67654 Federal Register / Vol. 83, No. 248 / Friday, December 28, 2018 / Notices 

1The Department has considered exemption 

applications received prior to December 27, 2011 

under the exemption procedures set forth in 29 CFR 

part 2570, subpart B (55 FR 32836, 32847, August 

10, 1990). 

2For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, should be read to refer 

as well to the corresponding provisions of the Code. 

3The Summary of Facts and Representations is 

based solely on the representations of the Applicant 

and does not reflect the views of the Department, 

unless indicated otherwise. 

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). If granted, these proposed 

exemptions allow designated parties to 

engage in transactions that would 

otherwise be prohibited provided the 

conditions stated there in are met. This 

notice includes the following proposed 

exemptions: D–11924, The Les Schwab 

Tire Centers of Washington, Inc., the Les 

Schwab Tire Centers of Boise, Inc., and 

the Les Schwab Tire Centers of 

Portland, Inc.; D–11918, Seventy Seven 

Energy Inc. Retirement & Savings Plan; 

D–11940, Tidewater Savings and 

Retirement Plan; and D–11947, 

Principal Life Insurance Company 

(PLIC) and its Affiliates. 

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, by 

February 11, 2019. 

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 via mail to the Employee 

Benefits Security Administration 

(EBSA), Office of Exemption 

Determinations, U.S. Department of 

Labor, 200 Constitution Avenue NW, 

Suite 400, Washington, DC 20210. 

Attention: Application No._ stated in 

each Notice of Proposed Exemption or 

via private delivery service or courier to 

the Employee Benefits Security 

Administration (EBSA), Office of 

Exemption Determinations, U.S. 

Department of Labor, 122 C St. NW, 

Suite 400, Washington, DC 20001. 

Attention: Application No._ stated in 

each Notice of Proposed Exemption. 

Interested persons are also invited to 

submit comments and/or hearing 

requests to EBSA via email or FAX. Any 

such comments or requests should be 

sent either by email to: e-OED@dol.gov, 

by FAX to (202) 693–8474, or online 

through http://www.regulations.gov 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–1515, 200 Constitution 

Avenue NW, Washington, DC 20210. 

WARNING: All comments will be 

made available to the public. Do not 

include any personally identifiable 

information (such as Social Security 

number, name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the internet and can be 

retrieved by most internet search 

engines. 

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department, 

unless otherwise stated in the Notice of 

Proposed Exemption, within 15 days of 

the date of publication in the Federal 

Register. Such notice shall include a 

copy of the notice of proposed 

exemption as published in the Federal 

Register and shall inform interested 

persons of their right to comment and to 

request a hearing (where appropriate). 

The proposed exemptions were 

requested in applications filed pursuant 

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

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

accordance with procedures set forth in 

29 CFR part 2570, subpart B (76 FR 

66637, 66644, October 27, 2011).1

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

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

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 

The Les Schwab Tire Centers of 

Washington, Inc. (Les Schwab 

Washington), the Les Schwab Tire 

Centers of Boise, Inc. (Les Schwab 

Boise), and the Les Schwab Tire Centers 

of Portland, Inc. (Les Schwab Portland), 

(collectively, with their Affiliates, Les 

Schwab or the Applicant) Located in 

Aloha, Oregon; Boise, Idaho; Centralia, 

Washington; and Other Locations 

[Application No. D–11924]. 

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 (76 FR 66637, 66644, 

October 27, 2011).2 If the proposed 

exemption is granted, the restrictions of 

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

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

the sanctions resulting from the 

application of section 4975 of the Code, 

by reason of sections 4975(c)(1)(A), 

4975(c)(1)(D) and 4975(c)(1)(E) of the 

Code, shall not apply to the sales (each 

a ‘‘Sale’’ or collectively, the ‘‘Sales’’) by 

the Les Schwab Profit Sharing 

Retirement Plan (the Plan) of the parcels 

of real property described herein (each, 

a ‘‘Parcel’’ or collectively, the ‘‘Parcels’’) 

to the Applicant, where the Applicant is 

a party in interest with respect to the 

Plan, provided that certain conditions 

are satisfied. 

Summary of Facts and 

Representations 3

Background 

1. Les Schwab Tire Centers (together 

with its affiliates, Les Schwab) was 

founded by its namesake in 1952 in 

Prineville, Oregon, in order to sell tires, 

batteries and other automotive 

equipment, and provide vehicle 

maintenance services. There are now 

approximately 482 Les Schwab tire and 

automotive service centers located 

primarily in the Northwest and with 

over $1.7 billion in annual sales. Their 


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4The term ‘‘owner-employee’’ is defined under 

section 408(d) of the Act to include persons as 

defined in section 401(c)(3) of the Code, such as an 

employee who owns the entire interest in an 

unincorporated trade or business, or in the case of 

a partnership, a partner who owns more than 10 

percent of either the capital interest or profits 

interest of such partnership. The term ‘‘owneremployee’’ also includes, in relevant part, (a) a 

shareholder-employee, which is an employee or 

officer of an S corporation who owns more than 5 

percent of the outstanding stock of such 

corporation; (b) a member of the family of such 

owner-employee; or (c) a corporation in which such 

shareholder-employee owns, directly or indirectly, 

50% or more of the total combined voting power 

of all classes of voting stock of a corporation or 50% 

or more of the total value of all classes of stock of 

such corporation. 

5The Applicant represents that these leases are 

exempt under section 408(e) of the Act. Section 

408(e) of the Act provides, in pertinent part, that 

the restrictions of sections 406 and 407 of the Act 

shall not apply to the acquisition, sale or lease by 

a plan of qualifying employer real property if—(a) 

such acquisition, sale, or lease is for adequate 

consideration; (b) no commission is charged with 

respect thereto; and (c) the plan is an eligible 

individual account plan. 

6See PTE 2015–18, 80 FR 60503 (October 6, 

2015). 

7Les Schwab represents that, in addition to the 

five parcels covered by PTE 2015–18 and the 19 

parcels covered by this proposed exemption, the 

Plan owns a parcel in Aberdeen, Washington (the 

Aberdeen Parcel) and a parcel in Moscow, Idaho 

(the Moscow Parcel). With respect to the Aberdeen 

Parcel, Les Schwab represents that the Applicant 

has not made a business decision on whether Les 

Schwab Washington will purchase the property. Les 

Schwab represents that, with respect to the Moscow 

Parcel, the option to purchase the property from the 

Plan is not yet exercisable. 

facilities are located in Alaska, 

Washington, Oregon, Montana, Nevada, 

Utah, California, Colorado, and Idaho. 

2. Les Schwab is comprised of 13 

distinct legal entities. Certain entities 

are ‘‘S’’ corporations. The 13 entities 

constitute various controlled groups but 

do not constitute a single controlled 

group. The Form 5500 Annual Report 

for the Plan is filed as a multiple 

employer plan. The thirteen entities do 

include Les Schwab Washington, Les 

Schwab Idaho, Les Schwab Portland, 

and Les Schwab Warehouse Center, Inc. 

(the Warehouse Center). 

3. All entities within the Les Schwab 

controlled groups are owned by Alan 

Schwab, Diana Tomseth, Julie Waibel, 

and Leslie Tuftin (or by trusts for the 

benefit of such individuals and/or their 

children). Mr. Schwab and Ms. Tomseth 

are siblings, and Ms. Waibel and Ms. 

Tuftin are siblings. These four 

individuals are the grandchildren of Les 

Schwab and they are also currently 

employees of the Warehouse Center and 

board members of Les Schwab. The 

Applicant states that each of these four 

individuals is a Plan participant, as well 

as an owner-employee because they 

each own more than 5 percent of the 

stock of Les Schwab.4

4. The Plan is a qualified multipleemployer, defined contribution profitsharing plan located in Bend, Oregon. 

The Plan is sponsored by the Warehouse 

Center. Thirteen employers, including 

Les Schwab Washington, Les Schwab 

Idaho, and Les Schwab Portland 

participate in the Plan. As of December 

31, 2017, the Plan had 7,444 

participants and beneficiaries. Also, as 

of December 31, 2017, the Plan had total 

assets of $730,454,671. The Applicant 

states that the Plan is the sole retirement 

plan available for Les Schwab 

employees. 

5. The Administrative and Investment 

Committee of the Plan (the Committee) 

has the sole discretionary investment 

authority over the Plan and is a named 

fiduciary. The Committee has the 

exclusive right and discretionary 

authority to control, manage and operate 

the Plan. This includes the authority to 

direct the investment of the Plan’s assets 

and to appoint and remove the Plan’s 

Trustees and investment managers. 

The Committee consists of seven 

trustees (the Trustees), who include 

executives and officers of Les Schwab. 

The Trustees are appointed by the Chief 

Executive Officer of the Warehouse 

Center. All of the Trustees are 

employees of the Warehouse Center, 

and some are officers of the Warehouse 

Center and Les Schwab Washington, Les 

Schwab Idaho and Les Schwab 

Portland. 

Parcel Purchases 

6. Over time, the Plan purchased 

twenty-six parcels of real property 

(collectively, the Parcels). As described 

below, following the purchases, the Plan 

entered into leases with various Les 

Schwab entities.5 These Parcels of real 

property were then improved by the 

construction of buildings that were paid 

for by the Les Schwab entities or the 

Plan. Under the terms of the leases, the 

Les Schwab entities or the Plan retained 

title to these buildings. 

The Applicant asserts that the Plan 

was initially motivated to purchase and 

lease the Parcels to Les Schwab as a 

means to provide a secure return on the 

Plan’s investments. In this regard, the 

Plan had intimate knowledge of Les 

Schwab’s business success and 

creditworthiness, and determined that 

leasing the Parcels to Les Schwab was 

a prudent investment decision. 

7. On October 6, 2015, the Department 

issued a notice of final exemption in 

connection with the sale by the Plan to 

the Applicant of five Parcels of real 

property.6 The Applicant seeks a similar 

individual exemption for the Sales of 19 

Parcels on which Les Schwab leases the 

Parcels from the Plan and operates tire 

centers through an affiliate.7 Given that 

Les Schwab has retained title to the 

buildings that have been constructed on 

some of the Parcels, pursuant to the 

terms of the relevant leases, in some 

instances, the purchases do not involve 

the buildings themselves. Each Parcel 

that is the subject of the proposed Sales 

is described below in further detail. 

The Aloha Parcel 

8. The Plan purchased a 1.97-acre 

parcel of property, located at 19100 SW 

Shaw Street in Aloha, Oregon (the 

Aloha Parcel), from an unrelated party 

in October 1986, for a total purchase 

price of $300,194. 

The Plan and Les Schwab Portland 

entered into a lease of the Aloha Parcel 

(the Aloha Parcel Lease), on January 1, 

1987, with the Plan as landlord, and Les 

Schwab Portland, as tenant. Effective as 

of its renewal term commencing January 

1, 2014, the monthly rent is $14,453 per 

month. 

In March 1988, the Plan completed 

the construction of two general 

automotive buildings and the canopy, 

for a total cost of $614,824. Les Schwab 

Portland then constructed a third 

general automotive building for a cost of 

$171,968. 

The Aloha Parcel Lease includes a 

purchase option under which Les 

Schwab Portland has the right to 

purchase the Aloha Parcel. Pursuant to 

the terms of the Aloha Parcel Lease, the 

applicable option price is based on the 

greater of $300,194 plus the landlord’s 

total cost of improvements, or the fair 

market value of the Aloha Parcel, as 

determined by the corresponding 

independent appraisal discussed in 

paragraph 31 (the Independent 

Appraisal). Les Schwab Portland now 

seeks to exercise its option to purchase 

the Aloha Parcel from the Plan. 

The Boise Broadway Parcel 

9. On February 13, 1990, the Plan 

purchased 1.66 acres of land, located at 

2045 Broadway Avenue in Boise, Idaho 

(the Boise Broadway Parcel), from an 

unrelated party, for a total purchase 

price, including closing costs, of 

$398,085. 

On June 1, 1990, the Plan and Les 

Schwab Tire Centers of Boise, Idaho 

(Les Schwab Boise) entered into a 

ground lease of the Boise Broadway 

Parcel (the Boise Broadway Parcel 

Lease), with the Plan, as landlord, and 

Les Schwab Boise, as tenant. On May 1, 

1991, Les Schwab Boise opened a retail 

tire store facility on the Boise Broadway 

Property in a building that it had 

constructed for $437,061. Effective as of 


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the lease renewal term of January 1, 

2016, the monthly rent is $6,163 per 

month. 

The Boise Broadway Parcel Lease 

includes a purchase option under which 

Les Schwab Boise has the right to 

purchase the Boise Broadway Parcel. 

Pursuant to the terms of the Boise 

Broadway Parcel Lease, the applicable 

option price is based on the greater of 

$398,085, plus the landlord’s total cost 

of improvements, or the fair market 

value of the Boise Broadway Parcel, as 

determined by the Independent 

Appraisal. Les Schwab Boise now seeks 

to exercise its option to purchase the 

Boise Broadway Parcel from the Plan. 

The Boise State Street Parcel 

10. On May 12, 1978, the Plan 

purchased 1.41 acres of real property 

located at 6520 West State Street in 

Boise, Idaho (the Boise State Street 

Parcel) from an unrelated party. The 

total purchase price for the Boise State 

Street Parcel was $238,600. The Boise 

State Street Parcel is comprised of: (a) 

Two buildings: A 7,000 square foot 

retail store building, and a 6,400 square 

foot building housing a shop warehouse; 

and (b) two canopy areas, of 1,920 

square feet and 1,400 square feet, that 

are attached to the retail store building. 

On April 1, 1981, the Plan and Les 

Schwab Boise entered into a ground 

lease of a portion of the Boise State 

Street Parcel, with the Plan as landlord, 

and Les Schwab Boise, as tenant (the 

Boise State Street Parcel Lease). The 

Plan purchased additional land in 1988, 

which was added to the leased 

premises. The additional land was used 

for the construction of a brake and 

alignment center to expand Les Schwab 

Boise’s business. The cost of the 

additional land was $42,185. The Plan 

in 1988 constructed a brake and 

alignment building on recentlypurchased land for $137,198. The Plan 

made improvements to the roof system 

in 1989, for which the Plan paid 

$10,807. Effective as of its lease renewal 

term of August 1, 2017, the monthly 

rent for the Boise State Street Parcel is 

$11,977. 

The Boise State Street Parcel Lease 

includes a purchase option under which 

Les Schwab Boise has the right to 

purchase the Boise State Street Parcel. 

Pursuant to the terms of the Boise State 

Street Parcel Lease, the applicable 

option price is based on the greater of 

$103,900 plus the landlord’s total cost 

of improvements, or the fair market 

value of the Boise State Street Parcel, as 

determined by the Independent 

Appraisal. Les Schwab Boise now seeks 

to exercise its option to purchase the 

Boise State Street Parcel from the Plan. 

The Centralia Parcel 

11. On June 18, 1987, the Plan 

purchased a 1.06 acre parcel of real 

property consisting of vacant land 

located at 1211 Harrison Avenue in 

Centralia, Washington (the Centralia 

Parcel) from an unrelated party, for a 

total purchase price, including closing 

costs of $139,909. 

On October 1, 1987, the Plan, as 

landlord, leased the Centralia Parcel to 

Les Schwab Washington, as tenant, 

under the provisions of a ground lease 

(the Centralia Parcel Lease). In 1988, Les 

Schwab Washington completed the 

construction of a building and 

improvements that were suitable for the 

operation of a retail tire store and other 

commercial purposes, at its own 

expense, for a total cost of $347,378. 

Since January 1, 2014, Les Schwab 

Washington has been paying the Plan 

$1,860 per month under the Centralia 

Parcel Lease. 

The Centralia Parcel Lease includes a 

purchase option under which Les 

Schwab Washington has the right to 

purchase the Centralia Parcel. Pursuant 

to the terms of the Centralia Parcel 

Lease, the applicable option price is 

based on the greater of $139,909, or the 

fair market value of the Centralia Parcel, 

as determined by the Independent 

Appraisal. Les Schwab Washington now 

seeks to exercise its option to purchase 

the Centralia Parcel from the Plan. 

The Chehalis Parcel 

12. On April 21, 1980, the Plan 

purchased a 44,615 square foot parcel of 

real property located at 36 N Market 

Boulevard in Chehalis, Washington, 

including the land and a building (the 

Chehalis Parcel), from an unrelated 

party, for a total purchase price of 

$200,000. 

On June 1, 1980, the Plan, as landlord, 

entered into a lease of the Chehalis 

Parcel (the Chehalis Parcel Lease) with 

Les Schwab Washington, as tenant, 

which commenced on September 1, 

1980. Pursuant to the current Chehalis 

Parcel Lease, since August 1, 2017, Les 

Schwab Washington pays the Plan 

monthly rent of $10,487. 

The Plan constructed, at its own 

expense, two buildings and related 

improvements on the Chehalis Parcel 

that were suitable for the operation of a 

retail tire store and other purposes by 

Les Schwab Washington. The cost of the 

building and improvements was 

$286,947. 

The Chehalis Parcel Lease includes a 

purchase option under which Les 

Schwab Washington has the right to 

purchase the Chehalis Parcel. Pursuant 

to the terms of the Chehalis Parcel 

Lease, the applicable option price is 

based on: The greater of (a) $120,000 

plus the Plan’s total cost of 

improvements made on the Chehalis 

Parcel, or (b) the fair market value of 

Chehalis Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Chehalis Parcel 

from the Plan. 

The Ellensburg Parcels 

13. In August 1977, Les Schwab 

Washington purchased approximately 

71,438 square feet of land located at 

1206 South Canyon Road, Ellensburg, 

Washington from unrelated parties for 

$80,000. Les Schwab Washington then 

subdivided the land into three parcels: 

Ellensburg Parcel #1, Ellensburg Parcel 

#2, and Ellensburg Parcel #3. Because 

Les Schwab Washington retained 

Ellensburg Parcel #3, and subsequently 

sold it to an unrelated party, the 

property and lease descriptions below 

pertain solely to Ellensburg Parcels #1 

and #2, which are together referred to 

herein as the ‘‘Ellensburg Parcels.’’ 

In December 1979, Les Schwab 

Washington and the Plan entered into a 

sale and leaseback arrangement, 

whereby Les Schwab Washington sold 

Ellensburg Parcel #1 to the Plan for 

$108,600. Effective January 1, 1980, the 

Plan entered into a lease with Les 

Schwab Washington (the Ellensburg 

Parcel #1 Lease). The Plan paid 

$214,567 to construct a building and 

related improvements suitable for the 

retail tire store and other purposes. Les 

Schwab Washington has been paying 

the Plan $7,503 per month since January 

1, 2016. 

With respect to Ellensburg Parcel #2, 

which shares the same street address as 

Ellensburg Parcel #1, the Applicant 

represents that Les Schwab Washington 

constructed a small general purpose 

commercial building (an alignment 

center) thereon for $85,834. The 

building was subsequently incorporated 

into the Ellensburg Parcel #1 Leases. 

The Ellensburg Parcel #1 Lease 

includes a purchase option under which 

Les Schwab Washington has the right to 

purchase the Ellensburg Parcels. Under 

the terms of the Ellensburg Parcel #1 

Lease, the option price will be the 

greater of $425,232 plus the landlord’s 

total cost of improvements, or the fair 

market value of the Ellensburg Parcels, 

as determined by the Independent 

Appraisal. Les Schwab Washington now 

seeks to exercise the option to purchase 

the Ellensburg Parcels from the Plan. 

The Independence Parcel 

14. In December 1979, the Plan 

purchased a 53,000-square foot parcel of 


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8Marysville Parcel A and Marysville Parcel B are 

together referred to herein as the ‘‘Marysville 

Parcels.’’ 

property located at 1710 Monmouth 

Avenue, Independence, Oregon (the 

Independence Parcel), consisting of land 

and a building from Les Schwab 

Portland for $301,149. 

On January 1, 1980, the Plan began 

leasing the Independence Parcel to Les 

Schwab Portland, under the provisions 

of a written lease (the Independence 

Parcel Lease). Les Schwab Portland has 

been paying the Plan $6,984 per month 

since January 1, 2016. 

The Independence Parcel Lease 

includes a purchase option under which 

Les Schwab Portland has the right to 

purchase the Independence Parcel. 

Pursuant to the terms of the 

Independence Parcel Lease, the 

applicable option price is based on the 

greater of $329,197 plus the landlord’s 

total cost of improvements, or the fair 

market value of the Independence 

Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Independence 

Parcel from the Plan. 

The Lakewood Parcel 

15. On May 31, 1988, the Plan 

purchased two parcels of land, located 

at 3809 Steilacoom Boulevard SW, 

Tacoma, Washington (with the 

additions described below, the 

Lakewood Parcel), and totaling 43,050 

square feet, from unrelated parties, for 

$200,388. On June 1, 1988, the Plan 

entered into a ground lease of one of the 

parcels with Les Schwab Washington, 

for an initial monthly rent of $1,336 (the 

Lakewood Parcel Lease). 

In January 1989, the Plan purchased 

an additional 11,760 square foot parcel 

of land, from unrelated parties, for 

$59,033. Furthermore, in 2002, the Plan 

purchased a 12,000 square foot tract of 

land on the Lakewood Parcel, from 

unrelated parties, for $85,596. In 2005, 

the Plan purchased 7,730 square feet of 

land from unrelated parties, for 

$126,480. Since January 1, 2014, the 

monthly rent for the Lakewood Parcel 

has been $5,429. 

The Lakewood Parcel Lease includes 

a purchase option under which Les 

Schwab Washington has the right to 

purchase the Lakewood Parcel. Pursuant 

to the terms of the Lakewood Parcel 

Lease, the applicable option price is 

based on the greater of $200,388, plus 

the landlord’s total cost of 

improvements, or the fair market value 

of the Lakewood Parcel, as determined 

by the Independent Appraisal. Les 

Schwab Washington now seeks to 

exercise its option to purchase the 

Lakewood Parcel from the Plan. 

The Longview Parcel 

16. On December 18, 1979, Les 

Schwab Washington purchased 1.89 

acres of land located at 1420 Industrial 

Way in Longview, Washington (the 

Longview Parcel) from an unrelated 

party for $86,350. On May 14, 1981, Les 

Schwab Washington sold the Longview 

Parcel to the Plan for $90,704. 

On May 14, 1981, the Plan and Les 

Schwab Washington entered into a 

commercial lease of the land comprising 

the Longview Parcel, with the Plan as 

landlord, and Les Schwab Washington, 

as tenant (the Longview Parcel Lease). 

Since August 1, 2017, the monthly rent 

has been $13,979. 

In 1981, the Plan completed 

improvements on the Longview Parcel 

that included a 14,830 square foot retail 

tire store costing $267,902. Other 

improvements were funded and 

constructed by the Plan in 1983, at an 

expense of $70,174, and in 1986, at an 

expense of $88,773, for a 3,600 square 

foot warehouse building. 

The Longview Parcel Lease includes a 

purchase option under which Les 

Schwab Washington has the right to 

purchase the Longview Parcel. Pursuant 

to the terms of the Longview Parcel 

Lease, the applicable option price is 

based on the greater of $90,704 plus the 

landlord’s total cost of improvements, or 

the fair market value of the Longview 

Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Longview Parcel 

from the Plan. 

The Marysville Parcels 

17. On July 24, 1984, the Plan 

purchased 61,346 square feet of land 

located at 8405 State Avenue, 

Marysville, Washington (Marysville 

Parcel A) from an unrelated party, for a 

total contract price of $235,287. 

Pursuant to a ground lease dated August 

1, 1984, the Plan began leasing the land 

‘‘as is’’ to Les Schwab Washington (the 

Marysville Parcel Lease). Les Schwab 

Washington subsequently completed 

construction of a retail store at its own 

cost in 1985. 

The Plan acquired 26,136 square feet 

of additional land (Marysville Parcel 

B) 8 in March 1999 for a price of 

$160,125. Marysville Parcel B was 

added to the Marysville Parcel Lease, 

effective June 15, 1999. Since August 1, 

2014, the monthly rent charged by the 

Plan to Les Schwab Washington was 

$6,229. 

The Marysville Parcel Lease includes 

a purchase option under which Les 

Schwab Washington has the right to 

purchase the Marysville Parcels. 

Pursuant to the terms of the Marysville 

Parcel Lease, the applicable option price 

is based on the greater of $398,564, or 

the fair market value of the Marysville 

Parcels, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Marysville 

Parcels from the Plan. 

The North Bend Parcel 

18. On June 3, 1988, the Plan 

purchased land located at 610 E North 

Bend Way, North Bend, Washington 

(the North Bend Parcel) from an 

unrelated party for $200,364. On 

September 1, 1988, the Plan and Les 

Schwab Washington entered into a 

ground lease of the land comprising the 

North Bend Parcel, with the Plan as 

landlord, and Les Schwab Washington, 

as tenant (the North Bend Parcel Lease). 

In 1991, Les Schwab Washington 

opened a 3,500-square-foot retail tire 

store facility on the North Bend Parcel 

that it had constructed for $878,000. 

Since January 1, 2014, the monthly rent 

charged to Les Schwab Washington has 

been $2,578. 

The North Bend Parcel Lease includes 

a purchase option under which Les 

Schwab Washington has the right to 

purchase the North Bend Parcel. 

Pursuant to the terms of the North Bend 

Parcel Lease, the applicable option price 

is based on the greater of $200,364 plus 

Landlord’s total cost of improvements, 

or the fair market value of the North 

Bend Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the North Bend 

Parcel from the Plan. 

The Oregon City Parcels 

19. In October 1980, the Plan 

purchased two parcels of land. The first 

parcel comprised of 41,951 square feet 

of land (Oregon City Parcel #1), and the 

second parcel comprised of 42,757 

square feet of land (Oregon City Parcel 

#2), located at 1625 Beavercreek Road, 

Oregon City, Oregon, from an unrelated 

third party for $250,000. In July 1984, 

the Plan sold Oregon City Parcel #2 to 

Les Schwab Portland for $151,000. 

On November 1, 1981, the Plan and 

Les Schwab Portland entered into a 

ground lease of the land comprising 

Oregon City Parcel #1, with the Plan, as 

landlord, and Les Schwab Portland, as 

tenant (the Oregon City Parcel #1 Lease). 

In 1982, Les Schwab Portland opened 

a 7,850-square-foot retail tire store 

facility on Oregon City Parcel #1 that it 


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had constructed for $366,000. Since 

August 1, 2017, the monthly rent 

charged to Les Schwab Portland 

increased to $4,470. 

The Oregon City Parcel #1 Lease 

includes a purchase option under which 

Les Schwab Portland has the right to 

purchase Oregon City Parcel #1. 

Pursuant to the terms of the Oregon City 

Parcel #1 Lease, the applicable option 

price is based on the greater of 

$136,500, or the fair market value of 

Oregon City Parcel #1, as determined by 

the Independent Appraisal. Les Schwab 

Portland now seeks to exercise its 

option to purchase Oregon City Parcel 

#1 from the Plan. 

The Pullman Parcel 

20. In November 1981, the Plan 

purchased 0.77 acres of land, located at 

160 SE Bishop Boulevard in Pullman, 

Washington (the Pullman Parcel), from 

an unrelated party for a total purchase 

price of $75,704. 

On November 10, 1981, the Plan and 

Les Schwab Washington entered into a 

ground lease of the land comprising the 

Pullman Parcel, with the Plan, as 

landlord, and Les Schwab Washington, 

as tenant (the Pullman Parcel Lease). In 

1987, Les Schwab Washington opened a 

7,300-square-foot retail tire store facility 

on the Pullman Parcel that it had 

constructed for $345,000. Since August 

1, 2017, the monthly rent charged to Les 

Schwab Washington has been $3,356. 

The Pullman Parcel Lease includes a 

purchase option under which Les 

Schwab Washington has the right to 

purchase the Pullman Parcel. Pursuant 

to the terms of the Pullman Parcel 

Lease, the applicable option price is 

based on the greater of $80,704, or the 

fair market value of the Pullman Parcel, 

as determined by the Independent 

Appraisal. Les Schwab Washington now 

seeks to exercise its option to purchase 

the Pullman Parcel from the Plan. 

The Silverton Parcel 

21. In November 1986, the Plan 

purchased 1.18 acres of land, located at 

911 North 1st Street in Silverton, 

Oregon (the Silverton Parcel), from an 

unrelated party for a total purchase 

price of $50,739. 

On March 1, 1987, the Plan and Les 

Schwab Portland entered into a ground 

lease of the land comprising the 

Silverton Parcel, with the Plan, as 

landlord, and Les Schwab Portland, as 

tenant (the Silverton Parcel Lease). 

As agreed upon under the Silverton 

Parcel Lease, in 1987, the Plan 

constructed a tire store facility on the 

Silverton Parcel, for a total cost of 

$307,725. In 1992 the Plan funded 

additional improvements on the 

Silverton Parcel at a cost of $153,276. 

Since January 1, 2013, the monthly rent 

charged to Les Schwab Portland has 

been $7,900. 

The Silverton Parcel Lease includes a 

purchase option under which Les 

Schwab Portland has the right to 

purchase the Silverton Parcel. Pursuant 

to the terms of the Silverton Parcel 

Lease, the applicable option price is 

based on the greater of $50,730 plus the 

landlord’s total cost of improvements, or 

the fair market value of the Silverton 

Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Portland now seeks to exercise its 

option to purchase the Silverton Parcel 

from the Plan. 

The Snohomish Parcel 

22. In March 1992, the Plan 

purchased 1.01 acres of land located at 

711 Avenue D, Snohomish, Washington, 

from an unrelated party for an aggregate 

purchase price of $614,534. In January 

1993, the Plan purchased approximately 

0.07 acres of land adjacent to the initial 

tract for $46,800, also from an unrelated 

party. For purposes of this proposed 

exemption, both tracts of land are 

referred to herein as the ‘‘Snohomish 

Parcel.’’ 

On July 1, 1992, the Plan and Les 

Schwab Washington entered into a 

ground lease with the Plan of the initial 

tract of land comprising the Snohomish 

Parcel (the Snohomish Parcel), with the 

Plan as landlord, and Les Schwab 

Washington, as tenant. 

In 1993, Les Schwab Washington 

opened a 14,300-square-foot retail tire 

store facility on the Snohomish Parcel 

that it had constructed for $825,000. 

Since January 1, 2013, the monthly rent 

charged to Les Schwab Washington has 

been $7,283. 

The Snohomish Parcel Lease includes 

a purchase option under which Les 

Schwab Washington has the right to 

purchase the Snohomish Parcel. 

Pursuant to the terms of the Snohomish 

Parcel Lease, the applicable option price 

is based on the greater of $614,534, plus 

the landlord’s total cost of 

improvements, or the fair market value 

of the Snohomish Parcel, as determined 

by the Independent Appraisal. Les 

Schwab Washington now seeks to 

exercise its option to purchase the 

Snohomish Parcel from the Plan. 

The Spanaway Parcel 

23. In January 1985, the Plan 

purchased 0.97 acres of land located at 

16819 Pacific Avenue South, Spanaway, 

Washington (the Spanaway Parcel) from 

an unrelated third party for an aggregate 

purchase price of $283,340. In July 

1990, the Plan purchased a 14,100 

square foot parcel next to the initial 

parcel from an unrelated third party for 

$45,743. In May 1999, the Plan 

purchased an additional 8,000 square 

foot parcel from an unrelated third party 

for $58,000. The three land parcels 

totaling 1.48 acres comprise the 

Spanaway property (the Spanaway 

Parcel). On February 1, 1985, the Plan 

and Les Schwab Washington entered 

into a ground lease of the land 

comprising the initial parcel (the 

Spanaway Parcel Lease), with the Plan, 

as landlord, and Les Schwab 

Washington, as tenant. 

In late 1985, Les Schwab Washington 

opened a 15,000-spare-foot retail tire 

store facility on the Spanaway Parcel 

that it had constructed for $406,000. 

Since August 1, 2015, the monthly rent 

charged to Les Schwab Washington has 

been $6,615. 

The Spanaway Parcel Lease includes 

a purchase option under which Les 

Schwab Washington has the right to 

purchase the Spanaway Parcel. Pursuant 

to the terms of the Spanaway Parcel 

Lease, the applicable option price is 

based on the greater of $329,083, or the 

fair market value of the Spanaway 

Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Spanaway Parcel 

from the Plan. 

The Spokane Parcel 

24. In November 1981, the Plan 

purchased 0.88 acres of land, located at 

8103 North Division Street, Spokane, 

Washington (the Spokane Parcel), from 

an unrelated third party for an aggregate 

purchase price of $205,000. 

On November 10, 1981, the Plan and 

Les Schwab Washington entered into a 

ground lease of the land comprising the 

Spokane Parcel, with the Plan, as 

landlord, and Les Schwab Washington, 

as tenant (the Spokane Parcel Lease). 

In 1982, Les Schwab Washington 

opened a 7,400-square-foot retail tire 

store facility on the Spokane Parcel that 

it had constructed for $263,000. Since 

August 1, 2012, the monthly rent to Les 

Schwab Washington has been $5,175. 

The Spokane Parcel Lease includes a 

purchase option under which Les 

Schwab Washington has the right to 

purchase the Spokane Parcel. Pursuant 

to the terms of the Spokane Parcel 

Lease, the applicable option price is 

based on the greater of $205,172, or the 

fair market value of the Spokane Parcel, 

as determined by the Independent 

Appraisal. Les Schwab Washington now 

seeks to exercise its option to purchase 

the Spokane Parcel from the Plan. 


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9 29 CFR 2570.34(d) requires that an Independent 

Fiduciary provide to the Department, under penalty 

of perjury: (1) A summary of the Independent 

Fiduciary’s qualifications to serve in such capacity; 

(2) a description of any relationship between the 

Independent Fiduciary and a party in interest with 

respect to the transaction or its affiliates; (3) an 

acknowledgement by the Independent Fiduciary of 

its duties and responsibilities under ERISA in 

acting as a fiduciary on behalf of the plan; and (4) 

the percentage of the Independent Fiduciary’s 

current revenue that is derived from any party in 

interest involved in the transaction or its affiliates. 

The Vancouver Andresen Parcel 

25. On October 12, 1989, the Plan 

purchased 0.78 acres of land located at 

2420 NE Andresen Road, Vancouver, 

Washington (the Vancouver Andresen 

Parcel), from an unrelated third party 

for an aggregate purchase price of 

$245,265. 

On January 1, 1990, the Plan and Les 

Schwab Washington entered into a 

ground lease of the land comprising the 

Vancouver Andresen Parcel (the 

Vancouver Andresen Parcel Lease), with 

the Plan, as landlord, and Les Schwab 

Washington, as tenant. 

In 1991, Les Schwab Washington 

opened a 10,300-square-foot retail tire 

store facility on the Vancouver 

Andresen Parcel that it had constructed 

for $557,000. Since January 1, 2015, the 

monthly rent charged to Les Schwab 

Washington has been $3,671. 

The Vancouver Andresen Parcel Lease 

includes a purchase option under which 

Les Schwab Washington has the right to 

purchase the Vancouver Andresen 

Parcel. Pursuant to the terms of the 

Vancouver Andresen Parcel Lease, the 

applicable option price is based on the 

greater of $245,264, or the fair market 

value of the Vancouver Andresen 

Parcel, as determined by the 

Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Vancouver 

Andresen Parcel from the Plan. 

The Vancouver Cascade Park Parcel 

26. On August 26, 1981, the Plan 

purchased 0.69 acres of land located at 

216 SE 118th Avenue, Vancouver, 

Washington (the Vancouver Cascade 

Park Parcel), from an unrelated third 

party for an aggregate purchase price of 

$156,300. 

On July 1, 1983, the Plan and Les 

Schwab Washington entered into a 

ground lease of the land comprising the 

Vancouver Cascade Park Parcel (the 

Vancouver Cascade Park Parcel Lease), 

with the Plan, as landlord, and Les 

Schwab Washington, as tenant. 

In late 1983, Les Schwab Washington 

opened a 13,000-square-foot retail tire 

store facility on the Vancouver Cascade 

Park Parcel that it had constructed for 

$304,000. Since January 1, 2015, the 

monthly rent charged to Les Schwab 

Washington has been $3,765. 

The Vancouver Cascade Park Parcel 

Lease includes a purchase option under 

which Les Schwab Washington has the 

right to purchase the Vancouver 

Cascade Park Parcel. Pursuant to the 

terms of the Vancouver Cascade Park 

Parcel Lease, the applicable option price 

is based on the greater of $156,300, or 

the fair market value of the Vancouver 

Cascade Park Parcel, as determined by 

the Independent Appraisal. Les Schwab 

Washington now seeks to exercise its 

option to purchase the Vancouver 

Cascade Park Parcel from the Plan. 

Terms of the Sales 

27. Each Sale must be a one-time 

transaction for cash. At the time of the 

Sales, the Plan will receive no less than 

the fair market value of each Parcel, as 

determined by the Appraisers, whose 

current Appraisals will be updated on 

the date of the Sales. In this regard, to 

the extent the terms of any lease allow 

a Sale price that is greater than a 

Parcel’s fair market value, then the price 

received by the Plan for such Parcel will 

equal such greater Sale price. In 

addition, the Applicant represents that 

the Plan will not pay any costs, 

including brokerage commissions, fees, 

appraisal costs, or any other expenses 

associated with the Sales. Further, the 

terms and conditions of each Sale will 

be at least as favorable to the Plan as 

those obtainable in an arm’s-length 

transaction with an unrelated party. 

Finally, a qualified independent 

fiduciary will represent the interests of 

the Plan with respect to each Sale. 

Among other things, such independent 

fiduciary will monitor each sale 

throughout its duration, review and 

approve the methodology and ultimate 

valuation determination of the qualified 

independent appraiser (the Independent 

Appraiser), and determine, on behalf of 

the Plan, whether it is prudent to 

proceed with the transaction. 

The Independent Fiduciary 

28. Les Schwab represents that 

American Realty Advisors (ARA) of 

Glendale, California was retained to 

serve as a qualified independent 

fiduciary (the Independent Fiduciary) to 

the Plan for purposes of evaluating and 

approving the Sales. ARA represents 

that it is an investment manager of 

institutional quality commercial real 

estate portfolios with 529 investors and 

over $8.7 billion in assets under 

management as of June 30, 2018. ARA 

is one of the largest privately-held real 

estate investment management firms in 

the United States and has been 

providing real estate investment 

management for over 28 years. 

ARA represents that it qualifies as an 

independent fiduciary under the 

Department’s Prohibited Transaction 

Exemption Procedures (see 29 CFR 

2570, October 27, 2011, at 29 CFR 

2570.34(d)).9 ARA states that it 

acknowledges, understands, and accepts 

its duties under ERISA and is acting as 

the Independent Fiduciary to the Plan 

in relation to the exemption application. 

Further, ARA represents that it is 

authorized by the Plan to take all 

appropriate actions to safeguard the 

interests of the Plan and will, during the 

pendency of the Sales: (a) Monitor the 

Sales on behalf of the Plan; (b) ensure 

that the Sales remain in the interests of 

the Plan and, if not, take any 

appropriate actions available under the 

particular circumstances; and (c) 

enforce compliance with all conditions 

and obligations imposed on any party 

dealing with the Plan with respect to 

each transaction. 

ARA represents that it does not have 

any relationship with the parties 

involved in the proposed transaction, 

beyond its role as the Independent 

Fiduciary. 

As part of its Independent Fiduciary 

duties and responsibilities, ARA 

completed the following tasks: (a) 

Toured each of the Parcels and 

inspected comparable land sales, as 

outlined in each of the appraisals CBRE, 

Inc. (CBRE) completed for each Parcel 

(the Independent Appraisals); (b) 

engaged the Independent Appraisers 

and instructed them with respect to the 

objectives of each Independent 

Appraisal, the specific nuances of the 

Parcel leases between Les Schwab and 

the Plan (the Leases), and the valuation 

process, taking into account the 

questions posed by the Department 

during its review of the exemption 

application in connection with its 

granting of PTE 2015–18; (c) reviewed 

the Independent Appraisals; (d) 

reviewed the annual audited financial 

statements for the Plan from 1980 to the 

present to assess the treatment of the 

Leases by the auditor and obtained 

additional documentation from Les 

Schwab in support of the rental 

payments made under the Leases; (e) 

reviewed and summarized the terms 

and conditions of the Leases and 

relevant amendments; (f) researched 

additional questions posed by the 

Department; and (g) reviewed the 

composition of the existing real estate 

portfolio of the Plan and the Plan’s 

Statement of Investment Policy dated 

September 1, 2015. Further, the 

Independent Fiduciary examined 


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whether the Plan received rental income 

on a timely basis under the Leases, and 

reviewed audited financial statements 

for the Plan prepared by 

PriceWaterhouse Coopers and Roberts, 

McMains, Sellman & Co. for the years 

1981–2015. 

The Independent Fiduciary represents 

that it will represent the interests of the 

Plan in the proposed Sales. In so doing, 

the Independent Fiduciary will: (a) 

Determine whether it is prudent to go 

forward with each Sale; (b) negotiate, 

review, and approve the terms and 

conditions of each Sale; (c) monitor and 

manage the Sales on behalf of the Plan 

throughout their duration, taking any 

appropriate actions it deems necessary 

to safeguard the interests of the Plan. 

The Independent Fiduciary Reports 

29. ARA submitted to the Department 

its reports, dated September 8, 2016 (the 

Independent Fiduciary Reports), that 

document ARA’s analysis of the 

proposed Sale for each Parcel and 

ARA’s recommendations for the Plan. 

In the Independent Fiduciary Reports, 

ARA represents that the Sales are the 

most favorable option for the Plan and 

its participants and beneficiaries, 

because the improvements have 

significant age and limited future value 

(in addition to the current value of the 

underlying land), to anyone other than 

Les Schwab. 

ARA concludes that the Leases 

between the Plan and the applicable Les 

Schwab affiliates with their rental rates 

and Consumer Price Index (CPI) 

adjustments are consistent with market 

terms and conditions at the time the 

Leases were negotiated and are 

consistent of similar transactions 

between unrelated parties. ARA also 

concludes that the appraised values of 

the Parcels as presented within the 

Independent Appraisals are accurate 

reflections of current market conditions 

and form the basis for establishing fair 

market prices for the Sales. 

Further, ARA notes that the Plan’s 

real estate holdings as outlined by the 

2015 audited statement are 

approximately 14.7% of the total assets 

of the Plan and are just below the 

parameters of the Plan’s Statement of 

Investment Policy dated January 1, 

2015. The proposed Sales of the Parcels, 

in addition to the recent January 2016 

sale of the Lacey, Renton, Bothell, 

Sandy and Twin Falls Parcels, would 

reduce the real estate holdings of the 

Plan to approximately 10.8% of the total 

assets of the Plan. This falls below the 

investment threshold but would 

modestly increase the liquidity of the 

Plan. The Investment Policy Statement 

establishes the policy range for real 

estate and other real assets within a 

range of 15% and 25% of the portfolio. 

The Sales results in a real estate 

allocation that is under the policy range 

but would allow the Plan to continue its 

diversification strategy away from 

directly owned real estate toward real 

estate assets with greater liquidity, 

increased diversification and decreased 

liability risk. 

ARA also represents, in the 

Independent Fiduciary Reports, that it 

has reviewed audited financial 

statements of the Plan, as noted above, 

for the years 1981 through 2015, 

unaudited financial statements to the 

end of February 2016, the Plan records 

of rental income received from the 

present back to 1995, and the scheduled 

rent for all of the leases individually 

from inception to the present. ARA 

states that there is no reason to conclude 

that the lessees owe the Plan any 

additional rent related the failure of 

either party to comply with the terms 

and conditions of the Leases. 

Further, ARA concludes, in the 

Independent Fiduciary Reports, that the 

Sales are administratively feasible and 

would be fairly routine executions for 

an experienced real estate investment 

manager. ARA represents that it will: (a) 

Monitor and manage the proposed 

transactions on behalf of the Plan; (b) 

take any appropriate actions to 

safeguard the interests of the Plan; (c) 

represent the interests of the Plan in the 

proposed Sales; and (d) negotiate, 

review, and approve the terms and 

conditions of the proposed Sales. 

The Independent Appraisers 

30. The Applicant represents that the 

appraisals of the Parcels were 

conducted by Whitney Haucke, David 

Adamson, Jeff Grose, Katriina White, 

and Kevin Nguyen of CBRE. (Ms. 

Haucke, Mr. Adamson, Mr. Grose, Ms. 

White, and Mr. Nguyen are referred to 

herein as the ‘‘Independent 

Appraisers.’’) Ms. Haucke, Mr. 

Adamson, Mr. Grose, and Mr. Nguyen 

are Certified General Real Estate 

Appraisers in the areas where the 

Parcels are located, and they are all 

Members of the Appraisal Institute. Ms. 

White is a Registered Real Estate 

Appraiser Trainee in the State of 

Washington. The Independent 

Appraisers also have experience in 

appraising residential properties, vacant 

land, and commercial properties. 

Pursuant to its Appraisal Engagement 

Letter, CBRE was retained to perform, 

among other things, the following tasks, 

on behalf of the Plan: (a) Provide a fair 

market valuation of the Parcels using 

commercially acceptable methods of 

valuation for unrelated third party 

transactions; (b) explain whether or not, 

in the Independent Appraisers’ opinion, 

the Plan has received adequate 

consideration from the Leases; and (c) 

opine on whether the proper CPI was 

used for the rent increases for each 

Parcel. The Applicant represents that 

the appraisal work completed by CBRE 

produced fees from Les Schwab to CBRE 

of $98,250 in 2016 and $0.00 in 2017. 

According to CBRE’s 2017 10K filing, its 

2016 gross revenue was $13.09 billion 

and its 2017 gross revenue was $14.21 

billion. As such, CBRE’s revenue from 

the Les Schwab appraisal work was less 

than 2% of its revenue for 2016 and 

2017. 

The Independent Appraisals 

31. In valuing the Parcels, the 

Independent Appraisers applied the 

Sales Comparison Approach and the 

Income Capitalization Approach to 

valuation. As represented by the 

Independent Appraisers, the Sales 

Comparison Approach is typically used 

for retail sites that are feasible for either 

immediate or near-term development. 

The Income Capitalization Approach, 

according to the Independent 

Appraisers, reflects the property’s 

income-producing capabilities, and is 

based on the assumption that value is 

created by the expectation of benefits to 

be derived in the future. The 

Independent Appraisers did not use the 

Cost Approach to valuation because 

they did not consider this methodology 

to be applicable in the estimation of 

market value due to age of the 

improvements and lack of depreciation 

data for the Parcels. 

a. The Aloha Parcel Appraisal. The 

Independent Appraisers used the Sales 

Comparison Approach and the Income 

Capitalization Approach methodologies 

in determining the fair market value of 

the Aloha Parcel. Based on the Sales 

Comparison Approach, the Independent 

Appraisers evaluated eight properties, 

which included fee simple or leased fee 

sales or listings of comparable 

properties. The Independent Appraisers 

determined that the fee simple sales 

comparables indicated an adjusted 

range of $131 per square foot to $149 

per square foot, at an average of $136 

per square foot. According to the 

Independent Appraisers, the Sales 

Comparison Approach yielded a value 

of $135 per square foot, which when 

multiplied by the actual square footage 

of the Aloha Parcel (16,700 square feet), 

equaled a fair market value of 

$2,250,000 for the Aloha Parcel as of 

April 1, 2016. 

In employing the Income 

Capitalization Approach, the 

Independent Appraisers noted that there 


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were no rents of buildings or facilities 

similar to the subject property. 

Therefore, the Independent Appraisers 

expanded their search for comparable 

rental properties, regionally, and they 

evaluated six rental property 

comparables. After reviewing the rental 

incomes and operating expenses of 

these properties, the Independent 

Appraisers determined that, under the 

Income Capitalization Approach, the 

Independent Appraisers concluded that 

the fair market value of the Aloha Parcel 

was $129 per square foot, or $2,150,721, 

rounded to $2,150,000 as of April 1, 

2016. 

The Independent Appraisers 

determined that the Sales Comparison 

Approach should be given primary 

consideration in the reconciliation 

process. As such, the Independent 

Appraisers determined the fair market 

value of the Aloha Parcel as of April 1, 

2016, was $2,250,000. 

b. The Boise Broadway Parcel 

Appraisal. The Independent Appraisers 

used the Sales Comparison Approach to 

value the Boise Broadway Parcel. The 

Independent Appraisers evaluated six 

prior sales and one pending sale. Based 

on the Sales Comparison Approach and 

evaluating land sale comparables, the 

Independent Appraisers derived a fair 

market value for the Boise Broadway 

Parcel of $13 per square foot, which 

when multiplied by the actual square 

footage of the Boise Broadway Parcel 

(72,310 square feet) equaled a fair 

market value of $940,000 as of April 1, 

2016. 

c. The Boise State Street Parcel 

Appraisal. The Boise State Street 

Appraisal provides that the Independent 

Appraisers employed the Sales 

Comparison Approach and Income 

Capitalization Approach to value the 

Boise State Street Parcel. In using the 

Sales Comparison Approach, the 

Independent Appraisers evaluated two 

prior fee simple sales, two pending fee 

simple sales, two prior leased fee sales, 

and two pending leased fee sales. The 

Independent Appraisers determined 

that, based on the Sales Comparison 

Approach, evaluating the land sale 

comparables derived a fair market value 

for the Boise State Street Parcel of 

$2,100,000 as of April 1, 2016. 

In using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated five lease comparables and 

one comparable listing for a lease. After 

reviewing the rental incomes and 

operating expenses of the six 

comparables, the Appraiser determined 

that, under the Income Capitalization 

Approach, the fair market value of the 

Boise State Street Parcel is $2,060,000 as 

of April 1, 2016. 

The Independent Appraisers 

determined that both methodologies 

should be given equal emphasis, and 

determined the fair market value of the 

Boise State Street Parcel as of April 1, 

2016, to be $2,090,000. 

d. The Centralia Parcel Appraisal. 

The Independent Appraisers used the 

Sales Comparison Approach to value 

the Centralia Parcel. The Independent 

Appraisers evaluated three prior sales 

and one listing. The Independent 

Appraisers determined that, based on 

the Sales Comparison Approach, 

evaluating the land sale comparables 

derived a fair market value for the 

Centralia Parcel of $8.01 per square foot, 

which when multiplied by the actual 

square footage of the Centralia Parcel 

(46,200 square feet) equaled a fair 

market value of $370,000, as of April 1, 

2016. 

e. The Chehalis Parcel Appraisal. The 

Independent Appraisers employed the 

Sales Comparison Approach and 

Income Capitalization Approach to 

value the Chehalis Parcel. In using the 

Sales Comparison Approach, the 

Independent Appraisers evaluated five 

prior sales and one pending sale, and 

determined the fair market value of the 

Chehalis Parcel to be $1,150,000, as of 

April 1, 2016. 

In using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated five lease comparables. After 

reviewing the rental incomes and 

operating expenses of the five 

comparables, the Independent 

Appraisers determined the fair market 

value of the Chehalis Parcel to be 

$1,100,000 as of April 1, 2016. 

The Independent Appraisers noted 

that market participants are analyzing 

properties based on their income 

generating capability. As such, the 

income capitalization approach was 

given primary emphasis in the final 

value estimate. Thus, based on the 

Income Capitalization Approach, the 

Independent Appraisers determined the 

fair market value of the Chehalis Parcel 

was $1,100,000 as of April 1, 2016. 

f. The Ellensburg Parcels Appraisal. 

The Independent Appraisers employed 

the Sales Comparison Approach and 

Income Capitalization Approach to 

value the Ellensburg Parcels. In using 

the Sales Comparison Approach, the 

Independent Appraisers evaluated five 

prior sales and one sale listing. The 

Independent Appraisers determined 

that evaluating the land sale 

comparables derived a fair market value 

after adjustments for the Ellensburg 

Parcels of $1,080,000 as of April 1, 

2016. 

In using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated six lease comparables. After 

reviewing the rental incomes and 

operating expenses of the six 

comparables, the Independent 

Appraisers determined that, under the 

Income Capitalization Approach, the 

fair market value of the Ellensburg 

Parcels was $1,096,990, rounded to 

$1,100,000, as of April 1, 2016. 

The Independent Appraisers noted 

that market participants were analyzing 

properties based on their incomegenerating capability. As such, the 

Income Capitalization Approach was 

given primary emphasis in the final 

value estimate. Thus, based on the 

Income Capitalization Approach, the 

Independent Appraisers determined the 

fair market value of the Ellensburg 

Parcels was $1,100,000 as of April 1, 

2016. 

g. The Independence Parcel 

Appraisal. The Independent Appraisers 

employed the Sales Comparison 

Approach and Income Capitalization 

Approach to value the Independence 

Parcel. In using the Sales Comparison 

Approach, the Independent Appraisers 

evaluated four prior fee simple sales and 

four prior leased fee sales of comparable 

parcels. The Independent Appraisers 

calculated the value of the 

Independence Parcel to be $990,000, as 

of April 1, 2016. 

In using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated six lease comparables. After 

reviewing the rental incomes and 

operating expenses of the six 

comparables, the Independent 

Appraisers determined that, under the 

Income Capitalization Approach, the 

fair market value of the Independence 

Parcel was $918,034 as of April 1, 2016 

($920,000, if rounded). 

After giving more weight to the Sales 

Comparison Approach, the Independent 

Appraisers concluded that the 

Independence Parcel had a fair market 

value of $990,000 as of April 1, 2016. 

h. The Lakewood Parcel Appraisal. 

The Independent Appraisers employed 

the Sales Comparison Approach to 

value the Lakewood Parcel. They valued 

Parcels A and B and Parcels C and D, 

comprising the Lakewood Parcel, using 

different comparables. With respect to 

Parcels A and B, the Independent 

Appraisers evaluated four comparable 

land sales and one land sale listing that 

was current at the time of the valuation. 

The Independent Appraisers 

determined that the fair market value for 

Parcels A and B was $600,000 as of 

April 1, 2016. 

With respect to the valuation of 

Parcels C and D, the Independent 

Appraisers evaluated four comparable 

land sales and one land sale listing that 


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was current at the time of the valuation. 

The Independent Appraisers 

determined that the fair market values 

of Parcel C and Parcel D were $21,000 

and $44,000, respectively, as of April 1, 

2016. 

i. The Longview Parcel Appraisal. The 

Independent Appraisers used the Sales 

Comparison Approach and Income 

Capitalization Approach to value the 

Longview Parcel. In using the Sales 

Comparison Approach, the Independent 

Appraisers evaluated sales of eight 

comparable properties, four 

representing fee simple sales, and four 

representing leased fee sales, and 

determined that the fair market value of 

the Longview Parcel was $2,385,000, 

rounded to $2,400,000, as of April 1, 

2016. 

Using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated six lease comparables. After 

reviewing the rental incomes and 

operating expenses of the six 

comparables, the Independent 

Appraisers determined that, under the 

Income Capitalization Approach, the 

fair market value of the Longview Parcel 

was $2,373,521, rounded to $2,370,000, 

as of April 1, 2016. 

After giving more weight to the 

Income Capitalization Approach, the 

Independent Appraisers concluded that 

the Independence Parcel had a fair 

market value of $2,385,000 as of April 

1, 2016. 

j. The Marysville Parcels Appraisal. 

The Independent Appraisers valued the 

Marysville Parcel using the Sales 

Comparison Approach. With respect to 

both Marysville Parcels A and B, the 

Independent Appraisers evaluated four 

similar sale-listings in the area and 

determined that the fair market values 

of Marysville Parcel A and Parcel B 

were $740,000 and $265,000, 

respectively, as of April 1, 2016. 

k. The North Bend Parcel Appraisal. 

The Independent Appraisers valued the 

North Bend Parcel using the Sales 

Comparison Approach. The 

Independent Appraisers evaluated four 

prior sales. The Appraisers determined 

that the fair market value of the North 

Bend Parcel was $1,220,000, as of April 

1, 2016. 

l. The Oregon City Parcel Appraisal. 

The Independent Appraisers used the 

Sales Comparison Approach to value 

the Oregon City Parcel. The 

Independent Appraisers evaluated two 

prior sales, one pending sale of a single 

parcel, and one pending sale of two 

adjacent parcels. The Appraisers 

determined that the fair market value of 

the Oregon City Parcel was $600,000 as 

of April 1, 2016. 

m. The Pullman Parcel Appraisal. 

The Independent Appraisers used the 

Sales Comparison Approach to value 

the Pullman Parcel. The Independent 

Appraiser evaluated six prior land sales 

of similar parcels, based on zoning and 

intended uses. The Independent 

determined that the fair market value of 

the Pullman Parcel was $575,000 as of 

April 1, 2016. 

n. The Silverton Parcel Appraisal. The 

Independent Appraisers valued the 

Silverton Parcel using the Sales 

Comparison Approach and the Income 

Capitalization Approach. In using the 

Sales Comparison Approach, the 

Independent Appraisers evaluated sales 

of eight comparable properties, four 

representing fee simple sales, and four 

representing leased fee sales. The 

Independent Appraisers determined the 

fair market value of the Silverton Parcel 

was $1,451,000, rounded to $1,450,000, 

as of April 1, 2016. 

Using the Income Capitalization 

Approach, the Independent Appraisers 

evaluated six lease comparables. After 

reviewing the rental incomes and 

operating expenses of the six 

comparables, the Independent 

Appraisers determined that the fair 

market value of the Silverton Parcel was 

$1,375,895, rounded to $1,380,000, as of 

April 1, 2016. 

After giving more weight to the 

Income Capitalization Approach, the 

Independent Appraisers concluded that 

the Silverton Parcel had a fair market 

value of $1,415,000 as of April 1, 2016. 

o. The Snohomish Parcel Appraisal. 

The Independent Appraisers used the 

Sales Comparison Approach to value 

the Snohomish Parcel. The Independent 

Appraisers evaluated four prior land 

sales of similar parcels, based on zoning 

and intended uses. The Independent 

Appraisers determined that the fair 

market value of the Snohomish Parcel 

was $590,000, rounded, as of April 1, 

2016. 

p. The Spanaway Parcel Appraisal. 

The Independent Appraisers valued the 

Spanaway Parcel using the Sales 

Comparison Approach. The 

Independent Appraisers evaluated five 

similar sale-listings in the area. The 

Independent Appraisers determined the 

fair market value of the Spanaway 

Parcel to be approximately $540,000, 

rounded, as of April 1, 2016. 

q. The Spokane Parcel Appraisal. The 

Independent Appraisers used the Sales 

Comparison Approach to value the 

Spokane Parcel. The Independent 

Appraisers evaluated five prior land 

sales of similar parcels, based on zoning 

and intended uses. The Independent 

Appraisers determined the fair market 

value of the Spokane Parcel to be 

$725,000, rounded, as of April 1, 2016. 

r. The Vancouver Andresen Parcel 

Appraisal. The Independent Appraisers 

valued the Vancouver Andresen Parcel 

using the Sales Comparison Approach. 

The Independent Appraisers evaluated 

five similar sale-listings in the area, 

which included two under contract/ 

offer sales. The Independent Appraisers 

determined the fair market value of the 

Vancouver Andresen Parcel to be 

$450,000, rounded, as of April 1, 2016. 

s. The Vancouver Cascade Park Parcel 

Appraisal. The Independent Appraisers 

used the Sales Comparison Approach to 

value the Vancouver Cascade Park 

Parcel. The Independent Appraisers 

evaluated three prior sales and two 

pending sales. The Independent 

Appraisers determined the fair market 

value of the Vancouver Cascade Park 

Parcel to be $390,000 as of April 1, 

2016. 

Analysis 

31. The Applicant represents that the 

statutory exemption under ERISA 

section 408(e) is not available for the 

proposed transactions due to the 

application of section 408(d)(l)(C) of the 

Act, which provides that the statutory 

exemption under section 408(e) of the 

Act will not apply to a transaction in 

which a plan sells any property to a 

corporation in which an owneremployee with respect to the plan owns, 

directly or indirectly, 50% or more of 

the total combined voting power of all 

classes of stock entitled to vote or 50% 

or more of the total value of shares of 

all classes of stock of the corporation. 

The Applicant notes that section 

408(d)(2)(A) of the Act provides that a 

‘‘shareholder-employee’’ will be treated 

as an owner-employee. Further, the 

Applicant states that section 408(d)(3) of 

the Act provides that a ‘‘shareholderemployee’’ is an employee or officer of 

an ‘‘S’’ corporation who owns more than 

5% of the outstanding stock of the 

corporation on any day during the 

taxable year of such corporation. 

According to the Applicant, both Julie 

Waibel and Leslie Tuftin own more than 

5% of S corporations that are within the 

various controlled groups with 

employees that participate in the Plan. 

As such, due to their ownership interest 

in these S corporations, the Applicant 

asserts that Ms. Waibel and Ms. Tuftin 

are owner-employees with respect to the 

Plan. 

The Applicant represents that because 

Ms. Waibel and Ms. Tuftin are owneremployees, and each is deemed to own 

50% or more of the total combined 

voting power of all classes of the S 

corporations’ stock entitled to vote, 


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section 408(d)(l)(C) of the Act precludes 

the reliance upon section 408(e) of the 

Act with respect to the Sales. 

Section 406(a)(l)(A) of the Act 

prohibits a fiduciary with respect to a 

plan from causing the plan to engage in 

a transaction if he or she knows or 

should know that such transaction 

constitutes a direct or indirect sale, 

exchange, or lease of any property 

between the plan and a party in interest. 

Therefore, the proposed transactions 

would constitute prohibited 

transactions under section 406(a)(l)(A) 

of the Act because the Plan would be 

selling real property to parties in 

interest and disqualified persons with 

respect to the Plan. 

Section 406(a)(l)(D) of the Act 

prohibits a fiduciary with respect to a 

plan to cause the plan to engage in a 

transaction if the fiduciary knows or 

should know that such transaction 

constitutes a direct or indirect transfer 

to, or use by or for the benefit of, a party 

in interest, of any asset of the plan. The 

Applicant represents that the proposed 

transactions would violate section 

406(a)(l)(D) of the Act because the Plan 

will transfer Plan assets to parties in 

interest and disqualified persons with 

respect to the Plan. 

In addition, section 406(b)(1) of the 

Act prohibits a fiduciary from dealing 

with the assets of a plan in his own 

interest or for his own account. Section 

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

fiduciary, with respect to a plan, from 

acting in a transaction involving the 

plan on behalf of a party whose interests 

are adverse to those of the plan or of its 

participants and beneficiaries. As 

described above, the Trustees and the 

Committee are fiduciaries of the Plan. 

The Trustees are also comprised of 

certain executive officers of Les Schwab, 

including officers of the Warehouse 

Center, Les Schwab Washington, Les 

Schwab Idaho, and Les Schwab 

Portland, and are appointed by the Chief 

Executive Officer of the Warehouse 

Center, the Plan sponsor. 

The proposed Sales of the Parcels by 

the Plan to Les Schwab would involve 

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

Act because Les Schwab, as a Plan 

fiduciary, would be dealing with the 

assets of the Plan for its own interest or 

own account. Les Schwab, as a Plan 

fiduciary, in effecting the Sales to itself, 

is acting on behalf of itself and of the 

Plan in violation of section 406(b)(2) of 

the Act. 

Statutory Findings 

32. The Department has tentatively 

determined that the requested 

exemption is administratively feasible 

because: (a) The Sales are one-time 

transactions for cash; and (b) the price 

paid by Les Schwab to the Plan for each 

Parcel will be no less than the fair 

market value of each Parcel (exclusive 

of the buildings or other improvements 

paid for by Les Schwab, to which Les 

Schwab retains title), as determined by 

the Independent Appraisers in separate 

Independent Appraisals that are 

updated on the date of each Sale. 

The Department has tentatively 

determined that the proposed 

exemption is in the interest of the Plan 

because: (a) The Sales will allow the 

Plan to diversify its holdings and invest 

the proceeds from the Sales in more 

productive investments; (b) the Plan 

will not incur any transaction costs in 

connection with such Sales; (c) the 

Sales will not be subject to any 

financing contingencies because Les 

Schwab will make a one-time, lumpsum, cash payment on the closing date 

for each respective Parcel; and (d) the 

Sales will eliminate ongoing appraisal 

fees, administrative costs, and legal 

responsibilities that are associated with 

the Plan’s continuing ownership of the 

Parcels. 

The Department has tentatively 

determined that the proposed 

exemption is protective of the 

participants and beneficiaries because 

the Independent Fiduciary will 

represent the interests of the Plan’s 

participants and beneficiaries with 

respect to: (a) The decision to sell the 

Parcels to the Applicant; (b) the terms 

and execution of the Sales; and (c) the 

selection of the Independent Appraiser. 

In addition, the Applicant states that the 

Independent Fiduciary will determine 

whether the transactions are prudent 

and in the best interest of the 

participants and beneficiaries, including 

whether or not the terms and conditions 

of the Sales are equivalent to an arm’slength transaction with an unrelated 

party. Finally, the Applicant states that 

the Independent Appraisers will 

appraise the fair market value of the 

Parcels as of the transaction date and 

ensure that the Plan receives adequate 

consideration, based on appropriate 

appraisal methodologies used by the 

Independent Appraisers in Independent 

Appraisals that will be updated on the 

date of each Sale. 

Summary 

33. In summary, the Department has 

tentatively determined that the relief 

sought by the Applicant satisfies the 

statutory requirements for an exemption 

under section 408(a) of ERISA, provided 

that the conditions described below are 

satisfied. 

Proposed Exemption 

Section I. Covered Transactions 

If the proposed exemption is granted, 

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

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

the Act, and the sanctions resulting 

from the application of section 4975 of 

the Code, by reason of sections 

4975(c)(1)(A), 4975(c)(1)(D) and 

4975(c)(1)(E) of the Code, shall not 

apply to the sales (the Sales) by the Les 

Schwab Profit Sharing Retirement Plan 

(the Plan) of the following parcels of 

real property (each, a ‘‘Parcel’’ and 

collectively, the ‘‘Parcels’’) to the 

Applicant: 

(a) The Parcel located at 19100 SW 

Shaw Street, Aloha, Oregon; 

(b) The Parcel located at 2045 

Broadway Avenue, Boise, Idaho; 

(c) The Parcel located at 6520 W State 

Street, Boise, Idaho; 

(d) The Parcel located at 1211 

Harrison Avenue, Centralia, 

Washington; 

(e) The Parcel located at 36 N Market 

Boulevard, Chehalis, Washington; 

(f) The Parcels located at 1206 Canyon 

Road, Ellensburg, Washington; 

(g) The Parcel located at 1710 

Monmouth Avenue, Independence, 

Oregon; 

(h) The Parcel located at 3809 

Steilacoom Boulevard SW, Lakewood, 

Washington; 

(i) The Parcel located at 1420 

Industrial Way, Longview, Washington; 

(j) The Parcel located at 8405 State 

Avenue, Marysville, Washington; 

(k) The Parcel located at 610 E. North 

Bend Way, North Bend, Washington; 

(l) The Parcel located at 1625 

Beavercreek Road, Oregon City, Oregon; 

(m) The Parcel located at 160 SE 

Bishop Boulevard, Pullman, 

Washington; 

(n) The Parcel located at 911 N 1st 

Street, Silverton, Oregon; 

(o) The Parcel located at 711 Avenue 

D, Snohomish, Washington; 

(p) The Parcel located at 16819 Pacific 

Avenue S, Spanaway, Washington; 

(q) The Parcel located at 8103 N 

Division Street, Spokane, Washington; 

(r) The Parcel located at 2420 NE 

Andresen Road, Vancouver, 

Washington; and 

(s) The Parcel located at 216 SE 118th 

Avenue, Vancouver, Washington; where 

the Applicant is a party in interest with 

respect to the Plan, provided that the 

conditions set forth in Section II of this 

proposed exemption are met. 

Section II. General Conditions 

(a) The price paid by Les Schwab to 

the Plan for each Parcel is no less than 

the fair market value of each Parcel 


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10The Applicant represents that after 2015, SSE 

ceased making employer matching contributions to 

the Plan of Old SSE Common Stock due to the 

financial condition of SSE. 

(exclusive of the buildings or other 

improvements paid for by Les Schwab, 

to which Les Schwab retains title), as 

determined by qualified independent 

appraisers (the Independent 

Appraisers), working for CBRE, Inc., in 

separate appraisal reports (the 

Independent Appraisals) that are 

updated on the date of each Sale. 

(b) Each Sale is a one-time transaction 

for cash. 

(c) The Plan does not pay any costs, 

including brokerage commissions, fees, 

appraisal costs, or any other expenses 

associated with each Sale. 

(d) The Independent Appraisers 

determine the fair market value of their 

assigned Parcel, on the date of the Sale, 

using commercially accepted methods 

of valuation for unrelated third-party 

transactions, taking into account the 

following considerations: 

(1) The fact that a lease between Les 

Schwab and the Plan is a ground lease 

and not a standard commercial lease; 

(2) The assemblage value of the 

Parcel, where applicable; 

(3) Any special or unique value the 

Parcel holds for Les Schwab; and 

(4) Any instructions from the 

qualified independent fiduciary (the 

Independent Fiduciary) regarding the 

terms of the Sale, including the extent 

to which the Independent Appraiser 

should consider the effect that Les 

Schwab’s option to purchase a Parcel 

would have on the fair market value of 

the Parcel. 

(e) The Independent Fiduciary 

represents the interests of the Plan with 

respect to each Sale, and in doing so: 

(1) Determines that it is prudent to go 

forward with each Sale; 

(2) Approves the terms and conditions 

of each Sale; 

(3) Reviews and approves the 

methodology used by the Independent 

Appraiser and ensures that such 

methodology is properly applied in 

determining the Parcel’s fair market 

value on the date of each Sale; 

(4) Reviews and approves the 

determination of the purchase price; 

and 

(5) Monitors each Sale throughout its 

duration on behalf of the Plan for 

compliance with the general terms of 

the transaction and with the conditions 

of this exemption, if granted, and takes 

any appropriate actions to safeguard the 

interests of the Plan and its participants 

and beneficiaries. 

(f) The terms and conditions of each 

Sale are at least as favorable to the Plan 

as those obtainable in an arm’s length 

transaction with an unrelated party. 

Notice to Interested Parties 

The persons who may be interested in 

the publication in the Federal Register 

of the Notice of Proposed Exemption 

(the Notice) include all individuals who 

are participants and beneficiaries in the 

Plan. It is represented that all such 

interested persons will be notified of the 

publication of the Notice by first class 

mail to each such interested person’s 

last known address within fifteen (15) 

days of 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 

Supplemental Statement, as required, 

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

will advise all interested persons of 

their right to comment on and/or to 

request a hearing. All written comments 

or hearing requests must be received by 

the Department from interested persons 

within forty-five (45) days of the 

publication of this proposed exemption 

in the Federal Register. 

All comments will be made available 

to the public. 

Warning: If you submit a comment, 

EBSA recommends that you include 

your name and other contact 

information in the body of your 

comment, but DO NOT submit 

information that you consider to be 

confidential, or otherwise protected 

(such as Social Security number or an 

unlisted phone number) or confidential 

business information that you do not 

want publicly disclosed. All comments 

may be posted on the internet and can 

be retrieved by most internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: 

Scott Ness of the Department, telephone 

(202) 693–8561. (This is not a toll-free 

number.) 

Seventy Seven Energy Inc. Retirement & 

Savings Plan, (the Plan or the 

Applicant), Located in Oklahoma 

City, OK, [Application No. D–11918]. 

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 (76 FR 46637, 66644, 

October 27, 2011). If the exemption is 

granted, the restrictions of sections 

406(a)(1)(E), 406(a)(2),and 407(a)(1)(A) 

of the Act shall not apply, effective 

August 1, 2016 through April 20, 2017, 

to: (1) The acquisition by participant 

accounts in the Plan (the Plan Accounts) 

of warrants (the Warrants) issued by 

Seventy Seven Energy, Inc. (SSE), the 

Plan sponsor, in connection with SSE’s 

bankruptcy; and (2) the holding of the 

Warrants by the Plan, provided that 

certain conditions set forth below are 

met. 

Summary of Facts and Representations 

Background 

1. SSE (or the Applicant) is an 

Oklahoma-based company that offers 

drilling, pressure-pumping, oilfield 

rental tools and trucking services. On 

June 30, 2014, SSE became an 

independent, publicly-traded company 

by separating from Chesapeake Energy 

Corporation (CHK) in a series of 

transactions (the Spin-Off). Prior to the 

Spin-Off, SSE was an Oklahoma limited 

liability company operating under the 

name ‘‘Chesapeake Oilfield Operating, 

L.L.C.’’ (COO), and an indirect, whollyowned subsidiary of CHK. As a result of 

the Spin-Off, approximately 5,200 

employees of COO and its subsidiaries 

became employees of SSE. 

2. The Plan, which provides for 

participant-directed investments, is a 

defined contribution plan that was 

created by SSE for the exclusive benefit 

of SSE employee-participants and their 

beneficiaries, as well as for SSE 

affiliates that have adopted the Plan. 

The Plan is intended to qualify under 

sections 401(a), 401(k) and 4975(e)(7) of 

the Internal Revenue Code of 1986, as 

amended (the Code). The trust created 

under the Plan is intended to be exempt 

under section 501(a) of the Code. 

The Plan was established, effective 

July 1, 2014, as the result of a spin-off 

from the Chesapeake Energy 

Corporation Savings and Incentive 

Stock Bonus Plan (the CHK Plan.) At 

that time, $196,210,229 in assets was 

transferred from the CHK Plan to the 

Plan. As of August 1, 2016, the Plan had 

total assets of approximately 

$72,786,235 and 2,450 participants. On 

July 31, 2016, the Plan held 3,571,255 

shares of SSE common stock (Old SSE 

Common Stock) that was valued at 

$393,012.66, and represented 

approximately 0.54% of the fair market 

value of the assets of the Plan. The 

shares of Old SSE Common Stock were 

allocated to the individual accounts 

(Plan Accounts) of 2,228 participants 

and held in a stock fund (the Stock 

Fund) within the Plan.10

The Plan’s directed trustee (the 

Trustee) and recordkeeper is Delaware 

Charter Guarantee & Trust Company of 

Wilmington, Delaware, which conducts 

business under the trade name 

‘‘Principal Trust Company.’’ 

3. SSE’s Administrative Committee 

formerly served as the administrator and 


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11The Applicant represents that none of the 

changes between the May 9, 2016 and May 12, 2016 

versions of the Reorganization Plan had any effect 

on the terms of the Warrants. 

12The Applicant represents that the Old SSE 

Common Stock was able to be traded until the 

Emergence Date. In addition, the Applicant 

confirms that the Trustee and Plan participants 

were able to trade the Old SSE Common Stock in 

their accounts up until the Emergence Date when 

the stock was replaced by the Warrants. 

13Following the Emergence Date, the Applicant 

states that SSE and the Trustee were working 

together to set up a system and procedures to 

facilitate the exercise or sale of the Warrants. 

However, the Applicant states that these procedures 

were not finalized prior to the Merger of SSE with 

Patterson-UTI. The Applicant states that upon the 

closing of the Merger on April 20, 2017 (the Merger 

Date), all of the Warrants were cancelled, rendering 

the completion of the system and procedures for 

exercising and/or selling the Warrants moot. 

However, the Applicant states that it is its 

understanding that at all times during the period 

that the Warrants were held by the Plan (from the 

Emergence Date to the Merger Date), both classes of 

Warrants (the Series B Warrants and the Series C 

Warrants) held by the Plan were underwater. Thus, 

the Applicant states that none of the Warrants 

would have been exercised from a practical 

standpoint. 

named fiduciary for the Plan. However, 

in connection with the merger (the 

Merger) of SSE with Patterson-UTI 

Energy, Inc. (Patterson-UTI) and 

Pyramid Merger Sub, Inc. (Merger Sub), 

effective as of April 20, 2017, the Plan 

administrator and named fiduciary was 

changed to the Seventy Seven Energy 

LLC 401(k) Plan Committee (the 

Committee). 

The Reorganization Plan 

4. On May 9, 2016, SSE and all of its 

wholly-owned subsidiaries entered into 

an Amended and Restated Restructuring 

Support Agreement with certain 

lenders, which set forth a ‘‘prepackaged’’ or pre-negotiated plan of 

reorganization (the Reorganization 

Plan). Also, on this date, SSE started 

soliciting creditors. 

On May 12, 2016, the Reorganization 

Plan was revised and executed to add 

certain noteholders as signatories and to 

provide the noteholders with nominal 

concessions. On June 7, 2016, the 

revised Reorganization Plan, was filed 

with the U.S. Bankruptcy Court for the 

District Court of Delaware (the 

Bankruptcy Court), under Chapter 11 of 

Title I of the U.S. Bankruptcy Code (the 

Bankruptcy Code).11 After the 

Reorganization Plan was accepted by a 

sufficient number of creditors and was 

confirmed by the Bankruptcy Court 

during the Chapter 11 cases, a 

reorganized SSE emerged from 

bankruptcy on August 1, 2016 (the 

Emergence Date).12

The Warrants 

5. On the Emergence Date, the 

Warrants were issued to SSE 

shareholders, including the Plan 

Accounts, in accordance with the 

Reorganization Plan by Computershare 

Inc. (Computershare), a Delaware 

corporation, and its wholly-owned 

subsidiary, Computershare Trust 

Company, N.A., a federally-chartered 

trust company (CTS), both of which 

served in the capacity as the ‘‘Warrant 

Agent.’’ (Neither Computershare nor 

CTS is affiliated with SSE.) 

The Warrants were: (a) Registered 

pursuant to Section 12(g) the U.S. 

Securities Exchange Act of 1934 (the 

Exchange Act), and the rules and 

regulations promulgated thereunder; 

and (b) exempt from registration under 

the U.S. Securities Act of 1933, as 

amended, pursuant to Section 1145 of 

the Bankruptcy Code. 

Neither the Trustee nor SSE’s 

Administrative Committee had any 

involvement with the bankruptcy 

proceedings or the decision to issue the 

5-year Warrants (the Series B Warrants) 

and the 7-year warrants (the Series C 

Warrants) to shareholders in connection 

with the emergence of SSE from 

bankruptcy. The Plan was in the same 

position as the other holders of Old SSE 

Common Stock. Thus the Warrants were 

issued to the Plan Accounts on the same 

basis that they were issued to all other 

shareholders of Old SSE Common 

Stock. 

6. Each shareholder of Old SSE 

Common Stock received 0.05004 5-Year 

Warrants (the Series B Warrants) and 

0.05560 7-Year Warrants (the Series C 

Warrants), to replace their shares of Old 

SSE Common Stock. Accordingly, 

2,875,814 Series B Warrants and 

3,195,352 Series C Warrants were 

distributed to all shareholders of Old 

SSE Common Stock as of the Emergence 

Date, with 178,703 of the Series B 

Warrants and 198,560 of the Series C 

Warrants received by the Plan with 

respect to 2,230 Plan participants. The 

Trustee allocated the Warrants to the 

Plan Accounts based upon the share 

positions held by the Accounts of Old 

SSE Common Stock within the Stock 

Fund. The Applicant states that Plan 

participants were not allowed by the 

Trustee to purchase additional 

Warrants, as there was no market for the 

Warrants. 

Under the Warrant Agreement, each 

shareholder of Old SSE Common Stock, 

including the Plan’s Stock Fund, 

received a pro rata share of Series B 

Warrants and Series C Warrants to 

replace Old SSE Common Stock prior to 

the Emergence Date. The Warrants 

could be exercised for post-emergence 

common stock of SSE (New SSE 

Common Stock). Based on the number 

of Warrants issued by the reorganized 

SSE, each Series B Warrant and each 

Series C Warrant could be exercised for 

one share of New SSE Common Stock, 

having a par value $0.01 per share, at an 

exercise price of $69.08 per share for 

each Series B Warrant, and $86.93 per 

share for each Series C Warrant. The 

Warrants could be exercised during the 

period beginning on the date of the 

Warrant Agreement and ending on the 

five-year or seven-year anniversary of 

the date of the Warrant Agreement. 

7. Upon the exercise of a Warrant, 

SSE would not be required to issue any 

fractional shares of New SSE Common 

Stock. Instead, SSE would be required 

to round up to the nearest whole share 

the number of shares of New SSE 

Common Stock designated in the 

applicable Exercise Notice. The Warrant 

Agreement provided that payment of the 

exercise price could be made at the 

option of the holder of the Warrants 

either: (a) Through a net share 

settlement; or (b) by paying or 

submitting payment for the exercise 

price.13

8. According to the Applicant, the 

Warrants could be sold, assigned, 

transferred, pledged, encumbered, or in 

any other manner transferred or 

disposed of, in whole or in party in 

accordance with the terms of the 

Warrant Agreement and all applicable 

laws. In this regard, the Applicant 

represents that the Plan had the right to 

sell the Warrants allocated to the Plan 

Accounts at any time prior to the 

Warrants’ expiration date, in the same 

manner as other holders of the 

Warrants. 

All decisions regarding the exercise or 

sale of the Warrants acquired by the 

Plan Accounts in connection with the 

Reorganization Plan could be made only 

by the individual Plan participants in 

whose Accounts the Warrants were 

allocated, in accordance with the terms 

of the Warrant Agreement, as well as in 

accordance with the respective 

provisions of the Plan and the 

regulations pertaining to the 

individually-directed investment of 

such accounts. According to the 

Applicant, if no action was taken by a 

Plan participant to exercise or sell the 

Warrants, then the Warrants would 

expire at the end of their respective 

term. 

9. The Warrants were described to 

Plan participants in frequently-asked 

questions (FAQs) regarding the 

Reorganization Plan, which the 

Applicant states were posted to SSE’s 

website on or about May 18, 2016, and 

taken down from the website on or 

before October 1, 2016. The Applicant 

represents that SSE’s CEO sent an initial 


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14The Applicant states that New SSE Common 

Stock was not traded on an exchange on October 

17, 2016 and so the Applicant has no market price 

for the stock on that date. The Applicant is not 

aware that a specific value was calculated for SSE 

as of the Emergence Date. As a result, the Applicant 

provided an imputed value based on the anticipated 

value of SSE as of the Emergence Date, which was 

intended to show that the warrants were 

underwater. 

15See Maria Comeaux et al. v. Seventy Seven 

Energy, Inc. et al., Case No. CIV–5:17–191M, U.S. 

District Court for the Western District of Oklahoma; 

Garud Sudarsan et al. v. Seventy Seven Energy, Inc. 

et al. Case No. 1:17–cv–02342, U.S. District Court 

for the Southern District of New York; Mainard Gael 

et al. v. Seventy Seven Energy, Inc. et al., Case No. 

2017–0266, Court of Chancery of the State of 

Delaware; Louis Scarantino et al. v. Seventy Seven 

Energy, Inc. et al., Case No. 2017–0278, Court of 

Chancery of the State of Delaware; and, Kathleen J. 

Myers v. Administrative Committee, Seventy Seven 

Energy, Inc. Retirement and Savings Plan, et al., 

Case No. CIV–17–200–D, United States District 

Court for the Western District of Oklahoma. 

16The Applicant states that, although the 

Warrants constitute ‘‘employer securities,’’ as 

defined under section 407(d)(1) of the Act, they do 

not satisfy the definition of ‘‘qualifying employer 

securities’’ as defined under section 407(d)(5) of the 

Act because they are not ‘‘stock,’’ ‘‘marketable 

securities,’’ or ‘‘interests in a publicly-traded 

partnership.’’ 

email to all employees with a link to the 

FAQs on or about May 18, 2016, 

followed by a second email with a link 

to updated FAQs on or about August 1, 

2016. 

According to the Applicant, as of 

October 17, 2016, New SSE Common 

Stock was not traded on a national 

securities exchange, but was instead 

traded over-the-counter. Although the 

Bankruptcy Court authorized 22,000,000 

shares of New SSE Common Stock to be 

issued under the Reorganization Plan, 

former shareholders of Old SSE 

Common Stock received Warrants, but 

they did not receive any shares of New 

SSE Common Stock. 

The Applicant also represents that the 

value of SSE as of the Emergence Date 

was anticipated to be $345,000,000. 

However, based on this projected 

market value, the Applicant states that 

the imputed fair market value per share 

of New SSE Common Stock was only 

approximately $15.68 per share.14

Therefore, the Applicant represents that 

as of October 17, 2016, the Warrants 

were ‘‘underwater.’’ 

The Merger 

10. On December 12, 2016, SSE 

entered into an Agreement and Plan of 

Merger (the Merger Agreement) with 

Patterson-UTI and Merger Sub. The 

Merger was effective on April 20, 2017 

(the Merger Date). Pursuant to the 

Merger Agreement, the Warrants were 

treated in accordance with the terms of 

the Warrant Agreement. Holders of the 

Warrants were provided a notice of the 

merger at least fifteen days prior to the 

effective time of the Merger. Any 

Warrants that were not exercised 

immediately prior to the effective time 

of the Merger expired, and all rights of 

the Warrant holders ceased. 

The Merger’s Effect on the Warrants 

11. Because the Warrants were 

underwater, all Warrants expired 

(unexercised) immediately prior to the 

Merger Date. The Applicant represents 

that when the Committee decided to 

keep New SSE Common Stock as an 

investment option under the Plan, 

knowing that New SSE Common Stock 

would be converted into Warrants, the 

Committee was of the view that this was 

in the participants’ interest as it 

potentially allowed the participants to 

participate in the appreciation of New 

SSE Common Stock. While ultimately 

this potential was not realized, the 

Applicant does not believe that this 

result should be considered in 

hindsight. 

In this regard, the Applicant 

represents that SSE and the Trustee set 

up a system and procedures to facilitate 

the exercise of the Warrants or the sale 

of the Warrants (if the Warrants had 

become listed on a market, which they 

were not). However, these plans were 

not finalized prior to the announcement 

of the Merger with Patterson-UTI 

because, upon closing of the Merger on 

April 20, 2017, the Warrants were 

cancelled. 

Merger-Related Litigation 

12. According to the Applicant, 

several SSE shareholder and Warrant 

holder plaintiffs filed class action 

lawsuits against SSE in connection with 

the Merger.15

In this regard, 

• On February 22, 2017, an SSE 

shareholder challenged the disclosures made 

in connection with the Merger against SSE 

and the members of SSE’s Board of Directors 

(the Board) in the United States District Court 

for the Western District of Oklahoma (the 

Oklahoma District Court), and alleged 

inadequacies in the Merger price, the process 

leading up to it, and claimed that the Joint 

Proxy Statement/Prospectus filed in 

connection with the merger failed to disclose 

certain material information. Based on these 

allegations, the shareholder sought to enjoin 

the shareholder vote on the Merger unless 

and until SSE disclosed the allegedly omitted 

material information summarized above. On 

February 26, 2018, the Oklahoma District 

Court entered an order awarding the 

shareholder’s counsel $128,354.50 in 

attorneys’ fees and expenses. The parties 

subsequently settled for an amount less than 

the Oklahoma District Court’s award. 

• On March 31, 2017, a shareholder of 

Series B and Series C Warrants, filed a class 

action lawsuit against SSE, Patterson-UTI 

and Merger Sub in the U. S. District Court for 

the Southern District of New York (the New 

York District Court), alleging: (a) That SSE 

had breached the Warrant Agreement; and (b) 

tortious interference with the Warrant 

Agreement by Patterson-UTI and Merger Sub. 

Based on these allegations, the Warrant 

holder sought to enjoin the cancelation of 

SSE’s Series A, Series B, and Series C 

Warrants in connection with the proposed 

Merger on February 6, 2018. The New York 

District Court dismissed the Warrant holder’s 

complaint and struck the Warrant holder’s 

amended complaint. On March 6, 2018, 

Warrant holder filed a notice of appeal of the 

dismissal. According to the Applicant, the 

parties have reached an agreement to resolve 

the matter and are working to prepare and 

finalize a formal settlement agreement. 

• On April 7, 2017, an SSE shareholder 

filed a class action lawsuit challenging the 

disclosures made in connection with the 

Merger against SSE and the members of SSE’s 

Board. The lawsuit in was filed in the Court 

of Chancery of the State of Delaware (the 

Delaware Chancery Court), and alleged that 

SSE’s Board had breached its fiduciary duties 

by failing to disclose in the Joint Proxy 

Statement/Prospectus filed in connection 

with the merger certain material information. 

Based on these allegations, the Warrant 

holder sought to enjoin damages if the 

Merger was consummated. On July 20, 2017, 

the Warrant holder filed a notice and 

proposed order voluntarily dismissing the 

action, and on July 21, 2017, the Delaware 

Chancery Court signed the order dismissing 

the action. 

• On April 10, 2017, an SSE shareholder 

filed a class action lawsuit, challenging the 

disclosures made in connection with the 

Merger against SSE, the members of SSE’s 

Board, Patterson-UTI, and Merger Sub in the 

Delaware Chancery Court. On July 20, 2017, 

the shareholder filed a notice and proposed 

order voluntarily dismissing the action, and 

on July 21, 2017, the Delaware Chancery 

Court dismissed the action. 

• On February 24, 2017, an SSE 

shareholder filed a class action lawsuit on 

behalf of herself and others, alleging that the 

Plan’s investment in, or retention of, a stock 

fund invested in CHK stock amounted to a 

breach of fiduciary duty under ERISA. On 

June 26, 2017, defendants, representing SSE’s 

Administrative Committee and the Trustee 

filed respective motions to dismiss the 

shareholder’s complaint for failure to state a 

claim and the motions have been fully 

briefed. As of this time, the parties are 

awaiting the Court’s decision on the 

defendants’ motions to dismiss. 

Analysis 

13. The Applicant has requested 

retroactive exemptive relief that is 

effective for the period, August 1, 2016 

through April 20, 2017, from sections 

406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) 

of the Act.16 Section 406(a)(1)(E) of the 

Act prohibits the acquisition, on behalf 

of a plan, of any ‘‘employer security in 

violation of section 407(a) of the Act.’’ 


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Section 406(a)(2) of the Act prohibits a 

fiduciary who has authority or 

discretion to control or manage the 

assets of a plan to permit the plan to 

hold any ‘‘employer security’’ that 

violates section 407(a) of the Act. 

Section 407(a)(1)(A) of the Act provides 

that a plan may not acquire or hold an 

‘‘employer security’’ which is not a 

‘‘qualifying employer security.’’ 

Therefore, the acquisition and holding 

by the Plan Accounts of the Warrants 

constitute prohibited transactions in 

violation of the Act. 

Statutory Findings 

14. SSE represents the proposed 

exemption is administratively feasible 

because Old SSE Common Stock held 

by the Plan was automatically converted 

into the Warrants. In addition, SSE 

represents that the proposed exemption 

is in the interests of the Plan and 

participants because the Plan held 

shares of Old SSE Common Stock on the 

date the Warrants were issued pursuant 

to the Reorganization Plan. Therefore, 

SSE represents that the Plan acquired 

the Warrants automatically in the same 

manner as all other shareholders of Old 

SSE Common Stock. SSE also states that 

neither the Plan nor the Plan’s 

fiduciaries took any action to cause the 

shares of Old SSE Common Stock to be 

replaced with the Warrants and were 

not part of, and did not participate in, 

the bankruptcy process or the 

Reorganization Plan. 

SSE represents that the exemption is 

protective of the rights of the Plan 

participants because: (a) The issuance of 

the Warrants, which was the result of 

the Reorganization Plan, occurred 

without any participation on the part of 

the Plan; (b) Plan participants were 

treated similarly to all other holders of 

Old SSE Common Stock under the 

Reorganization Plan; (c) the Trustee did 

not allow Plan participants to exercise 

the Warrants held by their Plan 

Accounts because the fair market value 

of New SSE Common Stock did not, at 

any time prior to the date that the 

Warrants expired, exceed the exercise 

price of the Warrants; and (d) the Plan 

did not pay any fees or commissions 

with respect to the acquisition or 

holding of the Warrants. 

Summary 

15. Given the conditions described 

below, the Department has tentatively 

determined that the relief sought by the 

Applicant satisfies the statutory 

requirements for an exemption under 

section 408(a) of the Act. 

Proposed Exemption Operative 

Language 

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 (76 FR 46637, 66644, 

October 27, 2011). If the exemption is 

granted, the restrictions of sections 

406(a)(1)(E), 406(a)(2), and 407(a)(1)(A) 

of the Act shall not apply, effective 

August 1, 2016 through April 20, 2017, 

to: (1) The acquisition by participantdirected accounts (the Accounts) in the 

Plan of certain warrants (the Warrants), 

issued by Seventy Seven Energy, Inc. 

(SSE), the Plan sponsor, in connection 

with SSE’s bankruptcy; and (2) the 

holding of the Warrants by the Plan, 

provided that the following conditions 

were or would have been met: 

(a) The Plan acquired the Warrants 

automatically in connection with the 

Reorganization Plan, under which all 

holders of Old SSE Common Stock, 

including the Plan, were treated in the 

same manner; 

(b) The Plan acquired the Warrants 

without any unilateral action on its part; 

(c) The Plan did not pay any fees or 

commissions in connection with the 

acquisition or holding of the Warrants; 

(d) Had the Warrants not expired 

unexercised, all decisions regarding the 

exercise or sale of the Warrants acquired 

by the Plan would have been made by 

the Plan participants in whose Plan 

Accounts the Warrants were allocated, 

in accordance with the terms of the 

Warrant Agreement and in accordance 

with the Plan provisions and regulations 

pertaining to the individually-directed 

investment of the Plan Accounts; and 

(e) The Plan trustee did not allow 

Plan participants to exercise the 

Warrants held by their Plan Accounts 

because the fair market value of New 

SSE Common Stock did not, at any time 

prior to the date that the Warrants 

expired, exceed the exercise price of the 

Warrants. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of August 1, 2016 through April 20, 

2017. 

Notice to Interested Persons 

SSE will provide notice of the 

proposed exemption to all interested 

persons, including all participants in 

the Plan, former employees with vested 

account balances in the Plan, all retirees 

and beneficiaries currently receiving 

benefits from the Plan, all employers 

with employees participating in the 

Plan, all unions with members 

participating in the Plan (of which there 

are none), and all Plan fiduciaries, by 

first class mail, within 10 days of the 

date of publication of the notice of 

proposed exemption in the Federal 

Register. The notice will include a copy 

of the proposed exemption, as 

published in the Federal Register, and 

a supplemental statement, as required 

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

will inform interested persons of their 

right to comment with respect to the 

proposed exemption. Comments 

regarding the proposed exemption are 

due within 40 days of the date of 

publication of the notice of pendency in 

the Federal Register. All comments will 

be made available to the public. 

Warning: If you submit a comment, 

EBSA recommends that you include 

your name and other contact 

information in the body of your 

comment, but do not submit 

information that you consider to be 

confidential, or otherwise protected 

(such as social security number or an 

unlisted phone number) or confidential 

business information that you do not 

want publicly disclosed. All comments 

may be posted on the internet and can 

be retrieved by most internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: Ms. 

Anna Mpras Vaughan of the 

Department, telephone (202) 693–8565. 

(This is not a toll-free number.) 

Tidewater Savings and Retirement Plan 

(the Plan), Located in New Orleans, 

LA, [Application No. D–11940]. 

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, as amended, (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 (76 FR 66637, 

66644, October 27, 2011). If the 

proposed exemption is granted, the 

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

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

will not apply, effective July 31, 2017, 

to: (1) The acquisition, by certain 

participant-directed accounts (the 

Accounts) in the Plan, of Series A 

Warrants and Series B Warrants 

(together, the Equity Warrants), issued 

by Tidewater Inc., the Plan sponsor and 

a party in interest with respect to the 

Plan; and (2) the holding of the Equity 

Warrants by the Accounts, provided the 

conditions set forth below in Section I 

are met. 


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17The Summary of Facts and Representations is 

based on the Applicant’s representations, unless 

indicated otherwise. 

18The Applicant represents that the services 

provided by Merrill Lynch in connection with the 

sale of the Equity Warrants would be exempt under 

section 408(b)(2) of the Act. However, the 

Department is not opining on whether the 

conditions, as set forth in section 408(b)(2) of the 

Act and the Department’s regulations, pursuant to 

29 CFR 2550.408(b)(2) were satisfied. In addition, 

the Department is not providing exemptive relief in 

connection with the sale of the Equity Warrants in 

blind transactions to unrelated parties in open 

market transactions on the NYSE beyond that 

provided under section 408(b)(2) and 29 CFR 

2550.408(b)(2). 

19The Applicant states that, although the Equity 

Warrants constitute ‘‘employer securities,’’ as 

defined under section 407(d)(1) of the Act, they do 

not satisfy the definition of ‘‘qualifying employer 

securities’’ as defined under section 407(d)(5) of the 

Act because they are not ‘‘stock,’’ ‘‘marketable 

securities,’’ or ‘‘interests in a publicly-traded 

partnership.’’ 

Summary of Facts and 

Representations 17

Background 

1. Tidewater (the Applicant) is a 

publicly-traded international petroleum 

service company headquartered in New 

Orleans, Louisiana. Tidewater operates 

a fleet of ships, providing vessels and 

marine services to the offshore 

petroleum industry. 

2. Tidewater sponsors the Plan, a 

defined contribution profit-sharing plan 

with approximately 565 participants 

and $89,496,494 total assets, as of 

March 31, 2018. Generally, all 

employees are eligible to make 

employee pre-tax contributions to the 

Plan and receive matching 

contributions. Prior to January 1, 2016, 

the matching contributions were in 

Tidewater common stock. 

3. Bank of America, N.A. serves as the 

directed trustee of the Plan. The Plan is 

administered by the Employee Benefits 

Committee (the Committee), whose 

eight members are appointed by 

Tidewater. The Committee members are 

also Tidewater officers. 

Tidewater’s Bankruptcy and Plan of 

Reorganization 

4. On May 11, 2017, Tidewater 

reached an agreement with certain of its 

creditors to support a restructuring 

under the terms of a prepackaged plan 

of reorganization. On May 12, 2017, 

Tidewater provided notice to Plan 

participants and employees in the form 

of memoranda explaining Tidewater’s 

Restructuring Support Agreement with 

lenders and noteholders. 

On May 17, 2017, Tidewater and 

certain subsidiaries filed voluntary 

petitions for reorganization in the 

United States Bankruptcy Court for the 

District of Delaware (the Bankruptcy 

Court) seeking relief under the 

provisions of Chapter 11 of Title 11 of 

the United States Code (the Bankruptcy 

Cases). 

On July 17, 2017, the Bankruptcy 

Court issued a written order (the 

Confirmation Order) confirming the 

Second Amended Joint Prepackaged 

Chapter 11 Plan of Reorganization of the 

Affiliated Debtors (the Prepackaged 

Plan). On July 31, 2017 (the Effective 

Date), the Prepackaged Plan became 

effective in accordance with its terms 

and Tidewater emerged from the 

Bankruptcy Cases. 

5. As of the Effective Date, all shares 

of Tidewater’s pre-bankruptcy common 

stock (the Old Common Stock) were 

cancelled, and those stockholders of 

Tidewater received, in the aggregate, 1.5 

million shares of the New Common 

Stock, which represented 5% of the pro 

forma common equity in the 

reorganized Tidewater. In addition, 

holders of the Old Common Stock 

received approximately: 0.0516 Series A 

Warrants for each share of the Old 

Common Stock the shareholder 

previously owned, and 0.0558 Series B 

Warrants for each share of the Old 

Common Stock the shareholder 

previously owned. Further, the Series A 

Warrants and the Series B Warrants 

entitled each shareholder to purchase 

one share of the New Common Stock for 

$57.06 and $62.28, respectively. Unless 

terminated earlier, each Equity Warrant 

has a six year duration. 

Effect of the Prepackaged Plan on the 

Plan 

6. The Applicant represents that on 

June 30, 2017, Plan participants held 

approximately 277,716 shares of the Old 

Common Stock. On July 31, 2017, when 

Tidewater emerged from bankruptcy, 

these shares were cancelled and, in 

consideration, Plan participants 

received approximately 8,800 shares of 

the New Common Stock and 

approximately 29,800 Equity Warrants 

to purchase additional shares of the 

New Common Stock. The New Common 

Stock and the Equity Warrants, which 

are traded on the New York Stock 

Exchange (the NYSE), were held in the 

Plan’s trust (the Trust), and managed by 

Bank of America Merrill Lynch (Merrill 

Lynch), an unrelated party. 

Sale of the Equity Warrants 

7. The Applicant represents that the 

Committee met on multiple occasions to 

monitor the Equity Warrants. On 

November 1, 2017, Committee members 

proposed that it would be prudent to 

direct Merrill Lynch to liquidate the 

Equity Warrants held by the Plan. Each 

sale transaction would be for cash, and 

no sale would enrich the Plan 

fiduciaries. As structured by the 

Committee, the sale of the Equity 

Warrants would be for no less than the 

fair market value of the Equity Warrants 

as traded on the NYSE. Also, Plan 

participants would not be charged a 

commission or fee in connection with 

the sales. Further, the Committee would 

authorize the sale of the Equity 

Warrants through the Merrill Lynch 

trading desk.18

8. The Applicant represents that Plan 

participants received notice, dated 

November 7, 2017, regarding the 

Committee’s decision to sell the Equity 

Warrants. Plan participants were 

informed that: (a) Derivative 

investments, like the Equity Warrants, 

were not typically part of a retirement 

plan’s holdings; and (b) these 

investments only had a value for a 

specified period of time (i.e., six years 

in the case of the Equity Warrants). Plan 

participants were also informed that the 

Committee had elected to sell the Equity 

Warrants on the NYSE in three tranches 

over a six month period to minimize the 

impact on the market price of these 

securities. Plan participants were told 

that the sale proceeds would be 

reinvested in their individual accounts 

under the Plan (the Plan Accounts), 

with the cash invested in accordance 

with the Plan participant’s current 

investment allocation. 

With the exception of those Plan 

participants who were reporting persons 

under SEC Rule 16(b), Plan participants 

could elect to sell their Equity Warrants 

at any time by contacting a Merrill 

Lynch representative or direct the 

investment change at the Plan’s website. 

The sale of Equity Warrants was not 

restricted to the six month period 

(November 9, 2017 to May 9, 2018), but 

participants were told that the positions 

would be liquidated in lots by the end 

of the six month time frame. According 

to the Applicant, twenty Plan 

participants sold a total of 116.001 

Equity Warrants between August 24, 

2017 and April 25, 2018, for an 

aggregate sales price of $323.81 and 

$240.88, respectively. The final tranche 

of the Equity Warrants was sold on May 

11, 14, and 15, 2018. 

Exemptive Relief Requested/Analysis 

9. The Applicant has requested 

retroactive exemptive relief that is 

effective as of July 31, 2017, the date the 

Plan Accounts acquired the Equity 

Warrants, and requests exemptive relief 

from sections 406(a)(1)(E), 406(a)(2), and 

407(a)(1)(A) of the Act.19 Section 

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


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20The Applicant represents that the receipt, by 

the Plan Accounts, of the New Common Stock from 

Tidewater as the result of the cancellation of the 

Plan’s shares of the Old Common Stock is covered 

by the statutory exemption under section 408(e) of 

the Act. The Department is not expressing an 

opinion herein on whether the acquisition by the 

Plan Accounts of New Common Stock is statutorily 

exempt under section 408(e) of the Act. 

acquisition, on behalf of a plan, of any 

‘‘employer security in violation of 

section 407(a) of the Act.’’ Section 

406(a)(2) of the Act prohibits a fiduciary 

who has authority or discretion to 

control or manage the assets of a plan 

to permit the plan to hold any 

‘‘employer security’’ that violates 

section 407(a) of the Act. Section 

407(a)(1)(A) of the Act provides that a 

plan may not acquire or hold an 

‘‘employer security’’ which is not a 

‘‘qualifying employer security.’’ 

Therefore, the acquisition and holding 

by the Plan Accounts of the Equity 

Warrants constitute prohibited 

transactions in violation of the Act.20

Statutory Findings 

10. The Applicant represents that the 

proposed exemption with respect to the 

Equity Warrants is administratively 

feasible because all shareholders of 

Tidewater, Inc., including the Plan, 

were, and will be treated in the same 

manner with respect to any acquisition, 

holding and exercise or other 

disposition of the Equity Warrants. 

11. The Applicant represents that the 

proposed exemption is in the interests 

of the Plan and participants because: (a) 

Plan participants were treated in the 

same manner as other stockholders; (b) 

Plan participants could acquire shares 

of the New Common Stock for their Plan 

Accounts by exercising their purchase 

rights under the Equity Warrants; (c) 

Plan participants could direct Merrill 

Lynch to sell the Equity Warrants, at 

any time on the NYSE; and (d) Plan 

participants were notified when the 

Committee approved the sale of the 

Equity Warrants. 

12. The Applicant represents that the 

proposed exemption is protective of the 

rights of Plan participants and 

beneficiaries because the Equity 

Warrants could be sold by Merrill Lynch 

on the NYSE, at the direction of either 

the Plan participants or the Committee. 

Further, the Applicant represents that 

the Plan did not pay any fees or 

commissions with respect to the 

acquisition or holding of the Equity 

Warrants. 

Summary 

13. Given the conditions described 

below, the Department has tentatively 

determined that the relief sought by the 

Applicant satisfies the statutory 

requirements for an exemption under 

section 408(a) of the Act. 

Proposed Exemption Operative 

Language 

Section I. Covered Transactions 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the 

Employee Retirement Income Security 

Act of 1974, as amended, (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 (76 FR 66637, 

66644, October 27, 2011). If the 

proposed exemption is granted, the 

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

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

will not apply, effective July 31, 2017, 

to: (1) The acquisition in the Tidewater 

Savings and Retirement Plan (the Plan), 

by the participant-directed accounts (the 

Accounts) of certain participants, of 

Series A Warrants and Series B 

Warrants (collectively, the Equity 

Warrants) of Tidewater, Inc. 

(Tidewater), the Plan sponsor and a 

party in interest with respect to the 

Plan; and (2) the holding of the Equity 

Warrants by the Accounts, provided that 

the conditions set forth in Section II 

below are or were satisfied. 

Section II. Conditions for Relief 

(a) The acquisition of the Equity 

Warrants by the Accounts of Plan 

participants occurred in connection 

with Tidewater’s bankruptcy 

proceeding; 

(b) The Equity Warrants were 

acquired pursuant to, and in accordance 

with, provisions under the Plan for 

individually-directed investments of the 

Accounts by the individual participants 

in the Plan, a portion of whose 

Accounts in the Plan held shares of old 

Tidewater common stock (the Old 

Common Stock); 

(c) Each shareholder of the Old 

Common Stock, including each Account 

of an affected Plan participant, was 

issued the same proportionate shares of 

the Equity Warrants based on the 

number of shares of the Old Common 

Stock held by the shareholder as of July 

31, 2017; 

(d) All holders of the Equity Warrants, 

including the Accounts, were treated in 

a like manner; 

(e) The decisions with regard to the 

acquisition, holding or disposition of 

the Equity Warrants by an Account were 

made by each Plan participant whose 

Account received the Equity Warrants; 

(f) The Accounts did not pay any 

brokerage fees, commissions, or other 

fees or expenses to any related broker in 

connection with the acquisition and 

holding of the Equity Warrants, nor did 

the Accounts pay any brokerage fees or 

commissions in connection with the 

sale of the Equity Warrants; 

(g) Each sale transaction involving the 

Equity Warrants was for cash, and no 

sale would enrich the Plan fiduciaries; 

(h) Plan participants could: (1) 

Acquire shares of the New Common 

Stock for their Plan Accounts by 

exercising their purchase rights under 

the Equity Warrants; or (2) direct Merrill 

Lynch to sell the Equity Warrants held 

in their Accounts, at any time; and 

(i) Plan participants were notified 

when the Committee approved the sale 

of the Equity Warrants. 

Effective Date: This proposed 

exemption, if granted, will be effective 

for the period beginning July 31, 2017, 

and ending whenever the Equity 

Warrants are exercised by Plan 

participants or they expire. 

Notice to Interested Persons 

Notice of the proposed exemption (the 

Notice) will be provided by Tidewater 

to interested persons within fifteen (15) 

days of publication in the Federal 

Register. Tidewater will provide the 

Notice to Plan participants who are 

affected by the cancellation of the Old 

Common Stock and the issuance of the 

New Common Stock and the Equity 

Warrants. The Notice will be provided 

to Plan participants by: (1) First class 

U.S. mail to the last known address of 

these individuals, or (2) electronic 

delivery to each shipping vessel 

Tidewater operates and posting on 

bulletin boards. The Notice will contain 

a copy of the Notice, as published in the 

Federal Register, and a supplemental 

statement, as required pursuant to 29 

CFR 2570.43(a)(2). The supplemental 

statement will inform interested persons 

of their right to comment on and to 

request a hearing with respect to the 

pending exemption. Written comments 

and hearing requests are due within 

forty-five (45) days of the publication of 

the Notice in the Federal Register. All 

comments will be made available to the 

public. 

Warning: Do not include any 

personally identifiable information 

(such as name, address, or other contact 

information) or confidential business 

information that you do not want 

publicly disclosed. All comments may 

be posted on the internet and can be 

retrieved by most internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: 

Blessed Chuksorji-Keefe of the 

Department, telephone (202) 693–8567. 

(This is not a toll-free number.) 


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21For purposes of this proposed exemption, 

references to the provisions of section 406 of Title 

I of the Act, unless otherwise specified, should be 

read to refer as well to the corresponding provisions 

of section 4975 of the Code. 

22Unless otherwise noted, the Index Funds and 

the Model-Driven Funds are collectively referred to 

herein as ‘‘the Funds.’’ 

Principal Life Insurance Company 

(PLIC) and its Affiliates (collectively, 

Principal or the Applicant), Located 

in Des Moines, IA, [Application No. 

D–11947]. 

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, as amended (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 (76 FR 66637, 

66644, October 27, 2011).21 If the 

proposed exemption is granted, the 

restrictions of sections 406(a)(l)(D), 

406(b)(l), and section 406(b)(2) of the 

Act and the sanctions resulting from the 

application of section 4975 of the Code 

by reason of section 4975(c)(l)(D) and 

(E) of the Code, shall not apply, to the 

direct or indirect acquisition, holding, 

and disposition of common stock issued 

by Principal Financial Group, Inc. 

(PFG), and/or common stock issued by 

an affiliate of PFG (together, the 

Principal Stock), by index funds (Index 

Funds) and model-driven funds (ModelDriven Funds) that are managed by 

PLIC, an indirectly wholly-owned 

subsidiary of PFG, or an affiliate of PLIC 

(collectively, Principal), in which client 

plans of Principal invest, provided that 

the conditions in Sections II and III are 

met. 

Summary of Facts and Representations 

The Parties 

1. PLIC is an indirect, wholly-owned 

subsidiary of PFG. As a stock life 

insurance company domiciled in Iowa, 

PLIC provides recordkeeping, 

administrative, and investment 

management services to plans. 

2. PFG is a publicly-traded company 

that is incorporated in Delaware. PFG 

offers businesses, individuals, and 

institutional clients a wide range of 

financial products and services, 

including retirement, asset management, 

and insurance through a diverse family 

of financial services companies. As of 

December 31, 2017, PFG had $669 

billion in total assets under management 

and 22.8 million customers, worldwide. 

The Funds 

3. Principal maintains, or may in the 

future maintain, insurance company 

separate accounts, separately-managed 

accounts, collective trusts, or other 

investment funds, accounts, or 

portfolios that: (a) Will hold plan assets, 

as defined in section 3(42) of the Act 

and 29 CFR 2510.3–101; and (b) are 

designed to track a Standard & Poor’s 

(S&P) or other third-party index (the 

Index Funds). Principal manages, or 

will manage, the Index Funds’ assets as 

a fiduciary under the Act. 

The Index Funds currently managed 

by Principal include three pooled 

insurance company separate accounts 

that directly invest in equity securities 

that mirror, and replicate the investment 

performance of, Indexes maintained by 

S&P. The Index Funds presently consist 

of: (a) The Principal LargeCap S&P 500 

Index Separate Account (the LargeCap 

Separate Account); (b) the Principal 

MidCap S&P 400 Index Separate 

Account (the MidCap Separate 

Account); and (c) the Principal 

SmallCap S&P 600 Index Separate 

Account (the SmallCap Separate 

Account). The Index Funds also include 

the Principal Total Market Stock Index 

Separate Account (the Total Market 

Separate Account), a pooled insurance 

company separate account that mirrors 

and replicates the investment 

performance of the S&P Supercomposite 

1500 Index by investing in the LargeCap 

Separate Account, the Mid-Cap Separate 

Account, and the SmallCap Separate 

Account. 

As of July 31, 2017, 20,632 plans 

participated in the Large Cap Separate 

Account; 14,839 plans participated in 

the Mid-Cap Separate Account; 15,901 

plans participated in the SmallCap 

Separate Account; and 522 plans 

participated in the Total Market 

Separate Account. Also, as of July 31, 

2017, the total plan assets invested in 

the Index Funds were as follows: The 

Large Cap Separate Account— 

$20,016,535,718; the Mid-Cap Separate 

Account—$5,559,742,215; the SmallCap 

Separate Account—$4,293,584,718; and 

the Total Market Separate Account— 

$122,178,926. 

The Index Funds are managed by 

PLIC. The LargeCap Separate Account, 

the MidCap Separate Account and the 

SmallCap Separate Account are 

subadvised by Principal Global 

Investors LLC, an affiliate. The Total 

Market Separate Account is subadvised 

by Principal Financial Advisors, Inc., 

another affiliate. 

4. According to the Applicant, 

Principal may, in the future, maintain 

insurance company separate accounts, 

separately-managed accounts, collective 

trusts, or other investment funds, 

accounts, or portfolios that hold plan 

assets. These investment vehicles are 

designed to invest in securities, of 

which the identity and the amount 

would be determined by a computer 

model that is based on prescribed, 

objective criteria using independent, 

third-party data to transform an 

independently-maintained index that 

would not be within Principal’s control 

(the Model-Driven Funds). The 

Applicant represents that Principal 

would manage the assets of the ModelDriven Funds as a fiduciary under the 

Act.22

Investing in Principal Stock 

5. Although PFG Stock is included in 

the S&P 500 Index, the LargeCap 

Separate Account does not currently 

hold any PFG Stock. However, the 

Applicant represents that it intends to 

invest the LargeCap Separate Account in 

PFG Stock to track the performance of 

the S&P 500 Index more closely. The 

Applicant states that, if the S&P were to 

remove PFG Stock from the S&P 500 

Index and include it in the S&P 400 

Index or the S&P 600 Index, PLIC would 

invest the corresponding Index Fund in 

PFG Stock. 

6. The Applicant represents that the 

Total Market Separate Account does not 

indirectly hold any PFG Stock through 

the Total Market Account’s investments 

in the three underlying separate 

accounts: The LargeCap Separate 

Account, the MidCap Separate Account, 

and the SmallCap Separate Account. 

However, the Applicant states, if one of 

the underlying Index Funds were to 

hold PFG Stock, the Total Market 

Separate Account would indirectly hold 

PFG Stock. 

In addition, the Applicant represents 

that if Principal establishes a new Index 

Fund or Model-Driven Fund, and if PFG 

Stock or the stock of an affiliate of PFG 

(collectively, Principal Stock) is 

included in the relevant Index, 

Principal intends to invest the assets of 

the Index Fund or the Model-Driven 

Fund in Principal Stock. The Applicant 

states that, similar to the Total Market 

Separate Account, a newly-established 

Index Fund may indirectly invest in 

Principal Stock through another Index 

Fund. Although only PFG Stock is 

currently publicly-traded, the Applicant 

represents that Principal intends to 

invest both Index Funds and ModelDriven Funds in the common stock of 

an affiliate of PFG, if due to a corporate 

reorganization or other action, the 

common stock is included in the 

relevant Index. 


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23The Applicant is not requesting any relief from 

sections 406 or 407(a) of the Act in connection of 

the acquisition and holding of Principal Stock by 

any employee benefit plans established and 

maintained by the Applicant or its affiliates for its 

own employees that invest in Index Funds or 

Model-Driven Funds. In this regard, these 

transactions are covered by the statutory exemption 

under section 408(e) of the Act, if the conditions of 

this statutory exemption are met. 

24The Applicant anticipates that, generally, 

acquisitions of Principal Stock by an Index Fund or 

a Model-Driven Fund in a ‘‘Buy-up’’ will occur 

within ten (10) business days from the date of the 

event that causes the particular Fund to require the 

addition of Principal Stock. The Applicant does not 

anticipate that the amounts of Principal Stock 

acquired by any Index Fund or Model-Driven Fund 

in a ‘‘Buy-up’’ will be significant. 

7. The Applicant represents that the 

acquisition or disposition of Principal 

Stock will be for the sole purpose of 

maintaining strict quantitative 

conformity with the Index upon which 

the Index Fund or Model-Driven Fund 

is based and not for the purpose of 

benefitting Principal. Each Index must 

be, among other things, created and 

maintained by an organization 

independent of Principal. 

8. The Applicant represents that it 

intends to invest the LargeCap Separate 

Account in PFG Stock in order to track 

more closely the performance of the S&P 

500 Index. The Applicant states that, if 

S&P were to remove PFG Stock from the 

S&P 500 Index and include it in the S&P 

400 Index or the S&P 600 Index, PLIC 

would invest the corresponding Index 

Fund in PFG Stock. The Applicant also 

states that the Total Market Separate 

Account will indirectly invest in PFG 

Stock if one of the Index Funds, in 

which the Total Market Account 

invests, were to invest in PFG Stock. 

The Applicant further represents that, 

even though currently the only Index 

Funds or Model-Driven Funds in 

existence are those referenced above, 

and the only Principal Stock is PFG 

Stock, the proposed exemption would 

cover: (a) Any future Index Fund that 

directly or indirectly invests in any 

Principal Stock; and (b) any future 

Model-Driven Fund that invests in any 

Principal Stock. 

9. The Applicant represents that the 

proposed exemption is necessary to 

allow Funds holding ‘‘plan assets’’ to 

purchase and hold Principal Stock in 

order to replicate the capitalizationweighted or other specified composition 

of Principal Stock in an independentlymaintained third-party index used by an 

Index Fund, or to achieve the 

transformation of an Index used to 

create a portfolio for a Model-Driven 

Fund.23 The Applicant represents that 

the inclusion or exclusion of Principal 

Stock from an Index and the weighting 

or changes to the weighting of Principal 

Stock in an Index are based on data, 

criteria, and methodology determined 

by the organization that creates and 

maintains the Index, which cannot be 

varied by PLIC. The Applicant 

represents that changes in the weighting 

of Principal Stock in an Index Fund or 

Model-Driven Fund would occur when 

there is a change in factors underlying 

the applicable weighting methodology. 

Changes in Index weightings are, for the 

most part, triggered by corporate 

actions, such as buying back shares, 

issuing more shares or acquiring another 

company for stock. 

In addition, the Applicant represents 

that there will be instances, once the 

proposed exemption is granted, when 

Principal Stock will be added to an 

Index on which a Fund is based, or will 

be added to a Fund portfolio which 

seeks to track an Index that includes 

Principal Stock. In these instances, 

acquisitions of Principal Stock will be 

necessary to bring the Fund’s holdings 

of Principal Stock either to its 

capitalization-weighted or other 

specified composition in the Index, as 

determined by an independent 

organization maintaining the Index, or 

to the correct weighting for the Stock, as 

determined by a computer model that 

has been used to transform the Index. If 

the Index Fund or Model-Driven Fund 

holds ‘‘plan assets,’’ all acquisitions of 

Principal Stock by the Fund must 

comply with the ‘‘Buy-up’’ condition set 

forth in Section II(b) of this proposed 

exemption.24

Independent Fiduciary (Independent 

Fiduciary) Appointment 

10. The Applicant states that, in the 

case of a Buy-up, if the necessary 

number of shares of Principal Stock 

cannot be acquired within ten (10) 

business days from the date of the event 

that causes the particular Index Fund or 

Model-Driven Fund to require Principal 

Stock, PLIC, or another affiliated fund 

manager (the Affiliated Fund Manager) 

will appoint an Independent Fiduciary 

to design acquisition procedures and 

monitor PLIC’s, or the Affiliated Fund 

Manager’s compliance with these 

procedures. The Applicant represents 

that Institutional Shareholder Services, 

Inc. (ISS) is expected to serve as the 

Independent Fiduciary with respect to 

the transactions. 

The Applicant represents that the 

Independent Fiduciary and its 

principals will be completely 

independent from PLIC and its affiliates. 

The Applicant represents that the 

Independent Fiduciary will be 

experienced in developing and 

operating investment strategies for 

individual and collective investment 

vehicles that track third-party indices. 

Furthermore, the Applicant states that 

the Independent Fiduciary will not act 

as the broker for any purchases or sales 

of Principal Stock and will not receive 

any commissions as a result of this 

initial acquisition program. The 

Applicant notes that the Independent 

Fiduciary will have, as its primary goal, 

the development of trading procedures 

that minimize the market impact of 

purchases made pursuant to the initial 

acquisition program by the Index Funds 

or Model-Driven Funds. 

The Applicant represents that under 

the trading procedures established by 

the Independent Fiduciary, the trading 

activities will be conducted in a lowprofile, mechanical, non-discretionary 

manner and would involve a number of 

small purchases over the course of each 

day, randomly timed. The Applicant 

also represents that this program will 

allow PLIC, or other Affiliated Fund 

Manager, to acquire the necessary shares 

of Principal Stock for the Index Funds 

or Model-Driven Funds with minimum 

impact on the market, and in a manner 

that will be in the best interests of any 

employee benefit plans that participate 

in these Funds. 

The Applicant represents that the 

Independent Fiduciary will also be 

required to monitor PLIC’s or other 

Affiliated Fund Manager’s compliance 

with the trading program and 

procedures developed for the initial 

acquisition of Principal Stock. 

The Applicant represents that, during 

the course of any initial acquisition 

program, the Independent Fiduciary 

will be required to review the activities 

weekly to determine compliance with 

the trading procedures and notify PLIC, 

or other Affiliated Fund Manager, 

should any non-compliance be detected. 

The Applicant represents that the 

Independent Fiduciary must consult 

with PLIC, or other Affiliated Fund 

Manager, and must approve in advance 

any alteration of the trading procedures 

should the trading procedures need 

modifications due to unforeseen events 

or consequences. 

Future Fund Transactions 

11. The Applicant represents that 

subsequent to initial acquisitions 

pursuant to a Buy-up, all aggregate daily 

purchases of Principal Stock by the 

Index Funds and Model-Driven Funds 

will not exceed, on any particular day, 

the greater of: (a) Fifteen (15) percent of 

the average daily trading volume for the 

Principal Stock occurring on the 

applicable exchange and automated 

trading system for the previous five (5) 


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25The Department notes that ERISA’s fiduciary 

responsibility provisions would apply to the 

manager’s selection of a trading venue, including an 

automated trading system, to effect purchases and 

sales of Principal Stock on behalf of its managed 

Index and Model-Driven Funds. 

26PTE 86–128, 51 FR 41686 (November 18, 1986), 

as amended at 67 FR 64137 (October 17, 2002), 

provides a class exemption, under certain 

conditions, permitting persons who serve as 

fiduciaries for employee benefit plans to effect or 

execute securities transactions on behalf of the 

plans. The Department expresses no opinion on 

whether the conditions of this class exemption 

would be satisfied. 

business days; 25 or (b) fifteen (15) 

percent of the trading volume for 

Principal Stock occurring on the 

applicable exchange and automated 

trading system on the date of the 

transaction, as determined by the best 

available information for the trades that 

occurred on this date. 

12. The Applicant represents that all 

future transactions by the Index Funds 

and Model-Driven Funds involving 

Principal Stock, which do not occur in 

connection with a Buy-up of the Stock 

by an Index Fund or a Model-Driven 

Fund will be either: (a) Entered into on 

a principal basis with a broker-dealer 

that is registered under the 1934 Act, 

and thereby subject to regulation by the 

SEC; (b) effected on an automated 

trading system operated by a brokerdealer independent of PLIC subject to 

regulation by the SEC, or on an 

automated trading system operated by a 

recognized securities exchange which, 

in either case, provides a mechanism for 

customer orders to be matched on an 

anonymous basis without the 

participation of a broker-dealer; or (c) 

effected through a recognized securities 

exchange (as defined in Section III(i) of 

this proposed exemption, so long as the 

broker is acting on an agency basis.26

13. All future acquisitions and 

dispositions of Principal Stock by Index 

Funds or Model-Driven Funds 

maintained by PLIC or its affiliates also 

will not involve any purchases from or 

sales to PLIC (including officers, 

directors, or employees thereof), or any 

party in interest that is a fiduciary with 

discretion to invest plan assets in the 

fund (unless the transaction by the fund 

with this party in interest would 

otherwise be subject to an exemption), 

other than on a blind basis through an 

exchange or automated trading system, 

where the identity of each counterparty 

is not known to the other. 

14. The Applicant represents that, for 

purposes of future acquisitions and 

holdings of Principal Stock by Index 

Funds and Model-Driven Funds, if the 

proposed exemption is granted, 

Principal Stock will constitute no more 

than five (5) percent of any independent 

third-party index on which the 

investments of an Index Fund or ModelDriven Fund are based. The Applicant 

represents that, with respect to an 

Index’s specified composition of 

particular stocks in its portfolio, future 

Index Funds or Model-Driven Funds 

may track an Index where the 

appropriate weighting for stocks listed 

in the Index is not capitalizationweighted. 

As such, the Applicant states that 

Index Funds and Model-Driven Funds 

maintained by PLIC and its affiliates 

may track Indexes where the selection 

of a particular stock by the Index, and 

the amount of stock to be included in 

the Index, is not established based on 

the market capitalization of the 

corporation issuing the stock. 

The Applicant also represents that 

since an independent organization may 

choose to create an Index where there 

are other Index weightings for stocks 

comprising the Index, the proposed 

exemption should allow for Principal 

Stock to be acquired by an Index Fund 

or Model-Driven Fund in the amounts 

that are specified by the particular 

Index, subject to the other restrictions 

imposed by this proposed exemption. 

The Applicant represents that in all 

instances, acquisitions or dispositions of 

Principal Stock by an Index Fund or a 

Model-Driven Fund will be for the sole 

purpose of maintaining strict 

quantitative conformity with the 

relevant Index upon which the Index 

Fund is based or, in the case of a ModelDriven Fund, a modified version of the 

Index, as created by a computer model 

based on prescribed objective criteria 

and third-party data. 

Plan Fiduciary Consent To Fund 

Investments 

15. With respect to any plan holding 

an interest in an Index Fund or ModelDriven Fund that intends to start 

investing in Principal Stock, the 

Applicant represents that before 

Principal Stock is purchased directly or 

indirectly by the Index Fund or ModelDriven Fund, Principal will provide the 

independent plan fiduciary (the 

Independent Plan Fiduciary) with a 

notice through email. The email will 

state that if the Independent Plan 

Fiduciary does not indicate disapproval 

of investments in Principal Stock within 

sixty (60) days from the date of the 

email, then the Independent Plan 

Fiduciary will be deemed to have 

consented to the investment in Principal 

Stock. The Department is adding 

requirements regarding Principal’s 

delivery of the email, as described in 

paragraph 19. 

In addition, the Applicant represents 

that in the event the Independent Plan 

Fiduciary disapproves of the 

investment, plan assets invested in the 

Index Fund or Model-Driven Fund will 

be withdrawn, and the proceeds will be 

processed, as directed by the 

Independent Plan Fiduciary. The timing 

of the withdrawal will be as follows: 

• With respect to a plan that is not an 

individual account plan within the meaning 

of section 3(34) of the Act, the plan’s assets 

will be withdrawn within five (5) days from 

when the Independent Plan Fiduciary 

notifies the Applicant of its disapproval of 

investment in Principal Stock. 

• With respect to an individual account 

plan within the meaning of section 3(34) of 

the Act, the Applicant will work with the 

Independent Plan Fiduciary to ensure the 

timing of withdrawal of the plan’s assets 

from an Index Fund or Model-Driven Fund 

complies with any participant notification 

requirement that may be applicable to the 

plan under the Department’s regulation at 29 

CFR 2550.404a–5. This regulation generally 

requires that plan participants be notified at 

least thirty (30) days in advance of a change 

in any designated investment alternative 

available under the plan. (See 29 CFR 

2550.404a–5(c)(ii). The Applicant anticipates 

that the plan’s assets will be withdrawn from 

the Index Fund or Model-Driven Fund within 

sixty (60) days from the time the Independent 

Plan Fiduciary notifies Principal of its 

disapproval of investment in Principal Stock. 

For new plan investors in an Index 

Fund or Model-Driven Fund, the 

Applicant represents that the 

Independent Plan Fiduciary will 

affirmatively consent to the investment 

in Principal Stock by executing a 

written subscription or similar 

agreement for the Index Fund or ModelDriven Fund that contains the 

appropriate approval language. 

However, if the Independent Plan 

Fiduciary does not specifically approve 

language in the agreement allowing the 

investment of plan assets in Funds 

which hold or may hold Principal 

Stock, then no investment will be made. 

Voting of Principal Stock 

17. The Applicant will appoint an 

independent fiduciary that will direct 

the voting of Principal Stock held by the 

Funds. The Applicant expects that ISS, 

the Independent Fiduciary, will serve in 

this capacity. The Applicant will 

provide the Independent Fiduciary with 

all necessary information regarding the 

Funds that hold Principal Stock, the 

amount of Principal Stock held by the 

Funds on the record date for 

shareholder meetings of the Applicant, 

and all proxy and consent materials 

with respect to Principal Stock. The 

Independent Fiduciary will maintain 

records with respect to its activities as 

an Independent Fiduciary on behalf of 


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the Funds, including the number of 

shares of Principal Stock voted, the 

manner in which they were voted, and 

the rationale for the vote. The 

Independent Fiduciary will supply the 

Applicant with this information after 

each shareholder meeting. The 

Independent Fiduciary will be required 

to acknowledge that it will be acting as 

a fiduciary with respect to the plans that 

invest in the Funds that own Principal 

Stock, when voting Principal Stock. 

Request for Exemptive Relief 

18. The Applicant requests an 

administrative exemption from the 

Department with respect to the direct or 

indirect acquisition, holding, and 

disposition of Principal Stock by Index 

and Model-Driven Funds that are 

managed by Principal, in which client 

plans invest. Section 406(a)(l)(D) of the 

Act prohibits the use by, or for the 

benefit of, a party in interest of any 

assets of a plan, including plan assets 

held by an Index Fund or a ModelDriven Fund. 

The Applicant represents that as the 

current or future Fund Manager of an 

Index Fund or Model-Driven Fund, 

PLIC or an affiliate is (or will become) 

a party in interest with respect to plans 

investing in the Index Fund or ModelDriven Fund under sections 3(14)(A) 

and 3(14)(B) of the Act. The Applicant 

also represents that the issuer of 

Principal Stock, such as PFG, is a party 

in interest with respect to a plan, under 

section 3(14)(E) of the Act, as the direct 

or indirect corporate parent of the Fund 

Manager. According to the Applicant, 

the acquisition, holding, or disposition 

of Principal Stock by an Index Fund or 

a Model-Driven Fund (including an 

indirect acquisition, holding, or 

disposition of Principal Stock by an 

Index Fund through its investment in 

another Index Fund) would involve the 

Fund Manager’s use of plan assets by or 

for the benefit of its own interest and/ 

or the interest of another Principal 

entity, in violation of section 

406(a)(l)(D) of the Act. 

18. In addition, section 406(b)(l) of the 

Act prohibits a fiduciary from dealing 

with the assets of the plan in its own 

interest or for its own account. Section 

406(b)(2) of the Act prohibits a fiduciary 

from acting in any transaction involving 

a plan on behalf of a party whose 

interests are adverse to the interests of 

the plan. The Applicant represents that 

a Fund Manager’s direct or indirect 

acquisition, holding, or disposition of 

Principal Stock as an Index Fund or 

Model-Driven Fund investment would 

violate section 406(b)(l) and section 

406(b)(2) of the Act due to the Fund 

Manager’s affiliation with the issuer of 

the Principal Stock. Therefore, the 

Applicant requests exemptive relief 

from section 406(b)(1) and section 

406(b)(2) of the Act. 

Statutory Findings 

19. The Department has tentatively 

determined that the proposed 

exemption is administratively feasible. 

Among other things, an Independent 

Plan Fiduciary must authorize the 

investment of the plan’s assets in an 

Index Fund or a Model-Driven Fund 

which directly or indirectly purchases 

and/or holds Principal Stock. Also, 

prior to the direct or indirect purchase 

of Principal Stock by an Index Fund or 

a Model-Driven Fund, Principal must 

provide the Independent Plan Fiduciary 

with an email notice stating that if the 

Independent Plan Fiduciary does not 

indicate disapproval of investments in 

Principal Stock within sixty (60) days of 

the email, the Independent Plan 

Fiduciary will be deemed to have 

consented to the investment in Principal 

Stock. The Department is requiring that: 

(1) Principal obtains from such 

Independent Plan Fiduciary prior 

consent in writing to the receipt by such 

Independent Plan Fiduciary of such 

disclosure via electronic email; (2) Such 

Independent Plan Fiduciary has 

provided to Principal a valid email 

address; and (3) The delivery of such 

electronic email to such Independent 

Plan 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 

‘‘Independent Plan Fiduciary’’ for the 

phrase ‘‘the participant, beneficiary or 

other individual’’ as set forth therein). 

Furthermore, in the event the 

Independent Plan Fiduciary 

disapproves of the investment, plan 

assets invested in the Index Fund or 

Model-Driven Fund will be withdrawn 

and the proceeds processed as directed 

by the Independent Plan Fiduciary. 

For new plan investors in an Index 

Fund or Model-Driven Fund, 

Independent Plan Fiduciaries must 

consent to the investment in Principal 

Stock through execution of a 

subscription or similar agreement for 

the Index Fund or Model-Driven Fund 

that contains the appropriate approval 

language. 

20. The Department has tentatively 

determined that the proposed 

exemption is in the interests of plans 

invested in the Index Funds and ModelDriven Funds. The exemption is 

intended to allow Index Funds to track 

the performance of independentlymaintained, third-party Indexes more 

closely. Furthermore, with respect to 

Model-Driven Fund plan investors, the 

investment in Principal Stock by ModelDriven Funds will allow the Funds to 

match, more closely, the performance of 

portfolios selected by computer models 

that are based on prescribed objective 

criteria and use independent third-party 

data to transform an independentlymaintained third-party Index. 

21. The Department has tentatively 

determined that the proposed 

exemption is protective of the rights of 

the plans investing in Index Funds and 

Model-Driven Funds, and their 

participants and beneficiaries. In this 

regard: (a) Each Index Fund and ModelDriven Fund will be based on a 

securities index that is created and 

maintained by an organization 

independent of Principal; (b) the 

acquisition or disposition of Principal 

Stock will be for the sole purpose of 

maintaining strict quantitative 

conformity with the relevant index 

upon which the Index Fund or ModelDriven Fund is based; (c) all initial 

purchases of Principal Stock will occur 

through a recognized U.S. securities 

exchange or through an automated 

trading system operated by a brokerdealer independent of Principal or by a 

recognized U.S. securities exchange; 

and (d) subsequent purchases of 

Principal Stock will also occur as direct, 

arm’s length transactions with brokerdealers independent of Principal, 

thereby ensuring that the purchases of 

Principal Stock occur at market price. 

The requested exemption contains 

conditions on the timing and size of 

purchase transactions designed to 

preclude possible market price 

manipulations. Specifically, the 

proposed exemption requires that no 

more than five (5) percent of the total 

amount of Principal Stock, that is issued 

and outstanding at any time, is held in 

the aggregate by Index and ModelDriven Funds managed by PLIC or a 

Principal affiliate. Furthermore, 

Principal Stock must constitute no more 

than five (5) percent of any 

independent, third-party Index on 

which the investments of an Index Fund 

or Model-Driven Fund are based. 

22. Finally, an Independent Plan 

Fiduciary must authorize the 

investment of the plan’s assets in an 

Index Fund or Model-Driven Fund 

which will directly or indirectly 

purchase and/or hold Principal Stock. 

Further, on any matter for which 

shareholders of Principal Stock are 

required or permitted to vote, PLIC or 

the respective Principal affiliate will 

cause the Principal Stock held by an 

Index Fund or Model-Driven Fund to be 


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voted as determined by an Independent 

Fiduciary. 

Summary 

23. Given the conditions described 

below, the Department has tentatively 

determined that the relief sought by the 

Applicant satisfies the statutory 

requirements for an exemption under 

section 408(a) of the Act. 

Proposed Exemption 

Section I. Covered Transactions 

If the proposed exemption is granted, 

the restrictions of sections 406(a)(l)(D), 

406(b)(l), and section 406(b)(2) of the 

Act and the sanctions resulting from the 

application of section 4975 of the Code 

by reason of section 4975(c)(l)(D) and 

(E) of the Code, shall not apply to the 

direct or indirect acquisition, holding, 

and disposition of common stock issued 

by Principal Financial Group, Inc. 

(PFG), and/or common stock issued by 

an affiliate of PFG (together, the 

Principal Stock), by index funds (Index 

Funds) and model-driven funds (ModelDriven Funds) that are managed by 

Principal Life Insurance Company 

(PLIC), an indirectly wholly-owned 

subsidiary of PFG, or an affiliate of PLIC 

(collectively, Principal), in which client 

plans of Principal invest, provided that 

the conditions of Sections II and III are 

met. 

Section II. Exemption for the 

Acquisition, Holding and Disposition of 

Principal Stock 

(a) The acquisition or disposition of 

Principal Stock is for the sole purpose 

of maintaining strict quantitative 

conformity with the relevant Index 

upon which the Index Fund or ModelDriven Fund is based, and does not 

involve any agreement, arrangement or 

understanding regarding the design or 

operation of the Fund acquiring 

Principal Stock that is intended to 

benefit Principal or any party in which 

Principal may have an interest; 

(b) Whenever Principal Stock is 

initially added to an Index on which an 

Index Fund or Model-Driven Fund is 

based, or initially added to the portfolio 

of an Index Fund or Model-Driven Fund 

(or added to the portfolio of an 

underlying Index Fund in which 

another Index Fund invests), all 

purchases of Principal Stock pursuant to 

a Buy-up (as defined in Section III(d)) 

occur in the following manner: 

(1) Purchases are from one or more 

brokers or dealers; 

(2) Based on the best available 

information, purchases are not the 

opening transaction for the trading day; 

(3) Purchases are not effected in the 

last half hour before the scheduled close 

of the trading day; 

(4) Purchases are at a price that is not 

higher than the lowest current 

independent offer quotation, 

determined on the basis of reasonable 

inquiry from non-affiliated brokers; 

(5) Aggregate daily purchases do not 

exceed, on any particular day, the 

greater of: (i) Fifteen (15) percent of the 

aggregate average daily trading volume 

for the security occurring on the 

applicable exchange and automated 

trading system for the previous five 

business days, or (ii) fifteen (15) percent 

of the trading volume for the security 

occurring on the applicable exchange 

and automated trading system on the 

date of the transaction, as determined by 

the best available information for the 

trades occurring on that date; 

(6) All purchases and sales of 

Principal Stock occur either: (i) On a 

recognized U.S. securities exchange (as 

defined in Section IV(j) below), (ii) 

through an automated trading system (as 

defined in Section IV(b) below) operated 

by a broker-dealer independent of 

Principal that is registered under the 

Securities Exchange Act of 1934 (the 

1934 Act), and thereby subject to 

regulation by the Securities and 

Exchange Commission (the SEC), which 

provides a mechanism for customer 

orders to be matched on an anonymous 

basis without the participation of a 

broker-dealer, or (iii) through an 

automated trading system that is 

operated by a recognized U.S. securities 

exchange, pursuant to the applicable 

securities laws, and provides a 

mechanism for customer orders to be 

matched on an anonymous basis 

without the participation of a brokerdealer; and 

(7) If the necessary number of shares 

of Principal Stock cannot be acquired 

within ten (10) business days from the 

date of the event which causes the 

particular Fund to require Principal 

Stock, Principal appoints a fiduciary, 

which is independent of Principal (the 

Independent Fiduciary), to design 

acquisition procedures and monitor 

compliance with these procedures; 

(c) For transactions subsequent to a 

Buy-Up, all aggregate daily purchases of 

Principal Stock by the Funds do not 

exceed on any particular day the greater 

of: 

(1) Fifteen (15) percent of the average 

daily trading volume for Principal Stock 

occurring on the applicable exchange 

and automated trading system for the 

previous five (5) business days, or 

(2) Fifteen (15) percent of the trading 

volume for Principal Stock occurring on 

the applicable exchange and automated 

trading system on the date of the 

transaction, as determined by the best 

available information for the trades that 

occurred on this date; 

(d) All transactions in Principal Stock 

not otherwise described above in 

Section II(b) are either: 

(1) Entered into on a principal basis 

in a direct, arm’s length transaction with 

a broker-dealer, in the ordinary course 

of its business, where the broker-dealer 

is independent of Principal and is 

registered under the 1934 Act, and 

thereby subject to regulation by the SEC; 

(2) Effected on an automated trading 

system operated by a broker-dealer 

independent of Principal that is subject 

to regulation by either the SEC or 

another applicable regulatory authority, 

or an automated trading system, as 

defined in Section IV(b), operated by a 

recognized U.S. securities exchange 

which, in either case, provides a 

mechanism for customer orders to be 

matched on an anonymous basis 

without the participation of a brokerdealer; or 

(3) Effected through a recognized U.S. 

securities exchange, as defined in 

Section IV(j), so long as the broker is 

acting on an agency basis; 

(e) No purchases or sales of Principal 

Stock by a Fund involve purchases 

from, or sales to, Principal (including 

officers, directors, or employees 

thereof), or any party in interest that is 

a fiduciary with discretion to invest 

plan assets into the Fund (unless the 

transaction by the Fund with the party 

in interest would otherwise be subject to 

an exemption). However, this condition 

would not apply to purchases or sales 

on an exchange or through an 

automated trading system (described in 

paragraphs (on a blind basis where the 

identity of the counterparty is not 

known); 

(f) No more than five (5) percent of the 

total amount of Principal Stock, that is 

issued and outstanding at any time, is 

held in the aggregate by Index and 

Model-Driven Funds managed by 

Principal; 

(g) Principal Stock constitutes no 

more than five (5) percent of any 

independent third-party Index on which 

the investments of an Index Fund or 

Model-Driven Fund are based; 

(h) A fiduciary of a plan which is 

independent of Principal (the 

Independent Plan Fiduciary, as defined 

in Section IV(k)) authorizes the 

investment of the plan’s assets in an 

Index Fund or Model-Driven Fund 

which directly or indirectly purchases 

and/or holds Principal Stock. With 

respect to any plan holding an interest 

in an Index Fund or Model-Driven Fund 

that intends to start investing in 


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Principal Stock, before Principal Stock 

is purchased directly or indirectly by 

the Index Fund or Model-Driven Fund, 

Principal will provide the Independent 

Plan Fiduciary with a notice through 

email stating that if the plan fiduciary 

does not indicate disapproval of 

investments in Principal Stock within 

sixty (60) days, then the Independent 

Plan Fiduciary will be deemed to have 

consented to the investment in Principal 

Stock. In this regard: (1) Principal must 

obtain from such Independent Plan 

Fiduciary prior consent in writing to the 

receipt by such Independent Plan 

Fiduciary of such disclosure via 

electronic email; (2) Such Independent 

Plan Fiduciary must have provided to 

Principal a valid email address; and (3) 

The delivery of such electronic email to 

such Independent Plan 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 ‘‘Independent 

Plan Fiduciary’’ for the phrase ‘‘the 

participant, beneficiary or other 

individual’’ as set forth therein). In the 

event that the Independent Plan 

Fiduciary disapproves of the 

investment, plan assets invested in the 

Index Fund or Model-Driven Fund will 

be withdrawn and the proceeds 

processed, as directed by the 

Independent Plan Fiduciary. For new 

plan investors in an Index Fund or 

Model-Driven Fund, Independent Plan 

Fiduciaries for the plans will consent to 

the investment in Principal Stock 

through execution of a subscription or 

similar agreement for the Index Funds 

or Model-Driven Fund that contains the 

appropriate approval language; and 

(i) On any matter for which 

shareholders of Principal Stock are 

required or permitted to vote, Principal 

will cause the Principal Stock held by 

an Index Fund or Model-Driven Fund to 

be voted, as determined by the 

Independent Fiduciary. 

Section III. General Conditions 

(a) Principal maintains or causes to be 

maintained for a period of six (6) years 

from the date of the transactions, the 

records necessary to enable the persons 

described in paragraph (b) of this 

Section III to determine whether the 

conditions of this exemption have been 

met, except that: (1) A prohibited 

transaction will not be considered to 

have occurred if, due to circumstances 

beyond the control of Principal, the 

records are lost or destroyed prior to the 

end of the six year 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 

paragraph (b) below. 

(b)(1) Except as provided in paragraph 

(b)(2) of this Section III and 

notwithstanding any provisions of 

section 504(a)(2) and (b) of the Act, the 

records referred to in paragraph (a) of 

this Section III 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 SEC; 

(B) Any fiduciary of a plan 

participating in an Index Fund or 

Model-Driven Fund, who has authority 

to acquire or dispose of the interests of 

the plan, or any duly authorized 

employee or representative of the 

fiduciary; 

(C) Any contributing employer to any 

plan participating in an Index Fund or 

Model-Driven Fund or any duly 

authorized employee or representative 

of the employer; and 

(D) Any participant or beneficiary of 

any plan participating in an Index Fund 

or Model-Driven Fund, or a 

representative of the participant or 

beneficiary; and 

(2) None of the persons described in 

subparagraphs (B) through (D) of this 

Section III(b)(1) shall be authorized to 

examine trade secrets of Principal or 

commercial or financial information 

which are considered confidential. 

Section IV. Definitions 

(a) An ‘‘affiliate’’ of Principal 

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 or 

relative of the person, or partner of any 

the person; and 

(3) Any corporation or partnership of 

which the person is an officer, director, 

partner or employee; 

(b) The term ‘‘automated trading 

system’’ means an electronic trading 

system that functions in a manner 

intended to simulate a securities 

exchange by electronically matching 

orders on an agency basis from multiple 

buyers and sellers, such as an 

‘‘alternative trading system’’ within the 

meaning of the SEC’s Reg. ATS (17 CFR 

part 242.300), as this definition may be 

amended from time to time, or an 

‘‘automated quotation system’’ as 

described in Section 3(a)(5l)(A)(ii) of the 

1934 Act (15 U.S.C. 8c(a)(5 l)(A)(ii)); 

(c) The term ‘‘Buy-up’’ means an 

initial acquisition of Principal Stock by 

an Index Fund or Model-Driven Fund 

which is necessary to bring the Fund’s 

holdings of Principal Stock either to its 

capitalization-weighted or other 

specified composition in the relevant 

index (the Index), as determined by the 

independent organization maintaining 

the Index, or to its correct weighting as 

determined by the model which has 

been used to transform the Index; 

(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 ‘‘Fund’’ means an Index 

Fund (as described in Section IV(a)) or 

a Model-Driven Fund (as described in 

Section III(b)) 

(f) The term ‘‘Index’’ means a 

securities index that represents the 

investment performance of a specific 

segment of the public market for equity 

or debt securities, but only if: 

(1) The organization creating and 

maintaining the Index is: 

(A) Engaged in the business of 

providing financial information, 

evaluation, advice, or securities 

brokerage services to institutional 

clients; or 

(B) A publisher of financial news or 

information; or 

(C) A public stock exchange or 

association of securities dealers; and 

(2) The Index is created and 

maintained by an organization 

independent of Principal; and 

(3) The Index is a generally-accepted 

standardized index of securities which 

is not specifically tailored for the use of 

Principal; 

(g) The term ‘‘Index Fund’’ means any 

investment fund, trust, insurance 

company separate account, separately 

managed account, or portfolio, 

sponsored, maintained, trusteed, or 

managed by Principal, in which one or 

more investors invest, and: 

(1) Which is designed to track the rate 

of return, risk profile and other 

characteristics of an independentlymaintained securities index, as 

described in Section IV(c) below, by 

either: (i) Investing directly in the same 

combination of securities which 

compose the Index or in a sampling of 

the securities, based on objective criteria 

and data, or (ii) investing in one or more 

other Index Funds to indirectly invest in 

the same combination of securities 

which compose the Index, or in a 

sampling of the securities based on 

objective criteria and data; 


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(2) For which all assets held outside 

of any liquidity buffer are invested 

without Principal using its discretion, or 

data within its control, to affect the 

identity or amount of securities to be 

purchased or sold, and the liquidity 

buffer, if any, does not hold any 

Principal Stock; 

(3) That contains ‘‘plan assets’’ subject 

to the Act; 

(4) That involves no agreement, 

arrangement, or understanding 

regarding the design or operation of the 

Fund, which is intended to benefit 

Principal or any party in which 

Principal may have an interest. 

(h) The term ‘‘Model-Driven Fund’’ 

means any investment fund, trust, 

insurance company separate account, 

separately managed account, or 

portfolio, sponsored, maintained, 

trusteed, or managed by Principal, in 

which one or more investors invest, 

and: 

(1) For which all assets held outside 

of any liquidity buffer consist of 

securities the identity of which and the 

amount of which are selected by a 

computer model that is based on 

prescribed objective criteria using 

independent third-party data, not 

within the control of Principal, to 

transform an independently-maintained 

Index, as defined in Section IV(c) below, 

and the liquidity buffer, if any, does not 

hold any Principal Stock; 

(2) That contains ‘‘plan assets’’ subject 

to the Act; and 

(3) That involves no agreement, 

arrangement, or understanding 

regarding the design or operation of the 

Fund or the utilization of any specific 

objective criteria which is intended to 

benefit Principal or any party in which 

Principal may have an interest; 

(i) The term ‘‘Principal’’ refers to 

Principal Life Insurance Company, its 

indirect parent and holding company, 

Principal Financial Group, Inc., and any 

current or future affiliate, as defined 

above in Section IV(a); 

(j) The term ‘‘recognized U.S. 

securities exchange’’ means a U.S. 

securities exchange that is registered as 

a ‘‘national securities exchange’’ under 

Section 6 of the 1934 Act (15 U.S.C. 

78f), as this definition may be amended 

from time to time, which performs with 

respect to securities the functions 

commonly performed by a stock 

exchange within the meaning of 

definitions under the applicable 

securities laws (e.g., 17 CFR part 

240.3b–16); and 

(k) The term ‘‘Independent Plan 

Fiduciary’’ means a fiduciary of a plan, 

where such fiduciary is independent of 

and unrelated to Principal. The 

Independent Plan Fiduciary will not be 

deemed to be independent of and 

unrelated to Principal if: 

(1) Such Independent Plan Fiduciary, 

directly or indirectly, through one or 

more intermediaries, controls, is 

controlled by, or is under common 

control with Principal; 

(2) Such Independent Plan Fiduciary, 

or any officer, director, partner, 

employee, or relative of such 

Independent Plan Fiduciary, is an 

officer, director, partner, or employee of 

Principal (or is a relative of such 

person); or 

(3) Such Independent Plan 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. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to all fiduciaries of plans 

invested in the Index Funds within 30 

days of the publication of the notice of 

proposed exemption in the Federal 

Register, by electronic mail to the last 

known email address of all fiduciaries. 

Principal will also publish the notice on 

a website through which plan 

fiduciaries communicate with Principal. 

The 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(a)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on the pending exemption. 

Written comments are due within 45 

days of the publication of the notice of 

proposed exemption in the Federal 

Register. 

All comments will be made available 

to the public. 

Warning: If you submit a comment, 

EBSA recommends that you include 

your name and other contact 

information in the body of your 

comment, but DO NOT submit 

information that you consider to be 

confidential, or otherwise protected 

(such as Social Security number or an 

unlisted phone number) or confidential 

business information that you do not 

want publicly disclosed. All comments 

may be posted on the internet and can 

be retrieved by most internet search 

engines. 

FOR FURTHER INFORMATION CONTACT: 

Scott Ness of the Department, telephone 

(202) 693–8561. (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 20th day of 

December, 2018. 

Lyssa Hall, 

Director, Office of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2018–28091 Filed 12–27–18; 8:45 am] 

BILLING CODE 4510–29–P 


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