if applicable,

together with a description of any factors that may affect the

commission; and

(E) A description of the procedure or procedures for redeeming the

Aetna Fund securities.

The disclosures required under Section III(c)(1) above shall be

deemed to be completed only if, with respect to fees and expenses of an

Aetna Fund, the type of each fee or expense (e.g., management fees,

administrative fees, fund operating expenses, and other fees, including

but not limited to fees payable for marketing and distribution services

pursuant to Rule 12b-1 under the Investment Company Act of 1940 (the

12b-1 Fees) ) and the rate or amount charged for a specified period

(e.g., annually) is provided in a written document separate from the

prospectus of such Aetna Fund.

(2) Following receipt of the information required to be provided to

the Independent Plan Fiduciary, as described in Section III(c)(1)

above, and before execution of the transaction, the Independent Plan

Fiduciary approves the specific transaction on behalf of the plan.

Unless facts and circumstances would indicate the contrary, such

approval may be presumed if the Independent Plan Fiduciary directs the

transaction to proceed after Aetna has

[[Page 52548]]

delivered the written disclosures to the Independent Plan Fiduciary.

The Independent Plan Fiduciary may be an employer of employees covered

by the plan but may not be Aetna. The Independent Plan Fiduciary may

not receive, directly or indirectly (e.g., through an affiliate), any

compensation or other consideration for his or her own personal account

from any party dealing with the plan in connection with the

transaction.

(3) With respect to additional purchases of Aetna Fund securities,

Aetna:

(A) Provides reasonable advance notice of any material change with

respect to the Aetna Fund securities being purchased or the commission

with respect thereto, and

(B) Repeats the written disclosure required under Section

III(c)(1)(A), (C), (D) and (E) once every three years.

(d)(1) Aetna shall retain or cause to be retained for a period of

six (6) years from the date of any transaction covered by this

exemption the following:

(A) The information disclosed with respect to such transaction

pursuant to Sections III(b), and (c);

(B) Any additional information or documents provided to the

Independent Plan Fiduciary with respect to the transaction; and

(C) Written acknowledgments, as described in Section III(b)(2)

above.

(2) A prohibited transaction shall not be deemed to have occurred

if, due to circumstances beyond the control of Aetna, such records are

lost or destroyed before the end of such six-year period.

(3) Notwithstanding anything to the contrary in sections 504(a)(2)

and (b) of the Act, such records shall be unconditionally available for

examination during normal business hours by duly authorized employees

or representatives of the Department of Labor, the Internal Revenue

Service, plan participants and beneficiaries, any employer of plan

participants and beneficiaries, and any employee organization any of

whose members are covered by the plan.

IV. Definitions

For purposes of this exemption--

(a) Aeltus means the Aeltus Trust Company, or any other financial

institution supervised under state or federal laws and affiliated with

Aetna.

(b) Aetna means the Aetna Life Insurance Company, the Aetna Life

Insurance and Annuity Company, and any of their affiliates, including

but not limited to Aeltus;

(c) Aetna Fund means any investment company registered under the

Investment Company Act of 1940 for which Aetna serves as investment

adviser and as principal underwriter (as that term is defined in

section 2(a)(29) of the Investment Company Act of 1940, 15 U.S.C. 80a-

2(a)(29)).

(d) An affiliate of a person means (1) any person directly or

indirectly controlling, controlled by, or under common control with

such person, (2) any officer, director, employee, or relative of any

such person, or any partner in such person, and (3) Any corporation or

partnership of which such person is an officer, director, or employee,

or in which such person is a partner. For purposes of this definition,

an ``employee'' includes (A) any registered representative of Aetna,

where Aetna or an affiliate is principal underwriter, and (B) any

insurance agent or broker or pension consultant acting under a written

agreement as Aetna's agent in connection with the sale of an Insurance

Contract, whether or not such registered representative or insurance

agent or broker or pension consultant is a common law employee of

Aetna.

(e) The term, control, means the power to exercise a controlling

influence over the management or policies of a person other than an

individual;

(f) Independent Plan Fiduciary means a fiduciary with respect to a

plan, which fiduciary has no relationship to, or interest in, Aetna

that might affect the exercise of such fiduciary's best judgment as a

fiduciary.

(g) Investment Trust means (1) any collective investment fund or

group trust qualifying for tax-exempt status under the provisions of

the Internal Revenue Code of 1986 and regulations and rulings

thereunder, of which Aeltus, as defined in Section IV(a) above, or its

successor or affiliate serves as trustee, or (2) any single-customer

trust account for which Aeltus serves as trustee, provided that Aeltus

has no discretionary authority or responsibility with respect to the

management or administration of, and does not provide any investment

advice with respect to, any plan assets not invested in such single-

customer trust account or another Investment Trust.

(h) Insurance Contract or Insurance Contracts means an insurance or

annuity contract issued by Aetna.2

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\2\ The Department expresses no opinion as to whether any so-

called ``synthetic guaranteed insurance contracts'' offered by Aetna

constitutes an Insurance Contract within the meaning of this

exemption. The Department further notes that this exemption provides

relief from the self-dealing and conflict of interest provisions of

the Act in connection with the sale of Insurance Contracts to plans

by fiduciaries. It does not provide relief from any acts of self-

dealing that do not arise directly in connection with the purchase

of specific insurance products. Thus, for example, no relief is

provided under this exemption for any act of self-dealing that may

arise in connection with the ongoing operation or administration of

an Insurance Contract.

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(i) A nondiscretionary trustee of a plan is a trustee whose powers

and duties with respect to any assets of the plan are limited to: (1)

the provision of nondiscretionary trust services, as defined in Section

IV(j) below, to such plan, and (2) the duties imposed on the trustee by

any provision or provisions of the Act or the Code.

(j) Nondiscretionary trust services means custodial services and

services ancillary to custodial services, none of which services are

discretionary.

(k) A 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

Code section 4975(e)(6)), or a brother, a sister, or a spouse of a

brother or a sister;

(l) Sales Agent means any insurance agent, broker, or pension

consultant or any affiliate thereof that is affiliated with Aetna.

(m) Principal underwriter is defined in the same manner as that

term is defined in section 2(a)(29) of the Investment Company Act of

1940 (15 U.S.C. 8a-2(a)(29)).

Effective Date: This exemption will be effective as of August 28,

1997, the date of the filing of the application for exemption.

Written Comments

In the Notice of Proposed Exemption (the Notice), the Department of

Labor (the Department) invited all interested persons to submit written

comments and requests for a hearing on the proposed exemption within

forty-five (45) days of the date of the publication of the Notice in

the Federal Register on May 13, 1999. All comments and requests for a

hearing were due by June 28, 1999.

During the comment period, the Department received no requests for

a hearing. However, the Department did receive two (2) comment letters

from Aetna, the applicant, dated June 28, and August 10, 1999,

respectively. In the comment letters, the applicant requested certain

modifications and clarifications to the language of the exemption, as

proposed, and informed the Department of certain changes, as described

in the Summary of Facts and Representations (the SFR) in the Notice.

Specifically, the issues raised in the applicant's comment letters fall

into seven (7) categories: (1) Clarification regarding the transactions

exempted by

[[Page 52549]]

Section I(c) and Section I(d); (2) an issue relating to reliance on

other applicable exemptions; (3) an alternative method of disclosing

sales commissions; (4) clarification of the scope of the exemption; (5)

interpretation of the definition of Sales Agent, as set forth in

Section IV(l); (6) certain corrections to the facts, as set forth in

the SFR in the Notice, and (7) a modification of the language of the

definition of Aeltus, as set forth in Section IV(a). A discussion of

each of the applicant's comments and the Department's responses,

thereto, are set forth in the numbered paragraphs below.

1. The applicant seeks clarification from the Department of the

transactions exempted by Section I(c) and Section I(d), as published in

the Notice (64 FR at 25917, column 1, lines 26-34). In this regard,

Section I(c) provides relief for:

The effecting by Aetna, as a principal underwriter, of a

transaction for the purchase, with plan assets, of securities issued

by an Aetna Fund, and the effecting by a Sales Agent of a

transaction for the purchase, with plan assets, of an Insurance

Contract.

Further, Section I(d) provides relief for, ``The purchase, with plan

assets, of an Insurance Contract from Aetna.''

Specifically, Aetna requests that the Department confirm that

Section I(c) and Section I(d) would be available for the effecting by

Aetna of a transaction for the purchase of an Insurance Contract, as

defined in Section IV(h), where the sale is effected through an

employee of Aetna or through one of Aetna's affiliates. The concern is

that Aetna itself would require relief if either: (a) A plan's purchase

of an Insurance Contract from Aetna is deemed to be a prohibited sale

between a plan and a party in interest; or (b) Aetna is deemed to be a

fiduciary because its employee/agent provided investment advice and, as

a result, Aetna is deemed to have committed a prohibited transaction by

effecting the sale of an Insurance Contract.

Aetna believes that, as an affiliate of a Sales Agent, as defined

in Section IV(d), it should be able to rely on the relief provided by

Section I(c), because the definition of Sales Agent, as set forth in

Section IV(l), includes any ``affiliate'' of such Sales Agent. In

addition, Aetna believes that the purchase from Aetna of an Insurance

Contract should be exempted under Section I(d), even if Aetna may be a

fiduciary as a result of investment advice provided by an Aetna

employee/agent. The Department concurs.

2. The applicant seeks clarification from the Department of the

interpretation of Section III(a)(1), as published in the Notice (64 FR

at 25917, column 1, lines 66-67 and column 2, lines 1-10). In this

regard, Section III(a)(1) provides that Aetna or a Sales Agent may not

rely on the exemption, if Aetna or the Sales Agent is:

A trustee of the plan (other than a non-discretionary trustee who

does not render investment advice with respect to any assets of the

plan, or a trustee to an investment trust (the Investment Trust), as

defined in Section IV(g) below, which will not purchase Insurance

Contracts or securities issued by an Aetna Fund pursuant to this

proposed exemption) (emphasis added).

Specifically, Aetna seeks confirmation that the phrase underlined

in the quotation above does not preclude its reliance on other

exemptions. In this regard, Aetna represents that while it will not

rely on the subject exemption for a purchase of Aetna Funds or an

Insurance Contract by an Investment Trust, such a transaction might be

covered by an applicable class exemption.

It is not the intention of the Department to preclude Aetna from

taking advantage of any other available exemption, proved that Aetna

has met the conditions for relief, as set forth in such exemption.

Accordingly, the Department has decided to retain the language of

Section III(a)(1), as set forth in the Notice, except that the word,

``proposed,'' before the word, ``exemption,'' has been deleted.

3. Section III(c)(1)(D), as set forth in the Notice (64 FR at

25918, column 1, lines 26-34), requires the disclosure to an

Independent Plan Fiduciary prior to execution of the transaction of:

The sales commission, if any, that Aetna will receive in

connection with the purchase of securities of the recommended Aetna

Fund, expressed as a percentage of the dollar amount of the plan's

gross payments and the amount actually invested, together with a

description of any factors that may affect the commission.

In footnote 4 of the Notice (64 FR at 25919), the Department noted

that the relief provided by the subject exemption does not preclude the

receipt by Aetna or its affiliates of 12b-1 Fees to the extent that the

payment of such 12b-1 Fees cannot be functionally distinguished from

the payment of a sales commission in connection with the purchase with

plan assets, of securities issued by an Aetna Fund. In this regard,

Aetna notes that such 12b-1 Fees are calculated as a percentage of

assets under management in Aetna Fund securities and that disclosure of

12b-1 Fees could not be easily expressed as, ``a percentage of the

dollar amount of the plan's gross payments and the amount actually

invested,'' as required by Section III(c)(1)(D). Further, Aetna is not

aware that 12b-1 Fees are disclosed in such a format by any mutual fund

provider or broker. Accordingly, Aetna has proposed an additional

method for the disclosure of 12b-1 Fees, or both methods, if

applicable, pursuant to this exemption. In this regard, Aetna requests

that the Department substitute the following text for the language of

Section III(c)(1)(D), as it appeared in the Notice:

The sales commission, if any, that Aetna will receive in

connection with the purchase of securities of the recommended Aetna

Fund, expressed as either (i) a percentage of the dollar amount of

the plan's gross payments and the amount actually invested, (ii) a

percentage of assets invested in securities issued by the Aetna

Fund, or (iii) both if applicable, together with a description of

any factors that may affect the commission.

If the Department does not accept the proposed substitution, Aetna

has suggested a second alternative. In this regard, Aetna notes that

asset-based 12b-1 Fees are required to be disclosed under Sections

III(c)(1)(A) and (B) of the exemption. Accordingly, in the alternative,

Aetna requests the Department confirm that to the extent 12b-1 Fees are

paid from the assets of an Aetna Fund, all of the disclosure conditions

under the exemption would be satisfied by disclosure of 12b-1 Fees

under Sections III(c)(1)(A) and (B), and additional disclosure

regarding 12b-1 Fees would not be required under Section III(c)(1)(D).

The Department has decided not to accept Aetna's second

alternative, which is described in the paragraph above. Instead, with

certain revisions to the language of sub-paragraph (ii), the Department

has decided to adopt the substitute language for Section III(c)(1)(D)

suggested by Aetna. In this regard, as amended, Section III(c)(1)(D) of

the exemption reads as follows:

The sales commission, if any, that Aetna will receive in

connection with the purchase of securities of the recommended Aetna

Fund, expressed as either (i) a percentage of the dollar amount of

the plan's gross payments and the amount actually invested, (ii) a

percentage of the average daily net assets under investment in

securities issued by the Aetna Fund, or (iii) both if applicable,

together with a description of any factors that may affect the

commission.

4. Aetna requests that footnote 2, as it appeared in the Notice (64

FR at 25918), should be amended to read, as follows:

The Department expresses no opinion as to whether any so-called

``synthetic guaranteed insurance contracts'' offered by Aetna

[[Page 52550]]

constitutes an Insurance Contract within the meaning of this

proposed exemption. The Department further notes that this proposed

exemption provides relief from the self-dealing and conflict of

interest provisions of the Act in connection with the sale of

Insurance Contracts and Aetna Funds to plans by fiduciaries. It does

not provide relief from any acts of self-dealing that do not arise

directly in connection with the purchase of specific insurance

products. Thus, for example, no relief is provided under this

proposal for any act of self-dealing that may arise in connection

with the ongoing operation or administration of an Insurance

Contract.

The Department has decided to delete the contents of footnote 2, as

it appeared in the Notice, and, with certain revisions, has adopted the

language suggested by Aetna as the text for footnote 2 in the

exemption. With regard to revisions of the language suggested by Aetna,

the Department has:

(a) Deleted the word, ``proposed,'' before the word, ``exemption,''

in the first and second sentences of the quotation above;

(b) Deleted the phrase, ``and Aetna Funds'' after the words,

``Insurance Contracts,'' in the second sentence of the quotation above;

and

(c) Substituted the word, ``exemption,'' for the word,

``proposal,'' in the fourth sentence of the quotation above.

Accordingly, the revised language of footnote 2 into this exemption

reads as follows:

The Department expresses no opinion as to whether any so-called

``synthetic guaranteed insurance contracts'' offered by Aetna

constitutes an Insurance Contract within the meaning of this

exemption. The Department further notes that this exemption provides

relief from the self-dealing and conflict of interest provisions of

the Act in connection with the sale of Insurance Contracts to plans

by fiduciaries. It does not provide relief from any acts of self-

dealing that do not arise directly in connection with the purchase

of specific insurance products. Thus, for example, no relief is

provided under this exemption for any act of self-dealing that may

arise in connection with the ongoing operation or administration of

an Insurance Contract.

In addition, Aetna has requested that the Department confirm that

the last sentence of the quotation above does not refer to routine

transactions such as asset valuation and rate setting, but only to

extraneous transactions such as asset transfer and loan advances.

Although the Department is unable to provide the requested confirmation

regarding the application of the footnote to routine transactions, it

is our view that transactions, such as asset transfers and loan

advances made to parties in interest in connection with the operation

of the Insurance Contract, would be beyond the scope of this exemption.

5. Aetna requests that the Department amend the definition of Sales

Agent, as set forth in Section IV(l). In this regard, Section IV(l), as

it appeared in the Notice (64 FR at 25919, column 1, lines 20-24),

provides that:

``Sales Agent'' means any insurance agent, broker, or pension

consultant or any affiliate thereof that is affiliated with Aetna

either through ownership or by contractual arrangement (emphasis

added).

Aetna is concerned that the phrase underlined in the quotation of

Section IV(l) above imposes a limitation on the definition of Sales

Agent. Specifically, Aetna believes that such language may exclude

Aetna from being considered an affiliate of a Sales Agent where an

individual who is a broker or pension consultant is affiliated with

Aetna by being Aetna's employee, rather than through a contractual or

ownership arrangement. In addition, Aetna is concerned that the

language of Section IV(1) does not make it clear that the term, ``Sales

Agent'' would include any affiliate of a Sales Agent. Accordingly,

Aetna requests that the Department clarify the definition of Sales

Agent. Further, Aetna suggests that the Department substitute for the

text of Section IV(1), as it appeared in the Notice, the following

language:

``Sales Agent'' means any insurance agent, broker, or pension

consultant that is an employee of Aetna or is affiliated with Aetna

either through ownership or by contractual arrangement, or any

affiliate thereof.

The Department has decided not to adopt the language in the

quotation above which was suggested by Aetna. Instead, the Department

has decided to modify the definition of a Sales Agent to clarify the

term. Accordingly, as amended, Section IV(l) of the exemption reads as

follows:

``Sales Agent'' means any insurance agent, broker, or pension

consultant or any affiliate thereof that is affiliated with Aetna.

Further, it is the view of the Department that Aetna would not be

excluded from being considered an affiliate of a Sales Agent where an

individual who is a broker or pension consultant is affiliated with

Aetna by being Aetna's employee. In this regard, the Department notes

that for purposes of the definition of affiliate, as set forth in

Section IV(d) of the exemption, an ``employee'' includes:

Any registered representative of Aetna, where Aetna or an

affiliate is principal underwriter, and (B) any insurance agent or

broker or pension consultant acting under a written agreement as

Aetna's agent in connection with the sale of an Insurance Contract,

whether or not such registered representative or insurance agent or

broker or pension consultant is a common law employee of Aetna.

In this regard, the Department notes that the general and specific

conditions, as set forth in the exemption, however, must be satisfied.

Specifically, Section II(a) provides that the transactions must be:

Effected by Aetna in the ordinary course of Aetna's business as

an insurance company, or as a principal underwriter to an Aetna

Fund, or in the case of a Sales Agent, in the ordinary course of the

Sales Agent's business as a Sales Agent.

Accordingly, the Department notes that in order for Aetna, a Sales

Agent, or a principal underunderwriter to rely upon relief for the

transactions described in the exemption, each such person must satisfy

Section II(a), among other conditions set forth in the exemption.

6. Aetna has informed the Department of certain changes in the

services arrangements among Aetna and its affiliates. Because these

changes occurred after Aetna filed its application for exemption with

the Department, some of the facts and representations that appeared in

the SFR are no longer completely accurate. For this reason, Aetna has

suggested certain deletions and additions to the language, as published

in the Notice and requests that the Department substitute the text

which is quoted below for the language that appeared in the SFR. Aetna

represents that none of the changes involve a material change in any

facts or representations made by Aetna in its application for

exemption. The Department concurs and has made the requested deletions

and additions in the language of the SFR. Aetna's deletions to the

language that appeared in the SFR are noted below by the words in

brackets, and Aetna's additions have been underlined in the text below.

The text of paragraph 6, as published in the Notice (64 FR at

25919, column 2, lines 59-68 and column 3, lines 1-2), should have read

as follows:

Aetna Investment Services, Inc. (AISI), Aetna Financial

Services, Inc. (AFSI), Aeltus Capital, Inc. (Aeltus Capital), and

Financial Network Investment Corporation (FNIC) are each registered

broker-dealers with the SEC and are [wholly-owned] affiliates of

ALIC and ALIAC. [ALIC ] ALIAC, AISI, [AFSI] Aeltus Capital, and FNIC

and their successors (together with ALIC, the Aetna Companies) have

provided and will provide a variety of services to the Aetna Funds

or in connection with the distribution of Aetna Funds.

The text of paragraph 7, as published in the Notice (64 FR at

25919, column 3, lines 3-36), should have read as follows:

[[Page 52551]]

[In this regard] [A]s disclosed in the prospectus materials for

each of the Aetna Funds, ALIAC is the investment adviser to [all of

the Aetna Funds] Aetna's Portfolio Partners Funds and Aeltus

Investment Management, Inc. (AIM) is the investment adviser to the

Aetna Series Funds and the Aetna Variable Funds. In addition, both

ALIAC and AIM provide other services (the Secondary Services) to

Aetna Funds for which they are the investment adviser, including

accounting, shareholder administration, [sub-accounting,] and other

administrative services. ALIAC also provides sub-accounting services

in connection with Aetna Funds offered through its variable annuity

contract. Further ALIAC is the principal underwriter to the Aetna

Variable Funds and Portfolio Partners, Inc., and [AISI] Aeltus

Capital is the principal underwriter to the Aetna Series Funds. In

this regard, it is represented that as principal underwriters, ALIAC

and [AISI] Aeltus Capital distribute Aetna Fund shares on an agency

basis. It is further represented that ALIAC and AIM may engage

affiliated or unaffiliated sub-advisers to the Aetna Funds from time

to time.

Under the terms of services agreements between ALIAC or AIM and

an Aetna Fund, ALIAC or AIM may receive management fees and fees for

Secondary Services. In addition, ALIAC or [AISI] Aeltus Capital may

receive sales commissions and distribution fees, including for some

classes of shares issued by certain Aetna Funds 12b-1 Fees. It is

represented that the prospectus materials including the Statement of

Additional Information, for each of the Aetna Funds disclose whether

such fees are paid and the basis under which such fees are paid.

7. Aetna informed the Department that it has applied for and is in

the process of obtaining authority to establish and operate a federally

chartered savings bank (the Savings Bank). If approved, the Savings

Bank may establish and operate certain collective investment funds or

group trusts or single customer trust accounts on behalf of plans

covered by the Act. Aetna would like to ensure that relief provided by

the exemption will extend to plans that invest in a trust maintained by

the Savings Bank on the same terms and conditions that would apply, if

the plan had invested in a trust maintained by Aeltus. Accordingly,

Aetna proposes that the Department revise Section IV(a), as published

in the Notice (64 FR 25918, column 2, line 55-56), to read as follows:

Aeltus means the Aeltus Trust Company, or any other financial

institution supervised under state or federal laws and affiliated

with Aetna.

The Department concurs and has incorporated the requested language into

Section IV(a) of the exemption.

After giving full consideration to the entire record, including the

written comments from the applicant, the Department has decided to

grant the exemption, as described, amended, and concurred in above. In

this regard, the comment letters submitted by the applicant to the

Department has been included as part of the public record of the

exemption application. The complete application file, including all

supplemental submissions received by the Department, is made available

for public inspection in the Public Documents Room of the Pension

Welfare Benefits Administration, Room N-5638, U. S. Department of

Labor, 200 Constitution Avenue, NW, Washington, DC 20210.

For a more complete statement of the facts and representations

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

the Notice published on May 13, 1999, at 64 FR 25916.

For Further Information Contact: Angelena C. Le Blanc of the

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

Modern Woodmen of America Employees' Savings Plan (the Plan),

Located in Rock Island, Illinois

[Prohibited Transaction Exemption 99-37; Exemption Application No. D-

10518]

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 past sale, on March 23, 1998, by the Plan of

certain commercial mortgages and bonds (the Securities) to Modern

Woodmen of America (the Employer), a party in interest with respect to

the Plan, provided that the following conditions were satisfied: (1)

The sale was a one-time transaction for cash; (2) the Plan paid no

commissions nor other expenses relating to the sale; (3) for each

Security, the Plan received an amount equal to the highest, as of the

date of the sale, of (a) the par value, (b) the book value, or (c) the

fair market value of the Security, as determined by a qualified,

independent appraiser; and (4) the Plan received the accrued but unpaid

interest that was due on each Security at the time of the transaction.

Effective Date: The exemption is effective as of March 23, 1998.

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 August 11, 1999 at 64 FR

43740.

For Further Information Contact: Ms. Karin Weng 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, DC, this 21st day of September, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare

BenefitsAdministration, Department of Labor.

[FR Doc. 99-24939 Filed 9-28-99; 8:45 am]

BILLING CODE 4510-29-P