Wednesday, 

October 6, 2010 

Part III 

Department of Labor 

Employee Benefits Security 

Administration 

Proposed Exemptions From Certain 

Prohibited Transaction Restrictions; 

Notice 


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61932 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

1For purposes of this proposed exemption, 

references to section 406 of ERISA should be read 

to refer as well to the corresponding provisions of 

section 4975 of the Code. 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Proposed Exemptions From Certain 

Prohibited Transaction Restrictions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of Proposed Exemptions. 

SUMMARY: This document contains 

notices of pendency before the 

Department of Labor (the Department) of 

proposed exemptions from certain of the 

prohibited transaction restrictions of the 

Employee Retirement Income Security 

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

the Internal Revenue Code of 1986 (the 

Code). 

This notice includes the following 

proposed exemptions: D–11576, Bank of 

America, NA et al.; D–11591, Citigroup 

Inc. and its affiliates (Citigroup), the 

Citigroup 401(k) Plan, the Citibuilder 

401(k) Plan for Puerto Rico the 

(Citibuilder Plan) and collectively with 

the Citigroup 401(k) Plan, the 

Participant Directed Plans, the Citigroup 

Pension Plan (and collectively with the 

Participant Directed Plans, the Plans) 

(the Applicants); and D–11611, The 

West Coast Bancorp 401(k) Plan (the 

Plan); et al. 

DATES: All interested persons are invited 

to submit written comments or requests 

for a hearing on the pending 

exemptions, unless otherwise stated in 

the Notice of Proposed Exemption, 

within 45 days from the date of 

publication of this Federal Register 

Notice. 

ADDRESSES: Comments and requests for 

a hearing should state: (1) The name, 

address, and telephone number of the 

person making the comment or request, 

and (2) the nature of the person’s 

interest in the exemption and the 

manner in which the person would be 

adversely affected by the exemption. A 

request for a hearing must also state the 

issues to be addressed and include a 

general description of the evidence to be 

presented at the hearing. 

All written comments and requests for 

a hearing (at least three copies) should 

be sent to the Employee Benefits 

Security Administration (EBSA), Office 

of Exemption Determinations, Room N– 

5700, U.S. Department of Labor, 200 

Constitution Avenue, NW., Washington, 

DC 20210. Attention: Application No. 

__, stated in each Notice of Proposed 

Exemption. Interested persons are also 

invited to submit comments and/or 

hearing requests to EBSA via e-mail or 

FAX. Any such comments or requests 

should be sent either by e-mail to: 

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

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

200 Constitution Avenue, NW., 

Washington, DC 20210. 

Warning: If you submit written 

comments or hearing requests, do not 

include any personally-identifiable or 

confidential business information that 

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

requests are posted on the Internet 

exactly as they are received, and they 

can be retrieved by most Internet search 

engines. The Department will make no 

deletions, modifications or redactions to 

the comments or hearing requests 

received, as they are public records. 

SUPPLEMENTARY INFORMATION: 

Notice to Interested Persons 

Notice of the proposed exemptions 

will be provided to all interested 

persons in the manner agreed upon by 

the applicant and the Department 

within 15 days of the date of publication 

in the Federal Register. Such notice 

shall include a copy of the notice of 

proposed exemption as published in the 

Federal Register and shall inform 

interested persons of their right to 

comment and to request a hearing 

(where appropriate). 

The proposed exemptions were 

requested in applications filed pursuant 

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

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

accordance with procedures set forth in 

29 CFR Part 2570, Subpart B (55 FR 

32836, 32847, August 10, 1990). 

Effective December 31, 1978, section 

102 of Reorganization Plan No. 4 of 

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

the authority of the Secretary of the 

Treasury to issue exemptions of the type 

requested to the Secretary of Labor. 

Therefore, these notices of proposed 

exemption are issued solely by the 

Department. 

The applications contain 

representations with regard to the 

proposed exemptions which are 

summarized below. Interested persons 

are referred to the applications on file 

with the Department for a complete 

statement of the facts and 

representations. 

Bank of America, NA et al. Located in 

Charlotte, North Carolina. Exemption 

Application Number D–11576 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the 

Employee Retirement Income Security 

Act of 1974, as amended (ERISA or the 

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

Internal Revenue Code of 1986, as 

amended (the Code), and in accordance 

with the procedures set forth in 29 CFR 

Part 2570, Subpart B (55 FR 32836, 

32847, August 10, 1990).1

Section I. Covered Transactions 

If the proposed exemption is granted, 

the restrictions of sections 406(a) and 

406(b) of the Act and the sanctions 

resulting from the application of 4975 of 

the Code, by reason of section 

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

shall not apply: (a) Effective January 1, 

2009: (1) To the operation of the RPT 

Stable Value Agreements, pursuant to 

the terms thereof, and to the receipt of 

a fee by BANA in connection therewith; 

and (2) to transactions under the RPT 

Stable Value Agreements (the RPT 

Wrap-Related Transactions); (b) 

effective April 23, 2009: (1) To the 

execution of the RPT Special Purpose 

Wrap Agreement; (2) to the operation of 

the RPT Special Purpose Wrap 

Agreement, pursuant to the terms 

thereof, and to the receipt of a fee by 

BANA in connection therewith; and (3) 

to transactions under the RPT Special 

Purpose Wrap Agreement (the Special 

Purpose Wrap-Related Transactions); 

and (c) effective January 1, 2009: (1) To 

the operation of the Separately Managed 

Account Wrap Agreements, pursuant to 

the terms thereof, and to the receipt of 

a fee by BANA in connection therewith; 

and (2) to transactions under the 

Separately Managed Account Wrap 

Agreements (the Separately Managed 

Account Wrap-Related Transactions), 

provided that the following conditions, 

as applicable, have been met. 

Section II. Conditions Applicable to 

Transactions Described in Section I(a) 

(a) Effective June 1, 2009, B1ackRock 

Advisors may change the formula for 

calculating the Crediting Rate with 

respect to the Global Wrap Account or 

the Global Buy and Hold Account 

(either, a Global Account) only after 

obtaining prior approval from: 

(1) Each financial institution that has 

entered into a wrap agreement covering 

assets included in the applicable Global 

Account; and 


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(2) The Independent Fiduciary, after 

BlackRock Advisors has provided the 

Independent Fiduciary with any 

information that the Independent 

Fiduciary has reasonably requested in 

determining whether to approve the 

proposed change in the Crediting Rate 

formula; 

(b) BANA may not reset a Crediting 

Rate attributable to a Global Account 

more frequently than on a monthly basis 

unless: 

(1) A crediting rate attributable to a 

non-BANA wrap agreement covering 

assets in the same Global Account is 

reset more frequently than on a monthly 

basis; and 

(2) BANA resets the Crediting Rate at 

the same time, and in the same manner, 

as such other non-BANA wrap 

agreement crediting rate; 

(c) Each financial institution entering 

into a wrap agreement covering assets 

included in a Global Account obtains 

information from BlackRock Advisors 

on a monthly basis regarding the 

investments included in such Global 

Account. This information must be 

sufficiently detailed to enable the 

financial institution to independently 

verify that the applicable Crediting Rate 

was calculated properly; 

(d) The fee received by BANA in 

connection with the BANA RPT Global 

Wrap Agreement or the BANA RPT Buy 

and Hold Wrap Agreement will be 

reasonable relative to market conditions 

and risks, as determined annually by the 

Independent Fiduciary. 

Notwithstanding the above, in no event 

shall the fee received by BANA under 

the BANA RPT Global Wrap Agreement 

or the BANA RPT Buy and Hold Wrap 

Agreement exceed the maximum 

percentage fee paid to any other 

financial institution pursuant to a wrap 

agreement covering assets in the 

applicable Global Wrap Account or the 

Global Buy and Hold Account, as 

relevant; 

(e) The Trustee may trigger 

immunization with respect to the BANA 

RPT Global Wrap Agreement only if: 

(1) The Trustee triggers immunization 

with respect to another wrap agreement 

covering assets in the Global Wrap 

Account immediately prior to, or at the 

same time as, the Trustee triggers 

immunization with respect to the BANA 

RPT Global Wrap Agreement; or 

(2) A financial institution not 

affiliated with BANA triggers 

immunization with respect to assets in 

the Global Wrap Account immediately 

prior to, or at the same time as, the 

Trustee triggers immunization with 

respect to the BANA RPT Global Wrap 

Agreement; or 

(3) The Trustee determines that 

BANA is no longer financially 

responsible and the Independent 

Fiduciary determines that immunization 

is in the interests of Plans invested in 

RPT; 

(f) Assets held in RPT will be valued 

at their current fair market value on a 

daily basis utilizing the following 

BlackRock firm-wide approved 

valuation process: 

(1) Valuations will be performed 

without regard to whether the security 

is held in RPT or another account or 

commingled vehicle advised by 

BlackRock; 

(2) Valuations will be based on the 

price that may be obtained in a current 

arm’s-length sale to an unrelated third 

party; 

(3) BlackRock will first obtain prices 

for securities from independent thirdparty sources, including index 

providers, broker-dealers and 

independent pricing services. 

BlackRock will maintain a hierarchy 

that prioritizes pricing sources by asset 

class or type and will value securities 

based on the price generated by the 

highest priority source. The hierarchy 

may vary by asset class or type, but not 

for a particular security; 

(4) If no third-party sources are 

available to value a security or the price 

generated by the third-party falls 

outside specified statistical norms and 

after review BlackRock determines that 

such price is not reliable, BlackRock 

will value the security using an analytic 

methodology in accordance with its 

written valuation policy. If BlackRock 

values a security using such analytic 

methodology, the Independent 

Fiduciary will review that methodology 

and valuation and will obtain its own 

valuation if it deems appropriate; and 

(5) Values determined in accordance 

with (1) through (4) above will be 

provided to each financial institution 

that has entered into a wrap agreement 

covering assets in the Global Wrap 

Account or the Global Buy and Hold 

Account, as the case may be; 

(g) Each financial institution that has 

entered into a wrap agreement covering 

assets in the Global Wrap Account and/ 

or the Global Buy and Hold Account, 

including BANA, may raise an objection 

regarding a particular security’s 

valuation, regardless of the source of 

such valuation. Once an objection is 

raised, wrap providers other than BANA 

may determine a new valuation for such 

security and BANA must accept this 

new valuation, provided that BANA is 

given reasonably satisfactory 

documentation supporting the new 

valuation; 

(h) Prior to a Plan sponsor’s decision 

to include RPT as an investment option 

for its Plan’s participants, the Trustee 

will provide the Plan sponsor with the 

following: 

(1) RPT’s Declaration of Trust (as 

amended and restated as of April 23, 

2009, and as may be further amended 

from time to time); 

(2) A purchase agreement to be 

entered into by the Plan fiduciary and 

the Trustee; 

(3) Upon request, a copy of the 

Annual Report for RPT and a fact sheet 

describing RPT’s investment objective 

and strategy and a performance analysis; 

and 

(4) A copy of this proposed exemption 

or, if granted, a copy of the final 

exemption; 

(i) The Trustee will provide the 

following ongoing disclosures to Plan 

fiduciaries regarding a Plan’s 

investment in RPT: 

(1) The Annual Report for RPT; and 

(2) The Plan’s Investment Summary 

and Accounting; 

(j) Plan participants will be provided 

the following disclosures regarding their 

investment in RPT: 

(1) Prior to and following their initial 

investment, information describing the 

investment objectives and performance 

of RPT; and 

(2) A statement, delivered at least 

quarterly, that sets forth the value of the 

participant’s account contributions, 

withdrawals, distributions, loans and 

change in value since the prior 

statement; 

(k) The Independent Fiduciary must 

receive a copy of any RPT Stable Value 

Agreement amendment prior to the 

effective date of such amendment. The 

Independent Fiduciary must review and 

approve the amendment prior to its 

implementation, except that no such 

review and approval shall be required 

for an amendment that is purely 

ministerial in nature; 

(l) The dollar amount of Global Wrap 

Account assets covered by the BANA 

RPT Global Wrap Agreement shall not 

exceed 50% of the total assets held in 

such Account, and the terms associated 

with the BANA RPT Global Wrap 

Agreement at the time such Agreement 

was entered into, amended, modified or 

renewed shall be no less favorable to 

RPT than the terms associated with 

comparable agreements with unrelated 

parties; 

(m) The dollar amount of Global Buy 

and Hold Account assets covered by the 

BANA RPT Buy and Hold Wrap 

Agreement shall not exceed 60% of the 

total assets held in such Account, and 

the terms associated with the BANA 

RPT Buy and Hold Wrap Agreement at 


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61934 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

the time such Agreement was entered 

into, amended, modified or renewed 

shall be no less favorable to RPT than 

the terms associated with comparable 

agreements with unrelated parties; and 

(n) Any RPT Wrap-Related 

Transaction that involves: (1) the 

exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights 

under the RPT Stable Value 

Agreements; or (2) the performance by 

BANA, the Trustee, or BlackRock of 

their obligations under the RPT Stable 

Value Agreements, shall be subject to 

prior review and approval by the 

Independent Fiduciary if such exercise 

or performance affects the Crediting 

Rate or would otherwise have an 

adverse impact on the book value of a 

participant’s or beneficiary’s investment 

in RPT. 

Section III. Conditions Applicable to 

Transactions Described in Section I(b) 

(a) Below Investment Grade Securities 

will be transferred automatically to a 

RPT account (the Type D1 Account) and 

covered by the RPT Special Purpose 

Wrap Agreement. The RPT Special 

Purpose Wrap Agreement shall cover up 

to in the aggregate $200 million of the 

following: 

(1) Book value of Downgraded 

Securities that have not been sold; and/ 

or 

(2) Aggregate unamortized realized 

losses with respect to sold Downgraded 

Securities; 

(b) The Minimum Ratio shall be 

maintained; 

(c) The total book value of the assets 

included in the Type D1 Account and 

covered by the RPT Special Purpose 

Wrap, including the Permitted 

Securities, will not exceed $700 million 

without the prior written consent of the 

Trustee, BlackRock Advisors, BANA 

and the Independent Fiduciary; 

(d) The crediting rate with respect to 

the Type D1 Account (the Type D1 

Account Crediting Rate) shall be 0.00% 

at times when there are unamortized 

losses (whether realized or unrealized) 

attributable to Downgraded Securities in 

the Type D1 Account, calculated in 

accordance with the provisions of the 

RPT Special Purpose Wrap Agreement. 

In the event there are no unamortized 

losses (i.e., neither realized nor 

unrealized) recorded to the Type D1 

Account which relate to Downgraded 

Securities, the Type D1 Account 

Crediting Rate shall be determined in 

accordance with a formula that has been 

reviewed by the Independent Fiduciary; 

(e) Effective June 1, 2009, BlackRock 

Advisors may change the formula for 

calculating the Type D1 Account 

Crediting Rate only after obtaining prior 

approval from BANA and the 

Independent Fiduciary. BlackRock 

Advisors shall provide the Independent 

Fiduciary with any information it may 

reasonably request in determining 

whether to approve a proposed change 

in the Type D1 Account Crediting Rate 

formula; 

(f) The Type D1 Account Crediting 

Rate will not be reset more frequently 

than on a monthly basis; 

(g) Permitted Securities will have a 

maximum duration of 3.5 years at the 

time of purchase; 

(h) The fee charged by BANA for the 

RPT Special Purpose Wrap will be 

reasonable relative to market conditions 

and risks, as determined annually by the 

Independent Fiduciary. 

Notwithstanding the above, in no event 

shall the fee received by BANA under 

the BANA RPT Global Wrap Agreement 

or the BANA RPT Buy and Hold Wrap 

Agreement exceed the maximum 

percentage fee paid to any other 

financial institution pursuant to a wrap 

agreement covering assets in the 

applicable Global Wrap Account or the 

Global Buy and Hold Account, as 

relevant, as determined annually by the 

Independent Fiduciary. 

Notwithstanding the above, in no event 

shall such fee exceed 15 basis points per 

annum of the total book value of assets 

included in the Type D1 Account; 

(i) Assets covered by the RPT Special 

Purpose Wrap Agreement will be valued 

in accordance with the methodology 

specified in section II(f) above, 

provided, however, that if the 

Independent Fiduciary obtains a 

valuation, such valuation will be 

binding on BANA; 

(j) The Trustee has the right to 

immunize the portfolio of securities 

included in the Type D1 Account only 

if BANA elects to terminate the RPT 

Special Purpose Wrap Agreement, or if 

BANA defaults under the RPT Special 

Purpose Wrap Agreement. If an 

immunization election becomes 

effective (the RPT Special Purpose 

Immunization Date), the RPT Special 

Purpose Wrap Agreement would 

terminate on the later of: (1) The date 

that is the number of years after the RPT 

Special Purpose Immunization Date 

which does not extend beyond the 

modified duration (as defined in the 

RPT Special Purpose Wrap Agreement) 

of the underlying assets on the RPT 

Special Purpose Immunization Date; or 

(2) the first date on which the market 

value of the underlying assets equals or 

exceeds the book value under the wrap 

agreement; 

(k) No Below Investment Grade 

Securities will be added to the RPT 

Special Purpose Wrap Agreement after 

April 23, 2011, unless otherwise agreed 

by BANA, the Trustee, and the 

Independent Fiduciary. No party to the 

RPT Special Purpose Wrap Agreement 

is obligated to amend or extend the RPT 

Special Purpose Wrap Agreement; 

(l) The tasks performed by the 

Independent Fiduciary will include: 

(1) Determining whether the RPT 

Special Purpose Wrap Agreement and 

the portfolio arrangement for the Type 

D1 Account (including the wrap fee 

payable to BANA, the Minimum Ratio, 

the prefunding of the RPT Special 

Purpose Wrap Agreement and the 

formula for resetting the Type D1 

Account Crediting Rate) are prudent and 

in the best interest of participants and 

beneficiaries of Plans investing in RPT; 

(2) Reviewing valuations generated by 

BlackRock (in connection with the RPT 

Special Purpose Wrap Agreement) in 

any situation where BlackRock is unable 

to obtain a reliable valuation from 

independent third party sources. If, after 

such review, the Independent Fiduciary 

deems appropriate, the Independent 

Fiduciary will obtain an independent 

valuation which will be binding on the 

parties; 

(3) Reviewing and monitoring 

whether the Type D1 Account Crediting 

Rate is calculated correctly; 

(4) Monitoring the addition and 

removal of Below Investment Grade 

Securities and any changes in Permitted 

Securities in the Type D1 Account, and 

opining, in a written report, whether 

such addition, removal or change is 

appropriate; 

(5) If BANA objects to the calculation 

by the Trustee or its designee of the 

Type D1 Account Crediting Rate or the 

information used to calculate the Type 

D1 Account Crediting Rate, the 

Independent Fiduciary will make a 

conclusive and binding determination 

regarding such calculation or 

information; 

(6) Determining whether to approve 

any proposed change to the Type D1 

Account Crediting Rate formula, 

including any proposed adjustment to 

the duration component of the Type D1 

Account Crediting Rate formula; 

(7) No later than April 30, 2011, 

working with BANA, BlackRock, and 

the Trustee to review and determine 

whether additional Below Investment 

Grade Securities may be transferred to 

the Type D1 Account and be covered by 

the RPT Special Purpose Wrap 

Agreement; 

(8) Making an initial and, thereafter, 

annual determination regarding whether 

the fee described in paragraph (h) of this 

section is reasonable relative to the 

specific attributes of the RPT Special 

Purpose Wrap Agreement; 


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(9) Making an annual determination 

regarding whether the continued 

maintenance of the RPT Special Purpose 

Wrap Agreement is appropriate and in 

the interest of Plans; 

(10) Making a monthly determination 

regarding whether the appropriate Type 

D1 Crediting Rate formula is being used; 

and 

(11) Reviewing and approving any 

amendment to a RPT Special Purpose 

Wrap Agreement consistent with 

paragraph (n) of this section; 

(m) Any Special Purpose WrapRelated Transaction that involves: (1) 

The exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights 

under the RPT Special Purpose Wrap 

Agreement; or (2) the performance by 

BANA, the Trustee, or BlackRock of 

their obligations under the RPT Special 

Purpose Wrap Agreement, shall be 

subject to prior review and approval by 

the Independent Fiduciary if such 

exercise or performance affects the Type 

D1 Crediting Rate or otherwise would 

have an adverse impact on the book 

value of a participant’s or beneficiary’s 

investment in RPT; and 

(n) The Independent Fiduciary must 

receive a copy of any RPT Special 

Purpose Wrap Agreement amendment 

prior to the effective date of such 

amendment. The Independent Fiduciary 

must review and approve the 

amendment prior to its implementation, 

except that no such review and approval 

shall be required for an amendment that 

is purely ministerial in nature. 

Section IV. Conditions Applicable to 

Transactions Described in Section I(c) 

(a) Effective June 1, 2009, BlackRock 

Advisors may change the formula for 

calculating the Crediting Rate with 

respect to each Separately Managed 

Account Wrap Agreement only after 

obtaining prior approval from BANA 

and the Independent Fiduciary. 

BlackRock Advisors shall provide the 

Independent Fiduciary with any 

information it may reasonably request in 

determining whether to approve a 

proposed change in the Crediting Rate 

formula; 

(b) Effective June 1, 2009, the 

Crediting Rate will be reset no more 

frequently than on a monthly basis; 

(c) BANA will not receive a fee under 

the BANA Wal-Mart Separately 

Managed Wrap Agreement in excess of 

the maximum percentage fee received 

by any other Tier 3 Wrap Provider in the 

Wal-Mart Separately Managed Account; 

and BANA will not receive a fee under 

the BANA Hertz Separately Managed 

Wrap Agreement in excess of the 

maximum percentage fee received by 

any other financial institution that has 

entered into a wrap agreement covering 

assets in the Hertz Separately Managed 

Account; 

(d) Assets covered under each 

Separately Managed Account Wrap 

Agreement will be valued in accordance 

with the same methodology specified in 

section II(f) above; provided, however, 

that if BANA objects to the valuation of 

any asset, the Independent Fiduciary 

will make a binding determination of 

the value of the asset; 

(e) The tasks performed by the 

Independent Fiduciary will include: 

(1) Conducting a monthly review of 

the Crediting Rate, including, 

confirming: (A) The book value of the 

portfolio of assets wrapped by each 

Separately Managed Account Wrap 

Agreement; (B) the valuation of 

securities; (C) the duration of securities; 

(D) the market yield of securities; and 

(E) that the Crediting Rate formula was 

calculated properly; 

(2) Reviewing and approving any 

proposed amendment to a Separately 

Managed Wrap Agreement consistent 

with paragraph (i) below; 

(3) Reviewing any exercise of contract 

provisions by any of BANA, BlackRock 

Advisors or, in the case of the BANA 

Wal-Mart Separately Managed Wrap 

Agreement, the Trustee, and analyze its 

potential impact on investors; 

(4) Evaluating any changes to the fees 

paid to BANA under each Separately 

Managed Account Wrap Agreement to 

determine reasonableness relative to 

market conditions and risks; and 

(5) Providing quarterly reports to 

BlackRock Advisors and to the named 

fiduciaries of the Wal-Mart Plan and the 

Hertz Plan. These reports must certify 

that the Independent Fiduciary has 

reviewed the factors described above 

and state whether BlackRock Advisors 

has complied with all requirements of 

the contract. The Independent Fiduciary 

will inform the named fiduciaries of a 

Plan if it believes that BANA or 

BlackRock Advisors has taken any 

actions that are not in the best interests 

of the participants and beneficiaries in 

the Wal-Mart Plan or the Hertz Plan, as 

relevant; 

(f) The Separately Managed Account 

Wrap Agreements shall authorize the 

Independent Fiduciary to: 

(1) Review and approve any proposed 

changes in the formula for calculating 

the Crediting Rate, prior to 

implementation of any such change; 

(2) If BlackRock Advisors generates its 

own valuation, review the valuation, 

and if the Independent Fiduciary deems 

appropriate, obtain an independent 

valuation, which shall be binding on the 

parties, subject to BANA’s right to raise 

an objection to any valuation; 

(3) If BANA objects to the valuation 

of any asset, make a binding 

determination of the value of the asset; 

(g) The named fiduciaries (or their 

authorized representatives) for the WalMart Plan have the right to terminate 

BlackRock Advisors, as investment 

manager for the Wal-Mart Separately 

Managed Account, on 90 days’ written 

notice. The named fiduciaries (or their 

authorized representatives) for the Hertz 

Plan have the right to terminate 

B1ackRock Advisors as investment 

manager for the Hertz Separately 

Managed Account, on 30 days’ written 

notice; 

(h) Any Separately Managed Account 

Wrap-Related Transaction that involves: 

(1) The exercise by BANA, the Trustee, 

or BlackRock Advisors of their rights 

under a Separately Managed Account 

Wrap Agreement; or (2) the performance 

by BANA, the Trustee, or BlackRock of 

their obligations under a Separately 

Managed Wrap Agreement: shall be 

subject to prior review and approval by 

the Independent Fiduciary if such 

exercise or performance affects the 

Crediting Rate or otherwise would have 

an adverse impact on the book value of 

a participant’s or beneficiary’s 

investment in RPT; 

(i) The Independent Fiduciary must 

receive a copy of any amendment 

contemplated for a Separately Managed 

Wrap Agreement. The Independent 

Fiduciary must review and approve the 

amendment prior to its implementation, 

except that no such review and approval 

shall be required for an amendment that 

is purely ministerial in nature; and 

(j) BlackRock may not terminate a 

Separately Managed Account Wrap 

Agreement without the prior approval of 

the Independent Fiduciary. 

Section V. General Conditions 

(a) BlackRock Advisors shall maintain 

in the United States the records 

necessary to enable the persons 

described in (b) below to determine 

whether the conditions of this 

exemption, if granted, were met, except 

that: 

(1) If the records necessary to enable 

the persons described in (b) below to 

determine whether the conditions of the 

exemption have been met are lost or 

destroyed, due to circumstances beyond 

the control of BlackRock Advisors, then 

no prohibited transaction will be 

considered to have occurred solely on 

the basis of the unavailability of those 

records; and 

(2) No party in interest other than 

BlackRock Advisors shall be subject to 

the civil penalty that may be assessed 

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

taxes imposed by sections 4975(a) and 


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61936 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

(b) of the Code if the records have not 

been maintained or are not available for 

examination as required by paragraph 

(b) below; 

(b) Except as provided in paragraph 

(c) of this section V and 

notwithstanding the provisions of 

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

of the Act, the records referred to in 

section V(a) are unconditionally 

available for examination during normal 

business hours at their customary 

location to the following persons or an 

authorized representative thereof: 

(1) Any duly authorized employee or 

representative of the Department or the 

Internal Revenue Service; 

(2) Any fiduciary of a Plan 

participating in RPT or the Hertz Plan 

or the Wal-Mart Plan; 

(3) Any participant or beneficiary of a 

Plan participating in RPT or the Hertz 

Plan or the Wal-Mart Plan; or 

(4) The Independent Fiduciary. 

(c) None of the persons described 

above in paragraphs (2), (3), and (4) of 

paragraph (b) of this section V shall be 

authorized to examine trade secrets of 

BlackRock, BANA, the Trustee or any of 

their Affiliates, or any commercial or 

financial information which is 

privileged or confidential. Should 

BlackRock Advisors refuse to disclose 

information on the basis that such 

information is exempt from disclosure, 

BlackRock Advisors shall, by the close 

of the thirtieth (30th) day following the 

request, provide written notice advising 

that person of the reason for the refusal 

and that the Department may request 

such information; and 

(d) Promptly following any 

publication of a final exemption in the 

Federal Register, the Trustee or 

BlackRock Advisors will provide a copy 

of the final exemption to the Plan 

sponsor of each Plan invested in RPT, 

and to the Plan sponsor of the Hertz 

Plan, and to the Plan sponsor of the 

Wal-Mart Plan. 

Section VI. Definitions 

(a) The term Act means: The 

Employee Retirement Income Security 

Act of 1974, as amended; 

(b) The term Affiliate means: Any 

person, directly or indirectly, through 

one or more intermediaries, controlling, 

controlled by or under common control 

with such person; 

(c) The term BANA means: Bank of 

America, N.A. and its Affiliates; 

(d) The term BANA Hertz Separately 

Managed Wrap Agreement means: The 

agreement dated as of July 27, 2007 (and 

amended effective as of December 31, 

2008) among BANA, BlackRock 

Advisors (as investment manager for a 

portion of the assets of the Hertz Plan), 

and the Bank of New York Mellon (the 

successor by operation of law to Mellon 

Bank N.A., and the trustee of the trust 

created pursuant to the Hertz Plan), as 

such agreement may be amended from 

time to time, pursuant to which BANA 

provides a book value benefit 

responsive facility with respect to a 

portion of the assets held in the Hertz 

Separately Managed Account; 

(e) The term BANA RPT Buy and 

Hold Wrap Agreement means: The 

agreement dated as of October 16, 1996, 

between Barclays Bank PLC and the 

Trustee (as assigned to BANA as of 

April 1, 1998, and amended effective as 

of December 31, 2008), as such 

agreement may be amended from time 

to time, pursuant to which BANA 

provides a book value benefit 

responsive facility with respect to an 

undivided portion of the assets held in 

the Global Buy and Hold Account; 

(f) The term BANA RPT Global Wrap 

Agreement means: The agreement dated 

as of May 1, 2004 (and amended 

effective as of December 31, 2008) 

between BANA and the Trustee, as such 

agreement may be amended from time 

to time, pursuant to which BANA 

provides a book value benefit 

responsive facility with respect to an 

undivided portion of the assets held in 

the Global Wrap Account; 

(g) The term BANA Wal-Mart 

Separately Managed Wrap Agreement 

means: The agreement dated as of 

August 19, 2003 (and amended effective 

as of December 31, 2008) between 

BANA and the Trustee, as such 

agreement may be amended from time 

to time, pursuant to which BANA 

provides a book value benefit 

responsive facility with respect to a 

portion of the assets held in the WalMart Separately Managed Account; 

(h) The term Below Investment Grade 

Security means: Securities that cease to 

be covered by a benefit responsive 

contract in RPT (other than by the RPT 

Special Purpose Wrap Agreement) 

solely as a result of a downgrade in the 

credit rating of the security to below 

Baa3, BBB- or BBB- by Moody’s 

Investors Services, Inc., Standard & 

Poor’s Rating Group, or Fitch Ratings, 

respectively; provided, however, that a 

Below Investment Grade Security shall 

not include any security that is an 

Impaired Security; 

(i) The term BlackRock means: 

BlackRock, Inc.; 

(j) The term BlackRock Advisors 

means: BlackRock Investment 

Management, LLC and its Affiliates; 

(k) The term Code means: The 

Internal Revenue Code of 1986, as 

amended; 

(l) The term Crediting Rate means: 

The crediting rate described in sections 

II and IV that is used for purposes of 

determining the accrued interest to be 

added to the book value of an 

individual’s account within RPT or the 

Separately Managed Accounts; 

(m) The term Downgraded Security 

means: A Below Grade Investment 

Security that is held in the Type D1 

Account and covered by the RPT 

Special Purpose Wrap Agreement; 

(n) The term Global Buy and Hold 

Account means: The book account or 

sub-account maintained within RPT for 

purposes of identifying certain assets 

relating to the BANA RPT Buy and Hold 

Wrap Agreement; 

(o) The term Global Wrap Account 

means: The book account or subaccount maintained within RPT for 

purposes of identifying certain assets 

relating to the BANA RPT Global Wrap 

Agreement; 

(p) The term Hertz Plan means: The 

Hertz Corporation Income Savings Plan; 

(q) The term Hertz Separately 

Managed Account means: The 

separately managed stable value account 

advised by BlackRock Advisors on 

behalf of the Hertz Plan; 

(r) The term Impaired Security means: 

(i) A security with respect to which the 

issuer or guarantor has failed to make 

one or more payments of principal or 

interest (after giving effect to any 

applicable grace period under the terms 

of such security or prescribed by any 

change in law, regulation, ruling or 

other governmental action); (ii) a 

security with respect to which the 

principal or interest has become due 

and payable before it otherwise would 

have been due or payable other than: (x) 

By reason of a call or other prepayment 

of such security made in accordance 

with its terms that does not constitute 

a default under such security, or (y) 

solely on account of any change in law, 

regulation, ruling or other governmental 

action; (iii) a security where the rate of 

interest thereon has been reset other 

than: (x) Pursuant to the original terms 

of such security, or (y) solely on account 

of any change in law, regulation, ruling 

or other governmental action; or (iv) a 

security with respect to which the issuer 

becomes insolvent or institutes or has 

instituted against it a proceeding 

seeking a judgment of insolvency or 

bankruptcy or any other relief under any 

bankruptcy or insolvency law or other 

similar law affecting creditor’s rights; 

(s) The term Independent Fiduciary 

means an entity that is: (1) Experienced 

and knowledgeable in ERISA and the 

transactions and arrangements 

described herein; (ii) independent of 

and unrelated to BANA, Merrill, 


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BlackRock, and their Affiliates; and (iii) 

appointed to act on behalf of Plans 

investing in RPT or the Separately 

Managed Accounts with respect to the 

matters described herein. The 

Independent Fiduciary will not be 

deemed to be independent of and 

unrelated to BANA, Merrill, BlackRock, 

and their Affiliates if: (i) Such fiduciary 

directly or indirectly controls, is 

controlled by or is under common 

control with BANA, Merrill, or 

BlackRock; (ii) such fiduciary directly or 

indirectly receives any compensation or 

other consideration in connection with 

any transaction described in this 

exemption, if granted, other than for 

acting as an Independent Fiduciary in 

connection with the transactions 

described herein, provided that the 

amount or payment of such 

compensation is not contingent upon, or 

in any way affected by, the Independent 

Fiduciary’s ultimate decision; and (iii) 

the annual gross revenue received by 

the Independent Fiduciary, during any 

year of its engagement, from BANA, 

Merrill, BlackRock, and any of their 

Affiliates, exceeds five percent (5%) of 

the Independent Fiduciary’s annual 

gross revenue from all sources (for 

federal income tax purposes) for its 

prior tax year; 

(t) The term Minimum Ratio means: A 

ratio of 2.5 to 1.0 of market value of 

Permitted Securities to the total 

unamortized unrealized and realized 

losses with respect to Downgraded 

Securities; 

(u) The term Permitted Securities 

means any security that: (i) Is a U.S. 

Treasury debenture, a security issued by 

the Government National Mortgage 

Association or a security guaranteed by 

the Federal Deposit Insurance 

Corporation; and (ii) has a modified 

duration on the date of purchase by RPT 

of 3.5 years or less; 

(v) The term Plan means: An 

employee benefit plan within the 

meaning of and subject to Title I of the 

Act or an individual retirement account 

within the meaning of section 4975 of 

the Code; 

(w) The term RPT means: The Merrill 

Lynch Retirement Preservation Trust 

maintained by the Trustee; 

(x) The term RPT Special Purpose 

Wrap Agreement means: The agreement 

dated as of April 23, 2009, as amended, 

between BANA and the Trustee, 

pursuant to which BANA provides a 

book value benefit responsive facility 

with respect to an undivided portion of 

the assets held in the Type D1 Account; 

(y) The term RPT Stable Value 

Agreements means: The BANA RPT 

Global Wrap Agreement and the BANA 

RPT Buy and Hold Wrap Agreement; 

(z) The term Separately Managed 

Accounts means: The Hertz Separately 

Managed Account and the Wal-Mart 

Separately Managed Account; 

(aa) The term Separately Managed 

Account Wrap Agreements means: The 

BANA Wal-Mart Separately Managed 

Wrap Agreement and the BANA Hertz 

Separately Managed Wrap Agreement; 

(bb) The term Type D1 Account 

means: The book account maintained 

within RPT for purposes of identifying 

Downgraded Securities, including 

unamortized losses with respect to 

Downgraded Securities that have been 

sold, and Permitted Securities covered 

by the RPT Special Purpose Wrap 

Agreement; 

(cc) The term Tier 3 Wrap Provider 

means: A financial institution that has 

entered into a wrap agreement with 

respect to assets held in the Wal-Mart 

Separately Managed Account that will 

not be accessed for purposes of making 

benefit payments until after two tiers of 

buffer assets are accessed; 

(dd) The term Trustee means: Bank of 

America, N.A.; 

(ee) The term Wal-Mart Plan means: 

The Wal-Mart Profit Sharing and 401(k) 

Plan and the Wal-Mart Puerto Rico 

Profit Sharing and 401(k) Plan; 

(ff) The term Wal-Mart Separately 

Managed Account means: The 

separately managed stable value account 

advised by BlackRock Advisors on 

behalf of the Wal-Mart Plan; 

(gg) The term Merrill means: Merrill 

Lynch & Co., Inc. and its Affiliates; 

(hh) The term RPT Wrap-Related 

Transaction means: (1) The 

determination, calculation of and 

adjustments to the Crediting Rate, and 

any changes to the Crediting Rate 

formula; (2) valuations of securities 

covered by the BANA RPT Stable Value 

Agreements; (3) payment of wrap fees 

and any changes to wrap fees; (4) the 

purchase and sale of any security 

covered by the RPT Stable Value 

Agreements; (5) BANA’s or the Trustee’s 

exercise of its right to immunize or 

terminate the RPT Stable Value 

Agreements; (6) amendments to the RPT 

Stable Value Agreements; and (7) any 

other exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights, or 

any performance by BANA, the Trustee, 

or BlackRock of their obligations, under 

the Stable Value Agreements; 

(ii) The term Special Purpose WrapRelated Transaction means: (1) The 

transfer of Below Investment Grade 

Securities to the Type D1 Account; (2) 

the sale or transfer of Downgraded 

Securities out of the Type D1 Account; 

(3) the purchase and sale of certain 

other securities permitted to be held in 

the Type D1 Account; (4) transactions 

relating to maintenance of a minimum 

ratio of Permitted Securities and 

Downgraded Securities; (5) the 

determination, calculation of and 

adjustments to the Type D1 Account 

Crediting Rate and any changes to the 

Type D1 Account Crediting Rate 

formula; (6) valuations of securities 

covered by the RPT Special Purpose 

Wrap Agreement; (7) payment of and 

any changes to wrap fees; (8) BANA’s or 

the Trustee’s exercise of its right to 

immunize or terminate the RPT Special 

Purpose Wrap Agreement; (9) the 

entering into and amendment of the 

RPT Special Purpose Wrap Agreement; 

and (10) any exercise by BANA, the 

Trustee, or BlackRock Advisors of their 

rights, or any performance by BANA, 

the Trustee, or BlackRock of their 

obligations, under the RPT Special 

Purpose Wrap Agreement; 

(jj) The term Separately Managed 

Account Wrap-Related Transaction 

means: (1) The determination, 

calculation of and adjustments to the 

Crediting Rate, and any changes to the 

Crediting Rate formula; (2) valuations of 

securities covered by the Separately 

Managed Account Wrap Agreements; (3) 

payment of wrap fees and any changes 

to wrap fees; (4) the purchase and sale 

of any security covered by the 

Separately Managed Account Wrap 

Agreements; (5) BANA’s or the Trustee’s 

exercise of its right to terminate the 

Separately Managed Wrap Agreements; 

(6) amendments to the Separately 

Managed Wrap Agreements; and (7) any 

other exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights, or 

any performance by BANA, the Trustee, 

or BlackRock of their obligations, under 

the Separately Managed Wrap 

Agreements. 

Summary of Facts and Representations 

1. Applicants 

A. Bank of America, NA (BANA). 

BANA is a wholly-owned indirect 

subsidiary of Bank of America 

Corporation (BAC). BANA is engaged in 

a general consumer banking, 

commercial banking and trust business, 

offering a wide range of commercial, 

corporate, international, financial 

market, retail and fiduciary banking 

services. 

B. Merrill Lynch & Co., Inc. (Merrill). 

Merrill is a holding company that, 

through its affiliates, provides brokerdealer, investment banking, financing, 

advisory, wealth management, 

insurance, lending and related products 

and services. Merrill’s subsidiaries 

included Merrill Lynch Bank & Trust 

Co., FSB (MLTC). MLTC merged into 

BANA during the fourth quarter of 2009. 


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2The Applicants describe an impaired security as 

including a security with respect to which the 

issuer or guarantor has failed to make one or more 

payments of principal or interest. 

C. BlackRock, Inc. (BlackRock). 

BlackRock is an investment 

management firm that, as of December 

31, 2008, had approximately $1.307 

trillion in assets under management. 

D. Merrill/BAC Merger. On September 

15, 2008, BAC and Merrill entered into 

an agreement and plan of merger 

pursuant to which, effective as of the 

closing of the transactions contemplated 

thereby, a new, wholly-owned 

subsidiary of BAC merged with and into 

Merrill (the Merrill/BAC Merger). The 

Merrill/BAC Merger closed on January 

1, 2009, at which time Merrill became 

a wholly-owned subsidiary of BAC and 

an affiliate of BANA. 

E. Merrill/BlackRock Transaction. On 

September 29, 2006, Merrill contributed 

Merrill Lynch Investment Managers, 

LLC and various other assets and 

subsidiaries that comprised its 

investment management business to 

BlackRock. As a result of that 

transaction (the Merrill/BlackRock 

Transaction), from September 29, 2006, 

though December 26, 2008, Merrill held 

an approximate 49% ownership interest 

in BlackRock and held 45% of the 

outstanding voting securities of 

BlackRock. Pursuant to an exchange 

agreement between Merrill and 

BlackRock, dated as of December 26, 

2008, Merrill reduced its voting interest 

in BlackRock to 4.9%. However, Merrill 

retained an approximate 49.5% equity 

interest in BlackRock. 

F. BlackRock/Barclays Acquisition. 

On December 1, 2009, BlackRock 

acquired Barclays Global Investors. As 

part of this transaction, Merrill Lynch’s 

economic ownership of BlackRock was 

reduced to 34.2%. Merrill Lynch 

currently has a 3.4% voting interest in 

BlackRock. 

2. The Application 

The application submitted by the 

Applicants includes the following: An 

overview of stable value funds; a 

description of the Retirement 

Preservation Trust (RPT) stable value 

fund; a request for retroactive and 

prospective exemptive relief for the 

operation of, and certain transactions 

under, two stable value wrap 

agreements entered into between MLTC 

and BANA with respect to certain assets 

of the RPT; a request for retroactive and 

prospective exemptive relief for the 

execution and operation of, and certain 

transactions under, a ‘‘special purpose’’ 

wrap agreement entered into between 

MLTC and BANA with respect to 

certain assets of RPT; a request for 

retroactive and prospective exemptive 

relief for the operation of and 

transactions under two stable value 

wrap agreements entered into by BANA 

with respect to single plan separately 

managed accounts advised by 

BlackRock Advisers, a BlackRock 

affiliate, on behalf of the Hertz Plan and 

the Wal-Mart Plan; and numerous 

representations by Fiduciary Counselors 

Inc., who is currently the independent 

fiduciary (the Independent Fiduciary) 

responsible for representing the 

interests of the Hertz Plan, the Wal-Mart 

Plan, and employee benefit plans 

(Plans) investing in RPT for purposes of 

the transactions described in this 

proposed exemption, if granted. 

Paragraphs 3–9. Applicants’ Overview 

of Stable Value Funds 

3. Stable value funds are intended as 

conservative investment options that 

provide preservation of principal, 

liquidity and current income at levels 

that are typically higher than those 

provided by money market funds. To 

achieve this objective, stable value 

funds invest in traditional and synthetic 

guaranteed investment contracts (GICs). 

A traditional GIC is an investment 

contract that guarantees payments on 

deposits at a specified rate and is 

typically purchased through an 

insurance company. In a synthetic GIC 

structure, the plan or plan asset fund 

retains title to an underlying portfolio of 

fixed income assets and purchases a 

‘‘wrap agreement’’ from a bank, 

insurance company or other financial 

institution. Synthetic GICs permit 

diversification away from the credit risk 

of an insurance company and provide 

an opportunity to achieve higher returns 

through an actively managed portfolio. 

4. Under the terms of standard wrap 

agreements, the wrap provider agrees 

that payments to participants upon 

retirement, death, disability, 

employment termination, hardship or 

transfer to a non-competing investment 

alternative (generally referred to as 

‘‘benefit responsive payments’’) will be 

made based on ‘‘book value,’’ regardless 

of fluctuations in the market value of 

the underlying portfolio of assets. Book 

value generally represents the value of 

deposits (i.e., the principal amount 

invested) plus interest (accumulated at 

a ‘‘credited rate’’) minus withdrawals 

and minus adjustments for assets that 

become impaired.2 This provision of 

book value accounting at the participant 

level is the core feature of a stable value 

fund. However, not all payments to 

participants are made at book value. For 

example, withdrawals arising from a 

plan’s decision to transfer to a 

competing investment alternative, or 

certain actions initiated by a plan 

sponsor, may be paid at market value, 

which could be less than book value 

depending on the performance of the 

underlying investment portfolio. 

5. A wrap agreement does not 

guarantee that the book value of the 

wrapped assets will increase by a 

specified rate of return. Rather, interest 

is credited to the underlying portfolio 

based on a formula that is designed to 

equal the actual total rate of return on 

the underlying portfolio over time, 

while smoothing the gains and losses. 

To achieve this smoothing, the 

difference between the market value of 

the underlying portfolio and the book 

value of the underlying portfolio is 

amortized through periodic adjustments 

to the rate at which interest is credited 

to the book value of the underlying 

portfolio. The rate at which interest is 

credited is determined by means of a 

formula (the crediting rate formula) 

which takes into account the yield to 

maturity and the duration of the 

underlying portfolio as well as the ratio 

of the market value of the underlying 

portfolio to the book value. 

6. Stable value funds generally 

include: (1) a liquidity fund that may or 

may not be covered by a wrap 

agreement; and (2) multiple portfolios of 

assets, each covered by a different wrap 

agreement. The wrap agreements 

include rules establishing the priority 

for obtaining cash for withdrawals from 

the assets included in the stable value 

fund. Generally, these rules require that 

withdrawals be first met from new cash 

and then from the liquidity fund. Once 

these sources are exhausted, 

withdrawals are funded by selling 

securities in wrapped portfolios. Thus, 

for example, in the event there are 

significant participant withdrawals 

during a bond-market downturn (an 

environment in which there could be a 

significant difference between the wrap 

contract book value and the market 

value of the wrapped assets) the stable 

value fund would first access liquid 

assets in the fund in an attempt to make 

book value payments. Once those are 

exhausted, wrapped assets would be 

sold in a pre-specified order to provide 

liquidity needed to make book value 

payments. If all of the assets covered by 

a particular wrap contract were sold, 

and if the proceeds were insufficient to 

meet the book value payment, the wrap 

provider would pay the difference 

between the sale proceeds and the book 

value under the wrap contract before 

securities in the next lower tier would 

be sold to fund withdrawals. 

7. Wrap agreements can generally be 

terminated by either party (i.e., the 


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trustee of the stable value fund or the 

wrap provider) at market value. 

However, most wrap agreements have 

immunization provisions whereby if the 

wrap agreement is terminated: (1) More 

conservative investment guidelines (i.e., 

more conservative than the guidelines 

in effect before the immunization) will 

apply to the underlying portfolio; and 

(2) the wrap provider will continue to 

provide book value coverage until a date 

that is generally determined by 

reference to the underlying portfolio. If 

wrap contracts were terminable by the 

wrap provider on short notice at a time 

when the market value of the wrapped 

assets was below the wrapped contract 

book value, and another wrap provider 

could not be found as a substitute, the 

unwrapped assets would be 

immediately revalued down to their fair 

market value. Immunization is a 

‘‘middle ground,’’ and provides a means 

of winding down and terminating a 

contract that otherwise would be 

‘‘evergreen.’’ Immunization effectively 

permits an open-ended contract to be 

converted to a contract with a deferred 

termination date. During the 

immunization period, the wrapped 

contract continues to be ‘‘benefit 

responsive’’ and investors continue to 

receive payments at book value. 

8. Fees for wrap agreements are 

generally based on a percentage of the 

book value of assets covered by a wrap 

agreement. The fee is frequently paid 

from the assets of the Plan or Plan asset 

fund. The amount of the fee will vary 

depending upon the risk taken and the 

market conditions when the wrap 

agreement is negotiated. Since book 

value payments generally could occur 

when investments are moved to another 

non-competing investment option, 

when retirees or other inactive 

participants withdraw money from a 

plan and when participants take inservice withdrawals, book value 

payments are neither predictable nor 

controllable by the wrap provider. 

Notwithstanding that wrap contracts are 

structured in a manner that is intended 

to mitigate the risk of higher than 

expected or untimely participant 

withdrawals, the risk remains greater 

than zero. Fees for wrap agreements 

would be significantly higher if the 

wrap provider guaranteed the actual 

performance of the assets wrapped in 

circumstances beyond those described 

above. 

9. In the current distressed economic 

climate, the number of financial 

institutions that are willing to enter into 

wrap agreements has declined. To the 

extent wrap coverage can be obtained, 

the fees for providing such coverage 

have significantly increased from the 

fees generally available during the past 

ten years. 

Paragraphs 10–22. Applicants’ 

Description of RPT 

10. RPT is a ‘‘stable value’’ fund with 

approximately $11.7 billion book value 

of assets as of December 31, 2008. 

Payments to participants (or 

beneficiaries) upon retirement, death, 

disability, employment termination, 

hardship or transfer to a non-competing 

investment alternative are generally 

based on book value, such that a 

participant in RPT will receive his 

invested principal and interest at a 

crediting rate, as described in further 

detail below, even if the actual market 

value of the underlying assets is less. 

11. Bank of America, N.A. 

(hereinafter, either BANA or the 

Trustee) is the trustee of RPT. 

BlackRock Advisers, a wholly-owned 

subsidiary of BlackRock, is an 

investment adviser to RPT. The assets of 

RPT are divided into several portfolios, 

which include an actively managed 

portfolio with approximately $2.8 

billion book value of assets (the Actively 

Managed Account) and a buy and hold 

portfolio with approximately $1.6 

billion book value of assets (the Global 

Buy and Hold Account). 

12. In connection with the operation 

of RPT, the Trustee has entered into 

stable value wrap agreements with 

banks and other financial institutions to 

provide benefit responsive facilities 

with respect to certain assets of RPT. 

BANA is one of several financial 

institutions that have entered into stable 

value wrap agreements with the Trustee 

under RPT. In this regard, prior to the 

Merrill/BAC Merger, BANA had entered 

into two separate wrap agreements with 

the Trustee under RPT. One agreement, 

dated May 1, 2004, provides a benefit 

responsive facility with respect to the 

Actively Managed Account (the BANA 

RPT Global Wrap Agreement). The other 

agreement, dated October 16, 1996 

(assigned by Barclays Bank PLC to 

BANA effective April 1, 1998, and 

amended effective as of December 31, 

2008), provides a benefit responsive 

facility with respect to the Global Buy 

and Hold Account (the BANA RPT Buy 

and Hold Wrap Agreement). 

13. The BANA RPT Global Wrap 

Agreement is one of four wrap 

agreements covering assets in a global 

wrap account (the Global Wrap 

Account). The Global Wrap Account 

represents approximately 24% of the 

total book value of the assets of RPT. 

The assets in the Global Wrap Account 

are actively managed. Under this wrap 

agreement, which RPT and BANA 

entered into prior to the Merrill/BAC 

Merger, BANA provide benefit 

responsive coverage for approximately 

27% of the book value of the assets 

credited to the Global Wrap Account. 

Banks and financial institutions 

unaffiliated with BANA have entered 

into wrap agreements with the Trustee 

providing coverage for approximately 

73% of the book value of the assets in 

the Global Wrap Account. The assets in 

the Global Wrap Account covered by the 

BANA RPT Global Wrap Agreement are 

not segregated from the assets in the 

Global Wrap Account covered by the 

other wrap agreements. Each wrap 

agreement covers a specified percentage 

of the book value of the assets in the 

Global Wrap Account as a whole. In this 

regard, the BANA RPT Global Wrap 

Agreement provides a benefit 

responsive wrap with respect to 

approximately 5.5% of the total book 

value of the assets of RPT. 

14. Under the BANA RPT Buy and 

Hold Wrap Agreement, prior to 

December 31, 2008, BANA provided a 

benefit responsive facility with respect 

to a segregated ‘‘buy and hold’’ portfolio 

of assets of RPT, with no other wrap 

provider providing a benefit responsive 

facility with respect to this portfolio. 

Effective as of December 31, 2008, the 

Applicants amended the BANA RPT 

Buy and Hold Wrap Agreement in a 

manner that: (a) Combined the ‘‘buy and 

hold’’ portfolio covered by the BANA 

RPT Buy and Hold Wrap Agreement 

with a portfolio of assets of RPT covered 

by a ‘‘buy and hold’’ benefit responsive 

wrap agreement between the Trustee 

and another unaffiliated wrap provider 

(Global Buy and Hold Wrap Provider 2) 

to form the Global Buy and Hold 

Account; and (b) provides that BANA 

will provide coverage for 50% of the 

book value of the assets held in the 

Global Buy and Hold Account. Global 

Buy and Hold Wrap Provider 2’s wrap 

agreement with the Trustee was 

amended similarly to provide that it 

will provide coverage for 50% of the 

book value of the assets held in the 

Global Buy and Hold Account. As is the 

case with the BANA RPT Global Wrap 

Agreement, the assets in the Global Buy 

and Hold Account covered by the 

BANA RPT Buy and Hold Wrap 

Agreement are not segregated from the 

assets in the Global Buy and Hold 

Account covered by the other wrap 

agreement. Each wrap agreement covers 

a specified percentage of the book value 

of the assets in the Global Buy and Hold 

Account as a whole. The Global Buy 

and Hold Account as a whole represents 

approximately 13.6% of the book value 

of the assets of RPT, and the BANA RPT 

Buy and Hold Wrap Agreement 


srobinson on DSKHWCL6B1PROD with NOTICES2
61940 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

3The Applicants represent that the conversion of 

the BANA RPT Buy and Hold Wrap Agreement into 

a ‘‘global’’ arrangement will not affect the Crediting 

Rate (referenced above and described in further 

detail below) applicable to a participant’s account 

in RPT. In this regard, the Applicants state that the 

conversion involved a purely internal adjustment, 

based upon an objective mathematical formula, 

among BANA and the other wrap provider to reflect 

the different market to book ratios of assets 

wrapped by BANA and Global Buy and Hold Wrap 

Provider 2 at the time of conversion into the Global 

Buy and Hold Account. The Applicants represent 

that this adjustment is relevant only if the wrap 

contracts must be accessed to make benefit 

responsive payments and will have no effect on the 

participants. 

4The Applicants represent that, to address 

liquidity concerns under RPT, the wrap providers 

covering assets in RPT have agreed to permit the 

Trustee and BlackRock Advisers to sell a vertical 

slice of securities held in RPT, other than securities 

covered by the Special Purpose Wrap Agreement 

(discussed below), to fund certain Plan-level 

withdrawals. In this regard, BAC will provide direct 

capital contributions to fund the difference between 

the market value and the book value of the assets 

attributable to the withdrawing Plans in an amount 

of up to $175 million. BAC’s commitment to 

provide liquidity will be in effect for a maximum 

period of two years. 

5The Department has not considered the issue, 

and is expressing no opinion herein, regarding 

whether RPT assets have been invested on a 

conservative basis or in a manner consistent with 

RPT guidelines. 

6According to the Applicants, prior to March 

2009, a slightly different Crediting Rate (to the one 

above) was set forth in the RPT Stable Value 

Agreements and the Separately Managed Account 

Wrap Agreements (described below), and a 

simplified version of that formula was used to 

calculate the Crediting Rate. The Applicants note 

further that, in at least one instance, the Crediting 

Rate was increased in the middle of a month. The 

Applicants do not believe these modifications, 

which are described in further detail below, 

adversely affected Plan participants and 

beneficiaries. 

7The Department notes that the Trustee’s ability 

to shorten the duration component of the Crediting 

Rate formula may also benefit BANA by reducing 

the likelihood that BANA will have to make a 

payment to RPT during the immunization period 

(as described below). 

provides a benefit responsive wrap with 

respect to approximately 6.8% of the 

total book value of the assets of RPT.3

15. The BANA RPT Global Wrap 

Agreement and the BANA RPT Buy and 

Hold Wrap Agreement (the RPT Stable 

Value Agreements) provide for ‘‘buffer’’ 

assets that would be liquidated to fund 

withdrawals from RPT before the assets 

held under the Global Wrap Account or 

the Global Buy and Hold Account are 

used to fund withdrawals. Under the 

RPT Stable Value Agreements, liquidity 

requirements for withdrawals would be 

satisfied in the following order: 

(1) Netting withdrawals from deposits 

whenever possible; 

(2) Simple interest payments and maturing 

proceeds; 

(3) Type ‘‘A’’ assets which include money 

market and other short-term investments as 

well as any short-term benefit responsive 

floaters; 

(4) Type ‘‘B’’ buffer contracts, which will 

generally be accessed on a pro rata basis; 

(5) Level ‘‘C’’ contracts on a pro rata basis; 

and 

(6) Level ‘‘D’’ contracts. 

The RPT Stable Value Agreements cover 

Level C assets which, subject to a 

limited temporary exception for certain 

Plan level withdrawals from RPT, will 

not be accessed until assets in a higher 

category have all been accessed.4 A 

minimum of 8% of RPT’s assets must be 

held as Type A and Type B combined. 

As of June 10, 2009, Type A and Type 

B assets accounted for approximately 

13% of the assets of RPT. These ‘‘buffer’’ 

assets significantly reduce the 

likelihood that payments will be 

triggered for any of the wrap providers 

that wrap assets in the Global Wrap 

Account or the Global Buy and Hold 

Account. 

16. The BANA RPT Stable Value 

Agreements effectively function to 

protect Plans that invest in RPT if there 

are significant withdrawals during 

negative market conditions. RPT has 

been structured with the expectation 

that RPT liquidity requirements can be 

satisfied without resort to the assets 

covered by the wrap contracts. Since 

RPT was established in 1989, the 

Trustee has never been required to 

access the wrap contracts. Eligible 

investments made by RPT are generally 

conservative and the buffer assets 

reduce the likelihood that a payment 

would need to be made under a wrap 

contract.5 Each of the RPT Stable Value 

Agreements also has strict investment 

guidelines regarding the investments 

that can be held under those contracts. 

Only in the event that there are 

substantial withdrawals from RPT at a 

time when the assets of RPT are 

significantly underperforming would 

there be any risk that the assets covered 

by the wrap contracts would need to be 

liquidated to satisfy withdrawals and a 

payment from a wrap provider would be 

required. Moreover, in the current 

distressed economic environment, 

participants in employee benefit plans 

have generally moved assets into 

conservative investments, such as stable 

value funds. RPT had a net inflow (i.e., 

contributions in excess of withdrawals) 

of approximately $300 million during 

the fourth quarter of 2008. 

17. The crediting rate under a wrap 

agreement is the rate of interest that is 

used for purposes of determining the 

accrued interest to be added to the book 

value of the assets covered by the 

agreement. Under either RPT Stable 

Value Agreement, such crediting rate 

(the Crediting Rate) was set at the 

inception of the wrap agreement by 

agreement between BANA and the 

Trustee and has been, and will continue 

to be, reset periodically based on an 

objective formula. The Crediting Rate 

formula is designed to amortize the 

difference between the market value and 

the book value of assets covered by the 

wrap agreement over the approximate 

duration of the covered assets. The 

Crediting Rate formula used in the 

BANA RPT Global Wrap Agreement and 

the BANA RPT Buy and Hold Wrap 

Agreement, effective as of March 1, 

2009, is: 

Crediting Rate = [(PMV/PBV)1/(F*DUR) * 

(1 + AYTM)] ¥ 1 

Where: 

PMV is the market value of the covered 

assets; 

PBV is the book value of the covered assets; 

ATYM is the dollar duration weighted 

annualized yield to maturity of the 

covered assets; 

DUR is the modified duration (Macaulay 

duration of the asset or assets * 1/1 + 

dollar duration weighted annualized 

yield to maturity of the covered assets); 

and 

F is the factor, if any, agreed upon by the 

Trustee or its designee, BANA and the 

other wrap providers covering assets in 

the Global Wrap Account or the Global 

Buy and Hold Account, and approved by 

the Independent Fiduciary for purposes 

of modifying the duration component of 

the Crediting Rate.6

18. In the current economic 

environment, it has become standard 

stable value industry practice to vary 

the duration component of the Crediting 

Rate formula to more quickly amortize 

the difference between the book value 

and the market value of assets covered 

by a wrap agreement. BlackRock 

Advisors and the Trustee believe that 

having flexibility to vary the duration 

component of the Crediting Rate 

formula applicable to the BANA RPT 

Stable Value Agreements is in the best 

interests of participants and 

beneficiaries because it will greatly 

enhance BlackRock Advisors’ ability to 

react to low market to book ratios, the 

risk that securities will be downgraded, 

low Crediting Rates and volatile cash 

flows.7

19. The assets in RPT are valued by 

BlackRock on a daily basis using a 

BlackRock-approved process that 

applies to all client securities held by 

BlackRock. Valuations are performed 

without regard to whether the security 

is held in RPT or another account or 

commingled vehicle advised by 

BlackRock. When valuing securities in 

RPT, in all cases, BlackRock looks first 

to external third-party pricing sources, 


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8The Applicants state that, as a practical matter, 

in many instances broker-dealers will be the first 

pricing source for securities, including non-agency 

mortgage backed securities, in stable value 

products, because no index provider is available. 

9The Applicants state that a security breaking a 

control does not necessarily mean that BRS will 

independently value the security. When a security 

breaks a control, BRS first contacts the external 

third-party pricing source that generated the value, 

provides that third-party source with additional 

information regarding the issue and asks the thirdparty source to review its price. The independent 

pricing source will verify or change its price based 

on the information provided. BRS will use the third 

party’s valuation of a particular security, unless a 

determination has been made that the price is 

unreliable. If the price is deemed unreliable, it will 

be valued in accordance with this paragraph 20, 

subject to Independent Fiduciary oversight, as 

described below. 

10The Applicants state that, because the BANA 

RPT Buy and Hold Wrap Agreement covers a ‘‘buy 

and hold’’ portfolio, instead of an actively managed 

portfolio as covered by the BANA RPT Global Wrap 

Agreement, immunization is not a feature of the 

BANA RPT Buy and Hold Wrap Agreement. In this 

regard, the Trustee may elect to terminate the 

BANA RPT Buy and Hold Wrap Agreement by 

giving BANA seven business day’s notice of such 

election. Absent a default by the Trustee, if BANA 

wants to terminate the BANA RPT Buy and Hold 

Wrap Agreement, BANA would not agree to future 

additions to, or substitution of assets in, the ‘‘buy 

and hold’’ portfolio covered by the agreement. In 

that event, the BANA RPT Buy and Hold Wrap 

Agreement generally would terminate on the 

maturity date of the latest maturing asset covered 

by the agreement. 

including index providers, brokerdealers and independent pricing 

services. BlackRock has a hierarchy for 

prioritizing third-party pricing sources, 

based on availability and reliability of 

the price obtained. The pricing source 

may vary by asset class or type, but not 

for a particular security. Over time, the 

hierarchy used for a particular asset 

class may change due to a decrease in 

accuracy or consistency or a drop in 

coverage for a particular security. 

Currently, BlackRock’s third-party 

pricing hierarchy generally works in the 

following order: (i) Index providers; (ii) 

broker-dealers (structured products); 8

and (iii) third-party pricing services 

(currently FT Interactive and Reuters 

Pricing Services). 

20. BlackRock Solutions (BRS), a 

financial modeling group, would 

generate its own valuation only when it 

exhausts the third-party sources for a 

valuation. This could occur when there 

are no market quotations available for a 

security, or if a security were to break 

a control, which means that it is 

identified by the computer system 

because the price provided by a thirdparty source does not fall within certain 

statistical norms.9 Historically, BRS has 

been able to rely exclusively on thirdparty sources to price securities of the 

type held in RPT and, to date, has never 

generated its own price for such 

securities. However, as a result of the 

current market instability, BRS has 

enhanced and formalized its process for 

valuing securities when third-party 

sources are not available. With respect 

to assets covered by the RPT Stable 

Value Wrap Agreements, any valuation 

generated by BRS will be subject to the 

limitations described below. 

21. BANA and the Trustee each have 

the right to terminate the BANA RPT 

Global Wrap Agreement through an 

‘‘immunization’’ process set forth in the 

BANA RPT Global Wrap Agreement.10 If 

an immunization period occurs, the 

wrapped assets will be managed in 

accordance with investment guidelines 

that are more conservative than the 

investment guidelines applicable under 

the wrap contract before the 

immunization period, with the intent of 

closing any gap between the market 

value of the wrapped assets and the 

wrap contract book value. The BANA 

RPT Global Wrap Agreement has what 

is referred to as a ‘‘pull to par’’ provision, 

so that the agreement will not terminate 

(absent the application of another 

termination provision, such as an event 

of default) until the gap between the 

market value of the wrapped assets and 

the wrap contract book value is closed, 

however long that takes. This ‘‘pull to 

par’’ provision has become a market 

standard provision and was included in 

the BANA RPT Global Wrap agreement 

prior to December 31, 2008. During the 

immunization period, if all wrapped 

assets were liquidated to fund book 

value payments, and market value had 

not converged with contract book value, 

BANA would be obligated to pay the 

remainder of the book value of the 

contract. 

22. According to the Applicants, 

immunization of a wrap contract is 

more protective of Plan participants and 

beneficiaries than immediate 

termination, if a substitute wrap 

provider is not available. In this regard, 

the Applicants state that if a substitute 

wrap provider is not available, 

immediate termination of the BANA 

RPT Global Wrap Agreement or any 

other wrap contract covering assets in 

the Global Wrap Account at a time 

when the book value exceeded the 

market value would likely result in RPT 

‘‘breaking the buck’’ (i.e., the value of 

participants’ accounts would reflect the 

market value, rather than the book 

value, of assets that are no longer 

covered by the BANA RPT Global Wrap 

Agreement). If all or a portion of the 

Global Wrap Account is immunized, the 

returns would be reduced over time, but 

participants would still receive the book 

value of their account. In any event, 

because immunization could result in 

participants or Plan sponsors changing 

investment alternatives and loss of 

assets under management, BlackRock 

Advisors would work to find a 

substitute wrap provider as quickly as 

reasonably possible. 

Paragraphs 23–29. Applicants’ 

Representations and Request for Relief 

Regarding the Execution and Operation 

of the RPT Stable Value Wrap 

Agreements 

23. The Applicants seek exemptive 

relief for: The operation of the RPT 

Stable Value Wrap Agreements, 

pursuant to the terms of; and for 

transactions under the RPT Stable Value 

Wrap Agreements. The Applicants 

describe the operation of the RPT Stable 

Value Agreements as including, among 

other things, the following transactions 

(the RPT Wrap-Related Transactions): 

(1) The determination, calculation of, 

and adjustments to, the Crediting Rate 

and any changes to the Crediting Rate 

formula; (2) valuations of securities 

covered by the RPT Stable Value 

Agreements; (3) payment of wrap fees 

and any changes to wrap fees; (4) the 

purchase and sale of any security 

covered by the RPT Stable Value 

Agreements; (5) BANA’s or the Trustee’s 

exercise of its right to immunize or 

terminate the RPT Stable Value 

Agreements; and (6) amendments to the 

RPT Stable Value Agreements. 

24. According to the Applicants, the 

provision of wrap coverage by BANA to 

RPT could be considered an extension 

of credit under section 406(a) of ERISA. 

The Applicants state also that, because 

BANA and Merrill are under common 

control by BAC, and Merrill has an 

approximate 34% equity ownership 

interest in BlackRock, the maintenance 

of and transactions under the BANA 

RPT Stable Value Agreements could 

give rise to self-dealing concerns under 

section 406(b) of ERISA. In particular, 

BlackRock Advisor’s role as investment 

adviser raises a concern that it could 

make investment decisions that are 

designed to benefit BANA, to the 

detriment of Plan participants and 

beneficiaries. 

25. The Applicants request that the 

exemptive relief sought herein be 

retroactive to January 1, 2009 (the date 

of the Merrill/BAC Merger). The 

Applicants state that retroactive relief is 

appropriate because terminating the 

BANA RPT Global Wrap Agreement 

prior to the Merger could have caused 

significant disruption to Plans and 

participants and beneficiaries investing 

in RPT. In this regard, if a substitute 

wrap provider was not available to 

replace BANA, immediate termination 

of the BANA RPT Global Wrap 


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61942 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

Agreement or any other wrap agreement 

covering assets in the Global Wrap 

Account could have resulted in RPT 

‘‘breaking the buck’’ (i.e., the value of the 

participants’ accounts would have 

reflected the market value (rather than 

the higher book value) of assets no 

longer covered by the BANA RPT Global 

Wrap Agreement). 

26. The Applicants propose a number 

of conditions with respect to covered 

transactions involving the RPT Stable 

Value Agreements. In this regard, 

effective June 1, 2009, BlackRock 

Advisors may only change the formula 

for calculating the Crediting Rate after 

obtaining prior approval of BANA, the 

other financial institutions that have 

entered into wrap agreements covering 

the same assets in the Global Wrap 

Account or the Global Buy and Hold 

Account, as the case may be, and the 

Independent Fiduciary. BlackRock 

Advisors shall provide the Independent 

Fiduciary with any information it may 

reasonably request in determining 

whether to approve any proposed 

change in the Crediting Rate formula. 

Additionally, the Crediting Rate with 

respect to a RPT Stable Value Wrap 

Agreement may not be reset more 

frequently than on a monthly basis, 

unless: (1) Prior to such resetting, the 

crediting rate with respect to a nonBANA wrap agreement covering assets 

in the same Global Account as such RPT 

Stable Value Wrap Agreement is reset 

more frequently than on a monthly 

basis; and (2) the Crediting Rate is reset 

at the same time, and in the same 

manner, as such other crediting rate. 

Each financial institution entering into 

a wrap agreement covering assets 

included in a Global Account will 

obtain information from BlackRock 

Advisors on a monthly basis regarding 

the investments that are included in 

those accounts sufficient to enable the 

financial institution to independently 

verify that the Crediting Rate was 

calculated properly. In addition, the 

dollar amount of Global Wrap Account 

assets covered by the BANA RPT Global 

Wrap Agreement shall not exceed 50% 

of the total assets held in such Account, 

and the terms associated with the BANA 

RPT Global Wrap Agreement at the time 

such Agreement was entered into, 

amended, modified or renewed shall be 

no less favorable to RPT than the terms 

associated with comparable agreements 

with unrelated parties. Similarly, the 

dollar amount of Global Buy and Hold 

Account assets covered by the BANA 

RPT Buy and Hold Wrap Agreement 

shall not exceed 60% of the total assets 

held in such Account, and the terms 

associated with the BANA RPT Buy and 

Hold Wrap Agreement at the time such 

Agreement was entered into, amended, 

modified or renewed shall be no less 

favorable to RPT than the terms 

associated with comparable agreements 

with unrelated parties. Further, any RPT 

Wrap-Related Transaction that involves: 

(1) The exercise by BANA, the Trustee, 

or BlackRock Advisors of their rights 

under the RPT Stable Value 

Agreements; or (2) the performance by 

BANA, the Trustee, or BlackRock of 

their obligations under the RPT Stable 

Value Agreements, shall be subject to 

prior review and approval by the 

Independent Fiduciary if such exercise 

or performance affects the Crediting 

Rate or would otherwise have an 

adverse impact on the book value of a 

participant’s or beneficiary’s investment 

in RPT. Additionally, the Independent 

Fiduciary must receive a copy of any 

amendment contemplated for the RPT 

Stable Value Agreements (other than 

amendments that are purely ministerial 

in nature), and must thereafter review 

and approve the amendment prior to its 

implementation. 

27. The Applicants represent that the 

fee BANA will receive under the BANA 

RPT Global Wrap Agreement or the 

BANA RPT Buy and Hold Wrap 

Agreement will be reasonable relative to 

market conditions and risks, as 

determined and approved annually by 

the Independent Fiduciary. 

Notwithstanding this, in no event shall 

the fee exceed the maximum percentage 

fee paid to any other financial 

institution that has entered into a wrap 

agreement covering the same assets in 

the Global Wrap Account or the Global 

Buy and Hold Account, as the case may 

be. Additionally, the Trustee will not 

trigger immunization with respect to the 

BANA RPT Global Wrap Agreement 

unless: (i) The Trustee triggers 

immunization with respect to another 

wrap agreement (i.e., not provided by 

BANA) covering the same assets in the 

Global Wrap Account, immediately 

prior to, or at the same time as, 

immunization is triggered with respect 

to the BANA RPT Global Wrap 

Agreement; (ii) another financial 

institution that has entered into a wrap 

agreement with respect to assets in the 

Global Wrap Account triggers 

immunization immediately prior to, or 

at the same time as, immunization is 

triggered with respect to the BANA RPT 

Global Wrap Agreement; or (iii) the 

Trustee determines that BANA is no 

longer financially responsible and the 

Independent Fiduciary determines that 

the immunization is in the interests of 

investing Plans. 

28. The Applicants represent that 

assets held in RPT will be valued at 

their current fair market value on a daily 

basis. Valuations will be based on the 

price that may be obtained in a current 

arm’s-length sale to a third party. In this 

regard, BlackRock will first obtain 

prices for securities from independent 

third-party sources, including index 

providers, broker-dealers and 

independent pricing services. To do 

this, BlackRock will maintain a 

hierarchy that prioritizes pricing 

sources by asset class or type and will 

value securities based on the price 

generated by the highest priority source. 

If no third-party sources are available to 

value a security (or the price generated 

by the third-party falls outside specified 

statistical norms, and, after review, 

BlackRock determines that such price is 

not reliable), BlackRock will value the 

security using an analytic methodology. 

The Independent Fiduciary will 

thereafter review that methodology and 

valuation, and obtain its own valuation 

if it deems appropriate. Each financial 

institution that has entered into a wrap 

agreement covering assets in the Global 

Wrap Account and the Global Buy and 

Hold Account, including BANA, has the 

right to object to the valuation of a 

particular security, regardless of the 

source of the valuation. If such an 

objection is made, wrap providers that 

are not affiliated with BANA may 

thereafter determine a new valuation for 

the security, and BANA will be bound 

by this new valuation notwithstanding 

that BANA did not participate in the 

determination of such valuation, 

provided that BANA is provided with 

reasonably satisfactory documentation 

supporting the valuation. 

29. Prior to a Plan sponsor’s decision 

to include RPT as an investment option 

for participants in the Plans it sponsors, 

the Trustee will provide the Plan 

sponsor with the following: The RPT 

Declaration of Trust (as amended and 

restated as of April 23, 2009, and as may 

be further amended from time to time); 

a purchase agreement to be entered into 

by the Plan fiduciary and the Trustee; 

upon request, a copy of the Annual 

Report for RPT and a fact sheet 

describing RPT’s investment objective 

and strategy and a performance analysis; 

and a copy of the proposed exemption 

or the final exemption, if granted. 

Additionally, on an ongoing basis, Plan 

fiduciaries will receive the Annual 

Report for RPT and the Plan’s 

Investment Summary and Accounting. 

Plan participants will also receive 

information describing the investment 

objectives and performance of RPT; and 

a statement, delivered at least quarterly, 

that sets forth the value of the 

participant’s account contributions, 


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11 In other words, these wrap agreements either 

do not permit a cure period (i.e., a period of time 

during which a downgraded security may be sold), 

or have a cure period that is of a limited duration. 

12The Applicants state that securities that are 

‘‘impaired’’ will not be transferred to the RPT 

Special Purpose Wrap Agreement. The Applicants 

generally describe an ‘‘impaired’’ security as: (a) A 

security with respect to which the issuer or 

guarantor has failed to make one or more payments 

of principal or interest; (b) a security with respect 

to which the principal or interest has become due 

and payable before it otherwise would have been 

due or payable; (c) a security where the rate of 

interest thereon has been reset; or (d) a security 

with respect to which the issuer becomes insolvent 

or institutes or has instituted against it a proceeding 

seeking a judgment of insolvency or bankruptcy. 

The Applicant states that an ‘‘impaired security’’ 

would remain in RPT and the Trustee would decide 

whether to hold or sell such security. 

13The Applicants state that the RPT Special 

Purpose Wrap Agreement permits the Trustee to 

reduce the amount of Permitted Securities 

(provided the Minimum Ratio is maintained) if the 

ratio of the market value of Permitted Securities to 

the total unamortized unrealized and realized losses 

with respect to Downgraded Securities is greater 

than 2.5 to 1.0. 

withdrawals, distributions, loans and 

change in value since the prior 

statement. 

Paragraphs 30–40. Applicants’ 

Representations and Request for Relief 

Regarding the Execution and Operation 

of the RPT Special Purpose Wrap 

Agreement 

30. The Applicants represent that, in 

the current market environment, there is 

a significantly increased risk that the 

credit rating of securities of the type 

included in RPT will be downgraded, 

including downgrades to below Baa3, 

BBB¥ or BBB¥ by Moody’s Investors 

Services, Inc., Standard & Poor’s Rating 

Group, or Fitch Ratings, respectively 

(Below Investment Grade Securities). 

However, several wrap agreements in 

RPT do not ‘‘cover’’ Below Investment 

Grade Securities.11 If a security held by 

RPT is no longer covered by a wrap 

agreement, participant accounts (with 

respect to Plans that invest in RPT) will 

reflect the lower market value, rather 

than the book value, with respect to the 

portion of their account attributable to 

the unwrapped security. This could 

cause RPT to effectively ‘‘break the 

buck.’’ 

31. To reduce the risk that Below 

Investment Grade Securities would 

cause RPT to ‘‘break the buck,’’ MLTC 

and BANA entered into the RPT Special 

Purpose Wrap Agreement on April 23, 

2009. The RPT Special Purpose Wrap 

Agreement is designed to cover 

securities which cease to be covered by 

a RPT wrap solely as a result of a 

downgrade in the security’s credit rating 

to below ‘‘investment grade.’’ Under the 

RPT Special Purpose Wrap Agreement, 

BlackRock Advisors will automatically 

transfer each Below Investment Grade 

Security to a new portfolio (the Type D1 

Account), and that security will be 

covered by the RPT Special Purpose 

Wrap Agreement (hereafter, a Below 

Grade Investment Security held in the 

Type D1 Account and covered by the 

RPT Special Purpose Wrap Agreement 

shall be referred to as a Downgraded 

Security). As described in paragraph 34 

below, the RPT Special Purpose Wrap 

Agreement is designed to rapidly 

amortize the difference between the 

amortized cost of a Downgraded 

Security and the market value of the 

Downgraded Security.12

32. The proposed exemption, if 

granted, would permit certain 

transactions in connection with the 

operation of the RPT Special Purpose 

Wrap Agreement. These transactions 

(the Special Purpose Wrap-Related 

Transactions) include: (1) The transfer 

of Below Investment Grade Securities to 

the Type D1 Account; (2) the sale or 

transfer of Downgraded Securities out of 

the Type D1 Account; (3) the purchase 

and sale of certain other securities 

permitted to be held in the Type D1 

Account (the Permitted Securities, as 

described below); (4) transactions 

relating to maintenance of a minimum 

ratio of Permitted Securities and 

Downgraded Securities (the Minimum 

Ratio, as described below); (5) the 

determination, calculation of and 

adjustments to the Type D1 Account 

Crediting Rate (described below) and 

any changes to the Type D1 Account 

Crediting Rate formula; (6) valuations of 

securities covered by the RPT Special 

Purpose Wrap Agreement; (7) payment 

of and any changes to wrap fees; (8) 

BANA’s or the Trustee’s exercise of its 

right to immunize or terminate the RPT 

Special Purpose Wrap Agreement; and 

(9) the entering into and amendment of 

the RPT Special Purpose Wrap 

Agreement. 

33. Certain limits apply to the amount 

of Below Investment Grade Securities 

that may be transferred to the Type D1 

Account. Specifically, the Type D1 

Account may consist of up to a 

maximum of $200 million in: (1) Book 

value of Downgraded Securities that 

have not been sold; and/or (2) aggregate 

unamortized realized losses with 

respect to Downgraded Securities. 

BlackRock Advisors expects to sell 

Downgraded Securities as market 

conditions permit. Any remaining 

unamortized losses associated with the 

sale of the Downgraded Securities will 

continue to be amortized under the RPT 

Special Purpose Wrap Agreement. 

34. In addition to Downgraded 

Securities, the Type D1 Account will be 

funded with Permitted Securities. 

Permitted Securities are U.S. Treasury 

debentures, Government National 

Mortgage Association (GNMA) 

securities and securities guaranteed by 

the Federal Deposit Insurance 

Corporation (FDIC). The Applicants 

state that these purchases have been 

made, and the Type D1 Account 

currently holds approximately $500 

million in Permitted Securities. The 

maximum modified duration of a 

Permitted Security will be 3.5 years at 

the time of purchase. The RPT Special 

Purpose Wrap Agreement requires a 

minimum ratio of 2.5 to 1.0 of market 

value of Permitted Securities to the total 

unamortized unrealized and realized 

losses with respect to the Downgraded 

Securities (the Minimum Ratio).13 This 

Minimum Ratio is designed to ensure 

that the Type D1 Account receives 

sizeable investment gains, which, in 

turn, would enable a more rapid 

amortization of the losses included in 

the RPT Special Purpose Wrap 

Agreement. The Minimum Ratio will be 

monitored on a daily basis, and if it 

drops below 2.5 to 1.0, BlackRock 

Advisors will correct the ratio within 10 

business days either by moving 

additional Permitted Securities into the 

Type D1 Account or by selling 

Downgraded Securities and using the 

proceeds of those sales to reinvest in 

Permitted Securities. Notwithstanding 

the above, if the ratio is not corrected 

within 10 business days of a breach of 

the Minimum Ratio, BANA reserves the 

right to terminate the RPT Special 

Purpose Wrap Agreement immediately 

without payment obligation. 

35. The total book value of the assets 

included in the D1 Account and covered 

by the RPT Special Purpose Wrap will 

not exceed $700 million without the 

prior written consent of the Trustee, 

BANA, and the Independent Fiduciary. 

Additionally, the Type D1 Account 

Crediting Rate will be 0.00% as of the 

next following reset date at any time 

when the book value under the wrap 

agreement includes any unamortized 

losses (realized or unrealized) on 

Downgraded Securities. The reason for 

using a 0.00% Crediting Rate is to 

amortize losses as quickly as possible 

and to maintain as much capacity as 

possible to move additional Below 

Investment Grade Securities into the 

Type D1 Account to be covered by the 

RPT Special Purpose Wrap Agreement. 

If the book value under the RPT Special 

Purpose Wrap Agreement does not 

include any unamortized losses on 

Downgraded Securities, the Type D1 

Account Crediting Rate will be 


srobinson on DSKHWCL6B1PROD with NOTICES2
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14As described in further detail in paragraph 51 

below, the Independent Fiduciary has submitted a 

written report (the Report) to the Department 

regarding the Special Purpose Wrap Agreement 

arrangement. In the Report, the Independent 

Fiduciary opined that a fee level of 15 basis points 

is reasonable and within the range of fees paid by 

RPT to other, unrelated wrap providers. 

determined on a monthly basis using 

the following formula: 

Crediting Rate = [(PMV/PBV)I/(F*DUR) * 

(1 + AYTM)] ¥ 1 

Where: 

AYTM = dollar duration weighted 

annualized yield to maturity. 

PMV = fair market value of assets in the Type 

D1 Account (as reduced by accrued but 

unpaid fees). 

PBV = book value of the Type D1 Account. 

DUR = modified duration (Macaulay duration 

of the asset or assets * 1/(1 + the dollar 

weighted annualized yield to maturity of 

the asset)). 

F = factor, if any, agreed upon by BlackRock 

Advisors and BANA and approved by 

the Independent Fiduciary. 

36. The Applicants state that the Type 

D1 Account Crediting Rate formula 

would likely generate a higher return for 

Participants on the assets applied to 

purchase the Permitted Securities than 

the approximately 40 basis point return 

currently received if these assets 

continued to be held in Type A cashequivalent investments. Effective June 1, 

2009, BlackRock Advisors will not 

change the Type D1 Account Crediting 

Rate formula unless BANA and the 

Independent Fiduciary agree to the 

adjustment before it is made. BlackRock 

Advisors must first provide the 

Independent Fiduciary with any 

information it may reasonably request in 

determining whether to approve a 

proposed change in the formula. 

Additionally, the Type D1 Account 

Crediting Rate itself will not be reset 

more frequently than monthly. 

37. Downgraded Securities and 

Permitted Securities will be valued 

using the same process applicable to 

assets in the Global Wrap Account and 

the Global Buy and Hold Account, as 

described in paragraph 19 above, except 

that the Independent Fiduciary will 

review valuations of Downgraded 

Securities and Permitted Securities 

where BlackRock is unable to obtain a 

reliable valuation from third party 

sources and, if it deems appropriate, the 

Independent Fiduciary will obtain an 

independent valuation, which will be 

binding upon BANA. Further, if BANA 

objects to a valuation provided by 

BlackRock, the Independent Fiduciary 

will review the valuation and, if it 

deems appropriate, the Independent 

Fiduciary will thereafter obtain an 

independent valuation. In that situation, 

BANA will be bound by the valuation 

determined by the Independent 

Fiduciary. 

38. The fee paid by RPT to BANA 

under the RPT Special Purpose Wrap 

Agreement was initially set at 15 basis 

points per annum, payable quarterly.14

The fee must be reviewed annually for 

reasonableness relative to market 

conditions and risks, and approved by 

the Independent Fiduciary in the 

manner described in paragraph 47 

below. Notwithstanding this, in no 

event shall the fee exceed 15 basis 

points. The fee will be based on the total 

book value of assets included in the 

Type D1 Account, including both the 

Downgraded Securities and the 

Permitted Securities. 

39. The RPT Special Purpose Wrap 

Agreement will not have a specified 

term, but will be an ‘‘evergreen’’ 

contract. However, unless otherwise 

agreed by BANA, the Trustee, and the 

Independent Fiduciary, no Below 

Investment Grade Securities will be 

added to the RPT Special Purpose Wrap 

Agreement after April 23, 2011. The 

Trustee has the right to immunize the 

portfolio of securities included in the 

Type D1 Account only if BANA elects 

to terminate the RPT Special Purpose 

Wrap Agreement, or if BANA defaults 

under the RPT Special Purpose Wrap 

Agreement. If an immunization election 

becomes effective (the RPT Special 

Purpose Immunization Date), the RPT 

Special Purpose Wrap Agreement would 

terminate on the later of: (1) The date 

that is the number of years after the RPT 

Special Purpose Immunization Date 

which does not extend beyond the 

modified duration (as defined in the 

RPT Special Purpose Wrap Agreement) 

of the underlying assets on the RPT 

Special Purpose Immunization Date; or 

(2) the first date on which the market 

value of the underlying assets equals or 

exceeds the book value under the wrap 

agreement. From the RPT Special 

Purpose Immunization Date to the 

termination date, the underlying assets 

would be managed by BlackRock 

Advisors in accordance with 

immunization guidelines set forth in the 

RPT Special Purpose Wrap Agreement. 

This Agreement has a ‘‘pull to par’’ 

provision, as described above, and may 

be terminated by the Trustee at market 

value at any time, but the Trustee would 

only do so if alternative wrap coverage 

was available. According to the 

Applicants, the Trustee generally would 

not take this action unless the market 

value of the assets in the Type D1 

Account exceeded the book value of 

those assets and another wrap provider 

agreed to provide a benefit responsive 

facility with respect to those assets. 

40. The Trustee has engaged the 

Independent Fiduciary to monitor the 

performance of BlackRock Advisors and 

the Trustee with respect to the Type D1 

Account and the RPT Special Purpose 

Wrap Agreement. Under the terms of 

this engagement, and as described in 

part above, the Independent Fiduciary 

must, among other things: (1) Determine 

whether the RPT Special Purpose Wrap 

Agreement and the Type D1 Account 

arrangement are prudent and in the best 

interest of participants and beneficiaries 

of the Plans that have invested in RPT; 

(2) make an initial and, thereafter, 

annual determination regarding whether 

the fee paid by RPT to BANA under the 

Special Purpose Wrap Agreement is 

reasonable relative to the specific 

attributes of the RPT Special Purpose 

Wrap Agreement; (3) make an annual 

determination regarding whether the 

continued maintenance of the RPT 

Special Purpose Wrap Agreement is 

appropriate and in the interest of Plans; 

and (4) make a monthly determination 

regarding whether the appropriate Type 

D1 Account Crediting Rate formula is 

being used and a monthly determination 

regarding whether such appropriate 

formula is being applied in proper 

manner. Further, the Independent 

Fiduciary must receive a copy of any 

amendment contemplated for the RPT 

Special Purpose Wrap Agreement (other 

than amendments that are purely 

ministerial in nature), and must 

thereafter review and approve the 

amendment prior to its implementation. 

Finally, the Independent Fiduciary must 

review and give prior approval for any 

RPT Special Purpose Wrap-Related 

Transaction that involves: (1) The 

exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights 

under the RPT Special Purpose Wrap 

Agreement; or (2) the performance by 

BANA, the Trustee, or BlackRock of 

their obligations under the RPT Special 

Purpose Wrap Agreement, if such 

exercise or performance affects the Type 

D1 Crediting Rate or otherwise would 

have an adverse impact on the book 

value of a participant’s or beneficiary’s 

investment in RPT. 

Paragraphs 41–49. Applicants’ Request 

for Relief Involving the Separately 

Managed Account Wrap Agreements 

41. The Applicants also seek 

exemptive relief for the provision and 

operation of certain wrap agreements 

applicable to two separately managed 

accounts. In this regard, BlackRock 

Advisors manages two separately 

managed accounts, one on behalf of the 

Hertz Plan (the Hertz Separately 


srobinson on DSKHWCL6B1PROD with NOTICES2
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15The Applicants describe a Tier 3 Wrap Provider 

as a financial institution that has entered into a 

wrap agreement with respect to assets held in the 

Wal-Mart Separately Managed Account that will not 

be accessed for purposes of making benefit 

payments until two tiers of buffer assets are 

accessed. 

16See footnote 6. 

Managed Account) and the other on 

behalf of the Wal-Mart Plan (the WalMart Separately Managed Account). 

These two separately managed accounts 

(the Separately Managed Accounts) 

operate in a manner that is substantially 

similar to RPT while being set up for 

individual employee benefit plans, 

rather than contained as part of a 

collective trust. MLTC is the directed 

trustee for the Wal-Mart Separately 

Managed Account. MLTC entered into 

an agreement with BANA, dated August 

19, 2003, and amended effective as of 

December 31, 2008, pursuant to which 

BANA provides a book value benefit 

responsive facility with respect to a 

portion of the assets held in the WalMart Separately Managed Account 

(BANA Wal-Mart Separately Managed 

Wrap Agreement). The Bank of New 

York Mellon, as successor by operation 

of law to Mellon Bank N.A. (Mellon) is 

the trustee for the Hertz Separately 

Managed Account, and Mellon entered 

into an agreement with BANA and 

BlackRock Advisors, as investment 

manager, dated July 27, 2007, and 

amended effective as of December 31, 

2008, pursuant to which BANA 

provides a book value benefit 

responsive facility with respect to a 

portion of the assets held in the Hertz 

Separately Managed Account (the 

BANA Hertz Separately Managed Wrap 

Agreement). 

42. The Applicants request that the 

exemptive relief sought with respect to 

the BANA Wal-Mart Separately 

Managed Wrap Agreement and the 

BANA Hertz Separately Managed Wrap 

Agreement (collectively, the Separately 

Managed Account Wrap Agreements) be 

retroactive to January 1, 2009 (i.e., the 

date of the Merrill/BAC Merger). The 

Applicants state that retroactive relief is 

appropriate since terminating the 

Separately Managed Account Wrap 

Agreements prior to the Merrill/BAC 

Merger would have caused significant 

disruption to the Plans and participants 

and beneficiaries invested in the 

Separately Managed Accounts. In this 

regard, the Applicants represent that in 

the current distressed economic 

environment it is unlikely that a 

substitute wrap provider could have 

been found for BANA. If a substitute 

wrap provider was not available, 

immediate termination of the Separately 

Managed Account Wrap Agreements 

could have resulted in the Separately 

Managed Accounts ‘‘breaking the buck’’ 

(i.e., the value of the participants’ 

accounts would have reflected the 

market value (rather than the higher 

book value) of assets no longer covered 

by the Separately Managed Account 

Wrap Agreements. 

43. According to the Applicants, the 

provision of wrap coverage by BANA to 

the Separately Managed Accounts could 

be considered an extension of credit 

under section 406(a) of ERISA. The 

Applicants state also that, because 

BANA and Merrill are under common 

control by BAC, and Merrill has an 

approximate 34% equity ownership 

interest in BlackRock, the operation of 

the Separately Managed Account 

Agreements, and certain transactions 

engaged in under such Agreements, 

could give rise to self-dealing concerns 

under section 406(b) of ERISA. In 

particular, BlackRock Advisor’s role as 

investment adviser raises a concern that 

it could make investment decisions that 

are designed to benefit BANA, to the 

detriment of participants in the Hertz 

Plan and/or the Wal-Mart Plan. 

44. The Applicants describe the 

provision and maintenance of the 

Separately Managed Account Wrap 

Agreements as including the following 

transactions (the Separately Managed 

Wrap-Related Transactions): (1) The 

determination, calculation of and 

adjustments to the Crediting Rate and 

any changes to the Crediting Rate 

formula; (2) valuations of securities 

covered by the Separately Managed 

Account Wrap Agreements; (3) payment 

of wrap fees and any changes to wrap 

fees; (4) the purchase and sale of any 

security covered by the Separately 

Managed Account Wrap Agreements; (5) 

BANA’s or the Trustee’s exercise of its 

right to terminate the Separately 

Managed Wrap Agreements; and (6) 

amendments to the Separately Managed 

Wrap Agreements. 

45. The Separately Managed Account 

Wrap Agreements are ‘‘buy and hold’’ 

arrangements and do not cover activelymanaged portfolios. The BANA WalMart Separately Managed Wrap 

Agreement provides two levels of 

‘‘buffers’’ which would be accessed 

before any assets covered by BANA 

would be used to provide benefit 

responsive payments. More than 64.3% 

of the assets in the Wal-Mart Separately 

Managed Account consist of 

investments held in these buffers, 

referred to as Tier 1 and Tier 2. The 

assets covered by the BANA Wal-Mart 

Separately Managed Wrap Agreement 

are included in the last tier to be 

accessed (Tier 3) and, when accessed, 

are only accessed on a pro-rata basis 

with the assets covered by the seven 

other Tier 3 Wrap Providers.15 The 

BANA Hertz Separately Managed Wrap 

Agreement has one buffer which is 

accessed before any assets covered by 

the BANA Hertz Separately Managed 

Wrap Agreement would be accessed to 

provide benefit responsive payments. 

Sixty-three and a third percent of the 

assets in the Hertz Separately Managed 

Account are held in this buffer. After 

the initial buffer is depleted for benefit 

responsive payments, assets are sold 

using the last-in-first-out principle. 

Because the assets covered by the BANA 

Hertz Separately Managed Wrap 

Agreement are the assets in the Hertz 

Separately Managed Account that 

became subject to a benefit responsive 

facility most recently prior to the date 

of the Application, these assets will be 

the first assets sold to satisfy benefit 

responsive payments after the buffer is 

depleted. 

46. The Applicants propose several 

conditions with respect to covered 

transactions involving the Separately 

Managed Wrap Agreements. In this 

regard, under each Agreement, the 

Crediting Rate was set at the inception 

of the wrap agreement by BANA and the 

counterparty and has been, and will 

continue to be, reset periodically based 

on a formula designed to amortize the 

difference between the market value and 

the book value of the assets covered by 

the wrap agreement over the 

approximate duration of the covered 

assets. The Crediting Rate formula used 

in the BANA Hertz Separately Managed 

Wrap Agreement, effective March 1, 

2009, is: Crediting Rate = [(PMV/ 

PBV)I/(F*DUR)

*(1 + AYTM)]¥1. 

The Crediting Rate formula in the WalMart Separately Managed Wrap 

Agreement, effective March 1, 2009,16

is: 

Net Crediting Rate = [((PMV/ 

PBV)I/(F*DUR) * (1 + AYTM))¥1]¥WF 

Where: 

PMV = market value of the covered assets. 

PBV = book value of the covered assets. 

AYTM = dollar duration weighted 

annualized yield to maturity of the covered 

assets. 

DUR = modified duration {Macaulay 

duration of the asset or assets * 1/(1+ 

dollar weighted annualized yield to 

maturity of the asset or asset)). 

F = factor, if any, agreed upon by BlackRock 

Advisors and BANA and approved by the 

Independent Fiduciary for purposes of 

modifying the duration component of the 

Crediting Rate. 

WF = wrap fee rate. 


srobinson on DSKHWCL6B1PROD with NOTICES2
61946 Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 

Effective June 1, 2009, BlackRock 

Advisors may only change the formula 

for calculating the Crediting Rate after 

obtaining prior approval of BANA and 

the Independent Fiduciary. 

47. BANA will not receive a fee under 

the either the BANA Wal-Mart 

Separately Managed Wrap Agreement or 

the BANA Hertz Separately Managed 

Wrap Agreement in excess of the 

maximum percentage fee received by 

any other Tier 3 Wrap Provider in the 

Wal-Mart Separately Managed Account 

or the BANA Hertz Separately Managed 

Wrap Agreement, as the case may be. 

Additionally, assets covered by the 

BANA Hertz Separately Managed Wrap 

Agreement and the BANA Wal-Mart 

Separately Managed Wrap Agreement 

will be valued in a similar fashion as 

assets covered by the BANA RPT Stable 

Value Agreements, except that, if BANA 

objects to the valuation of any asset, the 

Independent Fiduciary will make a 

binding determination of the value of 

the asset. 

48. Pursuant to the investment 

management agreements relating to the 

Separately Managed Accounts, 

BlackRock Advisors provides the named 

fiduciaries of the Hertz Plan and the 

Wal-Mart Plan with information 

regarding investment performance and 

the assets held in the Separately 

Managed Accounts, including type of 

asset, crediting rate, duration and credit 

quality. In contrast with the BANA RPT 

Stable Value Agreements, the Separately 

Managed Account Wrap Agreements are 

not global arrangements. Each 

agreement provides coverage for 100% 

of the book value of the specified assets. 

Because the Separately Managed 

Account Wrap Agreements are not 

global arrangements, no wrap provider 

(other than BANA) is involved in these 

arrangements that, as an independent 

third party, could protect against 

potential conflicts of interests between 

BANA and BlackRock Advisors. For this 

reason, BlackRock Advisors and a 

named fiduciary of the Hertz Plan, and 

BlackRock Advisors and a named 

fiduciary of the WalMart Plan, have 

engaged the Independent Fiduciary to 

perform the following tasks (which are 

in addition to the duties described 

above): (1) Conduct a monthly review of 

the Crediting Rate; (2) analyze the 

purchase or sale of any security, 

including any change to the market to 

book ratio, duration or Crediting Rate; 

(3) review and approve any proposed 

amendment to the BANA Hertz 

Separately Managed Wrap Agreement or 

the BANA Wal-Mart Separately 

Managed Wrap Agreement; (4) review 

any exercise of contract provisions by 

any of BANA, BlackRock Advisors or, in 

the case of the BANA Wal-Mart 

Separately Managed Wrap Agreement, 

the Trustee, and analyze its potential 

impact on investors; (5) provide 

quarterly reports to BlackRock Advisors 

and to the named fiduciaries of the WalMart Plan and the Hertz Plan stating, 

among other things, whether BlackRock 

Advisors has complied with all 

requirements of its contract. The 

Independent Fiduciary will also inform 

the named fiduciaries of a Plan if it 

believes that BANA or BlackRock 

Advisors has taken any actions that are 

not in the best interests of the 

participants and beneficiaries in the 

Wal-Mart Plan or the Hertz Plan, as 

relevant. Consistent with this, the 

Independent Fiduciary will review and 

must give prior approval for any 

Separately Managed Account WrapRelated Transaction that involves: (1) 

The exercise by BANA, the Trustee, or 

BlackRock Advisors of their rights 

under the Separately Managed Account 

Wrap Agreements; or (2) the 

performance by BANA, the Trustee, or 

BlackRock of their obligations under the 

Separately Managed Account Wrap 

Agreements, if such exercise or 

performance affects the Crediting Rate 

or otherwise would have an adverse 

impact on the book value of a 

participant’s or beneficiary’s investment 

in the Separately Managed Accounts. 

49. Each of the Separately Managed 

Account Wrap Agreements effectively 

may be terminated by terminating the 

appointment of BlackRock Advisors as 

investment manager. Under the Hertz 

Separately Managed Account, the 

named fiduciaries (or their authorized 

representatives) of the Hertz Plan may 

terminate BlackRock Advisors, as the 

investment manager, on 30 days’ notice. 

Under the Wal-Mart Separately 

Managed Account, the named 

fiduciaries (or their authorized 

representatives) of the Wal-Mart Plan 

may terminate BlackRock Advisors, as 

the investment manager, on 90 days’ 

notice. Because each of the Separately 

Managed Account Wrap Agreements 

covers a ‘‘buy and hold’’ portfolio, 

immunization is not a feature of either 

agreement. BlackRock Advisors may 

elect to terminate the Separately 

Managed Account Wrap Agreements by 

giving BANA seven business days’ 

notice of such election. Absent a default 

by the counterparty, BANA may 

terminate the Separately Managed 

Account Wrap Agreements by failing to 

agree to future additions to, or 

substitution of assets in, the ‘‘buy and 

hold’’ portfolio covered by the 

agreement and then the agreement 

generally would terminate on the 

maturity date of the latest maturing 

asset covered by the agreement. 

Paragraphs 50–51. The Independent 

Fiduciary 

50. The Independent Fiduciary is 

Fiduciary Counselors Inc., located in 

Washington, DC. The Independent 

Fiduciary is experienced and 

knowledgeable in the transactions and 

arrangements described herein. The 

Independent Fiduciary is independent 

of and unrelated to BANA, Merrill, 

BlackRock and their Affiliates. In this 

regard, the Independent Fiduciary 

represents that, during any year of its 

engagement, its annual gross revenue 

from BANA, Merrill, and BlackRock has 

not, and will not, exceed five percent 

(5%) of the Independent Fiduciary’s 

annual gross revenue from all sources 

(for federal income tax purposes) for its 

prior tax year. 

51. In a written report dated April 2, 

2009, submitted to the Department (the 

Report), the Independent Fiduciary 

made a number of representations 

regarding the RPT Special Purpose 

Wrap Agreement. In the Report, the 

Independent Fiduciary stated that, 

among other things: the RPT Special 

Purpose Wrap Agreement is an 

innovative solution to the ‘‘breaking the 

buck’’ problem with a laudable objective 

that clearly is in the best interests of 

Plan participants; and it is likely that 

the 15 basis point annual wrap fee 

associated with the RPT Special 

Purpose Wrap Agreement will soon be 

industry average, if not lower than 

average. Regarding the Type D1 Account 

Crediting Rate, the Independent 

Fiduciary stated that such crediting rate 

arrangement is reasonable given that 

BANA has a limited capacity to absorb 

Below Investment Grade Securities, and 

that additional capacity is not available 

from anyone else. In the Report, the 

Independent Fiduciary states further 

that the investment management 

flexibility (regarding the sale of Below 

Investment Grade Securities) allowed by 

the Special Purpose Wrap Agreement 

benefits Plan participants because it will 

enable sales to occur when market 

conditions warrant, without the 

imposition of constraints from the 

wrapper contract. Additionally, the 

Independent Fiduciary stated in the 

Report that other provisions in the 

Special Purpose Wrap Agreement are 

within the norms for wrap contracts 

between unrelated parties. 

52. In summary, the Applicants 

represent that the transactions described 

herein satisfy the statutory criteria set 

forth in section 408(a) of the Act and 

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

among other things: in the current 


srobinson on DSKHWCL6B1PROD with NOTICES2
Federal Register / Vol. 75, No. 193 / Wednesday, October 6, 2010 / Notices 61947 

17For purposes of this exemption, references to 

provisions of Title I of the Act, unless otherwise 

specified, refer also to the corresponding provisions 

of the Code. 

18The Department’s determination to propose 

relief for these transactions should not be viewed 

as an endorsement of the Rights Plan, nor is it 

offering any views as to whether such transactions 

satisfy any other requirements of ERISA, the Code 

or other relevant statutory provisions. Rather, this 

proposed exemption is designed to place the Plans 

and their participants and beneficiaries in the same 

position as other holders of Citigroup Stock with 

respect to the acquisition of the Rights and to 

prevent the possible dilution of the Plans’ 

investment in the Citigroup Stock. 

19The Applicants represent that, because the 

fiduciaries for the Citibuilder 401(k) Plan for Puerto 

Rico have not made an election under section 

1022(i)(2) of the Act, whereby such plan would be 

treated as a trust created and organized in the 

United States for purposes of tax qualification 

under section 401(a) of the U.S. Code, jurisdiction 

under Title II of the Act does not apply. 

Accordingly, the Applicant is not seeking any relief 

for the prohibitions, as set forth in Title II of the 

Act, for the acquisition of the Rights by the 

Citibuilder Plan. 

distressed economic environment it is 

unlikely that a substitute wrap provider 

could be found for BANA; the interests 

of affected Plans have been, and will be, 

protected by the Independent Fiduciary; 

and the fee received by BANA pursuant 

to the arrangements described herein 

will be reasonable relative to market 

conditions and risks, as determined by 

the Independent Fiduciary. 

Notice to Interested Persons 

Written notice will be provided to a 

representative of each Plan invested in 

RPT, and the named fiduciaries of the 

Hertz Plan and the Wal-Mart Plan. The 

notice shall contain a copy of the 

proposed exemption as published in the 

Federal Register and an explanation of 

the rights of interested parties to 

comment regarding the proposed 

exemption. Such notice will be 

provided by personal or express 

delivery, or electronically if 

correspondence between the relevant 

parties is typically carried out 

electronically, within 15 days of the 

issuance of the proposed exemption. 

Any written comments must be received 

by the Department from interested 

persons within 45 days of the 

publication of this proposed exemption 

in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Chris Motta of the Department, 

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

a toll-free number.) 

Citigroup Inc. and its affiliates (Citigroup), 

the Citigroup 401(k) Plan, the Citibuilder 

401(k) Plan for Puerto Rico (the Citibuilder 

Plan and collectively with the Citigroup 

401(k) Plan, the Participant Directed Plans), 

the Citigroup Pension Plan (and collectively 

with the Participant Directed Plans, the 

Plans) (the Applicants), located in 

Greenwich, CT. [Application No. D–11591] 

Proposed Exemption 

The Department of Labor is 

considering granting an exemption 

under the authority of section 408(a) of 

the Employee Retirement Income 

Security Act of 1974, as amended (the 

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

Internal Revenue Code of 1986 (the U.S. 

Code) and in accordance with the 

procedures set forth in 29 CFR Part 

2570, subpart B (55 FR 32836, 32847, 

August 10, 1990). 

Section I: Transactions 

If the proposed exemption is granted: 

(a) The restrictions of sections 406(a), 

406(b)(1), 406(b)(2), and 407(a) of the 

Act 17 shall not apply, effective June 22, 

2009 (the Record Date), to: 

(1) The acquisition of stock rights (the 

Rights) by certain plans, described below in 

Section I(a)(1)(A) through (C) of this 

exemption, in connection with holding 

shares of common stock of Citigroup Inc. 

(Citigroup Stock) on the Record Date 

established pursuant to an offering of such 

Rights (the Offering) in accordance with the 

Tax Benefits Preservation Plan (the Rights 

Plan) by Citigroup Inc. (Citigroup), a party in 

interest with respect to the following plans, 

and/or the acquisition of Citigroup Stock and 

the attached Rights by the plans in the future 

pursuant to the Offering: 

(A) The Citigroup 401(k) Plan (the 

Citigroup 401(k) Plan); 

(B) The Citibuilder 401(k) Plan for Puerto 

Rico (the Citibuilder Plan and collectively 

with the Citigroup 401(k) Plan, the 

Participant Directed Plans); and 

(C) The Citigroup Pension Plan (the 

Citigroup Pension Plan and collectively with 

the Participant Directed Plans, the Plans); 

(2) The holding of the Rights by the Plans 

until the date the Plans exercise or otherwise 

dispose of the Rights or the expiration of 

such Rights in accordance with the terms and 

conditions of the Rights Plan, whichever is 

earlier; and 

(3) The exercise or other disposition of the 

Rights by the Plans; 

provided that the conditions in Section II of 

this proposed exemption, as set forth below, 

are satisfied.18

(b) The sanctions resulting from the 

application of section 4975 of the 

Internal Revenue Code of 1986 (the 

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

through (E) shall not apply, effective 

June 22, 2009, to the acquisition of the 

Rights by the Plans, described above in 

Section I(a)(1)(A), and Section I(a)(1)(C) 

of this proposed exemption; 19 provided 

that the conditions in Section II of this 

proposed exemption, as set forth below, 

are satisfied. 

Section II: Conditions 

The relief provided in this proposed 

exemption is conditioned upon 

adherence to the material facts and 

representations described herein and as 

set forth in the application file and upon 

compliance with the conditions, as set 

forth in this proposed exemption. 

(a) The acquisition by each of the 

Plans of the Rights occurred or will 

occur in connection with the June 22, 

2009 Offering made available by 

Citigroup on the same terms to all 

shareholders of the common stock of 

Citigroup (the Citigroup Stock), 

including the acquisition of the Rights 

at no cost to the Plans; 

(b) The acquisition of the Rights by 

the Participant Directed Plans on the 

Record Date resulted from an 

independent act of Citigroup as a 

corporate entity. The acquisition of the 

Rights by the Plans in the future will 

occur either at the direction of 

individual participants (in the case of 

the Participant Directed Plans), at the 

direction of an Independent Fiduciary 

(in the case of the Citigroup Pension 

Plan), or in connection with in-kind 

contributions to a Plan by Citigroup of 

Citigroup Stock and attached Rights (a 

Stock/Right Contribution), in each case 

incidental to, and as a direct 

consequence of, the purchase or other 

acquisition of Citigroup Stock. All 

holders of Citigroup Stock, which 

include the Rights (other than an 

Acquiring Person, as defined in the 

Rights Plan), including the Plans, were, 

and will continue to be, treated in the 

same manner with respect to the 

acquisition of the Rights; 

(c) All shareholders of Citigroup 

Stock, including the Plans acquired, or 

will acquire, the same proportionate 

number of Rights based on the number 

of shares of Citigroup Stock held by 

such shareholders, including the Plans; 

(d) Except with respect to a Stock/ 

Right Contribution where the 

determination to make the contribution 

will be made by Citigroup as a corporate 

entity, the acquisition of the Rights by 

the Participant Directed Plans was 

made, or will be made, pursuant to 

provisions of each such plan for 

individually-directed investment of 

participant accounts; 

(e) All decisions regarding the Rights 

that will be made by the Participant 

Directed Plans will be made in 

accordance with the provisions of such 

Participant Directed Plans for 

individually-directed investment of 

participant accounts by the individual 

participants whose accounts in each 

such Participant Directed Plan acquired 

the Rights in connection with the 

Offering, and if no instructions are 

received, the Rights will expire in 

accordance with the terms and 

conditions of the Rights Plan; 


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20 In this regard, Section 408(e) of ERISA provides 

a statutory exemption for the acquisition or sale by 

a plan of qualifying employer securities (as defined 

in section 407(d)(5)) if certain conditions are met. 

The Department assumes that the Citigroup 401(k) 

Plan is intended to satisfy the requirements of 

section 404(c) of ERISA. 

(f) All decisions regarding the Rights 

(except in the case of an acquisition as 

a result of a Stock/Right Contribution, 

where the determination to make the 

contribution will be made by Citigroup 

as a corporate entity) will be made on 

behalf of the Citigroup Pension Plan by 

an Independent Fiduciary acting as an 

investment manager. 

(g) To the extent the Citigroup board 

of directors exercises its rights under the 

Offering to redeem the Rights at the 

redemption price set forth in the 

Offering, all shareholders of Citigroup 

Stock will be treated the same, 

including the Plans; and 

(h) The acquisition of the Rights as a 

result of a Stock/Right Contribution by 

Citigroup to the Plans shall result from 

a determination by Citigroup as a 

corporate entity. 

(i) Neither the Participant Directed 

Plan participants nor the Citigroup 

Pension Plan will pay any fees or 

commissions in connection with the 

exercise of the Rights other than the 

aggregate Purchase Price with respect to 

the Rights then being exercised and an 

amount equal to any applicable transfer 

tax or other governmental charge. 

Section III: Definition 

The term ‘‘Independent Fiduciary’’ 

means an investment manager, as 

described in section 3(38) of the Act, 

that is: 

(a) Independent of, and unrelated to, 

Citigroup Inc. and its affiliates 

(Citigroup), and 

(b) appointed to act on behalf of the 

Citigroup Pension Plan for the purposes 

described in Section II.(f) above. 

For purposes of this proposed 

exemption, a fiduciary will not be 

deemed to be independent of, and 

unrelated to, Citigroup if: (i) Such 

fiduciary directly or indirectly controls, 

is controlled by, or is under common 

control with Citigroup; (ii) such 

fiduciary directly or indirectly receives 

any compensation or other 

consideration in connection with any 

transaction described in this proposed 

exemption, except that it may receive 

compensation for acting as an 

independent fiduciary from Citigroup in 

connection with the transactions 

described herein, if the amount or 

payment of such compensation is not 

contingent upon, or in any way affected 

by such fiduciary’s decision; and (iii) 

more than 5 percent of such fiduciary’s 

annual gross revenue in its prior tax 

year will be paid by Citigroup in the 

fiduciary’s current tax year. 

Effective Date: If granted, this 

proposed exemption will be effective as 

of June 22, 2009, the date of the 

announcement of the Offering and will 

expire on June 10, 2012. 

Summary of Facts and Representations 

1. The Applicants are Citigroup Inc. 

and its affiliates (Citigroup), the 

Citigroup 401(k) Plan, the Citibuilder 

401(k) Plan for Puerto Rico (the 

Citibuilder Plan and collectively with 

the Citigroup 401(k) Plan, the 

Participant Directed Plans), the 

Citigroup Pension Plan (and collectively 

with the Participant Directed Plans, the 

Plans). The Applicants requested this 

relief in an application dated December 

2, 2009 and a revised application dated 

July 23, 2010 (the Application). 

Citigroup Inc. is a global diversified 

financial services holding company 

whose businesses provide consumers, 

corporations, governments and 

institutions with a broad range of 

financial products and services. 

Citigroup has approximately 200 

million customer accounts and does 

business in more than 140 countries. 

Citigroup currently operates, for 

management reporting purposes, via 

two primary business segments: 

Citicorp, generally consisting of its 

regional consumer banking businesses 

and institutional clients group; and Citi 

Holdings, generally consisting of its 

brokerage and asset management and 

local consumer lending businesses, and 

a special asset pool. Citigroup’s 

consumer and corporate banking 

business is a global franchise 

encompassing, among other things, 

branch and electronic banking, 

consumer lending services, investment 

services, and credit and debit card 

services. Citibank, N.A. (Citibank) is a 

principal subsidiary of Citigroup. As of 

September 30, 2009, Citigroup and its 

subsidiaries had total consolidated 

assets of approximately $1.89 trillion. 

2. Citigroup sponsors the Citigroup 

401(k) Plan and the Citigroup Pension 

Plan, while Citibank sponsors the 

Citibuilder 401(k) Plan for Puerto Rico. 

These Plans are involved in the 

transactions for which an exemption has 

been requested. These Plans are 

described, as follows: 

(a) Citigroup 401(k) Plan: The 

Citigroup 401(k) Plan is a stock bonus 

plan, a portion of which is designated 

as an employee stock ownership plan, 

and contains within it a cash or deferred 

arrangement under section 401(k) of the 

Code and a qualified Roth contribution 

program under section 402A of the 

Code. The Citigroup 401(k) Plan is 

intended to qualify under the provisions 

of section 401(a) of the Code, and its 

related trust is intended to be taxexempt pursuant to section 501(a) of the 

Code. 

The Applicants represent that the 

Citigroup 401(k) Plan allows 

participants to direct investments of 

their own contributions and a portion of 

the employer contributions into several 

investment alternatives, including 

Citigroup Stock. In the event that 

Citigroup, as a corporate entity, decides 

to make an in-kind contribution of 

Citigroup Stock and attached Rights (a 

Stock/Right Contribution) to the 

Citigroup 401(k) Plan, the participants 

receiving a Stock/Right Contribution 

can sell the Citigroup Stock (including 

the attached Rights) and invest the 

proceeds in any other fund offered in 

the Citigroup 401(k) Plan immediately 

upon such Citigroup Stock (and 

attached Rights) being credited to the 

participants’ accounts.20

The Citigroup 401(k) Plan is funded 

through a trust of which State Street 

Bank and Trust Company is the trustee. 

Reliance Trust Company is the subtrustee for the Citigroup Stock fund 

offered as an investment option in the 

participant directed plans. The Plans 

Administration Committee of Citigroup 

Inc., a committee appointed by 

Citigroup, is the Plan Administrator of 

the Citigroup 401(k) Plan. The 

Applicants state that the 401(k) Plan 

Investment Committee is responsible for 

making all investment decisions related 

to the Citigroup 401(k) Plan, other than 

those investment decisions made by the 

participants and the decision to offer 

Citigroup stock as an investment in the 

Plan. Citigroup, as plan sponsor, is 

responsible for making all decisions 

regarding offering the Citigroup Stock 

fund as an investment option under the 

Citigroup 401(k) Plan. 

As of June 22, 2009 (the Record Date), 

the Citigroup 401(k) Plan had 

approximately 180,935 participants and 

total assets of $6,990,680,850. The 

shares of Citigroup Stock held by the 

Citigroup 401(k) Plan were valued at 

approximately $393,394,961 as of the 

Record Date, and comprised 

approximately six percent (6%) of the 

total assets in the Citigroup 401(k) Plan. 

These shares represented approximately 

seven percent (7%) of the total shares of 

Citigroup Stock outstanding as of that 

date. 

(b) The Citibuilder 401(k) Plan for 

Puerto Rico: The Citibuilder Plan is a 

defined contribution profit sharing plan 

which includes a qualified cash or 

deferred arrangement intended to meet 


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21The Applicants note that generally, an 

ownership change occurs if the ‘‘five percent 

shareholders’’ (as defined in section 382 of the 

Code) of a loss corporation increase their percentage 

ownership interest in the loss corporation by more 

than 50 percentage points during a rolling three 

year testing period. 

22The Applicants state that Citigroup’s Rights 

Plan also differs from the traditional shareholder 

rights plan in that the Rights Plan does not apply 

to acquisitions of a majority of Citigroup Stock 

made in connection with an offer to acquire 100% 

of Citigroup Stock, and lasts for only 36 months. 

Traditional shareholder rights plans generally last 

for 10 years. 

the requirements of section 1165(e) of 

the Puerto Rico Internal Revenue Code 

of 1994, as amended (the PR Code). The 

Citibuilder Plan was established for the 

exclusive benefit of the eligible 

employees and beneficiaries of Puerto 

Rican subsidiaries of affiliates of 

Citibank. The Applicants assert that the 

Citibuilder Plan is not intended to meet, 

and has never in practice met, the 

requirements of section 401(a) of the 

Code. The Citibuilder Plan is subject to 

Title I of the Act. 

The Applicants represent that the 

Citibuilder Plan allows participants to 

direct investments of their own 

contributions and employer 

contributions into several investment 

alternatives, including Citigroup Stock. 

In the event that Citigroup, as a 

corporate entity, decides to make a 

Stock/Right Contribution to the 

Citibuilder Plan, the participants 

receiving a Stock/Right Contribution 

can sell the Citigroup Stock (including 

the attached Rights) and invest the 

proceeds in any other fund offered in 

the Citibuilder Plan immediately upon 

such Citigroup Stock (and attached 

Rights) being credited to the 

participants’ accounts. The Applicants 

assert that the Citibuilder Plan is 

intended to satisfy the requirements of 

section 404(c) of ERISA. 

The Citibuilder Plan is funded 

through a trust. The trustee of the 

Citibuilder Plan is Banco Popular de 

Puerto Rico. The Plans Administration 

Committee of Citigroup Inc. is the Plan 

Administrator of the Citibuilder Plan. 

The Applicants state that the 401(k) 

Plan Investment Committee is 

responsible for making all investment 

decisions related to the Citibuilder Plan, 

other than those investment decisions 

made by the participants and the 

decision to offer Citigroup Stock as an 

investment in the Plan. Citigroup, as 

plan sponsor, is responsible for making 

all decisions regarding offering the 

Citigroup Stock fund as an investment 

option under the Citibuilder Plan. 

As of the Record Date, the Citibuilder 

Plan had approximately 1,739 

participants and total assets of 

$18,318,896. As of the Record Date, the 

shares of Citigroup Stock held by the 

Citibuilder Plan were valued at 

approximately $1,297,870 and 

comprised approximately seven percent 

(7%) of the total assets of the Citibuilder 

Plan. These shares represented 

approximately less than one percent 

(0.02%) of the total shares of Citigroup 

Stock outstanding as of the Record Date. 

(c) The Citigroup Pension Plan: The 

Citigroup Pension Plan is a frozen 

defined benefit pension plan that 

generally provided benefits to eligible 

participants under a cash balance 

formula. Certain participants who have 

a protected benefit that was accrued 

under a plan that was merged into the 

Citigroup Pension Plan may be eligible 

to have a portion of their benefit 

calculated using a final average pay 

formula (Grandfathered Participants). 

Effective January 1, 2007, the Citigroup 

Pension Plan was closed to new 

participants. Effective January 1, 2008, 

participants’ hypothetical cash balance 

accounts ceased benefit accruals, 

although these hypothetical accounts 

will continue to accrue interest credits. 

Grandfathered Participants are not 

subject to the benefit accrual freeze and 

continue to accrue benefits. The 

Applicants assert that the Citigroup 

Pension Plan is intended to qualify 

under the provisions of section 401(a) of 

the Code, and its related trust is 

intended to be tax-exempt pursuant to 

section 501(a) of the Code. 

The Citigroup Pension Plan is funded 

through a trust of which The Bank of 

New York Mellon is the trustee. The 

Plans Administration Committee is the 

Plan Administrator of the Citigroup 

Pension Plan. The Applicants state that 

the Pension Plan Investment Committee 

has oversight over all investment 

decisions related to the Citigroup 

Pension Plan. 

As of December 31, 2008, the 

Citigroup Pension Plan had 

approximately 260,890 participants and 

total assets of approximately 

$11,285,250,916. The Applicants note 

that the Citigroup Pension Plan did not 

hold any Citigroup Stock as of the 

Record Date. 

3. The Applicants provide that 

Citigroup has accumulated a substantial 

amount of recognized net deferred tax 

assets, such as net operating loss 

carryforwards and tax credits (the Tax 

Benefits), which is included in its 

tangible common equity. As of 

December 31, 2009, Citigroup had 

recognized net deferred tax assets of 

approximately $46.1 billion. Citigroup 

expects to utilize the Tax Benefits to 

offset future taxable income. The 

Applicants assert that Citigroup’s 

utilization of the Tax Benefits is in the 

interests of all Citigroup Stockholders, 

including the Plans, the participants 

and beneficiaries. 

The Applicants note that Citigroup’s 

ability to utilize these deferred tax 

assets to offset future taxable income 

may be significantly limited in the event 

that Citigroup experiences an 

‘‘ownership change’’ as defined in 

section 382 of the Code.21 Specifically, 

section 382 provides that a ‘‘loss 

corporation’’ (i.e., a corporation with net 

operating loss carryforwards and certain 

other tax attributes) that experiences an 

ownership change will generally be 

subject to an annual limitation after the 

ownership change on the use of such 

attributes. The Applicants assert that in 

Citigroup’s case, this means that, should 

an ownership change occur, Citigroup 

could experience a limitation on its 

ability to utilize a portion of its tax 

deferred assets. Since tax losses and tax 

credits have finite carryover periods, the 

limitation could negatively affect 

Citigroup’s ability to use the tax losses 

and tax credits before they expire. The 

precise amount of the limitation that 

would arise from an ownership change 

under section 382 on Citigroup’s ability 

to utilize its deferred tax assets would 

depend on the value of Citigroup’s stock 

and prevailing interest rates at the time 

of the ownership change. 

4. The Applicants state that given the 

possibility of such negative 

consequences, on June 9, 2009, the 

board of directors of Citigroup adopted 

the Tax Benefits Preservation Plan (the 

Rights Plan) in order to preserve its 

ability to use the tax benefits. It is 

represented that the Rights Plan uses 

mechanics and structures very similar to 

traditional shareholder rights plans 

(commonly known as ‘‘poison pill’’ 

plans) in that it creates disincentives for 

those who engage in certain activities. 

Unlike traditional shareholder rights 

plans which are designed to deter 

unsolicited takeover bids, section 382- 

focused rights plans are designed to 

protect tax assets by deterring actions 

that could increase the likelihood of a 

loss of tax assets.22 As is the case with 

the Rights Plan, this is generally 

accomplished by seeking to deter any 

shareholder from accumulating 

positions that would qualify such 

shareholder as a ‘‘five percent 

shareholder’’ under applicable tax laws. 

The Applicants note that, as with the 

many companies that have adopted 

section 382-focused rights plans in the 

past, the Rights Plan has the effect of 

significantly diluting the value of the 

shares of the shareholder whose 

acquisitions of Citigroup Stock caused 


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the Rights Plan to become exercisable 

(the Acquiring Person) by allowing all 

other shareholders to purchase, for each 

Right, preferred stock equivalent to one 

share of Citigroup Stock but at half the 

price of a share of Citigroup Stock at the 

time of the purchase. Specifically, the 

mechanisms by which the Rights Plan 

works are as follows: 

(a) In connection with the adoption of 

the Rights Plan, on June 9, 2009, 

Citigroup’s board of directors declared a 

dividend of one preferred stock 

purchase right (a Right) for each 

outstanding share of Citigroup Stock. 

The dividend was payable to holders of 

record of Citigroup Stock on the Record 

Date, as well as shares of Citigroup 

Stock issued after such date and before 

the Final Expiration Date (June 10, 

2012). Unless and until the Rights 

become exercisable (as described 

below), the Rights are not severable 

from Citigroup Stock, have no 

independent voting or dividend rights 

associated with them and can be 

transferred only in connection with the 

transfer of the underlying shares of 

Citigroup Stock. 

(b) Each Right will initially represent 

the right to purchase, for $20.00 (the 

Purchase Price), one one-millionth of a 

share of Series R Participating 

Cumulative Preferred Stock, $1.00 par 

value per share (the Series R Preferred 

Stock). 

(c) The Rights are not exercisable 

until the earlier of (i) the close of 

business on the 10th business day after 

the date (the Stock Acquisition Date) of 

the announcement that a person has 

become an Acquiring Person (as defined 

in the Rights Plan) and (ii) the close of 

business on the 10th business day (or 

such later day as may be designated by 

Citigroup’s board of directors before any 

person has become an Acquiring 

Person) after the date of the 

commencement of a tender or exchange 

offer by any person which could, if 

consummated, result in such person 

becoming an Acquiring Person. The 

‘‘Distribution Date’’ is referred to as the 

date that the Rights become exercisable. 

(d) The Applicants state that it is 

important to note that the Rights may 

never become exercisable because 

Citigroup retained the ability to 

unilaterally (i) amend the Rights Plan in 

any manner prior to the occurrence of 

a Distribution Date, including by 

modifying the definition of ‘‘Final 

Expiration Date’’ and effectively 

terminating the Rights Plan immediately 

or (ii) redeem the Rights for $0.00001 

per Right at any time prior to a 

Distribution Date. 

(e) After any person has become an 

Acquiring Person, each Right (other 

than Rights treated as beneficially 

owned under certain U.S. tax rules by 

the Acquiring Person) can be exercised 

by the holder to purchase for the 

Purchase Price a number of shares of 

Series R Preferred Stock having a market 

value of twice the Purchase Price. 

Basically, all holders of these Rights 

(other than the Acquiring Person) will 

have the right to acquire one onemillionth of a share of Series R Preferred 

Stock, which will be the economic 

equivalent (e.g., the same voting rights, 

dividend rights, trading price and 

market value) of one share of Citigroup 

Stock, for one-half (1⁄2;) of the price of 

a share of Citigroup Stock as of the 

Distribution Date. Any time after any 

person has become an Acquiring Person 

(but before any person becomes the 

beneficial owner of 50% or more of the 

Citigroup Stock), the board of directors 

of Citigroup may elect to implement 

such dilution remedy against an 

Acquiring Person by exchanging any 

Rights (other than the Rights 

beneficially owned by the Acquiring 

Person) for one one-millionth of a share 

of Series R Preferred Stock per Right 

(instead of having holders exercise 

Rights and pay the Purchase Price). 

(f) In the event that an Acquiring 

Person causes an ownership change, 

such Acquiring Person would almost 

certainly suffer extreme dilution due to 

the triggering of the Distribution Date 

(and exercisability of the Rights under 

the Rights Plan). This creates a 

significant disincentive for any investor 

to acquire a sufficient position, or to 

increase its position in Citigroup Stock, 

to cause such person to be treated as a 

‘‘five percent shareholder’’ for section 

382 purposes. In addition, while 

exercise of the Rights by non-Acquiring 

Person shareholders is not automatic, 

any such shareholder who does not 

decide to exercise the Rights would 

almost certainly also experience 

significant dilution. 

(g) Citigroup’s board of directors may 

redeem all of the Rights at a price of 

$0.00001 per Right at any time before a 

Distribution Date. 

(h) Prior to the Distribution Date, the 

Rights will be inseparable from the 

corresponding Citigroup Stock and not 

evidenced by a separate certificate and, 

as a result, the Rights will not be 

transferrable separately from the 

corresponding Citigroup Stock. Instead, 

the Rights will be evidenced by the 

certificates for (or current ownership 

statements issued with respect to 

uncertificated shares in lieu of 

certificates for) and will be transferred 

with Citigroup Stock, and the registered 

holders of Citigroup Stock will be 

deemed to be the registered holders of 

the Rights. 

(i) After the Distribution Date, the 

rights agent will mail separate 

certificates evidencing the Rights to 

each record holder of Citigroup Stock as 

of the close of business on the 

Distribution Date, and thereafter the 

Rights will be transferable separately 

from Citigroup Stock. The Rights will 

expire on June 10, 2012 (the Final 

Expiration Date), with no value, unless 

the Rights are earlier exchanged or 

redeemed or the Plan is amended by the 

board of directors of Citigroup. 

(j) At any time prior to the 

Distribution Date, the Rights Plan may 

be amended in any respect. At any time 

after the occurrence of a Distribution 

Date, the Rights Plan may be amended 

in any respect that does not adversely 

affect Rights holders (other than any 

Acquiring Person). 

(k) A Rights holder has no rights as a 

stockholder of Citigroup as a result of 

holding the Rights, including the right 

to vote and to receive dividends. The 

Rights Plan includes antidilution 

provisions designed to maintain the 

effectiveness of the Rights. 

5. Citigroup issued a press release 

regarding the adoption of the Rights 

Plan on June 10, 2009. In addition, 

shareholders of Citigroup Stock as of the 

Record Date, including participants in 

the Participant Directed Plans who were 

invested in the Citigroup Stock fund, 

were notified of the adoption of the 

Rights Plan by letter, dated June 22, 

2009 (the Record Date). The notice was 

sent to active employees by electronic 

mail (with the relevant link) and to all 

others by first class mail. Shareholders 

did not have to pay any amount to 

acquire the Rights. As of the Record 

Date, Citigroup had approximately 

196,000 registered Citigroup Stock 

shareholders of record. As of the Record 

Date, there were 5,671,743,807 shares of 

Citigroup Stock issued and outstanding. 

On March 2, 2010, the Applicants 

informed the Department that Citigroup 

filed a February 26, 2010 preliminary 

proxy statement, Schedule 14A, 

pursuant to Section 14(a) of the 

Securities Exchange Act of 1934 (1934 

Act), with the Securities Exchange 

Commission (SEC) providing the 

contents of the proxy statement that was 

mailed to Citigroup stockholders, for the 

Citigroup annual stockholders’ meeting 

held on April 20, 2010. Proposal 6 of the 

proxy statement asks that the 

stockholders at the meeting ratify the 

June 9, 2009 board of directors’ 

adoption of the Rights Plan. The proxy 

statement noted that because the Rights 

Plan protects the value of the deferred 

tax assets for the benefit of all 


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23Section 407(d)(1) of the Act defines the term, 

‘‘employer security,’’ as ‘‘a security issued by an 

employer of employees covered by the plan, or by 

an affiliate of such employer.’’ 

24Section 407(d)(5) of the Act defines the term 

‘‘qualifying employer security,’’ as an employer 

security which is stock, a marketable obligation (as 

defined in subsection (e)), or an interest in a 

publicly traded partnership * * *’’ 

25Section 3(20) of ERISA states that ‘‘security’’ has 

the same meaning as such term under section 2(1) 

of the Securities Act of 1933, as amended (the 

‘‘Securities Act’’). Section 2(1) of the Securities Act 

defines the term ‘‘security’’ as ‘‘any note, stock, 

treasury stock, security future, bond, debenture, 

evidence of indebtedness, certificate of interest or 

participation in any profit-sharing agreement, 

collateral-trust certificate, preorganization 

certificate or subscription, transferable share, 

investment contract, voting-trust certificate, 

certificate of deposit for a security, fractional 

undivided interest in oil, gas, or other mineral 

rights, any put, call, straddle, option, or privilege 

on any security, certificate of deposit, or group or 

index of securities (including any interest therein 

or based on the value thereof), or any put, call, 

straddle, option, or privilege entered into on a 

national securities exchange relating to foreign 

currency, or, in general, any interest or instrument 

commonly known as a ‘‘security’’, or any certificate 

of interest or participation in, temporary or interim 

certificate for, receipt for, guarantee of, or warrant 

or right to subscribe to or purchase, any of the 

foregoing.’’ 

stockholders, the board of directors 

recommends that the stockholders vote 

for ratification of the Rights Plan. On 

April 26, 2010, the Applicants informed 

the Department that Form 8–K, filed by 

Citigroup on April 23, 2010 with the 

SEC pursuant to Section 13 or 15(d) of 

the 1934 Act, reported that the proposal 

to ratify the adoption of the Rights Plan 

was approved by the stockholders at the 

annual meeting held on April 20, 2010. 

On April 23, 2010, Citigroup 

shareholders ratified and approved the 

adoption of the Rights Plan. 

6. The authorized capital stock of 

Citigroup consists of 15 billion shares of 

Citigroup Stock, with a par value $0.01 

per share, and 30 million shares of 

preferred stock, without a par value per 

share. The Citigroup Stock is traded on 

the NYSE under the symbol of C. It is 

represented that the closing price of the 

Citigroup Stock on June 19, 2009, before 

the Offering was $3.17 per share. On 

June 22, 2009, the closing price of the 

Citigroup Stock was $3.00 per share. It 

is represented that sufficient shares of 

the Series R Preferred Stock will be 

available to satisfy fully all exercise 

elections made in connection with the 

Rights. 

7. The Applicants note that the 

acquisition by each of the Plans of the 

Rights occurred or that will occur, in 

connection with the holding or 

acquisition of Citigroup Stock as a result 

of the Offering made available by 

Citigroup, on the same terms to all 

shareholders of the Citigroup Stock, 

including the acquisition of the Rights 

at no cost. The Applicants assert that 

neither the Participant Directed Plan 

participants nor the Citigroup Pension 

Plan will pay any fees or commissions 

in connection with the exercise of the 

Rights other than the aggregate Purchase 

Price with respect to the Rights then 

being exercised and an amount equal to 

any applicable transfer tax or other 

governmental charge. 

8. Citigroup and its affiliates, as 

employers any of whose employees are 

covered by one or more of the Plans, 

subject to Title I of the Act, and as 

fiduciaries of one or more of the Plans, 

are parties in interest with respect to 

each such plan, pursuant to section 

3(14)(A) and section 3(14)(C) of the Act, 

respectively. In addition, Citigroup and 

its affiliates, as employers any of whose 

employees are covered by one or more 

of the Plans, which are subject to Title 

II of the Act, and as fiduciaries with 

respect to one or more of such Plans are 

disqualified persons with respect to 

each such Plan, pursuant to section 

4975(e)(2)(A) and section 4975(e)(2)(C) 

of the Code, respectively. 

9. It is represented that the Citigroup 

Stock, the Rights, and the Series R 

Preferred Stock satisfy the definition of 

‘‘employer securities,’’ as set forth under 

section 407(d)(1) of the Act 23 and that 

the Citigroup Stock and Series R 

Preferred Stock satisfy the definition of 

a ‘‘qualifying employer security,’’ as set 

forth in section 407(d)(5) of the Act. 

However, the Rights do not satisfy the 

definition of ‘‘qualifying employer 

securities,’’ as defined under section 

407(d)(5) 24 of the Act because the 

Rights, if considered separately from 

Citigroup Stock as a security under 

section 3(20) of the Act 25, is not stock, 

a marketable obligation or an interest in 

a publicly-traded partnership. Under 

section 407(a)(1) of the Act, a plan may 

not acquire or hold any ‘‘employer 

security’’ which is not a ‘‘qualifying 

employer security.’’ Further, section 

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

acquisition, on behalf of a plan, of any 

‘‘employer security’’ in violation of 

section 407(a) of the Act. Section 

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

who has authority or discretion to 

control or manage the assets of a plan 

to permit the plan to hold any 

‘‘employer security’’ that violates section 

407(a) of the Act. 

The Applicants have requested 

retroactive relief, effective as of June 22, 

2009, the Record Date of the Offering, 

from the prohibitions, as set forth in 

Title I of the Act, for the acquisition and 

holding of the Rights by the Plans. The 

Applicants have also requested the same 

retroactive relief from the prohibitions, 

as set forth in section 4975(c)(1)(A) 

through (E) of the Code, for the 

acquisition of the Rights by the 

Citigroup 401(k) Plan and the Citigroup 

Pension Plan. 

10. The Applicants state that the 

Rights will only be exercisable in the 

event Citigroup experiences an 

ownership change under section 382 of 

the Code. The Rights will remain 

outstanding until the Final Expiration 

Date (or June 10, 2012), unless the 

Rights are earlier exchanged or 

redeemed pursuant to the terms and 

conditions of the Rights Plan or the 

Rights Plan is amended. The Applicants 

assert that the Rights issued by 

Citigroup are transferable only in 

connection with the transfer of the 

underlying shares of Citigroup Stock 

and cannot be separated from the 

Citigroup Stock unless and until such 

Rights are exercisable. This means that 

the Plans cannot simply refuse to accept 

the Rights. Since the Rights are 

inseparable from Citigroup Stock, it 

would be impossible for the Plans to 

hold Citigroup Stock (a qualifying 

employer security) and not engage in a 

prohibited transaction. Absent an 

exemption, the Plans would have to 

divest themselves of all Citigroup Stock 

in order to not hold the Rights and 

thereby avoid a prohibited transaction. 

11. With regard to the Rights acquired 

by the Participant Directed Plans and 

potentially to be acquired in the future, 

it is represented by plan design that the 

participants of the Participant Directed 

Plans control the assets in their 

accounts in such Plans and that no plan 

fiduciary had the authority to exercise 

any control over such assets. Therefore, 

on the Record Date, a Right attached to 

each Citigroup Stock beneficially owned 

by a participant’s account on that date 

and, thus, the Rights were allocated to 

the accounts of the participants in such 

Plans in proportion to the Citigroup 

Stock beneficially owned by each such 

account. In the event that the 

Participant Directed Plans acquire 

Citigroup Stock in the future, a Right 

will attach to each Citigroup Stock 

beneficially acquired by each 

participant’s account and, thus, the 

Rights will be allocated to the accounts 

of the participants in such Plans in 

proportion to the Citigroup Stock 

beneficially acquired by each such 

account. In addition, it is represented 

that each participant in the Participant 

Directed Plans will be given the 

opportunity to exercise the Rights upon 

the Distribution Date in accordance with 

the terms and conditions of the Rights 

Plan. Accordingly, each participant will 

be able to make an independent 

decision whether to acquire Citigroup 


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Stock (except in the case of a Stock/ 

Right Contribution as discussed below) 

and the attached Rights in the future 

and whether to exercise the Rights 

following the Distribution Date and 

receive shares of Series R Preferred 

Stock with a value equal to twice the 

Purchase Price. 

12. With respect to the Citigroup 

Pension Plan, it is represented that the 

Citigroup Pension Plan did not hold any 

Citigroup Stock as of the Record Date. 

However, under the terms of the 

Citigroup Pension Plan, the Pension 

Plan Investment Committee of Citigroup 

Inc., as the named fiduciary of such 

Plan, has the authority to appoint a 

third party manager unaffiliated with 

Citigroup and its affiliates to serve as a 

‘‘fiduciary’’ (within the meaning of 

section 3(21)(A) of the Act) and an 

‘‘investment manager’’ (within the 

meaning of section 3(38) of the Act) (an 

Independent Fiduciary) over all or a 

portion of the assets of the Citigroup 

Pension Plan. Under investment 

guidelines applicable to the assets under 

the supervision and management of 

certain Independent Fiduciaries, such 

Independent Fiduciaries may be able to 

cause the Citigroup Pension Plan to 

invest in Citigroup Stock in accordance 

with sections 408(e) and 407 of the Act. 

In the event that the Citigroup Pension 

Plan acquires Citigroup Stock before the 

Final Expiration Date, it is represented 

that all decisions regarding the 

acquisition (except in the case of a 

Stock/Right Contribution as discussed 

below), holding and exercise or other 

disposition of Citigroup Stock and, 

therefore, the Rights by the Citigroup 

Pension Plan will be exercised by an 

Independent Fiduciary. In addition, 

Citigroup Inc. may in the future 

contemplate making employer 

contributions to one or more of the 

Plans in shares of Citigroup Stock and 

the Rights attached to such shares (a 

Stock/Rights Contribution). The 

determination to make such Stock/Right 

Contribution will be made by Citigroup 

as a corporate entity. 

13. The Applicants represent that all 

shareholders of Citigroup Stock on or 

after the Record Date, including the 

participants in the Participant Directed 

Plans and any Independent Fiduciary of 

the Citigroup Pension Plan, have the 

ability to exercise the Rights acquired 

with Citigroup Stock after the 

Distribution Date through the close of 

business on the Final Expiration Date, 

unless earlier exchanged or redeemed in 

accordance with the terms and 

conditions of the Rights Plan. This 

deadline for exercising the Rights was 

implemented by Citigroup as the issuer 

of the Rights. Neither the shareholders 

(other than executive officers of 

Citigroup who are also shareholders of 

Citigroup Stock), the participants in the 

Participant Directed Plans nor any 

Independent Fiduciary had any voice in 

setting the deadline with respect to the 

Rights. 

14. The Applicants assert that the 

acquisition, holding, and exercise or 

other disposition of the Rights by the 

Plans, pursuant to the Offering, is in the 

interests of and beneficial to such Plans 

and to the participants and beneficiaries 

of such Plans. The Applicants note that 

the existence of the Rights Plan and 

issuance of Rights is beneficial to the 

Plans to the extent they are shareholders 

of Citigroup Stock because the Rights 

Plan is explicitly designed to preserve 

Citigroup’s ability to utilize its Tax 

Benefits (which in total had a reported 

value of $46.1 billion as of December 31, 

2009) and to avoid limitations on the 

use of any portion of such amount. 

Citigroup’s ability to utilize its Tax 

Benefits has significant value to 

Citigroup’s shareholders, including the 

Plans that hold Citigroup Stock. 

It is represented that the Plans’ ability 

to acquire, hold and dispose of the 

Rights is in the interest of participants 

and beneficiaries because it allows them 

to hold Citigroup Stock. If the requested 

exemption were not granted, the 

Applicants represent that the Plans 

would not be permitted to acquire, hold 

or dispose of the Rights. Since the 

Rights are not severable from Citigroup 

Stock until they become exercisable, the 

Plans would not be permitted to 

acquire, hold or dispose of Citigroup 

Stock, even though the Citigroup Stock 

itself is a qualifying employer security 

and such actions are contemplated by 

the statutory scheme of ERISA. 

The Applicants assert that the Plans’ 

ability to exercise or otherwise dispose 

of the Rights is beneficial to the Plans 

because, if the Rights become 

exercisable, they will allow the Plans to 

acquire additional equity in Citigroup at 

a discount on the same terms and 

conditions as other holders of Citigroup 

Stock. If the Plans held Citigroup Stock 

but were not able to exercise the Rights, 

the value of their shares would be 

diluted significantly, resulting in harm 

to the Plans. However, the Applicants 

state that it is important to note that if 

the Rights Plan is successful, 

shareholders will be deterred from 

becoming Acquiring Persons and the 

Rights will never become exercisable. 

15. It is represented that the 

acquisition, holding, and exercise or 

other disposition of the Rights by the 

Plans will be protective of such Plans 

and of the participants and beneficiaries 

of such Plans in that all of the 

shareholders of Citigroup Stock, 

including the Plans, will be treated in a 

similar manner with respect to the 

Rights. In addition, all decisions 

regarding the future acquisition (except 

in the case of an acquisition as a result 

of a Stock/Right Contribution, where the 

determination to make the contribution 

will be made by Citigroup as a corporate 

entity), holding and exercise or other 

disposition of the Rights by the 

Participant Directed Plans will be made 

in accordance with the provisions of 

such Plans for individually-directed 

investment of participant accounts by 

the individual participants. All 

decisions regarding the future 

acquisition (except in the case of an 

acquisition as a result of a Stock/Right 

Contribution, where the determination 

to make the contribution will be made 

by Citigroup as a corporate entity), 

holding and exercise or other 

disposition of the Rights by the 

Citigroup Pension Plan will be made by 

an Independent Fiduciary. 

16. It is represented that the 

acquisition, holding, and exercise or 

other disposition of the Rights by the 

Plans is feasible and all shareholders of 

the Citigroup Stock (other than an 

Acquiring Person), including the Plans, 

were, and will be, treated in the same 

manner with respect to any past and 

future acquisition, holding, and exercise 

or other disposition of the Rights. With 

regard to the fact that the past 

acquisition and holding of the Rights 

were consummated prior to obtaining an 

exemption due to the timing of the 

Offering, it is represented that the 

fiduciaries were required to participate 

in the Offering before requesting the 

proposed exemption and such 

fiduciaries had no control over the 

timing of the transactions. 

17. In summary, the Applicants 

represent that the proposed transactions 

satisfy the statutory requirements for an 

exemption under section 408(a) of the 

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

because: 

(a) The acquisition by each of the 

Plans of the Rights occurred or will 

occur in the future in connection with 

the holding or acquisition of Citigroup 

Stock as a result of the Offering made 

available by Citigroup on the same 

terms to all shareholders of Citigroup 

Stock, including the acquisition of the 

Rights at no cost; 

(b) The past acquisition of the Rights 

by the Participant Directed Plans 

resulted from an independent act of 

Citigroup as a corporate entity. The 

acquisition of the Citigroup Stock with 

the attached Rights by (i) the Participant 

Directed Plans in the future will occur 

at the direction of individual 


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26For purposes of this proposed exemption, 

references to the provisions of Title I of the Act, 

unless otherwise specified, refer also to the 

corresponding provisions of the Code. 

participants, (ii) the Citigroup Pension 

Plan at the direction of the Independent 

Fiduciary, or (iii) as a result of a Stock/ 

Right Contribution where the 

determination to make the contribution 

will be made by Citigroup as a corporate 

entity; in all cases, incidental to, and as 

a consequence of, the purchase or other 

acquisition of Citigroup Stock. All 

holders of the Rights holding Citigroup 

Stock (other than an Acquiring Person), 

including the Plans, were, and will 

continue to be, treated in the same 

manner with respect to the acquisition 

of the Rights; 

(c) All shareholders of Citigroup 

Stock, including the Plans acquired, or 

will acquire, the same proportionate 

number of Rights based on the number 

of shares of Citigroup Stock held by 

such shareholder, including the Plans; 

(d) Except with respect to a Stock/ 

Right Contribution, the acquisition of 

the Rights by the Participant Directed 

Plans was made, or will be made, 

pursuant to provisions of each such 

plan for individually-directed 

investment of participant accounts; 

(e) All decisions regarding the holding 

and exercise or other disposition of the 

Rights that will be made by the 

Participant Directed Plans will be made 

in accordance with the provisions of 

such Participant Directed Plans for 

individually-directed investment of 

participant accounts by the individual 

participants whose accounts in each 

such Participant Directed Plan acquired 

the Rights in connection with the 

Offering, and if no instructions are 

received, the Rights will expire in 

accordance with the terms and 

conditions of the Rights Plan; and 

(f) The authority for all decisions 

regarding the acquisition, holding and 

exercise or other disposition of the 

Rights by the Citigroup Pension Plan 

will be exercised by an Independent 

Fiduciary. 

(g) Neither the Participant Directed 

Plan participants nor the Citigroup 

Pension Plan will pay any fees or 

commissions in connection with the 

exercise of the Rights other than the 

aggregate Purchase Price with respect to 

the Rights then being exercised and an 

amount equal to any applicable transfer 

tax or other governmental charge. 

Notice to Interested Persons 

The Applicants represent that within 

thirty (30) days of the date of 

publication of the proposed exemption 

in the Federal Register, the Applicants 

will provide notice of the proposed 

exemption (consisting of a copy of the 

proposed exemption as published in the 

Federal Register and the supplemental 

statement required by Department of 

Labor Regulation Section 2570.43(a)(2), 

(collectively, the Notice to Interested 

Persons)) to (i) all current participants 

(active and inactive) in the Participant 

Directed Plans, and (ii) the current 

Independent Fiduciaries (as defined in 

the proposed exemption) of the 

Citigroup Pension Plan. With respect to 

the Participant Directed Plans, the 

Applicants will provide all current 

participants with the Notice to 

Interested Persons, as well as an 

explanatory cover letter, by first class 

mail. The Notice to Interested Persons 

may be included in the same package 

that includes the quarterly statements 

and other participant notices if the 

timing of the mailing of the Notice to 

Interested Persons coincides with the 

timing of the mailing of such other 

statements and notices. With respect to 

the Citigroup Pension Plan, the 

Applicants will provide the 

Independent Fiduciaries with the Notice 

to Interested Persons by electronic mail, 

with a request for a delivery receipt for 

the electronic mail. 

The Department must receive all 

written comments and requests for a 

hearing no later than thirty (30) days 

from the last date of the mailing of the 

Notice to Interested Persons. 

FOR FURTHER INFORMATION CONTACT: 

Wendy M. McColough of the 

Department, telephone (202) 693–8540. 

(This is not a toll-free number.) 

The West Coast Bancorp 401(k) Plan (the 

Plan) Located in Lake Oswego, Oregon 

[Application No. D–11611] 

Proposed Exemption 

The Department is considering 

granting an exemption under the 

authority of section 408(a) of the Act 

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

in accordance with the procedures set 

forth in 29 CFR Part 2570, Subpart B (55 

FR 32836, 32847, August 10, 1990).26 If 

the exemption is granted, the 

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

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

407(a) and the sanctions resulting from 

the application of section 4975(c)(1)(A) 

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

effective January 29, 2010, to: (1) the 

acquisition of stock rights (the Rights) 

by the Plan issued by the West Coast 

Bancorp, Inc. (Bancorp), the Plan 

sponsor and a party in interest with 

respect to the Plan under the terms and 

conditions of a Rights offering (the 

Offering); and (2) the holding of the 

Rights by the Plan until their expiration, 

during the subscription period (the 

Subscription Period) of the Offering, 

provided that the following conditions 

were met: 

(a) The receipt of the Rights by the 

Plan occurred in connection with the 

Offering and was made available by 

Bancorp on the same terms to all 

shareholders (the Shareholders) of the 

common stock of Bancorp (Common 

Stock); 

(b) The acquisition of the Rights by 

the Plan resulted from an independent 

act of Bancorp as a corporate entity, and 

all holders of the Rights, including the 

Plan, were treated in the same manner 

with respect to such acquisition; 

(c) All Shareholders of Common 

Stock, including the Plan, received the 

same proportionate number of Rights 

based on the number of shares of 

Common Stock held by such 

Shareholders; 

(d) All decisions regarding the Rights 

held by the Plan were made by the 

individual Plan participants whose 

accounts in the Plan received the Rights, 

in accordance with the provisions under 

the Plan for individually-directed 

investment of such account; and 

(e) The Plan did not pay any fees or 

commissions in connection with the 

acquisition and or holding of the Rights. 

Effective Date: This proposed 

exemption, if granted, will be effective 

as of January 29, 2010, the 

commencement date of the Offering (the 

Commencement Date). 

Summary of Facts and Representations 

The Parties 

1. Bancorp, which maintains its 

principal place of business in Lake 

Oswego, Oregon, is the bank holding 

company for West Coast Bank (the 

Bank), its primary subsidiary. The Bank 

maintains $2.7 billion in assets and 

operates in 65 Oregon and Washington 

state locations. As of the 

Commencement Date, there were 

87,171,915 shares of Common Stock and 

121,328 shares of Series B Preferred 

Stock (Series B Preferred Stock) 

outstanding. As of March 9, 2010, 

Bancorp was authorized to issue 250 

million additional shares of Common 

Stock in order to raise capital, as 

discussed below. 

2. Bancorp sponsors the Plan, a Code 

section 401(k) profit sharing plan, for its 

subsidiaries. As of the Commencement 

Date, the Plan had 752 participants and 

assets totaling $22,717,737.22. Under 

the Plan, participants may make pre-tax 

and after-tax 401(k) contributions. 

Eligible employees may also make 

rollover contributions into the Plan from 

other employers’ qualified plans or from 

IRAs. Further, the Plan allows 


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27Bancorp also entered a written agreement with 

the Federal Reserve Bank of San Francisco (the 

Reserve Bank) and the DFCS on December 15, 2009, 

agreeing not to take any dividends or other 

payments representing a reduction in capital from 

the Bank without the prior consent of the Reserve 

Bank and the DFCS. 

28Bancorp’s Form 10–K Report states, on page 35, 

that for the fiscal year ending December 31, 2009, 

no conversion of Series B Preferred Stock can occur 

until the condition of a ‘‘widely-dispersed’’ offering 

of such stock has occurred, due to regulatory 

reasons. 

29Bancorp apprised the FDIC and DFCS of the 

Offering pursuant to the Consent Order. 

participants to self-direct the investment 

of their individual accounts pursuant to 

section 404(c) of the Act. West Coast 

Trust Company, a wholly-owned 

subsidiary of Bancorp serves as the 

Plan’s directed trustee (the Trustee). 

3. The Plan provides participants with 

several investment options, which 

include the Federated Government 

Obligations Money Market Fund (the 

Money Market Fund) and the West 

Coast Bancorp Employer Stock Fund 

(the Stock Fund). The Money Market 

Fund provides conservative investors 

with current income and stable 

principal. Accordingly, the Money 

Market Fund invests primarily in a 

portfolio of short-term U.S. Treasury 

and government agency securities. 

The Stock Fund allows participants to 

invest voluntarily in the Common Stock. 

As of January 19, 2010, the Plan held 

454,923.56 shares of common stock or 

approximately 0.52% of the then 

outstanding shares of Common Stock, 

with a value of $1,187,350 based on the 

$2.61 closing price on the NASDAQ 

Global Select Market. The Common 

Stock trades under ticker symbol 

‘‘WCBO.’’ As of the Commencement 

Date, the Common Stock represented 

approximately 5.23% of Plan assets as 

of the Commencement Date. 

Regulatory Involvement 

4. From 2007 to early 2009, the value 

of the Common Stock decreased by over 

90 percent as a result of the stock 

market crash, the subprime mortgage 

crisis and the recession. Bancorp 

represents that the Common Stock’s 

price reflected the trend for comparable 

bank stocks. Although Bancorp had 

exposure to home mortgage loans that 

were eventually written down, Bancorp 

represents that it was not a recipient of 

any funds from the U.S. Treasury’s 

Troubled Asset Relief Program. 

5. On March 30, 2009, the Federal 

Deposit Insurance Corporation (FDIC) 

and the Oregon Division of Finance and 

Corporate Securities (DFCS) issued a 

joint Report of Examination (ROE) 

following a routine examination of the 

Bank. The ROE, as summarized, stated 

that the Bank had engaged in unsafe and 

unsound banking practices by: (a) 

Operating with management whose 

policies and practices were detrimental 

to the Bank; (b) operating with a board 

of directors which failed to provide 

adequate supervision over and direction 

to the active management of the Bank; 

(c) operating with inadequate capital in 

relation to the kind and quality of assets 

held by the Bank; (d) operating with a 

large volume of poor quality loans; (e) 

engaging in unsatisfactory lending and 

collection practices; (f) operating in 

such a manner as to produce operating 

losses; (g) operating with inadequate 

provisions for liquidity; and (h) 

operating in violation of Part 323 of the 

FDIC Rules and Regulations, 12 CFR 

Part 3234, concerning appraisals; and (i) 

operating in violation of Part 353 of the 

FDIC Rules and Regulations, 12 CFR 

Part 353, concerning suspicious activity 

reporting. 

6. On October 15, 2009, the FDIC, the 

DFCS and the Bank entered into a 

Stipulation and Consent to the Issuance 

of an Order to Cease and Desist (the 

Consent Agreement) (FDIC–09–4536). In 

the Consent Agreement, the Bank, 

without admitting or denying alleged 

charges of unsafe or unsound banking 

practices and violations of law and/or 

regulations, agreed to the issuance of an 

Order to Cease and Desist (the Consent 

Order). On October 22, 2009, the FDIC 

and the DFCS issued the Consent Order 

which essentially required the Bank to 

take steps outlined in the Consent 

Agreement. In this regard, The Bank was 

required to increase its capital levels, 

reduce underperforming assets, submit 

plans for a securities issuance to the 

FDIC, set capital and leverage ratios, 

prevent fraudulent lending, and 

eliminate dividends within certain time 

frames.27 The Bank represents in its 

Form 10–K (Annual Report Pursuant to 

Section 13 or 15(d) of the Securities 

Exchange Act of 1934) filing for its fiscal 

year ending December 31, 2009 that it 

is in material compliance with all 

aspects of the Consent Order. On July 

15, 2010, the FDIC and DFCS issued a 

joint termination of the Consent Order. 

New Investment in the Bank 

7. On October 23, 2009, Bancorp 

entered into investment agreements 

with 52 outside investors as part of a 

private sale of $155 million of newlyissued preferred stock and warrants 

issued by Bancorp (the Capital Raise). 

Sandler O’Neill and Partners, L.P., 

Bancorp’s financial advisor with respect 

to the Capital Raise, represented 

Bancorp with the outside investors, 

none of whom are parties in interest 

with respect to the Plan. 

During the Capital Raise, Bancorp 

received net proceeds of $139.2 million 

from the investors in exchange for 

1,428,849 shares of mandatorily 

convertible cumulative participating 

preferred stock (the Series A Preferred 

Stock), 121,328 shares of mandatorily 

convertible cumulative participating 

preferred stock (the Series B Preferred 

Stock), and Class C warrants (the Class 

C Warrants), exercisable for a total of 

240,000 shares of Series B Preferred 

Stock (each at a price of $100 per share 

together with certain other expired 

warrants). 

As a result of shareholder approvals, 

on January 20, 2010, shares of Series A 

Preferred Stock issued by Bancorp in 

the Capital Raise were automatically 

converted into an aggregate of 

71,442,450 shares of Common Stock on 

January 27, 2010. Shares of Series B 

Preferred Stock issued in the Capital 

Raise became automatically convertible 

into 12 million shares of Common Stock 

upon transfer of such preferred stock to 

third parties in a ‘‘widely dispersed’’ 

offering.28 Finally, shares of Series B 

Preferred Stock issuable upon the 

exercise of the Class C Warrants became 

automatically convertible into 12 

million shares of Common Stock 

following exercise of the Class C 

Warrants and the transfer of the Series 

B Preferred Stock issued by Bancorp to 

third parties in a ‘‘widely-dispersed’’ 

offering. 

Bancorp contributed the $139.2 

million of proceeds from the Capital 

Raise to the Bank, thereby improving 

the Bank’s operating flexibility. In 

addition, the regulatory capital ratios of 

the Bank improved significantly as a 

result of the Capital Raise. 

The Offering 

8. Following the Capital Raise, 

Bancorp embarked on an effort to raise 

$10 million in additional capital 

through the Offering.29 The Offering 

commenced on January 29, 2010 and it 

expired on March 1, 2010 at 5 p.m. PST 

(the Offering Expiration Date). The 

shares of Common Stock issued in 

connection with the Offering were listed 

on the NASDAQ Global Select Market. 

In the Offering, Bancorp distributed, 

at no charge, the Rights to the 

Shareholders of record on January 19, 

2010 (the Record Date). The Rights 

entitled the Shareholders to purchase 

up to 5,000,000 shares of Common 

Stock for a subscription price (the 

Subscription Price) of $2.00 per share. 

Each Shareholder received .31787 

Rights for each share of Common Stock 

they owned on the Record Date. The 

Rights were allocated in whole numbers 


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30Bancorp had reserved the rejection right, which 

is customary in a rights offering by a banking 

institution, to avoid any shareholder from acquiring 

an ownership interest in Bancorp that would either 

jeopardize Bancorp’s ability to claim certain tax 

advantages, such as net operating losses, or require 

Bancorp to first obtain approval from federal or 

state banking authorities. 

31Other provisions of the Act that are implicated 

by the transactions include section 406(a)(1)(A) of 

the Act and the fiduciary self-dealing and conflict 

of interest provisions section 406(b)(1) and (b)(2) of 

the Act. In relevant part, section 406(a)(1)(A) of the 

Act provides that a fiduciary with respect to a plan 

shall not cause the plan to engage in a transaction 

if the fiduciary knows or should know that the 

transaction is a prohibited sale or exchange of any 

property between a plan and a party in interest. 

Section 406(b)(1) of the Act prohibits a fiduciary 

from dealing with the assets of a plan in his own 

interest of or for his own account. Section 406(b)(2) 

of the Act prohibits a fiduciary with respect to a 

plan from acting in any transaction involving the 

plan on behalf of a party, or represent a party, 

whose interests are adverse to the interests of the 

plan or its participants and beneficiaries. 

only and were rounded down to the 

nearest whole number. 

9. The Rights could not be sold, 

transferred or assigned, and they were 

not listed for trading on the NASDAQ or 

any other exchange or over-the-counter 

market. Bancorp represents that the 

Rights were nontransferable to allow 

only legacy Shareholders the 

opportunity to purchase additional 

shares of Common Stock to help offset 

the share dilution such shareholders 

had incurred when the Preferred Stock 

was acquired by the outside investors, 

as discussed above in Representation 7. 

Further, Bancorp states that the use of 

transferable Rights would have allowed 

persons other than legacy Shareholders 

to acquire Common Stock at the below 

market price; whereas, the Offering was 

intended to benefit legacy Shareholders. 

Any Rights that were not exercised by 

the Shareholders expired. 

As noted above, each Right entitled a 

Shareholder an opportunity to purchase 

one share of Common Stock at the 

Subscription Price of $2.00 per share. 

The Subscription Price, which was 

established by the Bancorp’s Board of 

Directors (the Board), was equal to the 

implied per share value of the Common 

Stock that was negotiated by the new 

investors, as discussed above in 

Representation 7. The Subscription 

Price was not related to Bancorp’s book 

value, results of operations, cash flows, 

financial condition or the predicted 

future market value of the Common 

Stock after the Offering. In addition, the 

Board did not make any 

recommendations to the Shareholders 

regarding whether they should exercise 

their Rights but urged the Shareholders 

to make independent decisions based on 

their assessment of Bancorp’s business 

and the risk factors associated with a 

rights offering. 

10. The Rights entitled the 

Shareholders to a basic subscription 

privilege (the Basic Subscription 

Privilege) and an over-subscription 

privilege (the Over-Subscription 

Privilege). The Basic Subscription 

Privilege entitled the Shareholders to 

purchase one share of Common Stock at 

the Subscription Price. The OverSubscription Privilege entitled 

Shareholders to purchase as many 

additional shares of Common Stock 

available in the Offering as they wanted 

at the Subscription Price. Shareholders 

were required to exercise their Basic 

Subscription Privilege in full before 

they could exercise their OverSubscription Privilege. Additionally, 

Shareholders were required to exercise 

their Over-Subscription Privilege at the 

same time they exercised their Basic 

Subscription Privilege. However, 

Bancorp reserved the right to reject in 

whole or in part any Over-Subscription 

requests, regardless of the availability of 

shares of Common Stock.30 Bancorp 

represents that no Shareholders who 

exercised their Basic Subscription 

Privileges, including Plan Shareholders, 

had their Over-Subscription requests 

rejected either in whole or in part. 

If the Shareholders collectively 

exercised their Over-Subscription 

Privileges in excess of the 5,000,000 

shares authorized by Bancorp in the 

Offering, Bancorp was required to fulfill 

first all Basic Subscription Privileges. 

Then, any remaining shares of Common 

Stock were to be sold pro rata among the 

Over-Subscription Shareholders based 

on the number of shares for which the 

over-subscribing Shareholders had 

subscribed under their Basic 

Subscription Privileges. 

Request for Exemptive Relief and 

Rationale 

11. Bancorp represents that the Rights 

satisfy the definition of an ‘‘employer 

security,’’ which under section 407(d)(1) 

of the Act is defined as ‘‘a security 

issued by an employer of employees 

covered by the plan, or by an affiliate of 

such employer,’’ However, Bancorp 

states that the Rights do not satisfy the 

definition of a ‘‘qualifying employer 

security,’’ as set forth in section 

407(d)(5) of the Act, which defines the 

term as an employer security which is 

stock, a marketable obligation, or an 

interest in a publicly-traded partnership 

(provided that such partnership is an 

existing partnership as defined in the 

Code). Under section 407(a)(1) of the 

Act, a plan may not acquire or hold any 

‘‘employer security’’ which is not a 

‘‘qualifying employer security.’’ 

Moreover, section 406(a)(1)(E) of the Act 

prohibits the acquisition, on behalf of a 

plan, of any ‘‘employer security in 

violation of section 407(a) of the Act. 

Finally, section 406(a)(2) of the Act 

prohibits a fiduciary who has authority 

or discretion to control or manage the 

assets of a plan to permit the plan to 

hold any ‘‘employer security’’ that 

violates section 407(a) of the Act. 

Because the Plan’s acquisition and 

holding of the Rights would violate the 

Act,31 Bancorp requests an 

administrative exemption from the 

Department. If granted, the exemption 

would be effective on the 

Commencement Date. 

The Rights Disclosures 

12. On February 3, 2010, Bancorp 

posted a ‘‘Rights Offering Notice’’ on its 

intranet for its employees. On February 

4, 2010, Bancorp completed mailing a 

prospectus for the Offering. Plan 

Shareholders also received special 

instructions entitled ‘‘Special 

Instructions for Participants in our 

401(k) Plan—What You Need to Know 

about the Bancorp Stock Rights Offering 

and Your 401(k) Account’’ (Special 

Instructions). As discussed below, the 

Special Instructions gave Plan 

Shareholders, as opposed to non-Plan 

Shareholders, different timeframes and 

payment methods in which to exercise 

their Rights. 

Exercise of Rights 

13. Shareholders were permitted to 

exercise all, some or none of their 

Rights. An election to exercise a Right 

was irrevocable once made. Bancorp did 

not charge any fees or sales 

commissions to issue the Rights or to 

issue shares of Common Stock to those 

who exercised their Rights. However, if 

Shareholders exercised their Rights 

through a broker or other holder of their 

shares, the Shareholders were 

responsible for paying any fees that 

person may have charged. No fees or 

expenses were paid by the Plan. 

14. To exercise their Rights, including 

their Basic and Over-Subscription 

Privileges, non-Plan Shareholders were 

required to complete and submit a 

Subscription Rights Certificate to Wells 

Fargo, N.A. which acted as the 

Subscription Agent for the Offering (the 

Subscription Agent). The Subscription 

Agent collected these payments and 

held them in a segregated bank account 

until the Offering was completed. Once 

the Offering had been completed, the 

Subscription Agent purchased the new 

shares of Common Stock in accordance 

with the terms of the Offering. 

Generally, non-Plan Shareholders had 

until 5 p.m. PST on the Offering 

Expiration Date (i.e., March 1, 2010) to 


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32Bancorp represents that the extra business days 

were required to provide the Trustee, the 

Subscription Agent for the Offering, the Plan’s 

recordkeeper, the custodian for the Stock Fund and 

the clearing agency for the Offering sufficient time 

to process Plan participants’ elections to exercise 

their Rights, tabulate and confirm the results, 

liquidate the participants’ funds, confirm the orders 

and the availability of the funds and remit payment 

to purchase the shares. 

33Participants had to have sufficient funds to pay 

for their Basic and Over-Subscription Privileges, but 

they could choose the source of such funds from 

within their individual accounts in the Plan. By 

liquidating only the participants’ Money Market 

Fund accounts rather than making a pro rata 

liquidation from each of the Plan investment funds 

in which participants were invested, Bancorp 

explains that the Plan allowed participants to 

choose which of their Plan investment funds they 

wanted to liquidate to pay for their shares of 

Common Stock. Thus, participants were not forced 

to use money from other investment funds within 

the Plan which they wished to keep invested at 

their then current levels. 

34Bancorp states that the reason behind freezing 

the participant’s Money Market Fund accounts was 

to prevent the participants from moving money out 

of such fund after the Participant Expiration Time 

lapsed but before the Trustee could liquidate it. 

35According to Bancorp, the original intent was 

to create a special temporary investment fund in the 

Plan designated as the ‘‘Rights Offering 

Subscription,’’ in order to show a counterbalancing 

asset for the money that was liquidated from the 

participants’ Money Market Fund. However, the 

administrative system of the Plan’s recordkeeper 

was unable to create this special account. 

Consequently, the only available option was to 

show the subscription rights as actual shares within 

the Stock Fund, pending the actual purchase of 

those shares. 

36Bancorp represents that the five to ten business 

days allowed sufficient processing time for the 

Subscription Agent to determine the number of 

shares acquired in the over-subscription, for the 

shares to be issued, and for the crediting of the 

shares to the participants’ accounts. 

37According to Bancorp, most of the non-Plan 

Shareholders held their shares in brokerage 

accounts. This meant that they had to send their 

subscription elections to their brokers, who would 

then patch those elections for their customers with 

the election cutoff date set by their brokers, which 

was typically several business days before the 

Offering Expiration Date. 

38 During this period, shares of Common Stock 

closed as low as $2.47 per share on February 17, 

2010 and as high as $2.80 per share on February 

3, 2010. 

exercise their Rights, but those who 

held their shares in a brokerage account 

had to comply with the earlier deadline 

set by their particular broker. 

15. To exercise their Rights, Plan 

Shareholders were required to complete 

and submit a Subscription Rights 

Certificate and Election Form to the 

Subscription Agent, which was not a 

party in interest with respect to the 

Plan, by 5 p.m. CST (3 p.m. PST) on 

February 22, 2010 (the Participant 

Expiration Time), six business days 

before the Offering Expiration Date.32

From the Commencement Date to the 

Participant Expiration Time, the 

Subscription Agent was required to 

provide the Trustee with daily reports of 

the participants who submitted forms 

and the number of Rights they chose to 

exercise under both their Basic and 

Over-Subscription Privileges. 

In order to exercise their Rights, Plan 

participants were not required to remit 

any payments to the Subscription 

Agent. Instead, participants were 

required to have enough money 

available in their Money Market Fund 

accounts by the Participant Expiration 

Time to pay for their Basic and OverSubscription Privilege shares (their 

Subscription Prices).33 Because 

participants were not likely to have 

sufficient funds in their Money Market 

Fund accounts initially, the Special 

Instructions provided detailed 

instructions about how participants 

could transfer additional funds into the 

Money Market Fund from other Plan 

investment funds and specified the 

timeframes in which to do so. 

Participant directions to move funds in 

the Money Market Fund from any other 

investment funds in the Plan except the 

Stock Fund had to be received by 

February 17, 2010. Participant 

instructions to move funds from the 

Stock Fund into the Money Market 

Fund had to be received by February 19, 

2010 in order to allow additional time 

to settle trades on the Common Stock. 

16. As soon as practicable after the 

Participant Expiration Time, the Trustee 

froze the Money Market Fund accounts 

of the participants exercising Rights34

and liquidated funds sufficient to cover 

their Subscription Prices. If a 

participant did not have enough money, 

the Trustee (as instructed by Bancorp) 

exercised that participant’s Rights to the 

maximum extent possible with the 

funds available. Once the Trustee was 

finished liquidating funds, it lifted the 

freeze on the Money Market Fund. 

17. To provide the participants with 

a contemporaneous confirmation of the 

number of shares they had purchased in 

the Offering while working within the 

restrictions placed by the administration 

system of the Plan’s recordkeeper, the 

Stock Fund was credited with the 

number of shares for which the 

participants had subscribed and paid, 

even though at the time those shares 

had not yet been purchased.35 The 

Special Instructions explicitly stated 

that the use of the term ‘‘shares’’ only 

indicated a pending trade and that the 

actual shares they purchased would not 

be officially credited to their accounts 

until after the Offering had closed and 

the shares had been purchased. For 

these reasons, the Stock Fund was 

frozen for those participants. The freeze 

was in effect from the time the shares 

were credited as a pending trade until 

the shares were actually purchased and 

credited to their accounts. Bancorp 

informed participants that the freeze 

would last until five to ten business 

days after the Offering Expiration 

Date.36

18. Because the Participant Expiration 

Time was set six business days before 

the Offering Expiration Date, Bancorp 

explains that participants would 

possibly have been at a slight 

disadvantage relative to non-Plan 

Shareholders who had a few additional 

days to observe the trading price of the 

Common Stock and determine whether 

they wanted to participate in the 

Offering.37 Therefore, the Trustee was 

instructed to note the public trading 

price of the Common Stock on Friday, 

February 26, 2010 (one business day 

before the Offering Expiration Date). If, 

on that date, the Common Stock last 

traded at above $2.00 per share, the 

Trustee was to exercise the participant’s 

Rights pursuant to the terms of the 

Offering as described above. If, however, 

the Common Stock traded at $2.00 per 

share or lower, the Trustee was to redeposit all money into the appropriate 

participant’s Money Market Fund 

account and delete the pending trade 

from the participant’s account in the 

Stock Fund. 

If a Plan Shareholder instructed the 

Trustee to exercise such participant’s 

Rights, the Trustee was required to 

remit the participant’s money to the 

designated clearing agency for the 

Offering, Depository Trust & Clearing 

Corporation (DTC). DTC would then 

purchase the Common Stock from 

Bancorp, and the Trustee would credit 

such participant’s account in the Stock 

Fund with the corresponding shares. In 

the event participants over-subscribed 

to more shares than were available 

under the Offering, the money 

liquidated from the participant’s Money 

Market Fund account to buy those 

shares was re-deposited into the 

appropriate account. 

19. As of the Commencement Date, 

339 Plan participants were eligible to 

exercise a minimum of one Right. 

However, only 70 or 20.1 percent of 

Plan Shareholders exercised their 

Rights. In addition, the Common Stock 

never closed below $2.00 per share 

during the entire Subscription Period.38

With respect to Plan Shareholders, the 

closing price of the Common Stock on 

February 26, 2010 was $2.63 per share 

and was $2.59 per share on the 

Expiration Closing Date. Accordingly, 

the Trustee exercised the Rights for all 

such Plan Shareholders at the same 

time. 


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20. Bancorp represents that the 

acquisition and holding of the Rights by 

the Plan was administratively feasible, 

in that the Offering was a one-time 

transaction, and all shareholders of 

Common Stock, including the Plan 

shareholders, were treated in the same 

manner with respect to the acquisition 

and holding of the Rights. With regard 

to the fact that Plan shareholders had 

less time to decide whether to exercise 

their Rights, Bancorp represents that the 

various service providers involved in 

the Offering, rather than Bancorp, 

required the additional time. 

Additionally, Bancorp explains that the 

Offering included specific protections 

instructing the Trustee not to exercise 

the Rights of Plan Shareholders if the 

Common Stock fell below the 

Subscription Price. Further, Bancorp 

states that the proposed exemption 

would be in the best interests of the 

Plan and its participants and 

beneficiaries because Plan Shareholders 

that exercised their Rights avoided the 

dilution of their interests in Bancorp 

and increased the value of their 

individual accounts. 

Summary 

21. In summary, Bancorp represents 

that the transactions satisfied the 

statutory requirements for an exemption 

under section 408(a) of the Act because: 

(a) The Plan’s receipt of the Rights 

occurred in connection with the 

Offering and was made available by 

Bancorp on the same terms to all 

shareholders of the Common Stock; 

(b) The acquisition of the Rights by 

the Plan resulted from an independent 

act of Bancorp as a corporate entity, and 

all Shareholders of the Rights, including 

the Plan, were treated in the same 

manner with respect to such 

acquisition; 

(c) All Shareholders of the Common 

Stock, including the Plan, received the 

same proportionate number of Rights 

based on the number of shares of the 

Common Stock held by such 

Shareholders; 

(d) All decisions regarding the Rights 

held by the Plan were made by the 

individual Plan participants whose 

accounts in the Plan received the Rights, 

in accordance with the provisions under 

the Plan for individually-directed 

investment of such accounts; and 

(e) The Plan did not pay any fees or 

commissions in connection with the 

acquisition or holding of the Rights. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Anh-Viet Ly of the Department at (202) 

693–8648. (This is not a toll-free 

number.) 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under section 

408(a) of the Act and/or section 

4975(c)(2) of the Code does not relieve 

a fiduciary or other party in interest or 

disqualified person from certain other 

provisions of the Act and/or the Code, 

including any prohibited transaction 

provisions to which the exemption does 

not apply and the general fiduciary 

responsibility provisions of section 404 

of the Act, which, among other things, 

require a fiduciary to discharge his 

duties respecting the plan solely in the 

interest of the participants and 

beneficiaries of the plan and in a 

prudent fashion in accordance with 

section 404(a)(1)(b) of the Act; nor does 

it affect the requirement of section 

401(a) of the Code that the plan must 

operate for the exclusive benefit of the 

employees of the employer maintaining 

the plan and their beneficiaries; 

(2) Before an exemption may be 

granted under section 408(a) of the Act 

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

the Department must find that the 

exemption is administratively feasible, 

in the interests of the plan and of its 

participants and beneficiaries, and 

protective of the rights of participants 

and beneficiaries of the plan; 

(3) The proposed exemptions, if 

granted, will be supplemental to, and 

not in derogation of, any other 

provisions of the Act and/or the Code, 

including statutory or administrative 

exemptions and transitional rules. 

Furthermore, the fact that a transaction 

is subject to an administrative or 

statutory exemption is not dispositive of 

whether the transaction is in fact a 

prohibited transaction; and 

(4) The proposed exemptions, if 

granted, will be subject to the express 

condition that the material facts and 

representations contained in each 

application are true and complete, and 

that each application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption. 

Signed at Washington, DC, this 30th day of 

September, 2010. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. 2010–24892 Filed 10–5–10; 8:45 am] 

BILLING CODE 4510–29–P 


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