Vol. 77 Friday, 

No. 249 December 28, 2012 

Part V 

Department of Labor 

Employee Benefits Security Administration 

Proposed Exemptions From Certain Prohibited Transaction Restrictions; 

Notice 


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76770 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

1The Department has considered exemption 

applications received prior to December 27, 2011 

under the exemption procedures set forth in 29 CFR 

Part 2570, Subpart B (55 FR 32836, 32847, August 

10, 1990). 

2For purposes of this proposed exemption, 

references to section 406 of the Act should be read 

to refer also to the corresponding provisions of 

section 4975 of the Code. 

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– 

11664, Atlas Energy, Inc. Employee 

Stock Ownership Plan (the Plan); D– 

11718, Notice of Proposed Amendment 

to Prohibited Transaction Exemption 

(PTE) 2007–05, Involving Prudential 

Securities Incorporated; L–11720, The 

Mo-Kan Teamsters Apprenticeship and 

Training Fund (the Fund); L–11738, The 

Coca-Cola Company (TCCC) and Red Re, 

Inc. (Red Re) (together, the Applicants); 

and D–11671, Silchester International 

Investors LLP (Silchester or the 

Applicant). 

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: All comments will be made 

available to the public. Do not include 

any personally identifiable information 

(such as Social Security number, name, 

address, or other contact information) or 

confidential business information that 

you do not want publicly disclosed. All 

comments may be posted on the Internet 

and can be retrieved by most Internet 

search engines. 

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 (76 FR 

66637, 66644, October 27, 2011).1

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. 

Atlas Energy, Inc. Employee Stock 

Ownership Plan (the Plan) Located in 

Philadelphia, Pennsylvania 

[Application No. D–11664] 

Proposed Exemption 

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). If 

the proposed exemption is granted, the 

restrictions of sections 406(a)(1)(A), 

406(a)(1)(D)–(E), 406(a)(2), 406(b)(1)–(2) 

and 407(a) of the Act, and the sanctions 

resulting from the application of section 

4975 of the Code, by reason of section 

4975(c)(1)(A) and 4975(c)(1)(D)–(E) of 

the Code, shall not apply, as of February 

17, 2011, to the past acquisition and 

holding of certain units of Atlas 

Pipeline Holdings, L.P. (the AHD Units) 

by the Plan in connection with a merger 

(the Merger) of Arkham Corporation 

with and into Atlas Energy, Inc. (the 

Company), a party in interest with 

respect to the Plan, provided that the 

following conditions were satisfied: 2

(a) The Plan’s acquisition and holding 

of the AHD Units in connection with the 

Merger occurred as a result of an 

independent act of the Company as a 

corporate entity; 

(b) All shareholders of the Company, 

including the Plan, were treated in a 

like manner with respect to all aspects 

of the Merger; 

(c) An independent fiduciary 

determined that the consideration 

received by the Plan pursuant to the 

Merger was not less than fair market 

value and that the overall terms and 

conditions of the Merger were fair to the 

Plan; 

(d) All shareholders of the Company, 

including the Plan, received the same 

proportionate number of AHD Units 

based upon the number of shares of 

Company stock held by such 

shareholders; 

(e) Pursuant to the terms of the Plan 

and in connection with the Merger, each 

participant was entitled to direct the 

independent fiduciary as to how to vote 

the Company shares allocated to his or 

her account; and 

(f) No commissions or other fees 

associated with the Merger were paid by 

the Plan except for brokerage charges 

and fees with respect to the subsequent 

sale of the AHD Units, which were paid 


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3The plan sponsor is the plan administrator for 

the Plan. 

4The Department expresses no opinion as to 

whether the Atlas Shares are ‘‘qualifying employer 

securities,’’ within the meaning of section 407(d)(5) 

of the Act. 

5The Company will liquidate the Plan’s trust and 

provide for final distributions to the participants as 

soon as administratively feasible after receipt of a 

favorable final determination letter from the IRS. 6See paragraphs 14–19 for a description of the 

process engaged in by Great Banc for determining 

whether the Merger was fair and in the best 

interests of the Plan. The Applicants also clarified 

that the Atlas Shares were transferred ultimately to 

Chevron, which provided only the cash 

consideration for the Atlas Shares. Therefore, the 

receipt by the Plan of the AHD Units was not 

consideration specifically in an exchange with 

Chevron as Chevron never owned AHD. Because 

the Company was an indirect majority owner of 

AHD, the Applicants represent that the receipt by 

the Plan of the AHD Units is analogous to a 

dividend-in-kind distribution rather than the 

receipt of consideration in an exchange with 

Chevron. 

7Section 407(d)(7) of the Act provides generally 

that a corporation is an affiliate of an employer if 

it is a member of any controlled group of 

corporations of which the employer who maintains 

the plan is a member. 

8 In support of this view, the Applicants cite 

Advisory Opinion 80–55A (September 23, 1980), 

which considered whether a joint venture owning 

65 percent of the interests in a corporation is 

considered an affiliate of the corporation pursuant 

to section 407(d)(7) of the Act. 

by the Plan to a person who is not 

affiliated with any Plan fiduciary. 

Effective Date: This proposed 

exemption, if granted, will be effective 

February 17, 2011. 

Summary of Facts and Representations 

1. The prohibited transaction 

exemption proposed herein was 

requested by Atlas Energy Inc. (the 

Company) and GreatBanc Trust 

Company (GreatBanc)(together, the 

Applicants). Currently, the Company is 

a wholly-owned subsidiary of Chevron 

Corporation (Chevron). The Company is 

one of the largest producers of natural 

gas. 

2. Before the Company’s acquisition 

by Chevron, the Company established, 

on June 30, 2005, The Atlas Energy, Inc. 

Employee Stock Ownership Plan (the 

Plan), as part of a spin-off of the 

Company from Resource America,3 at 

which time the Company became a 

publicly traded company incorporated 

in Delaware with offices in 

Philadelphia, Pennsylvania. The Plan 

was a leveraged ESOP until December 

31, 2008, when the balance on the ESOP 

loan between the Company and the Plan 

was paid in full. The Plan’s trustee was 

GreatBanc Trust Company (GreatBanc), 

an Illinois corporation with offices in 

Lisle, Illinois. 

3. Each participant in the Plan had a 

Company Stock account and an ‘‘Other 

Investments’’ account; however, the 

Plan provided for investments primarily 

in common shares of Company Stock 

(Atlas Shares.) It is represented that the 

Atlas Shares are ‘‘qualifying employer 

securities,’’ within the meaning of 

section 407(d)(5) of the Act.4

4. With respect to the Company’s 

acquisition by Chevron, the Company 

first entered into a ‘‘Plan of Redemption 

and Merger’’ on November 8, 2010, 

subject to a shareholder vote. The 

aggregate fair market value of the Plan’s 

assets was approximately 

$29,776,689.49, as of December 31, 

2010. The Plan had 820 participants and 

beneficiaries, as of the same date. As of 

December 31, 2010, the value of the 

approximately 671,656 Atlas Shares 

held by the Plan represented 

approximately 99 percent of the 

aggregate value of the Plan’s assets, 

which, represented approximately one 

percent of the outstanding Atlas Shares. 

5. On January 28, 2011, the 

Company’s Board of Directors adopted a 

resolution to terminate the Plan. 

Subsequently, an application for a final 

determination letter with respect to the 

Plan’s termination was submitted to the 

Internal Revenue Service (IRS) on 

January 31, 2011, and all participants 

became fully vested in their account 

balances.5 As a shareholder with an 

approximately one percent ownership 

interest in the Company, the Plan did 

not have the ability to materially 

influence the structure and terms of the 

Merger. Under the terms of the Plan, 

voting rights passed through to 

participants in proportion to the number 

of Atlas Shares held in their respective 

Company Stock accounts in the Plan. 

Accordingly, the Plan participants were 

provided with shareholder rights to vote 

for or against the Merger. The deadline 

for the exercise of such rights was 

February 13, 2011. The Atlas 

shareholders voted for the Plan of 

Redemption and Merger, which 

occurred on February 17, 2011, through 

a reverse merger (the Merger) with the 

Arkham Corporation, a wholly-owned 

subsidiary of Chevron. Because of the 

manner in which the Merger was 

designed, Arkham merged with and into 

the Company (i.e., the Company became 

the surviving subsidiary of Chevron). 

6. After February 17, 2011, Atlas 

Shares were delisted from the New York 

Stock Exchange (NYSE). All 

shareholders of the Company received 

the same consideration under the terms 

of the Merger, as described further 

below. 

7. Immediately preceding the Merger, 

the Company held a 64 percent interest 

in Atlas Pipeline Holdings, L.P. (AHD), 

a Delaware limited partnership whose 

limited partnership units (the AHD 

Units) are publicly traded. 

8. The Applicants represent that, 

pursuant to the terms of the Merger, 

shareholders of the Company 

(including, indirectly, the participants 

in the Plan) exchanged each of their 

Atlas Shares for $38.25 in cash and 

approximately 0.520 AHD Units (the 

Exchange).6 The payment of the cash 

portion of the consideration was made 

to each participant’s respective Other 

Investments Plan account and invested 

in a money market fund. 

9. The Applicants represent that the 

AHD Units acquired and held by the 

Plan may violate sections 406(a)(1)(E), 

406(a)(2), and 407 of the Act, which 

prohibit plans from acquiring and 

holding ‘‘employer securities,’’ as 

defined in section 407(d)(1) of the Act, 

that are not ‘‘qualifying employer 

securities,’’ as defined in section 

407(d)(5) of the Act. Section 407(d)(1) of 

the Act defines the term ‘‘employer 

securities’’ as a security issued by an 

employer of employees covered by the 

plan, or by an affiliate of such employer. 

The Applicants note that although AHD 

is not a corporation and does not fall 

within the literal definition of an 

‘‘affiliate,’’ as set forth in section 

407(d)(7) of the Act,7 AHD may 

nonetheless be considered an affiliate of 

the Company given the extent of the 

Company’s ownership of AHD.8

Therefore, the AHD Units may be 

considered ‘‘employer securities’’ for 

purposes of section 407 of the Act. The 

Applicants note further that section 

407(d)(5) of the Act defines a ‘‘qualified 

employer security’’ as an employer 

security that is either stock, a 

marketable obligation or an interest in a 

publicly traded partnership that was in 

existence on December 17, 1987 (i.e., a 

grandfathered publicly-traded 

partnership). However, the AHD Units 

do not meet this definition since they 

are not stock, marketable obligations or 

grandfathered partnership interests. 

10. The Applicants request further 

relief from sections 406(a)(1)(D) and 

406(b)(1)–(2) of the Act. Section 

406(a)(1)(D) prohibits the transfer to, or 

use by or for the benefit of, a party in 

interest, of any assets of the plan. 

Section 406(b)(1) prohibits a fiduciary 

with respect to a plan from dealing with 

the assets of the plan in his own interest 

or for his own account. Section 

406(b)(2) prohibits a fiduciary from 

acting, in his individual or in any other 

capacity, in any transaction involving 

the plan on behalf of a party (or 

representing a party) whose interests are 

adverse to the interests of the plan or 

the interests of its participants or 

beneficiaries. 


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9Prior to the Merger, the Applicants filed an 

exemption application with the Department, dated 

February 11, 2011. 

10The brokerage fees associated with the sale of 

the AHD Units are discussed in paragraph 23 of the 

Facts and Representations. 

11 GreatBanc represents that because it disclosed 

all relevant information concerning fees and 

expenses to the Company before investments were 

made, and because GreatBanc received the written 

11. GreatBanc served as the 

independent fiduciary for the Plan with 

respect to the Merger and Exchange. The 

Applicant represents that GreatBanc, a 

wholly-owned subsidiary of U.S. 

Fiduciary Services, Inc., is nationally 

recognized as a highly skilled trustee 

specializing in complex financial 

transactions. GreatBanc has offices in 

Chicago, New York City, and Milwaukee 

and has over $13 billion in client assets 

under supervision. GreatBanc has 

confirmed that less than one percent of 

its gross annual income is derived from 

the Company or an affiliate thereof. 

12. In addition to the proxy 

information regarding the Merger that 

was provided to each participant in the 

Plan, GreatBanc provided a notice to 

each such participant that described 

GreatBanc’s role and its process of 

consideration regarding the Merger. 

GreatBanc also informed participants 

that any AHD Units received pursuant 

to the Merger would be sold on the 

public market and that there was no 

guarantee as to the price to be received 

in such sale. 

13. The Applicants represent that 

GreatBanc had full discretion and 

powers to act on behalf of the Plan in 

determining what action to take with 

respect to the Merger. Specifically, 

GreatBanc had authority to (a) review 

and evaluate the Merger, (b) take all 

appropriate action necessary in 

connection with the Merger (including 

the execution of the pass-through voting 

procedures under the terms of the Plan), 

(c) vote the Atlas Shares in those 

accounts for which no participant 

direction was timely received, and (d) 

ensure that the AHD Units were 

disposed of in a timely and prudent 

manner after the Merger. 

14. The Applicants represent that as 

part of its fiduciary duties, GreatBanc: 

Reviewed relevant documents regarding 

the Company, AHD, and the Merger; 

held discussions with advisors and 

consultants, including Prairie Capital 

Advisors, Inc. (Prairie), GreatBanc’s 

independent financial advisor; and 

performed an analysis of the terms of 

the Merger. Thereafter, the Applicants 

state that GreatBanc determined that the 

Merger was fair and in the best interests 

of the Plan. 

15. Prairie is a financial advisory firm 

specializing in business valuations, 

investment banking, and restructuring 

and performance improvement. Prairie’s 

business valuation practice provides 

valuations of privately held businesses 

and business interests for all purposes. 

The Applicants represent that Prairie 

Capital is qualified to advise GreatBanc 

in this matter having provided financial 

advisory services for more than 100 

employee benefit plan clients. 

16. The Applicants represent that the 

fees received by Prairie for services 

rendered in connection with the Merger 

were not contingent upon the opinion 

expressed by Prairie, described below, 

regarding the Merger. Further, neither 

Prairie nor any of its employees has a 

present or intended financial 

relationship with or interest in the Plan, 

AHD, or Chevron. It is represented that 

Prairie derived approximately 2.2 

percent of its gross annual income from 

the Company and its affiliates. 

17. In order to assess the fairness of 

the terms and conditions of the Merger, 

Prairie prepared a valuation analysis of 

the Company (ignoring the effects of the 

Merger) to determine if the publicly 

traded price of each entity was a 

reasonable representation of its value. In 

addition, Prairie prepared a valuation 

analysis of AHD on a post-merger basis 

to assess the value of the AHD Units 

following the Merger because part of the 

consideration paid to the plan would be 

in the form of AHD Units. 

18. Prairie issued a report to 

GreatBanc on February 15, 2011, 

expressing its opinion that: (a) The 

consideration received by the Plan for 

the Atlas Shares was not less than the 

fair market value of such shares; and (b) 

the overall terms and conditions of the 

Merger were fair to the Plan from a 

financial point of view. On or about 

February 15, 2011, GreatBanc made a 

determination, after receipt of the 

above-referenced report from Prairie, 

that: (a) The consideration received by 

the Plan for the Atlas Shares was not 

less than the fair market value of such 

shares; and (b) the overall terms and 

conditions of the Merger were fair to the 

Plan from a financial point of view. 

19. The Applicants represent that 

GreatBanc could have decided to avoid 

any risk of involving the Plan in a 

prohibited transaction by either selling 

all of the Plan’s Atlas Shares prior to the 

Merger, or by not exchanging the Atlas 

Shares, in part, for the AHD Units. 

However, after consulting with Prairie 

to determine which course of action was 

more prudent and fair to the Plan and 

its participants, GreatBanc determined 

that exchanging the Atlas Shares, in 

part, for the AHD Units would be the 

best course of action, provided a 

prohibited transaction exemption could 

be obtained from the Department.9

20. In this regard, the Applicants 

represent that GreatBanc determined, 

among other things, that, if the Atlas 

Shares were sold in the open market 

prior to the Merger, Plan participants 

would not receive the best value that 

they could have when compared to the 

total consideration the Plan could 

receive in the Exchange and the 

ultimate sale of the AHD Units. 

Additionally, GreatBanc determined 

that there could also be a risk to the Plan 

in selling the Atlas Shares prematurely 

if, for example, the Merger did not close, 

or if another potential buyer offered 

more for the Atlas Shares after these 

shares were sold. In such a situation, 

GreatBanc would have foregone the 

potential higher consideration that the 

Plan could have received for the Atlas 

Shares. 

21. The Applicants represent that the 

Plan received a total of 349,471.7245 

AHD Units pursuant to the Exchange. 

The AHD Units were freely transferable 

by non-affiliated entities, including the 

Plan; however, the Plan did not allow 

participants to direct any activity with 

respect to the AHD Units. In this regard, 

the Applicants represent that, following 

completion of the Merger on February 

17, 2011, the AHD Units were sold in an 

orderly liquidation by GreatBanc in 

open market transactions on the NYSE 

between March 2, 2011 and March 10, 

2011, in accordance with the prudence 

standards set forth under section 404 of 

the Act.10 The proceeds from the 

dispositions of the AHD Units received 

by each participant’s Other Investments 

account equaled the value of the AHD 

Units attributable to such account, 

multiplied by the weighted average 

sales price of all AHD Units sold on 

behalf of the Plan. 

22. The proceeds from the sale of the 

AHD Units were allocated to the 

appropriate participants’ Other 

Investments accounts and invested in 

the USFS Short Term Income Fund for 

Qualified Plans (the Fund). The Fund is 

a common/collective fund managed by 

Pennant Management, Inc. (Pennant), an 

affiliate of GreatBanc. Pennant receives 

a management fee of 40 basis points for 

their services to the Fund. GreatBanc 

represents that prior to investing the 

cash proceeds derived from the sale of 

AHD Units in the Fund, GreatBanc 

proposed several alternatives to the 

Company, as Plan sponsor, disclosing 

all relevant fees and expenses. The 

Company (and its new parent, Chevron) 

approved the investment of these 

proceeds in the Fund.11 GreatBanc 


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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 76773 

approval of the Plan sponsor fiduciary, GreatBanc 

did not use its own fiduciary discretionary powers 

to generate an additional fee for itself and its 

affiliate, Pennant. In this regard, the Applicants 

represent that the receipt of fees by Pennant is 

statutorily exempt under section 408(b)(2) of the 

Act. The Department expresses no opinion herein 

as to whether the receipt of such fees by Pennant 

is exempt from the prohibited transaction 

provisions under section 408(b)(2) of the Act. 

Further, if this proposed exemption is granted, no 

relief would be provided for any violation of section 

406(b) of the Act relating to the investment of 

proceeds from the Merger in the Fund. 

12According to the Applicants, the fee was $6.71. 

The SEC fee is imposed by the Securities Exchange 

Act of 1934 and is independent of any associated 

brokerage commissions. The proceeds of the SEC 

fee are collected from brokerage firms and are 

forwarded to the U.S. Treasury. 

13The term ‘‘Underwriter Exemptions’’ refers to 

PTE 89–88, 54 FR 42582 (October 17, 1989); PTE 

89–89, 54 FR 42569 (October 17, 1989); PTE 89–90, 

54 FR 42597 (October 17, 1989); PTE 90–22, 55 FR 

20542 (May 17, 1990); PTE 90–23, 55 FR 23144 

(June 6, 1990); PTE 90–24, 55 FR 20548 (May 17, 

1990); PTE 90–28, 55 FR 21456 (May 24, 1990); PTE 

90–29, 55 FR 21459 (May 24, 1990); PTE 90–30, 55 

FR 21461 (May 24, 1990); PTE 90–31, 55 FR 23144 

(June 6,1990); PTE 90–32, 55 FR 23147 (June 6, 

1990); PTE 90–33, 55 FR 23151 (June 6, 1990); PTE 

90–36, 55 FR 25903 (June 25, 1990); PTE 90–39, 55 

FR 27713 (July 5, 1990); PTE 90–59, 55 FR 36724 

(September 6, 1990); PTE 90–83, 55 FR 50250 

(December 5, 1990); PTE 90–84, 55 FR 50252 

(December 5, 1990); PTE 90–88, 55 FR 52899 

(December 24, 1990); PTE 91–14, 56 FR 7413 

(February 22, 1991); PTE 91–22, 56 FR 03277 (April 

18, 1991); PTE 91–23, 56 FR 15936 (April 18, 1991); 

PTE 91–30, 56 FR 22452 (May 15, 1991); PTE 91– 

62, 56 FR 51406 (October 11, 1991); PTE 93–31, 58 

FR 28620 (May 5, 1993); PTE 93–32, 58 FR 28623 

(May 14, 1993); PTE 94–29, 59 FR 14675 (March 29, 

1994); PTE 94–64, 59 FR 42312 (August 17, 1994); 

PTE 94–70, 59 FR 50014 (September 30, 1994); PTE 

94–73, 59 FR 51213 (October 7, 1994); PTE 94–84, 

59 FR 65400 (December 19, 1994); 95–26, 60 FR 

17586 (April 6, 1995); PTE 95–59, 60 FR 35938 (July 

12, 1995); PTE 95–89, 60 FR 49011 (September 21, 

1995); PTE 96–22, 61 FR 14828 (April 3, 1996); PTE 

96–84, 61 FR 58234 (November 13, 1996); PTE 96– 

92, 61 FR 66334 (December 17, 1996); PTE 96–94, 

61 FR 68787 (December 30, 1996); PTE 97–05, 62 

FR 1926 (January 14, 1997); PTE 97–28, 62 FR 

28515 (May 23, 1997); PTE 97–34, 62 FR 39021 

(July 21, 1997); PTE 98–08, 63 FR 8498 (February 

19, 1998); PTE 99–11, 64 FR 11046 (March 8, 1999); 

PTE 2000–19, 65 FR 25950 (May 4, 2000); PTE 

2000–33, 65 FR 37171 (June 13, 2000); PTE 2000– 

41, 65 FR 51039 (August 22, 2000); PTE 2000–55, 

65 FR 37171 (November 13, 2000); PTE 2002–19, 67 

FR 14979 (March 28, 2002); PTE 2003–31, 68 FR 

59202 (October 14, 2003); PTE 2006–07, 71 FR 

32134 (June 2, 2006); PTE 2008–08, 73 FR 27570 

(May 13, 2008); PTE 2009–16, 74 FR 30623 (June 

26, 2009); and PTE 2009–31, 74 FR 59003 

(November 16, 2009), each as subsequently 

amended by PTE 97–34, 62 FR 39021 (July 21, 

1997) and PTE 2000–58, 65 FR 67765 (November 

13, 2000) and for certain of the exemptions, 

amended by PTE 2002–41, 67 FR 5487 (August 22, 

2002); thereby affecting and applying to: Deutsche 

Bank AG, New York Branch and Deutsche Morgan 

Grenfell/C.J. Lawrence Inc., Final Authorization 

Number (FAN) 97–03E (December 9, 1996); Credit 

Lyonnais Securities (USA) Inc., FAN 97–21E 

(September 10, 1997); ABN AMRO Inc., FAN 98– 

08E (April 27, 1998); Ironwood Capital Capital 

Partners Ltd., FAN 99–31E (December 20, 1999) 

(supersedes FAN 97–02E (November 25, 1996)); 

William J. Mayer Securities LLC, FAN 01–25E 

(October 15, 2001); Raymond James & Associates 

Inc. & Raymond James Financial Inc. FAN 03–07E 

(June 14, 2003); WAMU Capital Corporation, FAN 

03–14E (August 24, 2003); and Terwin Capital LLC, 

FAN 04–16E (August 18, 2004); BNP Paribas 

Securities Corporation, FAN 07–06E (July 7, 2007); 

SunTrust Robinson Humphrey, Inc., FAN 08–03E 

(March 10, 2008); Jefferies & Company Inc., FAN 

09–03E (March 9, 2009); NatCity Investments, Inc., 

FAN 09–06E (March 28, 2009); Amherst Securities 

Group, LLC, FAN 09–12E (September 14, 2009); 

Cantor Fitzgerald & Company, FAN 11–05E (June 6, 

2011); and Cortview Capital Securities LLC, FAN 

11–08E (October 10, 2011); which received the 

approval of the Department to engage in 

transactions substantially similar to the transactions 

described in the Underwriter Exemptions under the 

Department’s EXPRO procedure. 

represents that it waived all its fees 

related to these investments and 

received no direct or indirect 

compensation from Pennant, including 

revenue sharing or otherwise. 

23. Except as described below, the 

Applicants represent that neither the 

Plan nor its participants paid any fees 

or commissions associated with the 

Merger. Neither the Plan nor its 

participants paid any fees or 

commissions with respect to the 

disposition of the AHD Units on the 

NYSE to a person affiliated with any 

Plan fiduciary. Although the sale of the 

AHD Units was through GreatBanc’s 

affiliate, Pennant, neither GreatBanc nor 

Pennant received a fee for conducting 

the sale. Pennant executed the order 

through Jones Trading (Jones), which is 

not affiliated with GreatBanc and 

Pennant. According to the Applicants, 

the only brokerage charge paid by the 

Plan to Jones was an explicit rate of 

$0.01/share, which is below industry 

average, and the total commissions paid 

to Jones were $3,494.71. The Applicants 

also represent that the Plan paid a 

nominal Securities Exchange 

Commission (SEC) fee.12 The 

Applicants further state that the sale of 

the AHD Units was conducted on an 

open market. This sale was effectuated 

so that the daily movement in the share 

price was not materially affected. The 

sale also was completed in a manner 

such that the market place was not 

aware of the identity of the seller. 

24. In summary, the Applicants 

represent that the subject transactions 

satisfied the statutory criteria for an 

exemption under section 408(a) of the 

Act for the following reasons: (a) The 

Plan’s acquisition and holding of the 

AHD Units in connection with the 

Merger occurred as a result of an 

independent act of the Company as a 

corporate entity; (b) all shareholders of 

the Company, including the Plan, were 

treated in a like manner with respect to 

all aspects of the Merger; (c) An 

independent fiduciary determined that 

the consideration received by the Plan 

pursuant to the Merger was not less than 

fair market value and that the overall 

terms and conditions of the Merger were 

fair to the Plan; (d) all shareholders of 

the Company, including the Plan, 

received the same proportionate number 

of AHD Units based upon the number of 

shares of Company stock held by such 

shareholders; (e) pursuant to the terms 

of the Plan each participant was entitled 

to direct the independent fiduciary as to 

how to vote the Company shares 

allocated to his or her account with 

respect to the Merger; and (f) no fees, 

commissions or other fees associated 

with the Merger were paid by the Plan 

except for brokerage charges and fees 

with respect to the subsequent sale of 

the AHD Units, which were paid by the 

Plan to a person who is not affiliated 

with any Plan fiduciary. 

For Further Information Contact: Eric 

A. Raps of the Department, telephone 

(202) 693–8532. (This is not a toll-free 

number). 

Notice of Proposed Amendment to 

Prohibited Transaction Exemption 

2007–05, 72 FR 13130 (March 20, 2007), 

Involving Prudential Securities 

Incorporated, et al., To Amend the 

Definition of ‘‘Rating Agency’’ 

[Application No. D–11718] 

Proposed Amendment 

Based on the facts and representations 

set forth in the application, 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 (76 

FR 66637, October 27, 2011), the 

Department proposes to modify Section 

III.X of the individual Prohibited 

Transaction Exemptions (PTEs) and 

final authorizations approved by the 

Department under PTE 96–62 (67 FR 

44622, July 3, 2002)(EXPRO), which are 

referred to herein as the ‘‘Underwriter 

Exemptions,’’ 13 as follows: 

Section III.X: 

Effective as of the date of publication 

of a final amendment to the Underwriter 

Exemptions in the Federal Register, the 

term ‘‘Rating Agency’’ means a credit 

rating agency that: (i) Is currently 

recognized by the U.S. Securities and 

Exchange Commission (SEC) as a 

nationally recognized statistical ratings 

organization (NRSRO); (ii) has indicated 

on its most recently filed SEC Form 

NRSRO that it rates ‘‘issuers of assetbacked securities’’; and (iii) has had, 

within a period not exceeding 12 

months prior to the closing of the 

current transaction, at least three (3) 

‘‘qualified ratings engagements. A 

‘‘qualified ratings engagement’’ is one (i) 

requested by an issuer or underwriter of 

securities in connection with the initial 


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76774 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

14PTE 97–34 made the following modifications to 

the relief previously provided in the Underwriter 

Exemptions: (i) Modified the definition of ‘‘Trust’’ 

to include a ‘‘pre-funding account’’ (PFA) and a 

‘‘capitalized interest account’’ as part of the corpus 

of the trust; (ii) provided retroactive relief for 

transactions involving asset pool investment trusts 

containing PFAs which have occurred on or after 

January 1, 1992; (iii) included in the definition of 

‘‘Certificate’’ a debt instrument that represents an 

interest in a Financial Asset Securitization 

Investment Trust; and (iv) made certain changes to 

the Underwriter Exemptions that reflected the 

Department’s current interpretation of the 

Underwriter Exemptions. 

15PTE 2000–58 made the following modifications 

to the relief previously provided in the Underwriter 

Exemptions: (i) The rights and interest evidenced 

by securities acquired by plans in the Designated 

Transactions (as described in footnote 6, below) 

described in that application may be subordinated 

to the rights and interests evidenced by other 

securities of the same issuer as defined in the 

Underwriter Exemptions (Issuer); (ii) securities 

acquired by a plan in a Designated Transaction may 

receive a rating from a credit rating agency as 

defined in the Underwriter Exemptions (Rating 

Agency) at the time of such acquisition that is in 

one of the four highest generic categories; (iii) the 

corpus of the Issuer in residential and home equity 

Designated Transactions may include mortgage 

loans with loan-to-value property ratios in excess of 

100%; (iv) eligible interest rate swaps (both ratings 

dependent and non-ratings dependent) and yield 

supplement arrangements with notional principal 

amounts may be included; (v) the securitizations 

vehicle can also be an owner trust, special purpose 

corporation, limited partnership or limited liability 

company; and (vi) the security may be either an 

equity or debt interest issued by any permissible 

type of Issuer . 

16PTE 2007–05 modified Section III.X. of the 

Underwriter Exemptions to add Dominion Bond 

Rating Service Limited and Dominion Bond Rating 

Service, Inc. to the definition of ‘‘Rating Agency.’’ 

17Section 102 of Reorganization Plan No. 4 of 

1978 (5 USC app. at 672 (2006)), effective December 

31, 1978, generally transferred the authority of the 

Secretary of the Treasury to issue exemptions and 

rulings under section 4975(c)(2) of the Code to the 

Secretary of Labor. 

18 ‘‘Designated Transaction’’ means a 

securitization transaction in which the assets of the 

Issuer (see below) consist of secured consumer 

receivables, secured credit instruments or secured 

obligations that bear interest or are purchased at a 

discount and are: (i) Motor vehicle, home equity 

and/or manufactured housing consumer 

receivables; and/or (ii) motor vehicle credit 

instruments in transactions by or between business 

entities; and/or (iii) single-family residential, multifamily residential, home equity, manufactured 

housing and/or commercial mortgage obligations 

that are secured by single-family residential, multifamily residential, commercial real property or 

leasehold interests therein. 

offering of the securities; (ii) for which 

the credit rating agency is compensated 

for providing ratings; (iii) which is a 

public rating; and (iv) which involves 

the offering of securities of the type that 

would be granted relief by the 

Underwriter Exemptions. 

Summary of Facts and Representations 

Background 

1. If granted, the proposed 

amendment described herein would 

amend the Underwriter Exemptions. 

The Underwriter Exemptions are 

individual exemptions and EXPRO final 

authorizations that provide relief for the 

origination of certain asset pool 

investment trusts and the acquisition, 

holding and disposition by employee 

benefit plans (Plans) of certain assetbacked and mortgage-backed passthrough certificates representing 

undivided interests in those investment 

trusts. The Underwriter Exemptions 

provide relief from certain of the 

prohibited transaction restrictions of 

sections 406(a), 406(b) and 407(a) of the 

Act, as amended, and from the taxes 

imposed by section 4975(a) and (b) of 

the Code, as amended, by reason of 

certain provisions of section 4975(c)(1) 

of the Code. Those Underwriter 

Exemptions that were issued prior to 

1997 were amended by PTE 97–34.14

Those Underwriter Exemptions that 

were issued prior to 2001 were amended 

by PTE 2000–58.15 Those Underwriter 

Exemptions that were issued prior to 

2007 were amended by PTE 2007–05.16

Certain of the Underwriter Exemptions 

were amended by PTE 2002–41. 

The proposed amendment, if granted, 

would revise the definition of ‘‘Rating 

Agency,’’ as set forth in those 

exemptions and EXPRO final 

authorizations, by eliminating any 

specific reference to a particular credit 

rating agency, and substituting instead a 

requirement that a credit rating agency: 

(i) Be currently recognized by the U.S. 

Securities and Exchange Commission 

(SEC) as a nationally recognized 

statistical ratings organization (NRSRO); 

(ii) have indicated on its most recently 

filed SEC Form NRSRO that it rates 

‘‘issuers of asset-backed securities’’; and 

(iii) have had at least 3 ‘‘qualified 

ratings engagements’’ within a period 

not exceeding 12 months prior to the 

closing of the current transaction. 

For purposes of the proposed 

amendment, a ‘‘qualified ratings 

engagement’’ is one: (i) Requested by an 

issuer or underwriter of securities in 

connection with the initial offering of 

the securities; (ii) for which the credit 

rating agency is compensated for 

providing ratings; (iii) which is a public 

rating; and (iv) which involves the 

offering of securities of the type that 

would be granted relief by the 

Underwriter Exemptions. 

The Department is proposing this 

amendment to the Underwriter 

Exemptions on its own motion pursuant 

to 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 (76 

FR 66637, October 27, 2011).17 The 

proposed amendment, if granted, would 

affect the participants and beneficiaries 

of Plans participating in such 

transactions, and fiduciaries with 

respect to such Plans. 

Existing Relief 

2. Section I of the Underwriter 

Exemptions permit, among other things, 

transactions involving the purchase by 

Plans of certain securities representing 

interests in asset-backed or mortgagebacked investment pools. The securities, 

which generally take the form of 

certificates issued by a trust, must be 

rated in one of the three highest rating 

categories (or four in the case of 

Designated Transactions) 18 by a Rating 

Agency. The Rating Agency, in 

assigning a rating to such securities, 

takes into account the fact that the 

Issuer may hold interest rate swaps or 

yield supplement agreements with 

notional principal amounts. 

Section II of the original Underwriter 

Exemptions (PTEs 89–88, 89–89, and 

89–90) sets forth general conditions 

which had to be met in order for an 

investing Plan to avail itself of the relief 

provided therein. Specifically, Section 

II.A(3) of those exemptions required that 

any certificate acquired by a plan must 

have received a rating at the time of 

acquisition that is in one of the three 

highest categories from either Standard 

& Poor’s Corporation (currently, 

Standard and Poor’s Rating Services), 

Moody’s Investors Services, Inc. or Duff 

& Phelps. The Department notes that in 

First Boston Corporation’s (First Boston) 

exemption application (PTE 89–90), 

First Boston requested that any 

certificate receiving a rating in the three 

highest rating categories from any 

NRSRO receive exemptive relief. While 

the Department recognized that credit 

rating agencies other than Standard & 

Poor’s Corporation (currently, Standard 

& Poor’s Rating Services, a division of 

The McGraw Hill Companies, Inc.), 

Moody’s Investor Services, Inc. and Duff 

& Phelps Inc. qualified as NRSROs, the 

Department determined that only these 

three entities should qualify as Rating 

Agencies under the Underwriter 

Exemptions, based on their respective 

experience in rating certain types of 

mortgage-backed securities or assetbacked securities (MBS or ABS, 

respectively). Fitch Inc. was later 

specifically named as an additional 

Rating Agency for purposes of the 

Underwriter Exemptions beginning in 

1989. 

On November 23, 1999, the 

Department amended PTEs 89–88, 89– 

89, and 89–90 at 55 FR 48939 to include 

Fitch Inc. as an acceptable credit rating 

agency for the rating of certificates 


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19See section 15E(a)(1)(C) of the Securities 

Exchange Act of 1934, as amended (the Exchange 

Act). 

20See section 15E(b) of the Exchange Act. 

21See section 15(p)(3)(B) of the Exchange Act. 

22See section 15E(b) and p(3) of the Exchange 

Act. 

23The Department notes that Plan fiduciaries are 

responsible for confirming that any rating given for 

a certificate acquired pursuant to an Underwriter 

Exemption was issued by a credit rating agency that 

has met the Rating Agency criteria set forth herein. 

In that regard, Plan fiduciaries may demonstrate 

that they have fulfilled their fiduciary 

responsibilities to the plan by accepting 

representations from credit rating agencies that the 

foregoing criteria have been met. 

described in the exemptions, and the 

Department subsequently granted 

several other Underwriter Exemptions 

that included Fitch Inc. as an acceptable 

credit rating agency. Most recently, the 

Department amended the Underwriter 

Exemptions in PTE 2007–05 to add 

DBRS Limited and DBRS, Inc. to the 

definition of ‘‘Rating Agency’’ as set 

forth in Section III.X of the Underwriter 

Exemptions. When approving the 

application to add DBRS Limited and 

DBRS, Inc. to the group of Rating 

Agencies permitted to rate Underwriter 

Exemption-eligible securities, the 

Department found it would benefit Plan 

investors in several ways, including: (i) 

Investors would have access to 

additional information and additional 

opinions about the creditworthiness of 

issuers and securities; (ii) competition 

among credit rating agencies would 

result in improved accuracy and 

timeliness of ratings, thereby allowing 

investors to assess risk with greater 

certainty; and (iii) competition among 

credit rating agencies would encourage 

different methods of analyzing credit 

risk. 

Currently, Section III.X of the 

Underwriter Exemptions defines the 

term ‘‘Rating Agency’’ as ‘‘Standard & 

Poor’s Rating Services, a division of the 

McGraw-Hill Companies, Inc., Moody’s 

Investors Services, Inc., Fitch Inc., 

DBRS Limited, DBRS, Inc., or any 

successors thereto.’’ 

Regulation of Credit Rating Agencies 

3. On September 29, 2006, the 

President signed into law the Credit 

Rating Agency Reform Act of 2006 

(CRARA), which was introduced as a 

bill in Congress to improve ratings 

quality for the protection of investors by 

fostering accountability, transparency, 

and competition in the credit rating 

agency industry. A credit rating agency 

can obtain the NRSRO designation 

under CRARA through an application 

process unless the SEC determines that 

the agency lacks adequate financial and 

managerial resources to consistently 

produce credit ratings with integrity and 

to comply with its stated methodologies 

and procedures.19 CRARA included 

requirements that NRSROs provide 

annual reports regarding their ratings 

performance on the SEC Form NRSRO 

and make their methodologies public.20

On July 21, 2010, Congress passed the 

Dodd-Frank Wall Street Reform and 

Consumer Protection Act (the DoddFrank Act), which included new 

regulatory requirements for NRSROs 

through amendments of Section 15E of 

the Exchange Act. Under the DoddFrank Act, in order for the SEC to 

recognize a credit rating agency as an 

NRSRO, the credit rating agency must 

satisfy certain established criteria, 

including that it is accepted as an issuer 

of credible and reliable ratings by 

qualified institutional buyers of the 

securities it rates. Further, under the 

Dodd-Frank Act, NRSROs have become 

subject to a more rigorous regulatory 

regime, which requires annual 

examinations by the SEC that include a 

review of (i) whether the NRSRO 

conducts business in accordance with 

the policies, procedures, and rating 

methodologies of the NRSRO; (ii) the 

management of conflicts of interest by 

the NRSRO; (iii) the implementation of 

ethics policies by the NRSRO; (iv) the 

internal supervisory controls of the 

NRSRO; (v) the governance of the 

NRSRO; (vi) the activities of the 

NRSRO’s designated compliance officer; 

(vii) the processing of complaints by the 

NRSRO; and (viii) the policies of the 

NRSRO governing the post-employment 

activities of former staff of the NRSRO.21

The evaluation of internal controls 

includes an examination of whether the 

NRSRO has sufficiently qualified staff 

and resources dedicated to rating the 

types of securities it is registered to rate. 

These issues are annually revisited 

through the SEC annual examination 

process and through the annual 

reporting required through the SEC 

Form NRSRO.22

Proposed Amendment 

4. On September 29, 2011, in a letter 

to the Department, the American 

Securitization Forum (the ASF) 

encouraged the Department to take 

action to further revise the Rating 

Agency definition under the 

Underwriter Exemptions by including 

other NRSROs in order to ‘‘bring greater 

choice to investors in asset-backed 

securities.’’ The ASF noted that 

diversity and competition among credit 

rating agencies ‘‘increases the choices 

available to investors, which in turn, 

can promote greater accountability of 

rating agencies to investors.’’ The ASF 

encouraged the Department to consider, 

‘‘among all of the other appropriate 

factors, the positive effects of increasing 

the number of NRSROs qualified to 

provide ratings on transactions that rely 

on the Underwriter Exemption [sic].’’ 

This need for greater investor choice 

was echoed in letters to the Department 

by banks active in the issuance and 

underwriting of asset-backed securities. 

In light of the regulatory 

developments cited above, the 

Department is considering amending the 

definition of ‘‘Rating Agency’’ under 

Section III.X of the Underwriter 

Exemptions. If adopted, the amendment 

would eliminate specific references to 

named credit rating agencies. Instead, 

the term ‘‘Rating Agency’’ would be 

defined using a general framework of 

self-executing criteria based on based on 

both (i) SEC rules applicable to NRSROs 

and (ii) the Department’s own 

‘‘seasoning’’ requirement for credit 

rating agencies. In this regard, if the 

proposed amendment is adopted, 

Section III.X would be defined as 

follows: 

‘‘Rating Agency’’ means a credit rating 

agency that: (i) Is currently recognized by the 

U.S. Securities and Exchange Commission 

(SEC) as a nationally recognized statistical 

ratings organization (NRSRO); (ii) has 

indicated on its most recently filed SEC Form 

NRSRO that it rates ‘‘issuers of asset-backed 

securities’’; and (iii) has had, within a period 

not exceeding 12 months prior to the closing 

of the current transaction, at least three (3) 

‘‘qualified ratings engagements. A ‘‘qualified 

ratings engagement’’ is one (i) requested by 

an issuer or underwriter of securities in 

connection with the initial offering of the 

securities; (ii) for which the credit rating 

agency is compensated for providing ratings; 

(iii) which is a public rating; and (iv) which 

involves the offering of securities of the type 

that would be granted relief by the 

Underwriter Exemptions. 

If so amended, the definition of 

‘‘Rating Agency’’ would require that a 

‘‘credit rating agency’’ be an NRSRO 

that is registered by the SEC to rate 

issuers of ABS, thereby exhibiting 

adequate qualifications to rate ABS and 

MBS that are subject to periodic 

examination by the SEC. In addition, the 

NRSRO must demonstrate that it has 

been selected to rate at least three 

similar transactions during the 

preceding 12 months.23

Merits of Proposed Amendment 

5. The Department believes that this 

proposed amendment is 

administratively feasible since the 

requirements for an entity to meet the 

definition of ‘‘Rating Agency,’’ as set 

forth herein, generally mirror those 

deemed administratively feasible in the 


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76776 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

previously granted Underwriter 

Exemptions, as well as certain DoddFrank and SEC requirements concerning 

NRSROs. Further, the NRSROs’ status as 

such and the number of transactions 

each has rated is a matter of public 

record. No further action would be 

required by the Department and the 

proposed amendment is self-executing. 

In addition, the Department tentatively 

believes that the proposed amendment 

is in the interest of the Plans and their 

participants and beneficiaries because it 

increases the number of available 

investment options, enhances 

diversification and liquidity and 

promotes a greater ability to assess 

credit risk and the rating process. 

Further, the Department believes that 

the proposed amendment would be 

protective of the rights of the Plans and 

their participants and beneficiaries 

because, as noted above, the credit 

rating agency will be a registered 

NRSRO that exhibits adequate 

qualifications to rate ABS and MBS, and 

that will be subject to periodic 

examination by the SEC, and must 

demonstrate that it has been selected to 

rate at least three similar transactions 

during the preceding 12 months. 

Prospective Relief 

6. Relief, if adopted, will apply 

prospectively with respect to any assetbacked security that was rated in one of 

the three (or four in the case of a 

Designated Transaction) highest generic 

credit ratings categories by a credit 

rating agency that qualifies as a Rating 

Agency under the Underwriter 

Exemptions, as proposed to be amended 

herein, even if such rating occurred 

before the later of: the date that the final 

amendment is published in the Federal 

Register and the date that the credit 

rating agency qualifies as a Rating 

Agency under the Underwriter 

Exemption. Thus, if, for example, after 

the date that the final amendment is 

published in the Federal Register, a 

credit rating agency qualifies as a Rating 

Agency under the Underwriter 

Exemptions, and, if prior to such date 

(or any date prior to so qualifying as a 

Rating Agency), such credit rating 

agency rated an asset-backed security in 

one of the three (or four in the case of 

a Designated Transaction) highest 

generic credit ratings categories (and 

assuming that there has been no 

downgrade), Plans will be able to rely 

on the amended Underwriter 

Exemptions for the purchase certificates 

in the secondary market (to the extent 

all relevant conditions have been met), 

even though the certificates were 

originally issued prior to the date the 

final amendment is published in the 

Federal Register (or, if later, prior to the 

date that the credit rating agency 

qualified as a Rating Agency). 

Opting Out of Proposed Amendment by 

Underwriter Exemption Grantees 

7. The Department attempted to 

inform each grantee of an existing 

Underwriter Exemption or recipient of a 

FAN (described and identified above), 

via email, that the Department was 

considering amending the definition of 

‘‘Rating Agency’’ set forth in such 

Underwriter Exemption. In this regard, 

at the request of the Department, the 

ASF sent an email notice on July 2, 2012 

intended to reach a broad spectrum of 

its membership interested in 

developments relating to asset-back 

securitizations. The email indicated that 

existing grantees of Underwriter 

Exemptions and recipients of FANs 

could opt out of the proposed change by 

notifying the Department in writing. To 

date, the Department has not received 

any requests to opt out; however, the 

Department notes that such a grantee or 

recipient should notify the Department 

in writing during the comment period 

described herein if they do not want the 

proposed amendment to apply to their 

exemption. 

It is the understanding of the 

Department that credit rating agencies 

that are specifically identified in the 

Underwriter Exemptions will meet the 

revised definition of ‘‘Rating Agency’’ 

set forth herein. 

Written Comments and Hearing 

Requests 

All written comments and requests for 

a public hearing (preferably, three 

copies) should be sent to the Office of 

Exemption Determinations, Employee 

Benefits Security Administration, Room 

N–5700, U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210, (Attention: D–11718). 

Interested persons are invited to submit 

comments and/or hearing requests to 

the Department by February 11, 2013, 

by U.S. mail, facsimile to (202) 219– 

0204 or electronic mail to 

vaughan.anna@dol.gov. The application 

pertaining to the proposed amendment 

(the Application) and the comments 

received will be available for public 

inspection in the Public Disclosure 

Room of the Employee Benefits Security 

Administration, U.S. Department of 

Labor, Room N–1513, 200 Constitution 

Avenue NW., Washington, DC 20210. 

For Further Information Contact: 

Anna Mpras Vaughan of the 

Department, telephone (202) 693–8565. 

(This is not a toll-free number.) 

The Mo-Kan Teamsters Apprenticeship 

and Training Fund (the Fund) Located 

in Kansas City, Missouri 

[Application No. L–11720] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and in accordance with the procedures 

set forth in 29 CFR Part 2570, Subpart 

B (55 FR 32836, 32847, August 10, 

1990). If the exemption is granted, the 

restrictions of section 406(a)(1)(A) and 

(D) of the Act shall not apply to the 

purchase (Purchase) by the Fund of 

certain real property located in Kansas 

City, Missouri (the Property) from Jim 

Kidwell Construction, a party in interest 

with respect to the Fund; provided that 

the following conditions are satisfied: 

(a) The terms and conditions of the 

Purchase are at least as favorable to the 

Fund as those obtainable in an arm’s 

length transaction with an unrelated 

party; 

(b) The Purchase is a one-time 

transaction for cash; 

(c) The Fund pays the lesser of 

$1,500,000 or the fair market value of 

the Property, as of the date of the 

Purchase, as determined by a qualified, 

independent appraiser (the Appraiser); 

(d) The Fund’s fiduciaries review and 

approve the methodology used by the 

Appraiser, ensure that such 

methodology is properly applied in 

determining the fair market value of the 

Property, and determine whether it is 

prudent to go forward with the 

proposed transaction; and 

(e) The Fund pays only reasonable 

closing costs with respect to the 

Purchase that a similarly situated buyer 

would customarily pay in a similar 

transaction. 

Summary of Facts and Representations 

The Parties 

1. The Building, Material, Excavation, 

Heavy Haulers, Drivers, Warehouse & 

Helpers Local Union No. 541 (the 

Union) is located in Kansas City, 

Missouri and represents certain workers 

in the construction and warehouse 

industries. 

2. Members of the Union are eligible 

to participate in the Fund. The Fund is 

a multiemployer apprenticeship and 

training plan that was established as a 

Taft-Hartley Trust pursuant to a 

collective bargaining agreement. As of 

March 2, 2012, the Fund covered 

approximately 1,015 participants, who 

receive training in the fields of 

construction driving, mechanics and 

warehouse work. As of December 31, 


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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 76777 

2011, the Fund had net assets of 

$1,802,909. 

3. The members of the Board of 

Trustees (the Board) serve as the Fund’s 

sponsor, plan administrator and 

fiduciaries. The Board consists of four 

trustees (the Trustees), who represent 

the Union and the contributing 

employers. Board Chairman Jed L. Cope 

and Ronald L. Johnson are the Union 

trustees. Board Secretary Florian 

Rothbrust and Member Jeff Shoemaker 

are the employer trustees. None of the 

Trustees have an interest in Jim Kidwell 

Construction (the Seller). 

4. The proposed transaction described 

herein involves the purchase of certain 

property by the Fund from the Seller. 

The Seller is owned and operated by Jim 

Kidwell, who is not a fiduciary with 

respect to the Fund. The Seller, which 

was established in 1965, is a 

construction company conducting 

commercial building excavation and 

grading located in Greenwood, 

Missouri. The Seller is a contributing 

employer to the Fund and, as such, is 

required under the terms of a collective 

bargaining agreement to make monthly 

contributions on behalf of its covered 

employees for all hours worked in 

covered employment. 

5. Currently, the Fund does not have 

its own training facility and has an 

arrangement to use the property of the 

Metropolitan Community Colleges (the 

Colleges), an unrelated party, that is 

located in Jackson County, Missouri. 

The Fund uses land owned by the 

Colleges to provide truck-related 

training. 

6. Beginning in 2008, the Board began 

to consider purchasing approximately 

30 to 50 acres of real property. The 

Trustees represent that the purchase of 

the Property would allow the Fund to 

construct a future training facility for 

training apprentices in the operation of 

trucks and heavy equipment. The 

facility would also be used for the 

Fund’s offices and provide classroom 

space, testing facilities and equipment 

storage. According to the Trustees, by 

owning the Property, the Fund would be 

able to make changes or additions to 

meet its future training requirements 

without the consent of a landlord. 

Further, the Fund would be assured of 

the continued availability of the facility. 

The Property 

7. In 2009, the Board hired the Grubb 

Ellis/The Winbury Group (the Winbury 

Group), an unrelated realtor, to locate 

several vacant land sites for the Fund. 

The Trustees considered several 

locations in the Kansas City area, but 

found them to be too large and/or too 

costly. In 2010, Mr. Kidwell approached 

Mr. Cope and offered to sell certain real 

property, located at 8616 E. Winner 

Road, Kansas City, Missouri, to the 

Fund for $2,000,000. The Property was 

not one of sites identified by the 

Winbury Group. 

The Property consists of 40 acres of 

undeveloped land that is irregular in 

shape and has a rolling surface 

topography except for a fairly steep drop 

off at the northeastern side. Located 

beneath the surface tract is an old 

limestone mine (Mine) that extends past 

the surface tract boundaries. The Mine 

is used by the Seller for storage and 

maintenance. 

The Proposed Transaction 

8. After investigation of the Property 

and review of the Due Diligence 

Report—Wilson Road Mine (the Report) 

prepared by the URS Corporation, of 

Overland Park, Kansas, which was 

included in the Appraisal described 

herein, the Trustees determined that the 

Property had advantages over the other 

sites picked by the Winbury Group. The 

Trustees represent that the Property was 

the best site and tract of real property 

given the resources of the Fund. The 

Property’s surface has both flat areas 

and moderate elevation areas which are 

beneficial to the Fund’s training 

program use. The Property also has 

areas that would provide bays for allweather storage and work areas making 

the cost of a warehouse building 

unnecessary. The current improvements 

on the site are likely to have sufficient 

capacity to support the Fund’s use so 

that site work costs for utility extension 

would not be incurred despite the costs 

to monitor underground electrical 

systems, ground water levels and 

maintain sump pumps, the Mine has 

benefits for the Fund. 

The Trustees represent that the 

Fund’s proposed purchase of the 

Property has the support of the public 

officials in both Kansas City, Missouri 

and Independence, Missouri for the 

Fund’s proposed use of the Property. 

The Trustees also represent that this 

cooperation was a factor in selecting the 

Property. The Trustees further represent 

that based on all the facts and 

circumstances, having the Fund 

purchase the Property is in the interests 

of the Fund and its participants and its 

beneficiaries. 

9. On January 9, 2012, the Fund 

executed a sales contract (the Contract) 

with the Seller prior to the Appraisal. 

Under the terms of the Contract, the 

Fund would purchase the Property for 

$1,500,000 and it has placed a $50,000 

deposit in escrow on the signing date. 

This price is less than the $2,000,000 

price at which the Property was 

originally offered by the Seller and the 

Appraised value, as discussed below. 

The Fund will pay the balance of the 

purchase price with the proceeds of a 

loan and cash on the closing date. 

Accordingly, the purchase price of the 

Property represents 83% of the Fund’s 

assets ($1,500,000/$1,802,909). 

10. The Fund will finance part of the 

purchase with Lead Bank (the Bank) of 

Lee’s Summitt, Missouri, which does 

not currently have a party-in-interest 

relationship to the Fund. The Fund will 

borrow $500,000 from the Bank in a 

balloon loan, carrying an interest rate of 

3.75% and having a term of 24 months. 

The Fund will pay the remaining 

$1,000,000 in cash. The Bank will hold 

a security interest in the Fund account 

that the Fund will open at the Bank and 

require that the Fund maintain insured 

bank certificates with a 10% margin as 

compared to its loan balance at all times 

during the loan. The Fund will not face 

any prepayment penalties. 

11. Under the Contract and the 

financing arrangement, the Fund will 

pay for certain items. The Contract 

requires that the Fund pay for its pro 

rata share of taxes based on the 

Purchase Date. The Trustees represents 

that the precise allocation will not be 

known until the closing date and that it 

will receive a credit from the Seller for 

the Seller’s share of the accrued but 

unpaid real estate tax. The Fund will 

also pay approximately $100 in 

recording charges and $300 in escrow 

fees charged by the title company, 

Chicago Title Insurance. 

12. The Fund is responsible for the 

lender’s title policy and endorsements. 

According to the Bank’s Term Sheet, the 

Fund will pay to the Bank $1,000 in fees 

due at closing and, with respect to the 

loan, an additional document fee of 

$300.00. In no event, however, will any 

Bank fees exceed $3,000. 

13. The Trustees represent that the 

fees for title, escrow, recordation and 

the loan are estimated at $1,700, and are 

not expected to be greater than $3,400. 

According to the Trustees, a similarly 

situated buyer would find such fees 

reasonable, customary and de minimus 

in connection with the Purchase. 

The Appraised Value of the Property 

14. The Fund retained Peter D. 

Burgess of Burgess-Johnson and 

Associates to serve as the Appraiser and 

to prepare the Appraisal of the Property 

in a report dated February 14, 2012. The 

Appraiser has 25 years of appraisal 

experience, including performing mine 

appraisals, and is a State Certified Real 

Estate Instructor in Kansas and Missouri 

and a State Certified General Real Estate 


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76778 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

24The Appraiser stated that no survey 

measurement and environmental testing were 

reported to him. Therefore, he cautioned, that the 

site value is subject to the assumption that there are 

no adverse environmental factors on the Surface 

Tract. 

Appraiser in Kansas (#G8) and Missouri 

(#RA1285). 

15. The Appraiser represents that his 

gross income for this assignment was 

$2,500 or approximately 3.31% of his 

actual gross revenue in 2011 ($2,500/ 

$75,427). The Appraiser represents that 

the Appraisal took three weeks to 

complete and was a complex 

undertaking. In this regard, in addition 

to valuing the surface land, the 

Appraiser represents that the 

assignment involved, among other 

things, the valuation of an extremely 

irregular and dysfunctional 

underground limestone mine that was 

created during the World War II period 

when underground mines did not have 

secondary uses. Accordingly, the 

Appraiser states that these 

complications explain why his fee for 

this assignment exceeded 2% of his 

prior year’s income. 

16. The Appraiser represents that the 

surface tract (the Surface Tract) meets 

all zoning requirements for surface uses 

and that underground storage is 

grandfathered as a legal nonconforming 

use. The utility services are sufficient to 

support permitted uses and the property 

taxes are in line with comparable 

Jackson County properties. 

17. The Appraiser used the Sales 

Comparison Approach to value the 

Property, but applied separate values to 

the Surface Tract and the Mine. With 

respect to the Surface Tract, the 

Appraiser reviewed six sale transactions 

in the Kansas Metropolitan Area from 

August 2007 to July 2010 between 

800,000 and 4,000,000 square feet (SF) 

as there were no comparable tract sales 

reported in 2011 and 2012 at the time 

of the Appraisal. The Appraiser 

represents that he took the location, size 

and shape, and certain site 

characteristics into account. After 

reviewing these factors, the Appraiser 

determined that the Surface Tract is 

larger than most urban land sales in 

Kansas City Metro Area and falls in the 

category of large tracts that sell far 

below premium prices per square foot 

and below good second tier locations in 

urban retail or in expanding suburban 

residential communities. The Appraiser 

then reviewed three tracts of land sales 

that were the most instructive and 

determined that the mean rate of $.72 

per SF (PSF) applied to the Surface 

Tract was 1,742,400 SF (40 acres × 

43,560 SF). As of February 2, 2012, the 

Appraiser determined that the Surface 

Tract had a fair market value of 

$1,255,000 rounded ($.72 PSF × 

1,742,400 SF = $1,254,528).24

18. The Appraiser also valued the 

Mine’s usable portion which is 

approximately 20 acres. The Appraiser 

noted that the Mine is suited for storage 

and underground industrial uses. The 

Appraiser reviewed nine limestone 

mine sales in the Kansas City 

Metropolitan area and determined that 

the Mine’s value for raw space was 

$217,800.00 ($.25 per acre × 20 acres or 

43,560 PSF). After taking into account 

the depreciated value of the Mine’s 

improvements such as walls, false 

pillars, concrete floors and asphalt 

paving worth $296,000, the Appraiser 

determined that the Mine’s value was 

$513,000. Thus, the Appraiser 

determined that the fair market value of 

the 40 acre Surface Tract and the Mine 

totaled $1,770,000 rounded ($1,255,000 

+ 513,000 = $1,768,000), as of February 

2, 2012. 

Due Diligence Report on the Mine 

19. Mr. Cope has toured the Mine and 

the Trustees represent that it has been 

developed for office space and has 

adequate areas and bays for storage and 

maintaining equipment. The Trustees 

have also reviewed the Report prepared 

for the Seller in September 2011. With 

respect to the Mine and its potential 

hazards, the Report discusses a number 

of observations and action items. The 

Report states that ‘‘considering the 

mining era and limited maintenance, 

the Mine appears to be in relatively 

good condition with the exception of 

known instabilities and areas that have 

closely spaced open joints.’’ The 

Trustees represent that they 

acknowledged the Report’s findings and 

will take certain specified actions as 

noted in the Report which include: 

• Investigating alternatives for longterm access to the Mine because the 

only Mine entrance is located near an 

unstable portion of the Mine. 

• Taking remedial action in order to 

improve known instabilities in the Mine 

space to ensure long-term performance. 

• Requiring, in order to maintain the 

Mine, regular inspections, groundwater 

control, and roof repairs to use the Mine 

or the ground above it. 

• Taking steps to halt any lateral 

propagation of unstable areas in the 

Mine to maintain the integrity of the 

stable mine space. In the areas where 

domeouts (mine instabilities) have 

occurred, the Trustees have been 

advised that backfilling of the Mine 

space will be necessary. Accordingly, 

the Trustees will have semi-annual 

inspections performed on the mine 

space beneath the Property for purposes 

of evaluating the Mine and any changes 

in its condition and assessing the need 

for corrective measures. 

• Having a geotechnical study 

conducted for the purpose of defining 

the subsurface soil and bedrock 

condition above the Mine space in the 

event a training facility is constructed 

over the Mine space. This study would 

also consider the long-term stability of 

the Mine and how it would interact 

with an actual training facility. 

The Holding Costs of the Property 

20. The Trustees represents that it 

also considered the costs to hold the 

Property and use it to train apprentices 

and estimates these costs to be $46,100 

annually. These costs include taxes 

($5,500), utilities ($12,000), insurance 

($4,850), Mine maintenance ($5,000), 

and finance payments ($18,750). The 

Trustees represent that the Board has 

discussed the Fund’s ability to meet 

these operating costs with the current 

monthly contributions allocated to the 

Fund and other investment income 

generated by those contributions. In 

2011, the Fund had revenue of $390,301 

and expenses of $98,394. The Trustees 

represent that the Fund has adequate 

reserves to cover the acquisition and 

maintenance costs regarding the 

Purchase, and that it has considered its 

fiduciary responsibility to the Fund, and 

to the Fund’s participants and 

beneficiaries. 

Reasons in Support of the Proposed 

Transaction 

21. Absent an administrative 

exemption, the proposed transaction 

would violate sections 406(a)(1)(A) and 

(D) of the Act. The Trustees represent 

that the Board does not have an interest 

in the Seller, who is a party in interest 

solely by reason of being an employer of 

employees participating in the Fund. 

The Trustees state that the proposed 

transaction is administratively feasible 

because it is a one-time transaction for 

cash. 

The Trustees state that the proposed 

transaction would also be protective of 

the rights of the Fund and its 

participants and beneficiaries because 

the terms and conditions of the 

proposed transaction would be no less 

favorable to the Fund than those which 

the Fund would receive in an arm’s 

length transaction with an unrelated 

party. Additionally, the Trustees 

anticipate that the Fund will pay 

routine closing costs of only $1,700.00, 

and at the most only $3,400, for title, 

escrow, recording and Bank financing 

fees. The Trustees represent that these 


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25The Actives Plan and the Retiree Plan are, 

herein, collectively referred to as the ‘‘Plans.’’ 

routine closing costs are reasonable and 

de minimus in connection with 

purchase price of $1,500,000. 

The Trustees state that the proposed 

transactions would also be in the 

interests of the Fund and its participants 

and beneficiaries because the Fund will 

pay a purchase price of $1,500,000 

instead of the Property’s appraised 

value of $1,770,000. 

The Trustees note that the Property is 

a large piece of real property suitable for 

Fund purposes. The use of Property has 

the support of public officials in both 

Kansas City, Missouri and 

Independence, Missouri which was a 

factor in selecting the Property. The 

Property has all-weather storage and 

work areas that make the cost of a 

warehouse building unnecessary. 

Additionally, the Property has sufficient 

utility services so that site work costs 

for utility extension would not be 

incurred. The Property has 40 acres of 

both flat and elevated areas that can be 

used to train truck drivers. Finally, the 

Trustees represent that if the Fund is 

unable to complete the proposed 

transaction, it will have to purchase 

another comparably-sized property at a 

significantly higher price. 

Summary 

22. In summary, the Trustees 

represent that the proposed transaction 

will satisfy the statutory requirements 

for an exemption under section 408(a) of 

the Act because: 

(a) The terms and conditions of the 

Purchase will be least as favorable to the 

Fund as those obtainable in an arm’s 

length transaction with an unrelated 

party; 

(b) The Purchase will be a one-time 

transaction for cash; 

(c) The Fund will pay the lesser of 

$1,500,000 or the fair market value of 

the Property as of the date of the 

Purchase, as determined by the 

Appraiser; 

(d) The Fund’s fiduciaries will review 

and approve the methodology used by 

the Appraiser, ensure that such 

methodology is properly applied in 

determining the fair market value of the 

Property, and also determine whether it 

is prudent to go forward with the 

proposed transaction; and 

(e) The Fund will pay only reasonable 

closing costs with respect to the 

Purchase that a similarly situated buyer 

customarily would pay in a similar 

transaction. 

Notice to Interested Parties 

Notice of the proposed exemption 

will be given to interested persons 

within 14 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail and posted in both the Union Hall 

and the Fund’s Web site. Such notice 

will contain a copy of the notice of 

proposed exemption, as published in 

the Federal Register, and a 

supplemental statement, as required 

pursuant to 29 CFR 2570.43(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 44 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

All comments will be made available 

to the public. Warning: Do not include 

any personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the Internet and can be 

retrieved by most Internet search 

engines. 

For Further Information Contact: Mr. 

Anh-Viet Ly of the Department, 

telephone (202) 693–8648 (This is not a 

toll-free number.) 

The Coca-Cola Company (TCCC) and 

Red Re, Inc. (Red Re)(together, the 

Applicants) Located in Atlanta, Georgia 

and Charleston, SC, respectively 

[Application No. L–11738] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and in accordance with the procedures 

set forth in 29 CFR part 2570, Subpart 

B (76 FR 66637, 66644, October 27, 

2011). 

Section I. Transactions 

If the proposed exemption is granted, 

the restrictions of sections 406(a)(1)(D) 

and 406(b)of the Act shall not apply to: 

(a) The reinsurance of risks and the 

receipt of premiums therefrom by Red 

Re, an affiliate of TCCC, as the term 

‘‘affiliate’’ is defined in Section III(a)(1) 

below, in connection with group term 

life insurance sold by Metropolitan Life 

Insurance Company or any successor 

insurance company (a Fronting Insurer) 

to The Coca-Cola Company Health and 

Welfare Benefits Plan (the Actives Plan) 

to pay for group term life insurance 

benefits under such Actives Plan; and 

(b) the reinsurance of risks and the 

receipt of premiums therefrom by Red 

Re in connection with accidental death 

and disability insurance (AD&D) sold by 

a Fronting Insurer to The Coca-Cola 

Company Retiree Benefits Plan (the 

Retiree Plan) to pay for AD&D benefits 

under the Retiree Plan; provided the 

conditions set forth in Section II, below, 

are satisfied.25

Section II. Conditions 

The relief provided in this proposed 

exemption is conditioned upon 

adherence to the material facts and 

representations described herein, and as 

set forth in the application file, and 

upon compliance with the following 

conditions: 

(a) Red Re— 

(1) Is a party in interest with respect 

to the Plans by reason of a stock or 

partnership affiliation with TCCC that is 

described in section 3(14)(E) or 3(14)(G) 

of the Act; 

(2) Is licensed to sell insurance or 

conduct reinsurance operations in at 

least one state as defined in section 

3(10) of the Act; 

(3) Has obtained a Certificate of 

Authority from the Director of the 

Department of Insurance of its 

domiciliary state (South Carolina), 

which has neither been revoked nor 

suspended; 

(4)(A) Has undergone and shall 

continue to undergo an examination by 

an independent certified public 

accountant for its last completed taxable 

year immediately prior to the taxable 

year of the reinsurance transaction 

covered by this proposed exemption, if 

granted; or 

(B) Has undergone a financial 

examination (within the meaning of the 

law of South Carolina) by the Director 

of the South Carolina Department of 

Insurance (SCDI) within five (5) years 

prior to the end of the year preceding 

the year in which such reinsurance 

transaction has occurred; and 

(5) Is licensed to conduct reinsurance 

transactions by South Carolina, whose 

law requires that an actuarial review of 

reserves be conducted annually by an 

independent firm of actuaries and 

reported to the appropriate regulatory 

authority; 

(b) The Plans pay no more than 

adequate consideration for the 

insurance contracts; 

(c) No commissions are paid by the 

Plans with respect to the direct sale of 

such contracts or the reinsurance 

thereof; 

(d) In the initial year of every contract 

involving Red Re and a Fronting 

Insurer, there will be an immediate and 

objectively determined benefit to 

participants and beneficiaries of the 

Plans in the form of increased benefits, 

and such benefits will continue in all 


tkelley on DSK3SPTVN1PROD with 
76780 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

subsequent years of each contract and in 

every renewal of each contract; 

(e) In the initial year and in 

subsequent years of coverage provided 

by a Fronting Insurer, the formula used 

by the Fronting Insurer to calculate 

premiums will be similar to formulae 

used by other insurers providing 

comparable coverage under similar 

programs. Furthermore, the premium 

charge calculated in accordance with 

the formula will be reasonable and will 

be comparable to the premium charged 

by the Fronting Insurer and its 

competitors with the same or a better 

rating providing the same coverage 

under comparable programs; 

(f) The Fronting Insurer has a 

financial strength rating of ‘‘A’’ or better 

from A. M. Best Company (A. M. Best). 

The reinsurance arrangement between 

the Fronting Insurer and Red Re will be 

indemnity insurance only, (i.e., the 

Fronting Insurer will not be relieved of 

liability to the Plans should Red Re be 

unable or unwilling to cover any 

liability arising from the reinsurance 

arrangement); 

(g) The Plans retain an independent, 

qualified fiduciary or successor to such 

fiduciary, as defined in Section III(c), 

below, (the I/F) to analyze the 

transactions and to render an opinion 

that the requirements of Section II(a) 

through (f) and (h) of this proposed 

exemption have been satisfied; 

(h) Participants and beneficiaries in 

the Plans will receive in subsequent 

years of every contract of reinsurance 

involving Red Re and the Fronting 

Insurer no less than the immediate and 

objectively determined increased 

benefits such participant and 

beneficiary received in the initial year of 

each such contract involving Red Re 

and the Fronting Insurer; 

(i) The I/F will: monitor the 

transactions proposed herein on behalf 

of the Plans on a continuing basis to 

ensure such transactions remain in the 

interest of the Plans; take all appropriate 

actions to safeguard the interests of the 

Plans; and enforce compliance with all 

conditions and obligations imposed on 

any party dealing with the Plans; and 

(j) At the conclusion of the five-year 

period (the 5-Year Period), from January 

1, 2013 to December 31, 2017, in which 

MetLife has provided a rate guarantee in 

connection with the provision to 

participants in the Plans of the group 

term life insurance and the AD&D 

coverage which is reinsured by Red Re, 

the I/F will review any renewal of the 

reinsurance of risks and the receipt of 

premiums therefrom by Red Re and 

must determine that the requirements of 

this proposed exemption and the terms 

of the benefit enhancements continue to 

be satisfied. 

Section III. Definitions 

(a) The term ‘‘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. 

(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) For purposes of the proposed 

exemption, an I/F is a person, or a 

successor to such person, who is not an 

affiliate of TCCC and: 

(1) Does not have an ownership 

interest in TCCC, in Red Re, or in an 

affiliate of either; 

(2) Is not a fiduciary with respect to 

the Plans prior to its appointment to 

serve as the I/F; 

(3) Has acknowledged in writing 

acceptance of fiduciary responsibility 

and has agreed not to participate in any 

decision with respect to any transaction 

in which it has an interest that might 

affect its best judgment as a fiduciary; 

and 

(4) Has appropriate training, 

experience, and facilities to act on 

behalf of the Plans regarding the subject 

transactions in accordance with the 

fiduciary duties and responsibilities 

prescribed by the Act. 

For purposes of this definition of an 

‘‘I/F,’’ no organization or individual 

may serve as an I/F for any fiscal year 

if the gross income received by such 

organization or individual (or 

partnership or corporation of which 

such individual is an officer, director, or 

10 percent or more partner or 

shareholder) for that fiscal year exceeds 

two percent (2%) of that organization’s 

or individual’s annual gross income 

from all sources for the prior fiscal year 

from TCCC or from Red Re, or from an 

affiliate of either (including amounts 

received for services as I/F under any 

prohibited transaction exemption 

granted by the Department). 

In addition, no organization or 

individual who is an I/F, and no 

partnership or corporation of which 

such organization or individual is an 

officer, director, or 10 percent (10%) or 

more partner or shareholder, may 

acquire any property from, sell any 

property to, or borrow any funds from 

TCCC or from Red Re, or from any 

affiliate of either during the period that 

such organization or individual serves 

as an I/F, and continuing for a period of 

six (6) months after such organization or 

individual ceases to be the I/F, or 

negotiates any such transaction during 

the period that such organization or 

individual serves as the I/F. 

In the event a successor I/F is 

appointed to represent the interests of 

the Plans with respect to the subject 

transactions, there should be no lapse in 

time between the resignation or 

termination of the former I/F and the 

appointment of the successor I/F. 

Effective Date: This proposed 

exemption, if granted, will be effective 

on January 1, 2013. 

Summary of Facts and Representations 

1. TCCC, headquartered in Atlanta, 

Georgia, is the world’s largest beverage 

company. TCCC markets four (4) of the 

world’s top five (5) non-alcoholic 

sparkling brands: Coca-Cola, Diet Coke, 

Sprite, and Fanta. In 2011, TCCC 

employed 146,200 associates worldwide 

with approximately 67,400 associates in 

the United States. TCCC reported 

revenue of approximately $46.5 billion 

in 2011. TCCC is a party in interest with 

respect to the Plans, pursuant to section 

3(14)(C) of the Act, as an employer any 

of whose employees are covered by the 

Plans. 

2. Red Re is an insurance company 

more than 50 percent (50%) owned by 

Coca-Cola Oasis, Inc., a consolidated 

entity of TCCC. Red Re was established 

on March 14, 2006, and commenced 

operations in Charleston, South 

Carolina, effective May 1, 2006. Red Re 

is a party in interest with respect to the 

Plans, pursuant to section 3(14)(G) of 

the Act, because it is a corporation of 

which 50 percent (50%) or more of the 

combined voting power of all classes of 

stock entitled to vote is owned directly 

or indirectly held by TCCC, an employer 

any of whose employees are covered by 

the Plans, as described in section 

3(14)(C) of the Act. Further, if the 

subject transactions are entered into, 

Red Re will become a party in interest 

with respect to the Plans, as a service 

provider, under section 3(14)(B) of the 

Act. 

3. Red Re currently provides 

deductible reimbursement policies to 

TCCC for selected automobile liability, 

product liability, premises liability, 

general liability, workers compensation, 

and terrorism risks. In addition, TCCC’s 

international employee benefits for 

selected countries are reinsured with 

Red Re. Red Re is subject to regulation 

by the SCDI and is required to maintain 

$15 million dollars of capital and 


tkelley on DSK3SPTVN1PROD with 
Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 76781 

26 It is represented that New York law requires 

insurers to retain 10 percent (10%) of the risk in 

a reinsurance transaction, but MetLife will seek 

approval from the Commissioner of Insurance for 

New York to reinsure 100 percent (100%) of this 

risk. 

surplus. On April 25, 2006, Red Re was 

issued a Certificate of Authority by the 

SCDI permitting Red Re to transact the 

business of a captive insurance 

company by the State of South Carolina. 

For the fiscal years ending December 31, 

2010, and December 31, 2011, Red Re 

had total shareholder’s equity of $32 

million and $20.7 million, respectively. 

It is further represented that Red Re had 

gross written premiums of $114 million, 

as of December 31, 2011. 

4. The Actives Plan is a welfare 

benefit plan that provides basic and 

supplemental group term life insurance 

and supplemental AD&D coverage for 

full-time non-union active employees or 

regular part-time employees working a 

minimum of thirty (30) hours a week 

(excluding interns, temporary, seasonal, 

co-op, and leased employees) of TCCC 

and participating affiliates in the United 

States and Puerto Rico. These 

employees automatically receive the 

basic coverage and are eligible to 

participate in the supplemental 

coverage, regardless of age, sex, salary 

range, or position. The Actives Plan had 

approximately 9,245 participants, as of 

July 16, 2012. The Actives Plan is 

funded through insurance and the 

general assets of TCCC, and as such the 

Actives Plan has no assets set aside for 

the payment of benefits. 

5. Under the current terms of the 

Actives Plan, basic group term life 

insurance is available to active 

employees in multiples of a ‘‘basic life 

amount,’’ which varies depending on an 

employee’s annual earnings. In this 

regard, the Actives Plan provides basic 

group term life insurance paid for by 

TCCC equal to one (1) times an 

employee’s annual earnings rounded up 

to the next $25,000 of ‘‘basic life 

amount’’ coverage, with a maximum of 

$300,000 of coverage. For example, 

according to the Summary Plan 

Description for the group term life 

insurance, effective January 1, 2012, an 

employee earning less than $25,000 per 

year would have a ‘‘basic life amount’’ 

coverage of $25,000, an employee 

earning between $25,000 and $49,999 

per year would have ‘‘basic life amount’’ 

coverage of $50,000, and so forth up to 

the maximum of $300,000. As an 

option, active employees concerned 

with the federal law that places an 

imputed income on employer-provided 

life insurance in excess of $50,000 may 

elect to have their ‘‘basic life amount’’ 

coverage reduced to a flat $50,000. 

6. The Retiree Plan is a welfare benefit 

plan that, as described below, provides 

supplemental group term life insurance 

and supplemental AD&D coverage to 

retirees of TCCC. The Retiree Plan had 

approximately 5,260 participants as of 

July 16, 2012. The Retiree Plan is 

funded through insurance and the 

general assets of TCCC, and as such the 

Retiree Plan has no assets set aside for 

the payment of benefits. Certain retirees 

with five (5) years of service who retire 

on or before December 31, 2012, (the 

Eligible Retiree(s)) may elect basic group 

term life insurance with the premium 

paid for by TCCC. Such Eligible Retirees 

may continue supplemental group term 

life insurance until age 70 by paying the 

required premium on an after-tax basis. 

After age 70 the basic group term life 

insurance paid for by TCCC is reduced 

to a flat amount depending on the 

number of years of service of such 

Eligible Retiree. An Eligible Retiree may 

supplement the group term life 

insurance at age 70 by converting to an 

individual policy within sixty (60) days 

of the month when coverage ends. 

For those who retired on or after 

January 1, 1990, a retiree has the 

opportunity: (i) To waive AD&D 

coverage, (ii) to elect ‘‘retiree only’’ 

supplemental AD&D coverage of 

$50,000 or $100,000, or (iii) to elect 

family supplemental AD&D coverage in 

amounts based on varying percentages 

of such retiree’s individual AD&D 

coverage. If a retiree elects supplemental 

AD&D coverage, such retiree may 

continue such AD&D coverage until 

reaching the age of 75 by paying the 

required premiums on an after-tax basis. 

At age 75, all AD&D coverage ends. 

AD&D coverage cannot be converted to 

an individual policy. 

7. Life Insurance Company of America 

(LINA) is the current direct insurer for 

the Plans’ group term life insurance and 

AD&D coverage. The premiums paid for 

the group term life insurance in the 

Actives Plan for basic coverage and 

supplemental coverage in 2011 was 

approximately $565,000 and $2,030,000, 

respectively. The premiums paid for the 

group term life insurance coverage in 

the Retiree Plan for basic coverage and 

supplemental coverage in 2011 was 

approximately $2,145,000 and $816,000, 

respectively. 

8. TCCC and Red Re (the Applicants) 

represent that TCCC has reached an 

agreement with MetLife for MetLife, 

rather than LINA, to serve as the direct 

insurer for the Plans. The Applicants 

state that this agreement is for a five 

year period, beginning on January 1, 

2013, during which MetLife has 

provided a rate guarantee (the 5-Year 

Period). The Applicants represent that 

MetLife is a leading global provider of 

insurance, annuities, and employee 

benefit programs. MetLife is 

headquartered in New York, New York, 

and is subject to the approval of the 

New York State Insurance Department 

(NYSID). 

9. The Applicants state that, 

beginning on January 1, 2013, MetLife 

will provide direct insurance for the 

group term life insurance and AD&D 

coverage offered under the Plans. In this 

regard, TCCC intends to insure the basic 

and supplemental group term life 

insurance and AD&D coverage offered to 

the Plans with MetLife. MetLife has 

agreed to a rate guarantee for the 5-Year 

Period from January 1, 2013 through 

December 31, 2017. The Applicants 

represent that the proposed change in 

insurance carriers from LINA to MetLife 

will reduce the employees’ overall costs 

for the supplemental benefits by 

$932,000. In this regard, compared with 

the approximately $3 million in 

premiums paid by participants in 2011 

for supplemental coverage, the $932,000 

premium reduction will result in a 31% 

decrease in participant-paid premiums 

for supplemental coverage. According to 

the Applicants, under the proposed 

arrangement with MetLife and Red Re, 

TCCC’s premium for basic group term 

life insurance would be reduced by 

$46,000. 

10. If this proposed exemption is 

granted, MetLife will contract with Red 

Re to reinsure 90 percent (90%) of the 

risks associated with such coverage (or 

100 percent (100%) of such risks if 

approved by the NYSID).26 The 

Applicants state that MetLife’s 

reinsurance agreement with Red Re (the 

Reinsurance Agreement) will be 

‘‘indemnity only’’—-that is, MetLife will 

not be relieved of its liability for 

benefits under the Plans, if Red Re is 

unable or unwilling to satisfy the 

liabilities arising from the reinsurance 

arrangement. 

11. As Red Re is a party in interest 

with respect to the Plans, the 

reinsurance of the risks associated with 

the group term life insurance and AD&D 

coverage offered to the Plans by MetLife 

would result in the indirect transfer to 

Red Re of the Plans’ premium payments, 

which are plan assets. Section 

406(a)(1)(D) of the Act prohibits the 

transfer to, or use by or for the benefit 

of, a party in interest, of any assets of 

a plan. Accordingly, this proposed 

exemption, if granted, would provide 

relief from the prohibition set forth in 

section 406(a)(1)(D) of the Act for the 

reinsurance of risks, and the receipt of 

premiums therefrom by Red Re, in 

connection with group term life 


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76782 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

27According to the Applicants, all eligible active 

participants in the Actives Plan will have the 

opportunity to purchase supplemental coverage, 

and all Eligible Retirees in the Retiree Plan may 

continue to participate in the supplemental 

coverage by paying the required premium until age 

seventy (70). 

insurance and AD&D coverage. In 

addition, because the reinsurance by 

Red Re of the group term life insurance 

and the AD&D coverage is contemplated 

by TCCC at the time that the Plans are 

obtaining insurance coverage from 

MetLife, such transactions could 

constitute violations by TCCC of 

sections 406(b) of the Act. In this regard, 

section 406(b)(1) of the Act prohibits a 

fiduciary from dealing with the assets of 

a plan in his own interest or for his own 

account, 406(b)(2) of the Act prohibits a 

fiduciary from acting in a transaction 

involving plan assets on behalf of a 

party whose interests are adverse to 

those of the plan, and section 406(b)(3) 

of the Act prohibits a fiduciary from 

receiving any consideration for his own 

personal account from any party dealing 

with a plan in connection with a 

transaction involving plan assets. 

12. The Applicants represent that if 

Red Re enters into the Reinsurance 

Agreement, all eligible non-union active 

employee participants (employees) in 

the Actives Plan will receive an 

enhancement in their basic group term 

life insurance. In this regard, the ‘‘basic 

life amount’’ under the group term life 

insurance will increase to an amount 

equal to such employee’s basic annual 

earnings rounded up to the next higher 

$1,000 multiplied by 1.5 times, up to a 

maximum benefit of $2,000,000. TCCC 

has further committed that employees 

with basic annual earnings below 

$25,000 will receive group term life 

insurance with a minimum ‘‘basic life 

amount’’ of $30,000, and that employees 

with basic annual earnings of $25,000 to 

$39,999 will receive group term life 

insurance with a ‘‘basic life amount’’ of 

$60,000. An employee will receive 

group term life insurance in the amount 

of his or her current ‘‘basic life amount’’ 

times 1.2. As such, it is represented that, 

if this proposed exemption is granted, 

all employees will receive an increase in 

their employer-paid group term life 

insurance ‘‘basic life amount’’ of 

coverage. 

13. The Applicants represent further 

that if Red Re enters into the 

Reinsurance Agreement, TCCC will 

provide Eligible Retirees in the Retiree 

Plan employer-paid $10,000 AD&D 

coverage. In this regard, at the present 

time, Eligible Retirees are offered AD&D 

coverage at their own expense. The 

Applicants note that group term life 

insurance coverage currently provided 

to Eligible Retirees will not change 

under the proposed arrangement. 

14. The Applicants state that the two 

enhancements described above (the Two 

Enhancements) will impose a financial 

burden on the sponsor of the Actives 

Plan and the Retiree Plan. In this regard, 

TCCC will bear the entire cost of these 

enhancements, which will benefit all 

active employees currently covered by 

the Actives Plan (with regard to the 

increased group term life insurance) and 

will benefit all Eligible Retirees 

currently covered by the Retiree Plan 

(with regard to the employer-paid AD&D 

coverage in the amount of $10,000). The 

incremental annual premium on the 

coverage under the group term life 

insurance is estimated to cost TCCC an 

additional $212,000 annually (from 

$518,000 to $730,000), and providing 

Eligible Retirees with the additional 

AD&D coverage will entail a $23,000 

annual premium cost for TCCC. 

15. The Applicants note that certain 

additional benefits will be provided by 

MetLife in anticipation of a receipt of 

the exemptive relief described herein. 

Specifically, effective January 1, 2012, 

MetLife will provide the following 

additional benefits to any participant, 

active or retired, who elects to purchase 

supplemental coverage: 27 The 

supplemental group term life insurance 

will include a free in-person will 

preparation and probate service through 

Hyatt Legal; the supplemental group 

term life insurance and the AD&D 

coverage will be expanded and the 

maximum overall coverage level (basic 

plus supplemental) will increase to $2 

million; and the following benefits 

would be included in the voluntary 

supplemental AD&D coverage provided 

by MetLife: 

• Seat belt benefit-10 percent (10%) 

of full amount (minimum $1,000- 

maximum $25,000). 

• Air bag use benefit-5 percent (5%) 

of the full amount (minimum $1,000- 

maximum $10,000). 

• Child care benefit-actual charges up 

to $5,000 annually for four (4) 

consecutive years (maximum 5 percent 

(5%) of full amount) 

• Child education benefit-actual 

charges $10,000 annually for four (4) 

consecutive years (maximum 20 percent 

(20%) of full amount). 

• Spouse education benefit—actual 

charges up to $10,000 annually for three 

(3) consecutive years (maximum 5 

percent (5%) of full amount). 

• Common carrier benefit—100 

percent (100%) of the full amount. 

• Therapeutic counseling benefit-10 

percent (10%) of the full amount 

(maximum $10,000). 

• Reparation of remains benefitactual charges up to $5,000. 

According to the Applicants, while 

these additional benefits will be 

available on January 1, 2013, Coca Cola 

has retained the right to discontinue 

such benefits at any time if this 

proposed exemption is not granted. 

16. In connection with this exemption 

request, Evercore Trust Company 

(Evercore) has been engaged to act as the 

independent fiduciary (the I/F) on 

behalf of the Plans for the purpose of 

evaluating, and if appropriate, 

approving the subject transactions. In 

this regard, Evercore is responsible for 

conducting a due diligence review and 

analysis of the proposed transactions 

and for providing a written opinion as 

to whether the arrangement complies 

with the Department’s requirements for 

an administrative exemption. Evercore 

certifies that it is qualified to serve as 

the I/F in that, among other things, 

Evercore has served as an independent 

fiduciary for employee benefit plans in 

connection with numerous requests for 

exemptions over the past three (3) years. 

Additionally, the personnel who 

comprise Evercore have served (under 

the auspices of U.S. Trust Company, 

N.A.) as an independent fiduciary for 

employee benefit plans in connection 

with numerous requests for exemptions 

over the past twenty (20) years. Evercore 

represents that it is independent in that 

it does not have and has not previously 

had, any relationship with any party in 

interest (including any affiliates thereof) 

engaging in the proposed transactions. 

17. In connection with the 

transactions that are the subject of this 

proposed exemption, Evercore, among 

other things: reviewed a draft of TCCC 

and Red Re’s request for an 

administrative exemption from the 

Department; conferred with TCCC’s 

outside counsel, the Groom Law Group, 

to discuss the proposed transactions and 

the Plans; conducted such other due 

diligence reviews as were deemed 

necessary. In addition, Evercore 

retained Robert L. Northrop (Mr. 

Northrop) of Northrop Consulting 

Services, LLC, an experienced insurance 

consultant, to review the proposed 

transactions and provide a written 

report of his determinations (the 

Report). Evercore and Mr. Northrop 

considered the premiums to be paid by 

the Plans for the proposed coverage, and 

determined that this premium is 

comparable to the premiums that would 

have been charged by an insurer of its 

competitors, with the same of better 

rating, providing similar coverage under 

comparable programs. The premium 

rate agreed to with MetLife includes a 

percentage allocation for non-claims 


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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 76783 

expenses, which expenses here include 

fronting fees and expenses and taxes. 

Mr. Northrop examined these expenses, 

and determined that the expenses are 

within an expected range. In particular, 

Mr. Northrop determined that 5.36% of 

premiums will be retained by MetLife to 

cover MetLife’s and Red Re’s expenses 

and profit. Mr. Northrop opined that a 

reasonable net administrative expense 

(excluding taxes) would be between 5 

percent (5%) and 8 percent (8%) of 

premiums. Because the premium was 

agreed to as a result of a competitive 

bidding process, and the expenses and 

profits paid by the Plans are within the 

expected range, Mr. Northrop 

determined and Evercore concurred that 

the Plans will pay no more than 

adequate consideration for the 

insurance. Mr. Northrop advised that no 

commission be paid by the Plans in 

connection with the subject 

transactions. As of the date of Mr. 

Northrop’s Report, A.M. Best Company 

rated MetLife A+ (Excellent), and 

Standard and Poor’s rated MetLife AA¥ 

(Stable). 

19. Evercore has determined that the 

enhancements described above will 

result in an immediate and quantifiable 

substantial increase in benefits to all 

participants of the Plans, and an 

immediate and substantial decrease in 

premiums to the participants and 

beneficiaries of the Plans. Evercore 

opines that the enhancements will be 

useful to the participants in the Actives 

Plan and the Retirees Plan, even if 

participants do not get sick, become 

disabled, or die, because such programs 

provide security to participants and 

their families (i.e., beneficiaries) against 

such contingencies that could have a 

devastating impact on such participants 

and beneficiaries were such 

contingencies to arise. In addition, in 

the opinion of Evercore, the 

enhancements will be in the interest of 

the participants in the Actives Plan and 

in the Retiree Plan, because the 

enhancements will provide additional 

benefits at no incremental cost to 

participants. It is Evercore’s further 

view that the proposed transactions are: 

protective of the Plans, by adding a 

layer of insurance guarantee through the 

reinsurance arrangement with Red Re; 

and meet the requirements of obtaining 

an administrative exemption from the 

Department. 

20. The Applicants represent that the 

proposed exemption is administratively 

feasible because the reinsurance of the 

Plans’ risks under the terms of the group 

term life insurance and AD&D coverage 

will be, among other things, subject to 

review by an I/F, which can be audited. 

TCCC has and will bear the cost of the 

exemption application and of notifying 

the interested persons. Further, the 

proposed exemption will not require 

continued monitoring or other 

involvement by the Department. 21. The 

Applicants also represent that the 

proposed transactions are in the interest 

of the Plans. In this regard, the Actives 

Plan and the Retiree Plan will incur no 

cost for the benefit enhancements, as 

TCC will pay 100% of the premiums for 

basic group term life insurance under 

the Actives Plan and will pay 100% of 

the premiums for the $10,000 AD&D 

coverage under the Retiree Plan. 

Further, the Plans will pay no more than 

adequate consideration for the 

insurance contracts with MetLife, and 

the proposed change in insurance 

carriers from LINA to MetLife will 

reduce the employees’ overall costs for 

the supplemental benefits by $932,000. 

Compared with the approximately $3 

million in premiums paid by 

participants in 2011 for supplemental 

coverage, the $932,000 premium 

reduction will result in a 31% decrease 

in participant-paid premiums for 

supplemental coverage. 

22. The Applicants represent that the 

proposed exemption is protective of the 

rights of the participants and 

beneficiaries of the Plans, because the 

exemption will require the review and 

approval of an I/F, at TCCC’s expense. 

Specifically, the proposed exemption, if 

granted, will require that the I/F analyze 

the subject transactions and render an 

opinion regarding whether certain of the 

conditions of the exemption were 

satisfied, including that: the Plans pay 

no more than adequate consideration for 

the insurance contracts; the Plans pay 

no commissions with respect to the 

direct sale of such contracts or the 

reinsurance thereof; in the initial year of 

every contract involving Red Re and a 

Fronting Insurer, there is an immediate 

and objectively determined benefit to 

participants and beneficiaries of the 

Plans in the form of increased benefits, 

and such benefits will continue in all 

subsequent years of each contract and in 

every renewal of each contract; in the 

initial year and in subsequent years of 

coverage provided by a Fronting Insurer, 

the formula used by the Fronting Insurer 

to calculate premiums is similar to 

formulae used by other insurers 

providing comparable coverage under 

similar programs. Furthermore, the 

premium charge calculated in 

accordance with the formula will be 

reasonable and will be comparable to 

the premium charged by the Fronting 

Insurer and its competitors with the 

same or a better rating providing the 

same coverage under comparable 

programs. The Applicants state that if 

exemptive relief is granted any Fronting 

Insurer have a financial strength rating 

of ‘‘A’’ or better from A. M. Best 

Company (A. M. Best), and the 

reinsurance arrangement between the 

Fronting Insurer and Red Re will be 

indemnity insurance only. Finally the 

Applicants note that participants and 

beneficiaries in the Plans will receive in 

subsequent years of every contract of 

reinsurance involving Red Re and the 

Fronting Insurer no less than the 

immediate and objectively determined 

increased benefits such participant and 

beneficiary received in the initial year of 

each such contract involving Red Re 

and the Fronting Insurer. 

23. In summary, the Applicants 

represent that the proposed reinsurance 

transactions will meet the criteria of 

section 408(a) of the Act since, among 

other things: 

(a) The Plans will pay no more than 

adequate consideration for the 

insurance contracts; 

(b) No commissions will be paid by 

the Plans with respect to the direct sale 

of such contracts or the reinsurance 

thereof; 

(c) In the initial year of every contract 

involving Red Re and a Fronting 

Insurer, there will be an immediate and 

objectively determined benefit to 

participants and beneficiaries of the 

Plans in the form of increased benefits, 

and such benefits will continue in all 

subsequent years of each contract and in 

every renewal of each contract; 

(d) In the initial year and in 

subsequent years of coverage provided 

by a Fronting Insurer, the formula used 

by the Fronting Insurer to calculate 

premiums will be similar to formulae 

used by other insurers providing 

comparable coverage under similar 

programs. Furthermore, the premium 

charge calculated in accordance with 

the formula will be reasonable and will 

be comparable to the premium charged 

by the Fronting Insurer and its 

competitors with the same or a better 

rating providing the same coverage 

under comparable programs; 

(e) The Fronting Insurer has a 

financial strength rating of ‘‘A’’ or better 

from A. M. Best Company (A. M. Best). 

The reinsurance arrangement between 

the Fronting Insurer and Red Re will be 

indemnity insurance only, (i.e., the 

Fronting Insurer will not be relieved of 

liability to the Plans should Red Re be 

unable or unwilling to cover any 

liability arising from the reinsurance 

arrangement); 

(f) The Plans retain an independent, 

qualified fiduciary or successor to such 

fiduciary, as defined in Section III (c), 

below, (the I/F) to analyze the 


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76784 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

28For 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. 

transactions and to render an opinion 

that certain relevant requirements of the 

proposed exemption, if granted, have 

been satisfied; 

(g) Participants and beneficiaries in 

the Plans will receive in subsequent 

years of every contract of reinsurance 

involving Red Re and the Fronting 

Insurer no less than the immediate and 

objectively determined increased 

benefits such participant and 

beneficiary received in the initial year of 

each such contract involving Red Re 

and the Fronting Insurer; 

(h) The I/F will: monitor the 

transactions proposed herein on behalf 

of the Plans on a continuing basis to 

ensure such transactions remain in the 

interest of the Plans; take all appropriate 

actions to safeguard the interests of the 

Plans; and enforce compliance with all 

conditions and obligations imposed on 

any party dealing with the Plans; and 

(i) At the conclusion of the 5-Year 

Period from January 1, 2013 to 

December 31, 2017, the I/F will review 

any renewal of the reinsurance of risks 

and the receipt of premiums therefrom 

by Red Re and will determine whether 

the requirements of this proposed 

exemption and the terms of the benefit 

enhancements, as described herein, 

continue to be satisfied. 

Notice to Interested Persons 

It is represented that TCCC shall 

provide notification of the publication 

of the Notice of Proposed Exemption 

(the Notice) in the Federal Register to 

all interested persons via first class mail 

to each such interested person’s most 

recent address maintained in the 

records of the administrator of the 

Plans. Such notification 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(a)(2) which 

will advise all interested persons of 

their right to comment and to request a 

hearing. TCCC will provide such 

notification to all such interested 

persons within five (5) business days of 

the date of publication of the Notice in 

the Federal Register. All written 

comments and/or requests for a hearing 

must be received by the Department 

from interested person no later than 35 

days after publication of the Notice in 

the Federal Register. 

All comments will be made available 

to the public. Warning: Do not include 

any personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the Internet and can be 

retrieved by most Internet search 

engines. 

Further Information Contact: 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8551 (This is not a 

toll-free number.) 

Silchester International Investors LLP 

(Silchester or the Applicant) Located in 

London, England 

[Application Number D–11671] 

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).28

Section I. Proposed Transactions 

If the proposed exemption is granted, 

the restrictions of section 406(a)(1)(A), 

406(a)(1)(D), and section 406(b)(2) of 

ERISA, and the sanctions resulting from 

the application of section 4975 of the 

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

and section 4975(c)(1)(D) of the Code, 

shall not apply to the cross trading of 

securities (the cross trades, or the 

transactions) between various Accounts 

managed by Silchester, where at least 

one of the Accounts involved in the 

cross trade is an ERISA Account, if the 

conditions set forth in section II have 

been met: 

Section II. Conditions 

(a) Each cross trade is a purchase or 

sale of securities by an ERISA Account 

for no consideration other than cash 

payment against prompt delivery of a 

security for which market quotations are 

readily available. 

(b) A cross trade may only be effected 

on the first business date of the month. 

(c) Each cross trade is effected at a 

price equal to the security’s 

‘‘independent current market price’’ 

(within the meaning of section 270.17a7(b) of Title 17, Code of Federal 

Regulations) on the business date that 

immediately precedes the first business 

date of the month on which the cross 

trade occurs. 

(d) No brokerage commission, fees or 

other remuneration is paid in 

connection with a cross trade involving 

an ERISA Account. Notwithstanding the 

above, customary transfer fees or 

brokerage fees dictated by local market 

restrictions may be applicable, the fact 

of which is disclosed in advance to an 

Independent Fiduciary. In the event 

local market restrictions require the use 

of a broker-dealer, and only in such 

event, broker-dealers that are not 

Affiliates of Silchester or the trustee of 

any Account that is a commingled fund 

will be used to execute the transaction, 

and no more than reasonable 

compensation will be paid to such 

unaffiliated broker-dealer to execute the 

cross trade. In any event, neither 

Silchester nor the trustee of any ERISA 

Account will receive a commission, fee, 

or other remuneration directly or 

indirectly from an ERISA Account in 

connection with a cross trade involving 

an ERISA Account (provided that the 

trustee of an Account may be expected 

to receive remuneration on foreign 

exchange transactions in the ordinary 

course that would be received 

irrespective of whether the trade was a 

cross trade or if the securities were sold 

in the market). 

(e) Prior to engaging in any cross trade 

for an ERISA Account or at the 

inception of any new relationship 

between Silchester and a Plan, 

Silchester shall deliver to the 

Independent Fiduciary (i) a written 

disclosure regarding the conditions 

under which cross trades may take place 

(which disclosure will be separate from 

any other agreement or disclosure in 

respect of the ERISA Account, including 

the Policies and Procedures); (ii) a 

written copy of the Policies and 

Procedures; and (iii) written 

instructions (via email correspondence 

or otherwise) directing the Independent 

Fiduciary to give appropriate 

consideration to: (A) The 

responsibilities, obligations and duties 

imposed upon fiduciaries by Part 4 of 

Title I of the Act, (B) whether the terms 

of the cross trades are fair to the Plan 

and its participants and beneficiaries, 

and to the ERISA Account, and are 

comparable to, and no less favorable 

than, terms obtainable at arm’s-length 

between unaffiliated parties, and (C) 

whether the cross trades are in the best 

interest of the Plan and its participants 

and beneficiaries and of the ERISA 

Account. The receipt of the instructions 

described in clause (iii) must be 

acknowledged in writing (via email 

correspondence or otherwise) by the 

Independent Fiduciary. 

(f) Prior to engaging in any cross trade 

for an ERISA Account, Silchester must 

receive authorization from the 

Independent Fiduciary of such ERISA 

Account to engage in cross trades 

involving the ERISA Account at 

Silchester’s discretion, which 


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Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 76785 

authorization must be provided in a 

written document in advance of any 

such cross trades, and must be separate 

from any other written agreement or 

disclosure between Silchester and the 

ERISA Account or Plan, as applicable. 

Such authorization will only be 

effective if the Independent Fiduciary 

has already received the disclosures 

described in paragraph (e) above. 

(g) The Independent Fiduciary shall 

represent, in its authorization of 

participation for an ERISA Account, that 

it has the requisite knowledge and 

experience in financial and business 

matters to be capable of evaluating the 

merits and risks of investing in the 

ERISA Account and to be capable of 

protecting the Plan’s interests in 

connection with the investment or that 

it has obtained expert advice that allows 

it to adequately evaluate its investment 

in the ERISA Account. If such 

Independent Fiduciary cannot make the 

foregoing representations, then the 

authorization described herein will not 

be effective. 

(h) Both on an annual basis and each 

time Silchester provides notice to the 

Independent Fiduciary in writing that a 

new fund or new Separately Managed 

Account may engage in cross trades, a 

designated representative of Silchester 

will advise each such Independent 

Fiduciary in writing that it can revoke 

the authorization described in 

paragraph (f) at any time in writing by 

withdrawing from the ERISA Account 

(or in the case of an ERISA Account that 

is a Separately Managed Account, by 

written notice to the Applicant). 

(i) On a quarterly basis, Silchester will 

provide (or cause to be provided) to 

each Independent Fiduciary a written 

report detailing all cross trades in which 

the ERISA Account participated during 

such quarter, including the following 

information, as applicable: (i) The 

identity of each security bought or sold; 

(ii) the number of shares or units traded; 

(iii) the Accounts involved in the cross 

trade; and (iv) the trade price and the 

total U.S. dollar value of each security 

involved in the cross trade and the 

method used to establish the trade price. 

The quarterly report will be provided to 

the Independent Fiduciary prior to the 

end of the next following quarter. 

(j) Silchester will not base its fee 

schedule on a Plan’s consent to cross 

trading, nor is any other service (other 

than the investment opportunities and 

cost savings available through a cross 

trade) conditioned on the Plan’s 

consent. 

(k) Silchester adopts, and cross trades 

will be effected in accordance with, the 

Policies and Procedures, which will be 

made further available to an 

Independent Fiduciary upon request. 

(l) A member of Silchester’s 

compliance group reviews cross trades 

within 10 business days of the cross 

trades to confirm compliance with the 

Policies and Procedures and report to 

the compliance group regarding such 

member’s findings, and Silchester 

designates an individual member of its 

compliance group to be responsible for 

annually reviewing a sampling of each 

ERISA Account’s cross trades that is 

sufficient in size and nature to 

determine compliance with the Policies 

and Procedures described herein with 

respect to each such ERISA Account 

and, following such review, such 

individual shall issue an annual written 

report no later than 90 calendar days 

following the end of the ERISA 

Account’s fiscal year to which it relates, 

signed under penalty of perjury, to each 

Independent Fiduciary describing the 

actions performed during the course of 

the review, the level of such 

compliance, and any specific instances 

of non-compliance. 

(m) An Independent Auditor conducts 

an Exemption Audit on an annual basis, 

the audit period for which will be the 

ERISA Account’s fiscal year. Following 

completion of the Exemption Audit, the 

Independent Auditor shall issue a 

written report to Silchester (with copies 

thereof delivered to each Independent 

Fiduciary) presenting its specific 

findings regarding the level of 

compliance with: (1) the Policies and 

Procedures and (2) the objective 

requirements of the proposed 

exemption, if granted. The written 

report shall also contain the 

Independent Auditor’s overall opinion 

regarding whether Silchester’s program 

complied with: (1) the Policies and 

Procedures and (2) the objective 

requirements of the proposed 

exemption, if granted. The Exemption 

Audit and the written report must be 

completed within six months following 

the end of the fiscal year to which the 

Exemption Audit relates. 

(n) The ERISA Account has at least 

U.S. $100 million in assets. 

(o) Each underlying investor in a 

commingled fund ERISA Account and 

each ERISA Account that is a Separately 

Managed Account shall represent in 

writing (which representation is deemed 

to be repeated upon each subsequent 

investment in such ERISA Account) that 

it is a ‘‘qualified purchaser,’’ as that 

term is defined in section 2(a)(51)(A) of 

the Investment Company Act of 1940, as 

amended. 

(p) Silchester will conduct cross 

trades involving an ERISA Account only 

when triggered by contributions or 

withdrawals initiated by investors in 

such ERISA Account where: 

(1) Contributions from one Account 

can be matched against withdrawals 

from another Account and the 

confirmed net contributions/ 

withdrawals (as the case may be) from 

the ERISA Account exceed U.S. $10 

million or 10 basis points or 0.1% of the 

value of the ERISA Account (whichever 

is less); and 

(2) The ERISA Account’s forecasted 

residual cash balance when adjusted for 

month-end cash flows after the cross 

trade will be within 50 basis points or 

0.5% of the cash weightings of each 

such other Account. 

(q) Silchester will not include an 

ERISA Account in a cross trade during 

any period in which the weightings of 

14 or more securities in the ERISA 

Account individually differ by more 

than 50 basis points from the weightings 

of the same securities in the other 

Accounts; and none of the 

circumstances under which different 

weightings across the funds may arise or 

increase will be the result of any 

discretionary or opportunistic actions 

by Silchester. 

(r) The U.S. dollar amount determined 

for the cross trade will be prorated 

across all of the securities eligible for 

the cross trade in each of the Accounts, 

based on each Account’s relative 

weighting of each security included in 

the cross trade, subject to the 

restrictions and/or exclusions set forth 

in the Policies and Procedures. 

(s) No cross trades will be conducted 

between an ERISA Account and any 

Account in which Silchester and/or its 

Affiliates (together or separately) own 

10% or more of the outstanding units in 

such Account in the aggregate. 

(t) Silchester maintains or causes to be 

maintained for a period of six years 

from the date of any cross trade such 

records as are necessary to enable the 

persons described in paragraph (u)(i) 

below to determine whether the 

conditions of this proposed exemption, 

if granted, have been met, provided that 

(i) a separate prohibited transaction will 

not be considered to have occurred if, 

due to circumstances beyond the control 

of Silchester, the records are lost or 

destroyed prior to the end of the sixyear period, and (ii) no party in interest 

other than Silchester shall be subject to 

a civil penalty that may be assessed 

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 are not available for 

examination as required by paragraph 

(u)(i) below. 

(u)(i) Except as provided below in 

paragraph (u)(ii), and notwithstanding 


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29The Applicant states that Silchester has 

managed the commingled funds since November 1, 

2010 and, prior to that, Silchester International 

Investors Limited (SII Limited) managed the 

commingled funds. The Applicant states that SII 

Limited, which was renamed Silchester Partners 

Limited subsequent to the filing of the exemption 

application, currently owns 96.35% of the capital 

of the Applicant and is expected to own in excess 

of 90% of the Applicant’s capital in future years. 

any provisions of subsections (a)(2) and 

(b) of section 504 of the Act, the records 

referred to above in paragraph (t) are 

unconditionally available at their 

customary location for examination 

during normal business hours by: 

(A) Any duly authorized employee or 

representative of the Department, 

(B) Any Independent Fiduciary, Plan 

investing in an Account, or such Plan’s 

designated representative, and 

(C) The Independent Auditor; and 

(ii) None of the persons described 

above in paragraphs (u)(i)(B)–(C) shall 

be authorized to examine trade secrets 

of Silchester, or commercial or financial 

information which is privileged or 

confidential, and should Silchester 

refuse to disclose information on the 

basis that such information is exempt 

from disclosure, Silchester 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 such 

information. 

Section III. Definitions 

(a) The term ‘‘Account’’ is a group 

trust, a commingled fund, or a 

Separately Managed Account, holding 

assets over which the Applicant has 

discretion. 

(b) The term ‘‘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 of the person; or 

(3) Any corporation or partnership of 

which such person is an officer. 

(c) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(d) The term ‘‘ERISA Account’’ means 

an Account the assets of which are 

‘‘plan assets’’ within the meaning of 

section 3(42) of the Act and 29 CFR 

2510.3–101, as amended. 

(e) The term ‘‘Exemption Audit’’ 

means an engagement with an 

Independent Auditor that consists of the 

following: 

(1) A review of the Policies and 

Procedures for consistency with each of 

the objective requirements of this 

proposed exemption, if granted; 

(2) A test of a sample of the ERISA 

Account’s cross trades during the audit 

period that is sufficient in size and 

nature to afford the Independent 

Auditor a reasonable basis: 

(A) To make specific findings 

regarding whether the ERISA Account’s 

cross trades are in compliance with: (i) 

the Policies and Procedures; and (ii) the 

objective requirements of this proposed 

exemption, if granted. The findings will 

specifically address the pro rata 

calculation for a cross trade and will 

ensure that the exclusions set forth in 

the Policies and Procedures have been 

applied on a reasonable and consistent 

basis; and 

(B) To render an overall opinion 

regarding the level of compliance with 

the Policies and Procedures and the 

objective requirements of the proposed 

exemption, if granted. 

(3) Issuance of a written report 

describing the actions performed by the 

Independent Auditor during the course 

of its review in connection with the 

Exemption Audit and the Independent 

Auditor’s findings with respect thereto. 

(f) The term ‘‘Independent Auditor’’ 

means an auditor with appropriate 

technical training or experience and 

proficiency with ERISA’s fiduciary 

responsibility provisions, capable of 

issuing the written report required in 

connection with the Exemption Audit, 

that derives less than 5% of its annual 

gross revenue from Silchester, and so 

represents the foregoing in writing. 

(g) The term ‘‘Independent Fiduciary’’ 

means a plan fiduciary for each Plan 

investor in a commingled fund ERISA 

Account or, in the case of an ERISA 

Account that is a Separately Managed 

Account, the plan fiduciary for such 

Separately Managed Account, provided 

that in either case such plan fiduciary 

is not Silchester or any Affiliate of 

Silchester and has no interest in the 

subject transactions beyond the interest 

of such Plan. 

(h) The term ‘‘Plan’’ means an 

employee benefit plan described in 

section 3(3) of the Act or a plan 

described in section 4975(e)(1) of the 

Code. 

(i) The term ‘‘Policies and 

Procedures’’ means written cross trading 

policies and procedures adopted by 

Silchester that are designed to assure 

compliance with the conditions for the 

proposed exemption, if granted, and 

provide clear guidelines regarding how 

and under what circumstances cross 

trades will be effected by Silchester on 

behalf of an ERISA Account, including 

(but not limited to) descriptions of (i) 

triggering transactions for identifying 

when a cross trade is available, (ii) cross 

trade procedures that must be followed 

when implementing a cross trade, (iii) 

pricing of securities included in a cross 

trade, (iv) reporting of cross trade 

transactions and related information, 

and the (v) Exemption Audit. 

(j) The term ‘‘Separately Managed 

Account’’ means a separately managed 

account over which the Applicant has 

discretion and either: (1) such 

separately managed account is not 

subject to Title I of the Act or section 

4975 of the Code or (2) the Plan whose 

assets are held in the separately 

managed account has assets of at least 

U.S. $100 million, provided that if the 

assets of a Plan whose assets are held in 

the separately managed account are 

invested in a master trust containing the 

assets of Plans maintained by employers 

in the same controlled group, then such 

master trust has assets of at least U.S. 

$100 million. 

Summary of Facts and Representations 

Background 

1. Silchester International Investors 

LLP (the Applicant or Silchester) is a 

private investment management group 

established in 1994, specializing in 

international investment, primarily on 

behalf of investors based in the United 

States. The Applicant is registered as an 

investment adviser with the U.S. 

Securities and Exchange Commission 

(SEC) and is authorized and regulated 

by the Financial Services Authority 

(FSA) in the United Kingdom. The 

Applicant states that Silchester invests 

client assets primarily in publicly 

traded non-U.S. equity securities and 

benchmarks its client portfolios against 

the MSCI EAFE (Europe, Australasia, 

Far East) Index, inclusive of income and 

net of foreign withholding taxes (the 

MSCI EAFE Index). The Applicant 

represents that Silchester had 

approximately $22.5 billion of 

discretionary client assets under its 

management, as of May 31, 2012. 

2. According to the Applicant, 

Silchester has one primary investment 

program, International Value Equity, 

and Silchester currently offers its 

international investment program 

through five privately offered 

commingled funds (referred to generally 

as the funds or the commingled 

funds).29 The Applicant states that the 

governing documents for the 

commingled funds do not allow them to 

borrow, open a margin account, engage 

in securities lending, or engage in short 

sales. Furthermore, the Applicant notes 

that it does not charge incentive or 

performance fees in connection with its 

management of the commingled funds. 


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30 26 CFR 1.501(a)–1 (March 30, 1981). 

31Silchester Partners Limited, in addition to the 

partnership interest it has in the Applicant, 

currently owns significant minority interests in 

each of Sanderson Asset Management, Colchester 

Global Investors, Heronbridge Investment 

Management, through a participation in 

Heronbridge Limited, Highclere International 

Investors, through a participation in Highclere 

Investment Management Limited, Nippon Value 

Investors, Edgbaston Investment Partners and 

Kiltearn Partners, through a participation in 

Kiltearn Limited. 

32The Applicant states that, for purposes of the 

proposed exemption, a ‘‘Separately Managed 

Account’’ is a separately managed account over 

which the Applicant has discretion and either: (1) 

such separately managed account is not subject to 

Title I of the Act or section 4975 of the Code or (2) 

the Plan whose assets are held in the separately 

managed account has assets of at least U.S. $100 

million, provided that, if the assets of a Plan whose 

assets are held in the separately managed account 

are invested in a master trust containing the assets 

of Plans maintained by employers in the same 

controlled group, then such master trust has assets 

of at least U.S. $100 million. 

33However, as noted below, relief under this 

proposed exemption, if granted, does not extend to 

cross trades involving forward contacts or foreign 

exchange transactions. 

34Under the Amended and Restated Declaration 

of Trust governing the Group Trust, the Trustee has 

responsibility for maintaining the custody of the 

assets of the Group Trust as required by Section 

404(b) of the Act and the regulations issued 

thereunder. 

The Applicant describes these 

commingled funds in more detail as 

follows: 

A. The Silchester International 

Investors International Value Equity 

Group Trust (the Group Trust), a 

commingled fund established to qualify 

as a ‘‘group trust’’ under applicable 

Internal Revenue Service rules and 

regulations. The Group Trust was 

established to provide for the collective 

investment and reinvestment of certain 

assets of employee benefit plans 

described in section 3(3) of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act), or plans 

described in section 4975(e)(1) of the 

Internal Revenue Code of 1986, as 

amended (the Code) (Plans, or 

individually, a Plan) and other entities 

eligible to invest in a group trust under 

Internal Revenue Service Revenue 

Ruling 81–100,30 as may be amended, 

supplemented or modified from time to 

time. The Group Trust is currently the 

only commingled fund the assets of 

which constitute ‘‘Plan Assets’’ within 

the meaning of Section 3(42) of the Act 

and 29 CFR 2510.3–101, as amended. As 

of May 31, 2012, the Group Trust held 

net assets worth approximately $5.86 

billion. 

B. The Silchester International 

Investors International Value Equity 

Trust (the Business Trust), a 

commingled fund generally for U.S., 

non-ERISA tax-exempt investors. The 

Business Trust is currently structured as 

a Delaware Statutory Trust. Plans are 

permitted to invest in the Business 

Trust (but generally have not invested in 

the Business Trust). The assets of the 

Business Trust do not currently 

constitute Plan Assets, and the 

Applicant currently does not expect that 

the assets of the Business Trust will 

become Plan Assets. As of May 31, 

2012, the Business Trust held net assets 

worth approximately $10.83 billion. 

C. The Silchester International 

Investors Tobacco Free International 

Value Equity Trust (the Tobacco Free 

Trust), a commingled fund for U.S. 

tobacco adverse investors. The Tobacco 

Free Trust is currently structured as a 

Delaware Statutory Trust. Although 

Plans are permitted to invest in the 

Tobacco Free Trust (and have invested 

in this fund), the assets of the Tobacco 

Free Trust do not currently constitute 

Plan Assets, and the Applicant currently 

does not expect that the assets of the 

Tobacco Free Trust will become Plan 

Assets. As of May 31, 2012, the Tobacco 

Free Trust held net assets worth 

approximately $1.49 billion. 

D. The Silchester International 

Investors International Value Equity 

Taxable Trust (the Taxable Trust), a 

commingled fund for U.S. taxable 

investors. The Taxable Trust is currently 

structured as a Delaware Statutory 

Trust. Plans are permitted to invest in 

the Taxable Trust (but generally have 

not invested in Taxable Trust). The 

assets of the Taxable Trust do not 

currently constitute Plan Assets and the 

Applicant currently does not expect that 

the assets of the Taxable Trust will 

become Plan Assets. As of May 31, 

2012, the Taxable Trust held net assets 

worth approximately $2.92 billion. 

E. The Calleva Trust (the Calleva 

Trust), a regulated commingled fund for 

non-U.S. investors. The Calleva Trust is 

domiciled outside of the U.S. and U.S. 

investors are not currently permitted to 

invest directly in the Calleva Trust. The 

assets of the Calleva Trust do not 

constitute Plan Assets and the 

Applicant currently does not expect that 

the assets of the Calleva Trust will 

become Plan Assets. As of May 31, 

2012, the Calleva Trust held net assets 

worth approximately $1.45 billion. 

3. According to the Applicant, (a) 

certain of Silchester’s ‘‘Affiliates,’’ as 

such term is used in the proposed 

exemption, (b) several entities in which 

Silchester Partners Limited maintains a 

minority ownership interest, (the 

Associates),31 and (c) the Associates’ 

Affiliates, have invested (or may invest) 

in the Taxable Trust, Tobacco Free 

Trust, and the Calleva Trust and could 

invest in other commingled funds as 

well. Furthermore, the Applicant states 

that a wholly owned subsidiary of 

Silchester has invested in the Business 

Trust, Tobacco Free Trust, and the 

Taxable Trust in order to act as a ‘‘tax 

matters partner’’ of these funds. 

4. The Applicant states that the 

commingled funds currently own 

primarily non-U.S. publicly traded 

equity securities and, additionally, cash 

and cash equivalents. However, the 

commingled funds may occasionally 

own U.S. equity securities (or the 

investment guidelines governing the 

commingled funds and Separately 

Managed Accounts 32 may, in the future, 

permit investment in U.S. securities). 

For example, a non-U.S. company could 

spin off and publicly list a subsidiary as 

a U.S. security, but this has historically 

occurred very infrequently for the 

commingled funds. If the U.S. shares 

issued in such a spin-off are publicly 

traded, then these shares could be 

included in any cross trade. The 

commingled funds may also hold 

American Depositary Receipts (ADRs) 

and enter into forward currency 

contracts or other foreign exchange 

transactions with unrelated parties.33

5. A trustee (the Trustee), which is 

independent from the Applicant and its 

Associates, acts as the custodial trustee 

of the Group Trust and as the custodian 

and fund administrator for the Group 

Trust and each of the other commingled 

funds.34 As such, the Trustee maintains 

the primary books and records of the 

Group Trust and the other commingled 

funds. The Trustee, in addition to its 

other fund administration duties, sends 

client statements and transaction 

confirmations directly to the investors 

in the Group Trust and each of the 

commingled funds. The Applicant does 

not hold or receive any client assets, or 

subscription or withdrawal proceeds. 

Description of the Requested Relief 

6. The Applicant seeks relief for the 

purchase and sale of securities between 

a group trust, a commingled fund, or a 

Separately Managed Account, holding 

assets over which the Applicant has 

discretion (an Account) and the 

Applicant’s other Accounts (the cross 

trades, or the transactions), where at 

least one of the Accounts involved in 

the cross trade holds ‘‘plan assets’’ 

within the meaning of section 3(42) of 

ERISA and 29 CFR 2510.3–101, as 

amended (an ERISA Account). The 

Applicant represents that cross trades 

are customary in the institutional 

investment management industry, and 

the Applicant currently effects cross 


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35The Applicant states that these 15 investors 

represented approximately 1% of all of the Group 

Trust’s assets and less than 1% of the Applicant’s 

total assets under management. 

36Section 2(a)(51)(A) of the Investment Company 

Act provides that the term ‘‘qualified purchaser’’ is 

generally: (i) any natural person who owns not less 

than $5,000,000 in investments; (ii) any company 

that owns not less than $5,000,000 in investments 

and that is owned directly or indirectly by or for 

2 or more natural persons who are related as 

siblings or spouse (including former spouses), or 

direct lineal descendants by birth or adoption, 

spouses of such persons, the estates of such 

persons, or foundations, charitable organizations, or 

trusts established by or for the benefit of such 

persons; (iii) any trust that is not covered by clause 

(ii) and that was not formed for the specific purpose 

of acquiring the securities offered, as to which the 

trustee or other person authorized to make 

decisions with respect to the trust, and each settlor 

or other person who has contributed assets to the 

trust, is a person described in clause (i), (ii), or (iv); 

or (iv) any person, acting for its own account or the 

accounts of other qualified purchasers, who in the 

aggregate owns and invests on a discretionary basis, 

not less than $25,000,000 in investments. 

37 In either case such plan fiduciary shall not be 

Silchester or any Affiliate of Silchester. 

38The Applicant notes that the written notice 

shall not be required to provide identifying 

information regarding any investors in the new 

fund or identification of the client for the new 

Separately Managed Account. 

trades among its non-ERISA 

commingled funds. Further, the 

Applicant notes that it has been 

effecting cross trades for over 10 years 

and has developed a significant working 

knowledge of cross trades and their 

benefit to the commingled funds that 

participate. 

7. According to the Applicant, the 

cross trades which are the subject of this 

proposed exemption would constitute 

prohibited transactions in violation of 

sections 406(a)(1)(A) and (D) of the Act. 

Furthermore, the Applicant states that 

the cross trades may violate section 

406(b)(2) of the Act, because a cross 

trade would cause the Applicant to act 

in a transaction involving a Plan on 

behalf of a party whose interests are 

adverse to the interests of the Plan. 

Moreover, the Applicant represents that 

the cross trades do not qualify for 

exemptive relief under the statutory 

exemption for cross trades set forth in 

section 408(b)(19) of the Act. 

Section 408(b)(19)(E) requires in 

relevant part, as a condition for relief, 

that ‘‘each plan participating in the 

transaction has assets of at least 

$100,000,000 * * *.’’ According to the 

Applicant, as of September 30, 2011, the 

Group Trust had 108 investors, of which 

it is estimated that 15 investors had less 

than $100 million of investable assets.35

Therefore, the Applicant explains, 

section 408(b)(19) of the Act is not 

currently available to Silchester because 

certain of the Plans invested in the 

Group Trust do not have assets of at 

least $100 million. Accordingly, the 

Applicant seeks relief from sections 

406(a)(1)(A) and (D), and section 

406(b)(2) of the Act for cross trades 

involving Plans. 

8. Each underlying investor in a 

commingled fund ERISA Account and 

each ERISA Account that is a Separately 

Managed Account would be required to 

be a ‘‘qualified purchaser,’’ as that term 

is defined in Section 2(a)(51)(A) of the 

Investment Company Act of 1940, as 

amended (the Investment Company 

Act),36 determined, in the case of a 

commingled fund, on the date of the 

investor’s initial investment in the 

commingled fund ERISA Account. Each 

independent plan fiduciary for each 

Plan investor in a commingled fund 

ERISA Account or, in the case of an 

ERISA Account that is a Separately 

Managed Account, the independent 

plan fiduciary for such Separately 

Managed Account (each such person, an 

Independent Fiduciary) 37 would 

represent to the Applicant (which 

representation is deemed to be repeated 

upon each subsequent investment in an 

ERISA Account) that it will remain a 

‘‘qualified purchaser’’ for so long as it 

maintains an investment in the ERISA 

Account. The Applicant proposes 

further that, in order to engage in the 

covered transactions, any ERISA 

Account would need to have at least 

U.S. $100 million in assets. 

9. In addition, the Applicant 

represents that no cross trades will be 

conducted between an ERISA Account 

and any Account in which the 

Applicant, its Associates, and/or their 

respective Affiliates own 10% or more 

of the outstanding units in such 

Account in the aggregate. Furthermore, 

the Applicant states that cross trades 

between an ERISA Account and any 

Accounts managed by any Associates, 

directed by either the Applicant or an 

Associate, will not be allowed. 

10. The Applicant observes that it 

may in the future establish other 

commingled funds. According to the 

Applicant, if any such new fund 

constituted an ERISA Account, the 

Applicant would engage in cross trades 

involving that fund in reliance on the 

relief described in the proposed 

exemption only if the conditions of such 

relief were met. Furthermore, while the 

Applicant currently offers its 

international investment program only 

through the commingled funds, the 

Applicant may in the future also have 

discretion over certain Separately 

Managed Accounts that it may wish to 

have engage in cross trades in 

accordance with the proposed 

exemption, if granted. The Applicant 

represents that no such Separately 

Managed Account shall engage in a 

cross trade in reliance on the proposed 

exemption, if granted, unless either (a) 

the assets of such Separately Managed 

Account do not constitute Plan Assets 

or (b) the Plan whose assets are held in 

the Separately Managed Account has 

assets of at least U.S. $100 million, 

provided that if the assets of a Plan 

whose assets are held in the separately 

managed account are invested in a 

master trust containing the assets of 

Plans maintained by employers in the 

same controlled group, then such master 

trust has assets of at least U.S. $100 

million. 

11. In addition, the Applicant states 

that, in the event that the Applicant in 

the future (a) establishes a new 

commingled fund (other than those 

identified herein) which it wishes to 

have engage in cross trades in reliance 

on the proposed exemption, if granted, 

or (b) wishes to have a new Separately 

Managed Account engage in cross trades 

in reliance on the proposed exemption, 

if granted, the Applicant shall notify 

each Independent Fiduciary of an 

ERISA Account involved in cross trades 

in writing that a new fund or new 

Separately Managed Account may 

engage in cross trades under the 

conditions of the proposed exemption, 

if granted, prior to such cross trades 

taking place.38 Furthermore, along with 

such notification, a designated 

representative of Silchester will advise 

each such Independent Fiduciary in 

writing that it can revoke its 

authorization allowing Silchester to 

engage the ERISA Account in cross 

trades, at any time in writing by 

withdrawing from the ERISA Account 

(or in the case of an ERISA Account that 

is a Separately Managed Account, by 

written notice to the Applicant). 

The procedures applicable when a 

Plan invested in the Group Trust does 

not wish to authorize cross-trading are 

delineated in the Group Trust 

Agreement, and are described in more 

detail in the Representations below. 

Further, the Applicant states that when 

an Independent Fiduciary of a 

Separately Managed Account does not 

authorize cross trading, Silchester will 

not cause that Separately Managed 

Account to participate in cross trades. 

Policies and Procedures for Entering 

Into Cross Trades 

12. According to the Applicant, 

Silchester will adopt, and cross trades 

will be effected in accordance with, 

written cross trading policies and 

procedures adopted by Silchester (the 

Policies and Procedures), which will 

provide strict guidelines for when and 


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39The Applicant notes that contributions and 

withdrawals from an Account will in all 

circumstances be initiated by the Independent 

Fiduciaries of such Accounts (including the 

Independent Fiduciary of any Separately Managed 

Accounts), and not by Silchester. As such, crosstrading for the Group Trust or a Separately Managed 

Account would be triggered only by a Plan’s 

contributions or withdrawals. 

40The Applicant states that contributions and 

withdrawals in any of the commingled funds are 

generally only made effective on the first business 

day of each month, except for the Calleva Trust 

where, under Irish UCITS rules, a mid-month 

dealing day must be offered in addition to the first 

business day of each month. 

41The Applicant represents that, based on the 

Silchester’s experience with cross trading in respect 

of the non-ERISA Accounts, the number of 

exclusions varies among cross trades. Currently, on 

average, between three (3) and twelve (12) securities 

Continued 

how cross trades will be used. The 

Applicant states that the Policies and 

Procedures will describe (i) triggering 

transactions for identifying when a cross 

trade is available to an ERISA Account, 

(ii) cross trade procedures that must be 

followed when implementing a cross 

trade involving an ERISA Account, (iii) 

pricing of securities included in a cross 

trade involving an ERISA Account, (iv) 

reporting of cross trade transactions and 

related information to each Independent 

Fiduciary, and (v) the independent 

audit which includes a review of the 

Policies and Procedures, a test sampling 

of the cross trades conducted under this 

proposed exemption, if granted, to 

determine compliance with the 

requirements thereunder, and the 

Policies and Procedures, and the 

issuance of a written report in 

connection with the foregoing (the 

Exemption Audit). 

The Policies and Procedures will be 

disclosed to the Independent Fiduciary 

prior to engaging in cross trades for an 

ERISA Account or at the inception of 

any new relationship between Silchester 

and a Plan and will be made further 

available to the Independent Fiduciary 

on request. The Policies and Procedures 

are described in more detail in the 

following paragraphs. 

13. The Applicant represents that 

cross trades covered by the proposed 

exemption, if granted, will occur only to 

the extent that such cross trades are 

triggered by contributions or 

withdrawals to or from an ERISA 

Account.39 For example, where 

contributions to an ERISA Account can 

be matched against a withdrawal from 

another Account, consideration will be 

given to a cross trade between those 

Accounts. Specifically, the Applicant is 

proposing that the ERISA Account 

would be eligible for inclusion in such 

cross trade if, among other things: The 

confirmed net contributions/ 

withdrawals (as the case may be) to or 

from the ERISA Account exceed $10 

million or 10 basis points or 0.1% of the 

value of the ERISA Account (whichever 

is less); and the ERISA Account’s 

forecasted residual cash balance when 

adjusted for month-end cash flows after 

the cross trade would be within 50 basis 

points or 0.5% of the cash weightings of 

each such other Account.40

Furthermore, the Applicant notes that 

although cross trading opportunities 

may arise, Silchester may decide, in its 

sole discretion, not to enter into a cross 

trade if Silchester believes that the cross 

trade is not in the best interests of the 

ERISA Account given the prevailing 

(external) conditions and circumstances 

at the time of the cross trade. 

14. The Applicant represents that 

there will be a record of triggering 

events, based on investor-initiated 

contributions or withdrawals, that the 

Independent Auditor can verify. 

Furthermore, the Applicant states that, 

as described in the Group Trust’s 

Confidential Private Offering 

Memorandum, all contributions and 

withdrawals are made by a written 

request/notice made to Silchester by the 

Independent Fiduciary. Thus, according 

to the Applicant, the combination of the 

written record of the Plan-initiated 

contributions and withdrawals, as well 

as the 10 basis point numerical 

threshold outlined in the application, 

will allow the Independent Auditor to 

verify the occurrence of the triggering 

events. 

15. The Applicant states that, at least 

two business days before a cross trade, 

a designated representative of the 

Applicant will determine whether an 

ERISA Account will participate in a 

cross trade based on the triggering 

criteria set out above. The U.S. dollar 

amount available to be crossed will also 

be determined. In addition, the 

Applicant states that, at least two 

business days before a cross trade, a list 

of securities that will form part of the 

cross trade will be prepared. Subject to 

investment guideline restrictions, and 

certain restrictions/exclusions described 

below (which will be set out in the 

Policies and Procedures), all securities 

held within an ERISA Account 

(assuming the ERISA Account was the 

selling account) or all securities held by 

the selling Account (assuming the 

ERISA Account was the purchasing 

account) would be included in the cross 

trade. 

16. The Applicant states that cross 

trades will be effected on a pro rata 

basis. In this regard, the Applicant 

explains that the U.S. dollar amount 

determined for the cross trade will be 

prorated across all of the securities 

eligible for the cross trade in each of the 

Accounts, based on each Account’s 

relative weighting of each security 

included in the cross trade, subject to 

the restrictions and/or exclusions 

described below and set forth in the 

Policies and Procedures. The Applicant 

states further that securities will also be 

allocated on a pro rata basis in the event 

multiple Accounts participate in a cross 

trade (i.e., as buyers or sellers). 

17. The Applicant describes the 

following investment restrictions/ 

exclusions under which securities 

would be excluded from a cross trade: 

Legal or compliance restrictions, such as 

a security being subject to an insider 

trading restriction or approval being 

required before the Accounts can exceed 

certain percentage thresholds; 

unfavorable tax treatment, such as 

triggering an adverse capital gains tax 

liability in one of the Accounts; 

regulatory or stock exchange 

restrictions, such as the underlying 

stock exchange suspending the trading 

of a security; minimum lot trading sizes, 

such as minimum lot sizes imposed by 

stock exchanges (e.g., Japan); ‘‘sell to 

zero’’ tickets (e.g., securities that 

Silchester reasonably expects will no 

longer be held within the ERISA 

Account or the other Accounts within 

ten business days); securities that 

cannot be sold due to proxy voting 

limits (in some circumstances, a stock 

exchange may impose ‘‘black out’’ 

periods during the period before an 

annual general meeting or extraordinary 

general meeting of a company/security); 

forfeiture of additional dividend or 

proxy voting rights that are periodically 

made available to longer term holders of 

certain European equities; 

circumstances in which the value of 

securities purchased or the value of 

securities sold is de minimis (i.e., less 

than U.S. $5,000) and therefore would 

result in the ERISA Account incurring 

unnecessary costs; closure of a stock 

exchange for a market holiday or closure 

due to an exceptional circumstance 

(such as political unrest in a country 

resulting in the stock exchange being 

closed and all trading suspended); when 

the ERISA Account or other 

commingled fund does not already hold 

the security before the cross trade (no 

security can be purchased by the ERISA 

Account in a cross trade unless the 

security is already held by the ERISA 

Account prior to the cross trade); and 

when a market quotation for a security 

is not readily available. 

The Applicant states that where any 

of the above circumstances exist, the 

affected security or securities will be 

excluded from the cross trade.41 The 


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are excluded from each cross trade. Recently, the 

primary reason for securities being excluded from 

a cross trade are restrictions on emerging market 

securities because emerging markets commonly 

require all purchases and sales to occur ‘‘on 

exchange.’’ In that case, Silchester is not able to 

engage in the cross trades in those securities for any 

of the Accounts. 

42Section 270.17a–7 of Title 17, Code of Federal 

Regulations, provides an exemption from the 

provisions of section 17(a) of the Investment 

Company Act, which prohibits, among other things, 

transactions between an investment company and 

its investment adviser or affiliates of its investment 

adviser, subject to the condition, among others, that 

the transaction is effected at the ‘‘independent 

current market price.’’ Under section 270.17a–7(b), 

the ‘‘current market price’’ is generally: 

(1) If the security is reported security, the last sale 

price with respect to such security reported in the 

consolidated transaction reporting system 

(consolidated system) or the average of the highest 

current independent bid and lowest current 

independent offer for such security if there are no 

reported transactions in the consolidated system 

that day; or 

(2) If the security is not a reported security, and 

the principal market for such security is an 

exchange, then the last sale on such exchange or the 

average of the highest current independent bid and 

lowest current independent offer on such exchange 

if there are no reported transactions on such 

exchange that day; or 

(3) If the security is not a reported security and 

is quoted in the NASDAQ System, then the average 

of the highest current independent bid and lowest 

current independent offer reported on Level 1 of 

NASDAQ; or 

(4) For all other securities, the average of the 

highest current independent bid and lowest current 

independent offer determined on the basis of 

reasonable inquiry. 

43 In this regard, the Applicant notes that the 

Calleva Trust is required under Irish regulations to 

have two valuation dates each month. 

44The Department is offering no view herein 

regarding the Applicant’s reliance on such 

exemptions in connection with the Group Trust’s 

foreign exchange transactions. 

cross trade will be prorated across all of 

the remaining securities in the Accounts 

eligible for the cross trade. 

18. Furthermore, the Applicant states 

that the Accounts currently have 

approximately the same portfolio 

weighting, as a percentage of assets, in 

equity securities and cash or cash 

equivalents, and the Applicant expects 

that, over time, dispersion among all of 

the Accounts weightings will be 

minimal. According to the Applicant, 

none of the circumstances under which 

dispersion may arise or increase are the 

result of any discretionary or 

opportunistic actions by Silchester. 

Furthermore, the Applicant notes that 

Silchester prefers to have little or no 

dispersion to allow for efficiencies 

across the administration of the 

commingled funds. 

The Applicant states that if dispersion 

in holdings of different stocks in the 

various Accounts increases materially, 

the Applicant will stop cross trading for 

an ERISA Account until such time as 

the dispersion in holdings has been 

reduced. The Applicant represents that 

Silchester will not include an ERISA 

Account in a cross trade during any 

period in which the weightings of 14 or 

more securities in the ERISA Account 

individually differ by more than 50 

basis points from the weightings of the 

same securities in the other Accounts. 

19. The Applicant also proposes that 

each covered cross trade be a purchase 

or sale of securities by an ERISA 

Account for no consideration other than 

cash payment against prompt delivery 

of a security for which market 

quotations are readily available from 

independent sources that are engaged in 

the ordinary course of business of 

providing financial news and pricing 

information to institutional investors 

and/or the general public, and are 

widely recognized as accurate and 

reliable sources for such information. 

20. Further, the Applicant is 

proposing that each covered cross trade: 

(a) only take place on the first business 

day of a month; and (b) be effected at 

the independent current market price of 

the security (within the meaning of 

section 270.17a–7(b) of Title 17, Code of 

Federal Regulations) 42 on the business 

date that immediately precedes the first 

business date of the month on which the 

cross trade occurs. In connection with 

the foregoing, the Applicant states that 

the commingled funds are generally 

valued on a monthly basis using closing 

prices and exchange rates as of the last 

business day of a month. Nevertheless, 

the Applicant notes that, in special 

limited circumstances (e.g., the 

introduction of the Euro), the 

commingled funds may be valued on a 

date other than the last business day of 

a month.43 However, the Applicant 

states that, under no circumstance will 

cross trades be executed with an ERISA 

Account on a date other than the first 

business day of a month. 

21. The Applicant notes that the 

prices used for cross trades are the same 

as the prices used by the Trustee to 

value the commingled funds at month’s 

end. According to the Applicant, these 

prices will ordinarily be determined 

within three (3) hours of the close of the 

relevant market. The Applicant 

represents further that these prices meet 

the definition of an independent 

‘‘current market price’’ of a security 

within the meaning of Section 270.17a– 

7(b) of Title 17, Code of Federal 

Regulations and SEC no-action and 

interpretative letters thereunder, and 

Silchester’s settlement team verifies the 

closing prices on the following morning. 

22. The Applicant represents that if 

the proposed exemption is granted, no 

brokerage commission, fees or other 

remuneration will be paid in connection 

with a cross trade involving an ERISA 

Account, except for customary transfer 

fees or brokerage fees dictated by local 

market restrictions, the fact of which is 

disclosed in advance to each 

Independent Fiduciary. Additionally, 

the Applicant states that Silchester will 

not base its fee schedule on a Plan’s 

consent to cross trading, nor is any other 

service (other than the investment 

opportunities and cost savings available 

through a cross trade) conditioned on 

the Plan’s consent. 

23. Notwithstanding the above, in the 

event local market restrictions require 

the use of a broker-dealer, and only in 

such event, broker-dealers that are not 

Affiliates of Silchester or the Trustee 

will be used to execute the transaction 

and no more than reasonable 

compensation will be paid to such an 

unaffiliated broker-dealer to execute the 

cross trade. Furthermore, the Applicant 

notes that the Trustee may be expected 

to receive remuneration on foreign 

exchange transactions in the ordinary 

course that would be received regardless 

of whether the trade was a cross trade 

or if the securities were sold in the 

market. The Applicant explains that 

Silchester engages in foreign exchange 

transactions for the Group Trust in 

different ways, including (a) under a 

guaranteed rate agreement with the 

Trustee, (b) pursuant to negotiated 

transactions between Silchester and the 

Trustee and (c) in the case of restricted 

currencies only, by the Trustee directly 

pursuant to a standing instruction. The 

Applicant states that, when applicable, 

Silchester principally relies on the 

statutory exemption for foreign 

exchange transactions under section 

408(b)(18) of the Act and/or Prohibited 

Transaction Exemption (PTE) 84–14 

involving qualified professional asset 

managers (QPAM) for the Group Trust’s 

foreign exchange transactions.44

However, the Applicant confirms that 

the Group Trust does not engage in any 

foreign exchange or ADR transactions 

with any party related to Silchester. 

In any event, notwithstanding the 

above, the Applicant represents that 

neither Silchester nor the Trustee will 

receive a commission, fee or other 

remuneration, directly or indirectly, 

from an ERISA Account in connection 

with a cross trade involving an ERISA 

Account. 

24. Prior to engaging in any cross 

trade for an ERISA Account or at the 

inception of any new relationship 

between Silchester and a Plan, 

Silchester shall deliver to the 

Independent Fiduciary (i) a written 


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45The Applicant notes that this is the same 

withdrawal process used for all withdrawals made 

from the Group Trust. 

46The Applicant notes that Silchester does not 

currently manage any Separately Managed 

Accounts, but may do so in the future. 47See section 270.17a–7(b) of Title 17, Code of 

Federal Regulations. 

48The Applicant states that Silchester reconciles, 

but cannot arbitrarily override, the Trustee’s 

valuations. If the Applicant believes that the 

Trustee has mis-valued a given security, the Trustee 

requires the Applicant to follow an established 

‘‘challenge procedure.’’ Under this procedure, 

Silchester provides a written letter advising the 

Trustee of the discrepancy and support for its 

market price/exchange rate, and the Trustee 

considers the challenge over the subsequent 24 

hour period. If the challenge is valid, the Trustee 

changes the market price/exchange rate used in the 

valuation; if not, the Trustee’s valuation stands. 

Because of the nature of the commingled funds’ 

investments (publicly traded equities), pricing 

challenges have historically been infrequent. 

disclosure regarding the conditions 

under which cross trades may take place 

(which disclosure will be separate from 

any other agreement or disclosure in 

respect of the ERISA Account, including 

the Policies and Procedures); (ii) a 

written copy of the Policies and 

Procedures; and (iii) written 

instructions (via email correspondence 

or otherwise) directing the Independent 

Fiduciary to give appropriate 

consideration to: (A) the 

responsibilities, obligations and duties 

imposed upon fiduciaries by Part 4 of 

Title I of the Act, (B) whether the terms 

of the cross trades are fair to the Plan 

and its participants and beneficiaries, 

and to the ERISA Account, and are 

comparable to, and no less favorable 

than, terms obtainable at arm’s-length 

between unaffiliated parties, and (C) 

whether the cross trades are in the best 

interest of the Plan and its participants 

and beneficiaries and of the ERISA 

Account. The Applicant states that the 

receipt of the instructions described in 

clause (iii) above will be acknowledged 

in writing (via email correspondence or 

otherwise) by the Independent 

Fiduciary. 

25. Prior to engaging in any cross 

trade for an ERISA Account, Silchester 

must receive authorization from the 

Independent Fiduciary of such ERISA 

Account to engage in cross trades 

involving the ERISA Account at 

Silchester’s discretion, which 

authorization must be provided in a 

written document in advance of any 

such cross trades, and must be separate 

from any other written agreement or 

disclosure between Silchester and the 

ERISA Account or Plan, as applicable. 

Such authorization will only be 

effective if the Independent Fiduciary 

has already received the disclosures 

described above. 

26. The Applicant states further that 

the Independent Fiduciary, as part of 

the authorization described above, shall 

represent that it has the requisite 

knowledge and experience in financial 

and business matters to be capable of 

evaluating the merits and risks of 

investing in the ERISA Account and to 

be capable of protecting the Plan’s 

interests in connection with the 

investment or that it has obtained expert 

advice that allows it to adequately 

evaluate its investment in the ERISA 

Account. Finally, the Applicant notes 

that it will also seek representations 

from each Independent Fiduciary 

regarding the Independent Fiduciary’s 

satisfaction of the above-described 

actions in connection the establishment 

of a Plan’s investment in the ERISA 

Account. 

27. Both on an annual basis and each 

time the Applicant provides notice to 

the Independent Fiduciary in writing 

that a new fund or new Separately 

Managed Account may engage in cross 

trades, a designated representative of 

Silchester will advise each such 

Independent Fiduciary in writing that it 

can revoke the authorization described 

above at any time in writing by 

withdrawing from the ERISA Account 

(or in the case of an ERISA Account that 

is a Separately Managed Account, by 

written notice to the Applicant). 

28. The Applicant notes that the 

Group Trust’s withdrawal provisions are 

described in the Group Trust’s 

Confidential Private Offering 

Memorandum and delineated in the 

Group Trust Agreement. In this regard, 

the Group Trust Agreement provides 

that a Plan may withdraw all or part of 

its units in the Group Trust on the first 

business day of each calendar month 

(referred to as a dealing day) upon six 

business days’ prior written notice. The 

Applicant states that withdrawals are 

generally made in cash, although 

redemptions in kind may be used on 

occasions when net redemptions from 

the Group Trust are significant 

(typically more than 0.5% of the Group 

Trust). 

The Applicant explains that cash 

withdrawals are funded first by netting 

any contributions to be made as of that 

same dealing day. According to the 

Applicant, for example, if withdrawals 

of $100x are to be made as of the same 

dealing day that contributions of $100x 

are also to be made, those amounts 

would be ‘‘netted.’’ The Applicant states 

that this net cash withdrawal would 

then be subject to the transaction costs 

applicable to liquidating assets to cash 

to fund the withdrawal. For 

withdrawals made in kind, the amount 

withdrawn would be subject to any 

stamp duty, market related charges and 

other transfer fees required by a foreign 

jurisdiction or stock exchange. All 

transaction costs would be reimbursed 

to the Group Trust and not paid to 

Silchester or its Associates.45 Plans 

receive reporting on applicable 

transaction costs incurred on their 

behalf. The Applicant represents that no 

further transaction costs would be 

assessed by the Group Trust. 

29. According to the Applicant, if the 

Independent Fiduciary of a Separately 

Managed Account were to elect not to 

authorize cross trading, Silchester will 

not cause that Separately Managed 

Account to participate in cross trades.46

30. The Applicant states that, 

according to the pricing policy under 

the Policies and Procedures, the 

Trustee, in its capacity as fund 

administrator, is responsible for 

independently valuing the Group 

Trust’s assets on a monthly basis, and 

equity securities are typically valued 

using the closing price reported by their 

primary stock exchange and translated 

into U.S. dollars using exchange rates 

provided by WM Reuters.47

Accordingly, these are the same prices 

and exchange rates currently used by 

major market indices such as MSCI for 

valuing (among others) the MSCI EAFE 

Index. Dividend and withholding tax 

accruals are valued at fair market value 

in accordance with U.S. Generally 

Accepted Accounting Principles.48 The 

Applicant represents further that prices 

of securities included in a cross trade 

will be identical to those used by the 

Trustee to value the Group Trust and 

the other commingled funds on the 

immediately preceding valuation date. 

31. The Applicant represents that, in 

accordance with reporting requirements 

under the Policies and Procedures, 

Silchester will provide (or cause to be 

provided) to each Independent 

Fiduciary a quarterly report detailing all 

cross trades in which the ERISA 

Account participated during such 

quarter, including the following 

information, as applicable: (a) The 

identity of each security bought or sold; 

(b) the number of shares or units traded; 

(c) the Accounts involved in the cross 

trade; and (d) the trade price and the 

total U.S. dollar value of each security 

involved in the cross trade and the 

method used to establish the trade price. 

According to the Applicant, the 

quarterly report will be provided to the 

Independent Fiduciary in writing prior 

to the end of the next following quarter. 

32. The Applicant represents that a 

member of the Applicant’s compliance 


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76792 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

49The Applicant notes that, in the event of noncompliance with the Policies and Procedures, 

Silchester would review the event of noncompliance and address the non-compliance by 

seeking to correct the non-compliance and reporting 

any non-exempt prohibited transaction resulting 

from such non-compliance on IRS Form 5330 and, 

if appropriate, by adopting or revising supplemental 

procedures. 

50The Applicant notes that in the event that the 

proposed exemption is granted, ERISA Accounts 

will be able to benefit from cross trades in a manner 

already available to non-ERISA Accounts. 51According to the Applicant, the difference 

between charges on contributions and redemptions 

primarily relates to stamp duty—in Ireland and the 

UK, stamp duty charges of 100 basis points and 50 

basis points, respectively, are currently charged on 

purchases only. 

group will review cross trades within 10 

business days of the cross trades to 

confirm compliance with the Policies 

and Procedures.49 In addition, the 

Applicant states that Silchester will 

designate a member of its Compliance 

Group responsible for periodically 

reviewing a sampling of the ERISA 

Account’s cross trades sufficient in size 

and nature to ensure compliance with 

the Policies and Procedures and, 

following such review, such individual 

shall issue an annual written report no 

later than 90 calendar days following 

the end of the fiscal year of the ERISA 

Account (the fiscal year-end of the 

Group Trust is currently December 31) 

to which it relates, signed under penalty 

of perjury, to each Independent 

Fiduciary, and describing the steps 

performed during the course of the 

review, the level of compliance and any 

specific instances of non-compliance. 

33. Finally, the Applicant represents 

that the Policies and Procedures will 

provide for an Exemption Audit to be 

conducted on an annual basis, by an 

‘‘Independent Auditor’’ with 

appropriate technical training or 

experience and proficiency with 

ERISA’s fiduciary responsibility 

provisions and so represents in writing. 

Further, the Independent Auditor will 

derive less than 5% of its annual gross 

revenue from Silchester on an annual 

basis. The Exemption Audit will consist 

of a review of the Policies and 

Procedures for consistency with each of 

the objective requirements of the 

proposed exemption, if granted. The 

Exemption Audit will include a test of 

a sample of each ERISA Account’s cross 

trades during the audit period that is 

sufficient in size and nature to afford 

the Independent Auditor a reasonable 

basis to (a) make specific findings 

regarding whether the ERISA Account’s 

cross trades are in compliance with the 

Policies and Procedures and the 

objective requirements of the proposed 

exemption, if granted, and (b) render an 

overall opinion regarding the level of 

compliance with the Policies and 

Procedures and the objective 

requirements of the proposed 

exemption, if granted. The Applicant 

notes that the findings will specifically 

address the pro rata calculation for a 

cross trade and ensure that the 

restrictions/exclusions described in the 

Policies and Procedures have been 

applied on a reasonable basis. 

34. Following completion of the 

Exemption Audit, the Independent 

Auditor shall issue a written report to 

Silchester (with copies thereof delivered 

to each Independent Fiduciary) 

presenting its specific findings 

regarding the level of compliance with: 

(1) The Policies and Procedures and (2) 

the objective requirements of the 

proposed exemption, if granted. The 

written report shall also contain the 

Independent Auditor’s overall opinion 

regarding whether Silchester’s program 

complied with: (1) The Policies and 

Procedures and (2) the objective 

requirements of the proposed 

exemption, if granted. The Applicant 

represents that the Exemption Audit 

and the written report will be completed 

within six months following the end of 

the fiscal year to which the Exemption 

Audit relates. 

Merits of the Transactions 

35. The Applicant represents that the 

proposed exemption is administratively 

feasible since, among other things, 

Silchester will follow the Policies and 

Procedures, which provide concrete 

guidelines for when and how cross 

trades will be effected. The Applicant 

states that the Policies and Procedures 

also serve to facilitate the audit of the 

proposed exemption, if granted. In this 

regard, the requirements contained 

therein will be independently audited 

on an annual basis as described herein, 

consistent with procedures that the 

Department has already established in 

the amendment to prohibited 

transaction exemption (PTE) 96–23, the 

exemption for in-house asset managers, 

at 61 FR 15975 (April 10, 1996), as 

amended at 76 FR 18255 (April 1, 2011). 

36. The Applicant states the proposed 

exemption is in the interest of Plans and 

their participants and beneficiaries. In 

this regard, cross trades of portfolio 

securities involving an ERISA Account 

can result in significant savings to the 

ERISA Account, primarily in the form of 

transaction cost savings and the 

avoidance of market impact.50 The 

Applicant represents that these savings 

can be up to 75 basis points on 

contributions and 50 basis points on 

redemptions.51 In addition, in the 

Applicant’s experience, it is easier to 

mitigate the effect of bid-ask spreads 

and market impact charges in a cross 

trade. 

The Applicant also represents that 

cost savings include the costs of 

converting cash contributions into 

securities (and securities into cash to 

meet client redemption requests), such 

as brokerage commissions (averaging 5 

to 35 basis points depending on the 

market), foreign exchange costs, bidoffer spreads and market impact 

charges. The Applicant notes that these 

savings are more critical for 

international funds than domestic funds 

because of the higher costs of trading 

overseas. Further, mitigating these costs 

appropriately protects long-term 

investors in the Group Trust from 

bearing the costs of other investors 

either acquiring new interests in the 

Group Trust or rebalancing part of their 

moneys. 

In addition, the Applicant states that 

Plans may wish to be invested in the 

Group Trust or another commingled 

fund that is a group trust because a 

group trust is generally the most tax 

efficient commingled fund for Plans. 

The Applicant explains that a group 

trust is able to reclaim a greater level of 

withholding taxes on dividends it 

receives due to broad exemptions 

available to a group trust from foreign 

capital gains taxes on the sale of 

securities and due to the favorable 

treatment afforded group trusts under 

various tax treaties that the U.S. has in 

place with other foreign governments. 

The Applicant represents that it 

considered maintaining just one fund 

which would eliminate all cross trading, 

however this would not provide ERISA 

investors and certain other tax-exempt 

investors the opportunity to benefit 

from significant foreign tax withholding 

savings that are only available to ERISA 

investors and tax-exempt investors 

which would not be available if all 

investors invested only through a single 

Account which also has taxable 

investors. 

The Applicant maintains that, if the 

proposed exemption is not granted, the 

Applicant may consider relying on the 

statutory exemption provided in section 

408(b)(19) of the Act, which would 

require any Plans that do not meet the 

U.S. $100 million requirement to 

redeem from the Group Trust and invest 

in another of the Accounts (which do 

not enjoy the same favourable tax 

benefits described above). 

37. Finally, the Applicant states that 

the proposed transactions are protective 

of the interests of plans and their 

participants and beneficiaries. In this 

regard, the Applicant represents that 

cross trades entered into by an ERISA 


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Account will comply with the Policies 

and Procedures, described above, which 

will be fair and equitable to all 

Accounts participating in the cross 

trading program. Further, the Applicant 

represents that the Policies and 

Procedures will comply with 

Silchester’s fiduciary responsibilities to 

Plans invested in the ERISA Accounts 

and investors in the other Accounts. 

According to the Applicant, the Policies 

and Procedures will include full 

descriptions of Silchester’s policies and 

procedures for pricing and Silchester’s 

policies and procedures for allocating 

cross trades in an objective manner 

among the Funds participating in the 

cross trading program, so that Plans 

participating in the cross trading 

program are well informed of their 

rights thereunder. 

Summary 

38. In summary, the Applicant 

represents that the covered transactions 

satisfy the statutory requirements for an 

exemption under section 408(a) of the 

Act because, among other things: 

(a) Each cross trade will be a purchase 

or sale of securities by an ERISA 

Account for no consideration other than 

cash payment against prompt delivery 

of a security for which market 

quotations are readily available; 

(b) A cross trade will only be effected 

on the first business date of the month, 

at a price equal to the security’s 

‘‘independent current market price’’ 

(within the meaning of section 270.17a– 

7(b) of Title 17, Code of Federal 

Regulations) on the business date that 

immediately precedes the first business 

date of the month on which the cross 

trade occurs; 

(c) No brokerage commission, fees or 

other remuneration will be paid in 

connection with a cross trade involving 

an ERISA Account (except for 

customary transfer fees or brokerage fees 

paid to unaffiliated broker-dealers 

dictated by local market restrictions, the 

fact of which is disclosed in advance to 

the Independent Fiduciary); 

(d) Prior to engaging in any cross 

trade for an ERISA Account or at the 

inception of any new relationship 

between Silchester and a Plan, the 

Applicant will deliver to the 

Independent Fiduciary (i) a written 

disclosure regarding the conditions 

under which cross trades may take 

place; (ii) a written copy of the Policies 

and Procedures; and (iii) written 

instructions (via email correspondence 

or otherwise) to give appropriate 

consideration to: (A) the 

responsibilities, obligations and duties 

imposed upon fiduciaries by Part 4 of 

Title I of the Act, (B) whether the terms 

of the cross trades are fair to the Plan 

and its participants and beneficiaries, 

and to the ERISA Account, and are 

comparable to, and no less favorable 

than, terms obtainable at arm’s-length 

between unaffiliated parties, and (C) 

whether the cross trades are in the best 

interest of the Plan and its participants 

and beneficiaries and of the ERISA 

Account. The receipt of such instruction 

will also be acknowledged in writing 

(via email correspondence or otherwise) 

by the Independent Fiduciary; 

(e) Prior to engaging in any cross trade 

for an ERISA Account, Silchester must 

receive authorization from the 

Independent Fiduciary which must be 

provided in a written document in 

advance of any such cross trades, and 

will only be effective if the Independent 

Fiduciary has already received the 

disclosures described in paragraph (d) 

above; 

(f) The Independent Fiduciary will 

represent, in its authorization of 

participation for an ERISA Account, that 

it has the requisite knowledge and 

experience in financial and business 

matters to be capable of evaluating the 

merits and risks of investing in the 

ERISA Account and to be capable of 

protecting the Plan’s interests in 

connection with the investment or that 

it has obtained expert advice that allows 

it to adequately evaluate its investment 

in the ERISA Account, and if the 

Independent Fiduciary cannot make the 

foregoing representations, then the 

authorization described herein will not 

be effective; 

(g) Both on an annual basis and each 

time the Applicant provides notice to 

the Independent Fiduciary in writing 

that a new fund or new Separately 

Managed Account may engage in cross 

trades, a designated representative of 

Silchester will advise each such 

Independent Fiduciary in writing that it 

can revoke the authorization described 

in this paragraph at any time in writing 

by withdrawing from the ERISA 

Account (or in the case of an ERISA 

Account that is a Separately Managed 

Account, by written notice to the 

Applicant); 

(h) Silchester will provide (or cause to 

be provided) to each Independent 

Fiduciary a quarterly report detailing all 

cross trades in which the ERISA 

Account participated during such 

quarter, including the following 

information, as applicable: (i) the 

identity of each security bought or sold; 

(ii) the number of shares or units traded; 

(iii) the Accounts involved in the cross 

trade; and (iv) the trade price and the 

total U.S. dollar value of each security 

involved in the cross trade and the 

method used to establish the trade price; 

(i) Silchester will not base its fee 

schedule on a Plan’s consent to cross 

trading, nor is any other service 

conditioned on the Plan’s consent; 

(j) Silchester adopts, and cross trades 

will be effected in accordance with, the 

Policies and Procedures, which will be 

made further available to an 

Independent Fiduciary upon request; 

(k) A member of Silchester’s 

compliance group will review cross 

trades within 10 business days of the 

cross trades to confirm compliance with 

the Policies and Procedures and report 

to the compliance group regarding such 

member’s findings, and Silchester will 

designate an individual member of its 

compliance group responsible for 

periodically reviewing a sampling of the 

ERISA Account’s cross trades that is 

sufficient in size and nature to ensure 

compliance with the Policies and 

Procedures described herein and, 

following such review, such individual 

shall issue an annual written report to 

each Independent Fiduciary describing 

the actions performed during the course 

of the review, the level of compliance, 

and any specific instances of noncompliance; 

(l) An Independent Auditor will 

conduct an Exemption Audit on an 

annual basis and will issue a written 

report to Silchester (with copies thereof 

delivered to each Independent 

Fiduciary) presenting its specific 

findings regarding the level of 

compliance with: (1) the Policies and 

Procedures and (2) the objective 

requirements of the proposed 

exemption, if granted. The written 

report shall also contain the 

Independent Auditor’s overall opinion 

regarding whether Silchester’s program 

complied with: (1) the Policies and 

Procedures and (2) the objective 

requirements of the proposed 

exemption, if granted. The Exemption 

Audit and the written report must be 

completed within six months following 

the end of the fiscal year to which the 

Exemption Audit relates; 

(m) The ERISA Account will have at 

least $100 million in assets, and each 

underlying investor in a commingled 

fund ERISA Account and each ERISA 

Account that is a Separately Managed 

Account will be required to represent 

that it is a ‘‘qualified purchaser,’’ as that 

term is defined in section 2(a)(51)(A) of 

the Investment Company Act; 

(n) Silchester will only conduct cross 

trades involving an ERISA Account 

when triggered by contributions or 

withdrawals initiated by investors in 

such ERISA Account where: 

(1) Contributions from one Account 

can be matched against withdrawals 

from another Account and the 


tkelley on DSK3SPTVN1PROD with 
76794 Federal Register / Vol. 77, No. 249 / Friday, December 28, 2012 / Notices 

confirmed net contributions/ 

withdrawals (as the case may be) from 

the ERISA Account exceed U.S. $10 

million or 10 basis points or 0.1% of the 

value of the ERISA Account (whichever 

is less), and 

(2) The ERISA Account’s forecasted 

residual cash balance when adjusted for 

month-end cash flows after the cross 

trade will be within 50 basis points or 

0.5% of the cash weightings of each 

such other Account; 

(o) Silchester will not include an 

ERISA Account in a cross trade during 

any period in which the weightings of 

14 or more securities in the ERISA 

Account individually differ by more 

than 50 basis points from the weightings 

of the same securities in the other 

Accounts, and none of the 

circumstances under which different 

weightings across the funds may arise or 

increase will be the result of any 

discretionary or opportunistic actions 

by Silchester; 

(p) The U.S. dollar amount 

determined for the cross trade will be 

prorated across all of the securities 

eligible for the cross trade in each of the 

Accounts, based on each Account’s 

relative weighting of each security 

included in the cross trade, subject to 

the restrictions and/or exclusions set 

forth in the Policies and Procedures; 

(q) No cross trades will be conducted 

between an ERISA Account and any 

Account in which Silchester and/or its 

Affiliates (together or separately) own 

10% or more of the outstanding units in 

such Account in the aggregate; and 

(r) Silchester will comply with the 

recordkeeping requirements provided 

herein to enable certain authorized 

persons to determine whether the 

conditions of the exemption have been 

met, for so long as such records are 

required to be maintained. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to each Independent 

Fiduciary by electronic mail within 10 

days of the publication of the notice of 

proposed exemption in the Federal 

Register. Such notice will contain a 

copy of the notice of proposed 

exemption, as published in the Federal 

Register, and a supplemental statement, 

as required pursuant to 29 CFR 

2570.43(b)(2). The supplemental 

statement will inform interested persons 

of their right to comment on and to 

request a hearing with respect to the 

pending exemption. Written comments 

and hearing requests are due within 40 

days of the publication of the notice of 

proposed exemption in the Federal 

Register. 

For Further Information Contact: 

Warren Blinder of the Department, 

telephone (202) 693–8553. (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 of the Act and/or the Code, 

including any prohibited transaction 

provisions to which the exemption 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) Before an exemption may be 

granted under section 408(a) of the Act 

and/or section 4975(c)(2) of the Code, 

the Department must find that the 

exemption is administratively feasible, 

in the interests of the plan and of its 

participants and beneficiaries, and 

protective of the rights of participants 

and beneficiaries of the plan; 

(3) The proposed exemptions, if 

granted, will be supplemental to, and 

not in derogation of, any other 

provisions of the Act and/or the Code, 

including statutory or administrative 

exemptions and transitional 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 

(4) The proposed exemptions, if 

granted, will be subject to the express 

condition that the material facts and 

representations contained in each 

application are true and complete, and 

that 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 

December, 2012. 

Lyssa E. Hall, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2012–31166 Filed 12–27–12; 8:45 am] 

BILLING CODE 4510–29–P 


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