77594 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

1For 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. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Proposed Exemptions From Certain 

Prohibited Transaction Restrictions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of Proposed Exemptions. 

SUMMARY: This document contains 

notices of pendency before the 

Department of Labor (the Department) of 

proposed exemptions from certain of the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act) and/or 

the Internal Revenue Code of 1986 (the 

Code). This notice includes the 

following proposed exemptions: D– 

11517, JPMorgan Chase & Co. and its 

Current and Future Affiliates and 

Subsidiaries (JPMorgan Chase); D– 

11579, Delaware Charter Guarantee & 

Trust Co. d\b\a\ Principle Trust 

Company (Principle Trust); D–11628, 

Aztec Well Servicing Company and 

Related Companies Medical Plan Trust 

Fund (the Plan); D–11669, Genzyme 

Corporation 401(k) Plan (the Plan or the 

Applicant); and Retirement Program for 

Employees of EnPro Industries (the 

Plan), D–11662 et al. 

DATES: All interested persons are invited 

to submit written comments or requests 

for a hearing on the pending 

exemptions, unless otherwise stated in 

the Notice of Proposed Exemption, 

within 45 days from the date of 

publication of this Federal Register 

Notice. 

ADDRESSES: Comments and requests for 

a hearing should state: (1) The name, 

address, and telephone number of the 

person making the comment or request, 

and (2) the nature of the person’s 

interest in the exemption and the 

manner in which the person would be 

adversely affected by the exemption. A 

request for a hearing must also state the 

issues to be addressed and include a 

general description of the evidence to be 

presented at the hearing. All written 

comments and requests for a hearing (at 

least three copies) should be sent to the 

Employee Benefits Security 

Administration (EBSA), Office of 

Exemption Determinations, Room N– 

5700, U.S. Department of Labor, 200 

Constitution Avenue NW., Washington, 

DC 20210. Attention: Application 

No.ll, stated in each Notice of 

Proposed Exemption. Interested persons 

are also invited to submit comments 

and/or hearing requests to EBSA via 

email or fax. Any such comments or 

requests should be sent either by email 

to: moffitt.betty@dol.gov, or by fax to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue NW., 

Washington, DC 20210. 

Warning: If you submit written 

comments or hearing requests, do not 

include any personally-identifiable or 

confidential business information that 

you do not want to be publiclydisclosed. All comments and hearing 

requests are posted on the Internet 

exactly as they are received, and they 

can be retrieved by most Internet search 

engines. The Department will make no 

deletions, modifications or redactions to 

the comments or hearing requests 

received, as they are public records. 

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

The proposed exemptions were 

requested in applications filed pursuant 

to section 408(a) of the Act and/or 

section 4975(c)(2) of the Code, and in 

accordance with procedures set forth in 

29 CFR part 2570, subpart B (55 FR 

32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

1978, 5 U.S.C. App. 1 (1996), transferred 

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 

JPMorgan Chase & Co. and Its Current 

and Future Affiliates and Subsidiaries 

(JPMorgan Chase), Located in New 

York, New York 

Application Number D–11517 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the 

Employee Retirement Income Security 

Act of 1974 (ERISA or the Act) and 

section 4975(c)(2) of the Internal 

Revenue Code of 1986, as amended (the 

Code), and in accordance with the 

procedures set forth in 29 CFR part 

2570, subpart B (55 FR 32836, 32847, 

August 10, 1990).1

Section I. Sales of Auction Rate 

Securities From Plans to JPMorgan 

Chase: Unrelated to a Settlement 

Agreement 

If the proposed exemption is granted, 

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

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

the Act and the sanctions resulting from 

the application of section 4975 of the 

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

(D), and (E) of the Code, shall not apply, 

effective February 1, 2008, to the sale by 

a Plan (as defined in section V(e)) of an 

Auction Rate Security (as defined in 

section V(c)) to JPMorgan Chase, where 

such sale (an Unrelated Sale) is 

unrelated to, and not made in 

connection with, a Settlement 

Agreement (as defined in section V(f)), 

provided that the conditions set forth in 

section II have been met. 

Section II. Conditions Applicable to 

Transactions Described in Section I 

(a) The Plan acquired the Auction 

Rate Security in connection with 

brokerage or advisory services provided 

by JPMorgan Chase; 

(b) The last auction for the Auction 

Rate Security was unsuccessful; 

(c) Except in the case of a Plan 

sponsored by JPMorgan Chase for its 

own employees (a JPMorgan Chase 

Plan), the Unrelated Sale is made 

pursuant to a written offer by JPMorgan 

Chase (the Offer) containing all of the 

material terms of the Unrelated Sale, 

including, but not limited to the most 

recent rate information for the Auction 

Rate Security (if reliable information is 

available). Either the Offer or other 

materials available to the Plan provide 

the identity and par value of the 

Auction Rate Security. Notwithstanding 

the foregoing, in the case of a pooled 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77595 

2This proposed exemption does not address tax 

issues. The Department has been informed by the 

Internal Revenue Service and the Department of the 

Treasury that they are considering providing 

limited relief from the requirements of sections 

72(t)(4), 401(a)(9), and 4974 of the Code with 

respect to retirement plans that hold Auction Rate 

Securities. The Department has also been informed 

by the Internal Revenue Service that if Auction Rate 

Securities are purchased from a Plan in a 

transaction described in sections I and III at a price 

that exceeds the fair market value of those 

securities, then the excess value would be treated 

as a contribution for purposes of applying 

applicable contribution and deduction limits under 

sections 219, 404, 408, and 415 of the Code. 

3The Department notes that the Act’s general 

standards of fiduciary conduct also would apply to 

the transactions described herein. In this regard, 

section 404 requires, among other things, that a 

fiduciary discharge his duties respecting a plan 

solely in the interest of the plan’s participants and 

beneficiaries and in a prudent manner. 

Accordingly, a plan fiduciary must act prudently 

with respect to, among other things, the decision to 

sell the Auction Rate Security to JPMorgan Chase 

for the par value of the Auction Rate Security, plus 

any accrued but unpaid interest or dividends. The 

Department further emphasizes that it expects Plan 

fiduciaries, prior to entering into any of the 

proposed transactions, to fully understand the risks 

associated with this type of transaction following 

disclosure by JPMorgan Chase of all relevant 

information. 

fund maintained or advised by 

JPMorgan Chase, this condition shall be 

deemed met to the extent each Plan 

invested in the pooled fund (other than 

a JPMorgan Chase Plan) receives written 

notice regarding the Unrelated Sale, 

where such notice contains the material 

terms of the Unrelated Sale, including, 

but not limited to, the material terms 

described in the preceding sentence; 

(d) The Unrelated Sale is for no 

consideration other than cash payment 

against prompt delivery of the Auction 

Rate Security; 

(e) The sales price for the Auction 

Rate Security is equal to the par value 

of the Auction Rate Security, plus any 

accrued but unpaid interest or 

dividends; 2

(f) The Plan does not waive any rights 

or claims in connection with the 

Unrelated Sale; 

(g) The decision to accept the Offer or 

retain the Auction Rate Security is made 

by a Plan fiduciary or Plan participant 

or IRA owner who is independent (as 

defined in section V(d)) of JPMorgan 

Chase. Notwithstanding the foregoing: 

(1) In the case of an individual 

retirement account (an IRA, as described 

in section V(e) below) which is 

beneficially owned by an employee, 

officer, director or partner of JPMorgan 

Chase, or a relative of any such persons, 

the decision to accept the Offer or retain 

the Auction Rate Security may be made 

by such employee, officer, director, 

partner, or relative; or (2) in the case of 

a JPMorgan Chase Plan or a pooled fund 

maintained or advised by JPMorgan 

Chase, the decision to accept the Offer 

may be made by JPMorgan Chase after 

JPMorgan Chase has determined that 

such purchase is in the best interest of 

the JPMorgan Chase Plan or pooled 

fund; 3

(h) Except in the case of a JPMorgan 

Chase Plan or a pooled fund maintained 

or advised by JPMorgan Chase, neither 

JPMorgan Chase nor any affiliate 

exercises investment discretion or 

renders investment advice within the 

meaning of 29 CFR 2510.3–21(c) with 

respect to the decision to accept the 

Offer or retain the Auction Rate 

Security; 

(i) The Plan does not pay any 

commissions or transaction costs with 

respect to the Unrelated Sale; 

(j) The Unrelated Sale is not part of an 

arrangement, agreement or 

understanding designed to benefit a 

party in interest to the Plan; 

(k) JPMorgan Chase and its affiliates, 

as applicable, maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of the Unrelated Sale, 

such records as are necessary to enable 

the persons described below in 

paragraph (l)(1), to determine whether 

the conditions of this exemption, if 

granted, have been met, except that— 

(1) No party in interest with respect 

to a Plan which engages in an Unrelated 

Sale, other than JPMorgan Chase and its 

affiliates, as applicable, shall be subject 

to a civil penalty under section 502(i) of 

the Act or the taxes imposed by section 

4975(a) and (b) of the Code, if such 

records are not maintained, or not 

available for examination, as required, 

below, by paragraph (l)(1); and 

(2) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of JPMorgan Chase 

or its affiliates, as applicable, such 

records are lost or destroyed prior to the 

end of the six-year period; 

(l)(1) Except as provided below in 

paragraph (l)(2), and notwithstanding 

any provisions of subsections (a)(2) and 

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

referred to above in paragraph (k) are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(A) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the U.S. 

Securities and Exchange Commission; 

or 

(B) Any fiduciary of any Plan, 

including any IRA owner, that engages 

in a Sale, or any duly authorized 

employee or representative of such 

fiduciary; or 

(C) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a Plan that engages in the 

Unrelated Sale, or any authorized 

employee or representative of these 

entities; 

(2) None of the persons described 

above in paragraph (l)(1)(B)–(C) shall be 

authorized to examine trade secrets of 

JPMorgan Chase, or commercial or 

financial information which is 

privileged or confidential; and 

(3) Should JPMorgan Chase refuse to 

disclose information on the basis that 

such information is exempt from 

disclosure, JPMorgan Chase shall, by the 

close of the thirtieth (30th) day 

following the request, provide a written 

notice advising that person of the 

reasons for the refusal and that the 

Department may request. 

Section III. Sales of Auction Rate 

Securities From Plans to JPMorgan 

Chase: Related to a Settlement 

Agreement 

If the proposed exemption is granted, 

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

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

the Act and the sanctions resulting from 

the application of section 4975 of the 

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

(D), and (E) of the Code, shall not apply, 

effective February 1, 2008, to the sale by 

a Plan of an Auction Rate Security to 

JPMorgan Chase, where such sale (a 

Settlement Sale) is related to, and made 

in connection with, a Settlement 

Agreement, provided that the conditions 

set forth in Section IV have been met. 

Section IV. Conditions Applicable to 

Transactions Described in Section III 

(a) The terms and delivery and timing 

of the Offer are consistent with the 

requirements set forth in the Settlement 

Agreement; 

(b) The Offer or other documents 

available to the Plan specifically 

describe, among other things: 

(1) How a Plan may determine: the 

Auction Rate Securities held by the Plan 

with JPMorgan Chase, the purchase 

dates for the Auction Rate Securities, 

and (if reliable information is available) 

the most recent rate information for the 

Auction Rate Securities; 

(2) The number of shares and par 

value of the Auction Rate Securities 

available for purchase under the Offer; 

(3) The background of the Offer; 

(4) That participating in the Offer will 

not result in or constitute a waiver of 

any claim of the tendering Plan; 

(5) The methods and timing by which 

Plans may accept the Offer; 

(6) The purchase dates, or the manner 

of determining the purchase dates, for 


srobinson on DSK4SPTVN1PROD with NOTICES2
77596 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

4The Department notes that Class Exemption 80– 

26 (45 FR 28545 (Apr. 29, 1980), as amended at 71 

FR 17917 (Apr. 7, 2006)) permits interest-free loans 

or other extensions of credit from a party in interest 

to a plan if, among other things, the proceeds of the 

loan or extension of credit are used only— (1) For 

the payment of ordinary operating expenses of the 

plan, including the payment of benefits in 

accordance with the terms of the plan and periodic 

premiums under an insurance or annuity contract, 

or (2) for a purpose incidental to the ordinary 

operation of the plan. 

5The relief contained in this proposed exemption 

does not extend to the fiduciary provisions of 

section 404 of the Act. 

Auction Rate Securities tendered 

pursuant to the Offer; 

(7) The timing for acceptance by 

JPMorgan Chase of tendered Auction 

Rate Securities; 

(8) The timing of payment for Auction 

Rate Securities accepted by JPMorgan 

Chase for payment; 

(9) The methods and timing by which 

a Plan may elect to withdraw tendered 

Auction Rate Securities from the Offer; 

(10) The expiration date of the Offer; 

(11) The fact that JPMorgan Chase 

may make purchases of Auction Rate 

Securities outside of the Offer and may 

otherwise buy, sell, hold or seek to 

restructure, redeem or otherwise 

dispose of the Auction Rate Securities; 

(12) A description of the risk factors 

relating to the Offer as JPMorgan Chase 

deems appropriate; 

(13) How to obtain additional 

information concerning the Offer; and 

(14) The manner in which 

information concerning material 

amendments or changes to the Offer will 

be communicated to affected Plans; 

(c) The terms of the Settlement Sale 

are consistent with the requirements set 

forth in the Settlement Agreement; and 

(d) All of the conditions in Section II 

have been met with respect to the 

Settlement Sale. 

Section V. Definitions 

For purposes of this proposed 

exemption: 

(a) The term ‘‘affiliate’’ means: Any 

person directly or indirectly, through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with such other person; 

(b) The term ‘‘control’’ means: The 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual; 

(c) The term ‘‘Auction Rate Security’’ 

means a security that: 

(1) Is either a debt instrument 

(generally with a long-term nominal 

maturity) or preferred stock; and 

(2) Has an interest rate or dividend 

that is reset at specific intervals through 

a Dutch auction process; 

(d) A person is ‘‘independent’’ of 

JPMorgan Chase if the person is: 

(1) Not JPMorgan Chase or an affiliate; 

and (2) not a relative (as defined in 

ERISA section 3(15)) of the party 

engaging in the transaction; 

(e) The term ‘‘Plan’’ means: An 

individual retirement account or similar 

account described in section 

4975(e)(1)(B) through (F) of the Code (an 

IRA); an employee benefit plan as 

defined in section 3(3) of ERISA; or an 

entity holding plan assets within the 

meaning of 29 CFR 2510.3–101, as 

modified by ERISA section 3(42); and 

(f) The term ‘‘Settlement Agreement’’ 

means: A legal settlement involving 

JPMorgan Chase and a U.S. state or 

federal authority that provides for the 

purchase of an Auction Rate Security by 

JPMorgan Chase from a Plan. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of February 1, 2008. 

Summary of Facts and Representations 

1. The applicant is JPMorgan Chase & 

Co. (hereinafter, either JPMorgan Chase 

or the Applicant), a financial holding 

company incorporated under Delaware 

law in 1968. JPMorgan Chase is a 

leading global financial services firm, 

with $2.0 trillion in assets, $165.4 

billion in stockholders’ equity, and 

operations in more than 60 countries as 

of December 31, 2009. 

2. The Applicant describes Auction 

Rate Securities (ARS) and the 

arrangement by which ARS are bought 

and sold as follows. ARS are securities 

(issued as debt or preferred stock) with 

an interest rate or dividend that is reset 

at periodic intervals pursuant to a 

process called a Dutch Auction. 

Investors submit orders to buy, hold, or 

sell a specific ARS to a broker-dealer 

selected by the entity that issued the 

ARS. The broker-dealers, in turn, submit 

all of these orders to an auction agent. 

The auction agent’s functions include 

collecting orders from all participating 

broker-dealers by the auction deadline, 

determining the amount of securities 

available for sale, and organizing the 

bids to determine the winning bid. If 

there are any buy orders placed into the 

auction at a specific rate, the auction 

agent accepts bids with the lowest rate 

above any applicable minimum rate and 

then successively higher rates up to the 

maximum applicable rate, until all sell 

orders and orders that are treated as sell 

orders are filled. Bids below any 

applicable minimum rate or above the 

applicable maximum rate are rejected. 

After determining the clearing rate for 

all of the securities at auction, the 

auction agent allocates the ARS 

available for sale to the participating 

broker-dealers based on the orders they 

submitted. If there are multiple bids at 

the clearing rate, the auction agent will 

allocate securities among the bidders at 

such rate on a pro-rata basis. 

3. The Applicant states that, under a 

typical Dutch Auction process, 

JPMorgan Chase is permitted, but not 

obligated, to submit orders in auctions 

for its own account either as a bidder or 

a seller and routinely does so in the 

auction rate securities market in its sole 

discretion. JPMorgan Chase may place 

one or more bids in an auction for its 

own account to acquire ARS for its 

inventory, to prevent: (a) A failed 

auction (i.e., an event where there are 

insufficient clearing bids which would 

result in the auction rate being set at a 

specified rate, resulting in no ARS being 

sold through the auction process); or (b) 

an auction from clearing at a rate that 

JPMorgan Chase believes does not 

reflect the market for the particular ARS 

being auctioned. 

4. The Applicant states that for many 

ARS, JPMorgan Chase has been 

appointed by the issuer of the securities 

to serve as a dealer in the auction and 

is paid by the issuer for its services. 

JPMorgan Chase is typically appointed 

to serve as a dealer in the auctions 

pursuant to an agreement between the 

issuer and JPMorgan Chase. That 

agreement provides that JPMorgan 

Chase will receive from the issuer 

auction dealer fees based on the 

principal amount of the securities 

placed through JPMorgan Chase. 

5. The Applicant states further that 

JPMorgan Chase may share a portion of 

the auction rate dealer fees it receives 

from the issuer with other brokerdealers that submit orders through 

JPMorgan Chase, for those orders that 

JPMorgan Chase successfully places in 

the auctions. Similarly, with respect to 

ARS for which broker-dealers other than 

JPMorgan Chase act as dealer, such 

other broker-dealers may share auction 

dealer fees with JPMorgan Chase for 

orders submitted by JPMorgan Chase. 

6. The Applicant represents that since 

February, 2008, a significant majority of 

auctions have been unsuccessful. 

According to the Applicant, the current 

state of the ARS market remains 

illiquid. As a result, Plans holding ARS 

may not have sufficient liquidity to 

make benefit payments, mandatory 

payments and withdrawals and expense 

payments when due.4

7. The Applicant represents further 

that, in certain instances, JPMorgan 

Chase may have previously advised or 

otherwise caused a Plan to acquire and 

hold an ARS.5 In connection with 

JPMorgan Chase’s role in the acquisition 

and holding of ARS by various 

JPMorgan Chase clients, including the 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77597 

6The Applicant states that while there may be 

communication between a Plan and JP Morgan 

Chase subsequent to an Offer, such communication 

will not involve advice regarding whether the Plan 

should accept the Offer. 

Plans, JPMorgan Chase entered into 

Settlement Agreements with certain 

U.S. states and federal authorities. 

Pursuant to these Settlement 

Agreements, among other things, 

JPMorgan Chase was required to send a 

written offer to certain Plans that held 

ARS in connection with the advice and/ 

or brokerage services provided by 

JPMorgan Chase. As described in further 

detail below, eligible Plans that 

accepted the written offer were 

permitted to sell the ARS to JPMorgan 

Chase for cash equal to the par value of 

such securities, plus any accrued 

interest and/or dividends. According to 

the Applicant, in connection with an 

offer issued by JPMorgan Chase 

pursuant to a Settlement Agreement, 

JPMorgan Chase has purchased 

approximately $2 billion dollars in ARS. 

The Applicant states that, prospectively, 

additional shares of ARS may be 

tendered by Plans to JPMorgan Chase 

pursuant to an offer issued by JPMorgan 

Chase pursuant to a Settlement 

Agreement. Accordingly, the Applicant 

is requesting retroactive and prospective 

relief for the Settlement Sales. With 

respect to Unrelated Sales, the 

Applicant states that to the best of its 

knowledge, as of January 1, 2011, no 

Unrelated Sale has occurred. However, 

the Applicant is requesting retroactive 

relief (and prospective relief) for 

Unrelated Sales in the event that a sale 

of ARS by a Plan to JPMorgan Chase has 

occurred outside the Settlement process. 

If granted, the exemption would be 

effective as of February 1, 2008. 

8. Specifically, the Applicant is 

requesting exemptive relief for the sale 

of ARS under two different 

circumstances: (a) Where JPMorgan 

Chase initiates the sale by sending to a 

Plan a written offer to acquire the ARS, 

notwithstanding that such offer is not 

required under a Settlement Agreement 

(i.e., an Unrelated Sale); and (b) where 

JPMorgan Chase is required under a 

Settlement Agreement to send to Plans 

a written offer to acquire the ARS (i.e., 

a Settlement Sale). The Applicant states 

that the Unrelated Sales and Settlement 

Sales (hereinafter, either, a Covered 

Sale) are in the interests of Plans. In this 

regard, the Applicant states that the 

Covered Sales would permit Plans to 

normalize Plan investments. The 

Applicant represents that each Covered 

Sale will be for no consideration other 

than cash payment against prompt 

delivery of the ARS, and such cash will 

equal the par value of the ARS, plus any 

accrued but unpaid interest or 

dividends. The Applicant represents 

further that Plans will not pay any 

commissions or transaction costs with 

respect to any Covered Sale. 

9. The Applicant represents that the 

proposed exemption is protective of the 

Plans. The Applicant states that, except 

in the case of a Plan sponsored by 

JPMorgan Chase for its own employees 

(a JPMorgan Chase Plan), each Covered 

Sale will be made pursuant to a written 

offer (an Offer); and the decision to 

accept the Offer or retain the ARS will 

be made by a Plan fiduciary or Plan 

participant or IRA owner who is 

independent of JPMorgan Chase. 

Additionally, each Offer will be 

delivered in a manner designed to alert 

a Plan fiduciary that JPMorgan Chase 

intends to purchase ARS from the Plan. 

In connection with an Unrelated Sale, 

the Offer will describe the material 

terms of the Unrelated Sale, including 

the most recent rate information for the 

ARS (if reliable information is 

available). Either the Offer or other 

materials available to the Plan will 

provide the identity and par value of the 

ARS. Offers made in connection with a 

Settlement Agreement will specifically 

include, among other things: The 

background of the Offer; the method and 

timing by which a Plan may accept the 

Offer; the expiration date of the Offer; a 

description of certain risk factors 

relating to the Offer; how to obtain 

additional information concerning the 

Offer; and the manner in which 

information concerning material 

amendments or changes to the Offer will 

be communicated to affected Plans. The 

Applicant states that, except in the case 

of a JPMorgan Chase Plan or a pooled 

fund maintained or advised by 

JPMorgan Chase, neither JPMorgan 

Chase nor any affiliate will exercise 

investment discretion or render 

investment advice with respect to a 

Plan’s decision to accept the Offer or 

retain the ARS.6 In the case of a 

JPMorgan Chase Plan or a pooled fund 

maintained or advised by JPMorgan 

Chase, the decision to engage in a 

Covered Sale may be made by JPMorgan 

Chase after JPMorgan Chase has 

determined that such purchase is in the 

best interest of the JPMorgan Chase Plan 

or pooled fund. The Applicant 

represents further that Plans will not 

waive any rights or claims in connection 

with any Covered Sale. 

10. The Applicant represents that the 

proposed exemption, if granted, would 

be administratively feasible. In this 

regard, the Applicant notes that each 

Covered Sale will occur at the par value 

of the affected ARS, plus any accrued 

but unpaid interest or dividends, and 

such value is readily ascertainable. The 

Applicant represents further that 

JPMorgan Chase will maintain the 

records necessary to enable the 

Department and Plan fiduciaries, among 

others, to determine whether the 

conditions of this exemption, if granted, 

have been met. 

11. In summary, the Applicant 

represents that the transactions 

described herein satisfy the statutory 

criteria of section 408(a) of the Act 

because, among other things: 

(a) Except in the case of a JPMorgan 

Chase Plan, each Covered Sale shall be 

made pursuant to a written Offer; 

(b) Each Covered Sale shall be for no 

consideration other than cash payment 

against prompt delivery of the ARS; 

(c) The amount of each Covered Sale 

shall equal the par value of the ARS, 

plus any accrued but unpaid interest or 

dividends; 

(d) Plans will not waive any rights or 

claims in connection with any Covered 

Sale; 

(e) Except in the case of a JPMorgan 

Chase Plan or a pooled fund maintained 

or advised by JPMorgan Chase: 

(1) The decision to accept an Offer or 

retain the ARS shall be made by a Plan 

fiduciary or Plan participant or IRA 

owner who is independent of JPMorgan 

Chase; and 

(2) Neither JPMorgan Chase nor any 

affiliate shall exercise investment 

discretion or render investment advice 

within the meaning of 29 CFR 2510.3– 

21(c) with respect to the decision to 

accept the Offer or retain the ARS; 

(f) Plans shall not pay any 

commissions or transaction costs with 

respect to any Covered Sale; 

(g) A Covered Sale shall not be part 

of an arrangement, agreement or 

understanding designed to benefit a 

party in interest to the affected Plan; 

(h) With respect to any Settlement 

Sale, the terms and delivery and timing 

of the Offer, and the terms of Settlement 

Sale, shall be consistent with the 

requirements set forth in the Settlement 

Agreement; 

(i) JPMorgan Chase shall make 

available in connection with an 

Unrelated Sale the material terms of the 

Unrelated Sale, including the most 

recent rate information for the ARS (if 

reliable information is available), and 

the identity and par value of the ARS; 

(j) Each Offer made in connection 

with a Settlement Agreement shall 

describe the material terms of the 

Settlement Sale, including the 

following: 

(1) Information regarding how the 

Plan can determine: The ARS held by 


srobinson on DSK4SPTVN1PROD with NOTICES2
77598 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

7For purposes of this proposed exemption 

reference to specific provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

8The Department, herein, is expressing no 

opinion in this proposed exemption regarding the 

reliance of the Applicants on the relief provided by 

section 408(b)(8) of the Act with regard to the 

purchase and with regard to the sale by a Client 

Plan of an interest in a Collective Fund and the 

receipt by Principal, thereby, of any investment 

management fee, any investment advisory fee, and 

any similar fee (a Collective Fund-Level 

Management Fee), as defined, below, in Section 

IV(n), where Principal serves as an investment 

manager or investment adviser with respect to such 

Collective Fund and also serves as a fiduciary with 

respect to such Client Plan, nor is the Department 

offering any view as to whether the Applicants 

satisfy the conditions, as set forth in section 

408(b)(8) of the Act. 

the Plan with JPMorgan Chase, the 

number of shares and par value of the 

ARS, purchase dates for such ARS, and 

(if reliable information is available) the 

most recent rate information for the 

ARS; 

(2) The background of the Offer; 

(3) That participating in the Offer will 

not result in or constitute a waiver of 

any claim of the tendering Plan; 

(4) The methods and timing by which 

the Plan may accept the Offer; 

(5) The purchase dates, or the manner 

of determining the purchase dates, for 

ARS pursuant to the Offer; 

(6) The timing for acceptance by 

JPMorgan Chase of tendered ARS; 

(7) The timing of payment for ARS 

accepted by JPMorgan Chase for 

payment; 

(8) The methods and timing by which 

a Plan may elect to withdraw tendered 

ARS from the Offer; 

(9) The expiration date of the Offer; 

(10) The fact that JPMorgan Chase 

may make purchases of ARS outside of 

the Offer and may otherwise buy, sell, 

hold or seek to restructure, redeem or 

otherwise dispose of the ARS; 

(11) A description of the risk factors 

relating to the Offer as JPMorgan Chase 

deems appropriate; 

(12) How to obtain additional 

information concerning the Offer; and 

(13) The manner in which 

information concerning material 

amendments or changes to the Offer will 

be communicated to affected Plans. 

Notice to Interested Persons 

The Applicant represents that the 

potentially interested participants and 

beneficiaries cannot all be identified 

and therefore the only practical means 

of notifying such participants and 

beneficiaries of this proposed 

exemption is by the publication of this 

notice in the Federal Register. 

Comments and requests for a hearing 

must be received by the Department not 

later than 30 days from the date of 

publication of this notice of proposed 

exemption in the Federal Register. 

For Further Information Contact: 

Chris Motta of the Department, 

telephone (202) 693–8544. (This is not 

a toll-free number.) 

Delaware Charter Guarantee & Trust 

Co. d\b\a\ Principal Trust Company 

(Principal Trust); Principal Life 

Insurance Company (Principal Life) 

and Any Affiliates, Thereof 

(Collectively, Principal or the 

Applicants), Located in Wilmington, 

Delaware and in Des Moines, Iowa 

[Application No. D–11579]. 

Proposed Exemption 

The Department of Labor (the 

Department) is considering granting an 

exemption under the authority of 

section 408(a) of the Act and section 

4975(c)(2) of the Code and in 

accordance with the procedures set 

forth in 29 CFR part 2570, subpart B (55 

FR 32836, 32847, August 10, 1990). 

Section I—Transactions 

If the exemption is granted, the 

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

406(b) of the Act and the taxes resulting 

from the application of section 4975 of 

the Code, by reason of sections 

4975(c)(1)(D) through (F) of the Code, 7

shall not apply, as of the effective date 

of this proposed exemption, to: 

(a) The receipt of a fee by Principal, 

as Principal is defined, below, in 

Section IV(a), from an open-end 

investment company or open-end 

investment companies (Affiliated 

Fund(s)), as defined, below, in Section 

IV(e), in connection with the direct 

investment in shares of any such 

Affiliated Fund, by an employee benefit 

plan or by employee benefit plans 

(Client Plan(s)), as defined, below, in 

Section IV(b), where Principal serves as 

a fiduciary with respect to such Client 

Plan, and where Principal: 

(1) Provides investment advisory 

services, or similar services to any such 

Affiliated Fund; and 

(2) Provides to any such Affiliated 

Fund other services (Secondary 

Service(s)), as defined, below, in Section 

IV(i); and 

(b) In connection with the indirect 

investment by a Client Plan in shares of 

an Affiliated Fund through investment 

in a pooled investment vehicle or 

pooled investment vehicles (Collective 

Fund(s)),8 as defined, below, in Section 

IV(j), where Principal serves as a 

fiduciary with respect to such Client 

Plan, the receipt of fees by Principal 

from: 

(1) An Affiliated Fund for the 

provision of investment advisory 

services, or similar services by Principal 

to any such Affiliated Fund; and 

(2) an Affiliated Fund for the 

provision of Secondary Services by 

Principal to any such Affiliated Fund; 

provided that the conditions, as set 

forth, below, in Section II and Section 

III, are satisfied, as of the effective date 

of this proposed exemption and 

thereafter. 

Section II—Specific Conditions 

(a)(1) Each Client Plan which is 

invested directly in shares of an 

Affiliated Fund either: 

(i) Does not pay to Principal for the 

entire period of such investment any 

investment management fee, or any 

investment advisory fee, or any similar 

fee at the plan-level (the Plan-Level 

Management Fee), as defined, below, in 

Section IV(m), with respect to any of the 

assets of such Client Plan which are 

invested directly in shares of such 

Affiliated Fund; or 

(ii) pays to Principal a Plan-Level 

Management Fee, based on total assets 

of such Client Plan under management 

by Principal at the plan-level, from 

which a credit has been subtracted from 

such Plan-Level Management Fee, 

where the amount subtracted represents 

such Client Plan’s pro rata share of any 

investment advisory fee and any similar 

fee (the Affiliated Fund-Level Advisory 

Fee), as defined, below, in Section IV(o), 

paid by such Affiliated Fund to 

Principal. 

If, during any fee period, in the case 

of a Client Plan invested directly in 

shares of an Affiliated Fund, such Client 

Plan has prepaid its Plan-Level 

Management Fee, and such Client Plan 

purchases shares of an Affiliated Fund 

directly, the requirement of this Section 

II(a)(1)(ii) shall be deemed met with 

respect to such prepaid Plan-Level 

Management Fee, if, by a method 

reasonably designed to accomplish the 

same, the amount of the prepaid PlanLevel Management Fee that constitutes 

the fee with respect to the assets of such 

Client Plan invested directly in shares of 

an Affiliated Fund: 

(A) Is anticipated and subtracted from 

the prepaid Plan-Level Management Fee 


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9The selection of a particular class of shares of 

an Affiliated Fund as an investment for a Client 

Plan indirectly through a Collective Fund is a 

fiduciary decision that must be made in accordance 

with the provisions of section 404(a) of the Act. In 

this proposed exemption, the Department is not 

providing any relief for any fiduciary violations, 

pursuant to section 404 of the Act, or violations of 

the prohibited transaction provisions, as set forth in 

section 406 of the Act that may arise from the 

selection of one class of shares of an Affiliated Fund 

over another class of shares. 

at the time of the payment of such fee; 

or 

(B) is returned to such Client Plan, no 

later than during the immediately 

following fee period; or 

(C) is offset against the Plan-Level 

Management Fee for the immediately 

following fee period or for the fee period 

immediately following thereafter. 

For purposes of Section II(a)(1)(ii), a 

Plan-Level Management Fee shall be 

deemed to be prepaid for any fee period, 

if the amount of such Plan-Level 

Management Fee is calculated as of a 

date not later than the first day of such 

period. 

(2) Each Client Plan invested in a 

Collective Fund the assets of which are 

not invested in shares of an Affiliated 

Fund: 

(i) Does not pay to Principal for the 

entire period of such investment any 

Plan-Level Management Fee with 

respect to any assets of such Client Plan 

invested in such Collective Fund. 

The requirements of this Section 

II(a)(2)(i) do not preclude the payment 

of a Collective Fund-Level Management 

Fee by such Collective Fund to 

Principal, based on the assets of such 

Client Plan invested in such Collective 

Fund; or 

(ii) does not pay to Principal for the 

entire period of such investment any 

Collective Fund-Level Management Fee 

with respect to any assets of such Client 

Plan invested in such Collective Fund. 

The requirements of this Section 

II(a)(2)(ii) do not preclude the payment 

of a Plan-Level Management Fee by 

such Client Plan to Principal, based on 

total assets of such Client Plan under 

management by Principal at the planlevel; or 

(iii) such Client Plan pays to Principal 

a Plan-Level Management Fee, based on 

total assets of such Client Plan under 

management by Principal at the planlevel, from which a credit has been 

subtracted from such Plan-Level 

Management Fee (the ‘‘Net’’ Plan-Level 

Management Fee), where the amount 

subtracted represents such Client Plan’s 

pro rata share of any Collective FundLevel Management Fee paid by such 

Collective Fund to Principal. 

The requirements of this Section 

II(a)(2)(iii) do not preclude the payment 

of a Collective Fund-Level Management 

Fee by such Collective Fund to 

Principal, based on the assets of such 

Client Plan invested in such Collective 

Fund. 

(3) Each Client Plan invested in a 

Collective Fund the assets of which are 

invested in shares of an Affiliated Fund: 

(i) Does not pay to Principal for the 

entire period of such investment any a 

Plan-Level Management Fee (including 

any ‘‘Net’’ Plan-Level Management Fee, 

as described, above, in Section 

II(a)(2)(iii)), and does not pay to 

Principal for the entire period of such 

investment any Collective Fund-Level 

Management Fee with respect to the 

assets of such Client Plan which are 

invested in such Affiliated Fund; or 

(ii) pays to Principal a Collective 

Fund-Level Management Fee, in 

accordance with Section II(a)(2)(i), 

above, based on the total assets of such 

Client Plan invested in such Collective 

Fund, from which a credit has been 

subtracted from such Collective FundLevel Management Fee, where the 

amount subtracted represents such 

Client Plan’s pro rata share of any 

Affiliated Fund-Level Advisory Fee paid 

to Principal by such Affiliated Fund; 

and does not pay to Principal for the 

entire period of such investment any 

Plan-Level Management Fee with 

respect to any assets of such Client Plan 

invested in such Collective Fund; or 

(iii) pays to Principal a Plan-Level 

Management Fee, in accordance with 

Section II(a)(2)(iii), above, based on the 

total assets of such Client Plan under 

management by Principal at the planlevel, from which a credit has been 

subtracted from such Plan-Level 

Management Fee, where the amount 

subtracted represents such Client Plan’s 

pro rata share of any Affiliated FundLevel Advisory Fee paid to Principal by 

such Affiliated Fund; and does not pay 

to Principal for the entire period of such 

investment any Collective Fund-Level 

Management Fee with respect to any 

assets of such Client Plan invested in 

such Collective Fund; or 

(iv) pays to Principal a ‘‘Net’’ PlanLevel Management Fee, in accordance 

with Section II(a)(2)(iii), above, from 

which a further credit has been 

subtracted from such ‘‘Net’’ Plan-Level 

Management Fee, where the amount of 

such further credit which is subtracted 

represents such Client Plan’s pro rata 

share of any Affiliated Fund-Level 

Advisory Fee paid to Principal by such 

Affiliated Fund. 

Provided that the conditions of this 

proposed exemption are satisfied, the 

requirements of Section II(a)(1)(i), (ii), 

and Section II(a)(3)(i)–(iv) do not 

preclude the payment of an Affiliated 

Fund-Level Advisory Fee by an 

Affiliated Fund to Principal under the 

terms of an investment advisory 

agreement adopted in accordance with 

section 15 of the Investment Company 

Act of 1940 (the Investment Company 

Act). Further, the requirements of 

Section II(a)(1)(i)–(ii), and Section 

II(a)(3)(i)–(iv) do not preclude the 

payment of a fee by an Affiliated Fund 

to Principal for the provision by 

Principal of Secondary Services to such 

Affiliated Fund under the terms of a 

duly adopted agreement between 

Principal and such Affiliated Fund. 

For the purpose of Section II(a)(1)(ii), 

and Section II(a)(3)(ii)–(iv), in 

calculating a Client Plan’s pro rata share 

of an Affiliated Fund-Level Advisory 

Fee, Principal must use an amount 

representing the ‘‘gross’’ advisory fee 

paid to Principal by such Affiliated 

Fund. For purposes of this paragraph, 

the ‘‘gross’’ advisory fee is the amount 

paid to Principal by such Affiliated 

Fund, including the amount paid by 

such Affiliated Fund to sub-advisers. 

(b) The purchase price paid and the 

sales price received by a Client Plan for 

shares in an Affiliated Fund purchased 

or sold directly, and the purchase price 

paid and the sales price received by a 

Client Plan for shares in an Affiliated 

Fund purchased or sold indirectly 

through a Collective Fund, is the net 

asset value per share (NAV), as defined, 

below, in Section IV(f), at the time of the 

transaction, and is the same purchase 

price that would have been paid and the 

same sales price that would have been 

received for such shares by any other 

shareholder of the same class of shares 

in such Affiliated Fund at that time.9

(c) Principal, including any officer 

and any director of Principal, does not 

purchase any shares of an Affiliated 

Fund from and does not sell any shares 

of an Affiliated Fund to any Client Plan 

which invests directly in such Affiliated 

Fund, and Principal, including any 

officer and director of Principal, does 

not purchase any shares of any 

Affiliated Fund from and does not sell 

any shares of an Affiliated Fund to any 

Collective Fund in which a Client Plan 

invests indirectly in shares of such 

Affiliated Fund. 

(d) No sales commissions, no 

redemption fees, and no other similar 

fees are paid in connection with any 

purchase and in connection with any 

sale by a Client Plan directly in shares 

of an Affiliated Fund, and no sales 

commissions, no redemption fees, and 

no other similar fees are paid by a 

Collective Fund in connection with any 

purchase and in connection with any 

sale of shares in an Affiliated Fund by 

a Client Plan indirectly through such 


srobinson on DSK4SPTVN1PROD with NOTICES2
77600 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

Collective Fund. However, this Section 

II(d) does not prohibit the payment of a 

redemption fee, if: 

(1) Such redemption fee is paid only 

to an Affiliated Fund; and 

(2) The existence of such redemption 

fee is disclosed in the summary 

prospectus for such Affiliated Fund in 

effect both at the time of any purchase 

of shares in such Affiliated Fund and at 

the time of any sale of such shares. 

(e) The combined total of all fees 

received by Principal is not in excess of 

reasonable compensation within the 

meaning of section 408(b)(2) of the Act, 

for services provided: 

(1) By Principal to each Client Plan; 

(2) By Principal to each Collective 

Fund in which a Client Plan invests; 

and 

(3) By Principal to each Affiliated 

Fund in which a Client Plan invests 

directly in shares of such Affiliated 

Fund, and 

(4) By Principal to each Affiliated 

Fund in which a Client Plan invests 

indirectly in shares of such Affiliated 

Fund through a Collective Fund. 

(f) Principal does not receive any fees 

payable pursuant to Rule 12b–1 under 

the Investment Company Act in 

connection with the transactions 

covered by this proposed exemption; 

(g) No Client Plan is an employee 

benefit plan sponsored or maintained by 

Principal. 

(h)(1) In the case of a Client Plan 

investing directly in shares of an 

Affiliated Fund, a second fiduciary (the 

Second Fiduciary), as defined, below, in 

Section IV(h), acting on behalf of such 

Client Plan, receives, in writing, in 

advance of any investment by such 

Client Plan directly in shares of such 

Affiliated Fund, a full and detailed 

disclosure via first class mail or via 

personal delivery of (or, if the Second 

Fiduciary consents to such means of 

delivery, through electronic email, in 

accordance with Section II(q), as set 

forth, below) of information concerning 

such Affiliated Fund, including but not 

limited to the items listed, below: 

(i) A current summary prospectus 

issued by each such Affiliated Fund; 

(ii) A statement describing the fees, 

including the nature and extent of any 

differential between the rates of such 

fees for: 

(A) Investment advisory and similar 

services to be paid to Principal by each 

Affiliated Fund; 

(B) Secondary Services to be paid to 

Principal by each such Affiliated Fund; 

and 

(C) All other fees to be charged by 

Principal to such Client Plan and to 

each such Affiliated Fund and all other 

fees to be paid to Principal by each such 

Client Plan and by each such Affiliated 

Fund; 

(iii) The reasons why Principal may 

consider investment directly in shares 

of such Affiliated Fund by such Client 

Plan to be appropriate for such Client 

Plan; 

(iv) A statement describing whether 

there are any limitations applicable to 

Principal with respect to which assets of 

such Client Plan may be invested 

directly in shares of such Affiliated 

Fund, and if so, the nature of such 

limitations; and 

(v) Upon the request of the Second 

Fiduciary acting on behalf of such 

Client Plan, a copy of the Notice of 

Proposed Exemption (the Notice), a 

copy of the final exemption, if granted, 

and any other reasonably available 

information regarding the transactions 

which are the subject of this proposed 

exemption. 

(2) In the case of a Client Plan whose 

assets are proposed to be invested in a 

Collective Fund after such Collective 

Fund has begun investing in shares of 

an Affiliated Fund, a Second Fiduciary, 

acting on behalf of such Client Plan, 

receives, in writing, in advance of any 

investment by such Client Plan in such 

Collective Fund, a full and detailed 

disclosure via first class mail or via 

personal delivery (or, if the Second 

Fiduciary consents to such means of 

delivery, through electronic email, in 

accordance with Section II(q), as set 

forth, below) of information concerning 

such Collective Fund and information 

concerning each such Affiliated Fund in 

which such Collective Fund is invested, 

including but not limited to the items 

listed, below: 

(i) A current summary prospectus 

issued by each such Affiliated Fund; 

(ii) A statement describing the fees, 

including the nature and extent of any 

differential between the rates of such 

fees for: 

(A) Investment advisory and similar 

services to be paid to Principal by each 

Affiliated Fund; 

(B) Secondary Services to be paid to 

Principal by each such Affiliated Fund; 

and 

(C) All other fees to be charged by 

Principal to such Client Plan, to such 

Collective Fund, and to each such 

Affiliated Fund and all other fees to be 

paid to Principal by such Client Plan, by 

such Collective Fund, and by each such 

Affiliated Fund; 

(iii) The reasons why Principal may 

consider investment by such Client Plan 

in shares of each such Affiliated Fund 

indirectly through such Collective Fund 

to be appropriate for such Client Plan; 

(iv) A statement describing whether 

there are any limitations applicable to 

Principal with respect to which assets of 

such Client Plan may be invested 

indirectly in shares of each such 

Affiliated Fund through such Collective 

Fund, and if so, the nature of such 

limitations; 

(v) Upon the request of the Second 

Fiduciary, acting on behalf of such 

Client Plan, a copy of the Notice, a copy 

of the final exemption, if granted, and 

any other reasonably available 

information regarding the transactions 

which are the subject of this proposed 

exemption; and 

(vi) A copy of the organizational 

documents of such Collective Fund 

which expressly provide for the 

addition of one or more Affiliated Funds 

to the portfolio of such Collective Fund. 

(3) In the case of a Client Plan whose 

assets are proposed to be invested in a 

Collective Fund before such Collective 

Fund has begun investing in shares of 

any Affiliated Fund, a Second 

Fiduciary, acting on behalf of such 

Client Plan, receives, in writing, in 

advance of any investment by such 

Client Plan in such Collective Fund, a 

full and detailed disclosure via first 

class mail or via personal delivery (or, 

if the Second Fiduciary consents to such 

means of delivery, through electronic 

email, in accordance with Section II(q), 

as set forth, below) of information, 

concerning such Collective Fund, 

including but not limited to the items 

listed, below: 

(i) A statement describing the fees, 

including the nature and extent of any 

differential between the rates of such 

fees for all fees to be charged by 

Principal to such Client Plan and to 

such Collective Fund and all other fees 

to be paid to Principal by such Client 

Plan, and by such Collective Fund; 

(ii) Upon the request of the Second 

Fiduciary, acting on behalf of such 

Client Plan, a copy of the Notice, a copy 

of the final exemption, if granted, and 

any other reasonably available 

information regarding the transactions 

which are the subject of this proposed 

exemption; and 

(iii) A copy of the organizational 

documents of such Collective Fund 

which expressly provide for the 

addition of one or more Affiliated Funds 

to the portfolio of such Collective Fund. 

(i) On the basis of the information 

described, above, in Section II(h), a 

Second Fiduciary, acting on behalf of a 

Client Plan: 

(1) Authorizes in writing the 

investment of the assets of such Client 

Plan, as applicable: 

(i) Directly in shares of an Affiliated 

Fund; 

(ii) Indirectly in shares of an 

Affiliated Fund through a Collective 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77601 

Fund where such Collective Fund has 

already invested in shares of an 

Affiliated Fund; and 

(iii) In a Collective Fund which is not 

yet invested in shares of an Affiliated 

Fund but whose organizational 

document expressly provides for the 

addition of one or more Affiliated Funds 

to the portfolio of such Collective Fund; 

and 

(2) Authorizes in writing; as 

applicable: 

(i) The Affiliated Fund-Level 

Advisory Fee received by Principal for 

investment advisory services and 

similar services provided by Principal to 

such Affiliated Fund; 

(ii) The fee received by Principal for 

Secondary Services provided by 

Principal to such Affiliated Fund; 

(iii) The Collective Fund-Level 

Management Fee received by Principal 

for investment management, investment 

advisory, and similar services provided 

by Principal to such Collective Fund in 

which such Client Plan invests; 

(iv) The Plan-Level Management Fee 

received by Principal for investment 

management and similar services 

provided by Principal to such Client 

Plan at the plan-level; and 

(v) The selection by Principal of the 

applicable fee method, as described, 

above, in Section II(a)(1)–(3). 

All authorizations made by a Second 

Fiduciary, pursuant to this Section II(i), 

must be consistent with the 

responsibilities, obligations, and duties 

imposed on fiduciaries by Part 4 of Title 

I of the Act; 

(j)(1) Any authorization, described, 

above, in Section II(i), and any 

authorization made pursuant to negative 

consent, as described, below, in Section 

II(k) and in Section II(l), made by a 

Second Fiduciary, acting on behalf of a 

Client Plan, shall be terminable at will 

by such Second Fiduciary, without 

penalty to such Client Plan, upon 

receipt by Principal via first class mail, 

via personal delivery, or via electronic 

email of a written notification of the 

intent of such Second Fiduciary to 

terminate any such authorization. 

(2) A form (the Termination Form) 

expressly providing an election to 

terminate any authorization, described, 

above, in Section II(i), or to terminate 

any authorization made pursuant to 

negative consent, as described, below, 

in Section II(k) and in Section II(l), with 

instructions on the use of such 

Termination Form must be provided to 

such Second Fiduciary at least annually, 

either in writing via first class mail or 

via personal delivery (or if such Second 

Fiduciary consents to such means of 

delivery, through electronic email, in 

accordance with Section II(q), as set 

forth, below). However, if a Termination 

Form has been provided to such Second 

Fiduciary, pursuant to Section II(k) or 

pursuant to Section II(l), below, then a 

Termination Form need not be provided 

again, pursuant to this Section II(j), until 

at least six (6) months but no more than 

twelve (12) months have elapsed, since 

a Termination Form was provided; 

(3) The instructions for the 

Termination Form must include the 

following statements: 

(i) Any authorization, described, 

above, in Section II(i), and any 

authorization made pursuant to negative 

consent, as described, below, in Section 

II(k) or in Section II(l), is terminable at 

will by a Second Fiduciary, acting on 

behalf of a Client Plan, without penalty 

to such Client Plan, upon receipt by 

Principal via first class mail or via 

personal delivery or via electronic email 

of the Termination Form, or some other 

written notification of the intent of such 

Second Fiduciary to terminate such 

authorization; 

(ii) Within 30 days from the date the 

Termination Form is sent to such 

Second Fiduciary by Principal, the 

failure by such Second Fiduciary to 

return such Termination Form or the 

failure by such Second Fiduciary to 

provide some other written notification 

of the Client Plan’s intent to terminate 

any authorization, described in Section 

II(i), or intent to terminate any 

authorization made pursuant to negative 

consent, as described, below, in Section 

II(k) or in Section II(l), will be deemed 

to be an approval by such Second 

Fiduciary; 

(4) In the event that a Second 

Fiduciary, acting on behalf of a Client 

Plan, at any time returns a Termination 

Form or returns some other written 

notification of intent to terminate any 

authorization, as described, above, in 

Section II(i), or intent to terminate any 

authorization made pursuant to negative 

consent, as described, below, in Section 

II(k) or in Section II(l); 

(i)(A) In the case of a Client Plan 

which invests directly in shares of an 

Affiliated Fund, the termination will be 

implemented by the withdrawal of all 

investments made by such Client Plan 

in the affected Affiliated Fund, and such 

withdrawal will be effected by Principal 

within one (1) Business day of the date 

that Principal receives such 

Termination Form or receives from the 

Second Fiduciary, acting on behalf of 

such Client Plan, some other written 

notification of intent to terminate any 

such authorization; 

(B) From the date a Second Fiduciary, 

acting on behalf of a Client Plan that 

invests directly in shares of an Affiliated 

Fund, returns a Termination Form or 

returns some other written notification 

of intent to terminate such Client Plan’s 

investment in such Affiliated Fund, 

such Client Plan will not be subject to 

pay a pro rata share of any Affiliated 

Fund-Level Advisory Fee and will not 

be subject to pay any fees for Secondary 

Services paid to Principal by such 

Affiliated Fund; 

(ii)(A) In the case of a Client Plan 

which invests in a Collective Fund, the 

termination will be implemented by the 

withdrawal of such Client Plan from all 

investments in such affected Collective 

Fund, and such withdrawal will be 

implemented by Principal within such 

time as may be necessary for withdrawal 

in an orderly manner that is equitable to 

the affected withdrawing Client Plan 

and to all non-withdrawing Client 

Plans, but in no event shall such 

withdrawal be implemented by 

Principal more than five business (5) 

days after the day Principal receives 

from the Second Fiduciary, acting on 

behalf of such withdrawing Client Plan, 

a Termination Form or receives some 

other written notification of intent to 

terminate the investment of such Client 

Plan in such Collective Fund; and 

(B) Principal will pay to such 

withdrawing Client Plan interest on the 

settlement amount calculated at the 

prevailing Federal funds rate plus two 

percent (2%) for the period from the day 

Principal receives from the Second 

Fiduciary, acting on behalf of such 

withdrawing Client Plan, a Termination 

Form or receives some other written 

notification of intent to terminate the 

investment of such Client Plan in such 

Collective Fund, to the date Principal 

pays such settlement amount in cash, 

with interest thereon, to such 

withdrawing Client Plan; 

(C) From the date a Second Fiduciary, 

acting on behalf of a Client Plan that 

invests in a Collective Fund, returns a 

Termination Form or returns some other 

written notification of intent to 

terminate such Client Plan’s investment 

in such Collective Fund, such Client 

Plan will not be subject to pay a pro rata 

share of any Collective Fund-Level 

Management Fee, nor will such Client 

Plan be subject to any other changes to 

the portfolio of such Collective Fund, 

including a pro rata share of any 

Affiliated Fund-Level Advisory Fee 

arising from the investment by such 

Collective Fund in an Affiliated Fund. 

(k)(1) Principal, at least thirty (30) 

days in advance of the implementation 

of each fee increase (Fee Increase(s)), as 

defined, below, in Section IV(l), must 

provide, in writing via first class mail or 

via personal delivery (or if the Second 

Fiduciary consents to such means of 

delivery, through electronic email, in 


srobinson on DSK4SPTVN1PROD with NOTICES2
77602 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

accordance with Section II(q), as set 

forth, below), a notice of change in fees 

(the Notice of Change in Fees) (which 

may take the form of a proxy statement, 

letter, or similar communication which 

is separate from the summary 

prospectus of such Affiliated Fund) and 

which explains the nature and the 

amount of such Fee Increase to the 

Second Fiduciary of each affected Client 

Plan. Such Notice of Change in Fees 

shall be accompanied by a Termination 

Form and by instructions on the use of 

such Termination Form, as described, 

above, in Section II(j)(3); 

(2) For each Client Plan affected by a 

Fee Increase, Principal may implement 

such Fee Increase without waiting for 

the expiration of the 30-day period, 

described, above, in Section II(k)(1), 

provided Principal does not begin 

implementation of such Fee Increase 

before the first day of the 30-day period, 

described, above in Section II(k)(1), and 

provided further that the following 

conditions are satisfied: 

(i) Principal delivers, in the manner 

described in Section II(k)(1), to the 

Second Fiduciary for each affected 

Client Plan, the Notice of Change of 

Fees, as described in Section II(k)(1), 

accompanied by the Termination Form 

and by instructions on the use of such 

Termination Form, as described, above, 

in Section II(j)(3); 

(ii) Each affected Client Plan receives 

from Principal a credit in cash equal to 

each such Client Plan’s pro rata share of 

such Fee Increase to be received by 

Principal for the period from the date of 

the implementation of such Fee Increase 

to the earlier of: 

(A) The date when an affected Client 

Plan, pursuant to Section II(j), 

terminates any authorization, as 

described, above, in Section II(i), or, 

terminates any negative consent 

authorization, as described, in Section 

II(k) or in Section II(l); or 

(B) The 30th day after the day that 

Principal delivers to the Second 

Fiduciary of each affected Client Plan 

the Notice of Change of Fees, described 

in Section II(k)(1), accompanied by the 

Termination Form and by the 

instructions on the use of such 

Termination Form, as described, above, 

in Section II(j)(3). 

(iii) Principal pays to each affected 

Client Plan the cash credit, described, 

above, in Section II(k)(2)(ii), with 

interest thereon, no later than five (5) 

business days following the earlier of: 

(A) the date such affected Client Plan, 

pursuant to Section II(j), terminates any 

authorization, as described, above, in 

Section II(i), or terminates, any negative 

consent authorization, as described, in 

Section II(k) or in Section II(l); or 

(B) the 30th day after the day that 

Principal delivers to the Second 

Fiduciary of each affected Client Plan, 

the Notice of Change of Fees, described 

in Section II(k)(1), accompanied by the 

Termination Form and instructions on 

the use of such Termination Form, as 

described, above, in Section II(j)(3); 

(iv) Interest on the credit in cash is 

calculated at the prevailing Federal 

funds rate plus two percent (2%) for the 

period from the day Principal first 

implements the Fee Increase to the date 

Principal pays such credit in cash, with 

interest thereon, to each affected Client 

Plan; 

(v) An independent accounting firm 

(the Auditor) at least annually audits the 

payments made by Principal to each 

affected Client Plan, audits the amount 

of each cash credit, plus the interest 

thereon, paid to each affected Client 

Plan, and verifies that each affected 

Client Plan received the correct amount 

of cash credit and the correct amount of 

interest thereon; 

(vi) Such Auditor issues an audit 

report of its findings no later than six (6) 

months after the period to which such 

audit report relates, and provides a copy 

of such audit report to the Second 

Fiduciary of each affected Client Plan; 

and 

(3) Within 30 days from the date 

Principal sends to the Second Fiduciary 

of each affected Client Plan, the Notice 

of Change of Fees and the Termination 

Form, the failure by such Second 

Fiduciary to return such Termination 

Form and the failure by such Second 

Fiduciary to provide some other written 

notification of the Client Plan’s intent to 

terminate the authorization, described 

in Section II(i), or to terminate the 

negative consent authorization, as 

described, in Section II(k) or in Section 

II(l), will be deemed to be an approval 

by such Second Fiduciary of such Fee 

Increase. 

(l) Effective on the date the final 

exemption is granted, in the case of a 

Client Plan which has received the 

disclosures, as set forth, above, in 

Section II(h)(2)(i), II(h)(2)(ii)(A), 

II(h)(2)(ii)(B), II(h)(2)(ii)(C), II(h)(2)(iii), 

II(h)(2)(iv), II(h)(2)(v), and II(h)(2)(vi), 

and has authorized the investment by a 

Client Plan in a Collective Fund, in 

accordance with Section II(i)(1)(ii), 

above; and, as applicable, effective on 

the date the final exemption is granted, 

in the case of a Client Plan which has 

received the disclosures, as set forth, 

above, in Section II(h)(3)(i), II(h)(3)(ii), 

and II(h)(3)(iii), and has authorized the 

investment by a Client Plan in a 

Collective Fund, in accordance with 

Section II(i)(1)(iii), above, then, the 

authorization, pursuant to negative 

consent, in accordance with this Section 

II(l), applies to: 

(1) the proposed purchase, as an 

addition to the portfolio of such 

Collective Fund, of shares of an 

Affiliated Fund (a New Affiliated Fund) 

where such New Affiliated Fund has not 

been previously authorized, pursuant to 

Section II(i)(1)(ii) or, as applicable, 

Section II(i)(1)(iii), above, and such 

Collective Fund may commence 

investing in such New Affiliated Fund 

without further written authorization 

from the Second Fiduciary of each 

Client Plan invested in such Collective 

Fund provided that: 

(i) The organizational documents of 

such Collective Fund expressly provide 

for the addition of one or more 

Affiliated Funds to the portfolio of such 

Collective Fund, and such documents 

were disclosed in writing via first class 

mail or via personal delivery (or, if the 

Second Fiduciary consents to such 

means of delivery, through electronic 

email, in accordance with Section II(q), 

as set forth, below) to the Second 

Fiduciary of each such Client Plan 

invested in such Collective Fund, in 

advance of any investment by such 

Client Plan in such Collective Fund; 

(ii) At least thirty (30) days in advance 

of the purchase by a Client Plan of 

shares of such New Affiliated Fund 

indirectly through a Collective Fund, 

Principal provides, either in writing via 

first class or via personal delivery (or if 

the Second Fiduciary consents to such 

means of delivery, through electronic 

email, in accordance with Section II(q), 

as set forth, below), to the Second 

Fiduciary of each Client Plan having an 

interest in such Collective Fund, full 

and detailed disclosures about such 

New Affiliated Fund, including but not 

limited to: 

(A) A notice of Principal’s intent to 

add a New Affiliated Fund to the 

portfolio of such Collective Fund. Such 

notice may take the form of a proxy 

statement, letter, or similar 

communication that is separate from the 

summary prospectus of such New 

Affiliated Fund to the Second Fiduciary 

of each affected Client Plan; 

(B) Such notice of Principal’s intent to 

add a New Affiliated Fund to the 

portfolio of such Collective Fund shall 

be accompanied by the information, as 

described, above, in Section II(h)(2)(i), 

II(h)(2)(ii)(A), II(h)(2)(ii)(B), 

II(h)(2)(ii)(C), II(h)(2)(iii), II(h)(2)(iv), 

and II(2)(v) with respect to each such 

New Affiliated Fund proposed to be 

added to the portfolio of such Collective 

Fund; and 

(C) A Termination Form, and 

instructions on the use of such 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77603 

Termination Form, as described, above, 

in Section II(j)(3); and 

(2) Within 30 days from the date 

Principal sends to the Second Fiduciary 

of each affected Client Plan, the 

information described, above, in Section 

II(l)(1)(ii), the failure by such Second 

Fiduciary to return the Termination 

Form or to provide some other written 

notification of the Client Plan’s intent to 

terminate the authorization, described 

in Section II(i)(1)(ii), or, as appropriate, 

to terminate the authorization, 

described in Section II(i)(1)(iii), or to 

terminate any authorization, pursuant to 

negative consent, as described, in this 

Section II(l), will be deemed to be an 

approval by such Second Fiduciary of 

the addition of a New Affiliated Fund to 

the portfolio of such Collective Fund in 

which such Client Plan invests, and will 

result in the continuation of the 

authorization of Principal to engage in 

the transactions which are the subject of 

this proposed exemption with respect to 

such New Affiliated Fund. 

(m) Principal is subject to the 

requirement to provide within a 

reasonable period of time any 

reasonably available information 

regarding the covered transactions that 

the Second Fiduciary of such Client 

Plan requests Principal to provide. 

(n) All dealings between a Client Plan 

and an Affiliated Fund, including all 

such dealings when such Client Plan is 

invested directly in shares of such 

Affiliated Fund and when such Client 

Plan is invested indirectly in such 

shares of such Affiliated Fund through 

a Collective Fund, are on a basis no less 

favorable to such Client Plan, than 

dealings between such Affiliated Fund 

and other shareholders of the same class 

of shares in such Affiliated Fund. 

(o) In the event a Client Plan invests 

directly in shares of an Affiliated Fund, 

and, as applicable, in the event a Client 

Plan invests indirectly in shares of an 

Affiliated Fund through a Collective 

Fund, if such Affiliated Fund places 

brokerage transactions with Principal, 

Principal will provide to the Second 

Fiduciary of each such Client Plan, so 

invested, at least annually a statement 

specifying: 

(1) The total, expressed in dollars of 

brokerage commissions that are paid to 

Principal by each such Affiliated Fund; 

(2) The total, expressed in dollars, of 

brokerage commissions that are paid by 

each such Affiliated Fund to brokerage 

firms unrelated to Principal; 

(3) The average brokerage 

commissions per share, expressed as 

cents per share, paid to Principal by 

each such Affiliated Fund; and 

(4) The average brokerage 

commissions per share, expressed as 

cents per share, paid by each such 

Affiliated Fund to brokerage firms 

unrelated to Principal. 

(p)(1) Principal provides to the 

Second Fiduciary of each Client Plan 

invested directly in shares of an 

Affiliated Fund, with the disclosures, as 

set forth, below, and at the times set 

forth below, in Section II(p)(1)(i), 

II(p)(1)(ii), II(p)(1)(iii), II(p)(1)(iv), and 

II(p)(1)(v), either in writing via first 

class mail or via personal delivery (or if 

the Second Fiduciary consents to such 

means of delivery, through electronic 

email, in accordance with Section II(q), 

as set forth, below); 

(i) Annually, with a copy of the 

current summary prospectus for each 

Affiliated Fund in which such Client 

Plan invests directly in shares of such 

Affiliated Fund; 

(ii) Upon the request of such Second 

Fiduciary, a copy of the statement of 

additional information for each 

Affiliated Fund in which such Client 

Plan invests directly in shares of such 

Affiliated Fund which contains a 

description of all fees paid by such 

Affiliated Fund to Principal; 

(iii) With regard to any Fee Increase 

received by Principal, pursuant to 

Section II(k)(2), above, a copy of the 

audit report referred to in Section 

II(k)(2)(v), above, within sixty (60) days 

of the completion of such audit report; 

(iv) Oral or written responses to the 

inquiries posed by the Second Fiduciary 

of such Client Plan, as such inquiries 

arise; and 

(v) Annually, with a Termination 

form, as described in Section II(j)(1), 

and instructions on the use of such 

form, as described in Section II(j)(3), 

except that if a Termination Form has 

been provided to such Second 

Fiduciary, pursuant to Section II(k) or 

pursuant to Section II(l), above, then a 

Termination Form need not be provided 

again, pursuant to this Section 

II(p)(1)(v), until at least six (6) months 

but no more than twelve (12) months 

have elapsed, since a Termination Form 

was provided. 

(2) Principal provides to the Second 

Fiduciary of each Client Plan invested 

in a Collective Fund, with the 

disclosures, as set forth, below, and at 

the times set forth below, in Section 

II(p)(2)(i), II(p)(2)(ii), II(p)(2)(iii), 

II(p)(2)(iv), II(p)(2)(v), II(p)(2)(vi), 

II(p)(2)(vii), and II(p)(2)(viii), either in 

writing via first class mail or via 

personal delivery (or if the Second 

Fiduciary consents to such means of 

delivery, through electronic email, in 

accordance with Section II(q), as set 

forth, below); 

(i) Annually, with a copy of the 

current summary prospectus for each 

Affiliated Fund in which such Client 

Plan invests indirectly in shares of such 

Affiliated Fund thorough each such 

Collective Fund; 

(ii) Upon the request of such Second 

Fiduciary, a copy of the statement of 

additional information for each 

Affiliated Fund in which such Client 

Plan invests indirectly in shares of such 

Affiliated Fund thorough each such 

Collective Fund which contains a 

description of all fees paid by such 

Affiliated Fund to Principal; 

(iii) Annually, with a statement of the 

Collective Fund-Level Management Fee 

for investment management, investment 

advisory or similar services paid to 

Principal by each such Collective Fund, 

regardless of whether such Client Plan 

invests in shares of an Affiliated Fund 

through such Collective Fund; 

(iv) A copy of the annual financial 

statement of each such Collective Fund 

in which such Client Plan invests, 

regardless of whether such Client Plan 

invests in shares of an Affiliated Fund 

through such Collective Fund, within 

sixty (60) days of the completion of such 

financial statement; 

(v) With regard to any Fee Increase 

received by Principal, pursuant to 

Section II(k)(2), above, a copy of the 

audit report referred to in Section 

II(k)(2)(v), above, within sixty (60) days 

of the completion of such audit report; 

(vi) Oral or written responses to the 

inquiries posed by the Second Fiduciary 

of such Client Plan, as such inquiries 

arise; 

(vii) For each Client Plan invested 

indirectly in shares of an Affiliated 

Fund through a Collective Fund, a 

statement of the approximate percentage 

(which may be in the form of a range) 

on an annual basis of the assets of such 

Collective Fund that was invested in 

Affiliated Funds during the applicable 

year; and 

(viii) Annually, with a Termination 

form, as described in Section II(j)(1), 

and instructions on the use of such 

form, as described in Section II(j)(3), 

except that if a Termination Form has 

been provided to such Second 

Fiduciary, pursuant to Section II(k) or 

pursuant to Section II(l), above, then a 

Termination Form need not be provided 

again, pursuant to this Section 

II(p)(2)(viii), until at least six (6) months 

but no more than twelve (12) months 

have elapsed, since a Termination Form 

was provided. 

(q) Any disclosure required, herein, to 

be made by Principal to a Second 

Fiduciary may be delivered by 

electronic email containing direct 

hyperlinks to the location of each such 

document required to be disclosed, 


srobinson on DSK4SPTVN1PROD with NOTICES2
77604 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

which are maintained on a Web site by 

Principal, provided: 

(1) Principal obtains from such 

Second Fiduciary prior consent in 

writing to the receipt by such Second 

Fiduciary of such disclosure via 

electronic email; 

(2) Such Second Fiduciary has 

provided to Principal a valid email 

address; and 

(3) The delivery of such electronic 

email to such Second Fiduciary is 

provided by Principal in a manner 

consistent with the relevant provisions 

of the Department’s regulations at 29 

CFR 2520.104b–1(c) (substituting the 

word, ‘‘Principal,’’ for the word, 

‘‘administrator,’’ as set forth therein, 

and substituting the phrase, ‘‘Second 

Fiduciary,’’ for the phrase, ‘‘the 

participant, beneficiary or other 

individual,’’ as set forth therein). 

Section III—General Conditions 

(a) Principal maintains for a period of 

six (6) years the records necessary to 

enable the persons described, below, in 

Section III(b) to determine whether the 

conditions of this proposed exemption 

have been met, except that: 

(1) A prohibited transaction will not 

be considered to have occurred, if solely 

because of circumstances beyond the 

control of Principal, the records are lost 

or destroyed prior to the end of the sixyear period; and 

(2) No party in interest other than 

Principal shall be subject to the civil 

penalty that may be assessed under 

section 502(i) of the Act or to the taxes 

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

the Code, if the records are not 

maintained or are not available for 

examination as required by Section 

III(b); below. 

(b)(1) Except as provided in Section 

III(b)(2) and notwithstanding any 

provisions of section 504(a)(2) of the 

Act, the records referred to in Section 

III(a) are unconditionally available at 

their customary location for 

examination during normal business 

hours by— 

(i) Any duly authorized employee or 

representative of the Department or the 

Internal Revenue Service, or the 

Securities & Exchange Commission; 

(ii) Any fiduciary of a Client Plan 

invested directly in shares of an 

Affiliated Fund, any fiduciary of a 

Client Plan who has the authority to 

acquire or to dispose of the interest in 

a Collective Fund in which a Client Plan 

invests, any fiduciary of a Client Plan 

invested indirectly in an Affiliated Fund 

through a Collective Fund where such 

fiduciary has the authority to acquire or 

to dispose of the interest in such 

Collective Fund, and any duly 

authorized employee or representative 

of such fiduciary; and 

(iii) Any participant or beneficiary of 

a Client Plan invested directly in shares 

of an Affiliated Fund or invested in a 

Collective Fund, and any participant or 

beneficiary of a Client Plan invested 

indirectly in shares of an Affiliated 

Fund through a Collective Fund, and 

any representative of such participant or 

beneficiary; and 

(2) None of the persons described in 

Section III(b)(1)(ii) and (iii) shall be 

authorized to examine trade secrets of 

Principal, or commercial or financial 

information which is privileged or 

confidential. 

Section IV—Definitions 

For purposes of this proposed 

exemption: 

(a) The term, ‘‘Principal,’’ means 

Principal Trust, Principal Life, and any 

affiliate thereof, as defined, below, in 

Section IV(c). 

(b) The term, ‘‘Client Plan(s),’’ means 

a 401(k) plan(s), an individual 

retirement account(s), other taxqualified plan(s), and other plan(s) as 

defined in the Act and Code, but does 

not include any employee benefit plan 

sponsored or maintained by Principal, 

as defined, above, in Section IV(a). 

(c) An ‘‘affiliate’’ of a person includes: 

(1) Any person directly or indirectly, 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with the person; 

(2) Any officer, director, employee, 

relative, or partner in any such person; 

and 

(3) Any corporation or partnership of 

which such person is an officer, 

director, partner, or employee. 

(d) The term, ‘‘control,’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

(e) The term, ‘‘Affiliated Fund(s),’’ 

means Principal Funds, Inc., a series of 

mutual funds managed by Principal 

Management Corporation (PMC), an 

affiliate of Principal, as defined, above 

in Section IV(c), and any other 

diversified open-end investment 

company or companies registered with 

the Securities and Exchange 

Commission under the Investment 

Company Act and operated in 

accordance with Rule 2a–7 under the 

Investment Company Act, as amended, 

established and maintained by Principal 

now or in the future for which Principal 

serves as an investment adviser. 

(f) The term, ‘‘net asset value per 

share,’’ and the term, ‘‘NAV,’’ means the 

amount for purposes of pricing all 

purchases and sales of shares of an 

Affiliated Fund, calculated by dividing 

the value of all securities, determined 

by a method as set forth in the summary 

prospectus for such Affiliated Fund and 

in the statement of additional 

information, and other assets belonging 

to such Affiliated Fund or portfolio of 

such Affiliated Fund, less the liabilities 

charged to each such portfolio or each 

such Affiliated Fund, by the number of 

outstanding shares. 

(g) The term, ‘‘relative,’’ means a 

relative as that term is defined in 

section 3(15) of the Act (or a member of 

the family as that term is defined in 

section 4975(e)(6) of the Code), or a 

brother, a sister, or a spouse of a brother 

or a sister. 

(h) The term, ‘‘Second Fiduciary,’’ 

means the fiduciary of a Client Plan 

who is independent of and unrelated to 

Principal. For purposes of this proposed 

exemption, the Second Fiduciary will 

not be deemed to be independent of and 

unrelated to Principal if: 

(1) Such Second Fiduciary, directly or 

indirectly, through one or more 

intermediaries, controls, is controlled 

by, or is under common control with 

Principal; 

(2) Such Second Fiduciary, or any 

officer, director, partner, employee, or 

relative of such Second Fiduciary, is an 

officer, director, partner, or employee of 

Principal (or is a relative of such 

person); or 

(3) Such Second Fiduciary, directly or 

indirectly, receives any compensation or 

other consideration for his or her 

personal account in connection with 

any transaction described in this 

proposed exemption. 

If an officer, director, partner, or 

employee of Principal (or relative of 

such person) is a director of such 

Second Fiduciary, and if he or she 

abstains from participation in: 

(i) The decision of a Client Plan to 

invest in and to remain invested in 

shares of an Affiliated Fund directly, the 

decision of a Client Plan to invest in 

shares of an Affiliated Fund indirectly 

through a Collective Fund, and the 

decision of a Client Plan to invest in a 

Collective Fund that may in the future 

invest in shares of an Affiliated Fund; 

(ii) Any authorization in accordance 

with Section II(i), and any 

authorization, pursuant to negative 

consent, as described in Section II(k) or 

in Section II(l); and 

(iii) The choice of such Client Plan’s 

investment adviser; then Section 

IV(h)(2), above, shall not apply. 

(i) The term, ‘‘Secondary Service(s),’’ 

means a service or services other than 

an investment management service, 

investment advisory service, and any 

similar service which is provided by 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77605 

10 51 FR 41262 (November 13, 1986). 

11For the receipt by Principal from a Client Plan 

of a fee for Asset Allocation Services provided by 

Principal to such Client Plan at the plan-level, 

Principal relies on the relief provided by the 

statutory exemption, as set forth in section 408(b)(2) 

of the Act and the Department’s regulations, 

pursuant to 29 CFR 2550.408b–2. The Department 

is offering no view, herein, as to whether the receipt 

by Principal of such an asset allocation fee is 

covered by such statutory exemption, nor is the 

Department, herein, offering any view as to whether 

Principal satisfies the conditions set forth in such 

statutory exemption. 

Principal to an Affiliated Fund, 

including but not limited to custodial, 

accounting, administrative services, and 

brokerage services. Principal may also 

serve as a dividend disbursing agent, 

shareholder servicing agent, transfer 

agent, fund accountant, or provider of 

some other Secondary Service, as 

defined, in this Section IV(i). 

(j) The term, ‘‘Collective Fund(s),’’ 

means a separate account of an 

insurance company, as defined in 

section 2510.3–101(h)(1)(iii) of the 

Department’s plan assets regulations,10

maintained by Principal, and a bankmaintained common or collective 

investment trust maintained by 

Principal. 

(k) The term, ‘‘business day,’’ means 

any day that 

(1) Principal is open for conducting 

all or substantially all of its business; 

and 

(2) The New York Stock Exchange (or 

any successor exchange is open for 

trading. 

(l) The term, ‘‘Fee Increase(s),’’ 

includes any increase by Principal in a 

rate of a fee, previously authorized in 

writing by the Second Fiduciary of each 

affected Client Plan, pursuant to Section 

II(i)(2)(i)–(iv), above, and in addition 

includes, but is not limited to: 

(1) Any increase in any fee that results 

from the addition of a service for which 

a fee is charged; 

(2) any increase in any fee that results 

from a decrease in the number of 

services and any increase in any fee that 

results from a decrease in the kind of 

service(s) performed by Principal for 

such fee over an existing rate of fee for 

each such service previously authorized 

by the Second Fiduciary, in accordance 

with Section II(i)(2)(i)–(iv), above; and 

(3) any increase in any fee that results 

from Principal changing from one of the 

fee methods, as described, above, in 

Section II(a)(1)–(3), to using another of 

the fee methods, as described, above, in 

Section II(a)(1)–(3). 

(m) The term, ‘‘Plan-Level 

Management Fee,’’ includes any 

investment management fee, investment 

advisory fee, and any similar fee paid by 

a Client Plan to Principal for any 

investment management services, 

investment advisory services, and 

similar services provided by Principal to 

such Client Plan at the plan-level. The 

term, ‘‘Plan-Level Management Fee’’ 

does not include a separate fee paid by 

a Client Plan to Principal for asset 

allocation service(s) (Asset Allocation 

Service(s)), as defined, below, in Section 

IV(p), provided by Principal to such 

Client Plan at the plan-level.11

(n) The term, ‘‘Collective Fund-Level 

Management Fee,’’ includes any 

investment management fee, investment 

advisory fee, and any similar fee paid by 

a Collective Fund to Principal for any 

investment management services, 

investment advisory services, and any 

similar services provided by Principal to 

such Collective Fund at the collective 

fund level. 

(o) The term, ‘‘Affiliated Fund-Level 

Advisory Fee’’ includes any investment 

advisory fee and any similar fee paid by 

an Affiliated Fund to Principal under 

the terms of an investment advisory 

agreement adopted in accordance with 

section 15 of the Investment Company 

Act. 

(p) The term, ‘‘Asset Allocation 

Service(s),’’ means a service or services 

to a Client Plan relating to the selection 

of appropriate asset classes or targetdate ‘‘glidepath,’’ the selection of 

specific Collective Funds, and the 

selection of specific Affiliated Funds 

(subject to the required consent of the 

Second Fiduciary) to ‘‘populate’’ the 

selected asset classes (including 

rebalancing), and the allocation of the 

assets of a Client Plan among the 

selected funds. Such services do not 

include the management of the 

underlying assets of a Client Plan, or the 

selected Affiliated Funds or Collective 

Funds. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of the publication of the final exemption 

in the Federal Register. 

Summary of Facts and Representations 

1. Principal Life was originally 

established in 1879. Principal’s 

Affiliates have been founded or 

acquired from time to time thereafter. 

Principal offers a variety of financial 

products and services to businesses, 

individuals, and institutional clients. 

Principal has approximately $236.6 

billion in assets under management and 

serves 18.8 million customers 

worldwide from offices in twelve (12) 

countries. 

2. The Principal Financial Group is a 

trade name/registered trademark under 

which various Principal affiliated 

companies operate. Affiliated 

companies include Principal Financial 

Group, Inc., a public (holding) company 

(NYSE: PFG); numerous direct or 

indirect subsidiaries including Principal 

Life, Delaware Charter Guarantee & 

Trust Company d\b\a Principal Trust 

Company; PMC, Princor Financial 

Services Corporation, Principal 

Financial Services, Inc., Principal 

Global Investors, LLC, and many other 

affiliated entities. 

3. It is represented that certain 

Affiliates within Principal make 

investments available, either directly or 

indirectly through Collective Funds to 

Client Plans. Principal has requested 

that the proposed exemption apply to 

any Client Plan for which Principal 

serves as investment fiduciary and for 

which Principal causes such Client Plan 

to invest in shares of Affiliated Funds, 

either directly or indirectly through a 

Collective Fund. It is represented that 

Principal places no limits on the 

minimum or maximum portion of the 

total assets of each Client Plan that may 

be invested directly in shares of an 

Affiliated Fund or invested indirectly in 

an Affiliated Fund through a Collective 

Fund. 

4. Section 406(a)(1)(D) of the Act 

prohibits a fiduciary with respect to a 

plan from causing such plan to engage 

in a transaction, if he knows or should 

know, that such transaction constitutes 

a transfer to, or use by or for the benefit 

of, a party in interest, of any assets of 

such plan. 

Sections 3(14)(A) and (B) of the Act 

define the term, ‘‘party in interest,’’ to 

include, respectively, any fiduciary of a 

plan and any person providing services 

to a plan. Under section 3(21)(A)(i) of 

the Act, a person is a fiduciary with 

respect to a plan to the extent such 

person exercises authority or control 

with respect to the management or 

disposition of the assets of a plan. 

Under section 3(21)(A)(ii) a person is a 

fiduciary with respect to a plan to the 

extent such person renders investment 

advice for a fee or other compensation, 

direct or indirect, with respect to any 

moneys or other property of a plan or 

has any authority or responsibility to do 

so. 

Under section 406(b) of the Act, a 

fiduciary with respect to a plan may not: 

(1) Deal with the assets of a plan in his 

own interest or for his own account, 

(2) in his individual or in any other 

capacity act in any transaction involving 

a plan on behalf of a party (or represent 

a party) whose interests are adverse to 

the interests of such plan or the interests 

of its participants or beneficiaries, or 

(3) receive any consideration for his 


srobinson on DSK4SPTVN1PROD with NOTICES2
77606 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

12The Department, herein, is expressing no 

opinion in this proposed exemption regarding the 

reliance of the Applicants on the relief provided by 

PTE 77–4, nor is the Department offering any view 

as to whether the Applicants satisfy the conditions, 

as set forth in PTE 77–4. 

own personal account from any party 

dealing with a plan in connection with 

a transaction involving the assets of 

such plan. 

Principal entities may currently serve, 

and may in the future serve, as 

investment advisors, investment 

managers, trustees, or other fiduciaries 

with respect to Client Plans. 

Accordingly, the Applicants and various 

other Principal affiliates may currently 

be, or may in the future be, parties in 

interest with respect to a Client Plan 

which engage in the proposed 

transactions. In this regard, where 

Principal now or in the future is a 

fiduciary with respect to a Client Plan, 

the investment of the assets of such 

Client Plan in a Collective Fund and/or 

in an Affiliated Fund advised by 

Principal may raise issues under 

sections 406(a)(1)(D), 406(b)(1), 

406(b)(2), and 406(b)(3) of the Act, and 

the corresponding provisions of the 

Code, unless an exemption is available. 

5. Principal’s collective investment 

vehicles currently include various 

pooled separate accounts. In this regard, 

Principal Life manages several 

insurance company separate accounts 

(the Separate Accounts). Principal Life 

is a fiduciary with respect to any 

Separate Accounts that hold plan assets. 

It is represented that none of the 

Separate Accounts currently invests in 

any Affiliated Fund in a manner that 

requires exemptive relief, hereunder. 

However, it is represented that existing 

Separate Accounts or Separate Accounts 

to be established in the future may do 

so. Accordingly, the Applicants request 

that the proposed exemption apply, as 

of the effective date of this proposed 

exemption, to Separate Accounts that 

hold ‘‘plan assets’’ of investor Client 

Plans. 

6. Principal’s collective investment 

vehicles also currently include various 

bank-maintained collective investment 

trusts. Any or all of Principal’s 

collective investment vehicles may rely 

upon one or more statutory or class 

exemptions in connection with their 

activities. Principal represents that the 

proposed exemption, if granted, will 

apply to Collective Funds, as defined, 

above, in Section IV(j). 

7. It is represented that in 2009, 

Principal Trust established certain target 

date collective funds (the Target Date 

Funds). The Target Date Funds are used 

as investment options in participantdirected Client Plans. The Target Date 

Funds are deemed to hold ‘‘plan assets’’ 

of such investing Client Plans. It is 

represented that although a Second 

Fiduciary, as defined, above, in Section 

IV(h), will select the Target Date Funds 

as designated investment options, the 

actual decision to invest in any Target 

Date Funds is made by individual plan 

participants, unless such fund is 

selected by a Second Fiduciary as a 

qualified default investment option. 

The Target Date Funds are bankmaintained collective investment trusts. 

The Target Date Funds are currently 

comprised of eleven (11) portfolios. 

Principal Trust acts as trustee and 

investment manager for the Target Date 

Funds. As such, Principal Trust has 

discretion over the investment of the 

assets of the Target Date Funds. 

Principal Trust manages the portfolios 

of the Target Date Funds in accordance 

with its own investment objectives and 

strategies. In this regard, Principal Trust 

invests the assets of such Target Date 

Funds in Affiliated Funds and other 

investments including other Collective 

Funds. Principal Trust selects the 

underlying investments and allocates 

the assets of each of the Target Date 

Funds among the underlying 

investments based on the time horizon 

of each such Target Date Fund and the 

expected risk tolerance of those 

investors who have chosen that time 

horizon. It is represented that the 

underlying investments include 

investment in Principal Funds Inc., a 

series of Affiliated Funds managed by 

PMC, or may include other Affiliated 

Funds to be formed in the future. It is 

represented that the Target Date Funds 

are the only Principal Collective Funds 

currently invested in Affiliated Funds. 

8. The Affiliated Funds are a series of 

mutual funds managed by PMC, an 

affiliate of Principal, and may include 

other Affiliated Funds to be established 

in the future by Principal. The Affiliated 

Funds are open-end investment 

companies registered with the Securities 

and Exchange Commission under the 

Investment Company Act, as amended 

and operated in accordance with Rule 

2a–7 under the Investment Company 

Act. PMC or Principal serves as an 

investment adviser with respect to the 

Affiliated Funds. Principal may also 

serve as custodian, dividend disbursing 

agent, shareholder servicing agent, 

transfer agent, fund accountant, or 

provider of some other Secondary 

Services, including brokerage services, 

to an Affiliated Fund. 

Prohibited Transaction Exemption 77–4 

(PTE 77–4) 

9. It is represented that all of the 

Principal entities to which the proposed 

exemption, if granted, would apply are 

currently part of the same controlled 

group. In this regard, the Applicants 

maintain that such Principal entities can 

rely on the relief provided pursuant to 

PTE 77–4.12

PTE 77–4 provides an exemption from 

section 406 of the Act and section 4975 

of the Code for the purchase and for the 

sale by a plan of shares of a registered, 

open-ended investment company where 

the investment adviser of such fund: (1) 

Is a plan fiduciary or affiliated with a 

plan fiduciary; and (2) is not an 

employer of employees covered by the 

plan. The conditions of PTE 77–4 

prohibit the payment of commissions by 

a plan, limit the payment of redemption 

fees by such plan, require prior 

disclosures (e.g., fee information and a 

current prospectus) to a second 

fiduciary and written authorization from 

such second fiduciary who is generally 

the sponsor or other named fiduciary or 

trustee of such plan, and prohibit the 

payment of double investment advisory 

fees and similar fees with respect to 

plan assets invested in such shares for 

the entire period of such investment. In 

addition, PTE 77–4 requires advance 

written approval from a second 

fiduciary for any changes in the fund fee 

rates. 

10. The Applicants represent that the 

requested relief is essentially the same 

as that afforded by PTE 77–4, except for 

the use of a ‘‘negative consent’’ 

procedure, as discussed in the 

paragraphs, below, for: 

(1) Approving Fee Increases received 

by Principal, and 

(2) approving in advance the addition 

of Affiliated Funds (not previously 

authorized) as investments ‘‘inside’’ a 

Principal Collective Fund, subject to 

notice and a right to terminate the 

original approval at the time a new 

Affiliated Fund is proposed to be added. 

Principal maintains that obtaining 

advance written approval from a Second 

Fiduciary can be difficult, particularly 

in the case of a Collective Fund, such as 

a Target Date Fund, where a Second 

Fiduciary from every investing Client 

Plan must provide written approval 

before fees payable to Principal by an 

Affiliated Fund in which such Client 

Plans invest indirectly via a Collective 

Fund can be increased, or before a new 

investment in an Affiliated Fund that 

was not previously authorized can be 

made. If advance written approval is not 

obtained from the Second Fiduciary of 

each affected Client Plan, then PTE 77– 

4 may not apply and Principal may 

violate the restrictions of section 406(a) 

and 406(b) of the Act. 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77607 

Negative Consent for Fee Increases 

11. In order to avoid the 

administrative burden of obtaining 

advance written approval from a Second 

Fiduciary of each affected Client Plan, 

the Applicants request an individual 

administrative exemption which would 

allow for a negative consent procedure 

for obtaining the approval from a 

Second Fiduciary for Fee Increases 

payable to Principal. Fee Increases are 

defined in Section IV(l) and include: (1) 

Any increase in the rate of a fee 

previously authorized in writing by the 

Second Fiduciary of an affected Client 

Plan, (2) any increase in any fee that 

results from an addition of services for 

which a fee is charged, (3) any increase 

in any fee that results from a decrease 

in the number or kind of services 

performed for such fee over an existing 

rate for such service previously 

authorized by the Second Fiduciary, 

and (3) any increase in a fee that results 

from Principal changing from one of the 

fee methods, as described, above, in 

Section II(a)(1)–(3), to using another of 

the fee methods, as described, above, in 

Section II(a)(1)–(3). 

In order to obtain the negative consent 

authorization from the Second 

Fiduciary of each affected Client Plan 

with regard to a Fee Increase, Principal 

will have to comply with the provisions, 

set forth in Section II(k). In this regard, 

the proposed exemption would require 

Principal to provide to the Second 

Fiduciary of a Client Plan invested 

directly in shares of an Affiliated Fund 

or indirectly through a Collective Fund 

certain disclosures in writing thirty (30) 

days in advance of any proposed Fee 

Increase, including but not limited to 

any Fee Increase for Secondary Services, 

as such services are described, below. 

The disclosures are delivered by regular 

mail or personal delivery (or if the 

Second Fiduciary consents by electronic 

means), and are accompanied by a 

Termination Form and instructions on 

the use of such form. 

Notwithstanding the requirement for 

thirty (30) days advance notice of a Fee 

Increase, the proposed exemption 

would permit Principal to implement a 

Fee Increase, without waiting until the 

expiration of the 30 day period; 

provided that implementation of such 

Fee Increase does not start before 

Principal delivers to each affected Client 

Plan the Notice of Intent of Change of 

Fees, as described in Section II(k), and 

provided further that any affected Client 

Plan receives a cash credit equal to its 

pro rata share of such Fee Increase, for 

the period from the date of the 

implementation of such Fee Increase to 

the earlier of the date of the termination 

of the investment or the thirtieth (30th) 

day after the date Principal delivers the 

Notice of Change of Fee to the Second 

Fiduciary of each affected Client Plan. 

In addition, Principal must pay to each 

affected Client Plan interest on such 

cash credit. An Auditor on at least an 

annual basis will verify the proper 

crediting of the pro rata share of each 

such Fee Increase and interest. An audit 

report shall be completed by such 

Auditor no later than six (6) months 

after the period to which it relates. 

Failure of the Second Fiduciary to 

return the Termination Form or to 

provide some other written notification 

of the intent to terminate within a 

certain period of time will be deemed to 

be approval of the proposed Fee 

Increase, including but not limited to an 

increase in the fee for Secondary 

Services. 

Negative Consent for New Affiliated 

Funds 

12. Principal further requests that the 

proposed exemption permit a Principal 

Collective Fund holding the assets of a 

Client Plan, such as a Target Date Fund, 

to purchase shares of an Affiliated Fund 

not previously affirmatively authorized 

by the Second Fiduciary of such Client 

Plan; provided: (1) The organizational 

document of such Collective Fund 

expressly provides for the addition of 

one or more Affiliated Funds to the 

portfolio of such Collective Fund and 

such organizational document is 

disclosed initially to such Client Plan; 

and (2) Principal satisfies the 

requirements of the negative consent 

procedure for obtaining the approval of 

the Second Fiduciary for each Client 

Plan invested in such Collective Fund at 

the time Principal proposes to add an 

Affiliated Fund to such Collective 

Fund’s portfolio. 

Specifically, the negative consent 

procedure would entail that the Second 

Fiduciary of each Client Plan invested 

in such Collective Fund receives in 

advance: (i) A notice of Principal’s 

intent to add an Affiliated Fund to the 

portfolio of such Collective Fund; and 

(ii) certain disclosures in writing, 

including a summary prospectus of such 

Affiliated Fund. The disclosures are 

delivered by regular mail or personal 

delivery (or if the Second Fiduciary 

consents by electronic means), and are 

accompanied by a Termination Form 

and instructions on the use of such 

form. 

Failure of the Second Fiduciary to 

return the Termination Form or to 

provide some other written notification 

of the intent to terminate within a 

certain period of time will be deemed to 

be approval of the investment by such 

Collective Fund in such Affiliated Fund. 

13. Principal represents that the 

negative consent procedures, described 

in the paragraphs, above, are more 

efficient, cost effective, and 

administratively feasible than the 

advance written approval from the 

Second Fiduciary, as described in PTE 

77–4. It is represented that the negative 

consent procedure avoids the 

administrative delays that would result 

if advance written approval from the 

Second Fiduciary were required. 

It is further represented that because 

the Second Fiduciary of each Client 

Plan will receive all of the necessary 

disclosures and will have an 

opportunity to terminate the investment 

in any Affiliated Fund without penalty, 

such Client Plan and its participants 

and beneficiaries are adequately 

protected. Further, to the extent that 

Principal may find it desirable from 

time to time to create an Affiliated Fund 

with new investment goals, the negative 

consent procedure will facilitate the 

addition of an Affiliated Fund into the 

portfolios of Principal’s Collective 

Funds. 

Electronic Disclosures 

14. Principal intends to utilize 

electronic mail with hyperlinks to 

documents required to be disclosed by 

this proposed exemption. Principal 

agrees that it will ‘‘actively’’ satisfy the 

various disclosure requirements of this 

proposed exemption by transmitting 

emails, rather than relying on ‘‘passive’’ 

postings on a Web site. It is represented 

that this method of disclosure will be 

consistent with the Department’s 

regulations at 29 CFR section 

2520.104b–1. Client Plans which do not 

authorize electronic delivery will 

receive in advance hard copies of the 

documents required to be disclosed, and 

hard copies of documents will also be 

available on request. 

Termination 

15. A Client Plan invested directly in 

shares of an Affiliated Fund or invested 

indirectly through a Collective Fund 

will have an opportunity to terminate 

and withdraw from investment in such 

Affiliated Fund, and, as applicable, to 

terminate and withdraw from 

investment in such Collective Fund in 

the event of a Fee Increase and in the 

event of the addition of an Affiliated 

Fund to the portfolio of a Collective 

Fund. 

In this regard, a Second Fiduciary will 

be provided with a Termination Form at 

least annually and may terminate the 

authorization to invest directly in shares 

of an Affiliated Fund or indirectly 


srobinson on DSK4SPTVN1PROD with NOTICES2
77608 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

13 Investment management services do not 

include Asset Allocation Services, as defined, 

above, in Section IV(p). 

14The Department, herein, is not providing relief 

for the receipt by Principal of a Plan-Level 

Management Fee for investment management 

services provided at the plan-level by Principal to 

a Client Plan. 

15The Applicants have not requested and the 

Department, herein, is not providing any relief for 

the receipt by Principal at the plan-level of fees for 

providing recordkeeping and administrative 

services, custody, and other clerical and 

administrative functions to a Client Plan. 

16The Department, herein, is not providing relief 

for the receipt by Principal of fees from a Collective 

Fund for providing Collective Fund Administrative 

Services to such Collective Fund. 

17For example, a sponsor of a Client Plan can 

select a ‘‘share’’ class of a Collective Fund that is 

subject to a four (4) basis point trustee fee, or may 

elect to utilize a share class of a Collective Fund 

that pays (by way of example) fourteen (14) basis 

points, four (4) basis points of which are paid to 

Principal Trust and ten (10) basis points of which 

the sponsor of such Client Plan may direct Principal 

Trust to pay to such Client Plan’s recordkeeper or 

other service providers. 

18The Department, herein, is not providing relief 

for any other additional ‘‘services fees’’ received by 

Principal that the sponsor of a Client Plan may 

direct to be paid over to other service providers to 

such Client Plan. 

through a Collective Fund, at will, 

without penalty to a Client Plan. 

Termination of the authorization by the 

Second Fiduciary of a Client Plan 

investing directly in shares of an 

Affiliated Fund will result in such 

Client Plan withdrawing from such 

Affiliated Fund. Termination of the 

authorization by the Second Fiduciary 

of a Client Plan investing indirectly in 

shares of an Affiliated Fund through a 

Collective Fund will result in such 

Client Plan withdrawing from such 

Collective Fund. 

Generally, Principal will process 

timely requests for withdrawal from an 

Affiliated Fund within one (1) Business 

day. Withdrawal from a Collective Fund 

will generally be processed within the 

same time frame, subject to rules 

designed to ensure orderly withdrawals 

and fairness for the withdrawing Client 

Plans and non-withdrawing Client 

Plans, but in no event shall such 

withdrawal be implemented by 

Principal more than five business (5) 

days after receipt by Principal of a 

termination form or other written 

notification of intent to terminate 

investment in such Collective Fund 

from the Second Fiduciary acting on 

behalf of the withdrawing Client Plan. 

Principal will pay interest on the 

settlement amount for the period from 

receipt by Principal of a termination 

form or other written notification of 

intent to terminate from the Second 

Fiduciary, acting on behalf of the 

withdrawing Client Plan, to the date 

Principal pays the settlement amount, 

plus interest thereon. 

From the date a Client Plan terminates 

its investment in an Affiliated Fund, 

such Client Plan will not be subject to 

pay a pro rata share of the fees received 

by Principal from such Affiliated Fund. 

Likewise, from the date a Client Plan 

terminates its investment in a Collective 

Fund, such Client Plan will not be 

subject to pay a pro rata share of the 

fees received by Principal from such 

Collective Fund, nor will such Client 

Plan be subject to changes in the 

portfolio of such Collective Fund, 

including a pro rate share of any 

Affiliated Fund-Level Advisory Fee 

arising from the investment by such 

Collective Fund in an Affiliated Fund. 

Receipt of Fees Pursuant to the Fee 

Methods 

16. The exemption, if granted, 

includes conditions which detail 

various methods which ensure that 

Principal complies with the prohibition 

against a Client Plan paying double 

investment management fees, 

investment advisory, and similar fees 

for the assets of Client Plans invested 

directly in shares of an Affiliated Fund 

or invested indirectly in shares of an 

Affiliated Fund though a Collective 

Fund. These methods are described in 

Section II(a)(1)–(3) of this proposed 

exemption. 

Plan-Level Fees 

17. It is represented that currently to 

the extent that Principal provides 

discretionary investment management 

services 13 to any Client Plan that 

invests directly in shares of an Affiliated 

Fund or indirectly through a Collective 

Fund, Principal does not charge any 

investment management fee, any 

investment advisory fee, or any similar 

fee directly to such Client Plan.14 If in 

the future, Principal were to do so, this 

proposed exemption would require 

Principal to use the methods, as 

described in Section II(a) of this 

exemption, as applicable, so as to avoid 

receiving ‘‘double’’ investment 

management, investment advisory, and 

similar fees. 

Also, services provided by Principal 

for which a fee is charged involve planlevel and participant-level 

recordkeeping and administrative 

services, custody, and other clerical and 

administrative functions.15 It is 

represented that a Second Fiduciary 

typically will select Principal’s 

Collective Funds in connection with a 

decision to retain Principal as a service 

provider to such Client Plan, usually as 

part of a ‘‘bundled’’ arrangement. It is 

also possible that a Second Fiduciary of 

a Client Plan that already uses 

Principal’s products and services may 

wish to add additional Collective Funds 

to its investment line-up. 

The Collective Fund-Level Management 

Fee 

18. With regard to the Collective 

Fund-Level Management Fee, it is 

represented that the only Collective 

Funds over which Principal currently 

exercises fiduciary discretion to invest 

in Affiliated Funds are the Target Date 

Funds. Principal currently charges no 

investment advisory and no similar fees 

‘‘inside’’ the Target Date Funds. Fees 

charged by the Target Date Funds 

presently are limited to: (i) Four (4) 

basis points charged by Principal Trust 

for non-advisory, custodial and 

administrative services (Collective Fund 

Administrative Services); 16 and (ii) 

depending on the specific class of units 

selected by a sponsor of a Client Plan, 

certain additional ‘‘services fees’’ 17 that 

the plan sponsor may direct to be paid 

over to other plan service providers for 

services such as recordkeeping, custody, 

and distribution.18

However, it is represented that in the 

future, Principal may decide to charge 

investment advisory fees or may decide 

to charge similar fees ‘‘inside’’ a 

collective investment vehicle. In that 

event, Principal will utilize the 

methods, described in Section II(a)(2) 

and in Section II(a)(3), as applicable so 

as to avoid charging ‘‘double’’ 

investment advisory and similar fees. 

The Affiliated Fund-Level Advisory Fee 

19. The Affiliated Fund-Level 

Advisory Fees are described in the 

summary prospectus for an Affiliated 

Fund and include fees for investment 

advisory services and fees for similar 

services which Principal receives as 

compensation for the provision of such 

services to such Affiliated Fund. 

As noted, above, Principal currently 

waives the Plan-Level Management Fees 

and Collective Fund-Level Management 

Fees for the provision of investment 

management services, investment 

advisory services, and similar services 

and retains the fees paid to Principal by 

an Affiliated Fund with regard to a 

Client Plan that invests directly in 

shares of such Affiliated Fund or 

indirectly in shares of such Affiliated 

Fund through a Collective Fund. 

Notwithstanding this fact, it is 

represented that Principal in the future 

may cease to waive Plan-Level 

Management Fees and Collective FundLevel Management Fees. In that event, 

in order to avoid receiving double fees, 

Principal must comply with the 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77609 

conditions, as set forth in Section II(a) 

of this exemption, as applicable. 

Receipt of Fees for Secondary Services 

20. Principal also receives from an 

Affiliated Fund various fees and 

expenses for custody, transfer agency, 

and similar services, including 

brokerage services. It is represented that 

all such services are treated as 

‘‘Secondary Services.’’ The term, 

‘‘Secondary Services,’’ is defined, above, 

in Section IV(i), to mean a service other 

than an investment management 

service, an investment advisory service, 

and any similar service, which is 

provided by Principal to an Affiliated 

Fund, including but not limited to 

custodial, accounting, administrative, 

brokerage, and other services. It is 

represented that all fees for Secondary 

Services received by Principal at this 

time are paid to Principal directly by the 

Affiliated Funds. The negative consent 

procedure applicable for a Fee Increase 

for Secondary Services is discussed, 

above, in paragraph 11. 

In addition, Principal affiliates may 

receive commissions for the 

performance of brokerage services for 

the mutual funds. Under the conditions 

of this proposed exemption, if an 

Affiliated Fund places brokerage 

transactions with Principal, Principal 

will provide the Second Fiduciary of 

each such Client Plan, at least annually 

with the disclosure described in Section 

II(o) of this proposed exemption. 

21. The Applicants represent that 

proposed exemption is in the interest of 

Client Plans, because it will allow 

Principal to efficiently manage or advise 

with respect to the assets of such Client 

Plans invested in shares of an Affiliated 

Fund, either directly or indirectly 

through a Collective Fund, in a timely 

manner and on terms that might not 

otherwise be available without 

exemptive relief. 

22. It is represented that the proposed 

exemption contains sufficient 

safeguards for the protection of the 

Client Plans invested in shares of an 

Affiliated Fund either directly or 

indirectly through a Collective Fund. 

Prior to any investment by a Client Plan 

directly or indirectly in shares of an 

Affiliated Fund, such investment must 

be authorized by the Second Fiduciary 

of such Client Plan, based on full and 

detailed written disclosure concerning 

such Affiliated Fund. 

It is further represented that the 

proposed exemption is protective of the 

rights of Client Plans, because any Fee 

Increase or the addition of an Affiliated 

Fund to the portfolio of a Collective 

Fund will be on terms monitored and 

approved by the Second Fiduciary who 

will have the ability to avoid the effect 

of such Fee Increase and the effect of the 

addition of an Affiliated Fund to the 

portfolio of a Collective Fund. 

Furthermore, each investment of the 

assets of a Client Plan in shares of an 

Affiliated Fund, either directly, or 

indirectly through a Collective Fund, 

will be subject to the ongoing ability of 

the Second Fiduciary of such Client 

Plan to terminate the investment in such 

Affiliated Fund and to terminate the 

investment in such Collective Fund, 

without penalty to such Client Plan at 

any time upon written notice of 

termination to Principal. 

In addition to the initial disclosures, 

Principal provides to such Second 

Fiduciary ongoing disclosures regarding 

such Affiliated Funds. Further, 

Principal will respond to inquiries from 

a Second Fiduciary and will provide 

any other reasonably available 

information to a Second Fiduciary upon 

request. 

23. It is represented that the proposed 

exemption is administratively feasible, 

because the subject transactions will not 

require continued monitoring or other 

involvement on behalf of the 

Department or the Internal Revenue 

Service. The use of a Termination Form 

will provide both a record and a regular 

reminder to the Second Fiduciary of a 

Client Plan of such plan’s rights vis-a`- 

vis investing in Affiliated Funds, either 

directly or indirectly through a 

Collective Fund. 

24. In summary, the Applicants 

represent that the proposed transactions 

satisfy the statutory criteria for an 

exemption under section 408(a) of the 

Act for the following reasons: 

(a) The Affiliated Funds will provide 

Client Plans with effective investment 

vehicles; 

(b) The receipt by Principal of an 

Affiliated Fund-Level Advisory Fee, and 

the receipt of a fee by Principal for 

Secondary Services will require an 

authorization in writing in advance by 

a Second Fiduciary for each such Client 

Plan after receipt of full written 

disclosure; 

(c) Any authorization made by a 

Second Fiduciary, acting on behalf of a 

Client Plan will be terminable at will by 

such Second Fiduciary, without penalty 

to such Client Plan, following receipt by 

Principal of a Termination Form or any 

other written notice of termination from 

such Second Fiduciary of a Client Plan 

invested directly in shares of an 

Affiliated Fund or indirectly through a 

Collective Fund; 

(d) The Termination Form will be 

supplied to such Second Fiduciary at 

least annually; 

(e) No sales commissions will be paid 

by Client Plans in connection with the 

acquisition or in connection with the 

sale of shares of the Affiliated Funds 

either directly or through a Collective 

Fund, and only redemption fees 

disclosed in the summary prospectus of 

an Affiliated Fund will be paid by a 

Client Plan; 

(f) All dealings among a Client Plan, 

any Affiliated Fund, and Principal will 

be on a basis no less favorable to such 

Client Plan than such dealings with the 

other shareholders of such Affiliated 

Fund; 

(g) The purchase price paid and the 

sales price received by a Client Plan for 

shares in an Affiliated Fund purchased 

or sold directly, and the purchase price 

paid and the sales price received by a 

Client Plan for shares in an Affiliated 

Fund purchased or sold indirectly 

through a Collective Fund, will be the 

NAV at the time of the transaction, and 

will be the same purchase price paid 

and the same sales price received for 

such shares by any other shareholder of 

the same class of shares in such 

Affiliated Fund at that time; 

(h) A Client Plan investing in shares 

of an Affiliated Fund, either directly or 

indirectly, through a Collective Fund, 

will not pay ‘‘double fees’’ for 

investment management, investment 

advisory, and similar fees with respect 

to the assets of such Client Plan so 

invested; and 

(i) An Auditor on at least an annual 

basis will verify the proper crediting of 

any Fee Increase and interest, received 

by a Client Plan, pursuant to Section 

II(k)(2), and an audit report shall be 

completed by such Auditor no later than 

six (6) months after the period to which 

it relates. 

Notice to Interested Persons 

Those persons who may be interested 

in the publication in the Federal 

Register of the Notice include each 

Client Plan invested directly in shares of 

an Affiliated Fund, each Client Plan 

invested indirectly in shares of an 

Affiliated Fund through a Collective 

Fund, and each plan for which Principal 

provides discretionary management 

services, via the Target Date Funds or 

otherwise at the time the proposed 

exemption is published in the Federal 

Register. 

It is represented that notification will 

be provided to each of these interested 

persons by first class mail, within 

fifteen (15) calendar days of the date of 

the publication of the Notice in the 

Federal Register. Such mailing will 

contain a copy of the Notice, as it 

appears in the Federal Register on the 

date of publication, plus a copy of the 


srobinson on DSK4SPTVN1PROD with NOTICES2
77610 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

Supplemental Statement, as required, 

pursuant to 29 CFR 2570.43(b)(2), which 

will advise such interested persons of 

their right to comment and to request a 

hearing. 

The Department must receive all 

written comments and requests for a 

hearing no later than forty-five (45) days 

from the date of the publication of the 

Notice in the Federal Register. 

For further information contact: 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8540 (This is not a 

toll-free number.) 

Aztec Well Servicing Company & 

Related Companies Medical Plan Trust 

Fund (the Plan), Located in Aztec, New 

Mexico 

[Application No. D–11628] 

Proposed Exemption 

The Department of Labor (the 

Department) is considering granting an 

exemption under the authority of 

section 408(a) of the Act in accordance 

with procedures set forth in 29 CFR part 

2570, Subpart B (55 FR 32836, 32847, 

August 10, 1990). 

Section I 

If the proposed exemption is granted, 

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

(C) and (D), 406(b)(1), and 406(b)(2) of 

the Act shall not apply to the payment 

by the Plan to Basin Occupational & 

Urgent Care, LLC (BOUC), a party in 

interest with respect to the Plan, for the 

on-site provision to the Plan of urgent 

medical care and wellness services by a 

nurse-practitioner and a wellness 

coordinator employed by BOUC, 

provided that the following conditions 

are satisfied: 

(a) An independent, qualified 

fiduciary (I/F), with expertise in plans 

providing health and welfare benefits 

under the Act and the fiduciary 

obligations thereunder, acting on behalf 

of the Plan, determines prior to entering 

into the transaction that the transaction 

is feasible, in the interest of, and 

protective of the Plan and the 

participants and beneficiaries of the 

Plan; 

(b) Before the Plan enters into the 

proposed transaction, the I/F reviews 

the transaction, ensures that the terms of 

the transaction are at least as favorable 

to the Plan as an arm’s length 

transaction with an unrelated party, and 

determines whether or not to approve 

the transaction, in accordance with the 

fiduciary provisions of the Act; 

(c) The I/F monitors compliance with 

the terms and conditions of this 

proposed exemption, as described 

herein, and ensures that such terms and 

conditions are at all times satisfied; 

(d) The I/F monitors compliance with 

the terms of the written license 

agreement (the License) between the 

Plan and AWS, and takes any and all 

steps necessary to ensure that the Plan 

is protected, including, but not limited 

to, exercising its authority to terminate 

the License on 10 days’ written notice; 

and 

(e) The subject transaction is, in fact, 

on terms and at all times remains on 

terms that are at least as favorable to the 

Plan as those that would have been 

negotiated under similar circumstances 

at arm’s-length with an unrelated third 

party. 

Section II 

If the proposed exemption is granted, 

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

(C) and (D), 406(b)(1), and 406(b)(2) of 

the Act shall not apply, effective July 1, 

2010, to: (1) The payment by the Plan’s 

participants to BOUC for medical 

services provided as a result of the 

inclusion of BOUC’s clinic, located in 

Farmington, New Mexico, as a network 

provider in the BlueCross BlueShield of 

New Mexico (BCBSNM) Network of 

Health Care Providers; and (2) the 

payment by the Plan to BCBSNM of the 

difference between BOUC’s fee and the 

participant’s co-pay, which difference is 

then transmitted by BCBSNM to BOUC, 

provided that the following conditions 

are satisfied: 

(a) The terms of the medical services 

provided by BOUC to Plan participants 

are at least as favorable to the 

participants as those they could obtain 

in similar transactions with an 

unrelated party; 

(b) the Plan participants will have 

access to all of the providers in 

BCBSNM’s network and will be free to 

choose whether or not to use BOUC’s 

clinic; 

(c) at least 99% of the providers 

participating in the BCBSNM are 

unrelated to the companies whose 

employees participate in the Plan, or 

any other party in interest with respect 

to the Plan; 

(d) BOUC will be treated no more 

favorably than any other provider 

participating in the BCBSNM; and 

(e) the transactions are not part of an 

agreement, arrangement or 

understanding designed to benefit 

BOUC or any other party in interest 

with respect to the Plan. 

Summary of Facts and Representations 

1. Aztec Well Servicing Company 

(AWS) is a family-owned business that 

has operated in San Juan County, in 

northwestern New Mexico, near the 

Four Corners, since 1963. In 2007, AWS 

decided to self-insure its medical 

benefits and established the Aztec Well 

Servicing Company & Related 

Companies Medical Plan Trust Fund 

(the Plan). The Plan covers the 

employees of six companies (together, 

the Companies) with common 

ownership: Totah Rental and Equipment 

Company, Inc., Triple S Trucking 

Company, Inc., Double M Mud 

Company, Inc., Basin Disposal, Inc., and 

Roadrunner Fuels, as well as AWS. All 

six of these companies operate in the 

well drilling and servicing industry in 

and around San Juan County. As of May 

31, 2011, there were approximately 344 

participants in the Plan. The Plan and 

its related trust fund are governed by a 

three-member Board of Trustees (the 

Trustees) that consists of Jerry Sandel, 

the President of the Companies, his son 

Jason Sandel, Vice-President and 

Treasurer, and Stewart Peterson, VicePresident. 

2. The Trustees contract with 

BCBSNM for access to the BCBSNM 

network of health care providers and for 

claims adjudication and related 

services. However, even with access to 

that network, there is a dearth of 

primary and urgent care providers in 

San Juan County. Along with many 

members of the community, the 

Trustees have been concerned about the 

lengthy waiting times for urgent care 

and the general inaccessibility of health 

care in this rural area. 

3. In order to address this problem, 

Trustee Jason Sandel, along with his 

sister Michelle Sandel, formed a health 

care clinic, Basin Occupational & Urgent 

Care LLC (BOUC), which was organized 

under the laws of the State of New 

Mexico as a for-profit limited liability 

corporation. No Plan assets were used in 

the formation of BOUC, and its services 

are available to the general public. 

Currently, AWS has an arrangement 

with BOUC under which BOUC 

provides the services of a nursepractitioner to the Plan participants and 

their dependents. The services consist 

of non-occupational urgent care, 

wellness exams, and preventive care 

advice and are available on AWS’ 

campus during working hours without 

charge to the individual. BOUC also 

provides a wellness coordinator who 

oversees the Plan’s exercise facility, 

which is also available without charge 

to the Plan’s participants and their 

eligible dependents. BOUC has also 

joined the Plan as a sponsoring 

employer and its employees have the 

opportunity to participate in the Plan on 

the same terms as all other employees 

of participating employers. 

4. The applicant represents that AWS 

set up the Plan in order to provide 

medical benefits. The Trustees of the 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77611 

19For example, if a Plan participant visits a 

member of the BCBSNM network, including the 

BOUC clinic, the participant pays the co-pay, and 

the provider bills BCBSNM for the difference 

between the negotiated fee amount and the co-pay. 

BCBSNM would pay the provider that difference, 

and then bill that amount to the Plan. 

Plan consider access to the nursepractitioner and the wellness 

coordinator to be an important part of 

such benefits. The applicant represents 

that it was always intended that the 

Plan would provide these benefits; AWS 

is currently furnishing them to avoid 

violating the prohibited transaction 

rules. The applicant has requested relief 

to permit the Plan to enter into an 

agreement (the Agreement) with BOUC 

to provide the same services, on the 

same terms and conditions (i.e., the Plan 

will pay BOUC for providing the 

services of the nurse-practitioner and 

the wellness coordinator). The services 

would continue to be available to all 

Plan participants without charge. AWS 

represents that if the Plan were to 

provide medical services directly to its 

participants, it would have to comply 

with a number of state laws, including 

medical facility and provider licensing, 

as well as state and federal employment 

laws. It would also have to insure 

against medical malpractice liability. 

Because the Plan is so small, the 

Trustees have decided that it is more 

cost-effective to the Plan to contract out 

these services to an entity that can take 

care of the licensing, insurance, 

employment and legal and regulatory 

compliance issues in the context of a 

larger book of business. 

5. The nurse-practitioner and the 

wellness coordinator, who are 

employees of BOUC, will be providing 

their services to the Plan in a building 

(Building) owned by AWS. AWS has 

entered into a licensing agreement (the 

License) with the Plan under which the 

Plan can use the Building free of charge. 

The Plan purchased exercise equipment 

from an unrelated party, The Fitness 

Superstore, a national chain that sells 

sports equipment. The equipment, 

which the Plan has put into the 

Building, includes treadmills, elliptical 

trainers, stationary bicycles, weight 

machines, exercise mats, and the like, 

none of which is affixed to the real 

property and all of which could either 

be moved to a new location or sold on 

the open market by the Plan. The 

License does not contain a specific 

number of years, but simply provides 

that it will remain in effect until 

terminated by either party (on 10 days’ 

written notice). The License provides 

that the Plan will retain ownership of 

any alterations, remodeling, and/or 

improvements funded by the Plan. In 

the event of termination, AWS and the 

Plan will apply to the Department for a 

separate prohibited transaction 

exemption to permit the Plan to sell to 

AWS any alterations, remodeling or 

improvements the Plan makes to the 

Building. 

6. An independent, qualified 

fiduciary has been retained by the Plan 

and has conducted a study regarding the 

proposed transaction. The independent 

fiduciary is Maureen Sanders, of 

Albuquerque, New Mexico. Ms. Sanders 

represents that she has been the attorney 

for the New Mexico Medical Insurance 

Pool (the Pool) since the late 1980s. The 

Pool was created by the legislature to 

ensure that health insurance is available 

for purchase for those with pre-existing 

conditions. Ms. Sanders represents that 

because of that affiliation, she has 

become very aware of the importance of 

preventive measures to assist 

individuals with their health needs. She 

is also aware of the costs of health care, 

the lack of providers in the Four Corners 

area, and the need for options for those 

working in the oil fields. Since she has 

left full-time teaching, Ms. Sanders has 

continued to teach insurance law at the 

University of New Mexico School of 

Law as an adjunct professor. She 

represents that she regularly represents 

clients who have been denied medical 

and other welfare benefits by their fullyinsured ERISA plans and is familiar 

with the fiduciary obligations imposed 

by ERISA. She further represents that 

less than 1% of her annual income has 

been and will be derived from her role 

as independent fiduciary for the Plan. 

7. Ms. Sanders has reviewed the 

proposed transaction and determined 

that it is appropriate for the Plan and in 

the best interest of its participants and 

beneficiaries. She states that the 

proposed arrangement would provide 

several benefits to the Plan participants, 

including worksite medical services and 

a fitness center. Under the Agreement, 

BOUC will furnish the worksite medical 

services to the Plan’s participants and 

beneficiaries at no additional out-ofpocket costs to them. The services will 

include wellness services and urgent 

care triage and treatment. However, 

participants and beneficiaries will be 

referred to their primary care physicians 

for routine and on-going treatment. The 

services of the nurse-practitioner will be 

made available to all of the participants 

and beneficiaries, on site and free of 

charge. BOUC will also furnish a 

wellness coordinator to assist in the 

administration of wellness programs 

and activities designed to improve 

employee health and well-being. It is 

expected that the Fitness Center will 

support healthy lifestyles for the 

participants and beneficiaries. 

8. Ms. Sanders further represents that 

she reviewed the proposed rates and 

fees to be paid by the Plan for the 

services to be rendered by BOUC, and 

determined that they were reasonable. 

In reaching that determination, Ms. 

Sanders reviewed compensation for 

non-physician providers both nationally 

and for the western states. She also 

looked at cost to customers generally 

and at the anticipated cost to BOUC for 

the non-physician providers. She 

additionally reviewed the actual or 

anticipated BOUC operating expenses 

for both a wellness clinic and a fitness 

center. In comparing that information 

with the proposed fees to be paid by the 

Plan to BOUC, she determined that the 

proposed fees were reasonable. She 

represents that her conclusion is 

especially true given the dearth of 

facilities and providers in the Four 

Corners area. 

9. On July 1, 2010, BOUC joined the 

BCBSNM provider network. BCBSNM is 

the largest provider network in New 

Mexico. In order to operate 

competitively and establish itself 

financially, it had no choice 

economically but to join a number of 

preferred provider networks, including 

BCBSNM, the largest. The benefits to 

BOUC of such an arrangement are those 

that attract other providers; relatively 

fast and streamlined claims payment in 

exchange for lower reimbursement fees 

that are set by BCBSNM. BCBSNM is 

not affiliated with the Plan nor any of 

the Companies, other than as a service 

provider for network access, claims 

adjudication and related services to the 

Plan. 

10. The Plan has contracted annually 

with BCBSNM for the use of its provider 

network and claims adjudication 

services since August 1, 2007. The 

Trustees’ selection of the BCBSNM 

network occurred after they had an 

insurance broker carry out a competitive 

search of area provider networks before 

BOUC was formed or contemplated. It is 

anticipated that some Plan participants, 

as well as the participants in plans 

sponsored by other unrelated employers 

and the general public will use the 

BOUC clinic located in Farmington, 

New Mexico. The Plan would pay 

claims for the services that BOUC 

provides at the rates specified in its 

provider agreement with BCBSNM.19

The Plan participants will not be 

required to use the BOUC clinic; they 

will be able to choose any health care 

facilities that are in the BCBSNM 

network. The applicant represents that 

there are 20,730 health care providers in 


srobinson on DSK4SPTVN1PROD with NOTICES2
77612 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

20For purposes of this proposed exemption, 

references to section 406 of the Act should be read 

to refer as well to the corresponding provisions of 

section 4975 of the Code. 

the BCBSNM network, so the BOUC 

clinic represents less than .05% of the 

providers in the network from which 

the participants are free to choose. The 

applicant further represents that there 

are 774 providers in the BCBSNM 

network who are located in San Juan 

County. 

11. BOUC is a member of the San Juan 

Independent Practice Association 

(SJIPA), which negotiates provider 

reimbursement rates with BCBSNM on 

behalf of its members. SJIPA also 

negotiates with most, if not all, of the 

other medical provider networks that 

operate in San Juan County, such as 

Presbyterian Health Plan, Aetna, Cigna, 

United Health Care, and Lovelace 

Health Plan. SJIPA credentials its 

members through a lengthy application 

process that includes site visits, 

verification of provider licensure, and 

regulatory agency standing. Providers 

such as BOUC then have the 

opportunity to enter into a written 

agreement directly with one of the 

provider networks at the negotiated 

master rates. 

12. Providers such as BOUC pay a 

per-practitioner membership fee to 

SJIPA of $1,000 for the first year, $225 

per quarter during the second year, and 

$100 per quarter for all subsequent 

years. The providers do not pay any fee 

to BCBSNM. The Plan pays an 

administrative fee to BCBSNM for 

access to the BCBSNM network (and 

thus the negotiated discounted rates for 

providers) and for other administrative 

services, such as adjudication and 

processing of claims, but that fee has not 

changed and will not change due to the 

presence of BOUC in the network. None 

of the Companies have received or will 

receive any direct or indirect fees as a 

result of BOUC joining the BCBSNM 

network. 

13. The applicant represents that the 

Plan has been trying to encourage its 

participants to use urgent care facilities 

instead of more expensive emergency 

rooms, when medically appropriate. To 

that end, the Plan recently reduced its 

normal participant co-pay for urgent 

care visits to BOUC from $75 to $25, 

and BOUC agreed to reduce its rates by 

the difference. The BCBSNM 

reimbursement that BOUC receives 

remains at the negotiated BCBSNM rate 

for all similar services, and the Plan 

does not make any additional payment 

to BOUC; the urgent care facility simply 

absorbs the loss. The Plan’s Trustees 

recently negotiated the same reduced 

co-pay amount with a new urgent care 

facility in Aztec called Aztec Urgent 

Care, which is unrelated to BOUC, any 

of the Trustees, and any of the 

Companies. 

14. In summary, the applicant 

represents that the proposed transaction 

meets the statutory criteria for an 

exemption under section 408(a) of the 

Act because: 

(a) An independent, qualified 

fiduciary (I/F), acting on behalf of the 

Plan, has determined prior to entering 

into the proposed transaction that the 

transaction is administratively feasible, 

in the interest of, and protective of the 

Plan and the participants and 

beneficiaries of the Plan; 

(b) The I/F has reviewed the 

transaction to ensure that its terms are 

at least as favorable to the Plan as an 

arm’s-length transaction with an 

unrelated party, and has determined to 

approve the transaction, in accordance 

with the fiduciary provisions of the Act; 

(c) The I/F will monitor compliance 

with the terms and conditions of this 

proposed exemption, as described 

herein, and ensure that such terms and 

conditions are at all times satisfied; 

(d) The I/F will monitor compliance 

with the terms of the License, and take 

any and all steps necessary to ensure 

that the Plan is protected, including, but 

not limited to, exercising her authority 

to terminate the License on 10 days’ 

written notice; and 

(e) The transaction is, in fact, on terms 

and at all times remains on terms that 

are at least as favorable to the Plan as 

those that would have been negotiated 

under similar circumstances at arm’slength with an unrelated third party; 

(f) The terms of the medical services 

provided by BOUC to Plan participants 

at its Farmington, New Mexico clinic 

are at least as favorable to the 

participants as those they could obtain 

in similar transactions with an 

unrelated party; 

(g) The Plan participants will have 

access to all of the providers in 

BCBSNM’s network and will be free to 

choose whether or not to use BOUC’s 

clinic; 

(h) At least 99% of the providers 

participating in the BCBSNM are 

unrelated to the companies whose 

employees participate in the Plan, or 

any other party in interest with respect 

to the Plan; 

(i) BOUC will be treated no more 

favorably than any other provider 

participating in the BCBSNM; and 

(j) The transactions are not part of an 

agreement, arrangement or 

understanding designed to benefit 

BOUC or any other party in interest 

with respect to the Plan. 

For Further Information Contact: Gary 

H. Lefkowitz of the Department, 

telephone (202) 693–8546 (This is not a 

toll-free number.) 

Genzyme Corporation 401(k) Plan (the 

Plan or the Applicant), Located in 

Cambridge, MA 

[Application No. D–11669] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act (or 

ERISA) 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).20 If the proposed 

exemption is granted, the restrictions of 

sections 406(a), 406(b)(1) and (b)(2) and 

section 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) through (E) of 

the Code, shall not apply, effective April 

4, 2011, to (1) the acquisition by the 

Plan of contingent value rights (CVRs) 

as a result of the Plan’s ownership of 

certain common stock (Genzyme 

Common Stock) in Genzyme 

Corporation (Genzyme), the Plan 

sponsor, in connection with (a) The 

purchase of shares (Shares) of Genzyme 

Common Stock pursuant to an exchange 

offer (the Exchange Offer) and a 

subsequent offer to the Exchange Offer 

(the Subsequent Exchange Offer) by GC 

Merger Corp. (the Purchaser), a whollyowned subsidiary of sanofi-aventis 

(Sanofi), a party in interest with respect 

to the Plan, and (b) the ‘‘short-form’’ 

merger (the Merger) of Sanofi into 

Genzyme (together, the Transactions); 

(2) the continued holding of CVRs by 

the Plan; and (3) the resale of the CVRs 

by the Plan to Sanofi, pursuant to the 

exercise of repurchase rights (the 

Repurchase Rights) available under 

certain circumstances specified in the 

Contingent Value Rights Agreement (the 

CVR Agreement). 

This proposed exemption is subject to 

the following conditions: 

(a) Plan participants holding Genzyme 

Common Stock received one CVR for 

each Share on the effective date of the 

tender or cancellation of their Shares, in 

connection with the Transactions. 

(b) The acquisition of CVRs by the 

Plan occurred in connection with the 

Transactions on the same terms and in 

the same manner as the acquisition of 

CVRs by all other holders of Genzyme 

Common Stock, other than Sanofi, the 

Purchaser, Genzyme and dissenting 

shareholders. 

(c) The Plan’s acquisition of CVRs 

resulted either (1) from a decision by a 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77613 

21Section 407(d)(5) of the Act generally defines 

the term ‘‘qualifying employer security’’ as an 

employer security which is (a) stock, (b) a 

marketable obligation, or (c) an interest in an 

existing publicly traded partnership. 

22The Applicant states that a socie ́te ́ anonyme is 

a stock company or limited company. The 

Applicant further states that the ‘‘S.A.’’ that follows 

the name of a French socie ́te ́ anonyme is 

comparable to the ‘‘Inc.’’ that follows the name of 

a U.S. corporation. 

participant or beneficiary to tender 

Shares allocated to his or her account or 

(2) following a decision by a participant 

or beneficiary not to tender Shares by 

reason of the Merger. 

(d) The Plan did not pay any fees or 

commissions in connection with the 

acquisition of the CVRs, nor does it pay 

any fees or commissions in connection 

with the holding or sale of CVRs to 

Sanofi pursuant to an exercise of 

Sanofi’s repurchase right under the CVR 

Agreement. 

(e) Credit Suisse Securities (USA) LLC 

(Credit Suisse Securities) and Goldman 

Sachs & Co (Goldman Sachs) advised 

Genzyme that the consideration 

received by Genzyme shareholders 

(Genzyme Shareholders), including Plan 

participants, in exchange for their 

Shares was ‘‘fair,’’ from a financial point 

of view. 

(f) The Plan does not acquire or hold 

CVRs other than those acquired in 

connection with the Transactions. 

(g) Plan participants have the same 

rights with respect to CVRs allocated to 

their accounts under the Plan (including 

with respect to any repurchase of CVRs 

by Sanofi) as unrelated parties have 

with respect to CVRs not held under the 

Plan, and they may direct the Plan’s 

trustee (the Trustee) to sell CVRs 

allocated to their respective accounts at 

any time. 

(h) For so long as CVRs remain a 

permissible Plan investment, the 

retention or disposition by the Plan of 

CVRs allocated to a participant’s or 

beneficiary’s account is administered in 

accordance with the provisions of the 

Plan that are in effect for individuallydirected investment of participant 

accounts. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of April 4, 2011. 

Summary of Facts and Representations 

The Plan 

1. The Plan, which is sponsored and 

maintained by Genzyme, is an 

individual account plan intended to 

qualify under section 401(a) of the Code 

that includes a qualified cash or 

deferred arrangement described in 

section 401(k) of the Code. The Plan 

allows participants to direct the 

investment of their accounts under the 

Plan in various investment alternatives 

available under the Plan, including, 

during periods prior to the Transactions 

described herein, Genzyme Common 

Stock. 

As of April 4, 2011, the Plan had 

7,537 participants and assets having an 

aggregate fair market value of 

$738,806,554. As of the same date, 

646,922.56 Shares were held by the Plan 

in accounts maintained for 2,933 

participants, representing 

approximately 39% of the participants 

in the Plan. These Shares had an 

aggregate fair market value on April 4, 

2011 of $49,366,660, or approximately 

6.7% of the aggregate fair market value 

of the Plan’s total assets, and 

represented approximately 0.2437% of 

the 265,485,712 Shares that were issued 

and outstanding as of that date. 

According to the Applicant, the Plan’s 

Shares constituted qualifying employer 

securities within the meaning of section 

407(d)(5) of the Act.21

The Plan is funded through a trust of 

which Prudential Bank & Trust, FSB, 

serves as the Trustee. The Trustee is a 

directed trustee. Under the Genzyme 

Corporation 401(k) Plan Trust 

Agreement (the Trust Agreement) 

executed between the Trustee and 

Genzyme, the Trustee accepted 

employer securities (i.e., Genzyme 

Common Stock), as defined in the Plan, 

as a plan asset with Genzyme’s 

understanding and approval that the 

employer securities would be held by 

Prudential Investment Management 

Services LLC. 

The Plan is administered by the 

Genzyme Benefit Plan Committee (the 

Committee), which was appointed by 

Genzyme. The Committee is responsible 

for making all investment decisions 

related to the Plan, other than decisions 

made by the participants and decisions 

with regard to investments provided for 

as a design feature in the Plan 

document, such as investments in 

employer securities. Genzyme, as Plan 

sponsor, is responsible for decisions 

relating to the availability of specified 

investments as a feature of the Plan’s 

design. The Committee has engaged 

CapTrust Advisors (CapTrust), an 

independent financial advisor with its 

primary office located in Raleigh, North 

Carolina, to provide financial services to 

the Committee and to Plan participants. 

Genzyme 

2. Genzyme, a Massachusetts 

corporation with its principal offices 

located in Cambridge, Massachusetts, is 

a global biotechnology company 

engaged in the research, development, 

manufacturing and marketing of 

products to address unmet medical 

needs. As of December 31, 2010, 

Genzyme had total assets of 

approximately $10.91 billion and total 

stockholders’ equity of approximately 

$7.59 billion. As of the same date, there 

were approximately 261.5 million 

Shares outstanding. 

Sanofi 

3. Sanofi, a French socie ́te ́ anonyme 22

with its headquarters located in Paris, 

France, is a global pharmaceutical group 

engaged in the research, development, 

manufacture and marketing of 

healthcare products. As of December 31, 

2010, Sanofi had total assets of 

approximately Ö85.26 billion and total 

stockholders’ equity of approximately 

Ö53.3 billion. 

The Purchaser 

4. The Purchaser, a Massachusetts 

corporation incorporated on July 29, 

2010, is a direct wholly-owned 

subsidiary of Sanofi. The Purchaser was 

organized by Sanofi to acquire Genzyme 

and has not conducted any unrelated 

activities since its organization. All 

outstanding shares of the capital stock 

of the Purchaser are owned by Sanofi. 

Acquisition of Genzyme by Sanofi 

5. On April 8, 2011, Sanofi completed 

its acquisition of Genzyme. The 

acquisition occurred pursuant to an 

Agreement and Plan of Merger dated 

February 16, 2011 (the Merger 

Agreement) executed by Sanofi, the 

Purchaser and Genzyme, wherein all of 

the outstanding Shares of Genzyme 

Common Stock were acquired by the 

Purchaser. The Share acquisition 

transaction was consummated by the 

Purchaser through both an Exchange 

Offer and a Subsequent Exchange Offer 

for all of the outstanding Shares 

(together, the Exchange Offers). The 

Exchange Offers were followed by a 

‘‘short-form’’ merger (i.e., the Merger) of 

the Purchaser with and into Genzyme 

that did not require a Genzyme 

Shareholder vote. 

As a result of the Transactions (i.e., 

the Share acquisition transaction and 

the Merger), Genzyme survives as a 

direct wholly-owned subsidiary of 

Sanofi. All Shares validly tendered and 

not withdrawn in either the Exchange 

Offer or the Subsequent Exchange Offer 

(except for Shares held by Sanofi, 

Genzyme and their subsidiaries, and 

Shares held by shareholders who 

properly perfected appraisal rights 

under Massachusetts law) were 

converted into the right to receive (a) 

$74.00 in cash, less any applicable 

withholding for taxes and without 


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77614 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

23While this statement is generally accurate, the 

Applicant notes that Sanofi, the Purchaser and 

Genzyme did not receive the Merger Consideration 

for their Shares. Further, dissenting shareholders 

who perfected their appraisal rights were not 

entitled to receive the CVRs, but they generally 

received $74 in cash for each Share they owned, 

plus interest. 

24The Applicant represents that ‘‘eligible 

guarantor institutions,’’ as defined in Rule 17Ad– 

15 of the Securities Exchange Act of 1934 (the 1934 

Act), include banks, brokers, dealers, credit unions, 

national securities exchanges, registered securities 

associations, clearing agencies, and savings 

associations. The Applicant states that, typically, 

the delivery guarantee would have been made by 

a broker. 

25The Applicant notes that the CVRs in which 

the Plan acquired an ownership interest on April 

4, 2011 were received by the Plan on April 7, 2011. 

The Applicant further notes that the value of the 

CVRs at the close of trading on April 7, 2011 was 

$2.41 per CVR, or $771,908.54 for all CVRs received 

on that date. 

26The Applicant notes that the Form 8–K filed by 

Genzyme with the SEC on April 8, 2011 does not 

indicate how many of the 56,069,616 Shares were 

Shares delivered pursuant to delivery guarantees 

made during the Exchange Offer and how many 

were Shares newly tendered and delivered for 

exchange. The Applicant also notes that additional 

Shares may have been newly offered up during the 

Subsequent Exchange Offer with a guarantee that 

they would be delivered within a short period of 

time, but the Form 8–K does not contain disclosure 

regarding such guarantees because the related 

Shares had not been accepted for exchange at that 

time. 

27The Applicant notes that the CVRs in which 

the Plan acquired an ownership interest on April 

7, 2011 were received by the Plan on April 8, 2011. 

The Applicant further notes that the value of the 

CVRs at the close of trading on April 8, 2011 was 

$2.32 per CVR or $33,795.44 for all CVRs received 

on that date. 

interest (the Cash Consideration), per 

Share, and (b) one CVR per Share 

(together with the Cash Consideration, 

the Merger Consideration). All Shares 

not tendered were converted into the 

right to receive the same Merger 

Consideration. The Merger 

Consideration was paid by the 

Purchaser and delivered by 

Computershare Trust Company, N.A., 

the exchange agent for the Exchange 

Offers (the Exchange Agent), to 

tendering Shareholders in the Exchange 

Offer and the Subsequent Exchange 

Offer on April 4, 2011. 

The terms of the Transactions were 

negotiated on an arm’s length basis by 

the parties and approved by the Boards 

of Directors of Sanofi, the Purchaser, 

and Genzyme. In connection with 

Genzyme’s consideration of the 

Exchange Offer and the Subsequent 

Exchange Offer and Merger, fairness 

opinions were prepared by Credit Suisse 

Securities and Goldman Sachs. Notice 

of the Transactions was provided by 

Genzyme to Genzyme Shareholders. 

Also, Plan participants were given the 

same consideration as all other holders 

of Shares.23 More details about the 

Transactions are presented below. 

The Exchange Offer 

6. On April 4, 2011, the Purchaser 

accepted for exchange all Shares that 

were tendered and actually delivered. 

The exchange for such Shares was made 

in accordance with the terms of the 

Exchange Offer, which commenced on 

March 7, 2011 and ended on April 1, 

2011 at 11:59 p.m., unless extended by 

the Purchaser. The Exchange Agent 

advised Sanofi and the Purchaser that 

224,528,469 Shares were validly 

tendered and not properly withdrawn 

pursuant to the Exchange Offer by 

Genzyme Shareholders. The tendered 

Shares represented approximately 

84.6% of all the outstanding Shares as 

of the April 1, 2011 expiration date of 

the Exchange Offer. However, 

43,285,259 of those Shares were offered 

up with a guarantee by an ‘‘eligible 

guarantor institution’’ 24 that they would 

be delivered within a short period of 

time, and the related Shares (i.e., the 

Shares for which the guarantor 

guaranteed delivery of a Share 

certificate or book-entry confirmation) 

were not actually accepted for exchange 

at the expiration of the Exchange Offer. 

The number of Shares actually delivered 

and accepted for exchange at the end of 

the Exchange Offer was 181,243,210 

(224,528,469 Shares minus 43,285,259 

Shares). Accordingly, following the 

acceptance of the Shares validly 

tendered and not properly withdrawn in 

the Exchange Offer (excluding the 

Shares subject to guarantees of 

delivery), Sanofi and the Purchaser 

owned approximately 68.3% of the 

outstanding Shares or approximately 

62% of the total Shares on a fullydiluted basis (i.e., the number of Shares 

actually outstanding plus the number of 

additional Shares that would be 

outstanding if Shares were issued 

pursuant to all outstanding stock rights). 

As a result of such acceptance of Shares 

in the Exchange Offer, a change in 

control of Genzyme occurred. 

Of the total Shares tendered during 

the Exchange Offer, 320,294 Shares 

were tendered by 971 Plan participants. 

In return for their Shares, Plan 

participants received cash consideration 

of $23,701,756 in the aggregate, and a 

total of 320,294 CVRs with a value of 

$2.35 per Share, or an aggregate value of 

$752,690.90, as of the close of trading 

on April 4, 2011.25

The Subsequent Exchange Offer 

7. The Purchaser commenced a 

Subsequent Exchange Offer on April 4, 

2011 for all remaining untendered 

Shares. The Subsequent Exchange Offer 

expired at 6 p.m., New York City time, 

on April 7, 2011, in accordance with the 

applicable rules and regulations of the 

U.S. Securities and Exchange 

Commission (the SEC) and the Merger 

Agreement. Following the close of the 

Subsequent Exchange Offer, the 

Exchange Agent advised Sanofi and the 

Purchaser that 56,069,616 Shares were 

validly tendered. The tendered Shares 

represented 21.1% of the issued and 

outstanding Shares. The Shares 

included both (a) Shares delivered for 

exchange pursuant to delivery 

guarantees made during the Exchange 

Offer, and (b) Shares newly tendered 

and delivered for exchange in the 

Subsequent Exchange Offer.26 Together 

with the 181,243,210 Shares delivered 

and accepted for exchange in the 

Exchange Offer, the 56,069,616 Shares 

delivered and accepted in the 

Subsequent Exchange Offer brought the 

total Shares acquired by Sanofi in the 

two offering periods to 237,312,826, or 

approximately 89.4% of the issued and 

outstanding Shares. 

Of the total Shares tendered in the 

Subsequent Exchange Offer, 14,567 

Shares were exchanged by 66 Plan 

participants, who received aggregate 

cash consideration of $1,077,958, and a 

total of 14,567 CVRs with a value of 

$2.41 per CVR, or an aggregate value of 

$35,106.47, as of the close of trading on 

April 7, 2011, the acceptance date of the 

Subsequent Exchange Offer.27

Steps Taken by Genzyme Prior to the 

Transactions 

8. Genzyme took certain steps prior to 

the Transactions in preparation for the 

acquisition of CVRs by the Plan. In this 

regard, certain provisions of the Plan 

and the Trust Agreement relating to 

employer securities were amended to 

accommodate the acquisition and 

holding of the CVRs. In addition, notice 

(the Notice) of the Transactions, dated 

March 10, 2011, was provided to 

Genzyme Shareholders as well as to 

each Plan participant and beneficiary 

who had invested in Shares through the 

Plan. The Notice explained that on the 

effective date of the Exchange Offer, the 

Plan participant or beneficiary could 

elect to provide instructions to the Plan 

Trustee to tender all or some of the 

Shares held on their behalf under the 

Plan. The Notice further explained that 

no action was required if a Plan 

participant or beneficiary did not wish 

to tender any of the Shares allocated to 

their account under the Plan in the 

Exchange Offer. 

Plan participants and beneficiaries 

also had the opportunity, on a daily 

basis until the second day preceding the 


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28The Applicant represents that, under 

Massachusetts law, holders of Shares of Genzyme 

Common Stock that were not tendered had the 

opportunity to exercise appraisal rights to demand 

fair value for their Shares for a specified time after 

the Merger. The deadline for the exercise of 

appraisal rights was May 28, 2011. However, the 

Applicant notes that the Plan did not provide for 

appraisal rights to be passed through to 

participants, and the Committee did not direct the 

Trustee either to exercise such rights or to 

relinquish them before they expired. Accordingly, 

no participant in the Plan exercised appraisal rights 

affecting the disposition of Shares held by the Plan. 

29According to the Applicant, the CVRs were 

listed on the Nasdaq Stock Market under the 

symbol ‘‘GCVRZ’’ on March 31, 2011 at an opening 

price of $2.20 per CVR. 

closing of the Exchange Offer and the 

Subsequent Exchange Offer, to transfer 

funds held on their behalf in Genzyme 

Common Stock to other investment 

funds under the Plan if they did not 

wish to receive interests in CVRs under 

the Plan. The Notice furnished to Plan 

participants and beneficiaries included 

notice of the period of time immediately 

preceding the closing of the tender offer 

during which they would be unable to 

give further instructions regarding the 

investment of the portion of their 

accounts invested in Genzyme Common 

Stock. 

Top-Up Option 

9. In the Merger Agreement, Genzyme 

granted an irrevocable option (i.e., the 

Top-Up Option) to the Purchaser to 

purchase newly-issued Shares directly 

from Genzyme. On April 8, 2011, 

subsequent to the acceptance of Shares 

in the Subsequent Exchange Offer, the 

Purchaser exercised the Top-Up Option 

granted to the Purchaser to purchase 

newly issued Shares directly from 

Genzyme in accordance with the Merger 

Agreement. The Purchaser purchased 

16,245,894 newly issued Shares at a 

price of $76.33 per Share and paid the 

purchase price (a) By issuing a 

promissory note to Genzyme in the 

amount of $1,239,886,631 and (b) by 

paying $162,459 in cash to Genzyme. 

Subsequent to the exercise of the TopUp Option, Sanofi and the Purchaser 

had an aggregate ownership of over 90% 

of the outstanding Shares. 

Short-Form Merger and Cancellation of 

Shares 

10. Sanofi completed its acquisition of 

Genzyme by effecting a ‘‘short-form 

merger,’’ which did not require a 

shareholder vote, pursuant to section 

11.05 of the Massachusetts Business 

Corporation Act between the Purchaser 

and Genzyme. As a result of the Merger, 

Genzyme became a direct, whollyowned subsidiary of Sanofi. Any Shares 

not tendered in the Exchange Offer or 

the Subsequent Exchange Offer (other 

than Shares held in Genzyme’s treasury 

or owned by Sanofi, which Shares were 

cancelled and retired without any 

conversion thereof) were cancelled and 

converted into the right to receive the 

same Merger Consideration that was 

paid in the Exchange Offer and the 

Subsequent Exchange Offer. The total 

number of Shares outstanding on the 

effective date of the Merger that became 

eligible to be cancelled and converted 

into a right to receive the Merger 

Consideration was 28,173,190. Of the 

total Shares eligible to be cancelled, 

308,464.81 Shares were owned by and 

allocated to participant accounts under 

the Plan, for which the Plan received 

the Merger Consideration shortly after 

the appraisal period expired on May 28, 

2011 in the form of cash consideration 

of $22,826,395.94, in the aggregate, and 

a total of 308,465 CVRs. No specific 

action was taken by the Plan to exercise 

or relinquish appraisal rights.28

The CVRs 

11. The CVRs are general, unsecured, 

contingent payment obligations of 

Sanofi that rank equally with all 

existing and future unsecured 

unsubordinated indebtedness of Sanofi 

and senior to all subordinated 

indebtedness of Sanofi. They were 

issued by Sanofi pursuant to a CVR 

Agreement that was executed on March 

30, 2011 by and between Sanofi and 

American Stock Transfer & Trust 

Company, LLC (the CVR Trustee), an 

unrelated party. In accordance with 

requirements of the Trust Indenture Act 

of 1939, the CVRs were also issued 

under an indenture with the CVR 

Trustee, which was appointed to protect 

and enforce the rights of the CVR 

holders. The indenture trust that holds 

the CVRs is not a plan asset vehicle. The 

CVR Trustee (a) Will receive from 

Sanofi amounts due under the CVRs and 

promptly remit payment to the CVR 

holders, (b) may demand payment and 

institute legal proceedings to collect 

amounts due and unpaid if Sanofi fails 

to pay amounts due under the CVRs, (c) 

must transmit notice to the CVR holders 

of breaches under the CVR Agreement, 

subject to certain conditions and 

expectations, and (d) may institute legal 

proceedings to protect and enforce the 

rights of the CVR holders upon the 

occurrence of a breach under the CVR 

Agreement. 

The CVR Trustee also performs 

various administrative functions that 

include, but are not limited to, (a) 

Serving as the initial Security Registrar 

for the purposes of registration and 

transfer of the CVRs, (b) notifying the 

CVR holders of certain amendments to 

the CVR Agreement, and (c) providing 

the CVR holders with certain reports 

concerning its actions and filing a copy 

of each such report with the Nasdaq 

Global Market, the SEC and Sanofi. 

Under the CVR Agreement, Sanofi is 

required to pay to the CVR Trustee, and 

the CVR Trustee is required to pay to 

the holders of CVRs, specified amounts 

upon achievement of certain milestones, 

as described below, up to a maximum 

payment of $14 in the aggregate per 

CVR. In accordance with the CVR 

Agreement, Sanofi is obligated to use 

commercially reasonable efforts to 

ensure that the CVRs are publicly traded 

on a national securities exchange.29

The CVRs were registered under the 

Securities Act of 1933 (the 1933 Act), as 

required by the CVR Agreement, 

effective March 29, 2011. The CVRs 

were also registered under the 1934 Act, 

effective March 28, 2011. No CVRs may 

be issued after the initial issuance in 

connection with the Transactions, and 

no payments will be due under the CVR 

Agreement for any milestones achieved 

after the earlier of (a) December 31, 2020 

or (b) the date that Product Sales 

Milestone #4 (as described below) is 

achieved. 

12. The CVR Agreement provides for 

payments to the holders of CVRs on 

attainment of the following production 

and development milestones: 

• Production Milestone. A payment of 

$1.00 per CVR will be made upon the 

completion, not later than December 31, 

2011, of production and release of specified 

quantities of Cerezyme® and Fabrazyme®, 

two of Genzyme’s enzyme replacement 

therapies, with payment to be made 20 

business days following achievement of the 

milestone but not earlier than January 3, 

2012. 

• Approval Milestone. A payment of $1.00 

per CVR will be made within 20 business 

days following the receipt, not later than 

March 31, 2014, of FDA approval for use of 

the drug alemtuzumab for treatment of 

multiple sclerosis (alemtuzumab MS). 

In addition, the CVR Agreement 

provides for payments to the holders of 

CVRs on attainment of targets for sales 

of alemtuzumab MS, as follows. 

• Product Sales Milestone #1. A payment 

of $2.00 per CVR will be made if sales during 

the four calendar quarter period that begins 

on the first anniversary of the major market 

launch of alemtuzumab MS equal or exceed 

$400,000,000. 

• Product Sales Milestone #2. A payment 

of $3.00 per CVR will be made if sales in any 

period of four consecutive calendar quarters 

during the term of the CVR Agreement equal 

or exceed $1,800,000,000. If Product Sales 

Milestone #2 is achieved as a result of sales 

of alemtuzumab MS outside of the United 

States but the Approval Milestone is not 

achieved by March 31, 2014, the Product 

Sales Milestone #2 payment will be $4.00 per 

CVR rather than $3.00 per CVR. 


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30For this purpose, the product launch date is the 

first day of the calendar quarter beginning one full 

calendar quarter after the end of the calendar 

quarter in which a first commercial sale occurs in 

the United States, the United Kingdom, France, 

Germany, Italy, or Spain. 

• Product Sales Milestone #3. A payment 

of $4.00 per CVR will be made if sales in any 

period of four consecutive calendar quarters 

during the term of the CVR Agreement equal 

or exceed $2,300,000,000 (excluding any 

quarter in which sales were used to 

determine whether Product Sales Milestone 

#1 or #2 was achieved). 

• Product Sales Milestone #4. A payment 

of $3.00 per CVR will be made if sales in any 

period of four consecutive calendar quarters 

during the term of the CVR Agreement equal 

or exceed $2,800,000,000 (excluding any 

quarter in which sales were used to 

determine whether Product Sales Milestone 

#1, #2 or #3 was achieved). 

Each payment to be made on any of 

the Product Sales Milestones is required 

to be made within 20 business days 

following notice by Sanofi to the CVR 

Trustee that the applicable target was 

achieved in the most recently ended 

calendar quarter, such notice to be 

provided within 50 days following the 

end of the calendar quarter. All notices 

required to be filed with the CVR 

Trustee are required to be made 

available simultaneously to the holders 

of CVRs on Sanofi’s Web site. 

In the event Sanofi fails to make 

timely payment with respect to any of 

the payment milestones, interest will 

accrue on unpaid amounts at a rate 

equal to the prime rate plus three 

percent. The CVR Trustee is empowered 

to institute legal or equitable actions in 

order to collect amounts that are due 

and unpaid. The CVR Trustee can be 

directed to exercise its remedies by 

action of the holders of 30% or more of 

the CVRs. 

13. The CVR Agreement also provides 

that Sanofi has the right to repurchase, 

and subsequently cancel, all 

outstanding CVRs on a date on or after 

the third anniversary of the launch date 

of alemtuzumab MS, if certain 

conditions indicating lack of success are 

present.30

Specifically, under the Repurchase 

Right, Sanofi may purchase all 

outstanding CVRs (but not fewer than 

all outstanding CVRs) upon providing 

notice to the CVR Trustee between 30 

and 60 days following the date as of 

which both of the following conditions 

have occurred: (a) The volume weighted 

average trading price per CVR for all 

CVRs traded over the previous 45 

trading days is less than fifty cents, and 

(b) sales of alemtuzumab MS for the four 

most recently ended calendar quarters 

are less than $1,000,000,000 in the 

aggregate. The price at which Sanofi 

would purchase each outstanding CVR 

pursuant to an exercise of this right is 

the volume weighted average price paid 

per CVR for all CVRs traded over the 45 

trading days prior to the fifth trading 

day preceding the date Sanofi gives 

notice of its intent to exercise its 

Repurchase Right. 

It is also possible that Sanofi may 

purchase CVRs on the open market in 

circumstances where the Plan is selling 

CVRs into the market. Any such 

purchase would be at market price. 

14. The CVRs do not provide any 

rights that could lapse by reason of a 

failure on the part of the holder to take 

timely action. Holders of CVRs will 

have the right to receive payments over 

time upon achievement of one or more 

of the above milestones during the term 

of the CVR, without the need for the 

CVR holder to take action. The rights of 

a CVR holder will not change in any 

way as a result of any action or inaction 

on the part of the holder, but are 

expected to remain in effect until all 

payment obligations under the CVR 

Agreement are satisfied or have 

terminated. The only exception would 

be if the CVRs are repurchased by 

Sanofi pursuant to its Repurchase Right, 

in which case, the holders of CVRs 

would not see their rights lapse and 

become worthless but would receive 

value for their CVRs in accordance with 

the terms of the Repurchase Right. With 

regard to the date on which the CVRs 

are scheduled to terminate, if not earlier 

repurchased by Sanofi pursuant to the 

Repurchase Right, the CVR Agreement 

provides that if any milestone has been 

achieved prior to December 31, 2020 but 

the related payment has not been paid 

as of that date, the CVR Agreement and 

the rights of CVR holders under the 

Agreement will not terminate until the 

payment has been made in full. 

Fairness Opinions 

15. Credit Suisse Securities, an 

investment banking firm that operates in 

the United States and a subsidiary of 

Credit Suisse, advised Genzyme that the 

Merger Consideration to be received by 

Genzyme Shareholders in exchange for 

their Shares was ‘‘fair,’’ from a financial 

point of view. In arriving at its opinion, 

Credit Suisse Securities, among other 

things, (a) Reviewed the Merger 

Agreement, a form of the CVR 

Agreement and certain publicly 

available business and financial 

information relating to Genzyme; (b) 

reviewed certain other information 

relating to Genzyme, including financial 

forecasts, provided to or discussed with 

Credit Suisse Securities by Genzyme 

and have met with Genzyme’s 

management to discuss the business and 

prospects of Genzyme; (c) considered 

certain financial and stock market data 

of Genzyme, and Credit Suisse 

Securities has compared that data with 

similar data for other publicly held 

companies in businesses Credit Suisse 

Securities has deemed similar to that of 

Genzyme and Credit Suisse Securities 

has considered, to the extent publicly 

available, the financial terms of certain 

other business combinations and other 

transactions which have recently been 

effected; and (d) considered such other 

information, financial studies, analyses 

and investigations and financial, 

economic and market criteria which 

Credit Suisse Securities deemed 

relevant. 

In rendering its opinion, Credit Suisse 

Securities did not independently verify 

any of the foregoing information and 

assumed and relied on such information 

being complete and accurate in all 

material respects. For example, with 

respect to the updated financial 

forecasts for Genzyme and the 

assessments as to the probability and 

estimated timing of achievement of the 

Approval Milestone, each of the Product 

Sales Milestones and the Production 

Milestone provided to Credit Suisse 

Securities by Genzyme, the management 

of Genzyme advised Credit Suisse 

Securities, and Credit Suisse Securities 

assumed, that such forecasts and 

assessments were reasonably prepared 

on bases reflecting the best currently 

available estimates and judgments of 

Genzyme’s management as to the future 

financial performance of Genzyme and 

the probability and timing of 

achievement of the Approval Milestone, 

each of the Product Sales Milestones 

and the Production Milestone. 

Furthermore, in rendering its opinion, 

Credit Suisse addressed only the 

fairness of the Merger Consideration to 

be received in the Transactions, from a 

financial point of view, to the holders of 

Genzyme Common Stock (other than 

Sanofi and its affiliates). It did not 

address any other aspect of the 

Transactions or any other agreement, 

arrangement or understanding entered 

into in connection with the 

Transactions, including the fairness of 

the amount or nature of any 

compensation paid to any officers, 

directors or employees of any party to 

the Transactions, or class of such 

persons, relative to the Merger 

Consideration or otherwise. In addition, 

Credit Suisse did not express any 

opinion as to the price at which the 

CVRs would trade at any time or as to 

the solvency or viability of Genzyme or 

Sanofi or the ability of Genzyme or 

Sanofi to pay its obligations, including 


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in respect of the CVRs, when they come 

due. 

Credit Suisse issued its opinion with 

the understanding that the opinion 

would be for the information of the 

Board of Directors of Genzyme in 

connection with its consideration of the 

Transactions and would not constitute 

advice or a recommendation to any 

holder of Genzyme Common Stock as to 

whether or not such holder should 

tender such Shares in connection with 

the Exchange Offers, or how such 

stockholder should vote or act on any 

matter relating to the proposed Merger 

or any other matter. The issuance of the 

opinion was approved by an authorized 

internal committee of Credit Suisse. 

16. Goldman Sachs, a full-service 

global investment banking and 

securities firm, advised Genzyme that 

the Merger Consideration to be received 

by Genzyme Shareholders in exchange 

for their Shares was also ‘‘fair,’’ from a 

financial point of view. In connection 

with its opinion, Goldman Sachs 

reviewed, among other things, (a) The 

Merger Agreement, (b) annual reports to 

shareholders and Annual Reports on 

Form 10K of Genzyme for the five fiscal 

years ended December 31, 2009; (c) 

certain interim reports to shareholders 

and Quarterly Reports on Form 10–Q of 

Genzyme; (d) annual reports to 

shareholders and Annual Reports on 

Form 20–F of Sanofi for the five fiscal 

years ended December 31, 2009; (e) 

certain interim reports to shareholders 

and quarterly reports included in 

Reports on Form 6–K of Sanofi; (f) 

certain other communications from 

Genzyme and Sanofi to their respective 

shareholders; (g) certain publicly 

available research analyst reports for 

Genzyme and Sanofi; (h) the Tender 

Offer Statement on Schedule TO filed 

by Sanofi and the Purchaser, with the 

SEC on October 4, 2010, as amended 

through Amendment No. 14 to the 

Tender Offer Statement on Schedule TO 

filed by Sanofi and the Purchaser with 

the SEC on February 9, 2011; (i) The 

Solicitation/Recommendation Statement 

of Genzyme filed on Schedule 14D–9 

filed by Genzyme with the SEC on 

January 31, 2011; (j) and certain 

financial analyses and forecasts for 

Genzyme prepared by its management, 

including management’s updated 

forecasts and its assessments as to the 

probability and estimated timing of 

achievement of the Approval Milestone, 

the Product Sales Milestones and the 

Production Milestone (each as defined 

in the CVR Agreement) approved for 

Goldman Sachs’ use by Genzyme (the 

Forecasts). Goldman Sachs also (a) Held 

discussions with members of the senior 

management of Genzyme regarding the 

past and current business operations, 

financial condition and future prospects 

of Genzyme; (b) reviewed the reported 

price and trading activity for the Shares; 

(c) compared certain financial and stock 

market information for Genzyme and 

Sanofi with similar information for 

certain other companies the securities of 

which are publicly traded; (d) reviewed 

the financial terms of certain recent 

business combinations in the 

biotechnology industry and in other 

industries; and (e) performed such other 

studies and analyses, and considered 

such other factors, as they deemed 

appropriate. 

For purposes of rendering its opinion, 

Goldman Sachs relied upon and 

assumed, without assuming any 

responsibility for independent 

verification, the accuracy and 

completeness of all the financial, legal, 

regulatory, tax, accounting and other 

information provided to, discussed with 

or reviewed by, Goldman Sachs; and 

Goldman Sachs does not assume any 

responsibility for any such information. 

In that regard, Goldman Sachs assumed 

with Genzyme’s consent that the 

forecasts were reasonably prepared on a 

basis reflecting the best currently 

available estimates and judgments of the 

management of Genzyme. Goldman 

Sachs also did not make an independent 

evaluation or appraisal of the assets and 

liabilities (including any contingent, 

derivative or other off-balance-sheet 

assets and liabilities) of Genzyme, 

Sanofi or any of their respective 

subsidiaries and they were not 

furnished with any such evaluation or 

appraisal. Furthermore, Goldman Sachs 

assumed that all governmental, 

regulatory or other consents and 

approvals necessary for the 

consummation of the Transactions 

would be obtained without any adverse 

effect on Genzyme, Sanofi or on the 

expected benefits of the Transactions in 

any way meaningful to their analysis. 

Finally, Goldman Sachs assumed that 

the Transactions would be 

consummated on the terms set forth in 

the Merger Agreement, without the 

waiver or modification of any term or 

condition the effect of which would be 

in any way meaningful to its analysis. 

In rendering its opinion, Goldman 

Sachs did not address the underlying 

business decision of Genzyme to engage 

in the Transactions, or the relative 

merits of the Transactions as compared 

to any strategic alternatives that may 

have been available to Genzyme. 

Additionally, Goldman Sachs did not 

address any legal, regulatory, tax or 

accounting matters. Instead, Goldman 

Sachs addressed only the fairness, from 

a financial point of view, of the Merger 

Consideration to be paid to the holders 

of Genzyme Common Stock (other than 

Sanofi and any of its affiliates) pursuant 

to the Merger Agreement, as of February 

16, 2011, the date of its opinion. 

In addition, Goldman Sachs did not 

express any view on, nor did its opinion 

address, any other term or aspect of the 

Merger Agreement, the CVR Agreement 

or the Transactions, or any term or 

aspect of any other agreement or 

instrument contemplated by the Merger 

Agreement, the CVR Agreement or 

entered into or amended in connection 

with the Transactions, including, 

without limitation, the fairness of the 

Transactions to, or any consideration 

received in connection therewith by, the 

holders of any other class of securities, 

creditors, or other constituencies of 

Genzyme; nor as to the fairness of the 

amount or nature of any compensation 

to be paid or payable to any of the 

officers, directors or employees of 

Genzyme, or class of such persons in 

connection with the Transactions. 

Further, Goldman Sachs did not express 

any opinion as to the price at which the 

CVRs would trade at any time or as to 

the impact of the Transactions on the 

solvency or viability of Genzyme or 

Sanofi or the ability of Genzyme or 

Sanofi to pay its obligations when they 

come due. In sum, Goldman Sachs 

based its opinion on economic, 

monetary, market and other conditions 

in effect on, and the information made 

available to it as of, February 16, 2011. 

Goldman Sachs assumed no 

responsibility for updating, revising or 

reaffirming its opinion based on 

circumstances, developments or events 

occurring after that date. 

The advisory services and opinion 

expressed by Goldman Sachs were 

provided for the information and 

assistance of the Board of Directors of 

Genzyme in connection with its 

consideration of the Transactions, and 

such opinion did not constitute a 

recommendation as to whether or not 

any holder of Genzyme Common Stock 

should tender such Shares in 

connection with the Exchange Offer or 

how any holder of Shares should vote 

with respect to the Merger or any other 

matter. The opinion of Goldman Sachs 

was approved by a fairness committee of 

Goldman Sachs. 

Request for Exemptive Relief 

17. Genzyme has requested an 

administrative exemption from the 

Department for (a) The acquisition by 

the Plan of CVRs as a result of the Plan’s 

ownership of Genzyme Common Stock, 

in connection with (i) The purchase of 

Shares of Genzyme Common Stock 

pursuant to the Exchange Offers by the 


srobinson on DSK4SPTVN1PROD with NOTICES2
77618 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

Purchaser, and (ii) the Merger of Sanofi 

into Genzyme; (b) the continued holding 

of CVRs by the Plan; and (c) the resale 

of the CVRs by the Plan to Sanofi, 

pursuant to the exercise of the 

Repurchase Rights available under 

certain circumstances specified in the 

CVR Agreement. If granted, the 

exemption would be effective as of 

April 4, 2011 and it would also apply 

to successor plans to the current Plan. 

Genzyme concluded that if the CVRs 

were to be acquired by the Plan, it 

would be advisable to seek exemptive 

relief from the Department because the 

CVRs would likely be ‘‘employer 

securities,’’ but might not constitute 

‘‘qualifying employer securities,’’ as 

defined in section 407(d)(5) of the Act 

(i.e., stock or marketable obligations). 

The Applicant states that, as registered 

securities issued by Sanofi, the CVRs 

would likely be ‘‘employer securities’’ 

under section 407(d)(1) of the Act 

because Sanofi would be an ‘‘affiliate’’ 

of Genzyme within the meaning of 

section 407(d)(7) immediately following 

the closing of the tender offer inasmuch 

as it would be more than 50% owned by 

Sanofi. However, the Applicant further 

states that it is not clear whether the 

CVRs, although not ‘‘stock,’’ constitute 

‘‘marketable obligations’’ within the 

meaning of section 407 of the Act. 

18. The Applicant represents that if 

the CVRs are employer securities, but 

not qualifying employer securities, the 

Plan’s acquisition and holding of CVRs 

would violate sections 406(a)(1)(E), 

406(a)(2) and 407(a)(1) of the Act, absent 

an administrative exemption. In 

addition, the Applicant represents that 

if Sanofi were to acquire CVRs from the 

Plan pursuant to an exercise of its 

Repurchase Right, the transaction 

would, absent an exemption, constitute 

a sale or exchange of property between 

the Plan and a party in interest, in 

violation of section 406(a)(1)(A) of the 

Act, and a transfer to a party in interest 

of assets of the Plan, in violation of 

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

Moreover, the Applicant states that, to 

the extent Sanofi or an affiliate is a 

fiduciary of the Plan at the time of such 

a transaction, such a fiduciary could be 

viewed, absent an exemption, as dealing 

with Plan assets for the fiduciary’s own 

account, in violation of section 406(b)(1) 

of the Act, or as acting in a transaction 

involving the Plan on behalf of a party 

whose interests are adverse to the 

interests of the Plan or the interests of 

its participants or beneficiaries, in 

violation of section 406(b)(2) of the Act. 

Finally, the Applicant states that 

because the price at which the 

Repurchase Right is exercisable is based 

on an average trading price for the CVRs 

over a forty-five day trailing average, 

circumstances could exist that might 

cause the purchase price to be viewed 

as less than ‘‘adequate consideration’’ 

for purposes of Section 408(e) of the 

Act. 

Rationale for the Transactions 

19. In light of the foregoing 

prohibitions, the Applicant represents 

that Genzyme considered whether it 

would better serve the interests of 

participants and beneficiaries in the 

Plan to remove Genzyme Common 

Stock from the Plan prior to the 

Transactions or to retain Genzyme 

Common Stock in the Plan and apply 

for exemptive relief covering any CVRs 

received by the Plan in the 

Transactions. According to the 

Applicant, Genzyme determined that a 

decision to eliminate Genzyme Common 

Stock from the Plan would deprive 

participants and beneficiaries with 

interests in Genzyme Common Stock of 

the ability to realize the full value of the 

consideration that would be paid to 

other shareholders, by forcing a preclosing sale and effectively depriving 

participants of investment discretion, 

including the discretion to retain an 

investment in CVRs. 

20. The Applicant believes that an 

exemption permitting the Plan to 

acquire and hold CVRs in connection 

with the Transactions is in the interest 

of the Plan’s participants and 

beneficiaries because it maximizes their 

ability to realize the full value of the 

consideration offered in exchange for 

their interests in Genzyme Common 

Stock by continuing to give them the 

discretionary ability to hold or sell the 

employer securities allocated to their 

accounts. The Applicant represents that 

a pre-closing sale of Genzyme Common 

Stock by the Plan would preclude Plan 

participants from choosing to hold CVRs 

within the Plan and thereby retain the 

possibility of substantial future payouts, 

and would instead force them to settle 

for the current implied market value of 

the CVRs. 

21. The Applicant believes that the 

proposed exemption is protective of the 

rights of the Plan’s participants and 

beneficiaries because it permits them to 

realize the same benefits as other 

shareholders in connection with the 

Transactions. The Applicant states that 

the conditions of the exemption would 

ensure that the participants have the 

same rights with respect to CVRs 

allocated to their accounts under the 

Plan as other holders of CVRs, including 

with respect to any repurchase by 

Sanofi. The Applicant further states that 

the Plan’s past acquisition of the CVRs 

was a one-time transaction and the 

proposed exemption is not intended to 

cover any future acquisitions of CVRs by 

the Plan. However, the Applicant 

represents that the Plan would not 

prevent participants from investing in 

CVRs outside the Plan on the same basis 

as unrelated parties. 

In addition, the Applicant represents 

that all rights available to holders of 

CVRs held outside the Plan are available 

on the same basis to participants with 

respect to CVRs held in accounts under 

the Plan. Moreover, the Applicant states 

that during the period in which CVRs 

remain a Plan investment, the retention 

or disposition of CVRs allocated to a 

participant’s or beneficiary’s account 

will be administered in accordance with 

the provisions of the Plan in effect for 

individually-directed investment of 

participant accounts. 

22. The Applicant believes that it is 

administratively feasible to grant the 

proposed exemption because all 

conditions of the exemption either will 

have been satisfied prior to the grant of 

the exemption or are required to be 

satisfied by the documents governing 

issuance of the CVRs. In addition, the 

Applicant represents that the fact that 

the CVRs are registered ensures that the 

regulatory scheme under the 1933 Act 

and the 1934 Act will apply in full force 

to the CVRs. 

23. In summary, the Applicant 

represents that the proposed 

transactions have satisfied or will satisfy 

the statutory requirements for an 

exemption under section 408(a) of the 

Act and section 4975(c)(2) of the Code 

because: 

(a) Plan participants holding Genzyme 

Common Stock received one CVR for 

each Share on the effective date of the 

tender or cancellation of their Shares, in 

connection with the Transactions. 

(b) The acquisition of CVRs by the 

Plan occurred in connection with the 

Transactions on the same terms and in 

the same manner as the acquisition of 

CVRs by all other holders of Genzyme 

Common Stock, other than Sanofi, the 

Purchaser, Genzyme and dissenting 

shareholders. 

(c) The Plan’s acquisition of CVRs 

resulted either from a decision by a 

participant or beneficiary to tender 

Shares allocated to his or her account 

or, following a decision by a participant 

or beneficiary not to tender Shares, by 

reason of the Merger. 

(d) The Plan did not pay any fees or 

commissions in connection with the 

acquisition of the CVRs, nor will it pay 

any fees or commissions in connection 

with the holding or sale of CVRs to 

Sanofi pursuant to an exercise of 

Sanofi’s repurchase right under the CVR 

Agreement. 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77619 

31For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

32EnPro represents that Garlock is currently in 

Chapter 11 Bankruptcy Proceedings in the 

Bankruptcy Court for the Western District of North 

Carolina, but operates in the ordinary course under 

Bankruptcy Court protection from asbestos claims. 

Further, EnPro represents that this bankruptcy 

filing will protect EnPro and its other lines of 

business while permanently resolving asbestos 

claims against Garlock. 

33The Applicant represents that effective January 

1, 2007, future benefit accruals under the Plan were 

frozen for a significant number of then current 

employees of EnPro. As a result, many current 

employees of EnPro who were employed on January 

1, 2007 are entitled to a future benefit under the 

Plan following termination of employment, but no 

longer accrue benefits under the Plan. These nonaccruing current employees are included in the 

number of deferred vested participants under the 

Plan, as well as former employees who are entitled 

to future Plan benefits. 

(e) Credit Suisse Securities and 

Goldman Sachs advised Genzyme that 

the consideration to be received by 

Genzyme Shareholders, including Plan 

participants, in exchange for their 

Shares was ‘‘fair,’’ from a financial point 

of view. 

(f) The Plan has not acquired or held 

CVRs, and will not acquire or hold 

CVRs, other than those acquired in 

connection with the Transactions. 

(g) Plan participants have had and 

will continue to have the same rights 

with respect to CVRs allocated to their 

accounts in the Plan (including with 

respect to any repurchase of CVRs by 

Sanofi) as unrelated parties and they 

may direct the Plan Trustee to sell CVRs 

allocated to their respective accounts at 

any time. 

(h) For so long as CVRs remain a 

permissible Plan investment, the 

retention or disposition by the Plan of 

CVRs allocated to a participant’s or 

beneficiary’s account has been 

administered and will continue to be 

administered in accordance with the 

provisions of the Plan that are in effect 

for individually-directed investment of 

participant accounts. 

Notice to Interesed Persons 

Within fifteen (15) days of the date of 

publication of the proposed exemption 

in the Federal Register, the Applicant 

will provide notice of the proposed 

exemption (consisting of a copy of the 

proposed exemption, as published in 

the Federal Register, and the 

supplemental statement required by 29 

CFR 2570.43(b)(2), (together, the 

Notice)) to all current participants and 

beneficiaries of the Plan. The Applicant 

will provide interested persons with a 

copy of the Notice, as well as an 

explanatory cover letter, by first class 

mail, at its own expense. The Notice 

will specify that the Department must 

receive all written comments and 

requests for a hearing no later than 

thirty (30) days from the last date of the 

mailing of such Notice. Therefore, 

interested persons will have forty-five 

(45) days to provide their written 

comments and/or hearing requests to 

the Department. 

For Further Information Contact: 

Anna Mpras Vaughan of the 

Department, telephone (202) 693–8565. 

(This is not a toll-free number.) 

Retirement Program for Employees of 

EnPro Industries (Plan), Located in 

Charlotte, NC 

[Application No. D–11662] 

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).31 If 

the exemption is granted, the 

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

406(b)(1) and (b)(2) of the Act and the 

sanctions resulting from the application 

of section 4975(c)(1)(A) and (E) of the 

Code, shall not apply, effective July 15, 

2011, to the in kind contribution (the 

Contribution) to the Plan of a 

guaranteed investment contract (the 

Annuity), issued by the Metropolitan 

Life Insurance Company (MetLife), an 

unrelated party, by EnPro Industries, 

Inc. (EnPro or the Applicant); provided 

that the following conditions are 

satisfied: 

(a) A qualified, independent fiduciary 

(the Independent Fiduciary), acting on 

behalf of the Plan, determined whether 

the Contribution was in the interests of 

the Plan and protective of the Plan’s 

participants and beneficiaries; 

(b) The Independent Fiduciary 

reviewed, negotiated and approved the 

terms of the Contribution on behalf of 

the Plan in accordance with the 

fiduciary provisions of the Act; 

(c) A qualified, independent appraiser 

(the Appraiser) determined the fair 

market value of the Annuity prior to the 

Contribution, and it updated such 

valuation on the date of the 

Contribution; 

(d) The Annuity represented 

approximately 19% of the Plan’s assets 

at the time of the Contribution; 

(e) The Plan incurred no fees, 

commissions, or other charges or 

expenses in connection with the 

Contribution; 

(f) The terms of the Contribution were 

no less favorable to the Plan than the 

terms negotiated at arm’s length under 

similar circumstances between 

unrelated parties; and 

(g) EnPro amended the Investment 

Policy Statement for the Plan in 

conformity with the recommendations 

of the Independent Fiduciary prior to 

the Contribution. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of July 15, 2011. 

Summary of Facts and Representations 

1. EnPro, based in Charlotte, NC, and 

its companies manufacture and market 

a variety of industrial products. EnPro’s 

businesses include: Garlock Sealing 

Technology (Garlock), a manufacturer of 

gaskets and sealing systems; 32 GGB, a 

manufacturer of various types of 

lubricated plain bearings; Stemco, a 

manufacturer of wheel-end component 

parts and long-life systems in the 

medium- and heavy-duty truck and 

trailer markets; Compressor Products 

International, a leading supplier of 

sealing components and services for 

reciprocating compressors used in 

chemical plants, refineries and natural 

gas processing and transmission; and 

Fairbanks Morse Engine, which 

manufacturers diesel and dual fuel 

engines and provides parts and services 

for such engines. EnPro stock is publicly 

traded on the New York Stock Exchange 

under the symbol ‘‘NPO.’’ EnPro 

operates manufacturing facilities 

throughout the world and employs 

approximately 5,000 employees. EnPro 

also sponsors several employee benefit 

plans, including the Plan. 

2. The Plan, which is closed to new 

participants, is a defined benefit plan 

covering U.S.-based hourly and salaried 

employees of EnPro. As of January 26, 

2011, the Plan had 1,400 active 

employees and 1,400 deferred vested 

and retirees eligible for benefits under 

the Plan.33 As of January 1, 2011, the 

Plan had assets of $112,488,412 and 

accumulated benefit obligations of 

$179,539,776. 

The named fiduciary of the Plan is the 

EnPro Industries, Inc. Benefits 

Committee (the Committee). The 

Vanguard Fiduciary Trust Company 

serves as the Plan’s trustee. The 

Committee appointed Evercore Trust 

Company, N.A. (Evercore) to serve as 

Independent Fiduciary for the Plan with 

respect to the Contribution. 

3. The Plan also constitutes a single 

plan that is comprised of three separate 

plan documents, which reflect different 

benefit formulas for (a) The EnPro 

Industries, Inc. Retirement Program for 

Salaried Employees; (b) the EnPro 

Industries, Inc. Retirement Program for 

Hourly Employees; and the (c) Pension 


srobinson on DSK4SPTVN1PROD with NOTICES2
77620 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

34Pursuant to the terms of the CIOC Settlement, 

Coltec, as successor of CIOC, provided 

approximately $2 million of additional funding to 

the CIOC Trust following the January 1, 1995 

valuation. However, Coltec was not required to 

provide additional funding to such trust following 

the January 1, 2005 valuation and withdrew a 

portion of funds available in the Grantor Trust in 

accordance with the terms of the CIOC Settlement. 

35EnPro represents that the assets of the Grantor 

Trust have always been assets of EnPro’s corporate 

predecessors or EnPro and, as such, they have never 

been plan assets. 

36According to the most recent actuarial 

valuations, the CIOC Trust’s assets are more than 

sufficient to meet all of it funding needs. Therefore, 

Coltec will not be required to provide additional 

funding to the CIOC Trust in 2015. Further, in the 

unlikely event additional funding would be 

required, under an analysis of the ‘‘worst case 

scenario,’’ the maximum contribution from the 

Grantor Trust would be $2.7 million. This amount 

is far below the approximated value of $22 million 

held in the Grantor Trust prior to its termination 

(See Representation 7). 

Plan Between Quincy Compressor 

Division and Lodge 822 of the 

International Association of Machinists 

and Aerospace Workers. 

The Origins of the Annuity 

4. The Annuity, that is the subject of 

this exemption request, was formerly an 

asset of a grantor trust (the Grantor 

Trust) established by Colt Industries, 

Inc. and Colt Industries Operating Corp. 

(together, CIOC), predecessors to Coltec 

Industries, Inc. (Coltec), a subsidiary of 

EnPro. The Grantor Trust (a rabbi trust) 

and another trust known as the ‘‘Colt 

Midland Retiree Medical Trust’’ (the 

CIOC Trust) were established in 

connection with the settlement of 

litigation in 1985 to retiree benefits 

involving Coltec (the CIOC Settlement). 

The lawsuit was filed by the United 

Steel Workers of America against Colt 

Industries Operating Corp. on January 5, 

1985. Although the litigation was filed 

and settled before EnPro came into 

existence as an independent 

corporation, the obligations of the 

settlement became EnPro’s obligations 

when it was spun off from the Goodrich 

Corporation in 2002. 

5. Under the terms of the CIOC 

Settlement, CIOC was required to fund 

both the CIOC Trust and the Grantor 

Trust, both of which would be managed 

by independent parties. The CIOC Trust 

was established to fund lifetime retiree 

medical benefits for certain CIOC 

retirees and their dependents and is a 

voluntary employees beneficiary 

association. The CIOC Trust was funded 

with $14,800,000. An actuary was to 

review the funding of the CIOC Trust as 

of June 30, 1994, June 30, 2004, and 

June 30, 2014 to determine the projected 

future costs of providing lifetime 

medical benefits as of January 1, 1995, 

January 1, 2005 and January 1, 2015, 

respectively. If the assets of the CIOC 

Trust fell below pre-set levels on those 

dates, the CIOC Settlement required 

CIOC to provide additional funding to 

the CIOC Trust.34

To ensure that the liability of any 

additional funding obligations would be 

fulfilled, the CIOC Settlement required 

CIOC to establish and fund the Grantor 

Trust.35 The Grantor Trust would serve 

as a supplemental source of funding for 

those benefits only if the CIOC Trust 

was financially unable to fund its 

obligations. The Grantor Trust was 

initially funded with a series of MetLife 

guaranteed annuity contracts, whose 

aggregate funding amount is not known. 

The Grantor Trust also held a group 

annuity contract that was a predecessor 

to the Annuity (the Old Annuity), 

having a face value of $13,781,486. The 

Old Annuity was issued by MetLife to 

the CIOC Trustee on December 11, 1997. 

The Old Annuity paid interest at an 

effective annual rate of 6.82%. It 

permitted the contractholder to 

withdraw $8.4 million on December 31, 

2004 and no less than $26,209,835.28 on 

December 14, 2014, the maturity date. 

If no additional funding was 

necessary as of January 1, 1995, January 

1, 2005 or January 1, 2015, the CIOC 

Settlement permitted CIOC to withdraw 

a portion of the assets of the Grantor 

Trust. Further, any assets remaining in 

the Grantor Trust after January 1, 2015, 

subject to the fulfillment of any 

contribution due to the CIOC Trust, 

would revert to CIOC.36

6. On May 25, 2010, Coltec reached an 

agreement with the trustees of the CIOC 

Trust and the Grantor Trust that would 

allow the transfer of ownership of the 

Old Annuity to EnPro. The agreement 

required that Coltec would make a onetime $900,000 cash payment to the 

CIOC Trust to be used by the CIOC 

trustees for any purpose permitted 

under the CIOC Trust. The parties also 

agreed that the Old Annuity would be 

split into two contracts. The first 

contract would have a value of $2.3 

million. It would be transferred to an 

escrow account (the Escrow Account) in 

the name of Coltec and the CIOC Trust 

to ensure that funds would be available 

to the CIOC Trust regardless of the 

financial condition of Coltec. The 

second contract, the current Annuity, 

would have a remaining value of 

approximately $17.85 million and 

would be eventually issued to EnPro. 

The parties also agreed that EnPro 

would guarantee the performance of 

Coltec’s funding obligations with 

respect to the CIOC Trust and the 

Escrow Account and that it would be 

prudent for the parties to seek judicial 

approval since the process would 

involve modification of the CIOC 

Settlement. 

7. In June 2010, this matter was 

presented to the United States District 

Court for the Western District of 

Pennsylvania (the Court), which had 

jurisdiction over the retiree medical 

benefits litigation and had retained 

jurisdiction over the CIOC and the 

Grantor Trusts pursuant to the CIOC 

Settlement. As a condition of approval, 

the Court required notice to, and an 

opportunity to comment from, the CIOC 

Trust beneficiaries. Following the notice 

period, the Court set a hearing on July 

27, 2010. The settlement agreement 

transferring ownership of the Annuity to 

EnPro and establishment of the Escrow 

Account was approved by the Court on 

July 27, 2010. As permitted by the 

Court’s order, the escrow account was 

funded and the Grantor Trust was 

terminated. Unencumbered title to the 

portion of the Old Annuity not 

deposited in the Escrow Account is 

vested in EnPro. 

The Annuity 

8. On January 7, 2011, Metlife issued 

a new group annuity contract, the 

Annuity, naming EnPro as the 

contractholder. The Annuity had a face 

value of $17,852,632.22 on the date of 

issuance. Under the terms of the 

Annuity, Metlife will pay the Annuity’s 

contractholder, in a single payout, no 

less than $23,214,698.70 on December 

31, 2014. Metlife will credit interest, 

payable at a fixed rate, on amounts in 

the Annuity’s funding account. Such 

interest will be credited at a rate 

compounded daily equivalent to an 

effective annual rate of 6.82%. The 

Annuity is fully funded and does not 

require any further payments to MetLife 

by any person. The Annuity also does 

not permit early withdrawal, including 

payment of Plan benefits prior to the 

final maturity date. 

The Transaction 

9. On July 15, 2011, EnPro 

contributed the Annuity to the Plan in 

order to meet its funding obligations 

under the Act. Therefore, EnPro 

requests an administrative exemption 

from the Department for the 

Contribution. Absent an exemption, the 

Contribution to the Plan by EnPro, a 

party in interest, would violate section 

406(a)(1)(A) of the Act. Additionally, 

because EnPro is also a fiduciary with 

respect to the Plan, the Contribution 

would violate sections 406(b)(1) and (2) 

of the Act. 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77621 

Annuity Appraisals 

10. In an April 25, 2011 letter, the 

Cognient Group, LLC of Chicago, IL 

confirmed and acknowledged its status 

as a qualified, independent appraiser on 

behalf of Evercore, the Independent 

Fiduciary. The Appraiser has also 

worked for the Independent Fiduciary 

(and its predecessor) on other types of 

assignments. However, prior to this 

engagement, the Appraiser had not 

provided financial advisory services to 

EnPro or its retirement plans. The 

Appraiser represents that its fee from 

this assignment represents less than 1% 

of its annual gross income. 

The Appraiser states that it has been 

involved as an independent financial 

adviser to plan fiduciaries for over 25 

years in numerous ERISA securities 

transactions. Prior to its 2009 formation, 

the Appraiser explains that most of its 

professionals had spent a majority of 

their professional careers at the 

financial services and business 

valuation firm of Duff & Phelps for 

approximately 25 years. The Appraiser’s 

professionals have represented 

independent fiduciaries and company 

plan committees in numerous ERISArelated transactions. 

The Appraiser represents that its 

ERISA-related work for clients includes 

contributions of large blocks of 

restricted securities to public company 

retirement plans and the sale of 

securities to employee stock ownership 

plans for both publicly-traded and 

closely-held companies. Such securities 

have also included certain fixed income 

securities, such as guaranteed 

investment contracts. 

11. In a valuation analysis (the 

Appraisal), the Appraiser valued the 

Annuity initially at $20,709,088 as of 

March 15, 2011. The Appraiser valued 

the Annuity based on the expected cash 

flows discounted at a rate that 

appropriately reflected the risk of the 

Contractholder receiving full payment 

on the final payment date. For the cash 

flow analysis, the Appraiser noted that 

the Annuity’s funding account had a 

balance of $18,024,481.02 as of February 

28, 2011 and that interest accrued on 

this balance at a rate, compounded 

daily, equivalent to an effective annual 

rate of 6.82%. This would result in a 

projected funding account balance of 

$23,227,291 as of December 31, 2014. 

12. In order to select the appropriate 

discount rate to apply to the expected 

lump sum payment on December 31, 

2014, the Appraiser reviewed MetLife’s 

credit ratings and recent bond offerings. 

The Appraiser noted that the major 

credit rating firms currently rate 

Metlife’s senior unsecured corporate 

bonds at investment grade and that 

Metlife was rated ‘‘A-’’ by Standard and 

Poor’s, ‘‘A3’’ by Moody’s Investors 

Service and ‘‘A-’’ by Fitch. The 

Appraiser also considered publicly 

traded MetLife bonds maturing in 2014 

and 2015. The first was a $350 million 

bond due on June 30, 2014 with a 

coupon rate of 5.5% or current yield to 

maturity of 2.59%. The second was a 

$1,000 million due June 30, 2015 with 

a coupon rate of 5.0% or current yield 

to maturity of 2.95%. In addition, the 

Appraiser represents that MetLife issued 

$1,000 million in new unsecured bonds 

due February 6, 2014 at a coupon rate 

of 2.375%. Based on this information, 

the Appraiser determined that the 

appropriate discount rate for the 

Annuity, given its maturity date of 

December 31, 2014, was 3.02% as of 

March 15, 2011. According to the 

Appraiser, this discount rate would 

reflect current MetLife market bond 

yields and the non-publicly traded 

nature of the Contract. 

The Appraiser then applied the 

discount rate to the projected funding 

account balance for the annuity of 

$23,227,291 as of December 31, 2014. 

After applying the discount rate and 

considering the Annuity’s time to 

maturity from March 15, 2011 to 

December 31, 2014 (1,387 days), the 

Appraiser determined that the 

Annuity’s present value was 

$20,709,088 as of March 15, 2011. Thus, 

the annuity would represent 

approximately 18% of the Plan’s assets. 

13. The Appraiser updated the 

Appraisal (the Appraisal Update) on the 

date of the Contribution. In the 

Appraisal Update, the Appraiser placed 

the fair market value of the Annuity at 

$21,406,713 as of July 15, 2011. 

Although the Appraiser utilized the 

same valuation methodology in the 

Appraisal Update as it had done in the 

Appraisal, there were differences in the 

amounts previously calculated. For 

example, in the cash flow analysis, the 

Appraiser noted that the Annuity’s 

funding account balance had increased 

to $18,426,370.25, in contrast to the 

$18,024,418.02 balance originally 

determined in the Appraisal. Thus, 

because of a change in the daily interest 

rate, the projected funding account 

balance for the Annuity as of December 

31, 2014 in the Appraisal Update would 

be $23,223,092, instead of $23,227,291, 

as evidenced in the Appraisal. 

Additionally, the Appraiser 

determined, in the Appraisal Update, 

that the appropriate discount rate for the 

Annuity was 2.35% instead of 3.02%, 

which was the rate set forth in the 

Appraisal. In applying the July 15, 2011 

discount rate of 2.35% to the Annuity’s 

projected funding balance of 

$23,223,092 as of December 31, 2014, 

and considering the Annuity’s time to 

maturity (i.e., 1,265 days instead of 

1,387 days), the Appraiser calculated 

the Annuity’s fair market value at 

$21,406,713 as of July 15, 2011. This 

amount represented an increase from 

the $20,709,088 fair market value of the 

Annuity as of March 15, 2011 that was 

set forth in the Appraisal. The fair 

market value of the Annuity also 

represented approximately 19% of the 

Plan’s assets at the time of the 

Contribution. 

Independent Fiduciary’s 

Recommendation 

14. Pursuant to engagement letter 

executed on October 6, 2010 (the 

Engagement Letter), EnPro retained 

Evercore as the Independent Fiduciary 

to determine whether the proposed 

Contribution was in the interests of the 

Plan and its participants and 

beneficiaries. The Independent 

Fiduciary represents that it is 

independent of and unrelated to EnPro 

and that (a) It does not directly or 

indirectly control, is not controlled by, 

and is not under common control with 

EnPro; (b) neither it, nor any of its 

officers, directors, or employees is an 

officer, director, partner or employee of 

EnPro (or is a relative of such person); 

and (c) it does not directly or indirectly 

receive any compensation or other 

consideration for its own account in 

connection with the Contribution, 

except that the Independent Fiduciary 

may receive compensation from EnPro 

for performing the services described in 

the Engagement Letter as long as 

amount of such payment is not 

contingent upon or in any way affected 

by the Independent Fiduciary’s ultimate 

decision. 

The Independent Fiduciary also 

represents that its total fee in 

connection with the subject exemption 

application represents less than 1% of 

its 2010 gross business income. The 

Independent Fiduciary further 

represents that it acknowledges and 

understands its duties, responsibilities 

and liabilities under the Act in acting as 

a fiduciary on behalf of the Plan with 

respect to the proposed transaction. 

15. The Independent Fiduciary 

represents that it is a national trust 

bank, chartered by the U.S. Office of the 

Comptroller of Currency. The 

Independent Fiduciary, which formerly 

comprised U.S. Trust’s Special 

Fiduciary Services division, states that 

it has served as an independent 

fiduciary to employee benefit plans 

since 1987, including serving as an 

independent fiduciary to qualified plans 


srobinson on DSK4SPTVN1PROD with NOTICES2
77622 Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 

37 In this regard, the Independent Fiduciary 

reviewed and approved the methodology used by 

the Appraiser and ensured that such methodology 

was properly applied in determining the fair market 

value of the Annuity on the date of the 

Contribution. 

38The Independent Fiduciary explains that zero 

coupon bonds make no coupon payments and 

investors in such bonds receive par value at the 

time of maturity but no interest payments. Such 

bonds are issued at prices that are considerably 

below par value and the return comes solely from 

the difference between the issue price and the 

payment of par value at maturity. The holder of the 

Annuity, similarly, will receive no interest payment 

in installments, but will get a lump sum payment 

at maturity. 

in connection with prior exemptions 

granted by the Department. The 

Independent Fiduciary also asserts that 

it has extensive experience in serving as 

an independent fiduciary to defined 

benefits plans in connection with 

proposed contributions to such plans of 

qualifying employer securities. 

16. In its Engagement Letter, a March 

29, 2011 report, and a July 29, 2011 

supplemental report, the Independent 

Fiduciary agreed to perform the 

following duties on behalf of the Plan: 

(a) Determine whether to accept the 

proposed Contribution, subject to the 

Department’s grant of an exemption; (b) 

cause the Appraiser, acting as Evercore’s 

independent valuation expert, to 

prepare a report as to the fair market 

value of the Annuity; 37 (c) negotiate the 

terms and conditions of the proposed 

Contribution; and (d) render an opinion 

suitable for submission to the 

Department in connection with this 

exemption request. 

17. In making its determinations 

about the Contribution, the Independent 

Fiduciary explains that it considered 

several factors. These included the 

exemption application, the Annuity, the 

Appraisal, the Appraiser’s spreadsheet 

analysis of the Annuity, the Plan’s 

Investment Annuity Statement, 

communications between EnPro and its 

outside counsel and a statement from 

Towers Watson, the Plan’s actuary, that 

the Plan had sufficient assets to cover 

benefit payments through December 

2014. After reviewing the Appraisal, the 

Independent Fiduciary determined that 

the Appraiser’s valuation approach was 

appropriate. 

18. The Independent Fiduciary 

represents that the Plan’s assets 

declined during the recent recession 

and have yet to recover fully. For Plan 

Year 2011, the Independent Fiduciary 

explains that EnPro owed the Plan 

required minimum contributions 

totaling approximately $20 million and 

that it intended to make a first quarter 

cash contribution of $3 million. (On 

April 11, 2011, EnPro contributed 

$3,478,251 to the Plan.) 

The Independent Fiduciary states that 

EnPro estimates that it will owe the Plan 

annual contributions of $21 to $24 

million per year from 2011 through 

2014. These contributions, according to 

the Independent Fiduciary, could 

impact EnPro’s financial strength, limit 

its operating goals and impair its ability 

to maintain the Plan in its current form. 

19. The Annuity, valued at 

$21,406,173 as of July 15, 2011, exceeds 

the amount of the required minimum 

contribution for Plan Year 2011, the 

Independent Fiduciary explains. Once 

contributed to the Plan, the Annuity 

would provide the Plan with assets in 

excess of $24 million. This, in the 

Independent Fiduciary’s view, would 

give the Plan an incremental benefit of 

more than $4 million over its required 

minimum contribution for Plan Year 

2011. 

20. The Independent Fiduciary also 

explains that it considered the quality of 

the Annuity. In this regard, the 

Independent Fiduciary states that the 

Annuity is very similar to a zero coupon 

bond.38 The Independent Fiduciary 

represents that were the Plan to 

purchase a zero coupon bond with a 

similar time to maturity, from an issuer 

with a similar credit profile as MetLife, 

the Plan would not likely obtain a better 

quality investment. Instead, the Plan 

would receive an asset with a face value 

of $17,852,632.22 and a fair market 

value of $21,406,713 as of July 15, 2011. 

Such asset would generate a return of 

6.82% from face value and 2.35% from 

fair market value until the date of 

maturity on December 31, 2014, 

according to the Independent Fiduciary. 

Were the Plan to invest in a similar 

bond, i.e., a bond with a similar time to 

maturity from an issuer with a similar 

credit profile, the Independent 

Fiduciary explains that the return from 

fair market value or yield to maturity of 

that hypothetical bond would be no 

better than the Annuity. 

With respect to Plan benefits, the 

Independent Fiduciary notes that 

should the Department deny this 

exemption, one of the options available 

to EnPro is to impose benefit restrictions 

on Plan participants. However, the 

Applicant represents that the 

Contribution of the Annuity, in lieu of 

cash, should not have a detrimental 

effect on the Plan’s ability to pay 

benefits from the Contribution date until 

the maturity date of the Annuity. The 

Independent Fiduciary, after confirming 

with the Plan’s actuary, represents that 

the Plan is in a position to meet its 

benefit obligations from the date of the 

Contribution until the maturity date of 

the Annuity on December 31, 2014. 

21. The Independent Fiduciary 

represents that based on its review and 

analysis of the Contribution and the 

Appraisal, the Contribution was in the 

interests of the Plan and its participants 

and beneficiaries. Furthermore, the 

Independent Fiduciary has determined 

that the Contribution was fair and 

reasonable, and it approved the Plan’s 

acceptance of the Annuity. 

22. Finally, the Independent 

Fiduciary requested that EnPro amend 

its Investment Policy Statement for the 

Plan (the Investment Policy Statement). 

This document was silent with regard to 

the Contribution of the Annuity. The 

value of the Annuity would have 

violated certain diversification 

guidelines because the Plan’s 

Investment Policy Statement, prior to 

the Contribution, limited fixed income 

investments (with the exception of fixed 

income explicitly guaranteed by the 

United States) to less than 5% of the 

Plan’s assets. EnPro represents that at 

the time of the Contribution, the value 

of the Annuity would exceed the 

diversification guidelines under the 

Plan’s Investment Policy Statement. 

Accordingly, the Independent Fiduciary 

confirmed that the Plan’s Investment 

Policy Statement was amended by 

EnPro to permit the Contribution. 

Rationale for the Proposed Contribution 

23. The Applicant represents that the 

Contribution was administratively 

feasible because it was a one-time 

transaction that would be easy to review 

and audit. In addition, the Plan was not 

required to pay any fees, commissions 

or expenses in connection therewith. 

Moreover, the Independent Fiduciary 

had been engaged to determine whether 

to accept the Annuity, and, if so, the 

value of the Annuity for Contribution 

and funding purposes. In this regard, 

the Independent Fiduciary (a) Reviewed 

and approved the methodology used by 

the Appraiser, (b) ensured that such 

methodology was properly applied in 

determining the fair market value of the 

Annuity on the date of the Contribution, 

and (c) determined whether it was 

prudent to go forward with the 

transaction. Finally, EnPro would value 

the Annuity annually with the 

assistance of the Appraiser or another 

qualified, independent appraiser. 

EnPro states that the Contribution was 

also in the interests of the Plan and its 

participants and beneficiaries because 

the Plan realized an additional 

contribution of approximately $4 

million above the estimated required 

minimum contribution for Plan Year 

2011. In addition, the Plan obtained, 

with no transaction costs, a high-quality 

instrument backed by MetLife. Further, 


srobinson on DSK4SPTVN1PROD with NOTICES2
Federal Register / Vol. 76, No. 239 / Tuesday, December 13, 2011 / Notices 77623 

EnPro states that the Contribution was 

protective of the rights of the Plan’s 

participants and beneficiaries because 

the Plan would be in a position to meet 

its benefit obligations from the date of 

the Contribution until the maturity date 

of the Annuity on December 31, 2014. 

EnPro notes that the Annuity pays a 

daily effective interest rate equivalent to 

a 6.82% annual interest rate and states 

that the Plan would not likely find a 

zero coupon bond with a better interest 

rate. 

Summary 

24. In summary, the Applicant 

represents that the Contribution 

satisfied the statutory requirements for 

an exemption under section 408(a) of 

the Act because: 

(a) The Independent Fiduciary, acting 

on behalf of the Plan, determined 

whether the Contribution was in the 

interests of the Plan and protective of 

the Plan’s participants and beneficiaries; 

(b) The Independent Fiduciary 

reviewed, negotiated and approved the 

terms of the Contribution on behalf of 

the Plan in accordance with the 

fiduciary provisions of the Act; 

(c) The Appraiser determined the fair 

market value of the Annuity prior to the 

Contribution and it updated such 

valuation on the date of the 

Contribution; 

(d) The Annuity represented 

approximately 19% of the Plan’s assets 

at the time of the Contribution; 

(e) The Plan incurred no fees, 

commissions, or other charges or 

expenses in connection with the 

Contribution; 

(f) The terms of the Contribution were 

no less favorable to the Plan than the 

terms negotiated at arm’s length under 

similar circumstances between 

unrelated parties; and 

(g) EnPro amended the Plan’s 

Investment Policy Statement in 

conformity with the recommendations 

of the Independent Fiduciary prior to 

the Contribution. 

Notice to Interested Parties 

Notice of the proposed exemption 

will be given to interested persons 

within 10 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 or personal delivery. 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 40 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

For Further Information Contact: Mr. 

Anh-Viet Ly of the Department at (202) 

693–8648. (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 7th day of 

December, 2011. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2011–31741 Filed 12–12–11; 8:45 am] 

BILLING CODE 4510–29–P 


srobinson on DSK4SPTVN1PROD with NOTICES2