Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices 5051

Pension and Welfare Benefits

Administration

[Application Number D–10078]

Proposed Class Exemption Relating to

Certain Employee Benefit Plan Foreign

Exchange Transactions Executed

Pursuant to Standing Instructions

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of Proposed Class

Exemption.

SUMMARY: This document contains a

notice of pendency before the

Department of Labor (the Department) of

a proposed class exemption from certain

prohibited transaction restrictions of the

Employee Retirement Income Security

Act of 1974 (ERISA or the Act) and from

certain taxes imposed by the Internal

Revenue Code of 1986 (the Code). If

granted, the proposed exemption would

permit certain foreign exchange

transactions between employee benefit

plans and certain banks and brokerdealers which are parties in interest

with respect to such plans, pursuant to

standing instructions. The proposed

exemption, if granted, would affect

participants and beneficiaries of

employee benefit plans involved in such

transactions, as well as banks and

broker-dealers which act as dealers in

foreign exchange.

DATES: Written comments and requests

for a public hearing with regard to the

substantive content of the proposed

exemption shall be submitted to the

Department before April 4, 1997.

ADDRESSES: All written comments and

requests for a public hearing (preferably

3 copies) should be sent to: Pension and

Welfare Benefits Administration, Room

N–5649, 200 Constitution Avenue NW.,

Washington, DC 20210. Attention:

Foreign Exchange Class Exemption

Proposal—Standing Instructions. The

application and all comments received,

will be available for public inspection in

the Public Documents Room, Pension

and Welfare Benefits Administration,

U.S. Department of Labor, Room N–

5638, 200 Constitution Avenue NW.,

Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT:

Lyssa E. Hall, Office of Exemption

Determinations, Pension and Welfare

Benefits Administration, U.S.

Department of Labor, Washington, DC

20210 (202) 219–8971 (not a toll-free

number) or Susan E. Rees, Plan Benefits

Security Division, Office of the

Solicitor, (202) 219–9141 (not a toll-free

number).

Paperwork Reduction Act Analysis

The Department of Labor, as part of its

continuing effort to reduce paperwork

and respondent burden, provides the

general public and Federal agencies

with an opportunity to comment on

proposed and/or continuing collections

of information in accordance with the

Paperwork Reduction Act of 1995, 44

U.S.C. 3506(c)(2)(A) (1995) (PRA 95).

This program helps to ensure that

requested data can be provided in the

desired format, reporting burden (time

and financial resources) is minimized,

collection instruments are clearly

understood, and the impact of collection

requirements on respondents can be

properly assessed. Currently, the

Pension and Welfare Benefits

Administration is soliciting comments

concerning the proposed new collection

of information under the Proposed Class

Exemption Relating to Certain Employee

Benefit Plan Foreign Exchange

Transactions Executed Pursuant to

Standing Instructions.

Dates: Written comments concerning

the proposed collection of information

must be submitted on or before April 4,

1997 to Mr. Gerald B. Lindrew,

Department of Labor, Pension and

Welfare Benefits Administration, Room

N–5647, 200 Constitution Avenue, NW.,

Washington, DC 20210. The Department

of Labor is particularly interested in

comments which:

• Evaluate whether the proposed

collection of information is necessary

for the proper performance of the

functions of the agency, including

whether the information will have

practical utility;

• Evaluate the accuracy of the

agency’s estimate of the burden of the

proposed collection of information,

including the validity of the

methodology and assumptions used;

• Enhance the quality, utility, and

clarify the information to be collected;

and

• Minimize the burden of the

collection of information on those who

are to respond, including through the

use of appropriate automated,

electronic, mechanical, or other

technological collection techniques or

other forms of information technology,

e.g., permitting electronic submissions

of responses.

Title: Class Exemption Relating to

Certain Foreign Exchange Transactions

Pursuant to Standing Instructions.

Summary: The proposed exemption

would permit certain foreign exchange

transactions between employee benefit

plans and certain banks, broker-dealers,

and domestic affiliates thereof, which

are parties in interest with respect to

such plans, pursuant to standing

instructions.

Needs and Uses: ERISA requires that

the Department make a finding that the

proposed exemption meets the statutory

requirements of section 408(a) before

granting the exemption. The Department

therefore finds its necessary that certain

information be provided to an

independent fiduciary of each plan in

advance of, and subsequent to, the

proposed transaction, and that the

independent fiduciary approve the

proposed transaction.

Type of Review: New.

Respondents and Proposed Frequency

of Response: The Department staff

estimates that approximately 65 parties

will seek to take advantage of the class

exemption in any given year. The

respondents will be banks and brokerdealers acting as fiduciaries of plans

which engage in foreign exchange

transactions with such plans.

Estimated Annual Burden: The

Department staff estimates the annual

burden for preparing the materials

required under the proposed class

exemption to be 5 hours per respondent

for a total of 325 hours. The total annual

burden cost (operating/maintenance) is

estimated to be $24,375. These are

estimated to be capital/start-up burden

costs. Comments submitted in response

to this notice will be summarized and/

or included in the request for Office of

Management and Budget approval of the

information collection request; they will

also become a matter of public record.

SUPPLEMENTARY INFORMATION: This

document contains a notice of pendency

before the Department of a proposed

class exemption from the restrictions of

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

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

and from the taxes imposed by section

4975(a) and (b) of the Code by reason of

certain transactions described in section

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

The proposed exemption was initially

requested in an application dated July

18, 1984 (Application No. D–5700)

submitted by the American Bankers

Association (ABA) pursuant to section

408(a) of ERISA and section 4975(c)(2)

of the Code, and in accordance with the

procedures set forth in ERISA Procedure

75–1 (40 FR 18471, April 28, 1975).

Pursuant to the foregoing authority, the

Department is proposing additional

conditions with respect to the relief

requested by the Applicant.

On February 17, 1994, the Department

granted PTE 94–20 (59 FR 8022), a class

exemption which permits purchases

and sales of foreign currencies between

employee benefit plans and certain

banks, broker-dealers and affiliates
5052 Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices

1 56 FR 11757 (March 20, 1991).

2On October 3, 1991, the Department held a

public hearing and received testimony regarding

standing instructions. See 56 FR 46806, September

16, 1991.

3See 56 FR at 11760, for a discussion of the

general arm’s length test.

4 June 18, 1991 is the effective date for

prospective relief in PTE 94–20.

thereof which are parties in interest

with respect to such plans provided that

such transactions are directed by a plan

fiduciary who is independent of the

bank, broker-dealer or affiliate thereof

and the other conditions of the

exemption are met. PTE 94–20 provides

an exemption from the prohibited

transaction restrictions of section

406(a)(1) (A) through (D) of the Act and

from the sanctions resulting from

section 4975(a) and (b) of the Code by

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

(D) of the Code. PTE 94–20 did not

provide relief for all of the transactions

described in the 1984 ABA exemption

request.

In response to the notice of proposed

exemption for PTE 94–20,1 a number of

commenters (the Commenters)

expressed concern regarding the lack of

relief for foreign exchange transactions

executed pursuant to standing

instructions. As explained in greater

detail in the preamble to PTE 94–20, the

Commenters requested that the

Department expand the exemption to

include retroactive and prospective

relief for foreign exchange transactions

entered into pursuant to a ‘‘standing

authorization’’ (hereinafter standing

instruction). Many of the Commenters

also requested that the Department

amend the definition of the term

‘‘directed transaction’’ by modifying the

requirement that the independent plan

fiduciary effect the foreign exchange

transaction at a specific exchange rate.

The Commenters represented that the

utilization of standing instructions is an

integral component in foreign exchange

transactions involving employee benefit

plans. In this regard, the Commenters

indicated that, without the ability to

execute foreign exchange transactions

with plans pursuant to standing

instructions, plans would lose

investment income and incur higher

exchange rates on small transactions.

The ABA requested relief for

transactions entered into by a bank on

behalf of a plan pursuant to standing

instructions from an independent

fiduciary in its application dated July

18, 1984. The Department did not

include relief with respect to such

transactions in the proposal to PTE 94–

20 because it was unable, at that time,

to make the findings required under

section 408(a) of the Act. Specifically,

the Department was unable to conclude

that the conditions proposed by the

ABA would effectively and consistently

address the potential for abuse of

discretion by party in interest banks in

setting exchange rates for foreign

exchange transactions. On the basis of

the comments and additional

information received following

publication of the proposal to PTE 94–

20,2 the Department concluded that it

might be appropriate, under limited

circumstances, to provide relief from

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

for foreign exchange transactions

entered into pursuant to standing

instructions.

However, pursuant to the

requirements of section 408(a) of the

Act, the Department is required to offer

interested persons an opportunity to

present their views and an opportunity

to request a hearing before granting an

exemption from section 406(b) of the

Act. Therefore, in order not to have

delayed the publication of PTE 94–20,

the Department determined to

separately consider exemptive relief

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

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

exchange transactions between a plan

and a party in interest bank, brokerdealer or affiliate thereof where such

transactions are engaged in pursuant to

a standing instruction.

During the Department’s

consideration of the standing

instruction issue, the ABA made a

supplemental submission on September

1, 1992, in which they limited their

request for relief for standing instruction

transactions and suggested additional

conditions regarding such transactions.

Over the course of the following two

years, the Department solicited further

information from the ABA and other

interested parties, the most recent of

which was received on March 1, 1994,

and September 12, 1994. As a result of

the suggestions and comments received

from those parties, as well as the

imposition of additional conditions by

the Department, the Department

believes that a number of its concerns

regarding standing instruction

transactions have been addressed.

The Commenters also requested

retroactive exemptive relief as of

January 1, 1975, for foreign exchange

transactions effected pursuant to

standing instructions. In this regard,

they suggested that the interests of

participants and beneficiaries were

adequately protected if the general

arm’s-length requirement and a good

faith standard were met for standing

instruction transactions effected prior to

the publication of a final exemption.3

As the Department stated in the

proposal to PTE 94–20, it does not

believe that the conditions suggested by

the Commenters for retroactive relief

would effectively address the potential

for abuse of discretion under

circumstances where a bank or brokerdealer sets foreign exchange rates for

foreign exchange transactions which

have been executed pursuant to

standing instructions. However, the

Department has concluded that it is

appropriate to provide limited relief,

retroactive to June 18, 1991, for those

banks and broker-dealers who effect

foreign exchange transactions in

accordance with the applicable

conditions of Section II of this

proposal.4

The Department believes that the

following conditions, which are

contained in PTE 94–20, are equally

applicable with respect to the

retroactive and prospective relief

provided for transactions described in

this proposed class exemption: the

general and particular arm’s length tests;

the proscription against the bank or any

of its affiliates having any discretionary

authority or control with respect to the

investment of plan assets involved in

the transaction or rendering investment

advice with respect to those assets; the

requirements concerning confirmation

statements; and the maintenance of

written policies and procedures

regarding the handling of foreign

exchange transactions with plans that

ensure that the person acting for the

bank knows that he or she is acting for

the plan.

The Department has further

conditioned retroactive relief upon

satisfaction of the following condition

that addresses the discretion that was

exercised by a bank or broker-dealer in

setting foreign exchange rates for

transactions executed pursuant to

standing instructions. Thus, under this

requirement, the specific exchange rate

for a covered transaction could not have

deviated by more than ten percent

(above or below) from the interbank bid

and asked rates as displayed on Reuters

or another independent nationally

recognized service in the foreign

exchange market for the effected

currencies at the time that the bank or

broker-dealer executed the foreign

exchange transaction. Notwithstanding

this requirement, a prohibited

transaction will not be considered to

have occurred solely because the

records necessary to demonstrate

compliance with the ten percent

requirement have been lost, destroyed

or are not available to the bank or

broker-dealer. Nonetheless, the bank or
Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices 5053

5The Department notes that this exemption does

not provide relief for options contracts on foreign

exchange transactions. See section IV(a) of PTE 94–

20.

6No relief is provided where the bank or brokerdealer has investment discretion or provides

investment advice (within the meaning of 29 CFR

2510.3–21) with respect to the investment of the

plan assets involved in the transaction. In this

regard, Part I of the class exemption would not be

available for any foreign exchange transaction

involving a bank or broker-dealer that has any

discretionary authority or control over either the

initial purchase or sale of foreign securities or the

subsequent reinvestment of the proceeds.

7Similarly, the Department is proposing a

limitation of $100,000 for income item conversions.

8 Individual commenters have indicated that

there may be governmental restrictions on the

transfer of funds outside of some foreign countries.

In general, ‘‘good funds’’ are defined for purposes

of this class exemption as funds available in cash

with no governmental restrictions on transfer. This

concept was not a part of the ABA application but

rather was suggested by individual commenters to

ensure that the time period during which the bank

must convert income from foreign securities did not

begin to run until after the funds became available.

9According to an individual commenter, U.S.

custodial banks may operate through their own

foreign branches or may employ foreign banks as

subcustodians so that foreign instruments can be

held in the country of the issuer.

10The ABA application suggested that the bank

set the rate only once per day. However, other

Commenters noted that if the bank were allowed to

set the rate more than once a day, the rate

established would be more closely related to the

current rates in the foreign exchange market. The

Department has determined to modify the ABA

proposal in order to provide flexibility to those

financial institutions that intend to set rates more

frequently than once per day.

11For example, a bank which converts income

items only once a day may set the rate at 10:00 a.m.

each day and convert such items at 10:30 a.m. each

day. Both times would be disclosed in the bank’s

written policies.

broker-dealer is not relieved of its

responsibility to otherwise demonstrate

compliance with the conditions of the

proposed exemption. In this regard, the

Department notes that there may be

other objective pricing information that

was readily available at the time of the

transaction which could be provided by

a bank or broker-dealer to demonstrate

compliance with the ten percent

requirement.

In response to the Department’s

concerns regarding the amount of

discretion a bank can exercise under a

standing instruction, the Commenters

suggested, as a further safeguard, a

limitation on the types of transactions

for which the bank could exercise

discretion. Specifically, it was suggested

that relief could be limited to

transactions which would result in the

receipt of small amounts of foreign

currency, or where, due to the

uncertainty of foreign settlement dates,

the exact timing of the receipt of the

currency by the bank was uncertain.

The Department has adopted this

suggestion and proposed limited relief

for the conversion of income receipts,

such as interest and dividend payments,

as well as for de minimis purchases and

sales of foreign securities.5

According to the ABA, standing

instructions are necessary to repatriate

income receipts received on foreign

investments into U.S. dollars so that

interest can be earned on such funds. In

this regard, the Department did not

receive sufficient information regarding

how the conversion of foreign

denominated income receipts into other

foreign currencies would operate under

standing instructions. The Department

also has concerns about the ability of

the bank to maintain the converted

funds in an interest-bearing account.

Therefore, the Department has limited

the scope of the proposed exemption to

cover transactions involving the

exchange of income conversion items

into U.S. dollars.

The Commenters also requested relief

for de minimis purchase and sale

transactions involving foreign securities,

i.e., foreign securities transactions

requiring the purchase and sale of

foreign currency in an amount not

exceeding $500,000.6 The ABA

represents that many foreign markets

outside the U.S. do not have firm

settlement dates. Thus, it is difficult to

anticipate when the proceeds from sales

of plan owned foreign securities will be

received by a bank’s foreign custodian.

In order to keep the funds invested,

standing instructions are used so that

the conversion can be done as soon as

practicable and the plan can begin to

earn interest on the sale proceeds.

Under these circumstances, obtaining

specific directions from an independent

plan fiduciary for relatively small

transactions is time consuming and not

in the best interests of plans. In this

regard, the Department has proposed

relief for de minimis transactions but

believes that a limitation of $100,000 is

a more appropriate measure for

transactions which are intended to be

relatively small.7

The Commenters suggested several

conditions that would have to be

satisfied in order for a bank to enter into

a prospective transaction involving the

conversion of income receipts pursuant

to a standing instruction. Upon review,

the Department proposes to apply the

same conditions to de minimis purchase

and sale transactions. The ABA

proposed that income item conversions

be executed within no more than two

business days following the time of

receipt by the bank. In this regard, the

Department believes that one business

day following notice to the bank that

‘‘good funds 8’’ have been received by

the bank’s foreign custodian 9 is a more

appropriate limitation on a bank’s

exercise of discretion than the

suggestion made by the ABA. Such

notice must be provided to the bank

within one business day following

receipt of good funds by the foreign

custodian if the custodian is an affiliate

of the bank. If the foreign custodian is

not an affiliate of the bank, the bank still

must convert within one business day

following notice to the bank that good

funds have been received. However, the

notice must be provided to the bank by

the nonaffiliated custodian no later than

two business days following receipt by

the foreign custodian.

Under the requested exemption, the

exchange rate(s) or a range of rates to be

used for covered transactions would be

established on a daily basis using

objective criteria which would be

disclosed to and approved by an

independent plan fiduciary in advance

of the transaction. More specifically, the

written policies of the bank will state

that the bank will set an exchange rate

or range of rates at least once a day but

no more than four times per day.10 Once

set, a rate or range of rates will remain

in effect for all conversions that occur

prior to the time that a new rate is set.

The bank will disclose the time or times

each day that it will convert income

conversion items or execute de minimis

purchase and sales transactions.11

Income item conversions will be

executed and de minimis purchase and

sale transactions will be executed at the

next scheduled time for conversions or

executions following notice of receipt of

‘‘good funds’’, or a direction to acquire

foreign currency, as applicable.

However, if the bank’s policy is to

bundle or hold small foreign exchange

items until a specified threshold amount

is reached, then the conversion of such

items may be delayed, but in no case

may such delay be more than 24 hours

after the receipt of notice that good

funds were received or the direction to

acquire foreign currency was received.

The bank’s policies and procedures

will describe the methodology used by

the bank to determine the specific

exchange rate or range of rates for

covered transactions. If a range of rates

is used, such range cannot deviate by

more than three percent (above or

below) from the interbank bid and asked

rates as displayed on Reuters or another

independent nationally recognized

service in the foreign exchange market

for the effected currencies at the time

such range of rates is set by the bank.

For example, pursuant to its written

procedures, Bank A converts foreign
5054 Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices

12 59 FR 8024.

13For a discussion of the SIA comment, see 59

FR 8023 (Thursday, Feb. 17, 1994).

exchange items at 7:30 a.m., 12:30 p.m.

and 3:30 p.m. At 7:00 a.m. Bank A sets

the range of rates to be used at 7:30 a.m.

To determine the range, the Bank first

determines the interbank bid and asked

rates at 7:00 a.m. by checking a

nationally recognized reporting service.

Assume that at 7:00 a.m. the interbank

rate for converting Great Britain Pounds

into U.S. Dollars is 1.7025–1.7200. In

order to determine the range of

exchange rates for 7:30 am, the Bank

would subtract a maximum of three

percent from the bid quoted price and

add a maximum of three percent to the

asked price. The permissible range of

rates under the exemption would be

1.6514–1.7716.

The Department believes that the

conditions suggested by the

Commenters regarding income item

conversions reduce a great deal of the

discretion exercised by a bank executing

a foreign exchange transaction pursuant

to a standing instruction. Accordingly,

the Department has adopted their

suggestions with the modifications

discussed above, as conditions of the

proposed exemption.

In addition to the above-noted

conditions, the proposal also requires

that the authorization to utilize a

standing instruction must be in writing.

With respect to a record maintenance

requirement, the Commenters suggested

that this condition should be deemed

met if the records are maintained in

foreign countries but were available by

electronic access in the United States.

As discussed in greater detail in PTE

94–20, the Commenters were not able to

address the Department’s concerns that

access to such records could be

restricted by foreign governments.12

Finaly, the Department has required

that the confirmation statements for

each covered transaction include the

time of the exchange. The ABA as well

as other Commenters indicated that the

inclusion of time on the confirmation

statements is not administratively

feasible and in any case is unnecessary.

The Commenters stated that it would be

expensive to revise their computer

programs to include the time of the

covered transaction. In addition, they

stated that such information would not

be used by an independent fiduciary to

determine the reasonableness of the

foreign exchange rates charged to a plan.

In response to the Commenters, the

Department notes that, under the

proposal, the exchange rates established

by a bank can vary depending upon the

time of the transaction. In order to

monitor covered transactions, an

independent fiduciary would need to

know when the transactions occurred in

order to compare the rates used by the

bank to rates charged in similar

transactions executed at the same time.

Accordingly, the Department continues

to believe that this information is

necessary to enable independent plan

fiduciaries to monitor the

reasonableness of the exchange rates

established by the bank.

In light of the apparent industry

concern regarding this issue, the

Department invites comments and

suggestions from interested parties

regarding how an independent fiduciary

could adequately monitor the exchange

rates used for plan foreign exchange

transactions if the time of the

transaction is not included on the

confirmation statements. Any such

comments should include a discussion

of the feasibility of the suggested

alternative as well as how the

alternative would be protective of plans.

The Department requests that

interested persons, in addition to other

comments, describe how an exemption

would operate with respect to de

minimis purchase and sale transactions

and whether the conditions applicable

to income item conversions are practical

and appropriate to protect the interests

of the participants and beneficiaries of

plan engaging in de minimis foreign

exchange transactions.

In response to the proposal that

became PTE 94–20, the Securities

Industry Association (SIA) requested

that the Department include registered

broker-dealers within the scope of that

exemption.13 The SIA further requested

that the Department include brokerdealers within the scope of any

additional relief which it contemplated

providing to banks. After considering

the SIA’s comment, the Department

determined that it was appropriate to

include registered broker-dealers within

the scope of the relief provided by PTE

94–20. For the same reasons, the

Department has included registered

broker-dealers within the scope of this

proposed class exemption.

The Department wishes to point out

that ERISA’s general standards of

fiduciary conduct would apply to the

standing instruction arrangements

permitted by this proposed class

exemption. Section 404 of the Act

requires, among other things, that a

fiduciary discharge his duties with

respect to a plan solely in the interest

of the plan’s participants and

beneficiaries and in a prudent fashion.

Accordingly, the investment manager or

other independent plan fiduciary must

act prudently with respect to the

decision to enter into such an

arrangement, such as considering the

effect of restrictions on funds transfers

by foreign governments, as well as to the

negotiation of the specific terms under

which the bank or broker-dealer will

engage in foreign exchange transactions

on behalf of the plan. The Department

further emphasizes that it expects an

investment manager or other

independent plan fiduciary, to fully

understand the benefits and risks

associated with engaging in foreign

exchange transactions pursuant to

standing instructions, following

disclosure by the bank or broker-dealer

of all relevant information. In addition,

such investment manager or

independent plan fiduciary must be

capable of periodically monitoring the

actions taken by the bank or brokerdealer in the course of its execution of

foreign exchange transactions. Thus, in

considering whether to authorize a bank

or broker-dealer to execute foreign

exchange transactions pursuant to

standing instructions, a fiduciary should

take into account its ability to provide

adequate oversight of the bank or

broker-dealer.

The Department further notes that the

rates at which a plan’s foreign exchange

transactions are executed directly

impact on the plan’s overall rate of

return with respect to its portfolio of

foreign securities. Accordingly, the

plan’s investment manager has a

continuing obligation to prudently

maximize the plan’s rate of return by

ensuring that the plan’s foreign

exchange transactions are executed at

prices that are fair and reasonable.

Finally, the Department wishes to

note that, during periods of increased

foreign exchange market volatility, it

may not be consistent with ERISA’s

prudence and exclusive benefit

requirements for an investment manager

to permit foreign exchange transactions

on behalf of a plan at prices established

by the bank or broker-dealer pursuant to

the procedures contained in the

standing instruction agreement. Under

those circumstances, the exchange rate

established by the bank or broker-dealer

may be significantly less favorable to the

plan than market prices at the time that

the transaction is executed. In such

cases, it may be necessary for the bank

or broker-dealer to comply with the

requirements of PTE 94–20.

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 section 4975(c)(2)
Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices 5055

of the Code does not relieve a fiduciary

or other party in interest or disqualified

person from certain other provisions of

the Act and 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 require, among other things, that

a fiduciary discharge his duties respect

the plan solely in the interests 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 ERISA

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

Department must find that the

exemption is administratively feasible,

in the interests of plans and their

participants and beneficiaries and

protective of the rights of participants

and beneficiaries of plans;

(3) If granted, the proposed exemption

will be applicable to a transaction only

if the conditions specified in the class

exemption are met; and

(4) The proposed exemption, if

granted, will be supplemental to, and

not in derogation of, any other

provisions of ERISA and 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.

Written Comments and Hearing

Request

All interested persons are invited to

submit written comments or requests for

a public hearing on the proposed

exemption to the address and within the

time period set forth above. All

comments will be made a part of the

record. Comments and requests for a

hearing should state the reasons for the

writer’s interest in the proposed

exemption. Comments received will be

available for public inspection with the

referenced application at the above

address.

Proposed Exemption

The Department has under

consideration the grant of the following

class 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 32847, August 10, 1990.)

Section I Covered Transactions

(a) For the period from June 18, 1991

to May 5, 1997, the restrictions of

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

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

Retirement Security Act of 1974 (the

Act) and the taxes imposed by section

4975 (a) and (b) of the Internal Revenue

Code of 1986 (the Code), by reason of

Code section 4975(c)(1) (A) through (E),

shall not apply to the following foreign

exchange transactions, between a bank

or broker-dealer and an employee

benefit plan with respect to which the

bank or broker-dealer, or any affiliate is

a trustee, custodian, fiduciary or other

party in interest, pursuant to a standing

instruction, if the conditions set forth in

section II below are met:

(1) an income item conversion; or

(2) a de minimis purchase or sale

transaction.

(b) Effective after May 5, 1997, the

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

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

the Employee Retirement Income

Security Act of 1974 (the Act) and the

taxes imposed by section 4975 (a) and

(b) of the Internal Revenue Code of 1986

(the Code), by reason of Code section

4975(c)(1) (A) through (E), shall not

apply to the following foreign exchange

transactions, between a bank or brokerdealer, and an employee benefit plan

with respect to which the bank or

broker-dealer, or any affiliate is a

trustee, custodian, fiduciary or other

party in interest, pursuant to a standing

instruction, if the conditions set forth in

section III below are met:

(1) an income item conversion; or

(2) a de minimis purchase or sale

transaction.

Section II Retroactive Conditions

(a) At the time the foreign exchange

transaction is entered into, the terms of

the transaction are not less favorable to

the plan than the terms generally

available in comparable arm’s length

foreign exchange transactions between

unrelated parties.

(b) At the time the foreign exchange

transaction is entered into, the terms of

the transaction are not less favorable to

the plan than the terms afforded by the

bank, the broker-dealer, (or any affiliate

thereof) in comparable arm’s length

foreign exchange transactions involving

unrelated parties.

(c) Neither the bank, the brokerdealer, (nor any affiliate thereof) has any

discretionary authority or control with

respect to the investment of the plan

assets involved in the transaction or

renders investment advice (within the

meaning of 29 CFR 2510.3–21(c)) with

respect to the investments of those

assets.

(d) The bank or broker-dealer

maintains at all times written policies

and procedures regarding the handling

of foreign exchange transactions for

plans with respect to which the bank or

broker-dealer is a trustee, custodian,

fiduciary or other party in interest or

disqualified person which assure that

the person acting for the bank or brokerdealer knows that he or she is dealing

with a plan.

(e) The exchange rate used by the

bank or broker-dealer for a particular

foreign exchange transaction did not

deviate by more than 10% (above or

below) the interbank bid and asked rates

at the time of the transaction as

displayed on Reuters or another

independent service in the foreign

currency market for such currency;

provided, however, that a prohibited

transaction shall not be deemed to have

occurred solely because the records

necessary to demonstrate compliance

with this section have been lost,

destroyed or are not available to the

bank or broker-dealer. Nothing in this

section shall be deemed to relieve the

bank or broker-dealer of its

responsibility to demonstrate

compliance with the conditions of this

proposed exemption.

(f) A written confirmation statement is

furnished with respect to each covered

transaction to the independent plan

fiduciary. The confirmation statement

shall include:

(A) Account name;

(B) Transaction date;

(C) Exchange rates;

(D) Settlement date;

(E) Currencies exchanged;

(i) identity of foreign currency sold;

(ii) amount sold;

(iii) identity of currency purchased;

and

(iv) amount purchased.

The confirmation shall be issued in

no event more than 5 business days after

execution of the transaction.

Section III Prospective Conditions

(a) At the time the foreign exchange

transaction is entered into, the terms of

the transaction are not less favorable to

the plan than the term generally

available in comparable arm’s-length

foreign exchange transactions between

unrelated parties.

(b) At the time the foreign exchange

transaction is entered into, the terms of

the transaction are not less favorable to

the plan than the terms afforded by the

bank or broker-dealer, (or any affiliate

thereof) in comparable arm’s-length

foreign exchange transactions involving

unrelated parties.
5056 Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices

(c) Neither the bank, the brokerdealer, (nor any affiliate thereof) has any

discretionary authority or control with

respect to the investment of the plan

assets involved in the transaction or

renders investment advice (within the

meaning of 29 CFR 2510.3–21(c)) with

respect to the investments of those

assets.

(d) The bank or broker-dealer

maintains at all times written policies

and procedures regarding the handling

of foreign exchange transactions for

plans with respect to which the bank or

broker-dealer is a trustee, custodian,

fiduciary or other party in interest or

disqualified person which assure that

the person acting for the bank or brokerdealer knows that he or she is dealing

with a plan.

(e) The covered transaction is

performed under a written authorization

executed in advance by a fiduciary of

the plan whose assets are involved in

the transaction, which plan fiduciary is

independent of the bank or brokerdealer engaging in the covered

transaction. The written authorization

must specify:

(1) The identities of the currencies in

which covered transactions may be

executed; and

(2) That the authorization may be

terminated by either party without

penalty on no more than ten days

notice.

(f)(1) Income item conversions are

executed within no more than one

business day from the date of receipt of

notice by the bank or broker-dealer that

such items are good funds, and

(A) a foreign custodian which is an

affiliate of the bank or broker-dealer,

provides such notice to the bank or

broker-dealer within ‘‘one business day’’

of its receipt of good funds; or

(B) in the case of a foreign custodian

which is not an affiliate of the bank or

broker-dealer, such notice is provided to

the bank or broker-dealer within two

business days of such custodian’s

receipt of good funds.

(2) De minimis purchase and sale

transactions are executed within no

more than one business day from the

date that either the bank or brokerdealer receives notice from a foreign

custodian that the proceeds of a sale of

foreign securities denominated in

foreign currency are good funds, or the

direction to acquire foreign currency

was received by the bank or brokerdealer, and

(A) a foreign custodian which is an

affiliate of the bank or broker-dealer,

provides such notice to the bank or

broker-dealer within one business day

of its receipt of good funds from a sale;

or

(B) in the case of a foreign custodian

which is not an affiliate of the bank or

broker-dealer, such notice is provided to

the bank or broker-dealer within two

business days of such custodian’s

receipt of good funds from a sale.

(g)(1) At least once each day, at the

time(s) specified in its written policies

and procedures, but no more than four

times per day, the bank or broker-dealer

establishes either a rate of exchange or

a range of rates to be used for income

item conversions and de minimis

purchase and sale transactions covered

by this exemption.

(2) Income item conversions items are

executed at the next scheduled time for

conversions following receipt of notice

by the bank or broker-dealer from the

foreign custodian that such funds are

good funds. If it is the policy of the bank

or broker-dealer to aggregate small

amounts of foreign currency until a

specified minimum threshold amount is

received, then the conversion may take

place at a later time but in no event

more than 24 hours after receipt of

notice.

(3) De minimis purchase and sale

transactions are executed at the next

scheduled time for such transactions

following receipt of either notice that

the sales proceeds denominated in

foreign currency are good funds, or a

direction to acquire foreign currency. If

it is the policy of the bank or brokerdealer to aggregate small transactions

until a specified threshold amount is

received, then the execution may take

place at a later time but in no event

more than 24 hours after receipt of

either notice that the sales proceeds,

have been received by the foreign

custodian as good funds, or a direction

to acquire foreign currency.

For purposes of this paragraph (g), the

range of exchange rates established by

the bank or broker-dealer for a particular

foreign currency cannot deviate by more

than three percent [above or below] the

interbank bid and asked rates as

displayed on Reuters or another

nationally recognized independent

service in the foreign exchange market,

for such currency at the time such range

of rates is established by the bank or

broker-dealer.

(h) Prior to the execution of the

authorization referred to in paragraph

(e), the bank or broker-dealer provides

the authorizing fiduciary with a copy of

the bank’s or broker-dealer’s written

policies and procedures regarding the

handling of foreign exchange

transactions involving income item

conversions and de minimis purchase

and sale transactions. The policies and

procedures must, at a minimum, contain

the following information:

(1) Disclosure of the time(s) each day

that the bank or broker-dealer will

establish the specific rate of exchange or

the range of exchange rates for the

covered transactions to be executed and

the time(s) that such covered

transactions will take place. The bank or

broker-dealer shall include a description

of the methodology that the bank or

broker-dealer uses to determine the

specific exchange rate or range of

exchange rates;

(2) Disclosure that income items

conversions and de minimis purchase

and sale transactions will be executed at

the first scheduled transaction time after

notice that good funds from an income

conversion or a sale have been received,

or a direction to purchase foreign

currency has been received. To the

extent that the bank or broker-dealer

aggregates small amounts of foreign

currency until a specified minimum

threshold amount is met, a description

of this practice and disclosure of the

threshold amount; and

(3) A description of the process by

which the bank’s or broker-dealer’s

foreign exchange policies and

procedures for income item conversions

and de minimis purchase and sale

transactions may be amended and

disclosed to plans.

(1) The bank or broker-dealer

engaging in the covered transaction

furnishes to the authorizing fiduciary a

written confirmation statement with

respect to each covered transaction not

more than five business days after

execution of the transaction.

1. With respect to income item

conversions, the confirmation shall

disclose the following information:

(A) Account name;

(B) Date of notice that good funds

were received;

(C) Transaction date;

(D) Exchange rate;

(E) Settlement date;

(F) Identity of foreign currency;

(G) Amount of foreign currency sold;

(H) Amount of U.S. dollars credited to

the plan; and

(I) Time of the transaction.

2. With respect to de minimis

purchase and sale transactions, the

confirmation shall disclose the

following information:

(A) Account name;

(B) Date of notice that sales proceeds

denominated in foreign currency are

received as good funds or direction to

acquire foreign currency was received.

(C) Transaction date;

(D) Exchange rates;

(E) Settlement date;

(F) Currencies exchanged:

i. identity of the currency sold;

ii. the amount sold;
Federal Register / Vol. 62, No. 22 / Monday, February 3, 1997 / Notices 5057

iii. identity of the currency

purchased;

iv. the amount purchased;

(G) Time of the transaction.

With respect to section (i)(1)(I) and

(i)(2)(G) above, the requirement for

disclosure of the time of the exchange

shall be deemed to be met, if income

item conversions and/or de minimis

purchase and sale transactions by a

bank or broker-dealer take place once

per day and the time of such

conversions is set forth in the bank’s or

broker-dealer’s written policies and

procedures which are provided to the

independent plan fiduciary as required

under section II(h)(1) of this exemption.

(j) The bank or broker-dealer, or its

affiliate, maintains, within territories

under the jurisdiction of the United

States Government, for a period of six

years from the date of the transaction,

the records necessary to enable the

persons described in paragraph (1) of

this section to determine whether the

applicable conditions of this exemption

have been met, including a record of the

specific exchange rate or range of

exchange rates the bank or broker-dealer

established each day for foreign

exchange transactions effected under

standing instructions for income item

conversions and de minimis purchase

and sale transactions. However, a

prohibited transaction will not be

considered to have occurred if, due to

circumstances beyond the bank’s or

broker-dealer’s control, the records are

lost or destroyed prior to the end of the

six-year period, and no party in interest

other than the bank or broker-dealer, or

its affiliate shall be subject to the civil

penalty that may be assessed under

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

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

the Code, if the records are not

maintained by the bank or brokerdealer, or its affiliate, or are not made

available for examination by the bank or

broker-dealer, or its affiliate as required

by paragraph (h) below.

(k)(1) Except as provided in

subparagraph (2) of this paragraph and

notwithstanding any provisions of

subsection (a)(2) and (b) of section 504

of the Act, the records referred to in

paragraph (j) of this Section are

available at their customary location for

examination, upon reasonable notice,

during normal business hours by:

(A) Any duly authorized employee or

representative of the Department of

Labor or the Internal Revenue Service.

(B) Any fiduciary of a plan who has

authority to acquire or dispose of the

assets of the plan involved in the foreign

exchange transaction or any duly

authorized employee or representative

of such fiduciary.

(C) Any contributing employer to the

plan involved in the foreign exchange

transaction or any duly authorized

employee or representative of such

employer.

(2) None of the persons described in

subparagraphs (B) and (C) shall be

authorized to examine a bank’s or

broker-dealer’s trade secrets or

commercial or financial information of

a bank or broker-dealer, or an affiliate

thereof which is privileged or

confidential.

Section IV Definitions and General

Rules

For purposes of this exemption,

(a) A ‘‘foreign exchange transaction’’

means the exchange of the currency of

one nation for the currency of another

nation.

(b) The term ‘‘standing instruction’’

means a written authorization from a

plan fiduciary, who is independent of

the bank or broker-dealer engaging in

the foreign exchange transaction and

any affiliate thereof, to the bank or

broker-dealer to effect the transactions

specified therein pursuant to the

instructions provided in such

authorization.

(c) A ‘‘bank’’ means a bank which is

supervised by the United States or a

State thereof, or any domestic affiliate

thereof.

(d) A ‘‘broker-dealer’’ means a brokerdealer registered under the Securities

Exchange Act of 1934, or any domestic

affiliate thereof.

(e) A ‘‘domestic affiliate’’ of a bank or

broker-dealer means any entity which is

supervised by the United States or a

state thereof and which is directly or

indirectly, through one or more

intermediaries, controlling, controlled

by, or under common control with such

bank or broker-dealer.

(f) The term ‘‘control’’ means the

power to exercise a controlling

influence over the management or

policies of a person other than an

individual.

(g) An ‘‘income item conversion’’

means the conversion into U.S. dollars

of an amount which is the equivalent of

no more than 100,000 U.S. dollars of

interest, dividends or other distributions

or payments with respect to a security,

tax reclaims, proceeds from dispositions

of rights, fractional shares or other

similar items denominated in the

currency of another nation that are

received by the bank or broker-dealer on

behalf of the plan from the plan’s

foreign investment portfolio.

(h) A ‘‘de minimis purchase or sale

transaction’’ means the purchase or sale

of foreign currencies in an amount of no

more than 100,000 U.S. dollars or the

equivalent thereof in connection with

the purchase or sale of foreign securities

by a plan.

(i) For purposes of this exemption the

term ‘‘employee benefit plan’’ refers to

a pension plan described in 29 CFR

§ 2510.3–2 and/or a welfare benefit plan

described in 29 CFR § 2510.3–1.

(j) For purposes of this exemption, the

term ‘‘good funds’’ means funds

immediately available in cash with no

sovereign or other governmental

impediments or restrictions to the

exchange or transfer of such funds.

(k) For purposes of this exemption,

the term ‘‘business day’’ means a

banking day as defined by federal or

state banking regulations.

Signed at Washington, DC, this 28th day of

January, 1997.

Alan D. Lebowitz,

Deputy Assistant Secretary for Program

Operations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 97–2556 Filed 1–31–97; 8:45 am]

BILLING CODE 4510–29–M

LIBRARY OF CONGRESS

Copyright Office

[Docket No. 96–4 CARP DPRA]

Digital Phonorecord Delivery Rate

Adjustment Proceeding

AGENCY: Copyright Office, Library of

Congress.

ACTION: Notice vacating precontroversy

discovery schedule and notice of

meeting.

SUMMARY: The Library of Congress is

vacating the current precontroversy

discovery schedule and the date for

initiating the proceeding to determine

reasonable rates and terms for digital

transmissions that constitute a digital

phonorecord delivery to allow further

negotiations. On April 1, 1997, the

parties will meet with members of the

Copyright Office and report on the

status of these negotiations.

DATES: The schedule for the digital

phonorecord delivery rate adjustment

proceeding is vacated as of February 3,

1997. On April 1, 1997, at 10:00 a.m.,

the Copyright Office will conduct a

status meeting with all interested

parties.

ADDRESSES: The meeting will be held at

the Library of Congress, James Madison

Building, Room LM–414, First and

Independence Avenue, SE.,

Washington, DC 20540.

FOR FURTHER INFORMATION CONTACT:

William Roberts, Senior Attorney for

Compulsory Licenses, or Tanya M.