PWBA
Office of Exemption Determinations PWBA
Office of Exemption Determinations
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application Number D-8414]
Amendment to Prohibited Transaction Exemption (PTE) 80-51
Involving Bank Collective Investment Funds
Agency: Pension and Welfare Benefits Administration, Department
of Labor.
Action: Adoption of amendment to PTE 80-51, and redesignation as
PTE 91-38.
Summary: This document amends PTE 80-51, a class exemption that
permits Bank Collective Investment Funds, in which employee
benefit plans have an interest, to engage in certain
transactions, provided specified conditions are met. The
amendment affects, among others, participants, beneficiaries and
fiduciaries of plans that invest in the collective investment
funds, banks, and other persons engaging in the described
transactions.
Effective Date: The amendment to section I(a)(1)(A) of PTE
80-51 is effective as of July 1, 1990.
For Further Information Contact: Lyssa Hall of the Office of
Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor, (202) 523-8971 (this is
not a toll-free number); or Diane Pedulla of the Plan Benefits
Security Division, Office of the Solicitor, U.S. Department of
Labor, (202) 523-9597 (this is not a toll-free number).
Supplementary Information: On February 6, 1991, notice was
published in the Federal Register (56 FR 4856) of the pendency
before the Department of a proposed amendment to PTE 80-51 (45 FR
49709, July 25, 1980).1 PTE 80-51 provides an exemption from the
restrictions of sections 406 and 407(a) of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and
from the taxes imposed by section 4975(a) and (b) of the Internal
Revenue Code of 1986 (the Code) by reason of certain provisions
of section 4975(c)(1) of the Code.
The amendment to PTE 80-51 adopted by this notice was
requested in an exemption application dated May 17, 1990, on
behalf of the American Bankers Association (ABA). The exemption
application was submitted pursuant to section 408(a) of ERISA and
section 4975(c)(2) of the Code2 and in accordance with ERISA
Procedure 75-1 (40 FR 18471, April 28, 1975).
Information collection requirements contained in PTE 80-51
have been approved by the Office of Management and Budget under
the provisions of the Paperwork Reduction Act of 1989 (Pub. L.
96-511) and have been assigned OMB number 1210-0082 approved for
use through April 30, 1994.
The notice of pendency gave interested persons an
opportunity to comment on the proposal. Public comments were
received pursuant to the provisions of section 408(a) of ERISA
and section 4975(c)(2) of the Code and in accordance with the
procedures set forth in ERISA Procedure 75-1.
For the sake of convenience, the entire text of PTE 80-51,
as amended, has been reprinted with this notice. The Department
has redesignated the exemption as PTE 91-38.
1. Description of the Exemption
PTE 80-51 consists of four parts. Section I(a)(1)(A) of
the exemption permits a bank collective investment fund to engage
in transactions, which otherwise might be prohibited by sections
406 and 407(a) of the Act and section 4975(c)(1) of the Code,
with persons who are parties in interest with respect to an
employee benefit plan investing in the fund. The plan's
participation in the fund, under section I(a)(1)(A) may not
exceed five percent of the total assets in the collective
investment fund.
The amendment to PTE 80-51 granted pursuant to this notice
increases the percentage limitation in section I(a)(1)(A)(ii) of
PTE 80-51 from 5 to 10 percent, so that the general exemption in
section I(a)(1)(A) would be available where the interest of a
plan in a bank collective investment fund does not exceed ten
percent of the total assets in the collective investment fund.
The Department notes that all the relevant conditions
contained in PTE 80-51, with the exception of the one modified by
this amendment, still must be met under the amended class
exemption. These conditions, among others, include a requirement
that the party in interest is not the bank (or an affiliate)
which holds the plan assets in its collective investment fund. In
addition, the terms of the transaction must be at least as
favorable to the bank collective investment fund as those
obtainable in an arm's-length transaction with an unrelated
party. Also, the bank must maintain certain records for a period
of six years from the date of the transaction.
2. Discussion of Comments Received
The Department received three letters commenting on the
proposed amendment to PTE 80-51. The ABA represents that it
believes that the savings resulting from the reduced burden of
compliance due to a higher percentage limitation would be of
benefit to participants in that it would result in lower
administrative costs.
The California Bankers Association (CBA), a trade
association representing over 420 commercial banks in the State
of California, supports the proposed amendment. The CBA
represents that the proposed amendment to the class exemption
would eliminate the competitive disadvantage currently faced by
bank collective investment funds.
The Federal Retirement Thrift Investment Board, (the Board)
which administers and manages the Thrift Savings Fund for federal
employees, requested that the proposed amendment be extended for
purposes of the Federal Employee's Retirement System Act of 1986
(FERSA).3 In this regard, the Department notes that it proposed an amendment to PTE T88-1 on June 3, 1991, which would generally
incorporate subsequent modifications to the class exemptions
described therein.4
3. Miscellaneous
For purposes of clarity, section III(b) of the
exemption has been restated to provide that only the bank will be
subject to a civil penalty under section 502(i) of the Act or the
taxes imposed by section 4975(a) and (b) of the Code if the
records required pursuant to the exemption are not maintained or
available.
<center>General Information</center>
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 ERISA does not relieve a
fiduciary or other party in interest or disqualified person from
certain other provisions of ERISA and the Code, including any
prohibited transaction provisions to which the exemption does not
apply and the general fiduciary responsibility provisions of
section 404 of ERISA which require, among other things, that a
fiduciary discharge his or her duties respecting the plan solely
in the interests of the participants and beneficiaries of the
plan; 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) In accordance with section 408(a) of ERISA, the
Department makes the following determinations:
(i) The amendment set forth herein is administratively
feasible;
(ii) It is in the interests of plans and of their
participants and beneficiaries; and
(iii) It is protective of the rights of the
participants and beneficiaries of plans;
(3) The class exemption is applicable to a particular
transaction only if the transaction satisfies the conditions
specified in the exemption; and
(4) The amendment is supplemental to, and not in
derogation of, any other provisions of ERISA and the Code,
including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of
whether the transaction is in fact a prohibited transaction.
Exemption
Accordingly, PTE 80-51 is amended under the authority of
section 408(a) of the Act and section 4975(c)(2) of the Code, and
in accordance with the procedures set forth in ERISA Procedure
75-1 (40 FR 18471, April 28, 1975).
Section I Exemption for Certain Transactions Involving Bank
Collective Investment Funds
(a) Effective January 1, 1975, the restrictions of sections 406(a), 406(b)(2) and 407(a) of the Act and the taxes
imposed by section 4975(a) and (b) of the Code by reason of
section 4975(c)(1)(A), (B), (C) or (D) of the Code, shall not
apply to the transactions described below if the applicable
conditions set forth in Section III are met.
(1) Transactions Between Parties in Interest and Bank
Collective Investment Funds: General. Any transaction between a
party in interest with respect to a plan and a collective
investment fund that is maintained by a bank and in which the
plan has an interest, or any acquisition or holding by the
collective investment fund of employer securities or employer
real property, if the party in interest is not the bank that
maintains the collective investment fund, any other collective
fund maintained by the bank or any affiliate of the bank, and if,
at the time of the transaction, acquisition or holding, either
(A) The interest of the plan together with the
interests of any other plans maintained by the same employer or
employee organization in the collective investment fund does not
exceed--
(i) 10 percent of the total of all interests in
the collective investment fund, if the transaction occurs prior
to October 23, 1980; or
(ii) 5 percent of the total of all assets in the
collective investment fund, if the transaction occurs on or after
October 23, 1980, and on or before June 30, 1990; or
(iii) 10 percent of the total of all assets in the
collective investment fund, if the transaction occurs on or after
July 1, 1990; or
(B) The collective investment fund is a specialized
fund that has a policy of investing, and invests, substantially
all of its assets in short-term obligations (having a stated
maturity date of one year or less or having a maturity date of
one year or less from the date of acquisition by such specialized
fund), including but not necessarily limited to--
(i) Corporate or governmental obligations or
related repurchase agreements;
(ii) Certificates of deposit;
(iii) Bankers' acceptances; or
(iv) Variable amount notes of borrowers of prime
credit.
(2) Special Transactions Not Meeting the Criteria of
Section I(a)(1)(A) Between Employers of Employees Covered by a
Multiple Employer Plan and Collective Investment Funds. Any
transaction between an employer (or an affiliate of an employer)
of employees covered by a multiple employer plan and a collective
investment fund maintained by a bank in which the plan has an
interest, or any acquisition or holding by the collective
investment fund of employer securities or employer real property,
if at the time of the transaction, acquisition or holding--
(A) In the case of a transaction occurring prior to
October 23, 1980, the employer is not a "substantial employer"
with respect to the plan (within the meaning of section
4001(a)(2) of the Act); or
(B) In the case of a transaction occurring on or after
October 23, 1980:
(i) The interest of the multiple employer plan in
the collective investment fund does not exceed 10 percent of the
total assets in the collective investment fund, and the employer
is not a "substantial employer" with respect to the plan (within
the meaning of section 4001(a)(2) of the Act); or
(ii) The interest of the multiple employer plan in
the collective investment fund exceeds 10 percent of the total
assets in the collective investment fund, but the employer is not
a "substantial employer" with respect to the plan and would not
be a "substantial employer" within the meaning of section
4001(a)(2) of the Act if "5 percent" were substituted for "10
percent" in that definition.
(3) Acquisition, Sale or Holding of Employer Securities
and Employer Real Property.
(A) Except as provided in subsection (B) of this
section (3), any acquisition, sale or holding of employer
securities and any acquisition, sale or holding of employer real
property by a collective investment fund in which a plan has an
interest and which does not meet the requirements of paragraphs
(a)(1) and (a)(2) of this section, if no commission is paid to
the bank or to the employer or any affiliate of the bank or the
employer in connection with the acquisition or sale of employer
securities or the acquisition, sale or lease of employer real
property; and
(i) In the case of employer real property--
(aa) Each parcel of employer real property and the
improvements thereon held by the collective investment fund are
suitable (or adaptable without excessive cost) for use by
different tenants, and
(bb) The property of the collective investment
fund that is leased or held for lease to others, in the
aggregate, is dispersed geographically.
(ii) In the case of employer securities--
(aa) The bank in whose collective investment fund
the security is held is not an affiliate of the issuer of the
security, and
(bb) If the security is an obligation of the issuer, either
1. The collective investment fund owns the obligation
at the time the plan acquires an interest in the collective
investment fund, and interests in the collective fund are offered
and redeemed in accordance with valuation procedures of the
collective investment fund applied on a uniform or consistent
basis, or
2. Immediately after acquisition of the obligation: (a)
Not more than 25 percent of the aggregate amount of obligations
issued in the issue and outstanding at the time of acquisition is
held by such plan, and (b) in the case of an obligation that is a
restricted security within the meaning of Rule 144 under the
Securities Act of 1933, at least 50 percent of the aggregate a
amount of obligations issued in the issue and outstanding at the
time of acquisition is held by persons independent of the issuer.
The bank, its affiliates and any collective investment fund
maintained by the bank shall be considered to be persons
independent of the issuer if the bank is not an affiliate of the
issuer.
(B) In the case of a plan that is not an eligible
individual account plan (as defined in section 407(d)(3) of the
Act), the exemption provided in subsection (A) of this paragraph
(3) shall be available only if, immediately after the acquisition
of the securities or real property, the aggregate fair market
value of employer securities and employer real property with
respect to which the bank has investment discretion does not
exceed 10 percent of the fair market value of all the assets of
the plan with respect to which the bank has such investment
discretion.
(C) For the purposes of the exemption contained in
subsection (A) of this section (3), the term "employer
securities" shall include securities issued by, and the term
"employer real property" shall include real property leased to, a
person who is a party in interest with respect to a plan
(participating in the collective investment fund) by reason of a
relationship to the employer described in section 3(14)(E), (G),
(H) or (I) of the Act.
(b) Effective January 1, 1975, the restrictions of
section 406(a)(1)(A), (B), (C) and (D) and section 406(b)(1) and
(2) of the Act and the taxes imposed by section 4975(a) and (b)
of the Code by reason of section 4975(c)(1)(A), (B), (C), (D) or
(E) of the Code, shall not apply to the transactions described
below, if the conditions of Section III are met.
(1) Transactions with Persons Who Are Parties in
Interest With Respect to the Plan Solely by Virtue of Being
Certain Service Providers or Certain Affiliates of Service
Providers. Any transaction between a collective investment fund
and a person who is a party in interest with respect to a plan
that has an interest in the collective investment fund, if--
(A) The person is a party in interest (including a
fiduciary) solely by reason of providing services to the plan, or
solely by reason of a relationship to a service provider
described in section 3(14)(F), (G), (H) or (I) of the Act, or
both and the person neither exercised nor has any discretionary
authority, control, responsibility or influence with respect to
the investment of plan assets in, or held by, the colletive
investment fund, and
(B) The person is not an affiliate of the bank
maintaining the collective investment fund.
2. Certain Leases and Goods. The furnishing of goods to
a collective investment fund by a party in interest with respect
to a plan participating in the collective investment fund, or the
leasing of real property owned by the collective investment fund
to such party in interest and the incidental furnishing of goods
to such party in interest by the collective investment fund, if--
(A) In the case of goods, they are furnished to or by
the collective investment fund in connection with real property
owned by the collective investment fund;
(B) The party in interest is not the bank maintaining
the collective investment fund, or any affiliate of the bank, or
any other collective investment fund maintained by the bank; and
(C) The amount involved in the furnishing of goods or
leasing of real property in any calendar year (including the
amount under any other lease or arrangement for the furnishing of
goods in connection with the real property investments of the
collective investment fund with the same party in interest or any
affiliate thereof) does not exceed the greater of $25,000 or 0.5
percent of the fair market value of the assets of the collective
investment fund on the most recent valuation date of the fund
prior to the transaction.
(3) Management of Real Property. Any services provided
to a collective investment fund in which a plan has an interest
by the bank maintaining that fund or by an affiliate of that bank
in connection with the management of the real property owned by
the collective investment fund, if the compensation paid to the
bank or its affiliate does not exceed the cost of the services to
the bank or its affiliate.
(4) Transactions Involving Places of Public
Accommodation. The furnishing of services, facilities and any
goods incidental to such services and facilities by a place of
public accommodation owned by a bank collective investment fund,
to a party in interest with respect to a plan, which plan has an
interest in the collective investment fund, if the services,
facilities and incidental goods are furnished on a comparable
basis to the general public.
Section II Excess Holdings Exemption for Employee
Benefit Plans
(a) Effective January 1, 1975, the restrictions of
sections 406(a), 406(b)(2) and 407(a) of the Act and the taxes
imposed by section 4975(a) and (b) of the Code by reason of
section 4975(c)(1)(A), (B), (C) or (D) of the Code shall not
apply to any acquisition or holding of qualifying employer
securities or qualifying employer real property (other than
through a collective investment fund), if--
(1) The acquisition or holding contravenes the
restrictions of sections 406(a)(1)(E), 406(a)(2) and 407(a) of
the Act solely by reason of being aggregated with employer
securities or employer real property held by a collective
investment fund in which the plan has an interest;
(2) The requirements of either paragraph (a)(1) or
paragraph (a)(2) of Section I of this exemption are met; and
(3) The applicable conditions set forth in Section III
of this exemption are met.
Section III General Conditions
(a) At the time the transaction is entered into, and at
the time of any subsequent renewal thereof that requires the
consent of the bank, the terms of the transaction are not less
favorable to the collective investment fund than the terms
generally available in arm's-length transactions between
unrelated parties.
(b) The bank maintains for a period of six years from
the date of the transaction, the records necessary to enable the
persons described in paragraph (c) of this section to determine
whether the conditions of this exemption have been met, except
that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the bank's control, the
records are lost or destroyed prior to the end of the six-year
period; and (2) no party in interest other than the bank shall be
subject to the civil penalty that may be assessed under 502(i) of
the Act, or to the taxes imposed by section 4975(a) and (b) of
the Code, if the records are not maintained, or are not available
for examination as required by paragraph (c) below.
(c)(1) Except as provided in subsection 2 of this
paragraph and notwithstanding any provisions of subsections
(a)(2) and (b) of section 504 of the Act, the records referred to
in paragraph (b) of this section are unconditionally available at
their customary location for examination during normal business
hours by:
(A) Any duly authorized employee or representative of
the Department of Labor or the Internal Revenue Service,
(B) Any fiduciary of a plan who has authority to
acquire or dispose of the interests of the plan in the collective
investment fund, or any duly authorized employee or
representative of such fiduciary,
(C) Any contributing employer to any plan that has an
interest in the collective investment fund or any duly authorized
employee or representative of such employer.
(D) Any participant or beneficiary of any plan that has
an interest in the collective investment fund, or any duly
authorized employee or representative of such participant or
beneficiary.
(2) None of the persons described in subparagraphs (B)
through (D) of this paragraph shall be authorized to examine a
bank's trade secrets or commercial or financial information which
is privileged or confidential.
Section IV Definitions and General Rules
For the purposes of this exemption,
(a) An "affiliate" of a person includes--
(1) Any person directly or indirectly through one or
more intermediaries, controlling, controlled by, or under common
control with the person;
(2) Any officer, director, employee, relative of, 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 "party in interest" includes a
"disqualified person" as defined in section 4975(e)(2) of the
Code.
(d) The term "relative" means a "relative" as that term
is defined in section 3(15) of the Act (or a "member of the
family" as that term is defined in section 4975(e)(6) of the
Code), or a brother, a sister, or a spouse of a brother or
sister.
(e)(1) Except as provided in subparagraph (2) of this
paragraph, the term "collective investment fund" means a common
or collective trust fund or pooled investment fund maintained by
a bank or a trust company.
(2) In the case of a common or collective trust fund or
pooled investment fund maintained by a bank or trust company that
consists of separate investment accounts, each separate
investment account of that fund, rather than the entire fund,
shall be considered to be a separate "collective investment fund"
for purposes of this exemption.
(f) The term "multiple employer plan" means an employee
benefit plan that satisfies at least the requirements of section
3(37)(A)(i), (ii) and (iii) of the Act and section 414(f)(1)(A),
(B) and (C) of the Code.
(g) The term "obligation" means a bond, debenture,
note, certificate, or other evidence of indebtedness.
(h) The time as of which any transaction, acquisition
or holding occurs is the date upon which the transaction is
entered into, the acquisition is made or the holding commences.
In addition, in the case of a transaction that is continuing, the
transaction shall be deemed to occur until it is terminated. If
any transaction is entered into, or an acquisition is made, on or
after January 1, 1975, or a renewal that requires the consent of
the bank occurs on or after January 1, 1975, and the requirements
of this exemption are satisfied at the time the transaction is
entered into or renewed, respectively, or at the time the
acquisition is made, the requirements will continue to be
satisfied thereafter with respect to the transaction or
acquisition and the exemption shall apply thereafter to the
continued holding of the securities or property so acquired. This
exemption also applies to any transaction or acquisition entered
into, or holding commencing prior to January 1, 1975, if either
the requirements of this exemption would have been satisfied on
the date the transaction was entered into or acquisition was made
(or on which the holding commenced), or the requirements would
have been satisfied on January 1, 1975 if the transaction had
been entered into, the acquisition was made, or the holding had
commenced, on January 1, 1975. Notwithstanding the foregoing,
this exemption shall cease to apply to a holding exempt by virtue
of section I(a)(1) at such time as the interest of the plan in
the collective investment fund exceeds the percentage interest
limitation of section I(a)(1), unless no portion of such excess
results from an increase in the assets allocated to the
collective investment fund by the plan. For this purpose, assets
allocated do not include the reinvestment of fund earnings.
Nothing in this paragraph shall be construed as exempting a
transaction entered into by a collective investment fund which
becomes a transaction described in section 406 of the Act or
section 4975 of the Code while the transaction is continuing,
unless the conditions of the exemption were met either at the
time the transaction was entered into or at the time the
transaction would have become prohibited but for this exemption.
(i) Each plan participating in a collective investment
fund shall be considered to own the same proportionate undivided
interest in each asset of the collective investment fund as its
proportionate interest in the total assets of the collective
investment fund as calculated on the most recent preceding
valuation date of the fund.
(j) Where any of the assets of a collective investment
fund are invested in another collective investment fund, the
interest of the plan in the second fund arising from its
investment in the first fund shall be established by multiplying
the percentage interest of the plan in the first fund by the
percentage interest of the first fund in the second fund, such
computation to be continued similarly in the event that further
investments are made by the second investment fund in one or more
other collective investment funds.
Signed at Washington,D.C., this 5th day of July 1991.
Alan D. Lebowitz
Deputy Assistant Secretary for
Program Operations
Pension and Welfare Benefits
Administration
U.S. Department of Labor
1 Minor technical corrections were made to the language of the final exemption in a notice published in the Federal Register on August 8, 1980. (45 FR 52949).
2Section 102 of Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978), effective December 31, 1978 (44 FR 1065, January 3, 1979), transferred the authority of the Secretary of the Treasury to issue exemptions of this type to the Secretary of Labor.
3 PTE T88-1 (53 FR 52838 December 29, 1988) adopted six prohibited transaction class exemptions (including PTE 80-51) for purposes of the prohibited transaction provisions of FERSA.
456 FR 25140.
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