[Federal Register Volume 80, Number 72 (Wednesday, April 15, 2015)]
[Notices]
[Pages 20246-20261]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-08565]


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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.

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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-11726, Rock Wool Manufacturing 
Company; L-11784, Eli Lilly and Company and Elco Insurance Company 
Limited; D-11798, Robert A. Handelman Roth IRA No. 2; and, D-11809 and 
L-11810, Roofers Local 195 Pension Fund and Roofers Local 195 Joint 
Apprenticeship Training Fund.

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 email or FAX. Any 
such comments or requests should be sent either by email to: 
<a href="/cdn-cgi/l/email-protection#ec81838a8a859898c28e89989895ac888380c28b839a"><span class="__cf_email__" data-cfemail="bcd1d3dadad5c8c892ded9c8c8c5fcd8d3d092dbd3ca">[email protected]</span></a>, 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: All comments will be made available to the public. Do not 
include any personally identifiable information (such as Social 
Security number, name, address, or other contact information) or 
confidential business information that you do not want publicly 
disclosed. All comments may be posted on the Internet and can be 
retrieved by most Internet search engines.

SUPPLEMENTARY INFORMATION:

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).
    The proposed exemptions were requested in applications filed 
pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the 
Code, and in accordance with procedures set forth in 29 CFR part 2570, 
subpart B (76 FR 66637, 66644, October 27, 2011).\1\ Effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. 
App. 1 (1996), transferred the authority of the Secretary of the 
Treasury to issue exemptions of the type requested to the Secretary of 
Labor. Therefore, these notices of proposed exemption are issued solely 
by the Department.
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    \1\ The Department has considered exemption applications 
received prior to December 27, 2011 under the exemption procedures 
set forth in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 
10, 1990).
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    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.

Rock Wool Manufacturing Company Salaried Retirement Plan (the Plan) 
Located in Leeds, AL

[Application No. D-11726]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and section 
4975(c)(2) of the Code, and in accordance with the procedures set forth 
in 29 CFR part 2570, subpart B (76 FR 46637, 66644, October 27, 
2011).\2\ If the exemption is granted, the restrictions of sections 
406(a)(1)(A), 406(b)(1) and 406(b)(2) of the Act and the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A) and (E) of the Code, shall not apply to the 
proposed in-kind contribution (the Contribution) to the Plan of a 
parcel of unimproved real property (the Property) by Rock Wool 
Manufacturing Company (Rock Wool or the Company), the Plan sponsor and 
a party in interest with respect to the Plan, provided that the 
following conditions are satisfied:
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    \2\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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    (a) A qualified independent fiduciary (the Independent Fiduciary), 
acting on behalf of the Plan:
    (1) Determines that the Contribution is in the interests of the 
Plan and protective of the Plan's participants and beneficiaries; and
    (2) Determines that the Property is valued for purposes of the 
Contribution at the Property's fair market value as of the date of the 
Contribution, as determined by a qualified independent appraiser (the 
Independent Appraiser);
    (b) The Independent Fiduciary performs the following steps in order 
to make the determinations described above in paragraph (a):
    (1) Reviews, negotiates, and approves the specific terms of the 
Contribution; and
    (2) Ensures, for the purposes of the Contribution, that the 
appraisal report (the Appraisal Report) is consistent with sound 
principles of valuation;
    (c) As of the date of the Contribution, the Independent Fiduciary 
monitors compliance by Rock Wool with respect to the terms of the 
Contribution and with the conditions of this exemption, if granted, to 
ensure that such terms and conditions are satisfied at all times;
    (d) The Plan does not pay any commissions, costs or other expenses, 
including any fees that are currently charged or accrued in the future 
by the Independent Fiduciary and the

[[Page 20247]]

Independent Appraiser, in connection with the Contribution; and
    (e) The terms and conditions of the Contribution are no less 
favorable to the Plan than the terms that would be negotiated at arm's 
length between unrelated third parties under similar circumstances.
    (f) The contributed value of the Property is equal to the 
Property's fair market value, as determined by the Independent 
Appraiser on the transaction date, less a 35 percent discount to 
account for certain marketability limitations.

Summary of Facts and Represenations

    1. Rock Wool, headquartered in Leeds, Alabama, was founded in 1943. 
The current Chairman and CEO of Rock Wool is Sylvester Miniter III and 
the current Vice President of Operations is Gerald Miller. Rock Wool 
operates as a manufacturer of residential blowing wool insulation and 
high temperature pipe insulation fabrication. During the 1970's, Rock 
Wool began to incorporate into its product line certain materials 
containing asbestos. When the harmful effects of asbestos were later 
discovered, Rock Wool was named as the defendant in numerous lawsuits. 
Following the exhaustion of its insurance coverage, Rock Wool filed for 
Chapter 11 bankruptcy protection. Subsequent to Rockwool's bankruptcy 
filing, plaintiff attorneys reached a settlement agreement under which 
Rockwool's owners relinquished ownership rights and contributed Company 
stock to an asbestos settlement fund (the Settlement Fund). Pursuant to 
the terms of the settlement agreement, any profits earned by Rock Wool 
are to be deposited into the settlement fund to pay claimants on a 
periodic basis. As of September 30, 2014, Rock Wool had total assets of 
$5,706,884.62 and total liabilities of 3,108,653.82.
    2. The Plan, which was adopted by Rock Wool on May 1, 1974, is 
structured as a defined benefit plan. The Plan's trustees are Sylvester 
Miniter III and Gerald Miller (the Trustees), and the Plan's investment 
manager is Lee Robertson of Legg Mason Investment Counsel. As the 
Plan's investment manager, Mr. Robertson exercises discretion over the 
Plan's assets, and as such, qualifies as a fiduciary under section 
3(38) of the Act.\3\
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    \3\ Section 3(38) of the Act provides, in relevant part, that 
the term ``investment manager'' means any fiduciary (other than a 
trustee or named fiduciary, as defined in section 1102(a)(2) of this 
title)--(A) who has the power to manage, acquire, or dispose of any 
asset of a plan; (B) who (i) is registered as an investment adviser 
under the Investment Advisers Act of 1940, and (ii) is a bank, as 
defined in that Act; and (C) has acknowledged in writing that he is 
a fiduciary with respect to the plan.
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    As of January 28, 2015, the Plan covered 27 participants and held 
assets valued at approximately $2,537,114. The Plan has been frozen to 
new participants since December 31, 2001, and to benefit accruals since 
August 31, 2008.
    3. Rock Wool contributed $26,675 to the Plan during the year ending 
December 31, 2012, and $134,428 for the year ending December 31, 2013. 
As of September 1, 2012 and September 1, 2013, the adjusted funding 
target attainment percentage (AFTAP) for the Plan was 80.82% and 
81.09%, respectively. Pursuant to section 302 of the Act, Rock Wool is 
obligated to make a required minimum cash contribution to the Plan of 
$134,000 on or before May 15, 2015 for the 2014 Plan year (the Required 
Contribution).
    4. Rock Wool proposes to make an in-kind contribution to the Plan 
of certain unimproved real property, in lieu of cash, due to its 
current cash flow restrictions. Currently, Rock Wool is experiencing 
restricted cash flow problems due to, among other things, its inability 
to obtain third party financing and its funding obligations with 
respect to the Settlement Fund.
    In effect, the in-kind contribution of the Property to the Plan 
will offset the minimum funding amount due to the Plan under section 
302 of the Act, as the contribution value of the Property (the fair 
market value of the Property minus the marketability discount) will 
exceed the $134,000 Required Contribution. Thus, the contribution of 
the Property will allow Rock Wool to forego making a $134,000 cash 
payment to the Plan.\4\ Accordingly, Rock Wool requests an 
administrative exemption from the Department because the proposed 
Contribution would otherwise violate several provisions of the Act.
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    \4\ It is within the Plan's investment policy to allow in-kind 
contributions that are made by Rock Wool.
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    5. Section 406(a)(1)(A) of the Act provides that a fiduciary with 
respect to a plan shall not cause a plan to engage in a transaction if 
the fiduciary knows or should know that such transaction constitutes a 
direct or indirect sale or exchange, or leasing, of any property 
between a plan and a party in interest. Section 3(14)(A) of the Act 
defines the term ``party in interest'' to include a fiduciary. Section 
3(14)(C) of the Act also defines the term party in interest to include 
an employer, any of whose employees are covered by such plan. The 
Trustees, who are principals of Rock Wool, together with Mr. Robertson, 
are parties in interest with respect to the Plan, as fiduciaries. In 
addition, Rock Wool is a party in interest with respect to the Plan as 
an employer whose employees are covered by the Plan.
    With respect to a defined benefit plan, such as the Plan, an 
employer assumes an obligation to make cash contributions to the plan 
in order to fund promised benefits. Rock Wool's proposed Contribution 
of the Property to the Plan would thus constitute a discharge of Rock 
Wool's legal obligation with respect to the Required Contribution, as 
noted above, as well as, depending on the Plan's funding status in 
future years, Rock Wool's obligation to make cash contributions to the 
Plan in the future. As such, the Plan would, in effect, be exchanging 
its legal right to receive a cash contribution for the receipt of real 
property. Thus, Rock Wool's proposed Contribution of the Property to 
the Plan constitutes a prohibited sale or exchange in violation of 
section 406(a)(1)(A) of the Act.
    The Contribution would also violate section 406(b)(1) and (b)(2) of 
the Act. Section 406(b)(1) prohibits a fiduciary from dealing with the 
assets of the plan in such fiduciary's own interests or for such 
fiduciary's personal account. In determining that it would be 
appropriate for the Plan to receive the Contribution of the Property 
from Rock Wool instead of cash, the Trustees would effectively be 
releasing Rock Wool from, at minimum, its $134,000 cash obligation to 
the Plan. Due to the fact that the Trustees hold executive positions at 
Rock Wool, each Trustee would be dealing with the assets of the Plan 
for his own interest or personal account.
    In addition, section 406(b)(2) of the Act prohibits a fiduciary 
from acting in such fiduciary's individual or other capacity in any 
transaction involving the plan on behalf of a party (or from 
representing a party) whose interests are adverse to the interests of 
the plan, or the interests of the Plan participants and beneficiaries. 
As Trustees and Rock Wool principals, Messrs. Miniter and Miller may 
have divided loyalties in representing both the interests of the Plan 
and Rock Wool with respect to the Contribution of the Property.
    6. The Property that is the subject of the Contribution was 
purchased for $36,175 in 1947 by the Cusick Family, the original owners 
of Rock Wool. The Cusicks incorporated Rock Wool in July of 1958, at 
which time the Property became the Company's primary manufacturing and 
warehouse facility.
    The Property is located at 8200 Thorton Avenue, Leeds, Alabama, and

[[Page 20248]]

currently consists of 2.67 acres of unimproved vacant land that is not 
encumbered by a mortgage. The Property is located approximately 1.3 
miles from Rock Wool's manufacturing plant. The land is not presently 
used by Rock Wool, nor will it be used in the future by Rock Wool, its 
affiliates, or members of the Cusick Family. The only ongoing expenses 
associated with the Property are real estate taxes, which amount to 
approximately $1,800 per year.
    7. The Property was appraised on August 4, 2014, by James P. 
Sumners, a State Certified Real Property Appraiser in the State of 
Alabama (License # G00037) (the Independent Appraiser). Mr. Sumners is 
employed by the real estate appraisal firm of Providence Company 
(Providence), located in Birmingham, Alabama. Mr. Sumners has certified 
that he ``has no present or prospective interest in the [P]roperty that 
is the subject of this report, and has no personal interest or bias 
with respect to the parties involved.'' Further, Mr. Sumners represents 
that his fees derived from Rock Wool are equal to less than 1% of 
Providence's revenues, from all sources.
    Due to the fact that the Property is a parcel of vacant land, Mr. 
Sumners based his valuation solely on the Market Approach. Mr. Sumners 
reported his conclusion in a summary appraisal report, dated August 6, 
2014, and formulated his opinion and conclusion in accordance with 
Standard Rule 1 of the Uniform Standards of Professional Appraisal 
Practice (USPAP). The Appraisal Report was written in compliance with 
USPAP and Financial Institutions Reform, Recovery and Enforcement Act 
of 1989 (FIRREA) guidelines. After inspecting the Property and 
analyzing all relevant data, Mr. Sumners determined the ``AS-IS'' Fee 
Simple Market Value of the Property to be $325,000.00, as of August 4, 
2014.
    8. On August 21, 2013, the Trustees hired Layton Engineering of 
Birmingham, Alabama (Layton), an unrelated party, to conduct an 
environmental engineering report (the Environmental Report) on the 
Property. In its Environmental Report, Layton tested soil at the 
Property for heightened levels of chromium. The tests were compared 
with a previous soil assessment conducted at the Property by Layton in 
2002, as well as against four background samples that were obtained 
from a nearby property. Each nearby property was reasonably expected to 
be unaffected by current or historical processes and within 
depositional environments similar to those at the Property. Based on 
the tests, Layton concluded that the results of the analysis 
demonstrated that the levels of chromium at the Property site were well 
within the range of natural background concentrations of chromium in 
the unaffected adjacent soils. Thus, Layton has confirmed that the 
Property is environmentally clean.
    9. The Trustees have selected Lubbock National Bank (LNB) to serve 
on behalf of the Plan as the Independent Fiduciary with respect to the 
proposed Contribution. Specifically, LNB has designated Christopher L. 
Robinson, Senior Vice President and Senior Trust Officer of LNB, to 
prepare the Independent Fiduciary Report and to assume the duties and 
responsibilities of the Independent Fiduciary for the Plan. Mr. 
Robinson's qualifications include thirteen years of experience as an 
ERISA attorney and graduate and undergraduate degrees in Finance. Mr. 
Robinson represents that he is knowledgeable as to the duties and 
responsibilities of an ERISA fiduciary by virtue of his educational 
background and his experience as an official with LNB. Mr. Robinson has 
also served as a fiduciary for other qualified plans.
    10. Mr. Robinson represents that the only revenue received by LNB 
from any party in interest to the Plan are those fees derived from Rock 
Wool in connection with Mr. Robinson's duties as the Plan's Independent 
Fiduciary, and that these fees are equal to less than 1% of LNB's 
revenues from all sources, for both 2013 and 2014. In addition, Mr. 
Robinson states that neither he nor any officer, board member, or 
shareholder of LNB is related in any way to Rock Wool, or its 
principals, through ownership, common officers or directors, debt 
relationships, business dealings, or family relationships. Mr. Robinson 
further represents that neither Rock Wool nor any of its principals 
have deposited any funds in checking accounts, savings accounts, or 
certificates of deposit maintained by LNB.
    11. In his role as Independent Fiduciary, Mr. Robinson represents 
that he will confirm that the Property has been properly titled in the 
name of the Plan by reviewing the title records and by ensuring that 
the Contribution to the Plan has in fact been made. Further, Mr. 
Robinson will ensure that the Plan does not pay any fees or commissions 
with respect to the Contribution.
    12. Mr. Robinson has expressed his views in support of the 
Contribution, stating that the Contribution is favorable to the Plan. 
In determining whether the in-kind contribution would be in the 
interests of the Plan, Mr. Robinson reviewed and considered: (a) 
Representations made by Rock Wool regarding the Plan and the Property; 
(b) the value conclusions and related analysis presented by the 
Independent Appraiser; (c) discussions with certain members of Rock 
Wool's senior management regarding the Plan and the related investment 
policy, the nature of the Property, and future prospects for the 
usefulness and marketability of such Property \5\; (d) the Plan's 
investment objectives, policies, and related Plan documents; (e) 
whether the terms and conditions of the Contribution are no less 
favorable to the Plan than terms negotiated at arm's length under 
similar circumstances between unrelated third parties; and (f) other 
analyses and investigations.
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    \5\ Mr. Robinson represents that during the course of his due 
diligence, he had conversations with the Plan Trustees and Rock Wool 
management as to the potential benefit of the Property to the Plan. 
During such conversations, Rock Wool management expressed its belief 
that the Property could generate revenue in the future, either from 
a sale or through leasing. On the basis of his conversations with 
Rock Wool management, Mr. Robinson concluded that the Property 
should serve the Plan well in terms of growth of asset value and, 
potentially, as a current income stream through a leasing strategy.
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    13. Based on his review, Mr. Robinson determined that the 
Contribution of the Property is appropriate and in the interest of the 
Plan's participants and beneficiaries. In this regard, Mr. Robinson 
concluded that the Contribution will substantially increase the funded 
status of the Plan, and will place the Plan in a more secure actuarial 
and financial position, with both a higher funding percentage and a 
larger funding standard account balance. Additionally, Mr. Robinson 
concluded that the Plan's acquisition of the Property will improve the 
diversification of Plan investments and further Plan investment 
policies and objectives. Further, Mr. Robinson stated that the 
Contribution presents the Plan with the added benefit of a potential 
future stream of cash flow, in the event that the Property is leased to 
third parties.
    14. With regard to potential alternatives to the proposed 
Contribution, Mr. Robinson considered a sale of the Property to an 
unrelated third party. Mr. Robinson asserted that such a sale would be 
beneficial to neither the Plan nor Rock Wool, due to the fact that: (a) 
The Property likely would have to be sold at a discounted amount, 
approximately 25% to 35% below fair market value; and (b) the sale 
would likely take between 36 and 48 months to complete.
    Based upon Mr. Robinson's representations, the Applicant 
subsequently determined that a 35%

[[Page 20249]]

discount should be applied to the Property's fair market value to 
account for marketability limitations. Accordingly, the Applicant has 
agreed that the Property's contribution value, after applying the 35% 
discount, is $211,250, subject to any fair market value adjustments 
made by the Appraiser on the transaction date. Thus, the contributed 
value of the Property would represent 7.69% of the Plan' assets.
    15. Rock Wool represents that the Contribution is administratively 
feasible because the transaction would require a simple re-deeding of 
the Property to the Plan and would not require the Plan to pay any fees 
or commissions. Further, Rock Wool believes the Contribution would be 
in the interests of the Plan and its participants and beneficiaries and 
protective of their rights because the Contribution would increase the 
value of the Plan's assets.
    16. In summary, it is represented that the proposed transaction 
satisfies or will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) The Independent Fiduciary, acting on behalf of the Plan:
    (1) Has determined that the Contribution is in the interests of the 
Plan and protective of the Plan's participants and beneficiaries; and
    (2) Will determine that the Property is valued for purposes of the 
Contribution at the Property's fair market value as of the date of the 
Contribution, as determined by the Independent Appraiser;
    (b) The Independent Fiduciary has performed the following steps in 
order to make his determinations, described above in paragraph (a):
    (1) Reviewed, negotiated, and approved the specific terms of the 
Contribution; and
    (2) Ensured, for purposes of the Contribution, that the Appraisal 
Report is consistent with sound principles of valuation;
    (c) As of the date of the Contribution, the Independent Fiduciary 
will monitor compliance by Rock Wool with respect to the terms of the 
Contribution and with the conditions of this exemption, if granted, to 
ensure that such terms and conditions are satisfied at all times;
    (d) The Plan will not pay any commissions, costs or other expenses, 
including any fees that are currently charged or accrued in the future 
by the Independent Fiduciary and the Independent Appraiser, in 
connection with the Contribution; and
    (e) The terms and conditions of the Contribution will not be less 
favorable to the Plan than the terms that would be negotiated at arm's 
length between unrelated third parties under similar circumstances.
    (f) The contributed value of the Property will be equal to the 
Property's fair market value, as determined by the Independent 
Appraiser on the transaction date, less a 35 percent discount to 
account for certain marketability limitations.

Notice to Interested Parties

    The persons who may be interested in the publication in the Federal 
Register of the Notice of Proposed Exemption (the Notice) include all 
individuals who are participants in the Plan. It is represented that 
such interested persons will be notified of the publication of the 
Notice by first class mail to such interested person's last known 
address within fifteen (15) days of publication of the Notice in the 
Federal Register. Such mailing will contain a copy of the Notice, as it 
appears in the Federal Register on the date of publication, plus a copy 
of the Supplemental Statement, as required, pursuant to 29 CFR 
2570.43(b)(2), which will advise all interested persons of their right 
to comment on and/or to request a hearing. All written comments or 
hearing requests must be received by the Department from interested 
persons within 45 days of the publication of this proposed exemption in 
the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Mr. Joseph Brennan of the Department 
at (202) 693-8456. (This is not a toll-free number.)

Eli Lilly and Company (Lilly) and Elco Insurance Company Limited (Elco) 
(Together, the Applicants) Located in Indianapolis, IN and North 
Charleston, SC, Respectively

[Application No. L-11784]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 
66644, October 27, 2011).

Section I. Transactions

    If the proposed exemption is granted, the restrictions of sections 
406(a)(1)(D) and 406(b) of the Act shall not apply to the reinsurance 
of risks and the receipt of premiums therefrom by Elco, an affiliate of 
Lilly, as the term ``affiliate'' is defined in Section III(a)(1) below, 
in connection with insurance contracts sold by American United Life 
Insurance Company (AUL) or any successor insurance company (a Fronting 
Insurer) to provide optional group term life insurance benefits 
(Optional Group Life) to participants in the Eli Lilly and Company Life 
Insurance and Death Benefit Plan (the Life Insurance Plan), a component 
of the Eli Lilly and Company Employee Welfare Plan (the Plan), provided 
the conditions set forth in Section II, below, are satisfied.

Section II. Conditions

    (a) Elco--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with Lilly that is described in 
section 3(14)(G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one state as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Director of 
the Department of Insurance of its domiciliary state (South Carolina), 
which has neither been revoked nor suspended;
    (4)(A) Has undergone and shall continue to undergo an examination 
by an independent certified public accountant for its last completed 
taxable year immediately prior to the taxable year of the reinsurance 
transaction covered by this proposed exemption, if granted; or
    (B) Has undergone a financial examination (within the meaning of 
the law of South Carolina) by the Director of the South Carolina 
Department of Insurance (SCDI) within five (5) years prior to the end 
of the year preceding the year in which such reinsurance transaction 
has occurred; and
    (5) Is licensed to conduct reinsurance transactions by South 
Carolina, whose law requires that an actuarial review of reserves be 
conducted annually by an independent firm of actuaries and reported to 
the appropriate regulatory authority;
    (b) The Life Insurance Plan pays no more than adequate 
consideration for the insurance contracts;
    (c) No commissions are paid by the Life Insurance Plan with respect 
to the direct sale of such contracts or the reinsurance thereof;

[[Page 20250]]

    (d) Effective January 1, 2012, there was an immediate and 
objectively determined benefit to Plan participants and beneficiaries 
in the form of increased benefits. Any modification to such benefits 
will at least approximate the increase in benefits that are effective 
January 1, 2012, as described in the Notice of Proposed Exemption (the 
Notice) and will continue in all subsequent years of each contract of 
reinsurance involving Elco and a Fronting Insurer and in every renewal 
of each contract of reinsurance involving Elco and a Fronting Insurer;
    (e) In the initial year and in subsequent years of coverage 
provided by a Fronting Insurer, the formulae used by the Fronting 
Insurer to calculate premiums will be similar to formulae used by other 
insurers providing comparable optional life insurance coverage under 
similar programs. Furthermore, the premium charge calculated in 
accordance with the formulae will be reasonable and will be comparable 
to the premiums charged by the Fronting Insurer and its competitors 
with the same or a better rating providing the same coverage under 
comparable programs;
    (f) The Fronting Insurer has a financial strength rating of ``A'' 
or better from A. M. Best Company (A. M. Best). The reinsurance 
arrangement between the Fronting Insurer and Elco will be indemnity 
insurance only (i.e., the Fronting Insurer will not be relieved of 
liability to the Life Insurance Plan should Elco be unable or unwilling 
to cover any liability arising from the reinsurance arrangement);
    (g) The Life Insurance Plan retains an independent, qualified 
fiduciary, as defined in Section III(c) (the Independent Fiduciary) to 
analyze the transactions and to render an opinion that the requirements 
of Section II(a) through (f) and (h) of this proposed exemption have 
been satisfied;
    (h) Participants and beneficiaries in the Plan will receive in 
subsequent years of every contract of reinsurance involving Elco and 
the Fronting Insurer the benefit increases effective January 1, 2012, 
as described in the Notice, or benefit increases no less in value, as 
determined by the Independent Fiduciary, than the objectively 
determined increased benefits such participants and beneficiaries 
received effective January 1, 2012;
    (i) The Independent Fiduciary will monitor the transactions 
proposed herein on behalf of the Plan on a continuing basis to ensure 
such transactions remain in the interest of the Plan; take all 
appropriate actions to safeguard the interests of the Plan; and enforce 
compliance with all conditions and obligations imposed on any party 
dealing with the Plan; and
    (j) In connection with the provision to participants in the Life 
Insurance Plan of the Optional Group Life which is reinsured by Elco, 
the Independent Fiduciary will review all contracts (and any renewal of 
such contracts) of the reinsurance of risks and the receipt of premiums 
therefrom by Elco and must determine that the requirements of this 
proposed exemption, if granted, and the terms of the benefit 
enhancements continue to be satisfied.

Section III. Definitions

    (a) The term ``affiliate'' includes:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner in any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (b) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (c) The term ``Independent Fiduciary'' means a person who:
    (1) Is not an affiliate of Lilly or Elco and does not hold an 
ownership interest in Lilly, Elco, or affiliate of Lilly or Elco;
    (2) is not a fiduciary with respect to the Plan prior to its 
appointment to serve as the Independent Fiduciary;
    (3) has acknowledged in writing that:
    (i) It is a fiduciary and has agreed not to participate in any 
decision with respect to any transaction in which it has an interest 
that might affect its best judgment as a fiduciary; and
    (ii) it has appropriate technical training or experience to perform 
the services contemplated by the exemption, if granted;
    (4) For purposes of this definition, no organization or individual 
may serve as Independent Fiduciary for any fiscal year in which the 
gross income received by such organization or individual (or 
partnership or corporation of which such organization or individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from Lilly, Elco, or affiliates of Lilly or Elco, (including amounts 
received for services as an independent fiduciary under any prohibited 
transaction exemption granted by the Department) for that fiscal year 
exceeds two percent (2%) of such organization's or individual's gross 
income from all sources for the prior fiscal year;
    (5) No organization or individual which is an Independent Fiduciary 
and no partnership or corporation of which such organization or 
individual is an officer, director or ten percent (10%) or more partner 
or shareholder may acquire any property from, sell any property to, or 
borrow any funds from Lilly, Elco, or affiliates of Lilly or Elco 
during the period that such organization or individual serves as an 
Independent Fiduciary and continuing for a period of six months after 
such organization or individual ceases to be an Independent Fiduciary 
or negotiates any such transaction during the period that such 
organization or individual serves as an Independent Fiduciary; and
    (6) In the event a successor Independent Fiduciary is appointed to 
represent the interests of the Plan with respect to the subject 
transaction, there should be no lapse in time between the resignation 
or termination of the former Independent Fiduciary and the appointment 
of the successor Independent Fiduciary.

Summary of Facts and Representations \6\
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    \6\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department, unless indicated otherwise.
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Background
    1. Eli Lilly and Company (Lilly), headquartered in Indianapolis, 
IN, is one of the world's largest manufacturers and distributors of 
pharmaceuticals. Lilly also engages in research and development. Lilly 
employs over 17,000 employees in the United States and over 38,000 
employees worldwide. In 2012, Lilly had net income of approximately 
$4.1 billion and revenue of $22.6 billion.
    2. Elco Insurance Company Limited (Elco) is a captive insurance and 
reinsurance corporation and a wholly-owned subsidiary of Eli Lilly 
International Corporation, which itself is a wholly-owned subsidiary of 
Lilly. Elco was incorporated in Bermuda on July 10, 1975, to provide 
direct coverage to Lilly for various exposures. On June 15, 2011, the 
State of South Carolina Department of Banking, Insurance, Securities 
and Health Care Administration issued a Certificate of Authority 
permitting a branch of Elco to transact the business of a captive 
insurance company. JLT Insurance Management (Bermuda) Ltd. performs the 
accounting functions, records retention, and other management and 
administrative services for Elco. Wilmington Trust performs the same 
services for the Elco branch. Elco is

[[Page 20251]]

subject to regulation by the South Carolina Department of Insurance and 
is required to maintain $500,000 of capital and surplus at all times. 
Elco currently provides the following insurance coverage to Lilly and 
its subsidiaries: Property, Transit, Workers' Compensation, Auto, 
General Liability, and Product Liability. As of December 31, 2012, Elco 
had total assets of $141,923,761 and the gross written premium was 
$18,303,690.
    3. Lilly sponsors the Eli Lilly and Company Employee Welfare Plan 
(the Plan), which provides eligible employees with medical, life 
insurance, dental, disability, death benefits, and other welfare 
benefits. As of December 31, 2011, the Plan provided benefits to 
approximately 25,334 active and retired participants. The total gross 
assets of the Plan as of December 31, 2011, were $1,372,933,491.
    4. The Applicants represent that Lilly currently provides life 
insurance and death benefits to eligible employees through the Eli 
Lilly and Company Life Insurance and Death Benefits Plan (the Life 
Insurance Plan), which is a component of the Plan. Benefits under the 
Life Insurance Plan include basic life insurance, for which Lilly pays 
100 percent of the cost, and optional group term life insurance 
benefits (Optional Group Life), for which employee participants pay 100 
percent of the cost. According to the Applicants, participants in the 
Life Insurance Plan may elect, at their own discretion, Optional Group 
Life that includes Supplemental and Dependent Coverage.\7\ Supplemental 
Coverage is equal to one, two, three, four, or five times a 
participant's base salary. The maximum Supplemental Coverage amount is 
$3 million. Dependent Coverage is equal to $10,000 per child ($2,000 
for children under 6 months of age) and $10,000, $20,000, or $50,000 
for a spouse or domestic partner. The Applicants represent that policy 
premiums are determined by American United Life Insurance Company 
(AUL), which insures the Optional Group Life. The Applicants state that 
participants who elect dependent spouse or domestic partner coverage 
pay premiums based on age and amount of coverage; participants pay 
child coverage premiums at a fixed rate (currently, $0.375 per month).
---------------------------------------------------------------------------

    \7\ The Applicant represents that approximately 68% of employees 
who are eligible for Optional Group Life purchase such coverage.
---------------------------------------------------------------------------

    5. The Applicants represent that the Supplemental and Dependent 
coverages include an Accelerated Benefit Option which allows part of a 
participant's or dependent's Optional Group Life benefit to be paid 
while the participant or dependent is still living if the participant 
or dependent is terminally ill and has a limited life expectancy. The 
Applicants represent that ``terminally ill'' or ``a limited life 
expectancy'' means an injury or sickness that, despite appropriate 
medical care, is reasonably expected to result in the person's death 
within twelve months from the date of payment of the Accelerated Life 
Benefit, as determined by AUL. The Applicants represent that AUL may 
require that the person be examined at AUL's expense by AUL's choice of 
physician. The Applicants further explain that utilizing the 
Accelerated Benefit Option reduces the benefit that would otherwise be 
payable upon the participant's or dependent's death.
    6. The Applicants represent that Lilly reached an agreement with 
AUL,\8\ a party unrelated to Lilly and its affiliates, for AUL to serve 
prospectively as the direct insurer for the Optional Group Life 
coverage of the Life Insurance Plan and then contract with Elco to 
reinsure a portion of such coverage.
---------------------------------------------------------------------------

    \8\ The Applicants represent that AUL's overall financial 
strength is rated A+ by A. M. Best.
---------------------------------------------------------------------------

Past Reinsurance Arrangement With Elco
    7. According to the Applicants, the Department recently 
investigated the Plan with respect to a prior reinsurance transaction 
that began in 1993 in which Elco had been reinsuring certain Optional 
Group Life coverage for Lilly that were provided under the Plan. 
According to the Applicants, after counsel advised Lilly and Elco that, 
absent an individual exemption, the Department might take the position 
that the reinsurance arrangement could involve one or more prohibited 
transactions, reinsurance payments to Elco ceased and Lilly and Elco 
began a process of correcting the prior transactions. According to the 
Applicants, Lilly paid correction expenses and took a number of steps 
to correct the transactions, as described below.
    8. The Applicants represent that, as part of Lilly's corrective 
actions, Keith A. Dall, a principal with Milliman Actuarial Services 
(Milliman) reviewed the transactions. In a written report, Mr. Dall 
determined that the premiums paid by the Life Insurance Plan for the 
optional dependent and life insurance coverages during the period from 
March 14, 2005, through October 2010,\9\ were within the range of 
premiums that would have been charged for comparable coverage by 
insurers comparable to AUL.
---------------------------------------------------------------------------

    \9\ According to the Applicants, Lilly and Elco became aware of 
the prohibited transactions in October 2010, at which time they put 
the reinsurance arrangement on hold pending the issuance of an 
individual exemption.
---------------------------------------------------------------------------

    9. In addition to the review by Mr. Dall, the Applicants represent 
that Elco made restorative payments for the Life Insurance Plan's 
benefit, which represented Elco's profits during the relevant 
period.\10\ The Applicants state that Elco used the Department's 
Voluntary Fiduciary Correction Program Online Calculator (the Online 
Calculator) to determine the appropriate amount. The Applicants further 
represent that in order to ensure that Elco's restorative payments 
could only be used for the benefit of participants and beneficiaries in 
the Life Insurance Plan, the payments were made to AUL to be credited 
to a Premium Pre-Payment Account (the Account) established for the 
Plan's benefit. According to the Applicants, the Account will pay 25 
percent of each premium payment due under the Optional Group Life 
policies until the Account is exhausted, and during such time, 
participants electing Optional Group Life will have their premiums 
reduced by a corresponding 25 percent.\11\ The Applicants represent 
that AUL agreed to credit interest on the Account monthly at a rate 
equal to the two-year U.S. Treasury Bond rate as of July 27, 2011. The 
Applicants further represent that, under a written agreement, Elco, 
AUL, and the Employee Benefits Committee of Eli Lilly and Company (the 
Committee), acting as plan administrator, recognize that the amounts 
credited to the Account and any earnings credited thereto are the 
assets of the Plan, which may not be used for any purposes other than 
to provide benefits and pay reasonable expenses in accordance with the 
terms of the Plan. Thus, according to the Applicants, Elco's total 
restorative payment to the Account was $3,929,834.64.\12\ The 
Applicants

[[Page 20252]]

represent that the restorative payment did not involve any transaction 
that could be prohibited within the meaning of section 406(a) or (b) of 
the Act. In this regard, according to the Applicants, (i) Elco made the 
restorative payment to AUL for the Plan's benefit and there was no 
transfer of assets from the Life Insurance Plan or the Plan, or use of 
assets of the Life Insurance Plan or other Plan assets for the benefit 
of Elco or Lilly or another party in interest, and (ii) neither the 
Committee nor any other person made a waiver of remedies that might be 
available to the Life Insurance Plan or the Plan with respect to the 
prohibited reinsurance transaction. Furthermore, the Applicant states 
that, to the extent that AUL's administration of the Account may be 
deemed to constitute a provision of services to the Life Insurance Plan 
or the Plan by AUL, such services should be exempted by virtue of the 
statutory exemption under section 408(b)(2) of the Act.\13\
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    \10\ The Applicants explain that profits were measured as the 
sum of all payments received by Elco from AUL in connection with 
Elco's reinsurance of the relevant coverages, plus the total 
interest earned on the premiums received by Elco.
    \11\ Under the Life Insurance Plan, all premiums for Optional 
Group Life are paid by participants who elect such coverage.
    \12\ The Applicants state that the total amount received by Elco 
from AUL in premiums for reinsurance during the period was 
$3,073,906.00. The Applicants explain that total interest earned on 
the premiums was determined using the Online Calculator, and as of 
August 1, 2011, lost earnings totaled $854,878.11. According to the 
Applicants, on August 1, 2011, Elco made a payment to AUL for credit 
to the Account in the amount of $3,928,784.11. However, because AUL 
did not receive this payment until August 2, 2011, a supplementary 
interest payment was made on August 3, 2011, in the amount of 
$1,050.53.
    \13\ The Department is expressing no view herein as to the 
Applicants' assertions regarding the absence of prohibited 
transactions in connection with payment of the restorative payment 
to AUL for the benefit of the Life Insurance Plan and the Plan. 
Furthermore, the Department is expressing no view herein as to 
whether AUL's administration of the Account may be deemed to 
constitute a provision of services or whether section 408(b)(2) 
would be applicable to such transaction.
---------------------------------------------------------------------------

    10. The Applicants represent that the past prohibited reinsurance 
transactions were reported on the Plan's 2009 Form 5500, filed with the 
Department in October 2010, and the correction was disclosed on the 
Plan's 2010 Form 5500. According to the Applicants, the Department 
examined the prohibited reinsurance transactions as a part of an 
investigation and determined that it would take no further actions with 
respect to the matter because Lilly had made the corrective payments 
described above. The Department issued a final closing letter on 
December 12, 2012.
Proposed Reinsurance Arrangement With Elco
    11. The Applicants explain that if this proposed exemption is 
granted, AUL will serve as the direct insurer for the Optional Group 
Life part of the Life Insurance Plan and then contract with Elco to 
provide reinsurance coverage for 75 percent of Optional Group Life 
risks within the $250,000 to $600,000 band of exposure.\14\ The 
Applicants state that the reinsurance agreement with AUL does not have 
a set term, but either Elco or AUL can terminate the agreement no 
sooner than 60 days after mailing notice to the other party. AUL may 
also terminate the agreement: (1) If annual premiums payable for the 
Optional Group Life drop below $800,000 or if Lilly ceases to own more 
than 50 percent of Elco; (2) upon insolvency, bankruptcy, receivership, 
rehabilitation, or liquidation of Elco; or (3) if Elco is unable or 
unwilling to meet one or more of its obligations under the agreement 
and fails to cure the default within 30 days of notification from AUL. 
The Applicants represent that the benefits to Lilly and Elco of this 
reinsurance arrangement include eliminating the insurer's margins (in 
this case AUL), more control over the life insurance program, access to 
data about the Life Insurance Plan, and the possibility that it could 
write other employer-specific coverages in the captive.
---------------------------------------------------------------------------

    \14\ For example, the Applicants explain that if there is a 
claim on the Optional Group Life policy for $450,000, AUL will be 
responsible for 100% of the first $250,000. Elco would cover 75% of 
the remaining $200,000 ($150,000) with AUL remaining responsible for 
25% of that $200,000 ($50,000). So in this scenario, AUL's total 
exposure is $300,000 and Elco's total exposure is $150,000. 
Additionally, the Applicants represent that in the event Elco 
becomes insolvent, AUL would be responsible for the entire $450,000.
---------------------------------------------------------------------------

    12. The Applicants state that AUL's reinsurance agreement with Elco 
(the Reinsurance Agreement) will be ``indemnity only''--that is, AUL 
will not be relieved of its liability for benefits under the Life 
Insurance Plan if Elco is unable or unwilling to satisfy the 
liabilities arising from the reinsurance arrangement. The Applicants 
further represent that the reinsurance arrangement is a ``quota share'' 
arrangement, meaning that Elco will receive 75 percent of the premium 
applicable to the reinsured risk less ceding commission and risk 
charges.\15\ The Applicants represent that although Elco is entitled to 
a share of the premium, Elco has no discretion with respect to denying 
a claim made by Lilly's Life Insurance Plan participants and 
beneficiaries. Finally, the Applicants note that AUL does not insure, 
and Elco does not reinsure, the basic life insurance benefits under the 
Life Insurance Plan.
---------------------------------------------------------------------------

    \15\ The Applicants note that in Fiscal Year 2012, Lilly would 
have received 51.4% of the total premium. However all premiums to 
which Elco is entitled continue to be paid to AUL until an 
individual exemption is issued.
---------------------------------------------------------------------------

    13. The Applicants represent that Elco is a party in interest with 
respect to the Plan pursuant to section 3(14)(G) of the Act. Therefore, 
the reinsurance transaction would result in the indirect transfer of 
Life Insurance Plan premium payments, which are plan assets, to Elco, 
in violation of ERISA section 406(a)(1)(D), which prohibits the 
transfer to, or use by or for the benefit of, a party in interest, of 
any assets of the plan. Additionally, the Applicants represent that the 
transactions could constitute violations of section 406(b)(1) of the 
Act, which prohibits a fiduciary from dealing with the assets of a plan 
in his interest or for his own account, and section 406(b)(3) of the 
Act, which prohibits a fiduciary from receiving any consideration for 
his own personal account from any party dealing with a plan in 
connection with a transaction involving plan assets. In this regard, 
the Applicants suggest that the Benefits Committee could be found to 
have used plan assets for the benefit of Lilly's affiliate, Elco, by 
causing the Life Insurance Plan to pay premiums to AUL under insurance 
contracts they know will be reinsured by Elco. The Applicants also 
indicate that the proposed reinsurance transaction could violate 
section 406(b)(2) of the Act, which prohibits a fiduciary from acting 
in any transaction involving a plan on behalf of a party whose 
interests are adverse to the interests of the Plan. In this regard, the 
Applicants note that, in connection with the subject reinsurance 
transactions, Elco has an interest that is adverse to the interests of 
the Plan. Therefore, Lilly could be found to have acted in a 
transaction involving the Life Insurance Plan on behalf of a party 
whose interests are adverse to the interests of the Life Insurance Plan 
by causing Elco to reinsure the Plan's contract with AUL for Optional 
Group Life. Accordingly, this proposed exemption, if granted, will 
provide relief from the prohibitions set forth in sections 406(a)(1)(D) 
and 406(b) of the Act for the reinsurance transactions and the 
corresponding premiums that Elco will receive.
Enhancements
    14. The Applicants note that, since January 1, 2012, in 
anticipation of the proposed exemptive relief described herein, certain 
enhancements (the Enhancements) have been provided to participants in 
the Eli Lilly Health Plan (the Health Plan), which is a component of 
the Plan. In this regard, the Applicants state that the Enhancements 
described below would not have been added to the Health Plan but for 
the proposed arrangement that is the subject of this notice. The 
Applicants state that Lilly is bearing the entire cost of such 
Enhancements. The Applicants explain that all programs are voluntary 
and consist of the following:
    (a) Enhanced Coaching Program--provides additional coaching for 
health conditions not previously covered. The

[[Page 20253]]

program also provides a new predictive model to identify participants 
who would most likely benefit from coaching;
    (b) Biometric Screenings--participants have multiple options in 
which to participate in the voluntary screenings. The screenings 
include data on height, weight, waist circumference, full lipid panel, 
and glucose testing. Each participant can obtain a well-being report 
through a web portal and then share it with his or her personal 
physician, health coach, or employee health services practitioner to 
help detect health risks earlier. If a participant receives a result 
that is critically abnormal, the participant receives a follow-up call 
to explain the results and any available Plan or wellness program 
resources for that particular condition or risk factor; and
    (c) Enhanced Health Risk Assessment/Well-Being Assessment--a more 
comprehensive voluntary health and wellness assessment will combine 
questions on physical and emotional health, productivity, work 
environment, and healthy behaviors. This assessment is intended to help 
employees better understand their health risks and areas where 
behaviors may hinder their health. It will be used in connection with 
the biometric screenings to communicate with individuals about 
voluntary coaching programs that would be medically beneficial to such 
individuals based on their particular condition or risk factors.\16\
---------------------------------------------------------------------------

    \16\ The Applicants note that the Plan may offer more incentives 
to encourage participants to undergo biometric screenings and 
complete the Well-Being Assessment.
---------------------------------------------------------------------------

    15. The Applicants represents that Lilly has incurred substantial 
costs related to the enhanced wellness program. The Applicants 
represent that, although it is difficult to break down in its entirety, 
the following costs are associated with the enhanced wellness program: 
On-site health coach for Indianapolis sites ($200,000 per year); Web 
site portal ($250,000 per year); On-site biometric screenings for all 
U.S. employees (approx. $50/employee); and Counseling, support groups, 
one-on-one coaching, and smoking cessation products (approx. $12,000 
per year).
    16. The Applicants represent that if the Enhancements are modified, 
alternative enhancements of at least the same approximate value, as 
determined by an independent, qualified fiduciary will continue in all 
subsequent years of the reinsurance arrangement.
Independent Fiduciary
    17. In connection with this exemption request, the Applicants 
represent that they have retained Keith A. Dall, from Milliman, to act 
as the Independent Fiduciary (the Independent Fiduciary) on behalf of 
the Plan for the purpose of evaluating, and if appropriate, approving 
the subject transactions.\17\ In this regard, Mr. Dall is responsible 
for conducting a due diligence review and analysis of the proposed 
transactions and for providing a written opinion explaining why he 
believes the arrangement meets the Department's requirements for an 
administrative exemption. The Applicants represent that Mr. Dall will 
also determine whether the conditions of the proposed exemption and the 
terms of the benefits enhancements continue to be satisfied.
---------------------------------------------------------------------------

    \17\ The Applicants state that Mr. Dall, or such other 
Independent Fiduciary as shall be retained, shall be paid by Lilly.
---------------------------------------------------------------------------

    18. Mr. Dall certifies that he is qualified to serve as the 
Independent Fiduciary in that, among other things, he has appropriate 
training, experience, and facilities to act on behalf of the Plan in 
accordance with the fiduciary duties and responsibilities prescribed by 
the Act. Mr. Dall represents that he and Milliman are independent of 
the parties to the covered transactions because Milliman's gross income 
from Lilly for the prior fiscal year does not exceed two percent of 
Milliman's gross annual income. Mr. Dall also represents that neither 
he nor Milliman was a fiduciary with respect to the Plan prior to this 
appointment. Moreover, Mr. Dall represents that neither he nor Milliman 
is an affiliate, officer, director, employee, or partner of Elco, 
Lilly, or AUL. Furthermore, the Applicants state that Milliman is not a 
corporation or partnership in which Lilly or Elco has an ownership 
interest or is a partner and that Milliman does not, on its own 
account, own any shares or otherwise have an ownership interest in 
Lilly, Elco, or any of their affiliates. Finally, the Applicants 
represent that Milliman will acknowledge in writing its acceptance of 
fiduciary responsibility and has agreed not to participate in any 
decision with respect to any transaction in which it has an interest 
that might affect its best judgment as a fiduciary. Moreover, neither 
Milliman, nor any partnership or corporation of which Milliman is an 
officer, director, or ten percent or more partner or shareholder, 
intends to acquire any property from, sell any property to, or borrow 
funds from Lilly, Elco, or their affiliates while serving as the 
Independent Fiduciary or for six months after serving as the 
Independent Fiduciary. If it becomes necessary in the future to appoint 
a successor Independent Fiduciary to replace Milliman, the Applicants 
represent that they will notify the Department sixty (60) days in 
advance of such appointment. Any successor will have the same, or 
substantially similar, responsibilities, experience, and independence 
as Milliman. If such a successor is appointed, the Applicants represent 
there will be no lapse in time between the resignation or termination 
of the former Independent Fiduciary and the appointment of the 
successor Independent Fiduciary.
    19. The Applicants represent that in connection with the 
reinsurance transactions, Mr. Dall reviewed, among other things: A 
draft of Eli Lilly and Elco's request to the Department for an 
administrative exemption; Elco's audited financial statements for the 
year ending December 31, 2012; the insurance rates between Lilly and 
AUL; the reinsurance agreement between AUL and Elco; and documentation 
summarizing the Enhancements. Furthermore, Mr. Dall produced an 
Independent Fiduciary Report (the Independent Fiduciary Report) wherein 
he considered the covered transactions and made the following 
determinations:
    Mr. Dall represents that Milliman compared the insurance rates 
between Lilly and AUL to rates for similar group supplemental life and 
dependent life benefits and found them to be competitive and within 
normal ranges. In addition to this, Mr. Dall represents that Milliman 
reviewed the premium rate history with the claims and expense history 
on this block of business and found the loss ratios to be reasonable 
relative to the industry and consistent with the intended loss ratio 
stated in the AUL actuarial memorandum provided by AUL. Mr. Dall 
represents that Milliman believes that other insurance carriers would 
offer similar rates given the experience on this block of business. 
Additionally, Mr. Dall confirmed that he received a copy of the 
reinsurance agreement between AUL and Elco and the Plan pays no 
commissions with respect to the reinsurance with Elco.
    Mr. Dall also confirmed that Elco is licensed to conduct insurance 
transactions, including reinsurance transactions, in the State of South 
Carolina, which requires captive reinsurers to file an annual actuarial 
opinion prepared by an independent actuary. Additionally, Mr. Dall 
confirmed that AUL, the Fronting Insurer, received a rating of A+ from 
A.M. Best, as of May 8, 2013.
    Finally, Mr. Dall determined that the Enhancements described above 
will result in an immediate and objectively determined benefit to the 
Plan's participants and beneficiaries through,

[[Page 20254]]

among other things, the offer of coaching, biometric screenings, and a 
well-being assessment.
Statutory Findings
    20. The Applicants represent that the proposed exemption is 
administratively feasible. The reinsurance of the Optional Group Life 
contracts is governed by a reinsurance agreement between AUL and Elco 
that is subject to review by the Independent Fiduciary and can be 
audited to determine compliance with the conditions of this proposed 
exemption, if granted. Furthermore, the proposed exemption will not 
require continued monitoring or other involvement by the Department.
    21. The Applicants also represent that the proposed exemption is in 
the interest of the Plan because it will include a material increase in 
Plan benefits for participants and beneficiaries through the 
Enhancements, described above. Specifically, Lilly amended the Plan 
effective January 1, 2012, to, among other things: (a) Enhance the 
Coaching Program offered under the Health Plan's wellness programs; (b) 
provide new biometric screenings under the wellness programs; and (c) 
enhance the Health Risk Assessment offered under the wellness programs. 
Additionally, the Applicants represent that captive reinsurance results 
in lower premiums because the captive does not charge ``margin.'' 
According to the Applicants, this, in turn, allows Lilly to create 
additional value in the Plan or lower its costs and those of its 
employees in contributory arrangements.
    22. The Applicants represent that the proposed exemption is 
protective of the rights of the participants and beneficiaries of the 
Plan because this proposed exemption, if granted, will require an 
Independent Fiduciary to review and approve the reinsurance transaction 
and the Enhancements. Moreover, the Applicants state that the 
Independent Fiduciary will monitor the covered transactions on a 
continuing basis to ensure such transactions remain in the interests of 
the Plan, take all appropriate actions to safeguard the interests of 
the Plan, and enforce compliance with all conditions and obligations 
imposed on any party dealing with the Plan. Specifically, this proposed 
exemption will require that the Independent Fiduciary analyze the 
subject transactions and render an opinion regarding whether certain 
conditions in this proposed exemption were satisfied, including that: 
The Life Insurance Plan pays no more than adequate consideration for 
the Optional Group Life contracts; the Plan pays no commissions with 
respect to the direct sale or reinsurance of such contracts; as of 
January 1, 2012, there is an immediate and objectively determined 
benefit to participants and beneficiaries of the Plan in the form of 
increased benefits, and if the benefits are materially modified, 
benefits of the same approximate value will continue in all future 
years of reinsurance and in every renewal of reinsurance; the 
reinsurance arrangement is indemnity insurance only; any Fronting 
Insurer will have a financial strength rating of ``A'' or better from 
A.M. Best; the Fronting Insurer calculates premiums according to 
formulae that are similar to formulae used by other insurers who 
provide comparable Optional Group Life coverage under similar programs; 
the premiums charged by the Fronting Insurer are reasonable and 
comparable to the premiums charged for the same coverage, under similar 
programs by the Fronting Insurer or its competitors who have the same 
or better rating from A.M. Best. Finally, the Independent Fiduciary 
will render an opinion about whether participants and beneficiaries in 
the Plan received, as of January 1, 2012, an immediate and objectively 
determined benefit through the Enhancements, and if the Enhancements 
are materially modified, Enhancements of the same approximate value in 
all future years of reinsurance and in every renewal of reinsurance.
Summary
    23. In summary, the Applicants represent that the proposed 
reinsurance transactions will meet the criteria of section 408(a) of 
the Act since, among other things:
    (a) Elco meets the affiliation, licensure, certification, and 
examination requirements specified in Section II(a)(1)-(5) of this 
proposed exemption;
    (b) The Life Insurance Plan will pay no more than adequate 
consideration for the insurance contracts;
    (c) No commissions will be paid by the Life Insurance Plan with 
respect to the direct sale of such contracts or the reinsurance 
thereof;
    (d) Effective January 1, 2012, there was an immediate and 
objectively determined benefit to Plan participants and beneficiaries 
in the form of increased benefits. If the benefits are materially 
modified, benefit increases of the same approximate value, as 
determined by the Independent Fiduciary, will continue in all 
subsequent years and in every renewal of each contract of reinsurance 
involving Elco and a Fronting Insurer. Any such modification in 
benefits will approximate the increase in benefits that are effective 
January 1, 2012;
    (e) In the initial year and in subsequent years of coverage 
provided by a Fronting Insurer, the formulae used by the Fronting 
Insurer to calculate premiums will be similar to formulae used by other 
insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formulae will be reasonable and will be comparable to the premiums 
charged by the Fronting Insurer and its competitors with the same or a 
better rating providing the same coverage under comparable programs;
    (f) The Fronting Insurer has a financial strength rating of ``A'' 
or better from A.M. Best, and the reinsurance arrangement between the 
Fronting Insurer and Elco will be indemnity insurance only;
    (g) The Life Insurance Plan retains an Independent Fiduciary or 
successor to such fiduciary to analyze the transactions and to render 
an opinion that certain requirements of the proposed exemption, if 
granted, have been satisfied;
    (h) Participants and beneficiaries in the Plan will receive in 
subsequent years of every contract of reinsurance involving Elco and 
the Fronting Insurer the benefit increases effective January 1, 2012, 
or benefit increases no less in value, as determined by the Independent 
Fiduciary, than the objectively determined increased benefits such 
participants and beneficiaries received effective January 1, 2012;
    (i) The Independent Fiduciary will monitor the transactions 
proposed herein on behalf of the Plan on a continuing basis to ensure 
such transactions remain in the interest of the Plan; take all 
appropriate actions to safeguard the interests of the Plan; and enforce 
compliance with all conditions and obligations imposed on any party 
dealing with the Plan; and
    (j) The Independent Fiduciary will review any contract for, and any 
renewal of, the reinsurance of risks and the receipt of premiums 
therefrom by Elco and will determine whether the requirements of this 
proposed exemption and the terms of the Enhancements, as described 
herein, continue to be satisfied.

Notice to Interested Persons

    Lilly will provide notice of the proposed exemption to all 
employees eligible to participate in the Plan within fourteen (14) 
calendar days of publication of the proposed exemption in the Federal 
Register. Lilly will

[[Page 20255]]

provide the notice to all employees eligible to participate in the Plan 
via first-class mail. In addition to the proposed exemption, as 
published in the Federal Register, Lilly will provide all employees 
eligible to participate in the Plan with a supplemental statement, as 
required, under 29 CFR 2570.43(a)(2). The supplemental statement will 
inform the employees eligible to participate in the Plan of their right 
to comment on and to request a hearing with respect to this proposed 
exemption. The Department must receive all written comments and/or 
requests for a hearing within 44 days of the publication of this 
proposed exemption in the Federal Register. The Department will make 
all comments available to the public.
    Warning: If you submit a comment, EBSA recommends that you include 
your name and other contact information in the body of your comment, 
but DO NOT submit information that you consider to be confidential, or 
otherwise protected (such as Social Security number or an unlisted 
phone number) or confidential business information that you do not want 
publicly disclosed. All comments may be posted on the Internet and can 
be retrieved by most Internet search engines.

FOR FURTHER INFORMATION CONTACT: Ms. Jennifer Brown of the Department, 
telephone (202) 693-8352 (This is not a toll-free number.)

Robert A. Handelman Roth IRA No. 2 (the New IRA) Located in Akron, Ohio

[Application No. D-11798]

Proposed Exemption

    Based on the facts and representations set forth in the 
application, the Department is considering granting an exemption under 
the authority of section 4975(c)(2) of the Code and in accordance with 
the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 
66644, October 27, 2011). If the exemption is granted, the sanctions 
resulting from the application of section 4975 of the Code, by reason 
of section 4975(c)(1)(A), (D) and (E) of the Code, shall not apply to 
the proposed purchase by the New IRA of a 100% ownership interest (the 
Interest) in RAH Properties Mill Street, Ltd. (the Company) from Robert 
A. Handelman (Mr. Handelman), the New IRA owner and a disqualified 
person with respect to the New IRA,\18\ provided the following 
conditions are met:
---------------------------------------------------------------------------

    \18\ Pursuant to 29 CFR 2510.3-2(d), the New IRA is not within 
the jurisdiction of Title I of the Employee Retirement Income 
Security Act of 1974 (the Act). However, there is jurisdiction under 
Title II of the Act pursuant to section 4975 of the Code.
---------------------------------------------------------------------------

    (a) The purchase is a one-time transaction for cash;
    (b) At the time of the purchase, the price paid by the New IRA for 
the Interest is equal to the fair market value of such Interest, as 
established by a qualified independent appraiser in an updated 
appraisal report as of the date of the purchase;
    (c) The terms and conditions of the purchase are at least as 
favorable to the New IRA as those available in a comparable arm's 
length transaction with an unrelated third party;
    (d) The New IRA does not pay any commissions or other expenses in 
connection with the purchase, including the rollover of the cash 
distribution from the Robert A. Handelman Roth IRA No. 1 (the Existing 
IRA) to the New IRA;
    (e) Mr. Handelman pays all appropriate taxes that are associated 
with the rollover of the cash distribution from the Existing IRA to the 
New IRA in connection with the purchase; and
    (f) Mr. Handelman receives no compensation from the New IRA or the 
Existing IRA for his role as manager of the Company.

Summary of Facts and Representations

    1. The Existing IRA is a Roth individual retirement account 
established under section 408(a) of the Code on May 1, 2012, by Robert 
A. Handelman, the IRA's sole participant. Beneficiaries of the Existing 
IRA are Mr. Handelman's children: Julie Wesel, Susan Masturzo, Sheryl 
Loudon, Lisa Handelman Jones, and Leslie Lopes. Fidelity Investments 
(Fidelity) is the Existing IRA's custodian. As of December 31, 2013, 
the Existing IRA had total assets of $760,282.63.
    2. The New IRA is also a Roth individual retirement account that 
was established under section 408(a) of the Code on May 1, 2012, by 
Robert A. Handelman, the New IRA's sole participant. Beneficiaries of 
the New IRA are Mr. Handelman's children. PENSCO Trust Company, a non-
depository trust company, is the New IRA's custodian. Although the New 
IRA currently holds no assets, it will be funded within 60 days after 
the exemption is granted.
    3. Mr. Handelman has a 100% ownership interest (the Interest) in 
the Company, a limited liability company formed on July 14, 1998, and 
located in Akron, Ohio. The Company's operations consist exclusively of 
leasing commercial office real estate in a building located at 55 East 
Mill Street, Akron, Ohio (the Property). The Property, which is the 
Company's sole asset, is improved by a two-story brick office building 
that contains 11,448 square feet of space. The building also includes a 
partially-finished basement. The Property is not subject to a mortgage.
    As of December 31, 2013, the Company had total assets of 
$431,984.25, as reported in the Company's unaudited financial 
statements.\19\ The Property is carried on the Company's balance sheet 
at $247,314. Mr. Handelman manages the Company but he receives no 
compensation from the Company.
---------------------------------------------------------------------------

    \19\ It is represented that the Company does not have audited 
financial statements.
---------------------------------------------------------------------------

    4. Mr. Handelman purchased the Property in 1984 for $375,000 from 
Community Federal Savings Loan Association, an unrelated party. On 
December 28, 1984, Mr. Handelman, as lessor, and Chemstress Consultant 
Company, a company owned by Mr. Handelman, as lessee, entered into a 
lease of the Property (the Chemstress Lease) commencing on January 1, 
1985. The Chemstress Lease provided for an initial five-year term, with 
two five-year renewal options. On July 31, 1998, Mr. Handelman 
contributed the Property to the Company. At the expiration of the 
second lease renewal period, the Chemstress Lease was extended on a 
month-to-month basis from January 1, 2000 until May 31, 2005. The 
Property was vacant from June 1, 2005 until July 14, 2005.
    5. Since July 14, 2005, the Company has leased the Property to the 
Akron Summit County Community Action, Inc. (ASCCA), an unrelated 
party.\20\ The current lease is a three-year lease, which runs from May 
1, 2013 through April 30, 2016. The current monthly rent is $14,052.90. 
The lease is also subject to two three-year renewal options.
---------------------------------------------------------------------------

    \20\ The first lease between the Company and ASCCA expired on 
April 30, 2013.
---------------------------------------------------------------------------

    6. An individual exemption is requested from the Department to 
allow the New IRA to purchase the Interest from Mr. Handelman. The 
Interest consists of the Property and the Company's rights as lessor 
under the ASCCA lease. To enable the IRA to purchase the Interest, Mr. 
Handelman will take a distribution in cash from the Existing IRA in the 
amount of the purchase price and will roll over the full cash 
distribution into the New IRA. Mr. Handelman represents that he cannot 
use the Existing IRA for the purchase because Fidelity, the custodian, 
cannot hold real estate.
    It is represented that Mr. Handelman hopes that the New IRA will 
continue for many years to provide for his children, whom he has 
designated as the beneficiaries of such IRA. Given

[[Page 20256]]

these intentions, Mr. Handelman would like the New IRA to invest in an 
asset that will continue to generate income and appreciation for the 
benefit of his family for the long term. Thus, he believes the New 
IRA's ownership of the Interest will fulfill this goal. Further, Mr. 
Handelman notes that the stock market is very volatile and fixed income 
securities currently have very low yields with the potential for 
substantial principal depreciation as interest rates rise. Therefore, 
Mr. Handelman does not believe other assets such as these will provide 
the New IRA with the long-term stability and growth in value that he 
seeks for such IRA.
    7. The New IRA will acquire the Interest for the fair market value 
of such Interest, as determined by a qualified independent appraiser in 
an appraisal that is updated on the date of the purchase. The New IRA 
will pay cash for the Interest and it will not pay any commissions or 
other expenses in connection with the purchase, or in connection with 
the rollover of the cash distribution from the Existing IRA to the New 
IRA. The terms and conditions of the purchase will be at least as 
favorable to the New IRA as those available in a comparable arm's 
length transaction with an unrelated third party. Finally, Mr. 
Handelman will pay all appropriate taxes that are associated with the 
transfer of any assets from the Existing IRA to the New IRA.
    8. Section 4975(c)(1)(A) of the Code prohibits, in part, any direct 
or indirect sale of any property between a plan and a disqualified 
person. Section 4975(c)(1)(D) of the Code prohibits any direct or 
indirect transfer to, or use by or for the benefit of, a disqualified 
person of the income or assets of a plan. The term ``disqualified 
person'' is defined under section 4975(e)(2)(A) of the Code to include 
a person who is a fiduciary. Section 4975(e)(3) of the Code defines the 
term ``fiduciary'' to include, in pertinent part, any person who 
exercises any discretionary authority or control respecting management 
or disposition of its assets. In addition, section 4975(c)(1)(E) of the 
Code prohibits a fiduciary from dealing with the income or assets of a 
plan in the fiduciary's own interest or for his or her own account. 
Finally, section 4975(e)(1)(B) of the Code defines the term ``plan'' to 
include an individual retirement account described in section 408(a) of 
the Code.
    As a fiduciary with respect to the New IRA, Mr. Handelman is a 
disqualified person with respect to such IRA under section 
4975(e)(2)(A) of the Code. Accordingly, because Mr. Handelman is a 
disqualified person with respect to the New IRA, the proposed purchase 
by the New IRA of Mr. Handelman's 100% Interest in the Company would be 
a transaction prohibited by section 4975(c)(1)(A) of the Code, and 
constitute a direct transfer to Mr. Handelman of the assets of the New 
IRA in violation of section 4975(c)(1)(D) of the Code. In addition, the 
proposed purchase would violate section 4975(c)(1)(E) of the Code 
because, as a fiduciary, Mr. Handelman would be engaged in a prohibited 
act of self-dealing by dealing with the assets of the New IRA for his 
own interest or his own account in connection with the purchase. 
Accordingly, in the absence of an administrative exemption, the 
proposed transaction would violate the foregoing Code provisions.
    9. The Property underlying the Interest has been appraised by 
Russell L. Kitzberger, GAA, RAA, Certified General Appraiser of Pointer 
Appraisal Services, LLC (Pointer), which is located in Akron, Ohio. Mr. 
Kitzberger represents that he has no familial or personal relationship 
with Mr. Handelman or the Company, and that Pointer derived less than 
1% of its 2013 annual income and less than 1% of its 2014 annual income 
from Mr. Handelman.
    In an independent appraisal report dated July 19, 2013 (the 
Property Appraisal), Mr. Kitzberger stated that he considered the Sales 
Comparison Approach, Income Approach and Cost Approach to valuation. 
Based on the sales data in the Property Appraisal, Mr. Kitzberger 
characterized the real estate market as a ``buyer's market,'' with few 
properties trading due to poor economic and general real estate market 
conditions. Therefore, he gave the most weight in his valuation of the 
Property to the Income Approach, stating that the most probable price 
the Plan would receive on the Property would be determined by the 
purchasing party weighing the income production of the Property under 
the current market conditions for sale of leased fee estates. Based on 
this valuation, Mr. Kitzberger determined that, as of July 10, 2013, 
the Property had a leased fee value of $610,000. As of the same date, 
Mr. Kitzberger also determined that the Property had a projected lease 
rate of $13.00 per square foot for the first and second floor, and 
$7.00 per square foot for the basement area, bringing the potential 
gross annual rental income to $99,580 or $8,298 per month.
    In a letter addendum dated November 11, 2014, Mr. Kitzberger 
updated the Property Appraisal. Mr. Kitzberger represents that he 
completed the update to the Property Appraisal in a manner similar to 
the prior report by updating the prior information with more recent 
sales, lease and cost data. Based on this more recent data, Mr. 
Kitzberger concluded that, as of November 10, 2014, the fair market 
value of the Property remained at $610,000 and that the projected lease 
rates and rental income for the Property remained unchanged.
    10. In addition to the Property valuation, the Interest has been 
appraised by Jason R. Bogniard, MBA, ASA, AVA, EA of Apple Growth 
Partners (Apple Growth), a regional business advisory firm of certified 
public accountants and industry experts, having expertise in business 
valuation, forensic accounting and litigation support services, and 
employee benefit planning. Apple Growth has offices in Akron and 
Independence, Ohio.
    Mr. Bogniard certifies that he is independent of Mr. Handelman and 
the Company, and that the only services he has provided to either are 
the valuation services related to the appraisal of the Company. 
Further, Mr. Bogniard states that invoices and/or payment for services 
rendered to Mr. Handelman or the Company by Apple Growth represented 
less than 1% of Apple Growth's 2013 gross revenues and less than 1% of 
Apple Growth's 2014 gross revenues.
    In rendering this valuation, Mr. Bogniard represents that he 
considered, among other things, the following relevant factors, which 
are specified in Revenue Ruling 59-60: (a) The history and nature of 
the business; (b) the economic outlook of the United States and that of 
the specific industry in particular; (c) the book value of the subject 
entity and the financial condition of the business; (d) the earning 
capacity of the entity; (e) the dividend-paying capacity of the entity; 
(f) whether or not the firm has goodwill or other intangible value; (g) 
sales of the stock and size of the ownership block to be valued; and 
(h) the market price of publicly-traded stocks of corporations engaged 
in similar industries or lines of business. In addition, Mr. Bogniard 
states that he examined the following documents in preparing the 
valuation of the Interest: (a) Federal income tax returns for Mr. 
Handelman and his wife for the years 2008 through 2012; (b) tax asset 
detail reports for 2012 and 2013; (c) the Property Appraisal; (d) the 
ASCCA lease; and (e) the real estate tax assessment for the Property.
    11. In an appraisal report dated September 12, 2013 (the Company 
Appraisal), Mr. Bogniard took into consideration the Property 
Appraisal, among the other factors listed above, to

[[Page 20257]]

value the Interest. Using the Cost (i.e., the Net Asset Value) Approach 
to valuation,\21\ Mr. Bogniard concluded that the Interest had an 
equity value of $610,000 as of July 31, 2013. Adjusting the value for 
lack of marketability, Mr. Bogniard determined that the fair market 
value of the Interest was $580,000 ($610,000 less a five percent 
discount for lack of marketability, rounded), as of the same date.
---------------------------------------------------------------------------

    \21\ Mr. Bogniard represented that on a going concern basis, 
earnings power, whether expressed in an income or market approach, 
is normally given the predominant consideration of the major 
factors. However, because the Company is a real estate holding 
company holding only a single parcel of commercial property, Mr. 
Bogniard represented that he utilized the value derived from the Net 
Asset Value method.
---------------------------------------------------------------------------

    In a letter dated November 17, 2014, Mr. Bogniard updated the 
Company Appraisal. Based on his review of Company financial statements 
through October 31, 2014, Summit County Auditor tax appraised values 
for the Property, the most recent Property valuation by Pointer, 
regional economic indicators, and cost of capital rates of return as of 
November 17, 2014, Mr. Bogniard concluded that the fair market value of 
the Interest remained at $580,000. Mr. Bogniard will again update the 
Company Appraisal on the date of the purchase.
    12. It is represented that the proposed transaction is 
administratively feasible because it will be easy to implement and will 
not require oversight by the Department. Additionally, all 
distributions by the Company will be made to the New IRA which will 
have control of the distributed funds.
    It is represented that the New IRA's purchase of the Interest is in 
the interest of such IRA, primarily because the acquisition would occur 
in a time of historically low commercial real estate values that are 
related to the current economic downturn. It is also represented that 
the rent owing to the Company under the ASCCA lease is favorable when 
compared to rents being collected on similar commercial properties.\22\ 
Moreover, it is represented that the Property's location in downtown 
Akron should provide the New IRA assurance that either the current 
lessee or another lessee will lease the Property when the ASCCA lease 
expires on April 30, 2016 because market rent for commercial real 
estate has returned to the levels prevalent prior to the onset of the 
global economic crisis in late 2008.
---------------------------------------------------------------------------

    \22\ See Representation 9 regarding comparable rental payments 
in the Akron, Ohio area.
---------------------------------------------------------------------------

    Finally, it is represented that the proposed transaction is 
protective of the rights of the participants and beneficiaries of the 
New IRA because this is a permissible investment that has been properly 
valued through a recent valuation. Further, Mr. Handelman has agreed to 
pay the appropriate taxes in connection with the distribution of assets 
from the Existing IRA to the New IRA.
    13. In summary, it is represented that the proposed transaction 
will satisfy the statutory criteria for an exemption under section 
4975(c)(2) of the Code because:
    (a) The purchase will be a one-time transaction for cash;
    (b) At the time of the purchase, the price paid by the New IRA for 
the Interest will be equal to the fair market value of such Interest, 
as established by a qualified, independent appraiser in an updated 
appraisal report as of the date of the purchase;
    (c) The terms and conditions of the purchase will be at least as 
favorable to the New IRA as those available in a comparable arm's 
length transaction with an unrelated third party;
    (d) The New IRA will not pay any commissions or other expenses in 
connection with the purchase, including the rollover of the cash 
distribution from the Existing IRA to the New IRA;
    (e) Mr. Handelman will pay all appropriate taxes that are 
associated with the rollover of the cash distribution from the Existing 
IRA to the New IRA in connection with the purchase; and
    (f) Mr. Handelman will receive no compensation from the New IRA or 
the Existing IRA for his role as manager of the Company.

Notice to Interested Persons

    As Mr. Handelman is the sole participant of the New IRA, it has 
been determined that there is no need to distribute the Notice of 
Proposed Exemption (the Notice) to interested persons. Therefore, 
comments and requests for a hearing must be received by the Department 
within thirty (30) days of the date of publication of this Notice in 
the Federal Register.
    All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Ms. Anna Mpras Vaughan of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

Roofers Local 195 Pension Fund (the Pension Fund) and Roofers Local 195 
Joint Apprenticeship Training Fund (the Training Fund) Located in 
Cicero, NY

Exemption Application Nos. D-11809 and L-11810

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974, as amended (ERISA or the Act), and section 4975(c)(2)of 
the Internal Revenue Code of 1986, as amended, (the Code), and in 
accordance with the procedures set forth in 29 CFR part 2570, subpart B 
(76 FR 66637, 66644, October 27, 2011).\23\ If the proposed exemption 
is granted, the restrictions of sections 406(a)(1)(A), 406(a)(1)(D), 
406(b)(1), and 406(b)(2) of the Act, shall not apply to the sale (the 
Sale) of a building located at 6200 NYS Route 31, Cicero, New York (the 
Building) by the Pension Fund to the Training Fund, provided that the 
following conditions have been met:
---------------------------------------------------------------------------

    \23\ For 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.
---------------------------------------------------------------------------

    (a) At the time of the Sale, the Pension Fund receives a one-time 
cash payment in exchange for the Building, equal to the fair market 
value of the Building as established in an appraisal (the Appraisal) by 
a qualified, independent appraiser, updated on the date of the Sale, 
and provided to the Department no later than 60 days from the date of 
the Sale;
    (b) The Training Fund does not finance more than 80% of the cost of 
its purchase of the Building, and any financing must be with an 
independent, third-party bank (the Bank);
    (c) The Training Fund pays no fees, commissions or other expenses 
associated with the Sale, and no brokerage commissions associated with 
the Sale may be paid by either the Training Fund or the Pension Fund;
    (d) A qualified, independent fiduciary (the Independent Fiduciary), 
acting on behalf of the Training Fund, represents the Training Fund's 
interests for all purposes with respect to the Sale, including the 
financing of the Building, and must: Determine that it is in the best 
interest of the Training Fund to proceed with the Sale; review and 
approve the methodology used in the Appraisal; and ensure that such 
methodology is properly applied by the qualified, independent appraiser 
in determining the fair market value of the Building on the date of the 
Sale;

[[Page 20258]]

    (e) The Board of Trustees of the Pension Fund (the Pension 
Trustees), prior to entering the Sale, must determine that the Sale is 
feasible, in the interest of the Pension Fund, and protective of the 
rights of participants and beneficiaries of the Pension Fund;
    (f) The Pension Fund is not a party to the commercial mortgage 
between the Training Fund and the Bank;
    (g) Under the terms of the loan agreement between the Bank and the 
Training Fund, in the event of a default by the Training Fund, the Bank 
has recourse only against the Training Fund's interest in the Building 
and not against the general assets of the Training Fund; and
    (h) The terms and conditions of the Sale are at least as favorable 
to each Fund as those obtainable in an arms-length transaction with an 
unrelated third party.

Summary of Facts and Representations <SUP>24</SUP>
---------------------------------------------------------------------------

    \24\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department, unless indicated otherwise.
---------------------------------------------------------------------------

Background
    1. The Roofers Local 195 Pension Fund (the Pension Fund) is a 
terminated qualified multiemployer defined benefit pension plan 
established by and between the Roofers Contractors' Association, Inc. 
and the United Union of Roofers, Waterproofers and Allied Workers, 
Local Union No. 195 (the Union). The Pension Fund previously held 
investments with Madoff Investments, Inc. whereby the Pension Fund lost 
most of its value. Subsequently, the Pension Plan terminated in 
accordance with section 4041A(a)(2) of ERISA after finalizing a 
resolution with the Pension Benefit Guaranty Corporation (the PBGC). As 
of July 9, 2014, the Pension Fund had no active participants, 96 
retired participants and 160 terminated vested participants. There are 
currently 18 beneficiaries receiving benefits from the Pension Fund. As 
of June 26, 2014, the Pension Fund had approximately $857,049 in 
assets, and liabilities of $2,156,354.
    2. The Roofers Local 195 Joint Apprenticeship Training Fund (the 
Training Fund) is a multiemployer apprenticeship plan established 
pursuant to a collective bargaining agreement between the Roofing 
Contractors Association of Central New York and the Union for the 
purpose of providing necessary construction equipment, qualified 
instructors, books, models, sites where instruction and practice on 
such equipment can be available to persons eligible under the Training 
Fund's program, and related benefits. As of July 9, 2014, the Training 
Fund had 223 participants and no beneficiaries, as it does not offer 
any kind of death benefits to participants. As of June 26, 2014, the 
Training Plan had $949,860 (in cash and investments) in assets, and 
liabilities of $5,212.
    3. According to the Pension Fund and the Training Fund (together, 
the Funds), the current members of the boards of trustees (the 
Trustees, or the Applicant) of the Pension Fund and the Training Fund 
each include an equal number of employer-appointed trustees (Employer 
Trustees) and Union-appointed trustees (Union Trustees). Furthermore, 
the Applicant represents that five out of the six Trustees on the 
boards are common to each Fund. Finally, the Applicant represents that 
the Training Fund contributed to the Pension Fund on behalf of some of 
its employees.
    4. The Applicant represents that the Pension Fund has been 
receiving funding for benefits from the PBGC since July 2009 in the 
form of loans. As of June 30, 2014, the outstanding loan amount, 
including principal and interest, totals $2,178,863.80. The PBGC's 
involvement also includes an ongoing review of plan benefits and 
expenses that are paid with PBGC advances.\25\ On July 28, 2010, the 
Applicant notified the PBGC that a plan termination by mass withdrawal 
had occurred as of June 28, 2010, and that employers had been assessed 
withdrawal liability. The Applicant represents that it has since 
reached a global resolution of funding issues with the PBGC and has 
received approval from the PBGC for the proposed transactions described 
herein.
---------------------------------------------------------------------------

    \25\ The Applicant states that, in the context of multiemployer 
plans, the PBGC permits the continued administration of the plan by 
its board of trustees.
---------------------------------------------------------------------------

    5. The Pension Fund and the Training Fund have also been the 
subject of two investigations by the Department. In this regard, on 
March 26, 2009, the Pension Fund was notified that it was the subject 
of an investigation under Title I of ERISA by the Department's Boston 
Regional Office concerning investments related to the fraud perpetrated 
on the Pension Fund by Bernard L. Madoff Investment Securities LLC. The 
Department found that the Trustees of the Pension Fund had breached 
their fiduciary obligations to the Plan and violated several provisions 
of ERISA. The Trustees restored approximately $34,712 to the Plan, 
representing certain administrative expenses, plus interest, associated 
with the violations. On June 10, 2011, the Department indicated that it 
had concluded its investigation of the Pension Fund and of the 
activities of its Trustees based on their corrective actions.
    6. On August 22, 2011, the Applicant was notified that the Training 
Fund was the subject of another investigation by the Department. In 
this regard, the Applicant voluntarily submitted itself to 
investigation by the Department's Boston Regional Office. The 
Department found that the Training Fund reimbursed medical service 
providers for asbestos related physical examinations in excess of the 
maximum $125 limit provided in the Plan. By letter dated May 29, 2013, 
the Department indicated that it had concluded its investigation of the 
Training Fund and of its Trustees, and concluded further that based on 
the corrective actions taken by the Trustees, including restoration of 
$8,177.68 to the Training Fund, no further action would be taken.
The Sale
    7. The Applicant represents that the Pension Fund purchased the 
real property located at 6200 NYS Route 31, Cicero, New York (the 
Building), in 1999, from unrelated third parties at a price of 
$230,000. The Applicant represents further that the Building was 
originally constructed as a State Police barracks in 1972. The Building 
sits on 1.28 acres of land and is comprised of 3,575 square feet of 
class B office space and meeting areas, a built-in garage and a class C 
finished basement. Other improvements to the property include an 
asphalt-paved parking lot, a chain-link fence enclosed storage area, 
and a one-story wood frame storage shed. According to the Applicant, 
the Building was renovated in 1999 by the Pension Fund for use as a 
union hall and administrative offices. As of July 29, 2013, the 
appraised value of the Building was $505,000.
    8. The Applicant represents that, in connection with the Pension 
Fund's financial losses and termination, the PBGC has indicated a 
preference that the Pension Fund sell the Building, as a sale of the 
Building would improve the liquidity of the Pension Fund and allow it 
to pay benefits. The Trustees of the Pension Fund considered PBGC's 
recommendation and agreed that the Building should be sold.
    9. The Applicant represents that the Training Fund wishes to 
purchase the Building from the Pension Fund (the Sale) in order to 
maintain the current training facilities and avoid any disruption in 
training. Furthermore, the

[[Page 20259]]

Applicant states that, if the Pension Fund were forced to sell the 
Building to an unrelated third party, additional costs would be 
incurred by the Training Fund to construct or upgrade new property to 
meet the training needs of the roofing industry. Moreover, the 
Applicant states that the Pension Fund and other entities intend to 
lease office space in the Building from the Training Fund following the 
Sale, providing a stream of income to the Training Fund.\26\ The 
Applicant represents that the proposed price for which the Training 
Fund will purchase the Building from the Pension Fund is equal to fair 
market value of the Building, as established in an appraisal conducted 
by a qualified independent appraiser and updated on the date of the 
Sale. An Independent Fiduciary, Syracuse Securities, Inc., is 
responsible for monitoring and approving the transaction on behalf of 
the Training Fund. The Independent Fiduciary recommends a down-payment 
of 20% of the purchase price with the remaining 80%, of an amount not 
to exceed $400,000, financed by a commercial mortgage.
---------------------------------------------------------------------------

    \26\ The Applicant represents that although the Pension Fund is 
terminated, it continues to provide administrative services, 
including making benefit payments. Therefore, if this exemption is 
granted, the Pension Fund intends to hereafter lease space in the 
Building from the Training Fund in compliance with the requirements 
of Prohibited Transaction Exemption (PTE) 76-1 (41 FR 12740, March 
26, 1976, as corrected at 41 FR 16620, April 20, 1976) and PTE 77-10 
(42 FR 33918, July 1, 1977).
---------------------------------------------------------------------------

    10. Section 406(a)(1)(A) of the Act prohibits a fiduciary from 
causing a plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect sale or 
exchange, or leasing, of any property between a plan and a party in 
interest. Section 406(a)(1)(D) of the Act prohibits a fiduciary from 
causing a plan to engage in a transaction, if he knows or should know 
that such transaction constitutes a direct or indirect transfer to, or 
use by or for the benefit of, a party in interest, of any assets of a 
plan. The Applicant states that, because the Pension Fund is a party in 
interest to the Training Fund under section 3(14)(C) of the Act, the 
Sale would constitute a prohibited transaction under sections 
406(a)(1)(A) and (D) of the Act. Furthermore, section 406(b)(1) of the 
Act prohibits a fiduciary from dealing with the assets of a plan in his 
own interest or for his own account. Section 406(b)(2) of the Act 
prohibits a fiduciary, in his individual or in any other capacity, 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 the interests of its participants or beneficiaries. Because 
certain officers of the Pension Fund are also Trustees of the Training 
Fund, and they may have an interest in causing the Training Fund to 
engage in the transaction with the Pension Fund, the Sale may also 
constitute a prohibited transaction under sections 406(b)(1) and 
406(b)(2) of the Act. Therefore, the Applicant requests an 
administrative exemption from sections 406(a)(1)(A), 406(a)(1)(D), 
406(b)(1) and 406(b)(2) of the Act for the Sale.
The Appraisal
    11. The Applicant represents that, in connection with the proposed 
Sale, a qualified, independent appraiser conducted an appraisal of the 
Building (the Appraisal). In its July 19, 2013, appraisal report, 
Pomeroy Appraisal Associates, Inc. (Pomeroy) valued the Building at 
$505,000.
    12. Pomeroy represents that Donald A. Fisher, the appraiser who 
signed its appraisal report, has worked as an appraiser for Pomeroy 
since 1974. Pomeroy represents that Fisher is a New York-certified 
General Appraiser, a Member of the Appraisal Institute (MAI), and an 
Accredited Rural Appraiser (ARA). Pomeroy represents that there is no 
relationship between Pomeroy and the Funds. Pomeroy represents and 
warrants that it meets the revenue test for a qualified independent 
appraiser for 2013, the year of the appraisal, as the fees received 
were less than 2% of its annual revenues for income tax year 2012.
    13. Pomeroy represents that it utilized the Sales Comparison and 
Income Capitalization approaches, and arrived at a final estimate of 
value by calculating the weighted average of the two valuation methods. 
In using the Sales Comparison Approach, Pomeroy represents that it 
evaluated six recent sales similar in location, size, age and 
competitive class. Pomeroy adjusted those prices to account for the 
disparities in rights conveyed, financing terms, conditions of sale, 
market conditions, location, land area, building size, building 
condition and age, building utility and design, office space 
percentage, and other features. Based on its analysis, Pomeroy 
represents that it derived a value of $140 per square foot for the 
subject property, or $500,000.
    14. In utilizing the Income Capitalization Approach, Pomeroy 
represents that it evaluated the leasing information from five tenant 
spaces within the North Syracuse marketplace which were negotiated 
within the previous five years. Based on its analysis, Pomeroy 
represents that it derived a total value of $512,000 for the subject 
property.
    15. Pomeroy represents that based on the quality of the information 
provided by the two approaches, they assigned a weight of 60% to the 
Sales Comparison Approach and 40% to the Income Capitalization 
Approach, arriving at its valuation of the subject property at 
$505,000.
The Independent Fiduciary's Report
    16. Syracuse Securities, Inc., was retained to serve as the 
Independent Fiduciary to the Training Fund, with Laurence Smith as the 
Lead Consultant, pursuant to the Independent Fiduciary Services 
Agreement. The Applicant represents that Syracuse Securities has acted 
as a commercial mortgage analyst, broker, and mortgage banker since the 
mid-1980s. Syracuse Securities has also acted as a residential mortgage 
banker since 1974. The Applicant represents that the Independent 
Fiduciary was initially engaged in 2010 when the parties first began 
considering the Sale of the Building in accordance with a prohibited 
transaction exemption, and when the initial application for the 
corresponding prohibited transaction exemption was filed. However, the 
Independent Fiduciary has served the Training Fund only on an ``as 
needed'' basis in connection with the Sale of the Building. The 
Training Fund is paying for the services of the Independent Fiduciary.
    17. Syracuse Securities represents that it previously served as an 
Independent Fiduciary for other ERISA plans in connection with real 
estate transactions. Syracuse Securities represents that it consulted 
with ERISA counsel in connection with this transaction regarding its 
fiduciary duties.
    18. The Independent Fiduciary represents that, prior to this 
application, it had no relationship with the Pension Fund or Training 
Fund. Further, the Applicant represents that the Independent Fiduciary 
is not related in any way to the Funds, the Union, or any employer that 
contributes to the Funds. Syracuse Securities represented and warranted 
that for each year it has been retained, from 2010 through 2014, the 
company earned less than 1% of its total corporate income from the 
Applicant and any related party.
    19. The Independent Fiduciary's Lead Consultant, Laurence Smith, 
represents that he is a mortgage banker with 32 years of experience 
specializing in commercial and residential real estate mortgages. The 
Independent Fiduciary represents that he has no present or

[[Page 20260]]

contemplated future interest in, or bias with respect to, the Building.
    20. The Independent Fiduciary represents that the Training Fund is 
a current tenant in the Building, which serves an important purpose in 
the successful operation and financial well-being of the Training Fund. 
Given the Appraiser's valuation of the Building, the Independent 
Fiduciary represents that the Sale for a price of $500,000 is fair, 
reasonable and beneficial to the Training Fund, its participants and 
beneficiaries.
    21. The Independent Fiduciary represents that the Sale furthers the 
interest of the Training Fund and its participants and beneficiaries as 
the Training Fund's purpose is to ``provide necessary construction 
equipment, qualified instructors, books, models [and] sites where 
instruction and practice on the equipment aforesaid can be available to 
persons eligible under this program . . .'' Further, the Independent 
Fiduciary states that the space in the Building is already set up to 
serve the Training Fund's purposes and the Training Fund is a current 
tenant. The Applicant represents that if the Pension Fund is required 
to sell the property to a third party, the Training Fund will be forced 
to vacate the Building and find a new training location, possibly 
incurring further costs. The Independent Fiduciary represents that the 
Training Fund may spend more money retrofitting a new location for its 
specific needs than it would purchasing the Building. Also, the 
Building is centrally located to serve all of the Training Fund's 
participants. Further, by effectuating this purchase, there would be no 
disruption in services or training programs for staff, participants, 
apprentices, and contributing employers.
    22. The Independent Fiduciary assessed the financials and 
investment portfolio of the Training Fund and determined that, based on 
the investment objectives and overall purpose of the Training Fund, a 
100% cash purchase would hamper the overall diversification of the 
Training Fund's assets and adversely impact the liquidity of the 
Training Fund. Therefore, the Independent Fiduciary recommends a down-
payment of 20% of the purchase price with the remaining 80%, of an 
amount not to exceed $400,000, financed by a commercial mortgage. As of 
October 31, 2013, the 20% down payment constitutes approximately 8.74% 
of the Training Fund's assets. In contrast, if the total value of the 
Building were purchased in cash, it would represent approximately 44% 
of the Training Fund's assets. The Independent Fiduciary represents 
that the Training Fund has sufficient liquidity and funding through 
hourly employer contributions and future rental income to support the 
investment in the Building as recommended. The Independent Fiduciary 
further represents that employer contributions and rental income are 
anticipated to exceed the Training Fund's monthly mortgage payment.
    23. The Independent Fiduciary recommended that the new lease 
agreements be entered into for terms of at least three years between 
the current tenants and the Training Fund. The Independent Fiduciary 
further recommended that the leases contain language holding each 
tenant responsible for its percentage share of the Building's common 
expenses, in addition to its respective rent. The Independent Fiduciary 
specified that such common expenses do not need to include any real 
estate taxes or capital improvement expenses. The Independent Fiduciary 
recommended, in accordance with the Pomeroy Appraisal Report, that the 
rents be no less than $12.00 per square foot for above-ground space and 
$8.00 per square foot for below-ground space. Further, the Independent 
Fiduciary recommended that the Pension Fund be required to place with 
the Training Fund a security deposit of $5,200, equivalent to four 
months' rent.
Statutory Findings
    24. The Applicant represents that the requested exemption with 
respect to the Sale is administratively feasible because the Sale is a 
one-time transaction between the Pension Fund and the Training Fund, 
which will not require continuous or future monitoring by the 
Department.
    The Applicant represents that the Sale is in the interest of the 
Pension Fund, the Training Fund, and their participants and 
beneficiaries because it will permit the Funds to maintain their 
offices and the training facilities at the present location with no 
disruption in services or training. The Applicant represents that, if 
the Pension Fund is forced to sell the property to a third party, the 
Training Fund will be forced to vacate the Building and find a new 
training location, putting the Union in a perilous state.
    The Independent Fiduciary represents that the purchase of the 
Building is a prudent investment for the Training Fund as the Building 
should generate reasonable income in the form of rent. Further, amounts 
that the Training Fund previously expended for rent will now be 
invested in an asset that the Training Fund owns and utilizes. Also, 
the purchase furthers the purpose of the Training Fund to provide 
necessary construction equipment, instructors, books, models and sites 
for instruction and practice on the equipment, as the existing facility 
has been upgraded to meet the Training Fund's specific needs.
    Finally, the Sale will provide the Pension Fund with an infusion of 
cash without the payment of any real estate commissions, allowing it to 
pay benefits to participants as requested by the PBGC.
    The Applicant represents that the Sale is protective of the rights 
of the Training Fund as an Independent Fiduciary, Syracuse Securities, 
Inc., has approved the Sale and will represent the interests of the 
Training Fund throughout the purchase of the Building, including 
additional length of time if warranted. Also, a Qualified Independent 
Appraiser appraised the Building for purposes of determining the 
purchase price. The Applicant represents that objective procedural 
safeguards, including service provider agreements, discussion of the 
merits of the Sale at trustees' meetings, and retention of separate 
counsel for the Sale, have also been instituted.
Summary
    25. In summary, the Applicant represents that the proposed 
exemption satisfies the statutory criteria for an exemption under 
section 408(a) of the Act for the reasons stated above and for the 
following reasons, among others:
    (a) At the time of the Sale, the Pension Fund receives a one-time 
payment of cash equal to the fair market value of the Building as 
established by a qualified independent appraiser in an Appraisal 
updated on the date of the Sale;
    (b) The Training Fund may finance up to 80% of the purchase cost of 
the Building with an independent, third-party bank;
    (c) The Training Fund pays no fees, commissions or other expenses 
associated with the Sale; and
    (d) The Independent Fiduciary, acting on behalf of the Fund, 
represents the Training Fund's interests for all purposes with respect 
to the Sale, and: (1) Determines, among other things, that it is in the 
best interest of the Training Fund to proceed with the Sale; (2) 
reviews and approves the methodology used in the Appraisal; and (3) 
ensures that such methodology is properly applied by the Appraiser in 
determining the fair market value of the Building on the date of the 
Sale.

[[Page 20261]]

Notice to Interested Persons

    Notice of the proposed exemption will be given to all Union members 
within 15 days of the publication of the notice of proposed exemption 
in the Federal Register, by first class U.S. mail to the last known 
address of all such individuals, and by posting in the Union hall in a 
prominent location. Such notice will contain a copy of the notice of 
proposed exemption, as published in the Federal Register, and a 
supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2). 
The supplemental statement will inform interested persons of their 
right to comment on and to request a hearing with respect to the 
pending exemption. Written comments and hearing requests are due within 
45 days of the publication of the notice of proposed exemption in the 
Federal Register. All comments will be made available to the public.
    Warning: Do not include any personally identifiable information 
(such as name, address, or other contact information) or confidential 
business information that you do not want publicly disclosed. All 
comments may be posted on the Internet and can be retrieved by most 
Internet search engines.

FOR FURTHER INFORMATION CONTACT: Erica R. Knox of the Department, 
telephone (202) 693-8644. (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 9th day of April, 2015.
Lyssa E. Hall,
Director, Office of Exemption Determinations, Employee Benefits 
Security Administration.
[FR Doc. 2015-08565 Filed 4-14-15; 8:45 am]
 BILLING CODE 4510-29-P


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