Tuesday, 

December 22, 2009 

Part II 

Department of Labor 

Employee Benefits Security 

Administration 

Notice of Proposed Exemptions; Notice 


pwalker on DSK8KYBLC1PROD with NOTICES2
68102 Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 

1For purposes of this proposed exemption, 

references to section 406 of the Act should be read 

to refer as well to the corresponding provisions of 

section 4975 of the Code. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[D–11509; D–11532; D–11555; D–11556; 

L–11558; et al.] 

Notice of Proposed Exemptions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of Proposed Exemptions. 

Application Nos. and Proposed Exemptions: 

D–11509, Goldman, Sachs & Co. and its 

Affiliates (Goldman or the Applicant); D– 

11532, Louis B. Chaykin, M.D., P.A.; D– 

11555, The Coca-Cola Company (TCCC, or 

the Applicant); D–11556, Columbia 

Management Advisors, LLC (Columtia, or 

the Applicant) and its Current and Future 

Affiliates (collectively, the Applicants); 

and L–11558, Boston Carpenters 

Apprenticeship and Training Fund (the 

Fund); et al. 

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). 

Written Comments and Hearing 

Requests 

All interested persons are invited to 

submit written comments or requests for 

a hearing on the pending exemptions, 

unless otherwise stated in the Notice of 

Proposed Exemption, within 45 days 

from the date of publication of this 

Federal Register Notice. 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. 

ADDRESSES: All written comments and 

requests for a hearing (at least three 

copies) should be sent to the Employee 

Benefits Security Administration 

(EBSA), Office of Exemption 

Determinations, Room N–5700, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

Attention: Application No. ll, stated 

in each Notice of Proposed Exemption. 

Interested persons are also invited to 

submit comments and/or hearing 

requests to EBSA via e-mail or FAX. 

Any such comments or requests should 

be sent either by e-mail to: 

moffitt.betty@dol.gov, or by FAX to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue, NW., 

Washington, DC 20210. 

Warning: If you submit written 

comments or hearing requests, do not 

include any personally-identifiable or 

confidential business information that 

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

requests are posted on the Internet 

exactly as they are received, and they 

can be retrieved by most Internet search 

engines. The Department will make no 

deletions, modifications or redactions to 

the comments or hearing requests 

received, as they are public records. 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

SUPPLEMENTARY INFORMATION: The 

proposed exemptions were requested in 

applications filed pursuant to section 

408(a) of the Act and/or section 

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

accordance with procedures set forth in 

29 CFR Part 2570, Subpart B (55 FR 

32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

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

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 

Goldman, Sachs & Co. and Its Affiliates 

(Goldman or the Applicant), Located in 

New York, New York. 

[Application No. D–11509.] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

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

in accordance with the procedures set 

forth in 29 CFR Part 2570, Subpart B (55 

FR 32836, 32847, August 10, 1990).1

Section I. Sales of Auction Rate 

Securities From Plans to Goldman: 

Unrelated to a Settlement Agreement 

If the proposed exemption is granted, 

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

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

the Act and the sanctions resulting from 

the application of section 4975 of the 

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

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

effective February 1, 2008, to the sale by 

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

Auction Rate Security (as defined in 

Section V(c)) to Goldman, where such 

sale (an Unrelated Sale) is unrelated to, 

and not made in connection with, a 

Settlement Agreement (as defined in 

Section V(f)), provided that the 

conditions set forth in Section II have 

been met. 

Section II. Conditions Applicable to 

Transactions Described in Section I 

(a) The Plan acquired the Auction 

Rate Security in connection with 

brokerage or advisory services provided 

by Goldman to the Plan; 

(b) The last auction for the Auction 

Rate Security was unsuccessful; 

(c) Except in the case of a Plan 

sponsored by Goldman for its own 

employees (a Goldman Plan), the 

Unrelated Sale is made pursuant to a 

written offer by Goldman (the Offer) 

containing all of the material terms of 

the Unrelated Sale. Either the Offer or 

other materials available to the Plan 

provide: (1) The identity and par value 

of the Auction Rate Security; (2) the 

interest or dividend amounts that are 

due and unpaid with respect to the 

Auction Rate Security; and (3) the most 

recent rate information for the Auction 

Rate Security (if reliable information is 

available). Notwithstanding the 

foregoing, in the case of a pooled fund 

maintained or advised by Goldman, this 

condition shall be deemed met to the 

extent each Plan invested in the pooled 

fund (other than a Goldman Plan) 

receives written notice regarding the 

Unrelated Sale, where such notice 

contains the material terms of the 

Unrelated Sale; 


pwalker on DSK8KYBLC1PROD with NOTICES2
Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 68103 

2The Department notes that the Act’s general 

standards of fiduciary conduct also would apply to 

the transactions described herein. In this regard, 

section 404 of the Act requires, among other things, 

that a fiduciary discharge his duties respecting a 

plan solely in the interest of the plan’s participants 

and beneficiaries and in a prudent manner. 

Accordingly, a plan fiduciary must act prudently 

with respect to, among other things, the decision to 

sell the Auction Rate Security to Goldman for the 

par value of the Auction Rate Security, plus unpaid 

interest and dividends. The Department further 

emphasizes that it expects Plan fiduciaries, prior to 

entering into any of the proposed transactions, to 

fully understand the risks associated with this type 

of transaction following disclosure by Goldman of 

all relevant information. 

(d) The Unrelated Sale is for no 

consideration other than cash payment 

against prompt delivery of the Auction 

Rate Security; 

(e) The sales price for the Auction 

Rate Security is equal to the par value 

of the Auction Rate Security, plus any 

accrued but unpaid interest or 

dividends; 

(f) The Plan does not waive any rights 

or claims in connection with the 

Unrelated Sale; 

(g) The decision to accept the Offer or 

retain the Auction Rate Security is made 

by a Plan fiduciary or Plan participant 

or IRA owner who is independent (as 

defined in Section V(d)) of Goldman. 

Notwithstanding the foregoing: (1) In 

the case of an IRA (as defined in Section 

V(e)) which is beneficially owned by an 

employee, officer, director or partner of 

Goldman, the decision to accept the 

Offer or retain the Auction Rate Security 

may be made by such employee, officer, 

director or partner; or (2) in the case of 

a Goldman Plan or a pooled fund 

maintained or advised by Goldman, the 

decision to accept the Offer may be 

made by Goldman after Goldman has 

determined that such purchase is in the 

best interest of the Goldman Plan or 

pooled fund; 2

(h) Except in the case of a Goldman 

Plan or a pooled fund maintained or 

advised by Goldman, neither Goldman 

nor any affiliate exercises investment 

discretion or renders investment advice 

within the meaning of 29 CFR 2510.3– 

21(c) with respect to the decision to 

accept the Offer or retain the Auction 

Rate Security; 

(i) The Plan does not pay any 

commissions or transaction costs with 

respect to the Unrelated Sale; 

(j) The Unrelated Sale is not part of an 

arrangement, agreement or 

understanding designed to benefit a 

party in interest to the Plan; 

(k) Goldman and its affiliates, as 

applicable, maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of the Unrelated Sale, 

such records as are necessary to enable 

the persons described below in 

paragraph (l)(1), to determine whether 

the conditions of this exemption, if 

granted, have been met, except that: 

(1) No party in interest with respect 

to a Plan which engages in an Unrelated 

Sale, other than Goldman and its 

affiliates, as applicable, shall be subject 

to a civil penalty under section 502(i) of 

the Act or the taxes imposed by section 

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

records are not maintained, or not 

available for examination, as required, 

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

(2) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of Goldman or its 

affiliates, as applicable, such records are 

lost or destroyed prior to the end of the 

six-year period; 

(l)(1) Except as provided below in 

paragraph (l)(2), and notwithstanding 

any provisions of subsections (a)(2) and 

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

referred to above in paragraph (k) are 

unconditionally available at their 

customary location for examination 

during normal business hours by: 

(A) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the U.S. 

Securities and Exchange Commission; 

(B) Any fiduciary of any Plan, 

including any IRA owner, that engages 

in a Sale, or any duly authorized 

employee or representative of such 

fiduciary; or 

(C) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a Plan that engages in the 

Unrelated Sale, or any authorized 

employee or representative of these 

entities; 

(2) None of the persons described 

above in paragraphs (l)(1)(B)–(C) shall 

be authorized to examine trade secrets 

of Goldman, or commercial or financial 

information which is privileged or 

confidential; and 

(3) Should Goldman refuse to disclose 

information on the basis that such 

information is exempt from disclosure, 

Goldman shall, by the close of the 

thirtieth (30th) day following the 

request, provide a written notice 

advising that person of the reasons for 

the refusal and that the Department may 

request such information. 

Section III. Sales of Auction Rate 

Securities From Plans to Goldman: 

Related to a Settlement Agreement 

If the proposed exemption is granted, 

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

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

the Act and the sanctions resulting from 

the application of section 4975 of the 

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

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

effective February 1, 2008, to the sale by 

a Plan of an Auction Rate Security to 

Goldman, where such sale (a Settlement 

Sale) is related to, and made in 

connection with, a Settlement 

Agreement, provided that the conditions 

set forth in Section IV have been met. 

Section IV. Conditions Applicable to 

Transactions Described in Section III 

(a) The terms and delivery of the Offer 

are consistent with the requirements set 

forth in the Settlement Agreement and 

acceptance of the offer does not 

constitute a waiver of any claim of the 

tendering Plan; 

(b) The Offer or other documents 

available to the Plan specifically 

describe, among other things: 

(1) The securities available for 

purchase under the Offer; 

(2) The background of the Offer; 

(3) The methods and timing by which 

Plans may accept the Offer; 

(4) The purchase dates, or the manner 

of determining the purchase dates, for 

Auction Rate Securities tendered 

pursuant to the Offer, if the Offer had 

any limitation on such dates; 

(5) The timing for acceptance by 

Goldman of tendered Auction Rate 

Securities, if there were any limitations 

on such timing; 

(6) The timing of payment for Auction 

Rate Securities accepted by Goldman for 

payment, if payment was materially 

delayed beyond the acceptance of the 

Offer; 

(7) The expiration date of the Offer; 

and 

(8) How to obtain additional 

information concerning the Offer; 

(c) The terms of the Settlement Sale 

are consistent with the requirements set 

forth in the Settlement Agreement; and 

(d) All of the conditions in Section II 

have been met. 

Section V. Definitions 

For purposes of this proposed 

exemption: 

(a) The term ‘‘affiliate’’ means any 

person directly or indirectly, through 

one or more intermediaries, controlling, 

controlled by, or under common control 

with such other person; 

(b) The term ‘‘control’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual; 

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

means a security: (1) That is either a 

debt instrument (generally with a longterm nominal maturity) or preferred 

stock; and (2) with an interest rate or 

dividend that is reset at specific 

intervals through a Dutch auction 

process; 


pwalker on DSK8KYBLC1PROD with NOTICES2
68104 Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 

3The Department notes that Prohibited 

Transaction Exemption 80–26 (45 FR 28545 (April 

29, 1980), as amended at 71 FR 17917 (April 7, 

2006)) permits interest-free loans or other 

extensions of credit from a party in interest to a 

plan if, among other things, the proceeds of the loan 

or extension of credit are used only: (1) For the 

payment of ordinary operating expenses of the plan, 

including the payment of benefits in accordance 

with the terms of the plan and periodic premiums 

under an insurance or annuity contract, or (2) for 

a purpose incidental to the ordinary operation of 

the plan. 

4The relief contained in this proposed exemption 

does not extend to the fiduciary provisions of 

section 404 of the Act. 

(d) A person is ‘‘independent’’ of 

Goldman if the person is: (1) Not 

Goldman or an affiliate; and (2) not a 

relative (as defined in section 3(15) of 

the Act) of the party engaging in the 

transaction; 

(e) The term ‘‘Plan’’ means an 

individual retirement account or similar 

account described in section 

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

IRA); an employee benefit plan as 

defined in section 3(3) of the Act; or an 

entity holding plan assets within the 

meaning of 29 CFR 2510.3–101, as 

modified by section 3(42) of the Act; 

and 

(f) The term ‘‘Settlement Agreement’’ 

means a legal settlement involving 

Goldman and a U.S. State or Federal 

authority that provides for the purchase 

of an ARS by Goldman from a Plan. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of February 1, 2008. 

Summary of Facts and Representations 

1. The Applicant, Goldman, is a 

global financial services firm 

headquartered in New York, New York. 

As of August 29, 2008, Goldman had 

approximately $1 trillion in assets. 

Among other things, Goldman is both a 

registered investment adviser subject to 

the Investment Advisers Act of 1940 

and a broker-dealer registered with the 

U.S. Securities and Exchange 

Commission. In this last regard, 

Goldman acts as a broker and dealer 

with respect to the purchase and sale of 

securities, including Auction Rate 

Securities. 

2. The Applicant describes Auction 

Rate Securities and the arrangement by 

which ARS are bought and sold as 

follows. Auction Rate Securities are 

securities (issued as debt or preferred 

stock) with an interest rate or dividend 

that is reset at periodic intervals 

pursuant to a process called a Dutch 

Auction. Investors submit orders to buy, 

hold, or sell a specific ARS to a brokerdealer selected by the entity that issued 

the ARS. The broker-dealers, in turn, 

submit all of these orders to an auction 

agent. The auction agent’s functions 

include collecting orders from all 

participating broker-dealers by the 

auction deadline, determining the 

amount of securities available for sale, 

and organizing the bids to determine the 

winning bid. If there are any buy orders 

placed into the auction at a specific rate, 

the auction agent accepts bids with the 

lowest rate above any applicable 

minimum rate and then successively 

higher rates up to the maximum 

applicable rate, until all sell orders and 

orders that are treated as sell orders are 

filled. Bids below any applicable 

minimum rate or above the applicable 

maximum rate are rejected. After 

determining the clearing rate for all of 

the securities at auction, the auction 

agent allocates the ARS available for 

sale to the participating broker-dealers 

based on the orders they submitted. If 

there are multiple bids at the clearing 

rate, the auction agent will allocate 

securities among the bidders at such 

rate on a pro rata basis. 

3. The Applicant states that, under a 

typical Dutch Auction process, 

Goldman is permitted, but not obligated, 

to submit orders in auctions for its own 

account either as a bidder or a seller and 

routinely does so in the auction rate 

securities market in its sole discretion. 

Goldman may place one or more bids in 

an auction for its own account to 

acquire ARS for its inventory, to 

prevent: (a) A failed auction (i.e., an 

event where there are insufficient 

clearing bids which would result in the 

auction rate being set at a specified rate, 

resulting in no ARS being sold through 

the auction process); or (b) an auction 

from clearing at a rate that Goldman 

believes does not reflect the market for 

the particular ARS being auctioned. 

4. The Applicant states that for many 

ARS, Goldman has been appointed by 

the issuer of the securities to serve as a 

dealer in the auction and is paid by the 

issuer for its services. Goldman is 

typically appointed to serve as a dealer 

in the auctions pursuant to an 

agreement between the issuer and 

Goldman. That agreement provides that 

Goldman will receive from the issuer 

auction dealer fees based on the 

principal amount of the securities 

placed through Goldman. 

5. The Applicant states further that 

Goldman may share a portion of the 

auction rate dealer fees it receives from 

the issuer with other broker-dealers that 

submit orders through Goldman, for 

those orders that Goldman successfully 

places in the auctions. Similarly, with 

respect to ARS for which broker-dealers 

other than Goldman act as dealer, such 

other broker-dealers may share auction 

dealer fees with Goldman for orders 

submitted by Goldman. 

6. According to the Applicant, since 

February 2008, only a minority of 

auctions have cleared, particularly 

involving municipalities. As a result, 

Plans holding ARS may not have 

sufficient liquidity to make benefit 

payments, mandatory payments and 

withdrawals and expense payments 

when due.3

7. The Applicant represents that, in 

certain instances, Goldman may have 

previously advised or otherwise caused 

a Plan to acquire and hold an Auction 

Rate Security.4 In connection with 

Goldman’s role in the acquisition and 

holding of ARS by various Goldman 

clients, including the Plans, Goldman 

entered into Settlement Agreements 

with certain U.S. states and Federal 

authorities. Pursuant to these Settlement 

Agreements, among other things, 

Goldman was required to send a written 

offer to certain Plans that held ARS in 

connection with the advice and/or 

brokerage services provided by 

Goldman. As described in further detail 

below, eligible Plans that accepted the 

Offer were permitted to sell the ARS to 

Goldman for cash equal to the par value 

of such securities, plus any accrued but 

unpaid interest and/or dividends. The 

Applicant is requesting retroactive and 

prospective relief for the Settlement 

Sales. With respect to Unrelated Sales, 

the Applicant states that to the best of 

its knowledge, no Unrelated Sale has 

occurred. However, the Applicant is 

requesting retroactive relief (and 

prospective relief) for Unrelated Sales in 

the event that a sale of Auction Rate 

Securities by a Plan to Goldman has 

occurred outside the Settlement process. 

If granted, the proposed exemption will 

be effective February 1, 2008. 

8. Specifically, the Applicant is 

requesting exemptive relief for the sale 

of Auction Rate Securities under two 

different circumstances: (a) Where 

Goldman initiates the sale by sending to 

a Plan a written Offer to acquire the 

ARS (i.e., an Unrelated Sale), 

notwithstanding that such Offer is not 

required under a Settlement Agreement; 

and (b) where Goldman is required 

under a Settlement Agreement to send 

to Plans a written Offer to acquire the 

ARS (i.e., a Settlement Sale). The 

Applicant states that the Unrelated 

Sales and Settlement Sales (hereinafter, 

either, a Covered Sale) are in the 

interests of Plans. In this regard, the 

Applicant states that the Covered Sales 

would permit Plans to normalize Plan 

investments. The Applicant represents 

that each Covered Sale will be for no 

consideration other than cash payment 

against prompt delivery of the ARS, and 


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Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 68105 

5The Applicant states that while there may be 

communication between a Plan and Goldman 

subsequent to an Offer, such communication will 

not involve advice regarding whether the Plan 

should accept the Offer. 

such cash will equal the par value of the 

ARS, plus any accrued but unpaid 

interest or dividends. The Applicant 

represents further that Plans will not 

pay any commissions or transaction 

costs with respect to any Covered Sale. 

9. The Applicant represents that the 

proposed exemption is protective of the 

Plans. The Applicant states that: each 

Covered Sale will be made pursuant to 

a written Offer; and the decision to 

accept the Offer or retain the ARS will 

be made by a Plan fiduciary or Plan 

participant or IRA owner who is 

independent of Goldman. Additionally, 

each Offer will be delivered in a manner 

designed to alert a Plan fiduciary that 

Goldman intends to purchase ARS from 

the Plan. Offers made in connection 

with an Unrelated Sale will include the 

material terms of the Unrelated Sale and 

either the Offer or other materials 

available to the Plan describe: The 

identity and par value of the Auction 

Rate Security; the interest or dividend 

amounts that are due with respect to the 

Auction Rate Security; and the most 

recent rate information for the Auction 

Rate Security (if reliable information is 

available). Offers made in connection 

with a Settlement Agreement will 

specifically include, among other 

things: The background of the Offer; the 

method and timing by which a Plan may 

accept the Offer; the expiration date of 

the Offer; and how to obtain additional 

information concerning the Offer. The 

Applicant states that neither Goldman 

nor any affiliate will exercise 

investment discretion or render 

investment advice with respect to a 

Plan’s decision to accept the Offer or 

retain the ARS.5 In the case of a 

Goldman Plan or a pooled fund 

maintained or advised by Goldman, the 

decision to engage in a Covered Sale 

may be made by Goldman after 

Goldman has determined that such 

purchase is in the best interest of the 

Goldman Plan or pooled fund. The 

Applicant represents further that Plans 

will not waive any rights or claims in 

connection with any Covered Sale. 

10. The Applicant represents that the 

proposed exemption, if granted, would 

be administratively feasible. In this 

regard, the Applicant notes that each 

Covered Sale will occur at the par value 

of the affected ARS (plus accrued but 

unpaid interest and dividends, to the 

extent applicable), and such value is 

readily ascertainable. The Applicant 

represents further that Goldman will 

maintain the records necessary to enable 

the Department and Plan fiduciaries, 

among others, to determine whether the 

conditions of this exemption, if granted, 

have been met. 

11. In summary, the Applicant 

represents that the transactions 

described herein satisfy the statutory 

criteria of section 408(a) of the Act 

because, among other things: 

(a) Each Covered Sale shall be made 

pursuant to a written Offer; 

(b) Each Covered Sale shall be for no 

consideration other than cash payment 

against prompt delivery of the ARS; 

(c) The amount of each Covered Sale 

shall equal the par value of the ARS, 

plus any accrued but unpaid interest or 

dividends; 

(d) Plans will not waive any rights or 

claims in connection with any Covered 

Sale; 

(e)(1) the decision to accept an Offer 

or retain the ARS shall be made by a 

Plan fiduciary or Plan participant or IRA 

owner who is independent of Goldman; 

and (2) neither Goldman nor any 

affiliate shall exercise investment 

discretion or render investment advice 

within the meaning of 29 CFR 2510.3– 

21(c) with respect to the decision to 

accept the Offer or retain the ARS; 

(f) Plans shall not pay any 

commissions or transaction costs with 

respect to any Covered Sale; 

(g) A Covered Sale shall not be part 

of an arrangement, agreement or 

understanding designed to benefit a 

party in interest to the affected Plan; 

(h) With respect to any Settlement 

Sale, the terms and delivery of the Offer, 

and the terms of Settlement Sale, shall 

be consistent with the requirements set 

forth in the Settlement Agreement; 

(i) Goldman shall make available in 

connection with an Unrelated Sale the 

material terms of the Unrelated Sale, 

including: (1) The identity and par 

value of the Auction Rate Security; (2) 

the interest or dividend amounts that 

are due but unpaid with respect to the 

Auction Rate Security; and (3) the most 

recent rate information for the Auction 

Rate Security (if reliable information is 

available); 

(j) Each Offer made in connection 

with a Settlement Agreement shall 

describe the material terms of the 

Settlement Sale, including the following 

(and shall not constitute a waiver of any 

claim of the tendering Plan): (1) The 

background of the Offer; (2) the methods 

and timing by which the Plan may 

accept the Offer; (3) the purchase dates, 

or the manner of determining the 

purchase dates, for ARS pursuant to the 

Offer; (4) the expiration date of the 

Offer; and (5) how to obtain additional 

information concerning the Offer. 

Notice to Interested Persons 

The Applicant represents that the 

potentially interested participants and 

beneficiaries cannot all be identified, 

and, therefore, the only practical means 

of notifying such participants and 

beneficiaries of this proposed 

exemption is by the publication of this 

notice in the Federal Register. 

Comments and requests for a hearing 

must be received by the Department not 

later than 30 days from the date of 

publication of this notice of proposed 

exemption in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Brian Shiker of the Department, 

telephone (202) 693–8552. (This is not 

a toll-free number.) 

Louis B. Chaykin, M.D., P.A., Cross-Tested 

Profit Sharing Plan (the Plan), Located in 

Lakewood Ranch, Florida. 

[Exemption Application Number: D–11532.] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

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

in accordance with the procedures set 

forth in 29 CFR Part 2570 Subpart B (55 

FR 32836, 32847, August 10, 1990). If 

the exemption is granted, the 

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

and (b)(2) of the Act, and the sanctions 

resulting from the application of section 

4975 of the Code, by reason of section 

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

shall not apply to the proposed sale (the 

Sale) at fair market value by the Plan of 

certain coins (the Collectibles), to Louis 

B. Chaykin, M.D. (the Applicant), a 

party in interest with respect to the 

Plan, provided that the following 

conditions are satisfied: 

(a) The Sale is a one-time transaction 

for cash; 

(b) The Plan pays no commissions, 

fees or other expenses in connection 

with the Sale; 

(c) The terms and conditions of the 

Sale are at least as favorable as those 

obtainable in an arm’s length 

transaction with an unrelated third 

party; 

(d) The fair market value of the 

Collectibles was determined by a 

qualified, independent appraiser; 

(e) The Plan receives no less than the 

fair market value of the Collectibles at 

the time of the Sale; and 

(f) All of the participants of the Plan, 

with the exception of the Applicant, 

have been paid their benefits in full. 

Summary of Facts and Representations 

1. The Plan is a profit-sharing plan 

sponsored by Louis B. Chaykin, M.D., 

P.A., a private professional corporation 


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6Section 408(m) of the Code stipulates that the 

acquisition by an individual retirement account or 

by an individually-directed account under a plan 

described in section 401(a) of the Code of any 

collectible shall be treated (for purposes of sections 

402 and 408 of the Code) as a distribution from 

such account in an amount equal to the cost to such 

account of such collectible. The Applicant 

represents, however, that this provision of the Code 

is not applicable to the proposed transaction 

because the Plan is trusteed by a discretionary 

trustee (e.g., the Applicant), and does not allow for 

participant direction of Plan investments. The 

Department is providing no determination with 

respect to the Applicant’s representation detailed 

above. 

engaged in the practice of medicine in 

Lakewood Ranch, Florida. The 

Applicant represents that, as of January 

1, 2007, there were seven (7) 

participants in the Plan, including five 

employees, the Applicant, and the 

Applicant’s spouse. The Applicant is 

also the discretionary trustee of the 

Plan. The Plan, which was formally 

terminated on March 1, 2006, received 

a favorable determination letter from the 

Internal Revenue Service on May 11, 

2007. The determination letter stated 

that the termination of the Plan did not 

adversely affect its qualification for 

Federal tax purposes. 

The Applicant represents that, 

pursuant to the termination of the Plan, 

all participants (with the exception of 

the Applicant) have been paid their 

benefits in full. In this regard, the 

Applicant represents that, of the five 

employees who were participants in the 

Plan, two rolled over cash into their 

respective individual retirement 

accounts (IRAs), while the other three 

took lump sum distributions of cash. 

The Applicant’s spouse also rolled over 

cash to her IRA. The Applicant himself 

has received prior distributions of cash 

to satisfy his minimum distribution 

requirements because he is over age 70 

and a half. The Applicant has also 

rolled over some publicly-traded 

securities in kind to his IRA. Apart from 

the Collectibles, the Plan holds residual 

assets consisting of a limited 

partnership interest and other coins. 

The Applicant represents that the total 

value of the non-Collectibles held by the 

Plan as of December 31, 2008 is 

$63,720.17. 

2. The Applicant represents that the 

IRA custodial trustee which the 

Applicant has designated to receive his 

rollover contributions from the Plan will 

not accept the Collectibles as IRA assets. 

Accordingly, the Applicant requests an 

exemption to permit the Sale of the 

Collectibles and the distribution of the 

resulting cash proceeds to himself, 

which he would then roll over into his 

IRA account. The Plan had originally 

purchased the Collectibles from 

unrelated parties at various times 

between 2005 and 2008. The Applicant 

also represents that the Plan purchased 

the Collectibles as an investment and 

held the Collectibles for appreciation. 

The Applicant states that the 

Collectibles have never used by himself, 

or by any other party in interest with 

respect to the Plan, for personal 

purposes. The Applicant represents that 

the proposed Sale will maximize the 

preservation of the Plan assets by 

avoiding the payment of sales 

commissions, advertising costs and 

other selling expenses which would 

generally be incurred in open market 

sales.6 In addition, the Applicant states 

that the Plan will receive an amount in 

cash reflecting the fair market value of 

the Collectibles, as established by a 

qualified, independent appraiser. 

3. The Collectibles were appraised in 

June of 2009 by Mr. John Albanese of 

Blanchard and Company, an 

independent qualified appraiser located 

in New Orleans, Louisiana. Mr. 

Albanese represents that he has over 28 

years experience in the appraisal of 

coins. Mr. Albanese further states that 

he has not previously sold or been 

promised future sales of coins to the 

Applicant. Additionally, Mr. Albanese 

represents that less than 1% of the gross 

receipts of his business for the past year 

are derived from the Applicant. Mr. 

Albanese states that he examined the 

Collectibles submitted to him by the 

Applicant and, after evaluating the 

condition of the Collectibles, he 

reviewed the Coin Deal Newsletter as 

well as major auction results to arrive at 

their current value. Based on the 

foregoing methodology, Mr. Albanese 

determined that, as of June 3, 2009, the 

Collectibles had a fair market value of 

$284,895. 

4. In summary, the applicant 

represents that the transaction will 

satisfy the statutory requirements for an 

exemption under section 408(a) of the 

Act because: (a) The Sale is a one-time 

transaction for cash; (b) The Plan pays 

no commissions, fees or other expenses 

in connection with the Sale; (c) The 

terms and conditions of the Sale are at 

least as favorable as those obtainable in 

an arm’s length transaction with an 

unrelated third party; (d) The fair 

market value of the Collectibles was 

determined by Mr. Albanese, a 

qualified, independent appraiser; and 

(e) The Plan receives no less than the 

fair market value of the Collectibles at 

the time of the Sale. 

Notice to Interested Persons: The 

Applicant represents that the Plan has 

been terminated and that all 

participants of the Plan (with the 

exception of the Applicant) have been 

paid their benefits in full. Accordingly, 

the only practical means of notifying 

terminated plan participants is by 

publication of the proposed exemption 

in the Federal Register. Therefore, the 

Department must receive all written 

comments and requests for a hearing no 

later than forty-five (45) days after 

publication of the Notice in the Federal 

Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Mark Judge of the Department, 

telephone (202) 693–8550. (This is not 

a toll-free number). 

The Coca-Cola Company (TCCC, or the 

Applicant), Located in Atlanta, Georgia. 

[Application No. D–11555.] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

and in accordance with the procedures 

set forth in 29 CFR Part 2570, Subpart 

B (55 FR 32836, 32847, August 10, 

1990). If the exemption is granted, the 

restrictions of section 406(a) and (b) of 

the Act shall not apply to the 

reinsurance of risks and the receipt of 

premiums therefrom by Red Re Inc. 

(Red Re), in connection with a medical 

stop-loss insurance policy sold by the 

Prudential Insurance Company of 

America (Prudential), or any successor 

insurance company to Prudential which 

is unrelated to TCCC, which would pay 

for certain benefits under the TCCC 

Retiree Health Plan (the Plan), provided 

the following conditions are met: 

(a) Red Re— 

(1) Is a party in interest with respect 

to the Plan by reason of a stock or 

partnership affiliation with TCCC that is 

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

the Act; 

(2) Is licensed to sell insurance or 

conduct reinsurance operations in at 

least one State as defined in section 

3(10) of the Act; 

(3) Has obtained a Certificate of 

Authority from the Insurance 

Commissioner of its domiciliary state 

that has not been revoked or suspended; 

(4)(A) Has undergone an examination 

by an independent certified public 

accountant for its last completed taxable 

year immediately prior to the taxable 

year of the reinsurance transaction; or 

(B) Has undergone a financial 

examination (within the meaning of the 

law of its domiciliary State, by the 

Insurance Commissioner of the State 

within 5 years prior to the end of the 

year preceding the year in which the 

reinsurance transaction occurred; and 

(5) Is licensed to conduct reinsurance 

transactions by a State whose law 

requires that an actuarial review of 

reserves be conducted annually by an 


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7See representation 16. 

independent firm of actuaries and 

reported to the appropriate regulatory 

authority; and 

(b) The Plan pays no more than 

adequate consideration for the 

insurance contracts; 

(c) No commissions are paid by the 

Plan with respect to the direct sale of 

such contracts or the reinsurance 

thereof; 

(d) In the initial year of any contract 

involving Red Re, there will be an 

immediate and objectively determined 

benefit to the Plan’s participants and 

beneficiaries in the form of increased 

benefits; 

(e) In subsequent years, should the 

relationship with Prudential be 

terminated, the formula used to 

calculate premiums by any successor 

insurer will be similar to formulae used 

by other insurers providing comparable 

stop-loss coverage under similar 

programs. Furthermore, the premium 

charge calculated in accordance with 

the formula will be reasonable and will 

be comparable to the premium charged 

by the insurer and its competitors with 

the same or a better rating providing the 

same coverage under comparable 

programs; 

(f) To the extent Red Re earns any 

profit due to favorable claims 

experience, such profit will be promptly 

returned to the Plan. 

(g) The Plan only contracts with 

insurers with a rating of A or better from 

A.M. Best Company. The reinsurance 

arrangement between the insurer and 

Red Re will be indemnity insurance 

only, i.e., the insurer will not be 

relieved of liability to the Plan should 

Red Re be unable or unwilling to cover 

any liability arising from the 

reinsurance arrangement; 

(h) The Plan retains an independent 

fiduciary (the Independent Fiduciary), 

at TCCC’s expense, to analyze the 

transactions and render an opinion that 

the requirements of sections (a) 

thorough (g) have been complied with. 

For purposes of this exemption, the 

Independent Fiduciary is a person who: 

(1) Is not directly or indirectly, 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with TCCC or Red Re 

(this relationship hereinafter referred to 

as an ‘‘Affiliate’’); 

(2) Is not an officer, director, 

employee of, or partner in TCCC or Red 

Re (or any Affiliate of either); 

(3) Is not a corporation or partnership 

in which TCCC or Red Re has an 

ownership interest or is a partner; 

(4) Does not have an ownership 

interest in TCCC or Red Re, or any of 

either’s Affiliates; 

(5) Is not a fiduciary with respect to 

the Plan prior to the appointment; and 

(6) Has acknowledged in writing 

acceptance of fiduciary responsibility 

and has agreed not to participate in any 

decision with respect to any transaction 

in which the Independent Fiduciary has 

an interest that might affect its best 

judgment as a fiduciary. 

For purposes of this definition of an 

‘‘Independent Fiduciary,’’ no 

organization or individual may serve as 

an Independent Fiduciary for any fiscal 

year if the gross income received by 

such organization or individual (or 

partnership or corporation of which 

such individual is an officer, director, or 

10 percent or more partner or 

shareholder) from TCCC, Red Re, or 

their Affiliates (including amounts 

received for services as Independent 

Fiduciary under any prohibited 

transaction exemption granted by the 

Department) for that fiscal year exceeds 

3 percent of that organization or 

individual’s annual gross income from 

all sources for the prior fiscal year. 

In addition, no organization or 

individual who is an Independent 

Fiduciary, and no partnership or 

corporation of which such organization 

or individual is an officer, director, or 

10 percent or more partner or 

shareholder, may acquire any property 

from, sell any property to, or borrow 

funds from TCCC, Red Re, or their 

Affiliates during the period that such 

organization or individual serves as 

Independent Fiduciary, and continuing 

for a period of six months after such 

organization or individual ceases to be 

an Independent Fiduciary, or negotiates 

any such transaction during the period 

that such organization or individual 

serves as Independent Fiduciary. 

Summary of Facts and Representations 

1. TCCC, which is headquartered in 

Atlanta, Georgia, is the world’s largest 

beverage company and markets four of 

the world’s top five non-alcoholic 

sparkling brands. In 2008, TCCC 

employed 92,400 associates worldwide 

with approximately 13,000 associates in 

the United States. TCCC reported 

revenue of approximately $31.2 billion 

in 2008. 

2. Red Re is a captive insurance 

company owned by Coca-Cola Oasis, 

Inc., a consolidated entity of TCCC. Red 

Re was established on March 14, 2006 

in Charleston, South Carolina. Red Re 

was issued a Certificate of Authority 

permitting it to transact the business of 

a captive insurance company by the 

State of South Carolina on April 25, 

2006. Red Re is a sound, viable 

insurance company that has been in 

business since 2006. Management and 

administrative services for Red Re are 

performed by Marsh Management 

Services, Inc. of Charleston, South 

Carolina. Red Re currently provides 

deductible reimbursement policies to 

TCCC for selected automobile liability, 

product liability, general liability, 

workers’ compensation and terrorism 

risks. In addition, TCCC’s international 

employee benefits for selected countries 

are reinsured with Red Re. As of 

December 31, 2008, Red Re had total 

capital and surplus of $18.1 million and 

gross written premium of $46 million. 

3. TCCC provides medical benefits to 

eligible retired employees in the United 

States under the TCCC Retiree Health 

Plan (the Plan). The Plan provides 

coverage or reimbursement for major 

medical expenses, treatment of illness, 

sickness or injury, prescriptions and, in 

most cases, preventative care and vision 

exams to eligible retired employees (and 

their beneficiaries) of TCCC or its 

affiliates. Depending on the geographic 

area in which a Plan participant lives, 

there are a number of different coverage 

options, including an HMO option in 

some areas. As of January 1, 2009, the 

Plan provided retiree health benefits to 

approximately 5,000 retirees and 

dependents. TCCC has established a 

Voluntary Employees’ Beneficiary 

Association (VEBA) as a funding vehicle 

for the Plan. However, TCCC retains the 

option of making benefit payments out 

of its general assets and may then seek 

reimbursement from the VEBA.7

Participants make contributions to the 

Plan which vary from year-to-year, but 

which generally are set at levels 

intended to cover 15–20% of the Plan’s 

costs. However, the Applicant 

represents that no participant 

contributions will be used to pay any 

premium for the stop-loss policy which 

is the subject of this proposed 

exemption. 

4. TCCC has proposed that the VEBA 

purchase a non-cancellable accident and 

health medical stop-loss policy from the 

Prudential Insurance Company of 

America (Prudential) to insure benefits 

under the Plan as follows. This policy 

would pay the sum of all individual 

participant claims that are greater than 

a certain amount (the Attachment Point) 

in any year, but no more than an upper 

limit (the Upper Corridor Limit) for 

certain retirees (other than those who 

have either selected an HMO coverage 

option or are younger than age 55 on 

January 1, 2008) and their dependents 

as of the purchase date of the policy (the 

Covered Group). The Covered Group 

consists of approximately 4,000 

individuals (each of whom will be 


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8The Upper Corridor Limits were based on an 

expected premium of $185.3 million for the stoploss policy. However, since the 2006 TCCC 

contribution of $216 million to the VEBA, 

approximately $50 million in Plan benefits have 

been paid from the VEBA. Further, the VEBA has 

suffered approximately $23 million in investment 

losses. Thus, it is anticipated that the VEBA will 

pay a premium lower than $185.3 million. As a 

result, the Upper Corridor Limits for members of 

the Covered Group will be reduced. Because there 

may be additional changes to the value of the 

VEBA’s assets (including potential increases due to 

investment earnings), TCCC is unable to predict 

with certainty the exact dollar amount that the 

Upper Corridor Limits will be until the time the 

policy is issued. If the exemption proposed herein 

is granted, the premium will be paid at that time, 

the Upper Corridor Limits will be fixed, and the 

Corridor will be guaranteed for the lifetime of the 

members of the Covered Group irrespective of the 

performance of the investment markets or claims 

experience. The Department expects that TCCC will 

provide an estimate as to the expected Upper 

Corridor Limits by the end of the comment period. 

9The Independent Fiduciary was, in fact, Bank of 

America, N.A. (BOA), which had acquired U.S. 

Trust effective July 1, 2007. BOA continued to do 

business under the U.S. Trust name. 

specifically identified in an attachment 

to the stop-loss policy). At the time the 

exemption application for the subject 

transaction was filed, it was anticipated 

that for those members of the Covered 

Group who are under age 65, the 

Attachment Point would be $100 and 

the Upper Corridor Limit would be 

$5,800. For those members of the 

Covered Group aged 65 or higher, the 

Attachment Point would be $100 and 

the Upper Corridor Limit would be 

$3,500. (The range of covered benefits 

between the Attachment Point and the 

Upper Corridor Limit is referred to as 

‘‘the Corridor.’’) These coverage limits 

would apply per participant, per year. 

Claims below the Attachment Point 

would continue to be paid out of 

TCCC’s general assets. It was also 

anticipated that TCCC through the 

VEBA, would pay a premium to 

Prudential of approximately $185.3 

million to cover or insure benefits 

within the Corridor for the lifetime of 

the members of the Covered Group.8

5. The Applicant anticipates that 

Prudential will enter into a reinsurance 

agreement with Red Re for 100 percent 

of the risks under the stop-loss policy. 

Specifically, Prudential would provide 

the medical stop-loss insurance policy 

for the Plan’s benefit risks in connection 

with the Covered Group, but Red Re 

would provide reinsurance coverage for 

100 percent of those risks pursuant to 

Red Re’s agreement with Prudential. 

Prudential’s reinsurance agreement will 

be ‘‘indemnity only’’—that is, 

Prudential will not be relieved of its 

liability for benefits under the Plan if 

Red Re is unable or unwilling to satisfy 

the liabilities arising from the 

reinsurance agreements. The overall 

financial strength of Prudential is rated 

A+ by A.M. Best. 

6. The Applicant represents that in 

connection with the proposed 

transaction, the Plan will pay no more 

than adequate consideration for the 

stop-loss insurance contracts with 

Prudential or any successor insurer. The 

formula that Prudential and any 

successor insurer will use to calculate 

its premiums will be similar to the 

formulae used by other insurers 

providing similar insurance coverages 

under similar insurance programs. 

Moreover, the premium charge resulting 

from application of the formula will be 

reasonable and comparable to the 

premium charged by the insurer and its 

competitors with the same rating or 

better, providing the same coverage 

under comparable programs of 

insurance. Finally, the Plan will not pay 

any commissions in connection with 

either the direct sale of insurance or the 

reinsurance transactions described 

herein. 

7. The Applicant represents that the 

subject transactions have a number of 

advantages for the Plan. Specifically, 

TCCC will substantially improve 

benefits for members of the Covered 

Group by converting the currently 

revocable commitment to provide 

benefits into a fully paid-for insured 

arrangement that will provide them 

with benefits under the Plan for the rest 

of their lives. Currently, TCCC has 

reserved the right to reduce benefits or 

terminate the Plan at any time. Thus, for 

any claims not yet accrued, Plan 

participants do not have a guarantee or 

expectation that benefits will be paid. 

However, the VEBA’s purchase of the 

non-cancellable medical stop-loss 

policy from Prudential will fully fund a 

contract insuring that members of the 

Covered Group will receive all benefits 

within the Corridor for the rest of their 

lives. If TCCC were to exercise its right 

to reduce benefits or terminate the Plan 

as to other participants who are not 

members of the Covered Group 

sometime in the future, members of the 

Covered Group would continue to 

receive all benefit payments within the 

Corridor. TCCC represents that this 

benefit enhancement is not required of 

TCCC as part of a legal proceeding, 

court order or judgment, or by State law. 

8. In connection with this exemption 

request, Red Re engaged the services of 

U.S. Trust Company, N.A. (U.S. Trust), 

as the Independent Fiduciary for the 

Plan.9 U.S. Trust is a national banking 

association formed under the laws of the 

United States and authorized to exercise 

all fiduciary powers that may be 

exercised by State banks and trust 

companies under the laws of the State 

of Connecticut. In May, 2009, BOA’s 

Special Fiduciary Services business was 

acquired by Evercore Trust Company, 

N.A. (Evercore). All of the BOA 

personnel who were part of the Special 

Fiduciary Services business joined 

Evercore. TCCC gave its written consent 

to the transfer of its account from BOA 

to Evercore. Thus, for purposes of the 

exemption proposed herein, the 

Independent Fiduciary is Evercore. 

9. Evercore has represented that it 

meets the following requirements to be 

an independent fiduciary: 

(a) Evercore is not directly or 

indirectly, through one or more 

intermediaries, controlling, controlled 

by, or under common control with 

TCCC or Red Re; 

(b) Evercore is not an officer, director, 

employee of, or partner in TCCC or Red 

Re (or any Affiliate of either); 

(c) Evercore is not a corporation or 

partnership in which TCCC or Red Re 

has an ownership interest or is a 

partner; 

(d) Evercore does not own any shares 

of TCCC or Red Re, or any of their 

Affiliates, for its own account; 

(e) Evercore was not a fiduciary to the 

Plan prior to its appointment in 

connection with the transactions 

described herein; 

(f) Evercore has acknowledged, in 

writing, its acceptance of fiduciary 

obligations, and has agreed not to 

participate in any decision with respect 

to any transaction in which it would 

have an interest that might affect its 

judgment as a fiduciary; 

(g) The gross income received by 

Evercore from TCCC or Red Re and their 

Affiliates (including amounts received 

for services as the Independent 

Fiduciary for the Plans under any 

prohibited transaction exemption 

granted by the Department), does not 

exceed 3 percent of Evercore’s annual 

gross income from all sources for its 

prior fiscal year; and 

(h) Evercore, and any partnership or 

corporation of which Evercore is an 

officer, director, or ten (10) percent or 

more partner or shareholder, will not 

acquire any property from, sell any 

property to, or borrow funds from TCCC 

or Red Re while it is the Independent 

Fiduciary for the Plan and for a period 

of six months thereafter. 

10. Evercore represents that: (i) Red 

Re is licensed to do business in the State 

of South Carolina; and (ii) Red Re 

obtained a Certificate of Authority from 

the State of South Carolina on April 25, 

2006 which has neither been revoked 

nor suspended. Red Re has undergone 

an audit examination by Ernst & Young 

LLP, certified CPAs, for the year ended 


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10The Applicant states that since the right of 

members of the Covered Group to have claims 

within the Corridor paid for the rest of their lives 

will be guaranteed under the proposed transaction, 

it may be said that members of the Covered Group 

have a vested right to receive benefits in that 

amount. However, the guarantee is to dollar 

amounts, not particular types of medical procedures 

and treatments that may be covered under the Plan. 

11The exact coverage limits will be set closer to 

the time the transaction is executed. 

12 In this proposed exemption, the Department is 

expressing no opinion on whether the assets of the 

114 Trust constitute Plan assets. 

December 31, 2008. Evercore and its 

legal advisor have reviewed a copy of 

the audit report, and are satisfied there 

are no issues outstanding. Evercore has 

determined that Red Re is licensed to 

conduct reinsurance transactions by a 

State whose law requires that an 

actuarial review of reserves be 

conducted annually by an independent 

firm of actuaries, and reported to the 

appropriate regulatory authority. 

11. The Independent Fiduciary has 

represented that the Plan will pay no 

more than adequate consideration for 

the insurance contract. In addition, the 

Plan will pay no commissions with 

respect to the direct sale of the 

insurance contract or the reinsurance 

thereof. 

12. The Independent Fiduciary has 

reviewed the proposed transactions and 

determined that they will provide an 

important financial benefit to the Plan’s 

participants and beneficiaries. TCCC has 

reserved the right to modify or eliminate 

its retiree health benefit. By virtue of the 

proposed transactions, TCCC will 

effectively vest the Covered Group with 

medical benefits in an amount equal to 

the Corridor.10 The terms of the 

arrangement provide that Prudential 

cannot cancel or terminate the coverage, 

and this will help assure benefit 

payments, within the coverage 

parameters, to participants and 

beneficiaries. Thus, the Independent 

Fiduciary has concluded that this 

protection of the retirees’ health benefits 

provides an immediately and 

objectively determined benefit to the 

Plan’s participants and beneficiaries as 

of the initial year of the contract. 

13. In designing and implementing 

the proposed transactions, TCCC 

worked with Towers Perrin (TP), one of 

the largest benefits, insurance and 

reinsurance consulting firms in the 

world, with extensive experience in 

captive reinsurance transactions. TP has 

advised TCCC that non-cancellable 

medical stop-loss insurance is not a new 

product, but that it is offered in the 

market by only one insurer, John 

Hancock, as a method to finance postretirement medical liabilities. 

Prudential is the only insurer that has 

developed an insurance product for 

such liabilities that couples a stop-loss 

policy with captive reinsurance. TP 

introduced the same concept to three 

other ‘‘A’’-rated insurers, but none were 

interested in offering the coverage. TP 

compared the standard cost parameters 

of the John Hancock stop-loss policy to 

the Prudential/Captive product and 

determined that the latter has lower 

costs for the Plan, as measured by 

discounted cash flows over 50 years. TP 

also evaluated the costs and risks of 

other financing options including: 

paying benefits from the general assets 

of TCCC, trust-owned life insurance, 

and VEBA trusts with no insurance 

investments, and found that the 

Prudential/Captive product offered the 

lowest cost solution for the Plan. 

14. TP represents that this type of 

guaranteed, long-term health insurance 

is not available in the market for 

individuals; it is only because Red Re is 

willing to assume these risks for TCCC 

retirees that the retirees can hope to 

obtain this valuable coverage. Thus, it is 

difficult to assign an absolute dollar 

amount to the value of the benefit 

enhancement. However, TP compared 

the value of the lifetime guarantee of 

coverage within the Corridor to the cost 

of an annuity with annual payments 

equal to the size of the Corridor. The 

Applicant states that from the 

perspective of the participant, having an 

annuity that provides cash that is equal 

to the amount of claims that he or she 

can expect to have paid by the proposed 

stop-loss insurance is the same as 

having an insurer who is obligated to 

pay those same claims pursuant to a 

contract for health insurance. TP 

represents that the average expected 

claims would be approximately $10,000 

per year for retirees under age 65, and 

approximately $5,000 per year for 

retirees over age 65. Since the proposed 

coverage Corridors are $5,700 for 

retirees younger than 65 years of age 

and $3,400 for retirees 65 years of age 

and older,11 TP assumes that the 

participants, on average, will use the 

full Corridor to cover their claims. TP 

then estimated the value of an annuity 

that would provide payments equal to 

the amounts the average participant will 

receive in health insurance coverage 

under the proposed transactions. TP 

used the present value of the expected 

payment each year until death is 

expected. TP estimates that for an 

individual who retires at age 55 with a 

life expectancy of age 85, the present 

value of those payments (discounted at 

4%) would be approximately $77,000. 

TP estimates that for an individual who 

retires at age 65 with a life expectancy 

of age 85, the present value of those 

payments (discounted at 4%) would be 

approximately $46,000. 

15. The Applicant represents that the 

policy premium charged to the Plan by 

Prudential does not include a profit or 

risk charge for Red Re. There is an 

assumption in Red Re’s business model 

which anticipates an expected return on 

investments greater than the rate of 4% 

used to price the stop-loss policy. 

Notably, that investment ‘‘profit’’ may 

turn out to be an investment ‘‘loss’’ to 

Red Re if investment returns are less 

than 4%. Moreover, Red Re is taking the 

risk that there will not be mortality 

improvements that would cause benefits 

to be paid for longer periods than 

expected. Both scenarios present 

substantial risks, which are not 

accounted for in the pricing by risk 

charges. Nonetheless, TCCC and Red Re 

both represent that to the extent Red Re 

earns any profit due to favorable claims 

experience, such profit will be returned 

to the Plan. 

16. The Applicant represents that the 

premiums paid to Red Re by Prudential 

pursuant to the proposed reinsurance 

arrangement, plus any investment 

earnings thereon, will be held in a New 

York Regulation 114 Trust (114 Trust). 

The 114 Trust is a three-way investment 

trust agreement involving the ceding 

insurance company (i.e., Prudential), a 

financial institution (the trustee), and 

the reinsurer (i.e., Red Re).12 The 114 

Trust is a method for securing the 

obligations of an insurance company 

that cedes reserves to reinsurers not 

admitted in the State of the ceding 

company. It is named after Regulation 

114 of the Official Compilation of 

Codes, Rules and Regulations of the 

New York State Insurance Department 

(11 NYCRR 4). Under Regulation 114, 

the reinsurer (Red Re) establishes a trust 

of which the ceding company 

(Prudential) is the beneficiary; the 

beneficiary is entitled to demand assets 

from the trust at any time to satisfy the 

reinsurer’s obligations under the 

reinsurance agreement. Regulation 114 

prohibits the assets in a 114 Trust from 

being loaned to any affiliate of the 

reinsurer. Thus, the Applicant 

represents that no loans will be made by 

Red Re to TCCC using assets held by 

Red Re as a result of the proposed 

transaction. 

17. TCCC has represented that it will 

retain the option of making benefit 

payments out of its general assets and 

may then seek reimbursement from the 

VEBA. TCCC represents that many 

claims paid under the Plan will be paid 


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13The Department expresses no opinion as to 

whether such proposed arrangement would be 

exempt under PTE 80–26. 

14The proposal of this exemption should not be 

interpreted as an endorsement by the Department 

of the transactions described herein. The 

Department notes that the fiduciary responsibility 

provisions of Part 4 of Title I of the Act apply to 

the fiduciary’s decision to engage in the reinsurance 

arrangement. 

Specifically, section 404(a)(1) of the Act requires, 

among other things, that a plan fiduciary act 

prudently, solely in the interest of the plan’s 

participants and beneficiaries, and for the exclusive 

purpose of providing benefits to participants and 

beneficiaries when making investment decisions on 

behalf of the plan. In this regard, the Department 

is not providing any opinion as to whether a 

particular insurance or investment product, strategy 

or arrangement would be considered prudent or in 

the interests of a plan, as required by section 404 

of the Act. The determination of the prudence of 

a particular product or arrangement must be made 

by a plan fiduciary after appropriate consideration 

to those facts and circumstances that, given the 

scope of such fiduciary’s investment duties, the 

fiduciary knows or should know are relevant to the 

particular product or arrangement involved, 

including the plan’s potential exposure to losses 

and the role a particular insurance or investment 

product plays in that portion of the plan’s 

investment portfolio with respect to which the 

fiduciary has investment duties and responsibilities 

(see 29 CFR 250.404a–1). 

directly by TCCC without expectation of 

any reimbursement from the VEBA. For 

example, where a claim is paid that falls 

outside the Corridor, TCCC will likely 

pay the claim out of its general assets 

without seeking any reimbursement 

from the VEBA. However, because the 

VEBA, and not TCCC, will be the 

policyholder of the Stop-Loss Policy, 

claims within the Corridor must be 

submitted by the VEBA to Prudential, 

which will in turn submit them to Red 

Re. In order to avoid the need for a 

separate administrative mechanism 

(under which some claims would be 

paid directly by TCCC while others are 

paid directly by the VEBA), TCCC will 

pay such claims and then submit them 

to the VEBA for reimbursement (with 

the VEBA submitting them to Prudential 

in turn). 

The Applicant represents that to the 

extent that this arrangement might be 

considered an extension of credit 

between a party in interest and a Plan, 

TCCC will fully comply with the 

provisions of Prohibited Transaction 

Exemption (PTE) 80–26, as amended (71 

FR 17917, April 7, 2006). In particular, 

no interest or fee will be charged to the 

Plan when TCCC pays a claim and later 

seeks reimbursement. Further, the 

proceeds of such extension of credit will 

be used only to pay operating expenses 

of the Plan, including benefits paid in 

accordance with the terms of the Plan. 

Such loan or extension of credit would 

be unsecured, will not be made by an 

employee benefit plan, and will not be 

the type of loan described in section 

408(b)(3) of the Act. It is not anticipated 

that more than 60 days will pass 

between the date TCCC pays a claim 

and the date the VEBA reimburses 

TCCC for such claim; to ensure 

compliance with the provisions of PTE 

80–26 in the event unforeseen delay 

results in more than 60 days passing 

before reimbursement, a written loan 

agreement will be entered into setting 

forth the material terms of such 

extension of credit between TCCC and 

the Plan.13

18. TCCC represents that an audit 

procedure will be in place to ensure that 

reimbursements received by TCCC do 

not exceed the amount due to TCCC. 

TCCC represents that the Plan will 

undergo an annual audit by an 

independent qualified public 

accountant that will contain the 

following: (a) A description of the 

process, methodology and criteria used 

to select the Plan’s transactions which 

comprise the sample collected for 

review and an explanation of how the 

sample was objectively determined to be 

representative of the reimbursements 

made during the Plan year; (b) an 

explanation of why the number of 

transactions comprising the sample 

selected for review was appropriate, 

taking into account, among other things, 

each instance in which there was a 

specific finding that there was a 

reimbursement that exceeded the 

amount due to TCCC; and (c) specific 

findings made (without condition, 

qualification, caveat or limitation) by 

the independent qualified public 

accountant for each instance in which a 

reimbursement exceeded the amount 

due to TCCC. The audit will be 

completed within the time frame 

required for the timely filing of the 

Plan’s Form 5500. A copy of the audit 

will be provided to the Independent 

Fiduciary within 30 days after the audit 

is received by TCCC. 

19. In summary, the Applicant 

represents that the proposed 

reinsurance transactions will meet the 

criteria of section 408(a) of the Act 

because: (a) The Plan’s participants and 

beneficiaries are afforded insurance 

protection by Prudential, a carrier rated 

A or better by A.M. Best; (b) Red Re, 

which will enter into the reinsurance 

agreements with Prudential, is a sound 

and viable insurance company; (c) the 

protections provided to the Plan and its 

participants and beneficiaries under the 

proposed reinsurance transactions are 

based, in part, on those required for 

direct insurance by a ‘‘captive’’ insurer, 

under the conditions of Prohibited 

Transaction Exemption 79–41 (PTE 79– 

41), 44 FR 46365 (notwithstanding 

certain other requirements related to, 

among other things, the amount of gross 

premiums or annuity considerations 

received from customers who are not 

related to, or affiliated with, the 

insurer); 14 (d) the Plan’s Independent 

Fiduciary, has reviewed the proposed 

reinsurance transaction and has 

determined that the transaction is 

appropriate for, and in the best interests 

of, the Plan and that there will be an 

immediate benefit to the Plan’s 

participants as a result thereof by reason 

of the guaranteed payment of benefits in 

the Corridor by Prudential; and (e) the 

Independent Fiduciary will monitor 

compliance by the parties with the 

terms and conditions of the proposed 

reinsurance transaction, and will take 

whatever action is necessary and 

appropriate to safeguard the interests of 

the Plans and of their participants and 

beneficiaries. 

FOR FURTHER INFORMATION CONTACT: Gary 

H. Lefkowitz of the Department, 

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

a toll-free number.) 

Columbia Management Advisors, LLC 

(Columbia, or the Applicant) and its 

Current and Future Affiliates (collectively, 

the Applicants), Located in Boston, 

Massachusetts. 

[Application No. D–11556.] 

Proposed Exemption 

The Department of Labor (the 

Department) is considering granting an 

exemption under the authority of 

section 408(a) of the Employee 

Retirement Income Security Act of 1974 

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

Internal Revenue Code of 1986 (the 

Code) and in accordance with the 

procedures set forth in 29 CFR Part 

2570, Subpart B (55 FR 32836, 32847, 

August 10, 1990). 

Section I—Transactions 

If the proposed exemption is granted, 

the restrictions of section 406 of the Act 

and the sanctions resulting from the 

application of section 4975 of the Code, 

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

through (F) of the Code, shall not apply 

to the purchase of certain securities (the 

Securities), as defined, below in Section 

III(i), by an Asset Manager, as defined, 

below, in Section III(d), from any person 

other than such Asset Manager, during 

the existence of an underwriting or 

selling syndicate with respect to such 

Securities, where a broker-dealer 

affiliated with Columbia (the Affiliated 

Broker-Dealer), as defined, below, in 

Section III(b), is a manager or member 

of such syndicate and the Asset 


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15For purposes of this proposed exemption an InHouse Plan may engage in AUTs only through 

investment in a Pooled Fund. 16SEC Rule 10f–3(a)(4), 17 CFR 270.10f–3(a)(4), 

states that the term ‘‘Eligible Rule 144A Offering’’ 

means an offering of securities that meets the 

following conditions: 

(i) The securities are offered or sold in 

transactions exempt from registration under section 

4(2) of the Securities Act of 1933 [15 U.S.C. 77d(d)], 

rule 144A thereunder [§ 230.144A of this chapter], 

or rules 501–508 thereunder [§§ 230.501–230–508 

of this chapter]; 

(ii) The securities are sold to persons that the 

seller and any person acting on behalf of the seller 

reasonably believe to include qualified institutional 

buyers, as defined in § 230.144A(a)(1) of this 

chapter; and 

(iii) The seller and any person acting on behalf 

of the seller reasonably believe that the securities 

are eligible for resale to other qualified institutional 

buyers pursuant to § 230.144A of this chapter. 

Manager purchases such Securities, as a 

fiduciary: 

(a) On behalf of an employee benefit 

plan or employee benefit plans (Client 

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

III(f); or 

(b) On behalf of Client Plans, and/or 

In-House Plans, as defined, below, in 

Section III(m), which are invested in a 

pooled fund or in pooled funds (Pooled 

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

III(g); provided that the conditions as set 

forth, below, in Section II, are satisfied 

(An affiliated underwriter transaction 

(AUT)).15

Section II—Conditions 

The proposed exemption is 

conditioned upon adherence to the 

material facts and representations 

described herein and upon satisfaction 

of the following requirements: 

(a)(1) The Securities to be purchased 

are either— 

(i) Part of an issue registered under 

the Securities Act of 1933 (the 1933 Act) 

(15 U.S.C. 77a et seq.). If the Securities 

to be purchased are part of an issue that 

is exempt from such registration 

requirement, such Securities: 

(A) Are issued or guaranteed by the 

United States or by any person 

controlled or supervised by and acting 

as an instrumentality of the United 

States pursuant to authority granted by 

the Congress of the United States, 

(B) Are issued by a bank, 

(C) Are exempt from such registration 

requirement pursuant to a Federal 

statute other than the 1933 Act, or 

(D) Are the subject of a distribution 

and are of a class which is required to 

be registered under section 12 of the 

Securities Exchange Act of 1934 (the 

1934 Act) (15 U.S.C. 781), and are 

issued by an issuer that has been subject 

to the reporting requirements of section 

13 of the 1934 Act (15 U.S.C. 78m) for 

a period of at least ninety (90) days 

immediately preceding the sale of such 

Securities and that has filed all reports 

required to be filed thereunder with the 

Securities and Exchange Commission 

(SEC) during the preceding twelve (12) 

months; or 

(ii) Part of an issue that is an Eligible 

Rule 144A Offering, as defined in SEC 

Rule 10f–3 (17 CFR 270.10f–3(a)(4)).16

Where the Eligible Rule 144A Offering 

of the Securities is of equity securities, 

the offering syndicate shall obtain a 

legal opinion regarding the adequacy of 

the disclosure in the offering 

memorandum; 

(2) The Securities to be purchased are 

purchased prior to the end of the first 

day on which any sales are made, 

pursuant to that offering, at a price that 

is not more than the price paid by each 

other purchaser of the Securities in that 

offering or in any concurrent offering of 

the Securities, except that— 

(i) If such Securities are offered for 

subscription upon exercise of rights, 

they may be purchased on or before the 

fourth day preceding the day on which 

the rights offering terminates; or 

(ii) If such Securities are debt 

securities, they may be purchased at a 

price that is not more than the price 

paid by each other purchaser of the 

Securities in that offering or in any 

concurrent offering of the Securities and 

may be purchased on a day subsequent 

to the end of the first day on which any 

sales are made, pursuant to that offering, 

provided that the interest rates, as of the 

date of such purchase, on comparable 

debt securities offered to the public 

subsequent to the end of the first day on 

which any sales are made and prior to 

the purchase date are less than the 

interest rate of the debt Securities being 

purchased; and 

(3) The Securities to be purchased are 

offered pursuant to an underwriting or 

selling agreement under which the 

members of the syndicate are committed 

to purchase all of the Securities being 

offered, except if— 

(i) Such Securities are purchased by 

others pursuant to a rights offering; or 

(ii) Such Securities are offered 

pursuant to an over-allotment option. 

(b) The issuer of the Securities to be 

purchased pursuant to this proposed 

exemption must have been in 

continuous operation for not less than 

three years, including the operation of 

any predecessors, unless the Securities 

to be purchased are— 

(1) Non-convertible debt securities 

rated in one of the four highest rating 

categories by Standard & Poor’s Rating 

Services, Moody’s Investors Service, 

Inc., FitchRatings, Inc., Dominion Bond 

Rating Service Limited, Dominion Bond 

Rating Service, Inc., or any successors 

thereto (collectively, the Rating 

Organizations), provided that none of 

the Rating Organizations rates such 

Securities in a category lower than the 

fourth highest rating category; or 

(2) Debt securities issued or fully 

guaranteed by the United States or by 

any person controlled or supervised by 

and acting as an instrumentality of the 

United States pursuant to authority 

granted by the Congress of the United 

States; or 

(3) Debt securities which are fully 

guaranteed by a person (the Guarantor) 

that has been in continuous operation 

for not less than three years, including 

the operation of any predecessors, 

provided that such Guarantor has issued 

other securities registered under the 

1933 Act; or if such Guarantor has 

issued other securities which are 

exempt from such registration 

requirement, such Guarantor has been 

in continuous operation for not less 

than three years, including the 

operation of any predecessors, and such 

Guarantor is: 

(a) A bank; or 

(b) An issuer of securities which are 

exempt from such registration 

requirement, pursuant to a Federal 

statute other than the 1933 Act; or 

(c) An issuer of securities that are the 

subject of a distribution and are of a 

class which is required to be registered 

under section 12 of the 1934 Act (15 

U.S.C. 781), and are issued by an issuer 

that has been subject to the reporting 

requirements of section 13 of the 1934 

Act (15 U.S.C. 78m) for a period of at 

least ninety (90) days immediately 

preceding the sale of such securities and 

that has filed all reports required to be 

filed thereunder with the SEC during 

the preceding twelve (12) months. 

(c) The aggregate amount of Securities 

of an issue purchased, pursuant to this 

proposed exemption, by the Asset 

Manager with: (i) The assets of all Client 

Plans; and (ii) The assets, calculated on 

a pro-rata basis, of all Client Plans and 

In-House Plans investing in Pooled 

Funds managed by the Asset Manager; 

and (iii) The assets of plans to which the 

Asset Manager renders investment 

advice within the meaning of 29 CFR 

2510.3–21(c) does not exceed: 

(1) Ten percent (10%) of the total 

amount of the Securities being offered 

in an issue, if such Securities are equity 

securities; 

(2) Thirty-five percent (35%) of the 

total amount of the Securities being 

offered in an issue, if such Securities are 

debt securities rated in one of the four 

highest rating categories by at least one 

of the Rating Organizations, provided 

that none of the Rating Organizations 

rates such Securities in a category lower 


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than the fourth highest rating category; 

or 

(3) Twenty-five percent (25%) of the 

total amount of the Securities being 

offered in an issue, if such Securities are 

debt securities rated in the fifth or sixth 

highest rating categories by at least one 

of the Rating Organizations; provided 

that none of the Rating Organizations 

rates such Securities in a category lower 

than the sixth highest rating category; 

and 

(4) The assets of any single Client 

Plan (and the assets of any Client Plans 

and any In-House Plans investing in 

Pooled Funds) may not be used to 

purchase any Securities being offered, if 

such Securities are debt securities rated 

lower than the sixth highest rating 

category by any of the Rating 

Organizations; 

(5) Notwithstanding the percentage of 

Securities of an issue permitted to be 

acquired, as set forth in Section II(c)(1), 

(2), and (3), above, of this proposed 

exemption, the amount of Securities in 

any issue (whether equity or debt 

securities) purchased, pursuant to this 

proposed exemption, by the Asset 

Manager on behalf of any single Client 

Plan, either individually or through 

investment, calculated on a pro-rata 

basis, in a Pooled Fund may not exceed 

three percent (3%) of the total amount 

of such Securities being offered in such 

issue, and; 

(6) If purchased in an Eligible Rule 

144A Offering, the total amount of the 

Securities being offered for purposes of 

determining the percentages, described, 

above, in Section II(c)(1)–(3) and (5), is 

the total of: 

(i) The principal amount of the 

offering of such class of Securities sold 

by underwriters or members of the 

selling syndicate to ‘‘qualified 

institutional buyers’’ (QIBs), as defined 

in SEC Rule 144A (17 CFR 

230.144A(a)(1)); plus 

(ii) The principal amount of the 

offering of such class of Securities in 

any concurrent public offering. 

(d) The aggregate amount to be paid 

by any single Client Plan in purchasing 

any Securities which are the subject of 

this proposed exemption, including any 

amounts paid by any Client Plan or InHouse Plan in purchasing such 

Securities through a Pooled Fund, 

calculated on a pro-rata basis, does not 

exceed three percent (3%) of the fair 

market value of the net assets of such 

Client Plan or In-House Plan, as of the 

last day of the most recent fiscal quarter 

of such Client Plan or In-House Plan 

prior to such transaction. 

(e) The covered transactions are not 

part of an agreement, arrangement, or 

understanding designed to benefit the 

Asset Manager or its affiliate. 

(f) The Affiliated Broker-Dealer does 

not receive, either directly, indirectly, or 

through designation, any selling 

concession, or other compensation or 

consideration that is based upon the 

amount of Securities purchased by any 

single Client Plan, or that is based on 

the amount of Securities purchased by 

Client Plans or In-House Plans through 

Pooled Funds, pursuant to this 

proposed exemption. In this regard, the 

Affiliated Broker-Dealer may not 

receive, either directly or indirectly, any 

compensation or consideration that is 

attributable to the fixed designations 

generated by purchases of the Securities 

by the Asset Manager on behalf of any 

single Client Plan or any Client Plan or 

In-House Plan in Pooled Funds. 

(g)(1) The amount the Affiliated 

Broker-Dealer receives in management, 

underwriting, or other compensation or 

consideration is not increased through 

an agreement, arrangement, or 

understanding for the purpose of 

compensating the Affiliated BrokerDealer for foregoing any selling 

concessions for those Securities sold 

pursuant to this proposed exemption. 

Except as described above, nothing in 

this Section II(g)(1) shall be construed as 

precluding the Affiliated Broker-Dealer 

from receiving management fees for 

serving as manager of the underwriting 

or selling syndicate, underwriting fees 

for assuming the responsibilities of an 

underwriter in the underwriting or 

selling syndicate, or other compensation 

or consideration that is not based upon 

the amount of Securities purchased by 

the Asset Manager on behalf of any 

single Client Plan, or on behalf of any 

Client Plan or In-House Plan 

participating in Pooled Funds, pursuant 

to this proposed exemption; and 

(2) The Affiliated Broker-Dealer shall 

provide to the Asset Manager a written 

certification, dated and signed by an 

officer of the Affiliated Broker-Dealer, 

stating the amount that the Affiliated 

Broker-Dealer received in compensation 

or consideration during the past quarter, 

in connection with any offerings 

covered by this proposed exemption, 

was not adjusted in a manner 

inconsistent with Section II(e), (f), or (g) 

of this proposed exemption. 

(h) The covered transactions are 

performed under a written authorization 

executed in advance by an independent 

fiduciary of each single Client Plan (the 

Independent Fiduciary), as defined, 

below, in Section III(h). 

(i) Prior to the execution by an 

Independent Fiduciary of a single Client 

Plan of the written authorization 

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

following information and materials 

(which may be provided electronically) 

must be provided by the Asset Manager 

to such Independent Fiduciary. 

(1) A copy of the Notice of Proposed 

Exemption (the Notice) and a copy of 

the final exemption (the Grant) as 

published in the Federal Register, 

provided that the Notice and the Grant 

are supplied simultaneously; and 

(2) Any other reasonably available 

information regarding the covered 

transactions that such Independent 

Fiduciary requests the Asset Manager to 

provide. 

(j) Subsequent to the initial 

authorization by an Independent 

Fiduciary of a single Client Plan 

permitting the Asset Manager to engage 

in the covered transactions on behalf of 

such single Client Plan, the Asset 

Manager will continue to be subject to 

the requirement to provide within a 

reasonable period of time any 

reasonably available information 

regarding the covered transactions that 

the Independent Fiduciary requests the 

Asset Manager to provide. 

(k)(1) In the case of an existing 

employee benefit plan investor (or 

existing In-House Plan investor, as the 

case may be) in a Pooled Fund, such 

Pooled Fund may not engage in any 

covered transactions pursuant to this 

proposed exemption, unless the Asset 

Manager provides the written 

information, as described, below, and 

within the time period described, 

below, in this Section II(k)(2), to the 

Independent Fiduciary of each such 

plan participating in such Pooled Fund 

(and to the fiduciary of each such InHouse Plan participating in such Pooled 

Fund). 

(2) The following information and 

materials (which may be provided 

electronically) shall be provided by the 

Asset Manager not less than 45 days 

prior to such Asset Manager engaging in 

the covered transactions on behalf of a 

Pooled Fund, pursuant to this proposed 

exemption, and provided further that 

the information described below, in this 

Section II(k)(2)(i) and (iii) is supplied 

simultaneously: 

(i) A notice of the intent of such 

Pooled Fund to purchase Securities 

pursuant to this proposed exemption, a 

copy of this Notice, and a copy of the 

Grant, as published in the Federal 

Register; 

(ii) Any other reasonably available 

information regarding the covered 

transactions that the Independent 

Fiduciary of a plan (or fiduciary of an 

In-House Plan) participating in a Pooled 

Fund requests the Asset Manager to 

provide; and 


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(iii) A termination form expressly 

providing an election for the 

Independent Fiduciary of a plan (or 

fiduciary of an In-House Plan) 

participating in a Pooled Fund to 

terminate such plan’s (or In-House 

Plan’s) investment in such Pooled Fund 

without penalty to such plan (or InHouse Plan). Such form shall include 

instructions specifying how to use the 

form. Specifically, the instructions will 

explain that such plan (or such InHouse Plan) has an opportunity to 

withdraw its assets from a Pooled Fund 

for a period of no more than 30 days 

after such plan’s (or such In-House 

Plan’s) receipt of the initial notice of 

intent, described, above, in Section 

II(k)(2)(i), and that the failure of the 

Independent Fiduciary of such plan (or 

fiduciary of such In-House Plan) to 

return the termination form to the Asset 

Manager in the case of a plan (or InHouse Plan) participating in a Pooled 

Fund by the specified date shall be 

deemed to be an approval by such plan 

(or such In-House Plan) of its 

participation in the covered transactions 

as an investor in such Pooled Fund. 

Further, the instructions will identify 

the Asset Manager and the Affiliated 

Broker-Dealer and will provide the 

address of the Asset Manager. The 

instructions will state that this proposed 

exemption may be unavailable, unless 

the fiduciary of each plan participating 

in the covered transactions as an 

investor in a Pooled Fund is, in fact, 

independent of the Asset Manager and 

the Affiliated Broker-Dealer. The 

instructions will also state that the 

fiduciary of each such plan must advise 

the Asset Manager, in writing, if it is not 

an ‘‘Independent Fiduciary,’’ as that 

term is defined, below, in Section III(h). 

For purposes of this Section II(k), the 

requirement that the fiduciary 

responsible for the decision to authorize 

the transactions described, above, in 

Section I of this proposed exemption for 

each plan be independent of the Asset 

Manager shall not apply in the case of 

an In-House Plan. 

(l)(1) In the case of each plan (and in 

the case of each In-House Plan) whose 

assets are proposed to be invested in a 

Pooled Fund after such Pooled Fund has 

satisfied the conditions set forth in this 

proposed exemption to engage in the 

covered transactions, the investment by 

such plan (or by such In-House Plan) in 

the Pooled Fund is subject to the prior 

written authorization of an Independent 

Fiduciary representing such plan (or the 

prior written authorization by the 

fiduciary of such In-House Plan, as the 

case may be), following the receipt by 

such Independent Fiduciary of such 

plan (or by the fiduciary of such InHouse Plan, as the case may be) of the 

written information described, above, in 

Section II(k)(2)(i) and (ii), provided that 

the Notice and the Grant, described 

above in Section II(k)(2)(i), are provided 

simultaneously. 

(2) For purposes of this Section II(l), 

the requirement that the fiduciary 

responsible for the decision to authorize 

the transactions described, above, in 

Section I of this proposed exemption for 

each plan proposing to invest in a 

Pooled Fund be independent of the 

Asset Manager and its affiliates shall not 

apply in the case of an In-House Plan. 

(m) Subsequent to the initial 

authorization by an Independent 

Fiduciary of a plan (or by a fiduciary of 

an In-House Plan) to invest in a Pooled 

Fund that engages in the covered 

transactions, the Asset Manager will 

continue to be subject to the 

requirement to provide within a 

reasonable period of time any 

reasonably available information 

regarding the covered transactions that 

the Independent Fiduciary of such plan 

(or the fiduciary of such In-House Plan, 

as the case may be) requests the Asset 

Manager to provide. 

(n) At least once every three months, 

and not later than 45 days following the 

period to which such information 

relates, the Asset Manager shall furnish: 

(1) In the case of each single Client 

Plan that engages in the covered 

transactions, the information described, 

below, in this Section II(n)(3)–(7), to the 

Independent Fiduciary of each such 

single Client Plan. 

(2) In the case of each Pooled Fund in 

which a Client Plan (or in which an InHouse Plan) invests, the information 

described, below, in this Section 

II(n)(3)–(6) and (8), to the Independent 

Fiduciary of each such Client Plan (and 

to the fiduciary of each such In-House 

Plan) invested in such Pooled Fund. 

(3) A quarterly report (the Quarterly 

Report) (which may be provided 

electronically) which discloses all the 

Securities purchased pursuant to this 

proposed exemption during the period 

to which such report relates on behalf 

of the Client Plan, In-House Plan, or 

Pooled Fund to which such report 

relates, and which discloses the terms of 

each of the transactions described in 

such report, including: 

(i) The type of Securities (including 

the rating of any Securities which are 

debt securities) involved in each 

transaction; 

(ii) The price at which the Securities 

were purchased in each transaction; 

(iii) The first day on which any sale 

was made during the offering of the 

Securities; 

(iv) The size of the issue of the 

Securities involved in each transaction; 

(v) The number of Securities 

purchased by the Asset Manager for the 

Client Plan, In-House Plan, or Pooled 

Fund to which the transaction relates; 

(vi) The identity of the underwriter 

from whom the Securities were 

purchased for each transaction; 

(vii) The underwriting spread in each 

transaction (i.e., the difference, between 

the price at which the underwriter 

purchases the Securities from the issuer 

and the price at which the Securities are 

sold to the public); 

(viii) The price at which any of the 

Securities purchased during the period 

to which such report relates were sold; 

and 

(ix) The market value at the end of the 

period to which such report relates of 

the Securities purchased during such 

period and not sold; 

(4) The Quarterly Report contains: 

(i) A representation that the Asset 

Manager has received a written 

certification signed by an officer of the 

Affiliated Broker-Dealer, as described, 

above, in Section II(g)(2), affirming that, 

as to each AUT covered by this 

proposed exemption during the past 

quarter, the Affiliated Broker-Dealer 

acted in compliance with Section II(e), 

(f), and (g) of this proposed exemption, 

and 

(ii) A representation that copies of 

such certifications will be provided 

upon request; 

(5) A disclosure in the Quarterly 

Report that states that any other 

reasonably available information 

regarding a covered transaction that an 

Independent Fiduciary (or fiduciary of 

an In-House Plan) requests will be 

provided, including, but not limited to: 

(i) The date on which the Securities 

were purchased on behalf of the Client 

Plan (or the In-House Plan) to which the 

disclosure relates (including Securities 

purchased by Pooled Funds in which 

such Client Plan (or such In-House Plan) 

invests); 

(ii) The percentage of the offering 

purchased on behalf of all Client Plans 

(and the pro-rata percentage purchased 

on behalf of Client Plans and In-House 

Plans investing in Pooled Funds); and 

(iii) The identity of all members of the 

underwriting syndicate; 

(6) The Quarterly Report discloses any 

instance during the past quarter where 

the Asset Manager was precluded for 

any period of time from selling 

Securities purchased under this 

proposed exemption in that quarter 

because of its status as an affiliate of an 

Affiliated Broker-Dealer and the reason 

for this restriction; 


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(7) Explicit notification, prominently 

displayed in each Quarterly Report sent 

to the Independent Fiduciary of each 

single Client Plan that engages in the 

covered transactions that the 

authorization to engage in such covered 

transactions may be terminated, without 

penalty to such single Client Plan, 

within five (5) days after the date that 

the Independent Fiduciary of such 

single Client Plan informs the person 

identified in such notification that the 

authorization to engage in the covered 

transactions is terminated; and 

(8) Explicit notification, prominently 

displayed in each Quarterly Report sent 

to the Independent Fiduciary of each 

Client Plan (and to the fiduciary of each 

In-House Plan) that engages in the 

covered transactions through a Pooled 

Fund that the investment in such 

Pooled Fund may be terminated, 

without penalty to such Client Plan (or 

such In-House Plan), within such time 

as may be necessary to effect the 

withdrawal in an orderly manner that is 

equitable to all withdrawing plans and 

to the non-withdrawing plans, after the 

date that the Independent Fiduciary of 

such Client Plan (or the fiduciary of 

such In-House Plan, as the case may be) 

informs the person identified in such 

notification that the investment in such 

Pooled Fund is terminated. 

(o) For purposes of engaging in 

covered transactions, each Client Plan 

(and each In-House Plan) shall have 

total net assets with a value of at least 

$50 million (the $50 Million Net Asset 

Requirement). For purposes of engaging 

in covered transactions involving an 

Eligible Rule 144A Offering, each Client 

Plan (and each In-House Plan) shall 

have total net assets of at least $100 

million in securities of issuers that are 

not affiliated with such Client Plan (or 

such In-House Plan, as the case may be) 

(the $100 Million Net Asset 

Requirement). 

For purposes of a Pooled Fund 

engaging in covered transactions, each 

Client Plan (and each In-House Plan) in 

such Pooled Fund shall have total net 

assets with a value of at least $50 

million. Notwithstanding the foregoing, 

if each such Client Plan (and each such 

In-House Plan) in such Pooled Fund 

does not have total net assets with a 

value of at least $50 million, the $50 

Million Net Asset Requirement will be 

met if 50 percent (50%) or more of the 

units of beneficial interest in such 

Pooled Fund are held by Client Plans (or 

by In-House Plans) each of which has 

total net assets with a value of at least 

$50 million. For purposes of a Pooled 

Fund engaging in covered transactions 

involving an Eligible Rule 144A 

Offering, each Client Plan (and each InHouse Plan) in such Pooled Fund shall 

have total net assets of at least $100 

million in securities of issuers that are 

not affiliated with such Client Plan (or 

such In-House Plan, as the case may be). 

Notwithstanding the foregoing, if each 

such Client Plan (and each such InHouse Plan) in such Pooled Fund does 

not have total net assets of at least $100 

million in securities of issuers that are 

not affiliated with such Client Plan (or 

In-House Plan, as the case may be), the 

$100 Million Net Asset Requirement 

will be met if 50 percent (50%) or more 

of the units of beneficial interest in such 

Pooled Fund are held by Client Plans (or 

by In-House Plans) each of which have 

total net assets of at least $100 million 

in securities of issuers that are not 

affiliated with such Client Plan (or such 

In-House Plan, as the case may be), and 

the Pooled Fund itself qualifies as a 

QIB, as determined pursuant to SEC 

Rule 144A (17 CFR 230.144A(a)(F)). 

For purposes of the net asset 

requirements described above, in this 

Section II(o), where a group of Client 

Plans is maintained by a single 

employer or controlled group of 

employers, as defined in section 

407(d)(7) of the Act, the $50 Million Net 

Asset Requirement (or in the case of an 

Eligible Rule 144A Offering, the $100 

Million Net Asset Requirement) may be 

met by aggregating the assets of such 

Client Plans, if the assets of such Client 

Plans are pooled for investment 

purposes in a single master trust. 

(p) The Asset Manager qualifies as a 

‘‘qualified professional asset manager’’ 

(QPAM), as that term is defined under 

Part V(a) of PTE 84–14. Further, the 

Asset Manager, which qualifies as a 

QPAM, must also have total client assets 

under its management and control in 

excess of $5 billion, as of the last day 

of its most recent fiscal year and 

shareholders’ or partners’ equity in 

excess of $1 million. 

(q) No more than 20 percent of the 

assets of a Pooled Fund at the time of 

a covered transaction are comprised of 

assets of In-House Plans for which the 

Asset Manager or the Affiliated BrokerDealer exercises investment discretion. 

(r) The Asset Manager and the 

Affiliated Broker-Dealer, as applicable, 

maintain, or cause to be maintained, for 

a period of six (6) years from the date 

of any covered transaction such records 

as are necessary to enable the persons, 

described, below, in Section II(s), to 

determine whether the conditions of 

this proposed exemption have been met, 

except that— 

(1) No party in interest with respect 

to a plan which engages in the covered 

transactions, other than the Asset 

Manager and the Affiliated BrokerDealer, as applicable, shall be subject to 

a civil penalty under section 502(i) of 

the Act or the taxes imposed by section 

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

records are not maintained, or not 

available for examination, as required, 

below, by Section II(s); and 

(2) A separate prohibited transaction 

shall not be considered to have occurred 

solely because, due to circumstances 

beyond the control of the Asset 

Manager, or the Affiliated BrokerDealer, as applicable, such records are 

lost or destroyed prior to the end of the 

six-year period. 

(s)(1) Except as provided, below, in 

Section II(s)(2), and notwithstanding 

any provisions of subsections (a)(2) and 

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

referred to above, in Section II(r), are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(i) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, or the SEC; or 

(ii) Any fiduciary of any plan that 

engages in the covered transactions, or 

any duly authorized employee or 

representative of such fiduciary; or 

(iii) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a plan that engages in the 

covered transactions, or any authorized 

employee or representative of these 

entities; or 

(iv) Any participant or beneficiary of 

a plan that engages in the covered 

transactions, or duly authorized 

employee or representative of such 

participant or beneficiary; 

(2) None of the persons described 

above, in Section II(s)(1)(ii)–(iv), shall 

be authorized to examine trade secrets 

of the Asset Manager, or the Affiliated 

Broker-Dealer, or commercial or 

financial information which is 

privileged or confidential; and 

(3) Should the Asset Manager or the 

Affiliated Broker-Dealer refuse to 

disclose information on the basis that 

such information is exempt from 

disclosure, pursuant to Section II(s)(2) 

above, the Asset Manager shall, by the 

close of the thirtieth (30th) day 

following the request, provide a written 

notice advising that person of the 

reasons for the refusal and that the 

Department may request such 

information. 

Section III—Definitions 

(a) The term, ‘‘the Applicant,’’ means 

Columbia Management Advisors, LLC. 

(b) The term, ‘‘Affiliated BrokerDealer,’’ means any broker-dealer 

affiliate, as ‘‘affiliate’’ is defined, below, 

in Section III(c), of the Applicant, as 


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‘‘Applicant’’ is defined, above, in 

Section III(a), that meets the 

requirements of this proposed 

exemption. Such Affiliated BrokerDealer may participate in an 

underwriting or selling syndicate as a 

manager or member. The term, 

‘‘manager,’’ with respect to a syndicate, 

means any member of an underwriting 

or selling syndicate who, either alone or 

together with other members of the 

syndicate, is authorized to act on behalf 

of the members of the syndicate in 

connection with the sale and 

distribution of the Securities, as defined 

below, in Section III(i), being offered or 

who receives compensation from the 

members of the syndicate for its services 

as a manager of the syndicate. 

(c) The term ‘‘affiliate’’ of a person 

includes: 

(1) Any person directly or indirectly 

through one or more intermediaries, 

controlling, controlled by, or under 

common control with such person; 

(2) Any officer, director, partner, 

employee, or relative, as defined in 

section 3(15) of the Act, of such person; 

and 

(3) Any corporation or partnership of 

which such person is an officer, 

director, partner, or employee. 

For purposes of this proposed 

exemption, the definition of ‘‘affiliate’’ 

shall include any entity that satisfies 

such definition in the future. 

(d) The term ‘‘Asset Manager’’ means 

Columbia or an affiliate of Columbia as 

defined above in Section III(c), which 

entity acts as the fiduciary with respect 

to Client Plan(s), as defined in Section 

III(f), below, or Pooled Fund(s), as 

defined in Section III(g), below. 

(e) The term, ‘‘control,’’ means the 

power to exercise a controlling 

influence over the management or 

policies of a person other than an 

individual. 

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

an employee benefit plan(s) that is 

subject to the Act and/or the Code, and 

for which plan(s) an Asset Manager 

exercises discretionary authority or 

discretionary control respecting 

management or disposition of some or 

all of the assets of such plan(s), but 

excludes In-House Plans, as defined, 

below, in Section III(m). 

(g) The term, ‘‘Pooled Fund(s),’’ 

means a common or collective trust 

fund(s) or a pooled investment fund(s): 

(1) In which employee benefit plan(s) 

subject to the Act and/or Code invest, 

(2) Which is maintained by an Asset 

Manager, and 

(3) For which such Asset Manager 

exercises discretionary authority or 

discretionary control respecting the 

management or disposition of the assets 

of such fund(s). 

(h)(1) The term, ‘‘Independent 

Fiduciary,’’ means a fiduciary of a plan 

who is unrelated to, and independent of 

the Asset Manager and the Affiliated 

Broker-Dealer. For purposes of this 

proposed exemption, a fiduciary of a 

plan will be deemed to be unrelated to, 

and independent of the Asset Manager 

and the Affiliated Broker-Dealer, if such 

fiduciary represents in writing that 

neither such fiduciary, nor any 

individual responsible for the decision 

to authorize or terminate authorization 

for the transactions described above, in 

Section I of this proposed exemption, is 

an officer, director, or highly 

compensated employee (within the 

meaning of Code section 4975(e)(2)(H)) 

of the Asset Manager and the Affiliated 

Broker-Dealer, and represents that such 

fiduciary shall advise the Asset Manager 

within a reasonable period of time after 

any change in such facts occur. 

(2) Notwithstanding anything to the 

contrary in this Section III(h), a 

fiduciary of a plan is not independent: 

(i) If such fiduciary directly or 

indirectly controls, is controlled by, or 

is under common control with the Asset 

Manager or the Affiliated Broker Dealer; 

(ii) If such fiduciary directly or 

indirectly receives any compensation or 

other consideration from the Asset 

Manager, or the Affiliated Broker-Dealer 

for his or her own personal account in 

connection with any transaction 

described in this proposed exemption; 

(iii) If any officer, director, or highly 

compensated employee (within the 

meaning of Code section 4975(e)(2)(H)) 

of the Asset Manager responsible for the 

transactions described above, in Section 

I of this proposed exemption, is an 

officer, director, or highly compensated 

employee (within the meaning of Code 

section 4975(e)(2)(H)) of the sponsor of 

the plan or of the fiduciary responsible 

for the decision to authorize or 

terminate authorization for the 

transactions described above, in Section 

I. However, if such individual is a 

director of the sponsor of the plan or of 

the responsible fiduciary, and if he or 

she abstains from participation in: (A) 

The choice of the plan’s investment 

manager/adviser; and (B) the decision to 

authorize or terminate authorization for 

transactions described above, in Section 

I, then this Section III(h)(2)(iii) shall not 

apply. 

(3) The term, ‘‘officer,’’ means a 

president, any vice president in charge 

of a principal business unit, division, or 

function (such as sales, administration, 

or finance), or any other officer who 

performs a policy-making function for 

Columbia or any affiliate thereof. 

(i) The term, ‘‘Securities,’’ shall have 

the same meaning as defined in section 

2(36) of the Investment Company Act of 

1940 (the 1940 Act), as amended (15 

U.S.C. 80a–2(36)(2001)). For purposes of 

this proposed exemption, mortgagebacked or other asset-backed securities 

rated by one of the Rating 

Organizations, as defined, below, in 

Section III(l), will be treated as debt 

securities. 

(j) The term, ‘‘Eligible Rule 144A 

Offering,’’ shall have the same meaning 

as defined in SEC Rule 10f–3(a)(4) (17 

CFR 270.10f–3(a)(4)) under the 1940 

Act). 

(k) The term, ‘‘qualified institutional 

buyer,’’ or the term, ‘‘QIB,’’ shall have 

the same meaning as defined in SEC 

Rule 144A (17 CFR 230.144A(a)(1)) 

under the 1933 Act. 

(l) The term, ‘‘Rating Organizations,’’ 

means Standard & Poor’s Rating 

Services, Moody’s Investors Service, 

Inc., Fitch Ratings, Inc., Dominion Bond 

Rating Service Limited, and Dominion 

Bond Rating Service, Inc., or any 

successors thereto. 

(m) The term, ‘‘In-House Plan(s),’’ 

means an employee benefit plan(s) that 

is subject to the Act and/or the Code, 

and that is sponsored by the Applicant 

as defined, above, in Section III(a), or its 

affiliate, as defined in Section III(c), for 

its own employees. 

Summary of Facts and Representations 

The Applicants 

1. The Applicants consist of Columbia 

and its current and future affiliates. 

Columbia and Columbia Wanger Asset 

Management, LP (CWA), both of which 

are SEC-registered investment advisers, 

are wholly-owned subsidiaries of 

Columbia Management Group, LLC 

(CMG), and collectively had assets 

under management of approximately 

$405 billion as of September 30, 2008. 

Of these assets, Columbia managed 

approximately $380 billion. CMG, 

including Columbia and CWA, is the 

investment management division of 

Bank of America Corporation (with its 

subsidiaries, BOA). The Applicants 

manage institutional portfolios for 

mutual funds, corporations, pension 

plans endowments, foundations, 

healthcare organizations, educational 

organizations, public agencies, 

insurance companies and Taft-Hartley 

plans. They also act as fiduciary to 

numerous employee benefit plans and 

individual retirement accounts, 

providing trustee, custodial 

recordkeeping, consulting and 

investment management services. 

CMG is wholly-owned by BOA, which 

is one of the world’s largest financial 


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17 In fact, under the terms of the proposed 

exemption set forth herein, the Affiliated BrokerDealer may receive no compensation or other 

consideration, direct or indirect, in connection with 

any transaction that would be permitted under the 

proposed exemption. 

institutions, serving individual 

consumers, small and middle market 

businesses and large corporations with 

a full range of banking, investing, asset 

management and other financial and 

risk-management products and services. 

It serves more than 59 million consumer 

and small-business relationships. As of 

October 2008, BOA served clients in 

more than 150 countries and had 

relationships with 99 percent of the U.S. 

Fortune 500 companies and 80 percent 

of the Fortune Global 500. BOA had 

approximately $564 billion in assets 

under management as of September 30, 

2008. 

On September 15, 2008, BOA 

announced an agreement to acquire 

Merrill Lynch & Co., Inc. (ML) in an allstock transaction (the Merger). The 

Merger became effective on January 1, 

2009. Per the agreement, a whollyowned merger subsidiary of BOA 

merged with and into ML, with ML 

continuing as the surviving company 

that is a subsidiary of BOA. ML had 

total client assets of approximately $1.5 

trillion and more than 16,000 financial 

advisors as of September 26, 2008. Upon 

consummation of the Merger, ML and 

its affiliates became affiliates of the 

Applicants. 

2. The Applicants’ activities are 

subject to oversight and are regulated by 

Federal government agencies, such as 

the SEC, the Federal Reserve Board and 

the Office of the Comptroller of the 

Currency, as well as by State 

government agencies, and industry selfregulatory organizations (e.g., the New 

York Stock Exchange and the Financial 

Industry Regulatory Authority). 

Requested Exemption 

3. The Applicants request a 

prohibited transaction exemption that 

would permit the purchase of certain 

Securities by an Asset Manager (the 

Asset Manager), acting on behalf of 

Client Plans subject to the Act or Code, 

and acting on behalf of Client Plans and 

In-House Plans which are invested in 

certain Pooled Funds for which an Asset 

Manager acts as a fiduciary, from any 

person other than such Asset Manager 

or any affiliate thereof, during the 

existence of an underwriting or selling 

syndicate with respect to such 

Securities, where an Affiliated BrokerDealer is a manager or member of such 

syndicate. Further, the Affiliated 

Broker-Dealer will receive no selling 

concessions in connection with the 

Securities sold to such plans. 

4. The Applicants represent that if the 

Affiliated Broker-Dealer is a member of 

an underwriting or selling syndicate, the 

Asset Manager may purchase 

underwritten securities for Client Plans 

in accordance with Part III of Prohibited 

Transaction Exemption (PTE) 75–1, (40 

FR 50845, October 31, 1975). Part III 

provides limited relief from the Act’s 

prohibited transaction provisions for 

plan fiduciaries that purchase securities 

from an underwriting or selling 

syndicate of which the fiduciary or an 

affiliate is a member. However, such 

relief is not available if the Affiliated 

Broker-Dealer manages the underwriting 

or selling syndicate. 

5. In addition, regardless of whether 

a fiduciary or its affiliate is a manager 

or merely a member of an underwriting 

or selling syndicate, PTE 75–1 does not 

provide relief for the purchase of 

unregistered securities. This includes 

securities purchased by an underwriter 

for resale to a ‘‘qualified institutional 

buyer’’ (QIB) pursuant to the SEC’s Rule 

144A under the 1933 Act. Rule 144A is 

commonly utilized in connection with 

sales of securities issued by foreign 

corporations to U.S. investors that are 

QIBs. Notwithstanding the unregistered 

nature of such shares, it is represented 

that syndicates selling securities under 

Rule 144A (Rule 144A Securities) are 

the functional equivalent of those 

selling registered securities. 

6. The Applicants represent that the 

Affiliated Broker-Dealer regularly serves 

as manager of underwriting or selling 

syndicates for registered securities, and 

as a manager or a member of 

underwriting or selling syndicates for 

Rule 144A Securities. Accordingly, the 

Asset Manager is currently unable to 

purchase on behalf of the Client Plans 

both registered securities and Rule 144A 

Securities sold in such offerings, 

resulting in such Client Plans being 

unable to participate in significant 

investment opportunities. 

7. It is represented that since 1975, 

there has been a significant amount of 

consolidation in the financial services 

industry in the United States. As a 

result, there are more situations in 

which a plan fiduciary may be affiliated 

with the manager of an underwriting 

syndicate. Further, many plans have 

expanded investment portfolios in 

recent years to include securities issued 

by foreign corporations. As a result, the 

exemption provided in PTE 75–1, Part 

III, is often unavailable for purchase of 

domestic and foreign securities that may 

otherwise constitute appropriate plan 

investments. 

Client Plan Investments in Offered 

Securities 

8. The Applicants represent that the 

Asset Manager makes its investment 

decisions on behalf of, or renders 

investment advice to, Client Plans 

pursuant to the governing document of 

the particular Client Plan or Pooled 

Fund and the investment guidelines and 

objectives set forth in the management 

or advisory agreement. Because the 

Client Plans are covered by Title I of the 

Act and/or are subject to section 4975 of 

the Code, such investment decisions are 

subject to, among other requirements, 

the fiduciary responsibility provisions 

of the Act and the prohibited 

transaction rules set forth in the Act and 

the Code. 

9. The Applicants state, therefore, that 

the decision to invest in a particular 

offering is made on the basis of price, 

value and a Client Plan’s investment 

criteria, not on whether the securities 

are currently being sold through an 

underwriting or selling syndicate. The 

Applicants further state that, because 

the Asset Manager’s compensation for 

its services is generally based upon 

assets under management, the Asset 

Manager has little incentive to purchase 

securities in an offering in which the 

Affiliated Broker Dealer is an 

underwriter unless such a purchase is in 

the interests of Client Plans. If the assets 

under management do not perform well, 

the Asset Manager will receive less 

compensation and could lose clients, 

costs which far outweigh any gains from 

the purchase of underwritten 

securities.17

10. The Applicants state that the 

Asset Manager generally purchases 

securities in large blocks because the 

same investments will be made across 

several accounts. If there is a new 

offering of an equity or fixed income 

security that the Asset Manager wishes 

to purchase, it may be able to purchase 

the security through the offering 

syndicate at a lower price than it would 

pay in the open market, without 

transaction costs and with reduced 

market impact if it is buying a relatively 

large quantity. This is because a large 

purchase in the open market can cause 

an increase in the market price and, 

consequently, in the cost of the 

securities. Purchasing from an offering 

syndicate can thus reduce the costs to 

the Client Plans. 

11. However, absent this proposed 

exemption, if the Affiliated BrokerDealer is a manager of a syndicate that 

is underwriting a securities offering, the 

Asset Manager will be foreclosed from 

purchasing any securities on behalf of 

its Client Plans from that underwriting 

syndicate. This will force the Asset 

Manager to purchase the same securities 


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in the secondary market. In such a 

circumstance, the Client Plans may 

incur greater costs both because the 

market price is often higher than the 

offering price, and because of 

transaction and market impact costs. In 

turn, this may cause the Asset Manager 

to forego other investment opportunities 

because the purchase price of the 

underwritten security in the secondary 

market exceeds the price that the Asset 

Manager would have paid to the selling 

syndicate. 

Underwriting of Securities Offerings 

12. The Applicants represent that the 

Affiliated Broker-Dealer currently 

manages and participates in firm 

commitment underwriting syndicates 

for registered offerings of both equity 

and debt securities. While equity and 

debt underwritings may operate 

differently with regard to the actual 

sales process, the basic structures are 

the same. In a firm commitment 

underwriting, the underwriting 

syndicate acquires the securities from 

the issuer and then sells the securities 

to investors. 

13. The Applicants represent that 

while, as a legal matter, a selling 

syndicate assumes the risk that the 

underwritten securities might not be 

fully sold, as a practical matter, this risk 

is reduced, in marketed deals, through 

‘‘building a book’’ (i.e., taking 

indications of interest from potential 

purchasers) prior to pricing the 

securities. Accordingly, there is no 

incentive for the underwriters to use 

their discretionary accounts (or the 

discretionary accounts of their affiliates) 

to buy up the securities as a way to 

avoid underwriting liabilities. 

14. Each selling syndicate has one or 

more lead managers, who are the 

principal contact between the syndicate 

and the issuer and who are responsible 

for organizing and coordinating the 

syndicate. The syndicate may also have 

co-managers, who generally assist the 

lead manager in working with the issuer 

to prepare the registration statement to 

be filed with the SEC and in distributing 

the underwritten securities. While 

equity syndicates typically include 

additional members that are not 

managers, more recently, membership 

in many debt underwriting syndicates 

has been limited to lead and comanagers. 

15. If more than one underwriter is 

involved in a selling syndicate, the lead 

manager, who has been selected by the 

issuer of the underwritten securities, 

contacts other underwriters, and the 

underwriters enter into an ‘‘Agreement 

Among Underwriters.’’ Most lead 

managers have a standing form of 

agreement. This document is then 

supplemented for the particular deal by 

sending an ‘‘invitation telex’’ or ‘‘terms 

telex’’ that sets forth particular terms to 

the other underwriters. 

16. The arrangement between the 

syndicate and the issuer of the 

underwritten securities is embodied in 

an underwriting agreement, which is 

signed on behalf of the underwriters by 

one or more of the managers. In a firm 

commitment underwriting, the 

underwriting agreement provides, 

subject to certain closing conditions, 

that the underwriters are obligated to 

purchase the underwritten securities 

from the issuer in accordance with their 

respective commitments. This 

obligation is met by using the proceeds 

received from the buyers of the 

securities in the offering, although there 

is a risk that the underwriters will have 

to pay for a portion of the securities in 

the event that not all of the securities 

are sold. 

17. The Applicants represent that, 

generally, the risk that the securities 

will not be sold is small because the 

underwriting agreement is not executed 

until after the underwriters have 

obtained sufficient indications of 

interest to purchase the securities from 

a sufficient number of investors to 

assure that all the securities being 

offered will be acquired by investors. 

Once the underwriting agreement is 

executed, the underwriters immediately 

begin contacting the investors to 

confirm the sales, at first by oral 

communication and then by written 

confirmation. Sales are finalized within 

hours and sometimes minutes. In 

registered transactions, the underwriters 

are particularly anxious to complete the 

sales as soon as possible because until 

they ‘‘break syndicate,’’ they cannot 

enter the market. In many cases, the 

underwriters will act as market-makers 

for the security. A market-maker holds 

itself out as willing to buy or sell the 

security for its own account on a regular 

basis. 

18. The Applicants represent that the 

process of ‘‘building a book’’ or 

soliciting indications of interest occurs 

as follows: In a registered equity 

offering, after a registration statement is 

filed with the SEC and, while it is under 

review by the SEC staff, representatives 

of the issuer of the securities and the 

selling syndicate managers conduct 

meetings with potential investors, who 

learn about the company and the 

underwritten securities. Potential 

investors also receive a preliminary 

prospectus. The underwriters cannot 

make any firm sales until the 

registration statement is declared 

effective by the SEC. Prior to the 

effective date, while the investors 

cannot become legally obligated to make 

a purchase, they indicate whether they 

have an interest in buying, and the 

managers compile a ‘‘book’’ of investors 

who are willing to ‘‘circle’’ a particular 

portion of the issue. These indications 

of interest are sometimes referred to as 

a ‘‘soft circle’’ because investors cannot 

be legally bound to buy the securities 

until the registration statement is 

effective. However, the Applicants 

represent that investors generally follow 

through on their indications of interest, 

and would be expected to do so, barring 

any sudden adverse developments (in 

which case it is likely that the offering 

would be withdrawn or the price range 

modified and the process restarted), 

because, if the investors that gave an 

indication of interest do not follow 

through, the underwriters may be 

reluctant to include them in future 

offerings. 

19. Assuming that the marketing 

efforts have produced sufficient 

indications of interest, the Applicants 

represent that the issuer of the securities 

and the selling syndicate managers 

together will set the price of the 

securities and ask the SEC to declare the 

registration effective. After the 

registration statement becomes effective 

and the underwriting agreement is 

executed, the underwriters contact those 

investors that have indicated an interest 

in purchasing securities in the offering 

to execute the sales. The Applicants 

represent that offerings are often 

oversubscribed, and many have an overallotment option that the underwriters 

can exercise to acquire additional shares 

from the issuer. Where an offering is 

oversubscribed, the underwriters decide 

how to allocate the securities among the 

potential purchasers. However, if an 

issue is a ‘‘hot issue,’’ (i.e., it is selling 

in the market at a premium above its 

offering price) the underwriters may not 

hold this hot issue in their own 

accounts, nor sell it to their employees, 

officers and directors. Subject to certain 

exceptions, a hot issue may also not be 

sold to the personal accounts of those 

responsible for investing for others, 

such as officers of banks, insurance 

companies, mutual funds and 

investment advisers. 

20. The Applicants represent that debt 

offerings may be ‘‘negotiated’’ offerings, 

‘‘competitive bid’’ offerings, or ‘‘bought 

deals.’’ ‘‘Negotiated’’ offerings, which 

often involve non-investment grade 

securities, are conducted in the same 

manner as an equity offering with regard 

to when the underwriting agreement is 

executed and how the securities are 

offered. ‘‘Competitive bid’’ offerings, in 

which the issuer determines the price 


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68118 Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 

18Rule 415 permits an issuer to sell debt as well 

as equity securities under an effective registration 

statement previously filed with the SEC by filing a 

post-effective amendment or supplemental 

prospectus. 

19A fixed designation is sometimes referred to as 

an ‘‘auto pot split.’’ 

for the securities through competitive 

bidding rather than negotiating the price 

with the underwriting syndicate, are 

performed under ‘‘shelf’’ registration 

statements pursuant to the SEC’s Rule 

415 under the 1933 Act (17 CFR 

230.415).18

21. In a competitive bid offering, 

prospective lead underwriters will bid 

against one another to purchase debt 

securities, based upon their 

determinations of the degree of investor 

interest in the securities. Depending on 

the level of investor interest and the size 

of the offering, a bidding lead 

underwriter may bring in co-managers 

to assist in the sales process. Most of the 

securities are frequently sold within 

hours, or sometimes even less than an 

hour, after the securities are made 

available for purchase. 

22. The Applicants represent that, 

because of market forces and the 

requirements of Rule 415, the 

competitive bid process is generally 

available only to issuers of investmentgrade securities who have been subject 

to the reporting requirements of the 

1934 Act for at least one (1) year. 

23. Occasionally, in highly-rated debt 

issues, underwriters ‘‘buy’’ the entire 

deal off of a ‘‘shelf registration’’ before 

obtaining indications of interest. These 

‘‘bought’’ deals involve issuers whose 

securities enjoy a deep and liquid 

secondary market, such that an 

underwriter has confidence without premarketing that it can identify purchasers 

for the bonds. 

Structure of Diversified Financial 

Services Firms 

24. The Applicants represent that 

there are internal policies in place that 

restrict contact and the flow of 

information between investment 

management personnel and noninvestment management personnel in 

the same or affiliated financial service 

firms. These policies are designed to 

protect against ‘‘insider trading,’’ i.e., 

trading on information not available to 

the general public that may affect the 

market price of the securities. 

Diversified financial services firms must 

be concerned about insider trading 

problems because one part of the firm— 

e.g., the mergers and acquisitions 

group—could come into possession of 

non-public information regarding an 

upcoming transaction involving a 

particular issuer, while another part of 

the firm—e.g., the investment 

management group—could be trading in 

the securities of that issuer for its 

clients. 

25. The Applicants represent that the 

business separation policies and 

procedures of Columbia and its affiliates 

are also structured to restrict the flow of 

any information to or from the Asset 

Manager that could limit its flexibility 

in managing client assets, and of 

information obtained or developed by 

the Asset Manager that could be used by 

other parts of the organization, to the 

detriment of the Asset Manager’s 

clients. 

26. The Applicants represent that 

major clients of the Affiliated BrokerDealer include investment management 

firms that are competitors of the Asset 

Manager. Similarly, the Asset Manager 

deals on a regular basis with brokerdealers that compete with the Affiliated 

Broker-Dealer. If special consideration 

were shown to an affiliate, such conduct 

would likely have an adverse effect on 

the relationships of the Affiliated 

Broker-Dealer and of the Asset Manager 

with firms that compete with such 

affiliate. Therefore, a goal of the 

Applicants’ business separation policies 

is to avoid any possible perception of 

improper flows of information between 

the Affiliated Broker-Dealer and the 

Asset Manager, in order to prevent any 

adverse impact on client and business 

relationships. 

Underwriting Compensation 

27. The Applicants represent that the 

underwriters are compensated through 

the ‘‘spread,’’ or difference, between the 

price at which the underwriters 

purchase the securities from the issuer 

and the price at which the securities are 

sold to the public. The spread is divided 

into three components. 

28. The first component includes the 

management fee, which generally 

represents an agreed upon percentage of 

the overall spread and is allocated 

among the lead manager and comanagers. Where there is more than one 

managing underwriter, the way the 

management fee will be allocated among 

the managers is generally agreed upon 

between the managers and the issuer 

prior to soliciting indications of interest. 

Thus, the allocation of the management 

fee is not reflective of the amount of 

securities that a particular manager sells 

in an offering. 

29. The second component is the 

underwriting fee, which represents 

compensation to the underwriters 

(including the non-managers, if any) for 

the risks they assume in connection 

with the offering and for the use of their 

capital. This component of the spread is 

also used to cover the expenses of the 

underwriting that are not otherwise 

reimbursed by the issuer of the 

securities. 

30. The first and second components 

of the ‘‘spread’’ are received without 

regard to how the underwritten 

securities are allocated for sales 

purposes or to whom the securities are 

sold. The third component of the spread 

is the selling concession, which 

generally constitutes 60 percent or more 

of the spread. The selling concession 

compensates the underwriters for their 

actual selling efforts. The allocation of 

selling concessions among the 

underwriters generally follows the 

allocation of the securities for sales 

purposes. However, a buyer of the 

underwritten securities may designate 

other broker-dealers (who may be other 

underwriters, as well as broker-dealers 

outside the syndicate) to receive the 

selling concessions arising from the 

securities they purchase. 

31. Securities are allocated for sales 

purposes into two categories. The first 

and larger category is the ‘‘institutional 

pot,’’ which is the pot of securities from 

which sales are made to institutional 

investors. Selling concessions for 

securities sold from the institutional pot 

are generally designated by the 

purchaser to go to particular 

underwriters or other broker-dealers. If 

securities are sold from the institutional 

pot, the selling syndicate managers 

sometimes receive a portion of the 

selling concessions, referred to as a 

‘‘fixed designation,’’ 19 attributable to 

securities sold in this category, without 

regard to who sold the securities or to 

whom they were sold. For securities 

covered by this proposed exemption, 

however, the Affiliated Broker-Dealer 

may not receive, either directly or 

indirectly, any compensation or 

consideration that is attributable to the 

fixed designation generated by 

purchases of securities by the Asset 

Manager on behalf of its Client Plans. 

32. The second category of allocated 

securities is ‘‘retail,’’ which are the 

securities retained by the underwriters 

for sale to their retail customers. The 

underwriters receive the selling 

concessions from their respective retail 

retention allocations. Securities may be 

shifted between the two categories 

based upon whether either category is 

oversold or undersold during the course 

of the offering. 

33. The Applicants represent that the 

Affiliated Broker-Dealer’s inability to 

receive any selling concessions, or any 

compensation attributable to the fixed 

designations generated by purchases of 

securities by the Asset Manager’s Client 


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Plans, removes the primary economic 

incentive for the Asset Manager to make 

purchases that are not in the interests of 

its Client Plans from offerings for which 

the Affiliated Broker-Dealer is an 

underwriter. The reason is that the 

Affiliated Broker-Dealer will not receive 

any additional fees as a result of such 

purchases by the Asset Manager. 

Rule 144A Securities 

34. The Applicants represent that a 

number of the offerings of Rule 144A 

Securities in which the Affiliated 

Broker-Dealer participates represent 

good investment opportunities for the 

Asset Manager’s Client Plans. 

Particularly with respect to foreign 

securities, a Rule l44A offering may 

provide the least expensive and most 

accessible means for obtaining these 

securities. However, as discussed above, 

PTE 75–1, Part III, does not cover Rule 

144A Securities. Therefore, absent an 

exemption, the Asset Manager is 

foreclosed from purchasing such 

securities for its Client Plans in offerings 

in which the Affiliated Broker-Dealer 

participates. 

35. The Applicants state that Rule 

144A acts as a ‘‘safe harbor’’ exemption 

from the registration provisions of the 

1933 Act for sales of certain types of 

securities to QIBs. QIBs include several 

types of institutional entities, such as 

employee benefit plans and commingled 

trust funds holding assets of such plans, 

which own and invest on a 

discretionary basis at least $100 million 

in securities of unaffiliated issuers. 

36. Any securities may be sold 

pursuant to Rule 144A except for those 

of the same class or similar to a class 

that is publicly traded in the United 

States, or certain types of investment 

company securities. This limitation is 

designed to prevent side-by-side public 

and private markets developing for the 

same class of securities and is the 

reason that Rule 144A transactions are 

generally limited to debt securities. 

37. Buyers of Rule 144A Securities 

must be able to obtain, upon request, 

basic information concerning the 

business of the issuer and the issuer’s 

financial statements, much of the same 

information as would be furnished if the 

offering were registered. This condition 

does not apply, however, to an issuer 

filing reports with the SEC under the 

1934 Act, for which reports are publicly 

available. The condition also does not 

apply to a ‘‘foreign private issuer’’ for 

whom reports are furnished to the SEC 

under Rule 12g3–2(b) of the 1934 Act 

(17 CFR 240.12g3–2(b)), or to issuers 

who are foreign governments or political 

subdivisions thereof and are eligible to 

use Schedule B under the 1933 Act 

(which describes the information and 

documents required to be contained in 

a registration statement filed by such 

issuers). 

38. Sales under Rule 144A, like sales 

in a registered offering, remain subject 

to the protections of the anti-fraud rules 

of Federal and State securities laws. 

These rules include Section 10(b) of the 

1934 Act and Rule 10b–5 thereunder (17 

CFR 240.10b–5) and Section 17(a) of the 

1933 Act (15 U.S.C. 77a). Through these 

and other provisions, the SEC may use 

its full range of enforcement powers to 

exercise its regulatory authority over the 

market for Rule 144A Securities, in the 

event that it detects improper practices 

or fraud. 

39. The Applicants represent that this 

regulatory structure provides a 

considerable incentive to the issuer of 

the securities and the members of the 

selling syndicate to insure that the 

information contained in a Rule 144A 

offering memorandum is complete and 

accurate in all material respects. Among 

other things, the lead manager typically 

obtains an opinion from a law firm, 

commonly referred to as a ‘‘10b–5’’ 

opinion, stating that the law firm has no 

reason to believe that the offering 

memorandum contains any untrue 

statement of material fact or omits to 

state a material fact necessary in order 

to make sure the statements made, in 

light of the circumstances under which 

they were made, are not misleading. 

40. The Applicants represent that 

Rule 144A offerings generally are 

structured in the same manner as 

underwritten registered offerings. The 

major difference is that a Rule l44A 

offering uses an offering memorandum 

rather than a prospectus that is filed 

with the SEC. The marketing process is 

the same in most respects, except that 

the selling efforts are limited to 

contacting QIBs and there are no general 

solicitations for buyers (e.g., no general 

advertising). In addition, the Affiliated 

Broker-Dealer’s role in these offerings is 

typically that of a lead or co-manager. 

Generally, there are no non-manager 

members in a Rule 144A selling 

syndicate. Nonetheless, the Applicants 

request that the proposed exemption 

extend to authorization for situations 

where the Affiliated Broker-Dealer acts 

as a manager or as a syndicate member. 

Summary 

41. The proposed exemption is 

administratively feasible. In this regard, 

compliance with the terms and 

conditions of the proposed exemption 

will be verifiable and subject to audit. 

42. The proposed exemption is in the 

interest of participants and beneficiaries 

of Client Plans that engage in the 

covered transactions. In this regard, it is 

represented that the proposed 

exemption will increase investment 

opportunities and will reduce 

administrative costs for Client Plans. 

43. In summary, the Applicants 

represent that the proposed transactions 

will satisfy the statutory criteria for an 

exemption set forth in section 408(a) of 

the Act because: 

(a) The Client Plans and In-House 

Plans will gain access to desirable 

investment opportunities; 

(b) In each offering, the Asset Manager 

will purchase the securities for its Client 

Plans and In-House Plans from an 

underwriter or broker-dealer other than 

the Affiliated Broker-Dealer; 

(c) Conditions similar to those of PTE 

75–1, Part III, will restrict the types of 

securities that may be purchased, the 

types of underwriting or selling 

syndicates and issuers involved, and the 

price and timing of the purchases; 

(d) The amount of securities that the 

Asset Manager may purchase on behalf 

of Client Plans and In-House Plans will 

be subject to percentage limitations; 

(e) The Affiliated Broker-Dealer will 

not be permitted to receive, either 

directly, indirectly or through 

designation, any selling concessions 

with respect to the securities sold to the 

Asset Manager for the account of a 

Client Plan or an In-House Plan; 

(f) Prior to any purchase of securities, 

the Applicant will make the required 

disclosures to an Independent Fiduciary 

of each Client Plan (or the fiduciary of 

each In-House Plan) and obtain the 

required written authorization to engage 

in the covered transactions; 

(g) The Applicant will provide regular 

reporting to an Independent Fiduciary 

of each Client Plan (or the fiduciary of 

each In-House Plan) with respect to all 

securities purchased pursuant to the 

exemption, if granted; 

(h) Each Client Plan and each InHouse Plan will be subject to net asset 

requirements, with certain exceptions 

for Pooled Funds; and 

(i) The Asset Manager must have total 

assets under management in excess of 

$5 billion and shareholders’ or partners’ 

equity in excess of $1 million, in 

addition to qualifying as a QPAM, 

pursuant to Part V(a) of PTE 84–14. 

Notice to Intersted Persons: The 

Applicants represent that because those 

potentially interested Plans proposing to 

engage in the covered transactions 

cannot all be identified, the only 

practical means of notifying 

Independent Plan Fiduciaries or Plan 

participants of such affected Plans is by 

publication of the proposed exemption 

in the Federal Register. Therefore, any 

comments from interested persons must 


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68120 Federal Register / Vol. 74, No. 244 / Tuesday, December 22, 2009 / Notices 

be received by the Department no later 

than 30 days from the publication of 

this notice of proposed exemption in the 

Federal Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Gary H. Lefkowitz of the Department, 

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

a toll-free number.) 

Boston Carpenters Apprenticeship and 

Training Fund (the Fund), Located in 

Boston, Massachusetts. 

[Exemption Application No.: L–11558.] 

Proposed Exemption 

The Department of Labor (the 

Department) is considering granting an 

exemption under the authority of 

section 408(a) of the Act in accordance 

with procedures set forth in 29 CFR Part 

2570, Subpart B (55 FR 32836, 32847, 

August 10, 1990). If the proposed 

exemption is granted, the restrictions of 

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

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

not apply to the purchase by the Fund 

from the NERCC, LLC (the Building 

Corporation), a party in interest with 

respect to the Fund, of a condominium 

unit (the Condo) in a building (the 

Building) owned by the New England 

Regional Council of Carpenters (the 

Union), also a party in interest with 

respect to the Fund, where the Union 

will own the only other condominium 

unit in the Building; provided that, at 

the time the transaction is entered into, 

the following conditions are satisfied: 

(1) An independent, qualified 

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

the Fund, is responsible for analyzing 

the relevant terms of the transaction and 

deciding whether the Board of Trustees 

(the Trustees) should proceed with the 

transaction; 

(2) The Fund may not purchase the 

Condo, unless and until the I/F 

approves such purchase; 

(3) Acting as the independent 

fiduciary on behalf of the Fund, the I/ 

F is responsible for: (a) Establishing the 

purchase price of the Condo, (b) 

reviewing the financing terms, (c) 

determining that such financing terms 

are the product of arm’s length 

negotiations, and (d) ensuring that the 

Fund will not close on the Condo until 

the I/F has determined that proceeding 

with the proposed transaction is 

feasible, in the interest of, and 

protective of the participants and 

beneficiaries of the Fund; 

(4) The purchase price paid by the 

Fund for the Condo, as documented in 

writing and approved by the I/F, acting 

on behalf of the Fund, is the lesser of: 

(a) The fair market value of the 

Condo, as of the date of the closing on 

the transaction, as determined by an 

independent, qualified appraiser 

selected by the I/F; or 

(b) 58.3 percent (58.3%) of the 

amount actually expended by the 

Building Corporation in the 

construction of the Condo under the 

guaranteed maximum price contract (the 

GMP), plus the following amounts: 

(i) 58.3 percent (58.3%) of the 

additional construction soft costs 

incurred outside the GMP contract (i.e., 

the amount expended on furniture, 

fixtures, and equipment, and the 

amount expended for materials for 

minor work); 

(ii) 54.4 percent (54.4%) of the 

amount expended on construction soft 

costs (i.e. architect, legal, zoning, 

permits, and other fees); and 

(iii) 54.4 percent (54.4%) of the cost 

of the land underlying the Building; 

(5) Acting as the independent 

fiduciary on behalf of the Fund, the I/ 

F is responsible, prior to entering into 

the proposed transaction, for: (a) 

Reviewing an appraisal of the fully 

completed Condo, which has been 

prepared by an independent, qualified 

appraiser, and updated, as of the date of 

the closing on the transaction, (b) 

evaluating the sufficiency of the 

methodology of such appraisal, and (c) 

determining the reasonableness of the 

conclusions reached in such appraisal; 

(6) The terms of the transaction are no 

less favorable to the Fund than terms 

negotiated under similar circumstances 

at arm’s length with unrelated third 

parties; 

(7) The Fund does not purchase the 

Condo or take possession of the Condo 

until such Condo is completed; 

(8) The Fund has not been, is not, and 

will not be a party to the construction 

financing loan or the permanent 

financing loan obtained by the Building 

Corporation and/or by the Union; 

(9) The Fund does not pay any 

commissions, sales fees, or other similar 

payments to any party as a result of the 

transaction, and the costs incurred in 

connection with the purchase of the 

Condo by the Fund at closing do not 

include, directly or indirectly, any 

developer’s profit, any premium receive 

by the developer, nor any interest 

charges incurred on the construction 

financing loan or the permanent 

financing loan obtained by the Building 

Corporation and/or by the Union; 

(10) Under the terms of the current 

collective bargaining agreement(s) and 

any future collective bargaining 

agreement(s), the Union has the ability, 

unilaterally, to increase the contribution 

rate to the Fund at any time by diverting 

money from wages and contributions to 

other benefit funds within the total 

wage and benefit package, and the 

Union is obligated to do so in order to 

prevent a default by the Fund under the 

terms of the financing obtained by the 

Fund to purchase the Condo; 

(11) In the event the Building 

Corporation and/or the Union defaults 

on the construction financing loan or 

the permanent financing loan obtained 

by the Building Corporation and/or the 

Union, the creditors under the terms of 

such construction financing loan or 

such permanent financing loan shall 

have no recourse against the Condo or 

any of the assets of the Fund; 

(12) Acting as the independent 

fiduciary with respect to the Fund, the 

I/F is responsible for reviewing and 

approving the allocation between 

funding the purchase of the Condo from 

the Fund’s existing assets or financing; 

and 

(13) Acting as the independent 

fiduciary with respect to the Fund, the 

I/F is responsible for determining 

whether the proposed transaction 

satisfies the criteria, as set forth in 

section 404 and section 408(a) of the 

Act. 

Summary of Facts and Representations 

1. The Union is a labor organization 

made up of thirty (30) local carpenter 

unions in six (6) New England states. 

The local unions that are affiliated with 

the Union include local union nos. 33, 

40, 67, 218, and 723 (the Locals). 

Members of the Union are covered by 

the Fund. The Union is a party in 

interest with respect to the Fund, 

pursuant to section 3(14)(D) of the Act, 

as an employee organization any of 

whose members are covered by such 

Fund. 

2. The Fund is an employee welfare 

benefit plan, as that term is defined in 

the Act. Further, the Fund is a 

multiemployer apprenticeship and 

training fund. The Fund is a 

Massachusetts nonprofit organization, 

and is exempt from income taxes under 

the provisions of Section 501(c)(3) of the 

Internal Revenue Code. 

3. In the fiscal year ending September 

30, 2008, the Fund received employer 

contributions of $2,584,069, based on 

approximately 6.7 million hours of 

work. In addition, the Fund received 

other income of approximately 

$189,000. As of September 30, 2008, the 

Fund had expenses of $2,254,078 and 

total assets of $5,910,043. Included in 

the Fund’s total assets is a parcel of 

improved real property (the Existing 

Facility) located at 385 Market Street in 

the Brighton section of Boston, 

Massachusetts. 

4. The Trustees of the Fund have 

authority to invest the assets of the 

Fund. The Trustees consist of six (6) 


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20The Department, herein, is not opining, as to 

whether the Union in diverting money from wages 

to benefit funds or in transferring future 

contributions from one benefit fund to another 

benefit fund is acting as a settlor and not as a 

fiduciary. 

labor representatives and six (6) 

management representatives. Among the 

labor representatives serving as Trustees 

are Joseph Power, John Estano, Steve 

Tewksbury, Charles MacFarlane, 

Richard Pedi, and Neal O’Brien. Mr. 

Power, one of the labor Trustees, also 

serves on the Executive Board of the 

Union. It is represented that Mr. Power 

will recuse himself from all votes and 

matters before the Trustees relating to 

the purchase by the Fund of the Condo 

from the Building Corporation. 

The representatives of management 

serving as Trustees are Donald 

MacKinnon, Steven Affanato, George 

Allen, William Fitzgerald, Christopher 

Pennie, and Mark DeNapoli. Mr. 

DeNapoli, one of the management 

Trustees, also is the Executive Vice 

President and General Manager of 

Suffolk Construction (Suffolk) which is 

responsible for the construction of the 

Condo that is the subject of this 

proposed exemption. It is represented 

that Mr. DeNapoli will recuse himself 

from all votes and matters before the 

Trustees relating to the construction of 

the Condo. 

5. The Fund provides training and 

education to carpenter apprentices in 

the greater Boston area. From 1993 to 

2009 there was an increase in the 

number of apprentices from 267 to 539. 

The Fund also provides training and 

education to journeymen carpenters in 

the greater Boston area. During 2008, the 

Fund provided journeyman upgrade 

training to approximately 2,671 

journeymen carpenters. From 1995– 

2008 there was an increase in the 

number of journeymen carpenters taking 

classes from the Fund from 292 to 2,671. 

In 2008, the Fund offered 265 courses 

in numerous aspects of the carpentry 

trade. These courses represented an 

increase from the 100 courses offered by 

the Fund in 2004. 

6. The Fund provides all of its classes 

and training in the Existing Facility. 

Purchased in 1975, from an unrelated 

third party, the Fund owns the Existing 

Facility free and clear of any mortgages. 

In the opinion of Gary R. Schwandt, a 

principal of Great Point Investors, LLC 

the value of the Existing Facility after 

brokerage fees and closing costs is 

$1,750,000. 

The Existing Facility is an 

approximately 14,600 square foot 

building situated on a 33,500 square 

foot parcel of land. Due to space 

limitations at the Existing Facility, it is 

represented that the Fund has been 

unable to offer certain courses. 

The Existing Facility has forty-eight 

(48) regular parking spaces and two (2) 

spaces for disabled persons. It is 

represented that these parking spaces 

service approximately 100 to 150 

apprentices and journeymen attending 

classes nightly at the Existing Facility. 

In addition, it is represented that there 

is not adequate public transportation for 

servicing the Existing Facility. 

7. The Fund is maintained under 

collective bargaining agreements 

negotiated between the Union of the 

United Brotherhood of Carpenters and 

Joiners of America and the following 

multiemployer bargaining organizations: 

(a) The Labor Relations Division of the 

Associated General Contractors of 

Massachusetts, Inc.; (b) The Building 

Trades Employers’ Association of 

Boston and Eastern Massachusetts, Inc.; 

and (c) The Labor Relations Division of 

the Construction Industry of 

Massachusetts (collectively, the 

Employer Associations). 

It is represented that when the Union 

negotiates a multi-year collective 

bargaining agreement, it negotiates a 

single increase in the wage and benefit 

package for each year of the contract. 

Then, on an annual basis, the Union 

allocates that increase between wages 

and various benefit funds. 

It is represented that the wage and 

benefit package for local union nos. 33, 

40, 67, 218, the commercial 

construction local unions affiliated with 

the Fund, has historically accounted for 

approximately 93 percent (93%) of the 

Fund’s revenue. It is represented that 

the collective bargaining agreement for 

these commercial construction local 

unions was renegotiated for a period of 

three (3) years, effective September 1, 

2009, through August 31, 2012. The 

contribution rate to the Fund for work 

performed under this collective 

bargaining agreement is $.50 per hour. 

The current total wage and benefit 

package is $60.23, and as of March 1, 

2012, the total package will be $65.10. 

It is represented that the wage and 

benefit package for local union no. 723, 

the wood frame residential union 

affiliated with the Fund, has historically 

accounted for approximately 7 percent 

(7%) of the Fund’s revenue. The 

collective bargaining agreement for local 

union no. 723 expires on March 31, 

2010. Under the terms of the collective 

bargaining agreement for local union no. 

723, as of March 1, 2009, each employer 

signatory is required to contribute to the 

Fund $.25 per hour for each hour of 

work performed by its carpenter 

employees. The current wage and 

benefit package for local union no. 723 

is $39.68 per hour. 

In the fiscal year ending September 

30, 2008, there were 6,719,058 hours of 

work for which contributions in the 

amount of $2,584,069 were made to the 

Fund. It is represented that, at the per 

hour rates, effective as of March 1, 2009, 

under the collective bargaining 

agreements, the same number of hours 

of work, would yield $2,939,516 in 

annual contributions to the Fund. 

It is represented that under the terms 

of the collective bargaining agreements, 

the Union has the right, at its discretion, 

to divert money from wages to benefit 

funds or to transfer future contributions 

from one benefit fund to another benefit 

fund, provided that the Union gives 

sixty (60) days written notice to the 

employers. It is further represented that, 

where the employers and the Union 

negotiate fixed contribution rates to the 

various employee benefit funds, such 

collective bargaining agreements at the 

same time provide that the Union with 

advanced notice can divert future 

contributions from one fund to another. 

In doing so, the Union maintains that it 

is acting as a settlor and not as a 

fiduciary. Further, the applicant 

maintains that a collective bargaining 

agreement contribution rate for future 

hours does not constitute a plan asset 

under the Act.20

8. The Union currently rents office 

space at 803 Summer Street, Boston, 

Massachusetts, from an unrelated third 

party. It is represented that the Union 

for the past several years has been 

seeking either to buy a building or to 

buy unimproved land and construct a 

building to house the Union offices. 

To this end, on February 1, 2008, the 

Union purchased for cash in the amount 

of $5.8 million, a parcel of improved 

real property (the Original Property). 

The Union established the Building 

Corporation as a limited liability 

company for the purpose of developing 

the Original Property. In this regard, the 

Union contributed the Original Property 

to the Building Corporation in exchange 

for sole interest in the Building 

Corporation. The Building Corporation 

is a party in interest with respect to the 

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

the Act, as 50 percent (50%) or more of 

the interests in the Building Corporation 

are owned by the Union. 

9. It is represented that the Union 

purchased the Original Property from 

the Tyott Co. Neither the Tyott Co., nor 

its owners, nor its principals are parties 

in interest with respect to the Fund. 

The Original Property is described as 

a 48,000 square foot two-story building 

on a 64,000 square foot lot located at 

750 Dorchester Avenue, in Boston, 

Massachusetts. It is represented that the 


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21 It is represented that the Fund will attempt to 

obtain from NMTC partial financing on its own in 

2010 at the time it purchases the Condo, but is 

proceeding with the proposed transaction on the 

assumption that NMTC financing will not be 

available for its unit. It is represented that the Fund 

will only utilize the NMTC financing, if obtained, 

if such financing results in more favorable financing 

terms for the purchase of the Condo. It is further 

represented that any NMTC financing obtained by 

the Fund will not involve any transaction with the 

Union. For a discussion of additional methods of 

financing the purchase of the Condo that are being 

considered by the Fund, see the discussion in 

paragraph 19, below. 

22 It is represented that as a condition to the 

purchase, the Fund will share in the constructions 

savings with the Union at a rate equal to the Fund’s 

proportional share of the square footage of the 

Building and this share of the savings will be 

reflected in the cost allocation method, as 

discussed, below, in paragraph 32, in determining 

the purchase price of the Condo. 

23The Department is offering no view, herein, as 

to whether the leasing of office space to any 

employee benefit fund to which the Union is a 

party in interest is covered by the statutory 

exemption provided in sections 408(b)(2) of the Act 

and the Department’s regulations, pursuant to 29 

CFR 2550.408b–2. Further, the Department is not 

providing, herein, any relief with respect to the 

leasing of office space to any such employee benefit 

fund by the Union. 

location of the Original Property is 

within 1⁄8 of a mile of the exit and 

entrance ramps to a major interstate 

highway and within 1⁄4 of a mile from 

two (2) different train stations that offer 

access to public transportation. 

10. The Union is currently in the 

process of renovating and expanding the 

Original Property into two (2) 

condominium units. One of the 

condominium units is intended for the 

Union, and the other condominium unit 

is intended for the Fund. In order to 

finance the renovation and expansion of 

the Original Property, the Executive 

Board of the Union decided, on January 

30, 2009, to obtain a construction loan 

in the amount of $10 million to finance 

the renovation and expansion of the 

Original Property and to pay the 

remaining construction costs from 

existing assets. It is the Union’s 

intention for the loan to cover the last 

$10 million dollars of payment at the 

end of the construction project. 

Because the Original Property is 

located in a low-income neighborhood, 

the renovation and expansion of the 

Original Property is potentially eligible 

for New Market Tax Credit (NMTC) 

financing. The Union is currently 

pursuing NMTC financing from two (2) 

Community Development Entities 

(CDEs) only for the Union’s 

condominium unit. These CDEs are, 

respectively, the Massachusetts Housing 

Investment Corporation and the Bank of 

America. The NMTC financing will be 

in the form of long-term, non-recourse 

loans that must remain in place for at 

least seven (7) years during which time 

the loans will be non-amortizing. It is 

represented that the Fund’s Condo will 

not serve as collateral for these loans, 

nor will any of the other assets of the 

Fund serve as collateral for these loans. 

These loans will bear a very low annual 

interest charge, estimated at one percent 

(1%) or below, to cover annual 

accounting expenses. After seven (7) 

years and a day, these loans will be 

repurchased by the Union at their fair 

market value.21

11. The plans for renovation and 

expansion of the Original Property call 

for taking the walls and columns of the 

existing building on the Original 

Property down to the second floor slab, 

rebuilding the second floor, and then 

adding a new third floor. It is 

represented that the full design and 

construction documents and the city 

approvals were completed at the end of 

2008. It is expected that renovation and 

expansion of the Original Property will 

take approximately one (1) year. 

Construction on the renovation and 

expansion of the Original Property 

began in January 2009. It is anticipated 

that the renovated and expanded 

Building will be ready for occupancy by 

early 2010. 

12. Upon completion of the renovated 

and expanded Building, it is 

represented that there will be 

approximately 71,539 square feet of 

training and office space, and 6,826 

square feet of common space. The first 

floor of the Building intended for the 

Fund will have approximately 21,406 

square feet of training space with fifteen 

(15) foot ceilings which are necessary 

for erecting and working off scaffolding, 

a major component of apprentice 

training. The first floor of the Building 

will also have 2,354 square feet of 

common space for the entrance and 

lobby. The second floor will have 

approximately 13,820 square feet of 

office and classroom space intended for 

the Fund, 4,233 square feet of office 

space intended for the Union, and 4,472 

square feet of common space. The third 

floor will have approximately 25,254 

square feet of office space intended for 

the Union. The Building will have a 

parking deck with 40 spaces built above 

a ground level parking area with 53 

spaces, for a total of approximately 93 

parking spaces on the site that will serve 

as the parking area for both the Union 

and the Fund. 

13. The Union retained ADD Inc. to 

serve as the architect for the renovation 

and expansion of the Building. It is 

represented that ADD Inc. selected 

Suffolk to serve as the construction 

manager for the project. It is represented 

that Suffolk is a Union signatory 

contractor. As such, Suffolk is a party in 

interest with respect to the Fund, 

pursuant to section 3(14)(C), an 

employer any of whose employees are 

covered by the Fund. 

Suffolk and the Union negotiated the 

GMP contract, including change orders 

through May 11, 2009, in the amount of 

$19.1 million for the renovation and 

expansion of the Building. Any savings 

on that price will be shared 75 percent 

(75%) to the Union and 25 percent 

(25%) to Suffolk.22

In addition to the $19.1 million 

construction costs under the GMP 

contract, the Union anticipates that 

there will be $600,000 in materials and 

construction costs not included within 

the scope of the GMP contract. This 

$600,000 represents $400,000 in what is 

known as furniture, fixtures, and 

equipment which is frequently 

contracted out directly by owners, and 

$200,000 for materials for minor work. 

Further, the Union has incurred ‘‘soft 

costs’’ of $1 million, including 

architect’s fees, due diligence expenses, 

legal fees related to the purchase of the 

Original Property, and fees related to 

zoning and permits. It is estimated that 

the total cost of acquisition, 

development, and construction of the 

renovated and expanded Building, 

including the parking garage, will be 

approximately $27 million. 

14. As mentioned above, the Union 

will retain one of the condominium 

units in the renovated and expanded 

Building for its own use. Specifically, 

the Union’s condominium will consist 

of approximately 32,597 square feet of 

floor space, including a portion of the 

common space in the Building, and will 

constitute approximately 45.6 percent 

(45.6%) of the total square footage 

(71,539 square feet) in the Building. 

The Union intends to lease out at 

market rate any space in its 

condominium unit that it does not 

utilize. It is represented that if the 

Union leases office space to an 

employee benefit fund to which it is a 

party in interest, the Union will do so 

pursuant to section 408(b)(2) of the 

Act.23 The Union will also own and 

intends to lease the retail portions on 

the second floor of the Building. It is 

represented that the intended retail 

lessees include an eye care center, a 

banking area, and an ATM. 

15. It is represented that in numerous 

meetings over the past several years, the 

Trustees of the Fund have discussed 

and acknowledged the need for 

additional parking, better access to 

public transportation, and additional 

space for offices, classrooms, and 

training. In this regard, the Trustees 


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reviewed utilization reports proved by 

the Fund Administrator, Benjamin 

Tilton. 

In 2003, the Trustees retained Sam 

Park & Co., a Boston real estate firm, to 

research the availability of buildings to 

purchase or to lease that would meet the 

present and future needs of the Fund. 

After review, the Trustees found that 

none of the options resulting from the 

2003 search met the needs of the Fund. 

At that time, the Trustees suspended the 

search for a new training space. 

16. Because the Union was aware of 

the Fund’s need for additional training 

and classroom space, parking, and 

access to public transportation, the 

Union approached the Trustees with a 

proposal that the Union develop a 

portion of the Original Property to the 

specifications of the Fund for the 

purpose of providing apprenticeship 

training (i.e., ‘‘build to suit’’) and then 

sell it to the Fund as a condominium 

unit. 

17. On July 11, 2008, Gary Schwandt 

of Great Point Investors, LLC provided 

the Trustees of the Fund with an update 

to the 2003 search for a training facility 

that would meet the Fund’s 

requirements. After reviewing the 

results of the 2003 and 2008 real estate 

search, the Trustees determined that the 

Original Property was the best available 

site. In a meeting on May 20, 2008, the 

Trustees voted to proceed with the 

purchase of the Condo from the 

Building Corporation where the Fund’s 

space would be ‘‘built to suit,’’ provided 

that: (i) The transaction is reviewed and 

approved by an I/F; (ii) the Fund 

receives a prohibited transaction 

exemption from the Department, and 

(iii) there is not a better building option 

available that meets the Fund’s space, 

parking, access, and financial 

requirements. Accordingly, the 

Trustees, acting on behalf of the Fund, 

have requested an administrative 

exemption from the restrictions of 

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

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

which would permit the Fund to 

purchase the Condo for cash from the 

Building Corporation. 

18. In order to purchase the Condo, 

the Trustees of the Fund intend to sell 

the Existing Facility and expect to 

realize net proceeds of approximately 

$1.75 million. In the event that the sale 

of the Existing Facility is not completed 

by the closing date on the Fund’s 

purchase of the Condo, the Trustees 

intend to obtain a bridge loan. The 

Trustees intend to contribute an amount 

yet to be determined from the Fund’s 

existing assets toward the purchase of 

the Condo, and then to finance the 

remaining costs. Acting as the 

independent fiduciary with respect to 

the Fund, the I/F is responsible for 

reviewing and approving the allocation 

between funding the purchase of the 

Condo from the Fund’s existing assets or 

financing such purchase. It is 

represented that in addition to the 

purchase price, in order to complete the 

proposed transaction the Fund will 

incur certain ‘‘soft costs,’’ in the amount 

of $650,000, including the cost of 

engaging the I/F, legal costs related to 

the prohibited transaction exemption 

process, real estate legal costs, and 

underwriters fees. Once the Fund 

purchases the Condo, the Fund will also 

be responsible for paying for electrical, 

gas, telephone, and water service to the 

Condo, and for sharing the cost of the 

common areas in the Building with the 

Union. 

The Condo will be established in 

accordance with Massachusetts law 

M.G.L. chapter 183A. The Fund’s 

interest in the Condo will be recorded 

as a deed for real property with the 

Suffolk County Registry of Deeds. 

Further, the Massachusetts 

Condominium Act, Massachusetts 

General Law Chapter 183A, provides 

that the default method for allocating 

common expenses is that such expenses 

be ‘‘assessed against all units in 

accordance with their respective 

percentages of undivided interest in the 

common areas and facilities.’’ 

Specifically, Section 5(a) of the Chapter 

183A provides: 

Each owner shall be entitled to an 

undivided interest in the common areas and 

facilities in the percentage set forth in the 

master deed. Such percentage shall be in the 

approximate relation that the fair value of the 

of the unit on the date of the master deed 

bears to the aggregate fair value of all the 

units. 

The I/F’s projection of the split of 

common expenses is approximately 

58% for the Fund and 42% for the 

Union, which percentages are based on 

the May 19, 2009 fair market value 

appraisal of the Building, as if 

completed, prepared by CB Richard 

Ellis/New England, and is consistent 

with the methodology set forth in 

Section 5(a) of the Chapter 183A of the 

Massachusetts Condominium Act, 

Massachusetts General Law. 

19. As discussed above, in footnote 1, 

the Trustees, on behalf of the Fund, are 

considering various means of financing 

the purchase price of the Condo and 

associated costs. It is represented that 

financing the purchase of commercial 

property is the normal method of 

acquiring such an asset. It is represented 

that financing the purchase of the 

Condo is in the interest of the Fund, 

because the Fund does not have 

sufficient equity to acquire the Condo 

on an all equity basis, even if it were 

advantageous to do so. 

In this regard, the Fund is considering 

a commercial real estate loan which 

may take the form of a private bank loan 

or private taxable bond financing. Such 

a commercial loan would be secured by 

a first mortgage on the Condo and by a 

general pledge of assets. It is 

represented that in the current real 

estate market, non-recourse loans to 

commercial entities are not available. 

Interest rates required on commercial 

loans are based on interest rates for 

highly-rated long term government 

bonds, and are priced at a spread above 

the current market level of government 

interest rates. The spread varies with 

credit quality. 

In the alternative to a commercial 

loan, the Trustees represent that certain 

lenders and underwriters are willing to 

lend or to finance projects through the 

Massachusetts Health and Education 

Facilities Agency (HEFA), or similar 

agency, such as the Massachusetts 

Development/Boston Industrial 

Development Finance Agency (Mass 

Development/BIFA). In this regard, 

HEFA and Mass Development/BIFA 

offer availability to capital markets for 

apprenticeship and training funds. The 

interest rate on an HEFA or Mass 

Development/BIFA loan or public debt 

is not subject to Federal or State income 

tax. Therefore, the interest rate on such 

tax-exempt bond financing would be 

lower than market interest rates on 

similar commercial debt. Like a 

commercial loan, the tax-exempt bond 

financing through these agencies would 

entail recourse debt to the Fund. In this 

regard, the debt would be secured by a 

first mortgage lien on the Condo, as well 

as a pledge of revenues of the Fund, as 

the borrower. Holders of tax-exempt 

bonds generated by these agencies have 

no recourse or guaranty from HEFA or 

Mass Development/BIFA as to the 

payment of interest or principal. 

The Fund is in the process of working 

with HEFA and Mass Development/ 

BIFA and anticipates formally applying 

for tax-exempt bond financing from one 

of those agencies. The tax-exempt bond 

financing will be either through a fixed 

rate private placement with a local bank 

or through variable-rate debt. The I/F 

has based its projections assuming a 

5.50 percent (5.50%) fixed tax-exempt 

rate. It is further represented that, if the 

Fund is able to procure a variable rate 

financing secured with a letter of credit, 

as described in the next paragraph, 

below, the interest rate on the debt, 

would be lower than the 5.50 percent 

(5.50%) projections. The amount of the 


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24 It is represented that ownership interests in 

FTUB are as follows: New England Carpenters 

Pension Fund—36.5%, New England Carpenters 

Guaranteed Annuity Fund—18.2%, Empire State 

Carpenters Pension Fund—45%, and Bank Senior 

Management (through rabbi trust)-.3%. 

25The Department, herein, is not providing any 

relief for the lending of money or other extension 

of credit between the Fund and FTUB, any other 

bank, financial institution, or entity. 

26The Department, herein, is not providing any 

relief in connection with the letter of support. 

27The Department is offering no view, herein, as 

to whether any sharing or leasing arrangement 

between the Fund and any training fund affiliated 

with the Union is covered by the Department’s 

regulations, pursuant to 29 CFR 2550.408b–2; nor, 

is the Department offering a view that any sharing 

or leasing arrangement between the Fund and any 

training fund affiliated with the Union would be 

exempt under the provisions of the class 

exemptions, PTE 76–1, PTE 77–10, or PTE 78–6. 

Further, the Department is not providing, herein, 

any relief with respect to any sharing or leasing 

arrangement between the Fund and any training 

fund affiliated with the Union. 

proposed tax-exempt bond financing is 

not yet determined. 

In May 2009, the Fund obtained an 

offer of an irrevocable direct pay letter 

of credit from First Trade Union Bank 

(FTUB) 24 in support of the tax-exempt 

bond financing 25 for the purchase of the 

Condo by the Fund. The amount of the 

letter of credit would not exceed the 

lesser of: (i) 80 percent (80%) of the 

appraised value of the underlying real 

estate collateral, or (ii) 80 percent (80%) 

of the purchase price, and in no event 

would exceed the legal lending limit ($8 

million) of FTUB. The letter of credit 

would be secured with a valid first 

mortgage and security interest on the 

Condo and would include an 

assignment of all leases, rents, plans, 

specifications, contracts, licenses, 

permits, warranties, and approvals 

pertaining to the Condo. The letter of 

credit would also be secured by a first 

position lien on all business assets of 

the Fund and a negative pledge of the 

Fund’s deposit and investment accounts 

held at FTUB with a minimum liquidity 

provision, to be determined. The term of 

the letter of credit would be seven (7) 

years. The Union would be required to 

provide a letter of support 26 to assure 

adequate cash flow to the Fund to meet 

debt service requirements. The offer by 

FTUB has expired, but it is represented 

that similar terms are still available to 

the Fund. 

The Fund is interviewing prospective 

lenders and underwriters, and will 

obtain a firm commitment letter for the 

initial purchase of the tax-exempt bonds 

at the time of the closing on the 

proposed transaction. The Union 

anticipates that as a precondition for the 

Fund to obtain tax-exempt bond 

financing, the Union will be required to 

make a commitment to HEFA or to Mass 

Development/BIFA during the term of 

existing and future collective bargaining 

agreements to increase the hourly 

contribution to the Fund whenever 

necessary to ensure that the Fund has 

sufficient income and reserves to meet 

its debt obligation. It is represented that 

the Union is willing to make this 

commitment. 

20. CB Richard Ellis/New England, 

Consulting and Valuation Group, a 

division of CB Richard Ellis/New 

England is the appraiser chosen by Mark 

Haroutunian, VP & Credit Officer of 

FTUB, for the purposes of mortgage 

financing. James T. Moore (Mr. Moore), 

First Vice President/Partner of CB 

Richard Ellis/New England, and Harris 

E. Collins (Mr. Collins), Senior Vice 

President/Partner of CB Richard Ellis/ 

New England prepared an appraisal of 

the fair market value of Building, as if 

completed. 

Mr. Moore is qualified in that he is an 

associate member of the Appraisal 

Institute, a member of the Real Estate 

Finance Association, Greater Boston 

Real Estate Board, and a Massachusetts 

Certified General Appraiser. Mr. Collins 

is qualified in that he is a member of the 

Appraisal Institute, a member of the 

Counselors of Real Estate, and a member 

of the Real Estate Finance AssociationGreater Boston Real Estate Board, and is 

a Massachusetts Certified General 

Appraiser. 

Both Mr. Moore and Mr. Collins are 

independent in that neither has a 

present or prospective interest in or bias 

with respect to the property that is the 

subject of the appraisal and neither have 

a business or personal interest in or bias 

with respect to the parties involved. It 

is further represented that the 

engagement of Mr. Moore and Mr. 

Collins and the compensation for 

completing the appraisal assignment 

was not contingent upon the 

development or reporting of 

predetermined results. 

The fair market value conclusions and 

projections reached by Mr. Moore and 

Mr. Collins are as follows: 

Appraisal premise Interest appraised Date of value Value 

conclusion 

As Is (Land & Shell Value) ...................... Fee Simple Estate ................................... May 11, 2009 .......................................... $5,710,000 

As Complete-Total Property .................... Fee Simple Estate ................................... January 1, 2010 ...................................... 23,000,000 

As complete—The Fund’s Unit ............... Fee Simple Estate ................................... January 1, 2010 ...................................... 13,360,000 

As complete—The Union’s Unit .............. Fee Simple Estate ................................... January 1, 2010 ...................................... 9,640,000 

21. It is represented that in 

purchasing the Condo, the Fund will 

acquire a real property interest in the 

Condo, the land underlying the 

Building, and any common areas in the 

Building. Specifically, the Fund’s 

Condo will consist of approximately 

38,942 square feet of space, including a 

portion of the common space in the 

Building, and will constitute 

approximately 54.4 percent (54.4%) of 

the total square footage (71,539 square 

feet) in the Building. 

It is represented that the Fund may 

share and/or rent at fair market value 

some of the storage and training space 

(approximately 3,800 square feet) on the 

first floor and office space 

(approximately 600 square feet) on the 

second floor to other apprenticeship and 

training funds affiliated with the Union. 

It is further represented that the leasing 

of this space in the Condo will provide 

the Fund with supplemental income in 

the short-term, and that this space will 

provide the Fund with room for 

expansion in the long-term. 

The intended lessee is the Pile Drivers 

Local No. 56 Apprenticeship and 

Training Fund (the Pile Drivers Fund). 

It is represented that although the Pile 

Drivers Fund is affiliated with the 

Union, the Pile Drivers Fund and the 

Fund do not share any trustees in 

common. Accordingly, the applicant has 

represented that the Pile Drivers Fund is 

not a party in interest with respect to 

the Fund. To the extent that any leasing 

arrangement between the Fund and the 

Pile Drivers Fund and any leasing 

arrangement between the Fund any 

other training fund affiliated with the 

Union violates section 406 of the Act, 

the applicant represents that such 

transaction will either be exempt under 

section 408(b)(2) of the Act and/or will 

be exempt pursuant to class exemptions, 

PTE 76–1, PTE 77–10, or PTE 78–6.27

22. It is represented that the proposed 

transaction is feasible in that the 

purchase of the Condo by the Fund is 


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a one-time transaction for cash. The 

Fund will not pay any commissions, 

sales fees, or other similar payments to 

any party as a result of the transaction. 

23. The applicant maintains that the 

proposed transaction is in the interest of 

the participants and beneficiaries of the 

Fund, because the Fund would obtain a 

modern state of the art training and 

education facility that is ‘‘built to suit’’ 

the Fund’s specifications, that is 

accessible both by automobile and 

public transportation, and that would 

alleviate the over-crowding that exists at 

the Existing Facility. 

The Union and the Fund also believe 

that the proposed transaction would be 

beneficial, because it would provide 

‘‘one-stop shopping’’ for the Fund’s 

apprentices and journeymen and the 

employers of those apprentices to have 

the Fund’s training facility and Union 

offices at the same location. Such an 

arrangement would allow the 

apprentices and the journeymen to 

conduct Union business before or after 

attending classes or training. This 

arrangement would also allow 

contributing employers of the Fund to 

conduct business with the Union and 

address any apprentice issues with the 

Fund. Further, the arrangement would 

permit the Union and the Fund to 

showcase the training programs and 

facilities to contractors and developers. 

As the Building directly abuts a major 

interstate highway, this location would 

also provide both the Union and the 

Fund with the use of electronic signage 

on the roof for low-cost promotional 

opportunities for their respective 

programs. 

24. The proposed exemption contains 

conditions which are designed to ensure 

the presence of adequate safeguards to 

protect the interests of the Fund 

regarding the subject transaction. In this 

regard, on July 16, 2008, the Trustees 

interviewed the candidates for the 

position of I/F with respect to the 

purchase by the Fund of the Condo. The 

Trustees selected and entered into an 

agreement (the Agreement), dated 

October 30, 2008, with Independent 

Fiduciary Services, Inc. (IFS) to serve as 

the I/F to act on behalf of the Fund with 

regard to the subject transaction. IFS has 

represented that acting as the 

independent fiduciary with respect to 

the Fund, it is responsible for 

determining whether the proposed 

transaction satisfies the criteria, as set 

forth in section 404 and section 408(a) 

of the Act. 

25. The Trustees retained IFS to 

provide a report to the Department 

which would state IFS’ conclusions and 

would summarize the analysis and 

considerations used by IFS to determine 

whether it is prudent to go forward with 

the proposed transaction. 

26. It is represented that IFS is 

qualified to serve as I/F in that it 

specializes in acting as an independent 

fiduciary to plans covered by the Act. It 

is represented that IFS is experienced as 

a fiduciary in making and evaluating 

investment decisions, including 

decisions involving the acquisition and 

management and disposition of real 

estate. IFS is registered as an investment 

adviser under the Investment Advisers 

Act of 1940. IFS has acted in a variety 

of roles, including independent 

fiduciary, named fiduciary, investment 

manager, and adviser or special 

consultant. In this regard, IFS serves as 

an ongoing investment consultant to 

plans with assets valued at 

approximately $17.9 billion. The staff of 

IFS includes professionals experienced 

with the management and disposition of 

portfolio assets, including real estate, as 

well as lawyers familiar with the Act 

and sensitive to fiduciary 

responsibilities involving investment 

activities. IFS acknowledges that with 

respect to its duties as I/F acting on 

behalf of the Fund with regard to the 

proposed transaction that it is a 

fiduciary, as defined in section 3(21)(A) 

of the Act. 

27. It is represented that IFS is 

independent of the parties involved in 

the proposed transaction in that it has 

no relationship with either the Fund or 

the Union, except for its role as the 

I/F with respect to the proposed 

transaction. It is represented that IFS’ 

fee for its services as I/F of the Fund 

will be less than 1 percent (1%) of its 

annual revenues. 

28. Pursuant to the Agreement with 

the Trustees, IFS has agreed: 

(a) To evaluate the proposed 

transaction to determine whether it is in 

the interest of the Fund’s participants 

and beneficiaries and, if IFS determines 

that the transaction is in the interest of 

the Fund, to submit a report to the 

Department in support of an application 

for a prohibited transaction exemption; 

and 

(b) To negotiate and agree on behalf 

of the Fund to the specific terms of the 

transaction, to decide whether to 

consummate the proposed transaction 

and, if IFS decides to consummate the 

proposed transaction to direct the 

appropriate Fund fiduciaries to execute 

the instruments necessary for such 

transaction. 

Further, IFS has represented that 

acting as I/F on behalf of the Fund, it 

is responsible for: 

(a) A review of the reasonableness of 

the purchase price; 

(b) A review of architect and 

contractor documentation to determine 

the appropriate proportional cost of the 

purchase and construction of the Condo 

and the common areas; 

(c) A review of the Fund’s 

independently prepared financial 

statements and projections of future 

cash flow in order to evaluate the 

Fund’s ability to financially support the 

purchase of the Condo and the future 

operating costs associated with it; 

(d) A review, with legal counsel, of 

the proposed sale agreement, the 

condominium agreement, the financing 

agreements, and other documents 

supporting the sale, ownership, and 

occupancy of the Condo; 

(e) A review of the Fund’s financial 

and business analysis supporting the 

purchase of the Condo compared to 

leasing that space or buying or leasing 

other similar space; and 

(f) A review of the exemption 

application and other documentation 

provided to the Department. 

29. In carrying out its duties, IFS 

requested, received, and has reviewed 

the following documents concerning the 

Fund and the proposed transaction: (a) 

The Prohibited Transaction Exemption 

application, dated February 24, 2009, 

including all attachments; (b) the 

Department’s response, dated April 1, 

2009; (c) the draft purchase and sale 

agreement between the Building 

Corporation, as seller, and the Fund, as 

buyer, dated June 9, 2009, as negotiated 

on behalf of the Fund by IFS with the 

assistance of Kenneth Gould of Lawson 

& Weitzen, who is acting as 

independent real estate counsel for the 

Fund, including the negotiation of the 

purchase agreement by which the Fund 

will acquire the Condo and various 

related instruments governing the 

condominium; (d) the draft master deed 

and by-laws of the condominium regime 

under which the Fund’s Condo would 

be established and managed; (e) audited 

financial statements of the Fund, as at 

year end September 30, 2004–2008, 

prepared by Michael P. Ross, CPA; (f) 

forecasted income statements prepared 

by Christine Riley, Accounting Manager 

for the Fund, and Ben Tilton, Fund 

Administrator; (g) layout drawings of 

the existing and new structures; (h) the 

GMP between the Union and Suffolk, as 

set forth through change orders dated 

May 11, 2009, for the renovation and 

expansion of the Building, including 

exhibits; (i) the cost allocation report 

prepared by Casendino & Company 

(Casendino), an MAI architecture firm 

located in Boston, Massachusetts; and (j) 

the appraisal report, dated May 11, 

2009, prepared by Mr. Moore and Mr. 

Collins of CB Richard Ellis/New 


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28The Department, herein, is not proposing any 

relief with regard to the entry into a right of first 

refusal or a right of first offer between the Union 

and the Fund. 

England, Consulting and Valuation 

Group. 

In addition, IFS discussed the 

proposed transaction with: (a) Aaron D. 

Krakow, Esq., Krakow & Souris, LLC, 

outside legal counsel representing the 

Fund in connection with filing the 

application for exemption for the 

proposed transaction; (b) Richard 

Kronish, Advisor to the Fund and to the 

Union on financial matters; (c) David 

Cary, Integra Realty Resources Inc., 

(Integra) the appraiser for the appraisal 

of the Condo to be completed prior to 

closing; (d) Christine Riley, Accounting 

Manager for the Fund; and (e) Benjamin 

Tilton, the Fund’s Training Director. 

30. It is represented that IFS has 

visited both the Fund’s Existing Facility 

and the site of the Condo. In this regard, 

IFS has observed the following: (i) There 

is no public transportation station in the 

vicinity of the Existing Facility, while 

the site of the Condo is approximately 

1⁄4 mile from two (2) public 

transportation stations; (ii) the Existing 

Facility has no immediate access to a 

major highway, while the Condo is 

adjacent to an interstate highway; (iii) 

the Condo will give the Fund’s 

journeymen and apprentices access to 

almost double the number of parking 

spaces available in the Existing Facility; 

(iv) the Condo is three (3) times as large 

as the Existing Facility and appears to 

IFS to be proportionate and reasonable 

in light of the growth in the number of 

apprentices and journeymen taking 

classes and the increase in the number 

of courses offered by the Fund; and (v) 

the design drawings for the Condo 

shows that the unit will provide 

substantially more shop and classroom 

space than is available in the Existing 

Facility. Based on the foregoing 

observation, IFS concurs with the 

judgment of the Fund’s Trustees that the 

Condo which the Fund will acquire, if 

the proposed transaction is 

consummated, will be adequate for the 

Fund’s needs and represents a 

significant improvement over the 

current facility as a site for conducting 

the Fund’s training and apprenticeship 

programs. 

31. According to IFS, the Fund has 

considered the following options: (1) 

Renovate and expand the Existing 

Facility; (2) purchase and renovate 

another building; (3) build a new 

facility; (4) lease space in the Building 

from the Union or lease space from an 

unrelated third party; (5) purchase a 

‘‘built to suit’’ property. 

The first option, renovating and 

expanding the Existing Facility, 

according to IFS, is not tenable as the 

underlying lot is too small for 

expansion, there is no room for more 

parking spaces, and the facility is not 

convenient to public transportation. 

With regard to the second option, it is 

represented that the Fund has not been 

able to find a suitable property to 

purchase and renovate. With regard to 

the third option, no sites were available 

to build a new facility that would meet 

the Fund’s requirements. 

With regard to a comparison between: 

(i) Leasing space from a third party or 

from the Union; and (ii) purchasing a 

‘‘built to suit’’ property, IFS has 

determined that ownership of the Condo 

is less expensive and more secure to the 

Fund than leasing. First, the Fund’s 

exemption from property taxes renders 

purchasing a property superior to 

leasing. Leased property would be 

subject to property taxes, 

notwithstanding the Fund’s tax exempt 

status as the tenant. In this regard, the 

2009 property taxes estimated in the CB 

Richard Ellis appraisal, dated May 2009, 

were $211,000. Further, the Condo is 

being built according to the Fund’s 

design and meets the Fund’s parking, 

transportation, space, and usage 

requirements. The Condo offers the 

added benefit of synergies created by 

sharing common elements with the 

Union, permitting the apprentices and 

journeymen carpenters to do Union 

related business and obtain training in 

the same location. With the Condo 

ownership, the Fund has long-term 

stability in owning the Condo, control 

over the space, and the flexibility to 

modify such space. The long-term 

appreciation in value of the Condo 

would benefit the Fund as an owner. 

Accordingly, IFS has concluded that 

ownership of the Condo is in the 

interest and protective of the Fund to a 

greater extent than leasing space from a 

third party or from the Union. Further, 

IFS agrees with the Fund’s conclusion 

that a ‘‘build to suit’’ facility is the only 

feasible solution. 

32. It is represented that the terms of 

the proposed transaction are on terms 

which are at least as favorable to the 

Fund as those which would have been 

negotiated at arm’s length with an 

unrelated party. The purchase contract 

will be signed not more than thirty (30) 

days before the closing on the Condo, 

and the master deed and by-laws will be 

signed at closing. IFS has reviewed 

drafts of the purchase contract, master 

deed, and by-laws for the Condo and 

concurs, in general, with the structure of 

the condominium regime. 

It is represented that the master deed 

and property by-laws, as currently 

drafted, are protective of the Fund’s 

interest. IFS represents that it will 

continue to negotiate the master deed 

and by-laws to make sure that the Fund 

is protected with regard to allocation of 

common expenses, rights with regard to 

sale of the Condo (either right of first 

refusal or right of first offer) 28 and major 

decisions. 

It is represented that the purchase 

contract between the Fund and the 

Building Corporation will set the 

purchase price that the Fund will pay 

for the Condo. In this regard, the 

purchase price paid by the Fund for the 

Condo, as documented in writing and 

approved by IFS, will be the lesser of: 

(1) The fair market value of the Condo 

(the Appraisal Method); or (2) the 

Fund’s proportionate share of the cost of 

acquisition and development of the 

Building (the Cost Allocation Method). 

With regard to the Appraisal Method 

of calculating the purchase price of the 

Condo, IFS has engaged Integra, a 

certified MAI appraiser, to compute the 

fair market value of the Condo as of the 

date of the closing. It is represented that 

Integra is an independent company and 

will derive less than one percent (1%) 

of its gross proceeds in the past year in 

performing the appraisal of the Fund’s 

Condo unit. It is represented that the 

format of this appraisal will be to value 

the Condo, according to normal 

practice, using a combination of income, 

replacement cost, and sales comparison 

approaches. In the view of IFS, this 

methodology is reasonable under the 

circumstances. It is represented that IFS 

will use Integra’s appraisal to arrive at 

the fair market value of the Condo, at 

closing. The fair market value of the 

Condo will be compared to the actual 

cost of the Condo allocated to the Fund 

in order to arrive at the purchase price 

to be paid by the Fund for the Condo. 

In this regard, IFS will require that the 

purchase price for the Condo will be the 

lower of fair market value of the Condo 

or the actual cost of the Condo allocated 

to the Fund. 

With regard to the Cost Allocation 

Method of calculating the purchase 

price of the Condo, it is represented that 

under the provisions of Massachusetts 

Property Law and the master deed, an 

owner of a condominium unit has an 

undivided interest in the land equal to 

its proportional interest in the building. 

Comparing the size of the Fund’s Condo 

(35,226 square feet) and the Union’s 

condominium unit (29,487 square feet) 

with the total square footage in the 

Building (71,539 square feet), results in 

a ratio of 54.4 percent (54.4%) for the 

Fund and 45.6 percent (45.6%) for the 

Union. Using this 54.4% ratio, the 


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Fund’s share of the cost ($5.8 million) 

of the land underlying the Building 

would be $3.155 million. Similarly, 

using the same 54.4% ratio, the Fund’s 

share of the costs ($1 million) incurred 

by the Union for architect, legal, zoning, 

permits, and other construction-related 

fees would be approximately $544,000. 

IFS estimates that the Fund will bear 

a slightly higher percentage 58.3 percent 

(58.3% or $11.152 million) of the 

$19.128 million in construction costs, as 

set forth in the GMP. In addition, IFS 

estimates that the Fund will bear 58.3 

percent (58.3% or $349,800) of the 

$600,000 charges for construction costs 

outside the GMP (i.e., the amount 

expended on furniture, fixtures, and 

equipment, and the amount expended 

for materials for minor work). 

In order to confirm its understanding 

of the allocation of the acquisition and 

development costs between the Fund’s 

Condo and the unit to be retained by the 

Union, IFS engaged Casendino, an MAI 

architecture firm located in Boston, 

Massachusetts, to review and report on 

the cost allocations delineated in the 

GMP, and more specifically the cost 

breakdown between the condominium 

units. Based on its review, in the 

opinion of Casendino, the construction 

costs for the Fund should be allocated 

at 58.34% of the construction budget 

(including any savings distribution). 

Accordingly, the purchase price paid 

by the Fund for the Condo, as 

documented in writing and approved by 

IFS, will be the lesser of: 

(1) The fair market value of the 

Condo, as of the date of the closing on 

the transaction, as determined by an 

independent, qualified appraiser 

selected by IFS; or 

(2) 58.3 percent (58.3%) of the 

amount actually expended by the 

Building Corporation in the 

construction of the Condo under the 

GMP, plus the following amounts: 

(i) 58.3 percent (58.3%) of the 

additional construction soft costs 

incurred outside the GMP contract (i.e., 

the amount expended on furniture, 

fixtures, and equipment, and the 

amount expended for materials for 

minor work); 

(ii) 54.4 percent (54.4%) of the 

amount expended on construction soft 

costs (i.e., architect, legal, zoning, 

permits, and other fees); and 

(iii) 54.4 percent (54.4%) of the cost 

of the land underlying the Building. 

The following chart summarized the 

purchase price of the Condo under the 

Cost Allocation Method: 

Component Price or value Allocation 

percent Fund cost 

Purchase Land & Building ............................................................................................................... $5,800,000 54.4 $3,155,200 

Construction Soft Costs ................................................................................................................... 1,000,000 54.5 544,000 

GMP Construction Contract ............................................................................................................. 19,128,992 58.3 11,152,202 

Non-GMP Contract Construction Costs .......................................................................................... 600,000 58.3 349,800 

Total Construction .................................................................................................................... 26,528,992 .................... 15,201,202 

33. IFS has considered the size of the 

investment that the Fund proposes to 

make in purchasing the Condo relative 

to total Fund assets. In this regard, IFS 

maintains that as a training fund, the 

Fund is not limited by investment 

diversification principles with regard to 

investing in facilities which fulfill the 

Fund’s training purpose and its 

ancillary administrative activities. In the 

opinion of IFS, the primary 

consideration is the Fund’s ability to 

meet its financial obligations, as they 

come due without impairing its training 

mandate. 

IFS relies on a number of assumptions 

in evaluating the Fund’s projected 

financial status, and used these 

assumptions to develop sensitivity 

models to project the Fund’s financial 

status under a variety of both positive 

and negative assumptions. The 

assumptions break down into four 

categories: (1) Equity investment as a 

source of funds; (2) the collective 

bargaining agreements; (3) projected 

carpenter hours; and (4) fixed and 

variable costs. 

With regard to the first category 

concerning sources of funds, in addition 

to the value of the Existing Facility, the 

Fund has annual investment income of 

approximately $200,000, including 

revenue anticipated to arise from rental 

of excess space in the Condo. 

With regard to the second category, 

the main source of revenue for the Fund 

is the hourly contributions to be 

provided by the current collective 

bargaining agreements. It is anticipated 

that increases in the hourly rate and 

increases in the total wage and benefit 

package will be included in any future 

collective bargaining agreements. 

With regard to the third category, 

while the 2009 fiscal year’s carpenter 

hours underlying the revenue projection 

is 20 percent (20%) below the 2008 

carpenter hours, IFS estimates that 

hours will stay at the 2009 level in 2010, 

and then increase in each of the years 

2011 and 2012, and thereafter stabilizes 

at 6,720,000 for the next twenty years. 

With regard to the fourth category, IFS 

also reviewed the anticipated annual 

fixed costs of operating the Condo and 

the variable costs of operating the Fund. 

In this regard, IFS assumed an annual 

two-percent (2%) increase in fixed and 

variable costs. 

IFS evaluated the Fund’s ability to 

service the tax exempt bond financing 

under stressed scenarios in which the 

carpenters’ hours upon which 

contributions to the Fund are based 

decrease over time. In projecting a 

worse case scenario, IFS assumes 

annual reductions in carpenters’ hours 

of 16 percent (16%) per year, each year 

from 2013 to 2022. In 2022, carpenters’ 

hours would total only 1.05 million 

(down from 5.4 million hours in 2009). 

Under this scenario, the projected wage 

and benefit package would be $77.92 

per hour, of which the Fund would 

receive $.598 per hour. In this regard, 

IFS estimates that the contribution rate 

to the Fund would have to increase by 

approximately $1.30 per hour from 

within the total projected wage and 

benefit package. Accordingly, as part of 

IFS’ review and possible approval of the 

proposed transaction, IFS will require 

that the Union pledge to increase 

contributions to the Fund by diversion 

from other aspects of the wage and 

benefit package to cover the Fund’s cash 

flow needs. In IFS’ view, these potential 

diversions by the Union of up to an 

additional $1.30 per hour do not appear 

to be unmanageable given the projected 

size of the total wage and benefit 

package of $77.92. 

Based on its review of preliminary 

information and its financial analysis, 

IFS concludes that the Fund reasonably 

can be expected to make all payments 

of interest and principal on its loan to 

acquire the Condo, maintain the Condo, 

and meet its expected training 

obligations. In addition, IFS concludes 

that under certain stress scenarios, a 

pledge by the Union to increase 

contributions to the Fund will be 


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required to pay operating costs and debt 

service requirements. 

In the event the Fund does not meet 

its obligations under the financing 

documents, the consequences of such an 

event would be spelled out in the loan 

agreement and the trust indenture of the 

tax-exempt bonds which provided such 

financing. Such instruments 

customarily require that the indenture 

trustee give the Fund notice of any 

breach and an opportunity to cure the 

breach within thirty (30) days. As 

discussed above, the cure would be 

effected by invoking the Union’s 

obligation to increase the Fund’s 

allocation from the total wage and 

benefit package. 

34. IFS’ analysis of the proposed 

transaction makes certain assumptions, 

about the level, security lien, and 

interest rate of tax-exempt debt, the 

amount of the Fund’s equity 

participation in the proposed 

transaction, and the funds available 

from the sale of the Existing Facility. 

Each of these assumptions, as well as 

escalation assumptions in revenue and 

expense calculations and interest rate 

assumptions is subject to change and 

further analysis by IFS. In this regard, 

IFS has represented that it will continue 

to monitor the terms of the proposed 

transaction and will not consent to the 

closing until IFS is able to confirm that 

the terms of the purchase contract under 

which the Fund will acquire the Condo 

and all of the closing documents are 

reasonable and in the interest of the 

Fund and its participants. 

35. IFS has examined the potential 

conflict of interest of two (2) of the 

Trustees of the Fund. In this regard, one 

member of the Executive Board of the 

Union is also a labor Trustee of the 

Fund, and a management Trustee of the 

Fund is also an executive with Suffolk, 

the contractor on the project. Both 

Trustees have recused themselves from 

all votes and matters relating to the 

construction of the Condo. As IFS is 

engaged to decide whether and on what 

terms to consummate the proposed 

transaction and not the Trustees of the 

Fund, these recusals provide further 

assurance that there is no conflict of 

interest arising out of the positions these 

two Trustees hold with the Union and 

Suffolk, respectively. It is further 

represented that any of the Trustees of 

the Fund who present similar conflicts 

in the future will recuse themselves as 

well. 

IFS will also require that the by-laws 

and the master deed of the Building 

provide the Fund with appropriate 

authority regarding the on-going 

management of the Building over time. 

In this regard, Article II, section 2.1 of 

the proposed by-laws provides for each 

condominium unit owner to appoint 

one ‘‘manager’’ to the Condominium 

Association Board of Managers that has 

the responsibility for the operations and 

maintenance of the common area. The 

Trustees of the Fund represent that the 

manager appointed by the Fund shall be 

a management trustee at all times that 

the other condominium unit is owned 

by the Union. 

36. IFS has also addressed the 

marketability of the Condo. In this 

regard, it is represented that depending 

on the needs of various possible tenants 

and purchasers the Condo could be sold 

or leased as a single unit or could be 

subdivided into separate rental units. 

IFS further represents that the location 

relative to highway and mass transit and 

adequate parking makes the Condo 

competitively attractive for a number of 

commercial uses, as there are very few 

properties that combine a large open 

space suitable for industrial or 

warehouse use that also have office 

space for company staff. 

37. In conclusion, subject to certain 

caveats listed below, and subject to all 

of the terms of the Agreement and the 

assumptions developed in IFS’s 

financial model to protect the Funds 

assets, as of June 11, 2009, IFS finds that 

the purchase of the Condo by the Fund 

is in the interest of the Fund. IFS’s 

ultimate approval of the proposed 

transaction will be subject to the 

following caveats: (a) Review and 

agreement on the terms of the NMTC 

and tax-exempt bond financing; (b) 

agreement on the final terms of the 

Condo by-laws, the purchase contract, 

the master deed, and all closing 

documents, based on assistance and 

advice from legal counsel; (c) the final 

financing available to the Fund is on 

terms consistent with the assumptions 

described in the report prepared by IFS, 

dated June 11, 2009, and the terms 

thereof have been reviewed and 

approved by Fund counsel; and (d) 

satisfaction of all conditions set forth in 

the purchase agreement and related 

instruments. 

38. In summary, the applicant 

represents that the proposed transaction 

meets the statutory criteria for an 

exemption under section 408(a) of the 

Act because: 

(a) IFS, acting as the I/F on behalf of 

the Fund, is responsible for analyzing 

the relevant terms of the transaction and 

deciding whether the Trustees should 

proceed with the transaction; 

(b) The Fund may not purchase the 

Condo, unless and until IFS, acting as 

the I/F on behalf of the Fund, approves 

such purchase; 

(c) IFS, acting as the I/F on behalf of 

the Fund, is responsible for: (i) 

Establishing the purchase price of the 

Condo, (ii) reviewing the financing 

terms, (iii) determining that such 

financing terms are the product of arm’s 

length negotiations, and (iv) ensuring 

that the Fund will not close on the 

Condo until IFS has determined that to 

proceed with the proposed transaction 

is feasible, in the interest of, and 

protective of the participants and 

beneficiaries of the Fund; 

(d) The purchase price paid by the 

Fund for the Condo, as documented in 

writing and approved by IFS, acting as 

the I/F on behalf of the Fund, is the 

lesser of: 

(1) The fair market value of the 

Condo, as of the date of the closing on 

the transaction, as determined by an 

independent, qualified appraiser 

selected by the I/F; or 

(2) 58.3 percent (58.3%) of the 

amount actually expended by the 

Building Corporation in the 

construction of the Condo under the 

GMP, plus the following amounts: 

(i) 58.3 percent (58.3%) of the 

additional construction soft costs 

incurred outside the GMP contract (i.e., 

the amount expended on furniture, 

fixtures, and equipment, and the 

amount expended for materials for 

minor work); 

(ii) 54.4 percent (54.4%) of the 

amount expended on construction soft 

costs (i.e. architect, legal, zoning, 

permits, and other fees; and 

(iii) 54.4 percent (54.4%) of the cost 

of the land underlying the Building; 

(e) IFS, acting as the independent 

fiduciary on behalf of the Fund, is 

responsible, prior to entering into the 

proposed transaction, for: (i) Reviewing 

an appraisal of the fully completed 

Condo, which has been prepared by an 

independent, qualified appraiser, and 

updated, as of the date of the closing of 

the transaction, (ii) evaluating the 

sufficiency of the methodology of such 

appraisal, and (iii) determining the 

reasonableness of the conclusions 

reached in such appraisal; 

(f) The terms of the transaction are no 

less favorable to the Fund than terms 

negotiated under similar circumstances 

at arm’s length with unrelated third 

parties; 

(g) The Fund does not purchase the 

Condo or take possession of the Condo 

until such Condo is completed; 

(h) The Fund has not been, is not, and 

will not be a party to the construction 

financing loan or the permanent 

financing loan obtained by the Building 

Corporation and/or by the Union; 

(i) The Fund does not pay any 

commissions, sales fees, or other similar 


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payments to any party as a result of the 

transaction, and the costs incurred in 

connection with the purchase of the 

Condo by the Fund at closing do not 

include, directly or indirectly, any 

developer’s profit, any premium receive 

by the developer, nor any interest 

charges incurred on the construction 

financing loan or the permanent 

financing loan obtained by the Building 

Corporation and/or by the Union; 

(j) Under the terms of the current 

collective bargaining agreement(s) and 

any future collective bargaining 

agreement(s), the Union has the ability, 

unilaterally, to increase the contribution 

rate to the Fund at any time by diverting 

money from wages and contributions to 

other benefit funds within the total 

wage and benefit package, and the 

Union is obligated to do so in order to 

prevent a default by the Fund under the 

terms of the financing obtained by the 

Fund to purchase the Condo; 

(k) In the event, the Building 

Corporation and/or the Union defaults 

on the construction financing loan or 

the permanent financing loan obtained 

by the Building Corporation and/or the 

Union, the creditors under the terms of 

such construction financing loan or 

such permanent financing loan shall 

have no recourse against the Condo or 

any of the assets of the Fund; 

(l) IFS, acting as the independent 

fiduciary with respect to the Fund, is 

responsible for reviewing and approving 

the allocation between funding the 

purchase of the Condo from the Fund’s 

existing assets or financing such 

purchase; 

(m) IFS, acting as the independent 

fiduciary with respect to the Fund, is 

responsible for determining whether the 

proposed transaction satisfies the 

criteria, as set forth in section 404 and 

section 408(a) of the Act. 

Notice to Interested Persons 

Those persons who may be interested 

in the publication in the Federal 

Register of the Notice of Proposed 

Exemption (the Notice) include all 

members of the Locals in the Boston 

area and the Employer Associations. 

It is represented that notification will 

be provided to all such interested 

persons by first class mail within fifteen 

(15) calendar days of the date 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(b)(2) of 

the Department’s regulations, which 

will advise all interested persons of the 

right to comment and to request a 

hearing. 

The Department must receive all 

written comments and requests for a 

hearing no later than forty-five (45) days 

from the date of the publication of the 

Notice in the Federal Register. 

Further Information Contact: 

Angelena C. Le Blanc of the Department, 

telephone (202) 693–8551 (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 15th day of 

December 2009. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. E9–30262 Filed 12–21–09; 8:45 am] 

BILLING CODE 4510–29–P 


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