PTE 90-1; Insurance Company Pooled Separate Accounts

Federal Register / V o l . 5 5 , N o . 19 f Monday, January 2 , 1990
The matching agreement and the
required report have been provided to the
Office of Management and Budget and the
Congress in accordance with 5 U.S.C.
552a(o)(2)(A) and (r). Inquiries may he
addressed to Patricia E. Neely, Staff
Assistant, Facilities and Administrative
Services Staff, justice Management
Division, Department of Justice, room 529,
633 Indiana Avenue NW., Washington, DC
20530.
Dated: January 12, 1990.
Harry H. Flickinger,
Assistant Attorney Cenera1 f or
Administration.
1FR Doc. q4-1904 Filed 1-26-907 h:45 arij
BILLING _'ME 4410-10-M

certain provisions of section 4975(c)(1) of
the Code.
The amendments to PTE 78-19 adopted by
this notice were requested in an exemption
application dated March 3, 1988, on behalf of
the Prudential Insurance Company of
America, the Equitable Life Assurance
Society-of' he United States, John Hancock
Mutual Life Insurance Company,
Connecticut General Life Insurance
Company, the Mutual Life Insurance
Company of New York and the Principal
Financial Group (the Applicants). The
exemption application was submitted
pursuant to section 408(a) of ERISA nad
section 4975(c)(2) of the Code 2 and in
accordance with ERISA Procedure 75-1 (40
FR 18471, April 28, 1975).

information collection requirements
contained in PTE 78-19 have been
approved by the Office of Management
Pension and Welfare Benefits
and Budget under the provisions of the
Administratiort
Paperwork Reduction Act of 1980 (Pub. L.
96-511) and have been assigned OMB
number 1210-0054 approved for use through
Amendments to Prohibited Transaction
February 28, 1990.
Exemption (PTE) 78-19 Involving
The notice of pendency gave interested
Insurance Company Pooled Separate
persons an opportunity to comment on the
Accounts
proposal. Public comments were received
pursuant to the provisions of section 408(a)
AGENCY: Pension and Welfare Benefits
of ERISA and section 4975(c)(2) of the Code
Administration, Department of Labor.
and in accordance with the procedures set
ACTION. Adoption of amendments to PTE
forth in ERISA Procedure 75-1.
73-19, and redesignation of the exemption
For the sake of convenience, the entire
as PTE 90-1.
SUMMARY: This document amends PET 78-19, a text of PTE 78-19, as amended, has been
reprinted with this notice. The Department
class exemption that permits insurance
has redesignated the exemption as PTE 90company pooled separate accounts, in which
1.
employee benefit plans have an interest, to
1. Description of the Exemption
engage in certain transactions, provided
specified conditions are met. The
PTE 78-19 consists of four parts. Section
amendments affect, among others,
1(a), the exemption's basic provision,
participants, beneficiaries and fiduciaries .of permits an insurance company pooled
plans that invest in pooled separate
separate account to engage in transactions,
accounts, insurance companies, and other
which otherwise might be prohibited by
persons engaging in the described
sections 406 and 407(a) of ERISA and
transactions. EFFECTIVE DATE: The
section 4975(c)(1) of the Code, with persons
amendments to section I(a) of PTE 78-19
who -are parties
are effective as of July 1, 1988. The
amendment to action II(a)(3) is effective as
' On August 3, 1989. due to typesetting errors, certain
of January ,1975.
DEPARTMENT OF LABOR

FOR FURTHER INFORMATION CONTACT:

Paul Kelty of the,Offfice'of Exemption
Determinations, Pension and Welfare
Benefits Administration, U.S. Department
of Labor, (202) 523-81'94 (this is not a tollfree number); or Cynthia Hawkins of the
Plan Benefits Security Division, Office of
the Solicitor, U.S. Department of Labor,
(202) 523-9592 (this is not a toll-free
number).
SUPPLEMENTARY INFCRMA'fON: Or, July
26,1989, notice was published in the eral
Register (54 FR 31092) of the Pendency
before the Department of mposed
amendments to PTE 78-19 (43
FR 59915, December 22,1978).' PM 78 19
provides an exemption from certain
prohibited transaction restrictions 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 1988 (the Code) by reason of

corrections of the July 28 publication were published in
the Federal Register (54 FR 320'24).
' Section 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.
In the -discussion of the exemption. references to
sections 406 and 408 of ERISA should be read to refer as
well to the corresponding provisions of section 4975 of
the Code.

in interest with respect to an employee
benefit plan investing in the account.
The plan's participation in the account,
under section I(a), may not exceed .5
percent of the total assets in the pooled
separate account.
Under section 11(a) of PTE 78-19, a party
in interest with respect to a plan is
permitted in certain cases to furnish goods
to an insurance company pooled separate
account in which the plan has an interest
exceeding the section I limitation. Section
11(a) also allows both the leasing of real
property and the incidental furnishing of
goods by a pooled separate account to a
party in interest. Section II(a) contains a

/

Notices

289

condition that the amountt involved in the
furnishing of goods or leasing of real
property in any calendar year does not
exceed the greater of $25,000 or .025 percent
of the fair market value of the assets of the
pooled separate account.
Three amendments to PTE 7&-19 are
granted pursuant to this notice: (1) The
percentage limitation in section I(a)(1) of
PTE 78-19 is increased from 5 to 10 percent;
(2) the percentage limitation in section
II(a)(3) is increased from .025 percent to .5
percent; and (3) relief is included for
investments by insurance company pooled
separate accounts in short-term obligations
issued by parties in interest.
The Department notes that all the relevant
conditions contained in PTE 78-19, with the
exception of those modified by these
amendments, still must be, met under the
amended class exemption. These conditions,
among others, include a requirement that the
party in interest is not the insurance company
(or an affiliate) which: holds the plan assets
in its pooled separate account or any other
separate account of the insurance company.
In addition, the terms of the transaction must
Wet least as favorable to the pooled separate
account as those obtainable i n a a arm's- length transaction with an unrelated party,
and the insurance company must maintain
certain records for a period of six years
from'the date of the transaction.
2. Discussion of Comments Received
T h e D e p a r t m e n t r e c e i v e d o two letters
commenting on the proposed amendments to
PTE 78-19. The American Council of Life
Insurance (ACLI), a trade association for the
life insurance industry, expressed strong support for all three of the proposed
amendments. The ACLI represents that, as of
the end of 1988, member companies had over
$113 billion of separate account pension
assets under management.

2892

Federal Register / Vol. 55, No. 19 / Monday, January 29, 1990 / Notices

The ACLI represents that each of the
proposed amendments to the class
exemption will facilitate the ability of
insurance companies to discharge their
pooled separate account management
responsibilities in a manner so as to obtain
optimal performance commensurate with
investment risk. The ACLI also believes the
amendments to be consistent with the
objectives of PTE 78-19.
The American Bankers Association
(ABA) also sumbitted a comment letter
concerning the proposed amendments. The
ABA is a national trade association
representing banks of all sizes, types and
locations. Nearly 4,000 banks offer
fiduciary services to employee benefit
plans and others, according to the ABA,
and over 500 banks operate more than
2,000 collective investment funds for
employee benefit plans.
The ABA generally supports the granting
of the proposed amendments so long as the
Department provides comparable
exemptive relief for all competing
investment vehicles. In particular, the ABA
believes that, if the percentage limitation
for plans participating in pooled separate
accounts of insurance companies is
increased from 5 to 10 percent, concurrent
relief should be granted to others similarly
situated. For this reason, the ABA urges
that the 5 percent limitation for plan
participation contained in PTE 80-51, the
class exemption for bank collective
investment funds (45 49709, July 25, 1980),
should be increased to 10 percent. In this
regard, the Department notes that
consideration of an amendment to PTE 8051 is beyond the scope of this proceeding.
However, the Department wishes to take
the opportunity to state that the
commentator may wish to consider filing an
exemption application for comparable class
relief under section 408(a) of ERISA.
General Information

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 amendments set forth herein are
administratively feasible,
(ii) They are in the interests of plans
and of their participants and
beneficiaries, and
(iii) They are 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 amendments are supplemental to,
and not in derogation of, any other
provisions of ERISA and the Code,
including statutory or administrative
exemptions and transitional rules.
Futhermore, 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

(i) 10 percent of the total of all assets
in the pooled separate account, if the
transaction occurs prior to February 20,
1979;
(ii) 5 percent of the total of all assets in
the pooled separate account, if the
transacton occurs on or after February 20,
1979, and on or before June 30, 1988; or
(iii) 10 percent of the total of all assets in
the pooled separate account, if the
transaction occurs on or after July 1, 1988,
or
(2) On or after July 1, 1988, the pooled
separate account is a specialized account
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 account),
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.
(b) Multiple employer plans exemption.
Any transaction between an employer (or
Accordingly, PTE 78-19 is amended
an affiliate of an employer) of employees
under the authority of section 408(a) of
covered by a multiple employer plan and
ERISA and section 4975(c)(2) of the Code
an insurance company pooled separate
and in accordance with ERISA Procedure
account in which the plan has an interest,
75-1 (40 FR 18471, April 28, 1975).
or any acquisition or holding by the pooled
Section 1-Basic Exemption
separate account of employer securities or
employer real property, if at the time of the
Effective January 1, 1975, the restrictions
transaction, acquisition or holding
of sections 406(a) 406(b)(2) and 407(a) of
(1) In the case of a transaction occurring
the Act and the taxes imposed by section
prior to February 20, 1979, the employer is
4975 (a) and (b) of the Code, by reason of
not a substantial employer with respect to
section 4975(c)(1) (A), (B), (C), or (D) of the
the plan (within the meaning of section
Code, shall not apply to transactions
4001(a)(2) of the Act); or
described below if the applicable
(2) In the case of a transaction occurring
conditions set forth in section III are met.
on or after February 20, 1979,
(a) General exemption. A n y transaction
(i) The assets of the multiple employer
between a party in interest with respect to a
The attention of interested persons is
plan in the pooled separate account do not
plan
and
an
insurance
company
pooled
directed to the following:
exceed 10 percent of the total assets in the
separate account in which the plan has an
(1) The fact that a transaction is the
interest, or any acquisition or holding by the pooled separate account, and the employer
subject of an exemption under section
is not a substantial employer with respect to
pooled separate account of employer
408(a) of ERISA does not relieve a
the plan (within the meaning of section
securities
or
employer
real
property,
if
the
fiduciary or other party in interest or
4001(a)(2) of the Act), or
party
in
interest
is
not
the
insuance
disqualified person from certain other
(ii) The assets of the multiple employer
company
which
holds
the
plan
assets
in
its
provisions of ERISA and the Code,
plan in the pooled separate account
pooled separate account, any other separate
including any prohibited transaction
exceed 10 percent of the total assets in the
provisions to which the exemption does not account of the insurance company, or any
pooled separate account, but the employer
affiliate
of
the
insurance
company,
and
if,
at
apply and the general fiduciary
is not a substantial employer and would
the
time
of
the
transaction,
acquisition
or
responsibility provisions of section 404 of
not be a substantial employer with respect
holding, either.
ERISA which require, among other things,
`o the plan within the meaning of section
(1) The assets of the plan (together
that a fiduciary discharge his or her duties
4001(a)(2) of the Act if "5 perce^t" were
with
the
assets
of
any
other
plans
respecting the plan solely in the interests of
maintained
by
the
same
employer
or
the participants and beneficiaries of the
employee organization) in the pooled
plan; nor does it affect the requirement of
separate account do not exceed
section 401(a)

2394

Federal Register

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 insurance company, the terms of the
transaction are not less favorable to the
pooled separate account than the terms
generally available in arm's-length
transactions between unrelated parties.
(b) The insurance company 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 deemed to have occurred if, due to
circumstances beyond the control of the
insurance company, the records are lost or
destroyed prior to the end of the sixyear
period, and (2) no party in interest shall be
subject to the civil penalty which may be
assessed under section 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:
(i) Any duly authorized employee or
representative of the Department of Labor
or the Internal Revenue Service,
(ii) Any fiduciary of a plan who has
authority to acquire or dispose of the
interests of the plan in the separate
account, or any duly authorized
employee or representative of such
fiduciary,
(iii) Any contributing employer to any
plan which has an interest in the pooled
separate account or any duly authorized
employee or representative of that
employer,
(iv) Any participant or beneficiary of
any plan which has an interest in the
pooled separate account or any duly
authorized employee or representative of
such participant or beneficiary.
(2) None of the persons described in
subparagraphs (ii) through (iv) of this
paragraph shall be authorized to examine
an insurance company's trade secrets or
commercial or financial information which
is privileged or confidential.

Section IV-Definitions and General
Rules

For purposes of sections I through III
above,
(a) The term "multiple employer plan"
means an employee plan which satisfies
at least the requirements of section
3(37)(A) (1), (ii) and (v) of the Act and
section 414(f) (1)(A), (B), and (E) of the
Code.
(b) An "affiliate" of a person
in clud es
(1) Any person directly or indirectly,
through one or more intermediaries,

/ Vol. 55, No. 19

/ Monday, January 29, 1990 /

controlling, controlled by, or under
common control with the person;
(2) Any officer, director, employee
(including, in the case of an insurance
company, an insurance agent thereof,
whether or not the agent is a common
law employee of the insurance
company), or 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.
(c) The term "control" means the power
to exercise a controlling influence over the
management or policies of a person other
than an individual.
(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) General. (i) The time as of which any
transaction, acquisition, or holding occurs for
purposes of this exemption is the date upon
which the transaction is entered into (or the
acquisition is made) and the holding
commences. Thus, for purposes of this
exemption, if any transaction is entered into,
or an acquisition is made, on or after January
1, 1975, or a renewal which requires the
consent of the insurance company 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, acquisition was made, or if 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) above at such time as
the interest of the plan in the pooled
separate account exceeds the percentage
interest limitation of section I(a), if the excess
results solely from an increase in the amount
of consideration allocated to the pooled
separate account by the plan.
(ii) Each plan shall be considered to own
the same fractional share of each asset (or
portion thereof) in the pooled separate
account as its fractional share of total
assets in the pooled separate account on the
most recent preceding valuation date of the
account.
Signed at Washington, DC, this 23rd day of
January 1990.
Alan D. Lebowitz,

Deputy Assistant Secretary for Program
Operations, Pension and Welfare Benefits

Notices

Administration, U.S.
Department of Labor.
[ F R D o c . 90-1963 Filed 1-26-90; 8:45 am] BILLING CODE
4510-29-M

[Application No. D-7974 et al.]

Proposed Exemptions; Biological Science
Textbooks, Inc. Employees Profit Sharing
plan, et al.
AGENCY: Pension and Welfare Benefits

Administration, Labor.
ACTION: Notice of proposed exemptions.
SUMMARY: This document contains notices

of pendency before the Department of
Labor (tire Department) of proposed
exemptions from certain of the prohibited
transaction restrictions of the Employee
Retirement Income Security Act of 1974
[the Act and/or the Internal Revenue Code
of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to
submit written comments or requests for a
hearing on the pending exemptions,
unless otherwise stated in the Notice of
Pendency, within 45 days from the date of
publication of this Federal Register Notice.
Comments and requests for a hearing
should state the reasons for the writer's
interest in the pending exemption.
A D D n E s S F S : All written comments and
request for a hearing (at least three copies)
should be sent to the Pension and Welfare
Benefits Administration, Office of
Exeption and Determinatiors,

stituted ic. "10 percent" in that e
`inition.

(d) Immediately after acquisition of the
obligation: (1) not more than 25 percent of
the aggregatee amount of obligations issued
(c) Excess holdings exemption for
c " " - p l o y e e b ~ n e l t p l a n s . Arty acquisition in the issue and outstanding at the time of
or holding of qualifying employer securities acquisition is held by such plan. and (2) in
the case of an obligation which is a
or qualifying employer real property by a
plan (other than through a pooled separate restricted s c cunity within the meaning of
rule 1--_4 under the Securities Act of 1933, at
account) if
(i) The acquisition or holdin contravenes least 50 percent of the aggregate amount
referred to in (1) is held by persons
the restrictions of sections 406(a)(1)(E),
independent of the issuer. The insurance
406(a)(2) and 407(a) of the Act solely bby
company, its affiliates and any separate
reason of being aggregated with employer
securities or employer real property held by account of the insurance company shall be
considered persons independent of the
an insurance company pooled separate
issuer if the insurance company is not an
account in which the plan has an interest,
affiliate of the issuer.
and
(2) Provided that, in the case of a plan
(2) The requirements of either
which is not an eligible individual account
paragraph (a) or paragraph (b) of this
plan (as defined in section 407(d)(3) of the
section are met.
Act), irrmiediately, after, such acquisition the
(d) En7pjoyer securities and
aggregate Lair market value of employer
real, property.
craning., asemployer real property owned
(1) Except as provided in subsection 2 of
by the
this paragraph, any acquisition, sale or
l:n'uo:, of employer securities ono sac acplan does not exceed 10 percen' of. U:-er fair
;:craiti.or sale, holding or lease of ern* lc e re
l property by the insurance :.orapany poclu d market value of the assets of tl~e
separate account in which a pla his an
plan.
interest and which does no: meet Lire
(3) For the purposes of the e> np. ion
requirements of paragraphs (a) or (b) of this
contained in subsection (1) of this
section., if no commission is paid to the
paragraph (d), the term "employer
insurance cemt`uny or to the employer
securities" shall include securities issued
or any affiliate of the employer in
by. and the term "employer reall p, operty"
connection wi'.h the acquisition or sale
shall include real property leased to, a
of employer securities or the acquisition,
person who is a party in interest with
sale or lease of employer real property,
respect to a plan (which has an interest in
and
the separate account) by reason of a
(i) In the case of employer real
relationship to the employer described in
section 3(14) (B), (G), (H), or (I) of the
property
Act.
(a) Each parcel of employer real property
Section
hSpecific E.xampt vnm
and the improvements thereon held by the
Effective January 1, 1975. the restrictions
pooled separate account are suitable (or
of sections 406(a)(1) (A), (B), (C), and (D).
adaptable without excessive cost) for use
and 406(b) (1) and (2) of the Act and the
by different tenants, and
taxes imposed by sections 4375 (a) and (b)
(b) The property of the pooled
of the Code by reason of section 4975(c)(1)
separate account, which is leased or
held for lease to others, in the aggregate, (A), (B), (C), (D), or (E) of the Code shall
not apply to the transactions described
is dispersed geographically.
below provided that the conditions of
{ii) In the case of employer
section III are met.
securities
(a) Certain leases and goods. The
(a) The employer security is (1) stock. or
furnishing of goods to an insurance
(2) a bond, debenture, note, certificate, or
company pooled separate account by a
other evidence of indebtedness (the
party in interest with respect to the plan,
security described in (2) is hereinafter
which. plan has an interest in the pooled
referred to as an "obligation"), and
separate account, or the leasing of real
(b) The insurance company in whose
property of the pooled separate account to
pooled separate account the security is
a party in interest and the incidental
held is not an affiliate o f h e issuer of the furnishing of goods to the party in interest
security and, if the security is an
by the insurance company separate
obligation of the issuer, either
account, if
(c) The pooled separate account already
(1) In the case of goods, they are
owns the o)uligation at the time the plan
furnished to or by the pooled separate
acquires an interest in the separate
account in connection with the real
account and interests in the pooled
property investments of the pooled
separate account are offered and redeemed separate account;
in accordance with valuation procedures of
(2) The party in interest is not then
the pooled separate account applied on a
insurance company, any other pooled
uniform or consistent basis, or
separate account of the insurance

company, or an affiliate of the insurance
company: and
(3) 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
puolad separate account with the same
party in interest, or any affiliate thereof]
does not exceed the greater of $25,000 or.5
percent of the fair market value of the
assets of the pooled separate account on
the most recent valuation date of the
account prior to the transaction.
(b) Transactions with persons who are
parties in interest to the plan solely by
virtue of being certain service providers
or certain affiliates of service providers.
Any transaction between an insurance
company pooled separate account and a
person who is a party in interest with
respect to a plan, which p'--in has an
interest in the pooled separate account. if
(1) The person is a party in interest
including a fiduciary by reason of
providing services to the plan, or Icy
reason of a relationship to a service
provider described in section 3(11) (F), (G),
(I-1); or (I) of the Act, and the person
exercises no discretionary authority,
control, responsibility, or influence with
respect to the investment of plan assets in
the pooled separate account and has no
discretionary authority, control,
responsibility, or influence with respect to
the management or disposition of the
plan assets held in the pooled separate
account; and
(2) The person is net an affiliate of the
insurance company.
(c) Management of real property. Any
services provided to an insurance company
pooled separate account (in which a plan
has an interest) by the insurance company
or its affiliate in connection with the
management of the real property
investments of the pooled separate account,
if the compensation paid to the insurance
company or its affiliate for the services
does not exceed the cost of the services to
the insurance company or its affiliate.
(d) 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 an
insurance company pooled separate
account, to a party in interest with respect
to a plan, which plan has an interest in the
pooled separate account, if the services,
facilities and incidental goods are furnished
on a
ompa}able basis to the general public.