59744 Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices

1 In the case of a Plan sponsored by TCW, such

fiduciary need not be independent of TCW.

DEPARTMENT OF LABOR

Pension and Welfare Benefits

Administration

[Prohibited Transaction Exemption 97–60;

Exemption Application No. D–10319]

Grant of Individual Exemptions; TCW

Group, Inc., Trust Company of the

West, TCW Funds Management, Inc.,

TCW Galileo Funds, (Collectively;

TCW)

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Grant of individual exemptions.

SUMMARY: This document contains

exemptions issued by the Department of

Labor (the Department) from certain of

the prohibited transaction restrictions of

the Employee Retirement Income

Security Act of 1974 (the Act) and/or

the Internal Revenue Code of 1986 (the

Code).

Notices were published in the Federal

Register of the pendency before the

Department of proposals to grant such

exemptions. The notices set forth a

summary of facts and representations

contained in each application for

exemption and referred interested

persons to the respective applications

for a complete statement of the facts and

representations. The applications have

been available for public inspection at

the Department in Washington, D.C. The

notices also invited interested persons

to submit comments on the requested

exemptions to the Department. In

addition the notices stated that any

interested person might submit a

written request that a public hearing be

held (where appropriate). The

applicants have represented that they

have complied with the requirements of

the notification to interested persons.

No public comments and no requests for

a hearing, unless otherwise stated, were

received by the Department.

The notices of proposed exemption

were issued and the exemptions are

being granted solely by the Department

because, effective December 31, 1978,

section 102 of Reorganization Plan No.

4 of 1978 (43 FR 47713, October 17,

1978) transferred the authority of the

Secretary of the Treasury to issue

exemptions of the type proposed to the

Secretary of Labor.

Statutory Findings

In accordance with section 408(a) of

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

Code and the procedures set forth in 29

CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990) and based upon

the entire record, the Department makes

the following findings:

(a) The exemptions are

administratively feasible;

(b) They are in the interests of the

plans and their participants and

beneficiaries; and

(c) They are protective of the rights of

the participants and beneficiaries of the

plans.

TCW Group, Inc., Trust Company of the

West, TCW Funds Management, Inc.,

TCW Galileo Funds, Inc. (Collectively;

TCW), Located in Los Angeles,

California

[Prohibited Transaction Exemption 97–60;

Exemption Application No. D–10319]

Exemption

Section I. Covered Transactions

The restrictions of section 406(a) of

the Act and the sanctions resulting from

the application of section 4975 of the

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

through (D) of the Code, shall not apply

to the acquisition or redemption of units

(the Units) in the TCW Life Cycle Trusts

(the Trusts, as defined in Section III) by

individual account plans described in

section 3(34) of the Act (the Plans),

including Plans sponsored by TCW, in

connection with such Plans’

participation in the TCW Portfolio

Solutions Program (the Program), and

the acquisition or redemption of shares

(the Shares) in the TCW Galileo Funds

(the Funds, as defined in Section III) by

the Trusts.

In addition, the restrictions of section

406(b) of the Act and the sanctions

resulting from the application of section

4975 of the Code, by reason of section

4975(c)(1)(E) and (F) of the Code, shall

not apply to the receipt of fees by TCW

as a result of the provision of advice in

connection with the investment by the

Plans in the Trusts, a Money Market

Fund, a Guaranteed Investment Contract

(GIC) or similar investment vehicle,

under the Program.

This exemption is subject to the

following conditions set forth below in

Section II.

Section II. General Conditions

A. The terms of each purchase or

redemption of the Units in the Trusts

are at least as favorable to an investing

Plan as those obtainable in an arm’s

length transaction with an unrelated

party.

B. The participation of a Plan in the

Program will be expressly authorized in

writing by a fiduciary of the Plan who

is independent of TCW.1 With respect to

the Plans sponsored by TCW, this

condition will be deemed satisfied for

purposes of the purchase or redemption

of Units in the Trusts, if the purchase

and redemption of Shares in the Funds

by the Trusts meets the conditions of

Prohibited Transaction Exemption (PTE)

77–3 (42 FR 18743, April 8, 1977).

C. Participation in the Program will be

limited to Plans which have a minimum

of $5,000,000 in plan assets as of the

end of the most recent plan year.

D. No Plan will pay a fee or

commission by reason of the acquisition

or redemption of Units in the Trusts or

Shares in the Funds.

E. The price paid or received by the

Plans for the Units in the Trusts is the

‘‘net asset value’’ per Unit, at the time

of the transaction. The Trusts will buy

and sell shares in the Funds on the same

basis as other shareholders.

F. The total fees paid to TCW and its

affiliates by each Plan for the provision

of services in connection with its

investment in the Units of the Trusts

under the Program does not exceed

‘‘reasonable compensation’’ within the

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

In this regard, the total amount paid by

a Trust to TCW or unaffiliated third

persons for services necessary to operate

the Trusts, and for TCW to provide what

may be considered investment advice,

will not exceed 1% per annum of the

average daily ‘‘net asset value’’ of the

shares of the Funds and cash held by

such Trust.

G. TCW will not receive any fees from

the Plans whose participants (the

Participants) receive recommendations

concerning investment in a Trust, nor

from the Trusts in which the Plans

invest. Notwithstanding the foregoing,

TCW will not be precluded from

receiving: (i) fees from the Funds which

are paid by other investors in the Funds,

and which are permissible under the

Investment Company Act of 1940, as

amended (the 1940 Act); (ii)

reimbursement for ‘‘direct expenses’’

within the meaning of 29 CFR

2550.408c–2 in connection with the

operation of the Program; or (iii)

reimbursement for direct expenses

which TCW pays to unaffiliated third

persons for goods and services provided

to the Trusts and/or Plans under the

Program.

H. Any investment advice given to the

Participants by TCW under the Program

will be based on the responses provided

by the Participants to worksheet

questions which are developed and

designed by an independent financial

expert (the Financial Expert, as defined

in Section III (F)) and the independent

behavioral expert (the Behavioral Expert

as defined in Section III (G),

collectively; the Experts).
Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices 59745

2TCW will not receive any fees or other

compensation with respect to recommendations

regarding investments in an unrelated Money

Market Fund, GIC or similar investment vehicle.

3TCW anticipates that most Plans which

participate in the Program will comply with section

404(c) of the Act. Section 404(c) of the Act requires,

in part, that specific disclosures be provided by the

Plans to the participants and beneficiaries. See 29

C.F.R. 2550.404c–1(b)(2)(i)(A) and (b)(2)(i)(B)(2)(iv)

and (v).

I. Any investment advice given to the

Participant will be implemented only at

the express direction of the Participant.

J. Under the Program, TCW will give

investment advice to the Participants

that is limited to the Trusts, a Money

Market Fund, a GIC or a similar

investment vehicle that may or may not

be affiliated with TCW.2

K. The compensation of neither

Expert is affected by the decisions made

by the participants and beneficiaries

regarding investment of the assets of

their accounts among the Trusts.

L. To the extent any assistance is

provided by TCW, or unaffiliated third

persons, to the Participants in

completing the worksheets and

questions designed by the Experts, such

assistance is provided by individuals

whose compensation is not affected by

the investment by the participants and

beneficiaries of the assets of their

accounts among the Trusts.

M. With respect to its participation in

the Program, an independent Plan

fiduciary must receive, prior to the

Plan’s investment in any of the Trusts,

complete and detailed written

information regarding the Trusts and the

Funds which will include, but may not

be limited to:

(1) A description of the Program;

(2) The allocation of the Funds in

each Trust specified by the Financial

Expert, and the basis upon which the

Funds in each Trust will be rebalanced

so that the Funds’ proportionate value

in each Trust equals that specified by

the Financial Expert;

(3) Upon request by the Plan

fiduciary, the current basis upon which

the asset allocation of the Trusts was

derived;

(4) Full disclosure of all the expenses

charged to the Trusts, and how such

expenses are allocated;

(5) Full disclosure of all the fees

charged by the Funds, which may be

accomplished by providing the current

prospectus for each of the Funds

comprising a Trust; and

(6) A copy of the proposed exemption

and the final exemption, as published in

the Federal Register.

N. (1) Prior to investing in a Trust,

each Participant will receive full

disclosures which will include, but may

not be limited to:

(a) Disclosure regarding composition

of the Trusts, and a description of the

underlying Funds;

(b) Upon request, a Participant will

also receive a copy of the Funds’

prospectus 3; and

(c) The Participant can meet with a

facilitator familiar with the Program, or

contact such a facilitator using a tollfree number.

(2) Subsequent to his participation in

the Program, each Participant will

receive the following disclosures which

will include, but may not be limited to:

(a) Written confirmations of purchase

and redemption transactions for each

Participant within 10 days of each such

transaction;

(b) Telephone access to the quotations

of the Participant’s account balance; and

(c) A periodic newsletter describing

the Trusts’ performance during the

preceding period, market conditions

and economic outlook and, if

applicable, prospective changes in the

asset allocation model and the reasons

for the change.

O. Each Plan fiduciary will receive

the following written disclosures with

respect to its ongoing participation in

the Program which will include, but

may not be limited to:

(1) A quantitative annual report

which will include—

(a) Performance Summary for each

Fund;

(b) Schedule of Investments for each

Fund;

(c) Statements of Assets and

Liabilities for each Fund;

(d) Statements of Operations for each

Fund;

(e) Statements of Changes in Net

Assets for each Fund;

(f) Notes to Financial Statements,

which include but are not limited to,

primary investment objective of each

Fund;

(g) The performance and rate of return

achieved for each Trust and the Funds

in which the Trust is invested; and

(h) A breakdown of all expenses and

fees at the Fund and Trust levels.

P. (1) Except as provided in Section

II (P)(2) below, the independent Plan

fiduciary will receive, at least 30 days

advance notice of any material change

in the information described in Section

II (M)(2) or (3) regarding the

composition of the Trusts or the basis

on which the Trusts’ assets are

rebalanced, and will receive at least 30

days advance notice of any material

increase in expenses at the Trust level

described in Section II (M)(4);

(2) The Financial Expert will have the

sole responsibility for determining the

materiality of any changes in the

information in Section II (M)(2) or (3).

TCW will determine the materiality of

any changes described in Section II

(M)(4) regarding the expenses charged to

the Trusts. For any changes in the

information in Section II (M)(2) or (3)

which are not material, the independent

Plan fiduciaries will be notified within

10 days of such change. For any changes

in the information in Section II (M)(4)

which are not material the independent

Plan fiduciary will be notified at least

quarterly. Independent Plan fiduciaries

will be afforded, at all times, a

reasonable opportunity to terminate

their Plans’ participation in the Program

as described in Section II (Q)(2) below;

and

(3) Under extraordinary

circumstances outside the control of

TCW, the independent Plan fiduciary

may not be provided advance notice by

TCW of material changes in the

information listed in Section II (M)(2) or

(3) regarding the composition of the

Trusts or the basis on which the Trusts’

assets are rebalanced. Under such

circumstances, the Plan fiduciaries will

be notified within 10 days of any such

change. The Financial Expert will

determine whether the circumstance is

extraordinary and if the change in the

composition of the Trusts or in the basis

for rebalancing is material.

Q. (1) The Units in the Trusts will be

redeemed by TCW, at no charge.

Redemption requests received in proper

form prior to the close of trading on the

New York Stock Exchange (NYSE) will

be affected at the net asset value per

Unit determined on that day.

Redemption requests received after the

close of regular trading on the NYSE

will be effected at the net asset value at

the close of business of the next

business day; and

(2) The Plans can redeem their Units

in the Trusts on five business days (or

less) notice.

R. The Trusts permit participants and

beneficiaries to purchase or redeem an

interest in the Trust on any day that the

shares of the Funds contained within

the Trust can be purchased or

redeemed. This paragraph (R) does not

preclude any Plan from restricting such

purchases and redemptions to a less

frequent basis.

S. All transactions involving

securities owned by the Funds will be

executed through brokers in which TCW

has no interest and who are unrelated to

TCW. TCW will not receive any

consideration from such brokers in

connection with their selection, or for

effecting or executing such transactions
59746 Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices

other than research which will benefit

the shareholders of the Funds, including

the Trusts. TCW brokerage practices

will reasonably comply with the

requirements of section 28(e) of the

Securities Exchange Act of 1934.

T. (1) The independent fiduciaries of

Plans participating in the Program will

receive full written disclosure, in a

statement separate from a Fund

prospectus, of any proposed increases in

the rates of advisory or other fees

charged by TCW to the Funds for

services (or of any material increase in

expenses charged by TCW to the Funds

or fees charged by TCW for internal

accounting services for the Funds) at

least 30 days prior to the effective date

of such increase, accompanied by a

termination form (the Termination

Form, as described in (2) below) and

shall receive full written disclosure in a

Fund prospectus, or otherwise, of any

such increases in the rate of fees

charged by TCW to the Funds; and

(2) The Termination Form shall

provide an election to terminate

participation in the Program and shall

contain instructions on the use of the

form that includes the following

information: (a) the authorization to

participate in the Program is terminable

at will by the Plan, without penalty to

the Plan, upon receipt by TCW of

written notice from the Plan; and (b)

failure to return the Termination Form

will result in the continued

authorization of the Plan’s participation

in the Program, including investment in

the Trusts.

U. TCW maintains, for a period of six

years, the records necessary to enable

the persons described in paragraph (V)

of this Section II to determine whether

the conditions of this exemption have

been met, including a record of each

recommendation made to the

participants and beneficiaries, and their

subsequent investment choices, except

that—

(1) A prohibited transaction will not

be considered to have occurred if, due

to the circumstances beyond the control

of TCW and/or its affiliates, the records

are lost or destroyed prior to the end of

the six-year period; and

(2) no party in interest, other than

TCW, shall be subject to the civil

penalty that may be assessed under

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

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

the Code if the records are not

maintained or not available for

examination as required by paragraph

(V)(1) of this Section II below.

V. (1) Except as provided in

subparagraph (2) of this paragraph (V)

and notwithstanding any provisions of

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

of the Act, the records referred to in

paragraph (U) of this Section II 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

Securities and Exchange Commission,

(b) Any fiduciary of a participating

Plan or any duly authorized

representative of such fiduciary,

(c) Any contributing employer to any

participating Plan, or any duly

authorized employee or representative

of such employer, and

(d) Any participant or beneficiary of

any participating Plan, or any duly

authorized representative of such

participant or beneficiary.

(2) None of the persons described in

paragraphs (1)(b)–(d) of this paragraph

(V) shall be authorized to examine trade

secrets of TCW, or commercial or

financial information which is

privileged or confidential.

Section III. Definitions

A. The term ‘‘Trust’’ or ‘‘Trusts’’

means a commingled trust or trusts

which satisfy the requirements of IRS

Revenue Ruling 81–100, 1981–1 C.B.

326 which invest exclusively in one or

more of the portfolios of TCW Galileo

Funds, Inc., cash or cash equivalents.

B. The term ‘‘Fund’’ or ‘‘Funds’’

means one or more of the portfolios of

TCW Galileo Funds, Inc., an open-end

investment company registered under

the 1940 Act.

C. The term ‘‘TCW’’ means the TCW

Group, Inc., and any affiliates thereof as

defined below in paragraph (D) of this

Section III.

D. The term ‘‘affiliate’’ of a person

includes:

(1) Any person directly or indirectly

through one or more intermediaries,

controlling, controlled by, or under

common control with the person;

(2) Any officer, director, employee,

relative, or partner in any such person;

and

(3) Any corporation or partnership of

which such person is an officer,

director, partner, or employee.

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 ‘‘Financial Expert’’ means

Professor Jeffrey F. Jaffe, Ph.D., or a

successor Financial Expert. Less than 5

percent (5%) of Professor Jaffe’s gross

income, for federal income tax

purposes, in his prior tax year, will be

paid by TCW in the immediately

subsequent tax year. If the Financial

Expert has any income which is not

included in the gross income (e.g.,

interest income which is exempt from

federal income taxes), such income may

be added to his gross income for his

purpose. In the event TCW determines

to replace Professor Jaffee or any of his

successors, TCW will send a letter to the

Department 60 days prior to such

replacement. The letter will specify that

the successor Financial Expert has

responsibilities, experience and

independence similar to those of

Professor Jaffee. If the Department does

not object to the successor, the new

appointment will become effective on

the 60th day after the Department

receives such letter.

G. The term ‘‘Behavioral Expert’’

means Professor Shlomo Benartzi, or a

successor Behavioral Expert. In the

event TCW determines to replace

Professor Benartzi or any of his

successors, TCW will send a letter to the

Department 60 days prior to such

replacement. The letter will specify that

the successor has responsibilities,

experience and independence similar to

that of Professor Benartzi. If the

Department does not object to the

successor, the new appointment will

become effective on the 60th day after

the Department receives such letter.

H. The term ‘‘net asset value’’ of a

Trust is defined to mean the fair market

value of shares in the Funds and cash

and cash equivalents, minus the accrued

expenses of a Trust.

EFFECTIVE DATE: This exemption is

effective as of August 1, 1997, the date

the notice of proposed exemption was

published in the Federal Register.

For a more complete statement of the

facts and representations supporting the

Department’s decision to grant this

exemption refer to the notice of

proposed exemption (the Notice)

published on August 1, 1997 at 62 FR

41433.

Written Comments

The Department received two written

comments with respect to the Notice

and no requests for a public hearing.

The first comment was filed by TCW

and generally requests clarifications and

modifications to the Notice. Set forth

below in paragraph 1 are the relevant

points of the TCW comment.

The second comment was filed by a

representative of the 401(k) Association.

This comment generally raises issues

about certain aspects of the Notice, and

was subsequently sent by the

Department to TCW for their response.

Set forth below in paragraph 2 is a list

of the issues raised by the commenter

(the Commenter) together with the

responses to those points by TCW.
Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices 59747

1. Discussion of TCW’s Comment

Section I of the Notice exempts, in

relevant part, the provision of advice,

and the receipt of fees as a result

thereof, in connection with the

investment by the Plans in the Trusts

under the Program.

TCW states that the Notice makes

clear in Condition J of Section II of the

General Conditions and in the Summary

of Facts and Representations (Summary)

that, in addition to the Trusts, the

Program will also make available nonTrust investment vehicles, i.e., ‘‘a

Money Market Fund, a Guaranteed

Investment Contract (GIC) or a similar

investment vehicle that may or may not

be affiliated with TCW.’’ While it is

anticipated that the Program will

normally produce a recommendation for

a single Trust, there could be instances

in which a non-Trust investment

vehicle is recommended. TCW suggests

that the last part of the second

paragraph of Section I of the Notice be

modified to take into account the

potential investment by the Plans in the

Trusts, a Money Market Fund, a

Guaranteed Investment Contract (GIC)

or a similar investment vehicle under

the Program.

In addition, the Department has

determined to modify the abovereferenced language in Section I in order

to clarify that relief from the prohibited

transaction restrictions of section 406(b)

of the Act is provided only for the

receipt of fees by TCW as a result of the

provision of advice by TCW to

participants of plans who participate in

the Program. Nothing contained in this

exemption provides relief from the

general standards of fiduciary conduct

described in section 404 of the Act for

the investment advice provided to

participants. Thus, TCW remains fully

responsible under the Act for its

fiduciary actions. We also note that the

plan fiduciary (usually the employer/

sponsor) is responsible under the Act

for the decision to retain TCW, as well

as for periodically monitoring TCW’s

performance.

Therefore, the Department has

modified the above language of Section

I of the final exemption to read as

follows:

‘‘In addition, the restrictions of

section 406(b) of the Act and the

sanctions resulting from the application

of section 4975 of the Code, by reason

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

Code, shall not apply to the receipt of

fees by TCW as a result of the provision

of advice in connection with the

investment by the Plans in the Trusts,

a Money Market Fund, a Guaranteed

Investment Contract (GIC) or similar

investment vehicle, under the Program.’’

TCW also suggests that a new

sentence should be added at the end of

section 13 (Section) of the Summary.

The new sentence should read:

‘‘References to Trust or Trusts in this

paragraph also encompass the other

investment options available under the

Program.’’ The Department concurs with

this comment.

2. TCW suggests that Condition C of

Section II and Section 16(f) of the

Summary be modified to provide that

the amount of plan assets referred to in

those provisions be measured, ‘‘* * *

as of the end of the most recent plan

year.’’

The Department concurs with this

comment and has modified Condition C

of Section II of the final exemption.

3. TCW requests clarification

regarding Condition L of Section II.

Although Condition L of Section II is

intended to preclude individuals who

provide assistance to Participants from

receiving compensation which is

affected by the specific investments

made by such Participants among the

Trusts, such individuals may receive

enhanced compensation based on the

amount invested in the entire Program

by all Participants, or by the

Participants which they or their teams

assist.

4. TCW notes that Condition Q (1) of

Section II should indicate more clearly

when the net asset value is measured for

the purpose of effecting redemption

requests received after the close of

regular trading on the NYSE when

NYSE is closed the next day. TCW

suggests that the last phrase in the third

sentence in Condition Q(1) ‘‘* * *

except on weekends or holidays when

the NYSE is closed’’ be deleted and that

the word ‘‘business’’ be inserted

between the words ‘‘next’’ and ‘‘day’’

such that the phrase reads, in relevant

part, ‘‘* * * the close of business of the

next business day.’’

The Department concurs with this

comment and has modified Condition Q

(1) of Section II of the final exemption.

5. TCW also suggests that in the

definition of ‘‘net asset value’’ contained

in Paragraph H of Section III, the words

‘‘and cash equivalents’’ should be added

in the third line after the word ‘‘cash’’,

such that the definition reads as follows:

‘‘The term ‘net asset value’ of a Trust

is defined to mean the fair market value

of shares in the Funds and cash and

cash equivalents, minus the accrued

expenses of a Trust.’’

The same change should be made in

the next-to-last sentence in Section 4 of

the Summary such that the sentence

reads as follows:

‘‘The Trusts trade at the net asset value of

the amalgam of the Funds in which they are

invested, plus any cash and cash equivalents

they hold.’’

The Department concurs with this

comment and has modified Paragraph H

of Section III of the final exemption.

6. TCW represents that Continental

Asset Management Corp. referenced in

Section 1 of the Summary is now named

TCW Advisors Inc. and still remains an

SEC registered advisor.

7. TCW suggests that to be consistent

with footnote 6 of the Notice, the third

sentence in Paragraph 2 of the Summary

should begin with ‘‘It is anticipated that

* * *’’ such that the sentence should

read:

‘‘It is anticipated that virtually all of

the Plans participating in the Program

will be designed to comply with the

provisions of section 404(c) of the Act.’’

The Department concurs with this

comment.

Additionally, TCW comments that to

more accurately reflect the Worksheet

process, the sixth and following

sentences in Paragraph 2 of the

Summary should read as follows:

‘‘The Worksheets consist of a series of

questions designed to assess the

Participants’ retirement needs and

levels of risk tolerance, including his or

her current Plan and non-Plan

investments, anticipated future savings

and retirement goals. Upon completion

of the Worksheets, a Participant’s

response will be analyzed and each

Participant will receive a written

recommendation from TCW of an

appropriate Trust (or other investment

vehicle under the Program) for

investment. Matching the Worksheet

responses to projections of the risk and

return characteristics of portfolios

available under the Program will allow

the selection of a portfolio consistent

with that Participant’s retirement needs

and risk tolerance.’’

The Department concurs with this

comment.

8. TCW suggests that to describe more

accurately the quantitative annual

report to be provided by TCW to the

Plan Fiduciaries, the second sentence of

the second paragraph in Paragraph 10 of

the Summary should read as follows:

‘‘The annual report will enable the

Plan Fiduciaries to determine whether

the Program has increased or

maintained Plan participation, has

increased or maintained the level of

Participants’ investment or deferrals

under the Plan, or has achieved more

appropriate asset allocation for the

investment of the Plan Participants’

accounts.’’

The Department concurs with this

comment.
59748 Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices

9. TCW also states that to make clear

that approval by the Financial Expert is

necessary for the creation of any

Separate Trust, the word ‘‘only’’ should

be inserted between the words

‘‘utilized’’ and ‘‘if’’ in the second

sentence of subsection (b) of Paragraph

16 of the Summary such that the

modified sentence reads as follows:

‘‘A Separate Trust may be utilized

only if the Financial Expert approves

such modification.’’

The Department concurs with this

comment.

2. Discussion of the Second Comment

A. Independence of the Financial Expert

In this regard, the Commenter is

concerned that TCW will have little or

no control over the results of investment

recommendations under the Program.

Further, the Commenter suggests that

Professor Jaffe, the Financial Expert,

will be insufficiently involved in the

Program due to the 5% overall limit on

the amount of income derived from

TCW. In addition, the Commenter

questions whether the Financial expert

will be assuming any personal

responsibility for the provision of

advice. In response, TCW maintains that

TCW will not control the results of

investment recommendation under the

Program; rather, as stated throughout

the Notice and as a specific condition in

Section II of the Notice and this

exemption, those recommendations will

be based on responses to the worksheet

questions developed and designed by

the independent Experts.

As to Professor Jaffe, TCW responds

that the 5% limit on his compensation

is designed to ensure that he does not

depend too heavily on TCW for

compensation, but remains independent

of TCW.

The Commenter further suggests that

Professor Jaffe should not be permitted

to be contractually indemnified by

TCW. TCW responds by stating that if

Professor Jaffe is so indemnified, it will

not make him any less independent of

TCW. To the contrary, a contractual

indemnity would give him rights in

dealing with TCW that he might

otherwise lack. Also, the amount of

indemnification offered to Professor

Jaffe by TCW will not be dependent on

the nature of the advice provided the

Participant. Further, as TCW points out,

the Department recognizes that even

indemnities relating to breaches of

statutory fiduciary duties are

permissible under the Act, provided

that they are not paid from plan assets,

or do not attempt to induce a breach of

fiduciary duty. (See 29 CFR section

2509.75–4). TCW also maintains that it

has every incentive to respect the

professional independence of Professor

Jaffe because he is central to the

operation of the Program, and intends to

structure any agreement with Professor

Jaffe so as to ensure his independence.

The Commenter also raises similar

questions regarding the independence of

persons who will do computer

programming in connection with the

Program in as much as such

programmers are hired by TCW. TCW

notes that the Commenter has

misunderstood the role of the

programmers. The programmers will

perform a ministerial function, i.e., to

handle the technical aspects of

programming. The substantive aspects

of the computer programs will be

controlled by the Financial Expert and

the Behavioral Expert. Therefore, TCW

maintains that concerns about

compensation or indemnification of the

programmers is misplaced. In any event,

TCW believes that preclusion of any

indemnity of the programmers would be

inappropriate for the same reasons

expressed as to Professor Jaffe.

b. The Fee Arrangements

A second concern of the Commenter

appears to be fee arrangements

associated with the Program. The

Commenter appears to question the

reasonableness of the fee arrangements

and what the Commenter refers to as the

1% fee on a participant’s account

balance. TCW notes that there is no

such fee; rather, the 1% figure refers to

a cap that limits the amount of direct

expenses payable from the Trusts for the

services necessary to operate the

Program. The only fees that TCW will

receive are the normal fees charged for

advisory services to the underlying

Funds. These fees are paid from the

Funds and would affect Participants

investing in the Funds through the

Program in exactly the same manner as

any other investor in the Funds.

There will be no fees paid to TCW by

the Trusts or by any Plan for advisory

services or for any other services

necessary for the operation of the

Program. The Commenter apparently

misinterpreted a reference in the Notice

to a cap of 1% of a Trust’s net asset

value per annum on amounts payable by

a Trust for services necessary to operate

the Program. This cap is discussed in

more detail in Section 19 of the

Summary in the Notice. As Section 19

states, these expenses will include

reimbursement to TCW for direct

expense payments to third parties

unaffiliated with TCW. As stated in the

last paragraph of Section 18 of the

Summary, to the extent that TCW itself

receives reimbursement of any

expenses, it will be limited to

reimbursement of ‘‘direct expenses’’

within the meaning of 29 CFR section

2550.408c–2.

In short, TCW will receive no fees in

connection with the Program other than

normal advisory fees in connection with

the mutual funds. The 1% cap on direct

expenses paid by the Trusts is a

safeguard to ensure that the Trusts do

not pay excessive expenses; it is not

intended to, and would not, authorize

any payment of fees to TCW from a

Trust. TCW expressly states that the

Plan Participants’ accounts will not be

charged fees by TCW in connection with

the Program. Furthermore, Plan

Participants will have complete

discretion whether to invest in any

Trusts and will be free to accept or

reject any investment recommendations

made in connection with the Program.

c. Recommendations

To address his concerns, the

Commenter recommends that the

following six specific recommendations

be adopted in any final grant of the

exemption by the Department:

1. Require those individuals/entities

that are providing the advisory-related

services to assume the liability exposure

for the services they are providing.

Prohibit TCW or any other entity from

indemnifying them.

2. Limit the compensation that is paid

for this service to a maximum amount

per participant, such as $250.00.

3. Require each participant to decide

whether he/she wants this additional

service. The participant also should be

able to discontinue the service at any

time.

4. Require an independent audit by

one of the major auditing firms at least

annually of the process and the entities

involved to certify that there is in fact

independence.

5. Require the submission to DOL of

a signed disclosure form for each

employer that buys this service.

6. Require TCW to submit to DOL

annually a confirmation that the

disclosure conditions have been

satisfied. This notice should include a

list of all employers in the program, and

it should be signed by the CEO of the

TCW Group.

In response to these

recommendations, TCW maintains the

following.

The first recommendation regarding

indemnity has been addressed above.

TCW maintains that this

recommendation is unnecessary and

unreasonable.

The second and third

recommendations appear to be based on

the misunderstanding relating to the 1%
Federal Register / Vol. 62, No. 213 / Tuesday, November 4, 1997 / Notices 59749

fee discussed above. TCW maintains

that because there is no such fee, there

is no reason to change its form or limit

it. A Participant is, as noted above,

already completely free to decide

whether to begin or to discontinue

investments under the Program.

The last three recommendations do

not appear to be otherwise discussed in

the comment letter. TCW’s general

response to these recommendations is

that they will likely add unnecessary

expense to the Program without any

corresponding benefit. To the extent

that these recommendations arise from

the Commenter’s misunderstanding of

the fee arrangement and other aspects of

the Program, they should be rejected by

the Department on that basis.

Specifically, it is not clear to TCW

exactly how an auditing firm would

perform an audit to verify

independence; as a practical matter,

because the independence of the

Experts is central to the Program and

this exemption, TCW would have every

incentive to ensure that independence is

maintained. Similarly, if the Department

wishes to audit the Program, or to

monitor compliance with the conditions

of the exemption, it will exercise its

statutory powers under section 504 of

the Act. Alternatively, the Department

can access the relevant records pursuant

to Condition V of Section II of the

Notice and of this exemption. Imposing

an additional requirement that the

names of the plan sponsors who have

selected the Program be submitted to the

Department along with the signed

disclosure forms may act as a deterrent

to the plan sponsors’ selection of the

Program. Furthermore, TCW is fully

committed to complying with the

substantive disclosures requirement

contained in the Notice and in this

exemption because such a requirement

will provide meaningful information to

the Plan Participants and fiduciaries.

TCW states that imposing additional

requirements would be detrimental to

the Program while offering no

additional protection to the Participants.

The Department has considered the

comments and the responses set forth by

TCW and has determined that no

modification of this exemption is

necessary regarding the points raised by

the Commenter. With respect to the

recommendations of the Commenter,

the Department notes that each

exemption is subject to the explicit

condition that the material facts and

representations submitted in support of

an application are true and accurate.

The exemption application contains the

representations of the applicant. Many

such representations are reflected in the

terms and conditions of the exemption.

These terms and conditions provide for

the independence of the Experts and the

disclosures to be provided by TCW.

Thus, to the extent that TCW does not

comply with the terms and conditions

of the exemption, the exemption would

be void.

After giving full consideration to the

entire record, including the written

comments, the Department has decided

to grant the exemption subject to the

modifications or clarifications described

above. The two comment letters have

been included as part of the public

record of the exemption application.

The complete exemption file is available

for public inspection in the Public

Disclosure Room of the Pension and

Benefits Administration, Room N–5638,

U.S. Department of Labor, 200

Constitution Avenue, NW., Washington

DC 20210.

FOR FURTHER INFORMATION CONTACT:

Ekaterina A. Uzlyan, U.S. Department of

Labor, telephone (202) 219–8883. (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 to which the exemptions

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) These exemptions are

supplemental to and not in derogation

of, any other provisions of the Act and/

or the Code, including statutory or

administrative exemptions and

transactional 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

(3) The availability of these

exemptions is subject to the express

condition that the material facts and

representations contained in each

application are true and complete and

accurately describe all material terms of

the transaction which is the subject of

the exemption. In the case of continuing

exemption transactions, if any of the

material facts or representations

described in the application change

after the exemption is granted, the

exemption will cease to apply as of the

date of such change. In the event of any

such change, application for a new

exemption may be made to the

Department.

Signed at Washington, D.C., this 30th day

of October, 1997.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 97–29175 Filed 11–3–97; 8:45 am]

BILLING CODE 4510–29–P

LEGAL SERVICES CORPORATION

Sunshine Act Meeting

Sunshine Act Meeting of the Board of

Directors

CORRECTION: As published on Oct. 28,

1997 (62 FR 55833), the agenda for the

meeting scheduled for Nov. 15, 1997, is

incorrect. The publication is corrected

as follows:

9. Consider and act on the report of

the Ad Hoc Committee on Performance

Reviews of the President and Inspector

General.

a. Consider and act on procedural

matters, including personal performance

plans for the President and the Inspector

General, written submissions prior to

interviews, and interview protocols.

Dated: October 31, 1997

Victor M. Fortuno,

General Counsel.

[FR Doc. 97–29280 Filed 10–31–97; 12:50 pm]

BILLING CODE 7050–01–P

OFFICE OF MANAGEMENT AND

BUDGET

Office of Federal Procurement Policy

Notice of Availability

AGENCY: Office of Management and

Budget, Office of Federal Procurement

Policy.

ACTION: Notice of availability of the

Procurement Regulatory Activity Report,

Number 14.

SUMMARY: Subsections 25(g) (1) and (2)

of the Office of Federal Procurement

Policy (OFPP) Act, as amended by Pub.

L. 100–679, codified at 41 U.S.C. 421(g),

require the Administrator for Federal

Procurement Policy to publish a report

within six months after the date of