Proposed Class Exemption To Permit Certain Transactions
Identified in the Voluntary Fiduciary Correction Program [Notices] [03/28/2002]
Proposed Class Exemption To Permit Certain Transactions
Identified in the Voluntary Fiduciary Correction Program [03/28/2002]
Volume 67, Number 60, Page 15083-15089
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PENSION AND WELFARE BENEFITS ADMINISTRATION
[Application No. D-10933]
Proposed Class Exemption To Permit Certain Transactions
Identified in the Voluntary Fiduciary Correction Program
AGENCY: Pension and Welfare Benefits Administration, Department of
Labor.
ACTION: Notice of proposed class exemption.
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SUMMARY: This document contains a notice of pendency before the
Department of Labor (the Department) of a proposed class exemption from
certain prohibited transaction restrictions of the Internal Revenue
Code of 1986 (the Code). This exemption is being proposed in
conjunction with the Department's Voluntary Fiduciary Correction (VFC)
Program, the final version of which is being published simultaneously
in this issue of the Federal Register, which allows certain persons to
avoid potential civil actions under the Employee Retirement Income
Security Act of 1974 (ERISA) initiated by the Department and the
assessment of civil penalties under section 502(l) of ERISA in
connection with investigation or civil action by the Department. If
granted, the proposed exemption would affect plans, participants and
beneficiaries of such plans and certain other persons engaging in such
transactions.
DATES: Written comments and requests for a public hearing must be
received by
[[Page 15084]]
the Department on or before May 13, 2002.
ADDRESSES: All written comments (at least three copies) and requests
for a public hearing should be sent to: Office of Exemption
Determinations, Pension and Welfare Benefits Administration, Room N-
5649, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, (attn: D-10933). Written comments may also be
sent by e-mail to moffittb@pwba.dol.gov or by FAX to (202) 219-0204.
Comments received from interested persons will be available for public
inspection in the Public Documents Room, Pension and Welfare Benefits
Administration, U.S. Department of Labor, Room N-1513, 200 Constitution
Avenue, NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT: Karen Lloyd, Office of Exemption
Determinations, Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-5649, 200 Constitution Avenue, NW.,
Washington, DC 20210, (202) 693-8540 (not a toll free number) or
Cynthia Weglicki, Plan Benefits Security Division, Office of the
Solicitor, (202) 693-5600 (not a toll free number).
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed class exemption from the taxes
imposed by section 4975(a) and (b) of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code. The Department is proposing the
class exemption on its own motion pursuant to section 4975(c)(2) of the
Code, and in accordance with the procedures set forth in 29 CFR 2570,
subpart B (55 FR 32836, August 10, 1990).\1\
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\1\ Section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978, 5 U.S.C. App. 1 [1995]) generally
transferred the authority of the Secretary of the Treasury to issue
administrative exemptions under section 4975 of the Code to the
Secretary of Labor.
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Executive Order 12866 Statement
Under Executive Order 12866, the Department must determine whether
a regulatory action is ``significant'' and therefore subject to the
requirements of the Executive Order and subject to review by the Office
of Management and Budget (OMB). Under section 3(f), the order defines a
``significant regulatory action'' as an action that is likely to result
in a rule (1) having an annual effect on the economy of $100 million or
more, or adversely and materially affecting a sector of the economy,
productivity, competition, jobs, the environment, public health or
safety, or State, local or tribal governments or communities (also
referred to as ``economically significant''); (2) creating serious
inconsistency or otherwise interfering with an action taken or planned
by another agency; (3) materially altering the budgetary impacts of
entitlement grants, user fees, or loan programs or the rights and
obligations of recipients thereof; or (4) raising novel legal or policy
issues arising out of legal mandates, the President's priorities, or
the principles set forth in the Executive Order.
Pursuant to the terms of the Executive Order, it was determined
that this action is ``significant'' under Section 3(f)(4) of the
Executive Order. Accordingly, this action has been reviewed by OMB.
Paperwork Reduction Act
As part of its continuing effort to reduce paperwork and respondent
burden, the Department of Labor conducts a preclearance consultation
program to provide the general public and Federal agencies with an
opportunity to comment on proposed and continuing collections of
information in accordance with the Paperwork Reduction Act of 1995 (PRA
95) (44 U.S.C. 3506(c)(2)(A)). This helps to ensure that requested data
can be provided in the desired format, reporting burden (time and
financial resources) is minimized, collection instruments are clearly
understood, and the impact of collection requirements on respondents
can be properly assessed.
Currently, the Pension and Welfare Benefits Administration (PWBA)
is soliciting comments concerning the information collection request
(ICR) included in the proposed Class Exemption to Permit Certain
Transactions Identified in the Voluntary Fiduciary Correction Program.
The information collection provisions of the proposed Class Exemption
would revise the currently approved collection of information included
in PWBA's Voluntary Fiduciary Correction Program, which is published
simultaneously in the Federal Register. A copy of the ICR may be
obtained by contacting the Pension and Welfare Benefits Administration
office listed below.
Comments pertaining to the ICR should be sent to the Office of
Information and Regulatory Affairs, Office of Management and Budget,
Room 10235, New Executive Office Building, Washington, DC 20503;
Attention: Desk Officer for the Pension and Welfare Benefits
Administration. Although comments may be submitted through May 28,
2002, OMB requests that comments be received within 30 days of
publication of the Notice of Proposed Class Exemption to ensure their
consideration.
Address requests for copies of the ICR to Gerald B. Lindrew, Office
of Policy and Research, U.S. Department of Labor, Pension and Welfare
Benefits Administration, 200 Constitution Avenue, NW., Room N-5647,
Washington, DC 20210. Telephone (202) 693-8410; fax: (202) 219-4745.
These are not toll-free numbers.
The Department has submitted a copy of the proposed revision of the
information collection request to OMB in accordance with 44 U.S.C.
3507(d) for review and clearance. The Department and OMB are
particularly interested in comments that:
Evaluate whether the proposed collection of information is
necessary for the proper performance of the functions of the agency,
including whether the information will have practical utility;
Evaluate the accuracy of the agency's estimate of the
burden of the collection of information, including the validity of the
methodology and assumptions used;
Enhance the quality, utility, and clarity of the
information to be collected; and
Minimize the burden of the collection of information on
those who are to respond, including through the use of appropriate
automated, electronic, mechanical, or other technological collection
techniques or other forms of information technology, e.g., permitting
electronic submission of responses.
On March 15, 2000, the Department of Labor published a Notice in
the Federal Register (65 FR 14164), announcing the adoption of a
Voluntary Fiduciary Correction Program (VFC Program). The purpose of
the VFC Program is to encourage plan fiduciaries to make full
correction of certain eligible transactions without fear of civil
investigation or litigation. The VFC Program, upon proper application,
correction, and receipt of a ``no action'' letter from the Department,
provided relief to Plan Officials from civil penalties under section
502(l) of ERISA for breaches of fiduciary responsibility. The Notice
requested comments from the public on all aspects of the Program.
Responses indicate that the Program was generally well received by the
public. Several commenters, however, while acknowledging the importance
of Program relief from section 502(l) of ERISA, also requested
additional relief from the tax on prohibited transactions under section
4975 of the Code. Section 4975(a) of the Code imposes a tax on each
prohibited transaction at a rate of
[[Page 15085]]
15 percent of the amount involved with respect to the prohibited
transaction for each year (or part thereof) in the taxable period. The
commenters suggested that providing excise tax relief would benefit
employee benefit plans, participants, and beneficiaries by further
encouraging Plan Officials to protect plan assets through correction of
eligible transactions under the VFC Program. Moreover, the lack of
protection from the sanctions of section 4975 of the Code was
considered a disincentive to participation in the VFC Program. Because
the goal of the Department in establishing the VFC Program was to
encourage correction of fiduciary breaches and restoration of losses to
participants and beneficiaries, the Department concluded that it would
be appropriate to provide limited relief in the form of a Prohibited
Transaction Class Exemption from the sanctions of section 4975 of the
Code. This proposed exemption describes four prohibited transactions
from among those transactions eligible for correction under the VFC
Program as transactions suitable for relief from the tax obligations of
sections 4975(a) and (b) of the Code. Plan Officials intending to take
advantage of the exemption must comply with the requirements of the VFC
Program. In addition, in order to appropriately protect the interests
of participants and beneficiaries, the Department has elected to
require Plan Officials intending to take advantage of the exemption to
notify interested persons such as participants and beneficiaries of the
plan. Plan Officials also will be required to send a copy of the notice
to the appropriate Regional Office of the Pension and Welfare Benefits
Administration. The notice must include an objective description of the
transaction and the steps taken to correct it. Because section
4975(c)(2) of the Code requires an exemption to be in the interests of
a plan as well as protective of its participants and beneficiaries
before it can be granted, interested persons must be given adequate
notice of the pending exemption and an opportunity to comment. Comments
from participants and beneficiaries will contribute to the Department's
understanding of the facts as described in the VFC Program application.
Interested persons and the Department must receive the notice within 60
days following the date of submission of an application under the VFC
Program. Beginning on the date of distribution of the notice,
recipients will have 30 calendar days to provide comments to a Regional
Office; the notice must include the address and telephone number of
such Regional Office. Notification may be given in any manner that is
reasonably calculated to result in the receipt of such notice by
interested persons, including but not limited to posting, regular mail,
or electronic mail. The use of the exemption is not required for
participation in the Program. The relief provided by the class
exemption is not available without participation in the VFC Program,
and, as such, the exemption's notice requirement is treated as a
revision of the existing VFC Program ICR.
The VFC Program describes certain transactions that are breaches of
fiduciary duty under Part 4 of Title I of ERISA and that may be
corrected under the Program. Because the VFC Program is new, there is
as yet insufficient data on the type or the number of eligible
transactions that will be corrected under the Program to support a
revision of the original estimates of participation. Based on the
Department's experience with the Pension Payback Program, which dealt
only with employee contributions and realized corrections by 0.1 per
cent of all eligible plans, and allowing for the inclusion of
additional transactions for correction under the VFC Program, the
Department estimates that there will be 700 applicants to the VFC
Program. All Plan Officials that apply to the VFC Program will not
necessarily take advantage of the excise tax relief provided under this
exemption, either by choice or because the corrected transaction is not
an eligible transaction to which this exemption applies. For the
purpose of computing the hour and cost burdens under the PRA,
therefore, the Department has assumed that one half of all Plan
Officials that choose to take advantage of the opportunity to correct a
breach under the VFC Program, or 350 Plan Officials, will also choose
to avail themselves of the opportunity for excise tax relief.
Because the information to be provided to interested persons in the
notice is readily available in the documentation previously submitted
as part of the application to the VFC Program, it is likely that a Plan
Official that used the services of a professional to apply to the VFC
Program will use the same professional to prepare the notice under the
exemption. The Department estimates that it will take approximately one
hour of a professional's time, or 350 total hours, to produce the
notice to interested persons. At $70 an hour for a professional's time,
the cost to Plan Officials is $24,500.
Plan officials must distribute the notice in a manner that is
reasonably calculated to result in the receipt of such notice by
interested persons. Notices are commonly distributed in one of three
ways--posting, electronic mail, or regular mail. The Department assumes
that only 10% of the applicants availing themselves of the exemption,
or 35 Plan Officials, will choose to distribute the notice by regular
mail. Based on an estimate of 88,000 participants in plans affected by
the VFC Program, 44,000 of which will be in plans assumed to make use
of the exemption, 4,400 participants and beneficiaries will receive a
notice by regular mail. The cost of mailing 4,400 notices, at $.34 per
mailing, results in an additional cost of $1,496. Because of the cost
savings, most applicants will likely choose to use either posting or
electronic mail as a means of distribution. Applying these methods of
distribution, the time required to transfer the notice electronically
or to post it in an appropriate place is minimal; the Department has
therefore not accounted for a cost burden for notification under either
of these choices. Distributing the notice by posting or electronic mail
would therefore represent a cost savings of $13,500. The total cost of
preparing and distributing the notice under the exemption is $25,996
($24,500 for a service provider's time and $1,496 for distribution by
regular mail).
Preparation of the mailing is likely to be done in-house by
clerical staff. For 4,400 interested persons, 1\1/2\ minutes of a
clerical worker's time per interested person results in a total hour
burden of 110 hours.
Type of Review: Revision of a currently approved collection of
information.
Agency: Pension and Welfare Benefits Administration, Department of
Labor.
Title: Voluntary Fiduciary Correction Program.
OMB Number: 1210-0118.
Affected Public: Business or other for-profit; Not-for-profit
institutions.
Respondents: 700.
Frequency of Response: On occasion.
Responses: 700.
Estimated Total Burden Hours: 5,600 for existing ICR; 110 for
proposed exemption; total of 5,710 hours.
Total Burden Cost (Operating and Maintenance): $246,400 for
existing ICR; $25,996 for proposed exemption; total of $272,396.
Comments submitted in response to this notice will be summarized
and/or included in the request for OMB approval of the information
collection
[[Page 15086]]
request; they will also become a matter of public record.
Economic Analysis
Establishing a class exemption to be used in conjunction with the
Voluntary Fiduciary Correction Program (VFC Program) will have positive
economic effects for employee benefit plans by promoting increased
participation in the VFC Program. The purpose of the VFC Program is to
encourage the correction of breaches of fiduciary duty under ERISA,
resulting in the restoration of plan assets to the benefit of
participants and beneficiaries. Under the VFC Program, fiduciaries are
relieved of the possibility of civil action and the assessment of civil
penalties under Section 502(l) of ERISA. The proposed exemption would
enhance the benefits of participation in the VFC Program by granting
relief from excise taxes under Section 4975 of the Internal Revenue
Code for breaches of duty that are prohibited transactions.
Although plans have benefitted from the Interim VFC Program, we
believe that fewer plans have taken advantage of the Interim VFC
Program than might have with the inclusion of the proposed exemption.
Comments received in response to the publication of the Interim VFC
Program support this conclusion. Commenters indicate that, because
participation in the VFC Program is voluntary, the lack of Section 4975
tax relief has been a disincentive to participation. This is borne out
by information from the earlier Pension Payback Program (61 FR 9203,
March 7, 1996) that experienced a .1% rate of participation among
pension plans. (The Pension Payback Program was limited to the
correction of delinquent participant contributions only.) A significant
difference between the Interim VFC Program and the Pension Payback
Program is the inclusion of excise tax relief under the latter.
Allowing for the inclusion of three more categories of transactions for
correction than were included in the Pension Payback Program, it is
expected that participation in the VFC Program will increase because of
the proposed exemption.
The benefits to plans outweigh any additional cost created by the
proposed exemption. Department projections indicate that an average of
$114,000 per plan, or approximately $80 million for all plans expected
to participate in the VFC Program, will be restored to employee benefit
plans. The Department estimates that 350 plans, or one half the number
of anticipated participants in the VFC Program, will apply as a result
of the relief offered by the proposed exemption. Approximately $40
million in assets will therefore be restored to plans as a result of
the proposed exemption. The assets are then available for distribution
to participants and beneficiaries or for additional investment
opportunities. (The costs and benefits of the VFC Program have been
described in more detail in the preamble for the Adoption of the VFC
Program.) The economic benefit of the proposed exemption, in addition
to the tax relief permitted fiduciaries, is therefore realized through
increased participation in the VFC Program.
Fiduciaries that participate in the VFC Program will experience
savings in civil penalties under section 502(l) of ERISA. For the 350
plans that participate in the VFC Program as a result of the proposed
exemption, the elimination of 502(l) penalties for fiduciaries accounts
for $2.7 million. The civil penalty savings are in addition to excise
tax savings under section 4975 of the Internal Revenue Code that
fiduciaries may realize after satisfying certain conditions of the
proposed exemption.
The cost for the proposed exemption is minimal--the result of
notifying interested persons and the Department that a fiduciary
intends to take advantage of the exemption, or approximately $70-$130
per plan ($24,500-$45,500 for 350 plans), depending on the method of
notification selected.
In consideration of the comments received and the Department's
experience with the Pension Payback Program, the Department believes
that the proposed exemption will have a positive effect on applications
to the VFC Program resulting in an economic benefit to plans and
fiduciaries that exceeds the cost of the exemption.
Background
Title I of ERISA establishes certain standards of conduct for
fiduciaries of employee benefit plans covered by ERISA, including
provisions prohibiting fiduciaries from causing a plan to engage in
certain classes of transactions with persons defined as parties in
interest. In addition, prohibited transactions that involve plans
described in section 4975(e)(1) of the Code are generally subject to
taxation under section 4975 of the Code.
Section 409 of ERISA provides that a fiduciary who breaches any of
the fiduciary responsibility provisions of Part 4 of Title I of ERISA
shall be personally liable to the plan for any losses. Section
502(a)(2) and (a)(5) of ERISA authorizes the Secretary of Labor (the
Secretary) to bring civil actions to enforce the provisions of Title I
of ERISA. Section 502(l) of ERISA requires the assessment of a civil
penalty in an amount equal to 20% of the amount recovered under any
settlement agreement with the Secretary or ordered by a court in an
action initiated by the Secretary with respect to any breach of
fiduciary responsibility under (or other violation of) Part 4 by a
fiduciary.
Based on its experience with the Pension Payback Program (61 FR
9203, March 7, 1996) (Pension Payback Program) and continued interest
in such programs, PWBA decided to establish the VFC Program. Under the
VFC Program, persons who are potentially liable for a breach can avoid
the possibility of civil investigation and/or civil actions initiated
by the Department for that breach and the imposition of civil penalties
under section 502(l) of ERISA, if they satisfy the conditions for
correcting the breach, as described in the VFC Program. The Department
believes that the VFC Program will encourage the full correction of
certain breaches of fiduciary responsibility and the restoration to
participants and beneficiaries of losses resulting from those breaches.
In connection with the publication of the VFC Program, the Department
sought comments from the public on all aspects of the Program. The VFC
Program, as modified in response to the comments received, is being
published simultaneously in this issue of the Federal Register.
A number of those who commented on the VFC Program requested that
the Department amend the VFC Program to provide relief from the excise
taxes imposed under section 4975 of the Code for prohibited
transactions. The commenters noted that the Department granted similar
relief from the taxes imposed by section 4975 of the Code as part of
the Pension Payback Program. According to the commenters, the absence
of relief from the excise taxes, as well as the possibility of referral
by the Secretary to the Internal Revenue Service as mandated by section
3003 of ERISA, create a significant disincentive for Plan Officials to
participate in the VFC Program.
Upon consideration of the comments received in connection with the
VFC Program, the Department has determined that it would be appropriate
to propose limited exemptive relief in this area without impairing the
interests of plan participants and beneficiaries. Accordingly, the
class exemption, as proposed, would provide relief from the excise
taxes imposed by section 4975 of the Code for certain eligible
transactions identified in the VFC Program. The Internal Revenue
Service has advised the Department that it will not seek to
[[Page 15087]]
impose the sanctions of section 4975(a) and (b) of the Internal Revenue
Code with respect to any prohibited transaction that is covered by the
proposed class exemption, notwithstanding any subsequent changes to the
proposed class exemption when it is finalized, provided that all of the
requirements specified in the proposed class exemption have been met.
Description of the Proposed Exemption
1. Scope
The proposed exemption would provide relief from the sanctions
imposed under section 4975(a) and (b) of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, for certain eligible
transactions identified in the VFC Program. The proposed exemption does
not provide relief for any transactions identified in the VFC Program
that are not specifically described as eligible transactions under
Section I of the proposal. The Department believes that it is
appropriate to limit relief to those transactions for which the
requisite findings under section 4975(c)(2) of the Code can be made.
The Department is proposing prohibited transaction relief from the
excise taxes under section 4975 of the Code in order to encourage plan
fiduciaries to make full correction of certain eligible transactions
which are violations of the prohibited transaction provisions of the
Code.
The four eligible transactions described in the proposed exemption
are as follows:
(A) The failure to transmit participant contributions to a pension
plan within the time frames described in the Department's regulations
at 29 CFR section 2510.3-102.
(B) The making of a loan by a plan at a fair market interest rate
to a party in interest with respect to the plan.
(C) The purchase or sale of an asset (including real property)
between a plan and a party in interest at fair market value.
(D) The sale of real property to a plan by the employer and the
leaseback of such property to the employer, at fair market value and
fair market rental value, respectively.
The eligible transactions may be illustrated by the following
examples:
Example (1): Corporation A sponsors a pension plan for its
employees. Corporation A borrowed $100,000 from the plan. The loan
was made at an interest rate no less than that available for a loan
with similar terms (for example, the amount of the loan, amount and
type of security, repayment schedule, and duration of loan)
obtainable in an arm's-length transaction between unrelated parties.
Example (2): Corporation B sponsors a pension plan for its
employees. The plan sold a parcel of real property to Corporation B.
The price Corporation B paid to the plan was the fair market value
of the property, as determined by a qualified independent appraiser
as of the date of the transaction and reflected in a qualified
appraisal report. (If there is a generally recognized market for the
property, such as the New York Stock Exchange, the fair market value
of the property is the value objectively determined by reference to
the price on such market on the date of the transaction, and a
determination by a qualified independent appraiser is not required.)
Example (3): Corporation C sponsors a pension plan for its
employees. Corporation C sold a parcel of real property to the plan
which was simultaneously leased back to Corporation C. The price
paid by the plan for the property was its fair market value, and the
rent paid by Corporation C to the plan is the fair market rental
value, as determined by a qualified independent appraiser and
reflected in a qualified appraisal report. The terms of the lease
(for example, rent, duration and allocation of expenses) are not
less favorable to the plan than those obtained in an arm's-length
transaction between unrelated parties.
2. Proposed General Conditions
Section II of the proposal contains general conditions, as
discussed below, which the Department views as necessary to ensure that
any transaction covered by the proposed exemption would be in the
interests of plan participants and beneficiaries, and to support a
finding that the proposed exemption meets the statutory requirements of
section 4975(c)(2) of the Code.
With respect to a transaction involving delinquent transmittal of
participant contributions to a pension plan, the proposal requires that
the contributions be transmitted to the pension plan not more than 180
calendar days from the date the amounts were received by the employer
(in the case of amounts that a participant or beneficiary pays to an
employer) or the date the amount otherwise would have been payable to
the participant in cash (in the case of amounts withheld by an employer
from a participant's wages).
Second, the proposal requires that, with respect to the
transactions described in Section I.B., I.C. and I.D., the amount of
plan assets involved in the transaction did not exceed 10 percent of
the fair market value of all the assets of the plan at the time of the
transaction. For purposes of this requirement, the 10 percent
limitation would apply after aggregating the value of a series of
related transactions.
Third, under the proposed exemption, the fair market value of any
plan asset involved in a transaction described in Sections I.C. or I.D.
must have been determined in accordance with section 5 of the VFC
Program. Section 5 of the VFC Program requires that the valuation must
meet the following conditions: (1) If there is a generally recognized
market for the property (e.g., the New York Stock Exchange), the fair
market value of the asset is the average value of the asset on such
market on the applicable date, unless the plan document specifies
another objectively determined value (e.g., the closing price); and (2)
if there is no generally recognized market for the asset, the fair
market value of that asset must be determined in accordance with
generally accepted appraisal standards by a qualified independent
appraiser and reflected in a written appraisal report signed by the
appraiser. For purposes of these requirements under the VFC Program, an
appraiser is considered qualified if the appraiser has met the
education, experience and licensing requirements that are generally
recognized for appraisal of the type of asset being appraised. An
appraiser is ``independent'' if the appraiser is not one of the
following, does not own or control any of the following, and is not
owned or controlled by, or affiliated with, any of the following: (i)
The prior owner of the asset, if the asset was purchased by the plan;
(ii) the purchaser of the asset, if the asset was or is now being sold
by the plan; (iii) any other owner of the asset, if the plan is not the
sole owner; (iv) a fiduciary of the plan; (v) a party in interest with
respect to the plan (except to the extent the appraiser becomes a party
in interest when retained to perform this appraisal for the plan); or
(vi) the VFC Program applicant.
Fourth, under the proposed exemption, the terms of a transaction
described in Sections I.B., I.C., or I.D., must have been at least as
favorable to the plan as the terms generally available in arm's-length
transactions between unrelated parties.
Fifth, with respect to all of the eligible transactions, the
transaction may not have been part of an agreement, arrangement or
understanding designed to benefit a party in interest. The Department
notes that the intent of this condition is not to deny a direct benefit
to the party in interest but, rather, to exclude relief for
transactions that are part of a broader overall agreement, arrangement
or understanding designed to benefit parties in interest.
Sixth, with respect to all of the eligible transactions, the
applicant may not have taken advantage of the relief provided by the
VFC Program and the proposed exemption for a similar type of
transaction identified in the
[[Page 15088]]
application during the three-year period prior to the submission of the
application.
3. Compliance With VFC Program
In addition to compliance with the general conditions set forth
above, Section III of the proposed exemption requires that the
applicant meet the requirements set forth in the VFC Program that are
applicable to the particular transaction. The proposal also requires
that the applicant must have received a no action letter issued by PWBA
with respect to such transaction, which must be an eligible transaction
otherwise described in Section I of the proposed exemption. However,
the fact that an applicant receives a no action letter issued by PWBA
should not be viewed as a determination by PWBA that the applicant has
satisfied all of the conditions of the proposed exemption. Each
applicant must determine whether the pertinent conditions of the
proposed exemption have been met.
4. Notice
Although the Department determined to eliminate the required notice
from the final VFC Program (published simultaneously in this issue of
the Federal Register), it believes that such a requirement is
appropriate for those wishing to take advantage of the exemption in
light of the additional relief provided. Consistent with the notice
requirement of section 4975(c)(2) of the Code, the purpose of the
notice requirement of this exemption is to afford interested persons
the opportunity to provide the Department with relevant information
concerning the transaction.
Notice under the proposed exemption must be given to interested
persons within 60 calendar days following the date of the submission of
an application under the VFC Program to the Department. Plan assets may
not be used to pay for the notice. The exemption does not specify the
format or specific content of the notice. However, the notice must
include an objective description of the transaction and the steps taken
to correct it, written in a manner reasonably calculated to be
understood by the average Plan participant or beneficiary. The notice
also must provide for a period of 30 calendar days, beginning on the
date the notice is distributed, for interested persons to provide
comments to the appropriate Regional Office of the United States
Department of Labor, Pension and Welfare Benefits Administration. The
notice must include the address and telephone number of such Regional
Office.
A copy of the notice to interested persons, along with an
indication of the date on which it was distributed, must be provided to
the appropriate Regional Office within the same 60-day period following
the date of the submission of the application. Accordingly, applicants
under the VFC Program who intend to take advantage of the relief
provided under this exemption would indicate on the checklist submitted
as part of the VFC Program application that they will, within 60
calendar days following the date of the submission of the application,
provide the Department's Regional Office with a copy of the notice to
interested persons.
Notice may be given in any manner that is reasonably calculated,
taking into consideration the particular circumstances of the plan, to
result in the receipt of such notice by interested persons, including
but not limited to posting, regular mail, or electronic mail, or any
combination thereof.
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 4975(c)(2) of the Code does not relieve a fiduciary or
other party in interest or disqualified person with respect to a plan
from certain other provisions of ERISA and the Code, including any
prohibited transaction provisions to which the exemption does not
apply, the requirement that all assets of an employee benefit plan be
held in trust by one or more trustees, and the general fiduciary
responsibility provisions 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 and
in a prudent fashion; 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) The proposed exemption, if granted, will not extend to
transactions prohibited under section 4975(c)(1)(F) of the Code.
(3) Before this exemption may be granted under section 4975(c)(2)
of the Code, the Department must find that the exemption is
administratively feasible, in the interests of plans and their
participants and beneficiaries, and protective of the rights of
participants and beneficiaries of such plans.
(4) The proposed exemption, if granted, will be supplemental to,
and not in derogation of 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.
(5) If granted, the proposed class exemption will be applicable to
a transaction only if the conditions specified in the class exemption
are satisfied.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a public hearing on the proposed exemption to the address
above and within the time period set forth above. All comments received
will be made part of the record and will be available for public
inspection at the above address.
Proposed Exemption
The Department has under consideration the grant of the following
class exemption, under the authority of section 4975(c)(2) of the Code,
and in accordance with the procedures set forth in 29 CFR 2570, subpart
B (55 FR 32836, August 10, 1990).
Section I: Eligible Transactions
The sanctions resulting from the application of section 4975(a) and
(b) of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the following eligible transactions described
in section 7 of the Voluntary Fiduciary Correction (VFC) Program,
published simultaneously in this issue of the Federal Register,
provided that the applicable conditions set forth in Sections II, III
and IV are met:
A. Failure to transmit participant contributions to a pension plan
within the time frames described in the Department's regulation at 29
CFR section 2510.3-102. (See VFC Program, section 7.A.1.).
B. Loan at a fair market interest rate to a party in interest with
respect to a plan. (See VFC Program, section 7.B.1.).
C. Purchase or sale of an asset (including real property) between a
plan and a party in interest at fair market value. (See VFC Program,
sections 7.C.1. and 7.C.2.).
D. Sale of real property to a plan by the employer and the
leaseback of the property to the employer, at fair market value and
fair market rental value, respectively. (See VFC Program, section
7.C.3.).
[[Page 15089]]
Section II: Conditions
A. With respect to a transaction involving participant
contributions to pension plans described in Section I.A., the
contributions were transmitted to the pension plan not more than 180
calendar days from the date the amounts were received by the employer
(in the case of amounts that a participant or beneficiary pays to an
employer) or the date the amounts otherwise would have been payable to
the participant in cash (in the case of amounts withheld by an employer
from a participant's wages).
B. With respect to the transactions described in Sections I.B.,
I.C., or I.D., the plan assets involved in the transaction, or series
of related transactions, did not, in the aggregate, exceed 10 percent
of the fair market value of all the assets of the plan at the time of
the transaction.
C. The fair market value of any plan asset involved in a
transaction described in Sections I.C. or I.D. was determined in
accordance with section 5 of the VFC Program.
D. The terms of a transaction described in Sections I.B., I.C., or
I.D. were at least as favorable to the plan as the terms generally
available in arm's-length transactions between unrelated parties.
E. With respect to any transaction described in Section I, the
transaction was not part of an agreement, arrangement or understanding
designed to benefit a party in interest.
F. With respect to any transaction described in Section I, the
applicant has not taken advantage of the relief provided by the VFC
Program and this exemption for a similar type of transaction(s)
identified in the current application during the period which is 3
years prior to submission of the current application.
Section III: Compliance with VFC Program
A. The applicant has met all of the applicable requirements of the
VFC Program.
B. PWBA has issued a no action letter to the applicant pursuant to
the VFC Program with respect to a transaction described in Section I.
Section IV: Notice
A. Written notice of the transaction(s) for which the applicant is
seeking relief pursuant to the VFC Program and this exemption, and the
method of correcting the transaction, was provided to interested
persons within 60 calendar days following the date of the submission of
an application under the VFC Program. A copy of the notice was provided
to the appropriate Regional Office of the United States Department of
Labor, Pension and Welfare Benefits Administration within the same 60-
day period, and the applicant indicated the date upon which notice was
distributed to interested persons. Plan assets were not used to pay for
the notice. The notice included an objective description of the
transaction and the steps taken to correct it, written in a manner
reasonably calculated to be understood by the average Plan participant
or beneficiary. The notice provided for a period of 30 calendar days,
beginning on the date the notice was distributed, for interested
persons to provide comments to the appropriate Regional Office. The
notice included the address and telephone number of such Regional
Office.
B. Notice was given in a manner that was reasonably calculated,
taking into consideration the particular circumstances of the plan, to
result in the receipt of such notice by interested persons, including
but not limited to posting, regular mail, or electronic mail, or any
combination thereof. The notice informed interested persons of the
applicant's participation in the VFC Program and intention of availing
itself of relief under the exemption.
Signed at Washington, DC, this 25th day of March, 2002.
Ann L. Combs,
Assistant Secretary, Pension and Welfare Benefits Administration, U.S.
Department of Labor.
[FR Doc. 02-7515 Filed 3-27-02; 8:45 am]
BILLING CODE 4510-29-P
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