[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34048-34054]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-13676]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-12003]


Proposed Exemption for Certain Prohibited Transaction 
Restrictions Involving the Mitsubishi UJF Trust and Banking Corporation 
Located in New York, NY

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of proposed exemption.

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SUMMARY: This document provides notice of the pendency before the 
Department of Labor (the Department) of a proposed individual exemption 
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).

DATES: If granted, the exemption will be in effect as of the date the 
grant notice is published in the Federal Register. Written comments and 
requests for a public hearing on the proposed exemption should be 
submitted to the Department by August 12, 2021.

ADDRESSES: All written comments and requests for a hearing should be 
sent to the Employee Benefits Security Administration (EBSA), Office of 
Exemption Determinations, Attention: Application No. D-12003 via email 
to <a href="/cdn-cgi/l/email-protection#ceabe3818b8a8eaaa1a2e0a9a1b8"><span class="__cf_email__" data-cfemail="21440c6e646561454e4d0f464e57">[email protected]</span></a> or online through the Federal eRulemaking Portal: 
http://www.regulations.gov. Any such comments or requests should be 
sent by the end of the scheduled comment period. The application for 
exemption and the comments received will be available for public 
inspection in the Public Disclosure Room of the Employee Benefits 
Security Administration, U.S. Department of Labor, Room N-1515, 200 
Constitution Avenue NW, Washington, DC 20210. See SUPPLEMENTARY 
INFORMATION below for additional information regarding comments.

FOR FURTHER INFORMATION CONTACT: Frank Gonzalez of the Department, 
telephone (202) 693-8553. (This is not a toll-free number.)

SUPPLEMENTARY INFORMATION:

Comments

    In light of the current circumstances surrounding the COVID-19 
pandemic caused by the novel coronavirus which may result in disruption 
to the receipt of comments by U.S. Mail or hand delivery/courier, 
persons are encouraged to submit all comments

[[Page 34049]]

electronically and not to follow with paper copies. Comments should 
state the nature of the person's interest in the proposed exemption and 
the manner in which the person would be adversely affected by the 
exemption, if granted. Any person who may be adversely affected by an 
exemption can request a hearing on the exemption. A request for a 
hearing must state: (1) The name, address, telephone number, and email 
address of the person making the request; (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; and (3) a statement of 
the issues to be addressed and a general description of the evidence to 
be presented at the hearing. The Department will grant a request for a 
hearing made in accordance with the requirements above where a hearing 
is necessary to fully explore material factual issues identified by the 
person requesting the hearing. A notice of such hearing shall be 
published by the Department in the Federal Register. The Department may 
decline to hold a hearing if: (1) The request for the hearing does not 
meet the requirements above; (2) the only issues identified for 
exploration at the hearing are matters of law; or (3) the factual 
issues identified can be fully explored through the submission of 
evidence in written (including electronic) form. WARNING: All comments 
received will be included in the public record without change and may 
be made available online at http://www.regulations.gov, including any 
personal information provided, unless the comment includes information 
claimed to be confidential or other information whose disclosure is 
restricted by statute. 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. However, if EBSA cannot read your 
comment due to technical difficulties and cannot contact you for 
clarification, EBSA might not be able to consider your comment. 
Additionally, the http://www.regulations.gov website is an ``anonymous 
access'' system, which means EBSA will not know your identity or 
contact information unless you provide it in the body of your comment. 
If you send an email directly to EBSA without going through http://www.regulations.gov, your email address will be automatically captured 
and included as part of the comment that is placed in the public record 
and made available on the internet.
    Background: 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) 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).\1\ If the proposed exemption is 
granted, the restrictions of ERISA sections 406(a)(1)(A) through (D), 
and the sanctions resulting from the application of Code section 4975, 
by reason of Code sections 4975(c)(1)(A) through (D), shall not apply 
to certain transactions arising from credit arrangements involving 
Mitsubishi UJF Trust and Banking Corporation and its indirectly wholly-
owned subsidiary MUFG Alternative Fund Services (Cayman) Limited and 
the investment funds in which employee benefit plans invest.
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    \1\ For purposes of this proposed exemption, references to the 
provisions of section 406 of Title I of ERISA, unless otherwise 
specified, should be read to refer as well to the corresponding 
provisions of Code section 4975.
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Summary of Facts and Representations \2\
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    \2\ The Department notes that availability of this exemption, is 
subject to the express condition that the material facts and 
representations contained in application D-12003 are true and 
complete, and accurately describe all material terms of the 
transactions covered by the exemption. If there is any material 
change in a transaction covered by the exemption, or in a material 
fact or representation described in the application, the exemption 
will cease to apply to the covered transactions as of the date of 
such change.
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    1. Mitsubishi UJF Trust and Banking Corporation is a foreign 
banking corporation organized under the laws of Japan, and a subsidiary 
of Mitsubishi UFJ Financial Group. MUFG Alternative Fund Services 
(Cayman) Limited is an ordinary resident company organized under the 
laws of the Cayman Islands, and is an indirectly wholly-owned 
subsidiary of Mitsubishi UJF Trust and Banking Corporation 
(collectively, Mitsubishi Bank or the Applicant). Mitsubishi Bank may 
act as the sole lender (a Lender) or agent for a Lender (an Agent) in 
arranging revolving lines of credit (Credit Facilities) that are used 
by certain investment vehicles (the Funds). The Funds may be structured 
as limited partnerships, limited liability companies, or other business 
entities organized under applicable law. Investors in the Funds (the 
Investors) include employee benefit plans subject to ERISA and plans 
subject to Code section 4975 (the Covered Plans). The Covered Plans 
invest in the Funds, and the Funds, in turn, may invest directly or 
indirectly in private equity investments, real estate or real estate 
related investments, non-real estate operating company ventures, or 
other investment opportunities.\3\
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    \3\ This proposed exemption is not an endorsement by the 
Department of the transactions described herein. The fiduciary 
responsibility provisions of Part 4 of Title I of ERISA apply to a 
Covered Plan fiduciary's decision to invest in a Fund. Specifically, 
ERISA section 404(a)(1) requires, among other things, that a plan 
fiduciary act prudently, solely in the interest of the plan's 
participants and beneficiaries, and for the exclusive purpose of 
providing benefits to participants and beneficiaries when making 
investment decisions on behalf of the plan. Such an exemption would 
not constitute an opinion as to whether a particular investment 
strategy, or arrangement, would be considered prudent or in the best 
interests of a plan, as required by ERISA section 404. The 
determination of the prudence of a particular investment must be 
made by a plan fiduciary, after appropriate consideration of those 
facts and circumstances that, given the scope of such fiduciary's 
investment duties, the fiduciary knows or should know, are relevant 
to the particular investment involved, including the plan's 
potential exposure to losses, and the role a particular investment 
plays in that portion of the plan's investment portfolio with 
respect to which the fiduciary has investment duties and 
responsibilities (see 29 CFR 1550.404a-1).
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    2. The Funds may use capital calls to facilitate Fund investments. 
A capital call (Capital Call) is when a Fund exercises its right to 
call on Investors to make cash capital contributions to the Fund. These 
cash capital contributions from Investors to a Fund (Capital 
Contributions) enable the Fund to make its investments. Investors 
typically have 10 to 15 days after a Capital Call to make a Capital 
Contribution. A Fund's use of Capital Calls to make investments can 
take days, thereby reducing a Fund's investing flexibility and 
increasing costs to the Fund's Investors, including the Covered Plans.
    3. In addition to Capital Calls, a Fund may use a Credit Facility 
to facilitate investments. For purposes of this proposed exemption, a 
Credit Facility is a secured revolving line of credit between 
Mitsubishi Bank, as sole Lender, or as Agent, and one or more Funds (or 
an entity through which a Fund invests). The Fund may use its credit 
under the Credit Facility for: (a) Direct or indirect borrowings; (b) 
requesting letters of credit; (c) other similar forms of credit 
arrangements; or (d) a combination of any of the foregoing.\4\
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    \4\ The phrase ``other similar forms of credit arrangements'' is 
a catch-all in the event the needs of the Fund change. Occasionally, 
a Credit Facility might provide variations on extensions of credit, 
for example, banker's acceptances, which are similar to letters of 
credit and are commonly used in some non-U.S. jurisdictions.

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[[Page 34050]]

    4. Mitsubishi may be a party in interest to a Covered Plan 
investing in a Fund that uses a Credit Facility with respect to which 
Mitsubishi is a Lender or Agent for one or more Lenders. However, 
Mitsubishi will not be a fiduciary with respect to the Covered Plan 
when relying on the exemption.
    5. In most instances, the Credit Facility will be a recourse 
obligation of a Covered Plan to the Fund that will not exceed the 
Covered Plan's capital commitment. The following will secure the Fund's 
repayments to the Credit Facility: (a) A pledge and assignment of all 
the rights of the Fund and its general partner (General Partner) or 
manager (Manager), including the right to call for and receive payments 
of capital committed by Investors, and rights against defaulting 
Investors; (b) the right to make Capital Calls on Investors, and apply 
the proceeds to the repayment obligations of the Fund under the Credit 
Facility, in the event of a default under the Credit Facility; (c) a 
pledge or first priority security interest in an account (the 
Collateral Account) that the Fund maintains with a financial 
institution or entity into which capital contributions are made; and 
(d) Investor agreements evidencing, among other things, the Investor's 
acknowledgement of the assignment of rights to the Lenders by the 
General Partner (or the Manager) and the Fund (the Investor Consent).
    6. In connection with securing a Credit Facility, and to the extent 
Mitsubishi Bank requests or requires, either as sole Lender or Agent, 
an Investor will execute an Investor Consent consenting to, 
acknowledging, and confirming certain aspects of the Credit Facility. 
The Investor Consent may include the following documentation: (a) An 
acknowledgment and confirmation of the Investor's obligation to deliver 
the Investor's financial information statements to Mitsubishi Bank, as 
sole Lender or Agent; (b) an acknowledgment, and confirmation, of the 
Investor's unpaid, and owing, capital commitment amount, and of the 
Investor's obligation to contribute capital (up to its unfunded capital 
commitment amount) to satisfy the indebtedness the Fund incurred under 
the Credit Facility; (c) an Investor's acknowledgment of the Fund's, 
and its General Partner's (or Manager's), assignment and pledge to 
Mitsubishi Bank as sole Lender or Agent, of the right to make Capital 
Calls upon the Investors, and to collect and enforce the same; (d) an 
Investor's agreement to make Capital Contributions to the Fund without 
setoff, reduction, counterclaim, or defense of any kind or nature, for 
the purpose of repayment of the Credit Facility; (e) a representation 
that the Investor has no knowledge of claims, offsets, or defenses that 
would adversely affect its obligation to fund Capital Contributions 
under the Fund Agreements, or events, which with the passage of time 
would constitute a default, or would constitute a defense to, or right 
of offset against the Investor's obligation to fund its capital 
commitment to the Fund; and (f) an agreement that the Investor will 
fund Capital Contributions only into the Collateral Account (except in 
certain limited circumstances).
    7. With respect to the Fund and its activities, the only direct 
contractual relationship between an Investor and Mitsubishi Bank, or 
any Lender, will be the execution of the Investor Consent. The Investor 
will separately agree in an ``Agreement to Fund'' that, in the event of 
default under the Credit Facility, the Investor will make its Capital 
Contribution to the Collateral Account in response to a Capital Call 
for repayment of the Credit Facility, without setoff, reduction, 
counterclaim, or defense of any kind or nature.
    8. The Investor Consent acknowledges, and confirms, existing rights 
of the Lenders that are created by operation of the Fund Agreements. 
The Agreement to Fund does not limit the Investor's right to assert any 
claim, or defense, in a separate action against either the Fund or the 
General Partner (or Manager).
    9. An executed Investor Consent is integral to the Credit Facility, 
and the Credit Facility is an integral part of the Fund's investment 
program. Prior to, or at the time of, a plan fiduciary's decision to 
invest in the Fund, the plan fiduciaries will be aware that the Fund 
will have: (a) The power to borrow money; (b) enter into a loan 
agreement in which the Fund may pledge its assets, including the 
capital commitments of the Investors; and (c) have the right to make 
Capital Calls, thereby giving the secured party the right, under 
certain circumstances, to make Capital Calls, directly.
    10. A Fund Agreement is the written organizing and governing 
document forming a Fund that obligates each Investor to make Capital 
Contributions, with respect to capital commitments, upon receipt of a 
Capital Call from Mitsubishi Bank, either as sole Lender or as Agent. 
The Fund Agreement will also allow the Fund, or its general partner 
(the General Partner), or its manager (the Manager), to make Capital 
Calls for any lawful purpose of the Fund that is consistent with the 
terms of the Fund Agreement and other governing documents.
    11. Generally, the Fund Agreement will allow the Fund to: (a) Incur 
indebtedness (including indebtedness related to a Credit Facility) for 
the acquisition of investments, and to provide the Fund with working 
capital, among other things; and (b) consummate investments quickly 
without having to finalize the debt/equity structure for an investment, 
or arrange, for interim or permanent financing, prior to making an 
investment, and will have additional advantages to the Investors and 
the Fund.
    12. Some Fund Agreements contain an Agreement to Fund (or similar 
language) in which case the Investor Consent merely acknowledges and 
confirms the Investor's funding obligation. All other aspects of the 
transaction, including the negotiation of all terms of the Credit 
Facility, will be exclusively between Mitsubishi Bank, as sole Lender 
or Agent, and the Fund.

Exemption Request

    13. The Applicant is requesting an exemption that would permit:
    (a) The granting by the Funds to Mitsubishi Bank, as sole Lender or 
Agent for one or more Lenders (including Mitsubishi Bank) that will 
fund a Credit Facility, of a security interest in and lien on the 
Capital Commitments, reserve amounts, and Capital Contributions of 
Investors that are Covered Plans investing in the Fund;
    (b) Any Fund's collateral assignment and pledge to Mitsubishi Bank, 
as sole Lender or Agent, of the Fund's security interest in an 
Investor/Covered Plan's equity interest in such Fund;
    (c) The Fund's granting to Mitsubishi Bank, as sole Lender or 
Agent, of a security interest in a collateral account (Collateral 
Account) to which all Capital Contributions in the Fund will be 
deposited when paid (except in certain limited circumstances that do 
not involve Covered Plans); \5\
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    \5\ In most cases, all Investors will make Capital Contributions 
into the Collateral Account. However, in some cases, investors that 
are not Covered Plans may be directed to make Capital Contributions 
to the sole Lender or the Agent, for the benefit of the Lenders, 
after an event of default, in some other manner.
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    (d) The granting by the Fund and/or its General Partner or Manager 
to Mitsubishi Bank, as sole Lender or Agent, of its right to make 
Capital Calls under the operative Fund Agreements, to enforce the 
Capital Calls, collect the

[[Page 34051]]

Capital Contributions, and apply them to any amount due under the 
Credit Facility; and
    (e) A Covered Plan's execution of the Investor Consent, consenting 
to the assignment by the Fund and General Partner (or Manager) to 
Mitsubishi Bank, as sole Lender or Agent, of their right to make 
Capital Calls.

Prohibited Transactions

    14. Absent an administrative exemption, these transactions may 
violate ERISA section 406(a)(l)(A) through (D), and the corresponding 
provisions of the Code. The Applicant represents that since the 
Lenders, including Mitsubishi Bank, will be generally large, national, 
and international financial institutions, it is likely that, in any 
given Credit Facility, one or more Lenders will have a relationship 
with a Covered Plan, making it a party in interest with respect to the 
Covered Plan. However, as a condition of this exemption, no Lender, 
including Mitsubishi Bank, will be a fiduciary for any of the Covered 
Plans in connection with their investment in the Fund.
    15. ERISA section 406(a)(l)(A) prohibits a sale, exchange, or 
lease, of any property between a plan and a party in interest. Pursuant 
to the Investor Consent, a Covered Plan will make cash contributions to 
the Collateral Account for the benefit of a Lender. Because the cash 
contribution may come from the Covered Plan's assets, the execution of 
the Investor Consent agreement involves an exchange of property between 
the Covered Plan and the Lender, which includes Mitsubishi Bank, as 
sole Lender or Agent, in violation of section 406(a)(1)(A) of ERISA.
    16. In addition, ERISA section 406(a)(1)(B) prohibits the lending 
of money, or other extension of credit, between a plan and a party in 
interest. The Credit Facility's direct extension of credit to the Fund, 
resulting in an indirect extension of credit to Covered Plans investing 
in that Fund, pursuant to the Investor Consent, violates section ERISA 
406(a)(1)(B).
    17. Further, ERISA section 406(a)(1)(C) prohibits the furnishing of 
goods, services, or facilities between a plan and a party in interest. 
By servicing the loans under the Credit Facility, Mitsubishi Bank 
provides indirect services to the Covered Plan Investor. Furthermore, 
from time to time, there may be interactions between Mitsubishi Bank 
Lenders and the Covered Plan Investors which involve Mitsubishi's 
provision of services. For example, Covered Plan Investors may inquire 
about the status and/or request information from Mitsubishi Bank 
Lenders with respect to the Credit Facility and the outstanding 
obligations thereunder, although, typically, such communications would 
be relayed by the Covered Plan Investors through the Fund to Mitsubishi 
Bank Lenders, and not made directly.
    18. Finally, ERISA section 406(a)(l)(D) prohibits, the transfer to, 
or use by, or for the benefit of a party in interest of any assets of a 
plan. Because an Investor will make cash contributions to the 
Collateral Account for the benefit of the Lender, which includes 
Mitsubishi Bank, as sole Lender or Agent, cash contribution from Plan 
assets would be considered a transfer of Plan assets to a party in 
interest, in violation of ERISA section 406(a)(1)(D).

Benefits of the Credit Facility and Investor Consent

    19. According to the Applicant, absent the requested exemption, the 
inability to use the financing structure described above will result in 
economic loss to Investors that are Covered Plans, and their 
participants and beneficiaries, due to more onerous, and expensive, 
financing terms and conditions that would be required for Plans to 
invest in these types of investment ventures. In this regard, the types 
of Funds involved in the Covered Transactions are an important element 
of a Covered Plan's diversified investment portfolio. Real estate 
investments can be valuable components of plan portfolios. However, 
investments in a large, diversified limited partnership or similar 
entity may have advantages over direct ownership of real estate 
properties, and other securities, including limited liability with 
respect to such property, if risks are minimized. Most diversified real 
estate and other investment programs are carried out through 
partnerships or limited liability companies that are substantially-
similar to the Funds.
    20. According to the Applicant, a Credit Facility will allow a Fund 
to manage its Capital Calls on a scheduled basis and to move quickly to 
fund desired investments likely resulting in a more favorable 
investment portfolio for the Fund and its Investors, and a potentially 
higher return, without appreciably higher risk. In addition, the 
ability of the Investors to delay payment on capital commitments allows 
such amounts to remain in other investments of the Investor and allows 
the Investor to achieve greater overall investment returns.
    21. Mitsubishi Bank, as sole Lender or Agent, may receive a pledge 
of the Investors' capital commitments, and rights to make Capital Calls 
and to collect and enforce the same, in the event of default. The 
Investor Consent is an important component of the Credit Facility 
arrangement. Absent the Investor Consent, Mitsubishi Bank may be 
required to foreclose on the collateral in order to effect a Capital 
Call for repayment of the Credit Facility. The Investor Consent, which 
would be required by this exemption, enables Mitsubishi Bank, as sole 
Lender or Agent, to make a Capital Call immediately on the Investors 
for repayment, without the need to first foreclose on the collateral.
    22. When the Fund Agreements do not contain the agreement of the 
Investors to make capital commitments without setoff, reduction, 
counterclaim, or defense of any kind or nature, the Investor Consent 
will contain this agreement, thereby permitting Lenders to be repaid 
for amounts that have been extended to the Fund prior to the time 
Capital Contributions are called, without the risk of repayment being 
challenged, or delayed, by claims the Investors may have against the 
Fund. This arrangement will keep the risk of the Fund's investment 
transactions between the Fund and the Investors.

Conditions for Exemptive Relief

    23. The proposed exemption will be subject to a number of 
substantive conditions. The decision to invest in the Fund on behalf of 
each Covered Plan and to execute an Investor Consent in favor of 
Mitsubishi Bank, as sole Lender or Agent, will be made by fiduciaries 
of the Covered Plan that are not included among, are independent of, 
and are unaffiliated with, the Lenders (including Mitsubishi Bank) and 
the Fund. Further, in each Credit Facility covered under this proposed 
exemption, no Lender, including Mitsubishi Bank, will be a fiduciary 
for any of the Covered Plans in connection with their investment in the 
Fund. Relief in this proposed exemption does not extend to Funds that 
contain ``plan assets'' for purposes of ERISA or Code section 4975.\6\
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    \6\ The Plan Assets Regulation describes what constitutes assets 
of a plan with respect to a plan's investment in another entity for 
purposes of subtitle A, and Parts 1 and 4 of subtitle 1 of ERISA, 
and Code section 4975. Should the Department approve this proposed 
exemption, such approval would not constitute an opinion regarding 
whether the underlying assets of any Fund would be considered the 
assets of a plan under such regulations. Further, this exemption, if 
granted, does not provide relief for either the internal 
transactions involving the operation of the Fund, or for 
transactions involving the Fund and third parties other than the 
specific relief proposed herein. Covered Plan Investors, and their 
independent fiduciaries, should examine carefully all aspects of the 
Fund's organization, operation, and investment programs in order to 
determine whether the requirements of the Department's regulations 
will be met. See 29 CFR part 2510.3-101 (51 FR 41280, Nov. 13, 
1986), as amended at 51 FR 47226, (Dec. 31, 1986).

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[[Page 34052]]

    24. Each transaction must be on terms that are no less favorable to 
the Covered Plans than those which the Covered Plans could obtain in 
arm's-length transactions with unrelated parties. At the time of the 
execution of an Investor Consent, the Covered Plan must have assets of 
not less than $100 million. Not more than 5% of the assets of any 
Covered Plan, measured at the time of the execution of an Investor 
Consent, may be invested in the Fund.
    25. The proposed exemption requires that the applicable fiduciaries 
for Covered Plans that are Investors provide a representation to 
Mitsubishi Bank, including a statement, that such fiduciary is 
responsible for making the Covered Plan's decision to invest in the 
Fund, and is and will be independent of, and unaffiliated with, the 
Lenders.
    26. In addition, no Lender may have any influence, authority, or 
control over a Client Plan's investment in the Fund. No Covered 
Transaction may be part of an arrangement, agreement or understanding, 
designed to benefit a party in interest or disqualified person with 
respect to a Covered Plan. Finally, any service covered by the 
exemption must be necessary for the establishment or operation of the 
plan, and no more than reasonable compensation may be paid therefor. 
Finally, all the facts and representations set forth in the Summary of 
Facts and Representations must be true and accurate.

Statutory Findings

    27. ``The Proposed Exemption is Administratively Feasible.'' The 
Department has tentatively determined that the requested exemption is 
administratively feasible because it would cover a class of 
transactions between Covered Plans and Lenders when each Covered Plan 
will be independently represented by a fiduciary and will have an 
independent investment advisor.
    28. ``The Proposed Exemption is in the Interests of.'' The 
Department has tentatively determined that the proposed exemption is in 
the interest of Covered Plans because, absent the exemption, a Fund's 
use of Capital Calls to make investments may take days, thereby 
reducing the Fund's investing flexibility and increasing costs to the 
Fund's Investors, including the Covered Plans.
    28. ``The Proposed Exemption is Protective of.'' The Department has 
tentatively determined that the proposed exemption is protective of the 
rights of the Plan participants and beneficiaries because, among other 
things, a fiduciary independent of Mitsubishi Bank and any other Lender 
will make the decision to invest in the Fund and determine whether to 
accept the credit facility arrangement and terms.

Summary

    30. Based on the record developed in connection with this proposed 
exemption, the Department has tentatively determined that the relief 
sought by the Applicant satisfies the statutory requirements for an 
exemption under ERISA section 408(a).

Notice to Interested Persons

    Notice of the proposed exemption will be given to all interested 
persons within 15 days of the publication of the notice of proposed 
exemption in the Federal Register, by electronic mail (if electronic 
mail is the usual and customary method by which Mitsubishi Bank 
corresponds with the interested person) and/or first class U.S. mail to 
the last known address of these individuals. The 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 the pending exemption. Written 
comments 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: 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.

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 exemption, 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 exemption, 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.

Proposed Exemption

Section I. Transactions

    If the proposed exemption is granted, the restrictions of ERISA 
sections 406(a)(1)(A)-(D), and the sanctions resulting from the 
application of Code section 4975, by reason of section Code section 
4975(c)(l)(A)-(D), shall not apply to:
    (a) The granting by the Funds to Mitsubishi UFJ Trust and Banking 
Corporation (Mitsubishi Bank), as an agent (Agent) for one or more 
financial institutions (Lender(s)), which may include, without 
limitation, Mitsubishi Bank) or as sole Lender, that will fund a credit 
facility (Credit Facility) providing credit to certain investment funds 
(Fund(s)), of a security interest in and lien on the capital 
commitments (Capital Commitments), reserve amounts, and capital 
contributions

[[Page 34053]]

(Capital Contributions) of certain investors (Investors) that are 
employee benefit plans (Covered Plan(s), as defined in Section II(a)), 
investing in the Fund;
    (b) Any Fund's collateral assignment and pledge to Mitsubishi Bank, 
as sole Lender or Agent, of the Fund's security interest in an Investor 
Covered Plan's equity interest in such Fund;
    (c) The Fund's grant to Mitsubishi Bank, as sole Lender or Agent, 
of a security interest in a collateral account (Collateral Account) to 
which all Capital Contributions in the Fund will be deposited when paid 
(except in certain limited circumstances that do not involve Covered 
Plans); \7\
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    \7\ In most cases, all Investors will make Capital Contributions 
into the Collateral Account. However, in some cases, Investors that 
are not Covered Plans may be directed to make Capital Contributions 
to the sole Lender or the Agent, for the benefit of the Lenders, 
after an event of default, in some other manner.
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    (d) The granting by the Fund and/or its general partner (General 
Partner) or manager (Manager) to Mitsubishi Bank, as sole Lender or 
Agent, of its right to make calls on Covered Plan Investors for Capital 
Contributions (the Capital Call), which shall be in cash, under the 
operative Fund Agreements (as defined in Section II(d)), enforce the 
Capital Calls, collect the Capital Contributions, and apply them to any 
amount due under the Credit Facility; and
    (e) A Covered Plan's execution of an agreement (the Investor 
Consent) consenting to the assignment by the Fund and General Partner 
(or Manager) to Mitsubishi Bank, as sole Lender or Agent, of their 
right to make Capital Calls.

Section II. Definitions

    (a) The terms ``Covered Plan'' or ``Covered Plans'' means an 
investor in a Fund (as defined below) that is an employee benefit plan, 
as defined in ERISA section 3(3) and that is covered by Title I, Part 4 
of ERISA, and/or a plan defined in Code section 4975, that satisfies 
the conditions set forth herein in Section II;
    (b) The terms ``Covered Transaction'' or ``Covered Transactions'' 
mean any combination of transactions described in Section I(a) through 
(d), in conjunction with the Investor Consent described in Section 
I(e);
    (c) The terms ``Fund'' or ``Funds'' means an investment or venture 
capital fund (organized as a corporation, limited partnership, limited 
liability company, or another business entity authorized by applicable 
law) in which one or more investors invest, including employee benefit 
plans or special purpose entities holding ``plan assets'' subject to 
ERISA, as described herein, by making capital contributions in cash to 
such Fund, pursuant to specific Capital Commitments as established by 
the Fund Agreement(s) and other operative documents executed by the 
parties, for purposes of making certain real estate investments 
(including real estate-related investments, such as venture capital 
investments) or non-real estate investments (including, without 
limitation, assets and/or interests relating to infrastructure, 
maritime, energy, etc.).
    Each Covered Plan investing in such special purpose entity must 
satisfy the conditions set forth herein in Section II. The term 
``Fund'' includes an entity created by the Fund that may borrow, or 
receive, funds from the Credit Facility, provided that such entity is 
considered an affiliate of the Fund as a subsidiary or other controlled 
entity;
    (d) The terms ``Fund Agreement'' or ``Fund Agreements'' mean the 
written agreements under which a Fund (as defined above) is formed 
(such as a limited partnership agreement, a limited liability company 
agreement, trust agreement, or articles of incorporation, together with 
ancillary related agreements, such as subscription agreements) that 
obligate each Investor to make cash contributions of capital with 
respect to Capital Commitments, upon receipt of a call for Capital 
Contributions;
    (e) The term ``officer'' means a president, any vice president in 
charge of a principal business unit, division or function (such as 
sales, administration or finance), or any other officer who performs a 
policy-making function for the entity;
    (f) The term ``Mitsubishi Bank'' means Mitsubishi UJF Trust and 
Banking Corporation, which is a foreign banking corporation organized 
under the laws of Japan, and its indirectly wholly-owned subsidiary 
named MUFG Alternative Fund Services (Cayman) Limited, an ordinary 
resident company incorporated and existing under the laws of the Cayman 
Islands. This exemption is intended to cover Mitsubishi Bank, and all 
of its current and future branches;
    (g) For purposes of determining whether a fiduciary is not included 
among, is independent of, and unaffiliated with, a Fund, the term Fund 
shall be deemed, as appropriate, to include the governing entity of the 
Fund, or a member of the governing body of the Fund, as appropriate, 
e.g., a general partner of a partnership, a manager of a limited 
liability company, a member of a member-managed limited liability 
company, or a member of the board of directors of a corporation. For 
purposes of this exemption request, a fiduciary of a Covered Plan is 
not included among, is independent of, and unaffiliated with, a Lender 
(including Mitsubishi Bank) or a Fund, as applicable, if:
    (i) The fiduciary is not, directly or indirectly, through one or 
more intermediaries, controlling, controlled by, or under common 
control with such Lender or Fund;
    (ii) The fiduciary is not an officer, director, employee or 
relative of, or partner in, such Lender or Fund; and
    (iii) No officer, director, highly-compensated employee (within the 
meaning of Code Section 4975(e)(2)(H)), or partner of the Fund, or any 
officer, director or highly-compensated employee, or partner of the 
Lender who is involved in the transactions described in Section I of 
the exemption request, is also an officer, director, highly-compensated 
employee, or partner of the fiduciary. However, if such individual is a 
director of the Lender, and if he or she abstains from participation 
in, and is not otherwise involved with, the decision made by the 
Covered Plan to invest in the Fund, then this condition shall be deemed 
satisfied.

Section III. Conditions

    (a) The decision to invest in the Fund on behalf of each Covered 
Plan and to execute an Investor Consent in favor of Mitsubishi Bank, as 
sole Lender or Agent, is made by fiduciaries of the Covered Plan that 
are not included among and are independent of and unaffiliated with, 
the Lenders (including Mitsubishi Bank) and the Fund;
    (b) The transaction is on terms that are no less favorable to the 
Covered Plans than those which the Covered Plans could obtain in arm's-
length transactions with unrelated parties;
    (c) At the time of the execution of an Investor Consent, the 
Covered Plan has assets of not less than $100 million. In the case of 
multiple plans maintained by the same employer, or by members of a 
controlled group of corporations (within the meaning of Code Section 
414(b)), or members of a group of trades or businesses under common 
control (within the meaning of Code Section 414(c)) (hereafter, 
referred to as ``members of a controlled group''), whose assets are 
invested on a commingled basis (e.g., through a master trust), this 
$100 million threshold applies to the aggregate assets of the 
commingled entity;
    (d) Not more than 5% of the assets of any Covered Plan, measured at 
the time of the execution of an Investor Consent,

[[Page 34054]]

is invested in the Fund. In the case of multiple plans maintained by 
the same employer, or by members of a controlled group, whose assets 
are invested on a commingled basis (e.g., through a master trust), the 
5% limit applies to the aggregate assets of the commingled entity;
    (e) Neither Mitsubishi Bank, nor any Lender, has discretionary 
authority or control with respect to a Covered Plan's investment in the 
Fund nor renders investment advice (within the meaning of 29 CFR 
2510.3-21(c)) with respect to such investment;
    (f) Upon request, the Covered Plan fiduciaries must receive from 
Mitsubishi Bank, a copy of this notice of proposed exemption and a copy 
of the final exemption, as published in the Federal Register;
    (g) Mitsubishi Bank receives from the Covered Plan fiduciaries a 
written representation, or a written authorization, that permits 
Mitsubishi Bank to rely on a written representation made to the Fund, 
that the conditions set forth above in Section III(a), (c), and (d) are 
satisfied for such transaction with respect to the Covered Plan for 
which they are fiduciaries;
    (h) No Covered Transaction is part of an arrangement, agreement or 
understanding, designed to benefit a party in interest or disqualified 
person with respect to a Covered Plan.
    (i) The Funds will not hold ``plan assets'' for purposes of ERISA 
or Code section 4975; \8\
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    \8\ See the Department's Plan Assets Regulation. 29 CFR part 
2510.3-101 (51 FR 41280, Nov. 13, 1986), as amended at 51 FR 47226, 
(Dec. 31, 1986).
---------------------------------------------------------------------------

    (j) Any service covered by the exemption must be necessary for the 
establishment or operation of the plan, and no more than reasonable 
compensation may be paid;
    (k) No Lender will have any influence, authority, or control over a 
Client Plan's investment in the Fund; and
    (l) All the facts and representations set forth in the Summary of 
Facts and Representations are true and accurate.
    Effective Date: The proposed exemption, if granted, will be 
effective as of the date that the notice of final exemption is 
published in the Federal Register.

    Signed at Washington, DC, this 22nd day of June, 2021.
Christopher Motta,
Chief, Division of Individual Exemptions, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor.
[FR Doc. 2021-13676 Filed 6-25-21; 8:45 am]
BILLING CODE 4510-29-P


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