Federal Register: August 17, 2000 (Volume 65, Number 160)
DOCID: FR Doc 00-20741
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
DOCUMENT ID: [Application No. L-10667, et al.]
NOTICE: NOTICES
ACTION: Employee benefit plans; prohibited transaction exemptions:
DOCUMENT ACTION: Notice of proposed exemptions.
SUBJECT CATEGORY:
Proposed Exemptions; Kwik-Copy Corporation Employees Welfare Benefit Plan and Trust (the Plan)
DOCUMENT SUMMARY:
This document contains notices of pendency before the Department of Labor (the Department) of proposed exemptions from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (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 request for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this Federal Register Notice. Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing.
SUMMARY:
Kwik-Copy Corp. et al.,
SUPPLEMENTAL INFORMATION
The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). Effective December 31, 1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the Secretary of the Treasury to issue exemptions of the type requested to the Secretary of Labor. Therefore, these notices of proposed [[Page 50224]]
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete statement of the facts and representations.
KwikCopy Corporation Employees Welfare Benefit Plan and Trust (the Plan), Located in Cypress Creek, TX
[Application No. L10667]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
32847, August 10, 1990). If the exemption is granted, the restrictions
of sections 406(a), 406(b)(1) and (b)(2) of the Act shall not apply to
the cash sale by the Plan of certain recreational facilities (the Recreational Facilities) to the International Center for
Entrepreneurial Development, Inc. (ICED), the parent of KwikCopy
Corporation (KwikCopy),\1\ the Plan sponsor, and a party in interest with respect to the Plan.\2\
\1\ Unless otherwise noted, KwikCopy and ICED are together referred to as the Applicants.
\2\ Because the Plan is a voluntary employees' beneficiary
association trust (VEBA), it is not qualified under section 401 of
the Code. Therefore, there is no jurisdiction under Title II of the
Act pursuant to section 4975 of the Code. However, the Department is
assuming, for purposes of this proposal, that there is jurisdiction
under Title I of the Act pursuant to section 3(1) of the Act.
This proposed exemption is subject to the following requirements:
(a) The proposed sale is a onetime transaction for cash.
(b) The fair market value of the Recreational Facilities has been
determined by qualified, independent appraisers who propose to update
their valuation of the Recreational Facilities on the date of the sale.
(c) On the date of the sale, the Plan receives an amount which is
equal to the greater of the fair market value of the Recreational Facilities or the Plan's total acquisition costs.
(d) The Plan pays no fees or commissions in connection with the proposed sale.
Summary of Facts and Representations
1. The Plan was established by KwikCopy on February 25, 1983 to
provide welfare benefits, such as health benefits and life insurance,
to employeeparticipants of KwikCopy. The Plan constitutes a VEBA in
which benefits are funded only when they are incurred. In this regard,
employer contributions are immediately ``passed through'' to the Plan
to pay current welfare benefits and there is no buildup of the trust
corpus. As a VEBA, the Plan is exempt from taxation under section
501(c)(9) of the Code \3\ and, as noted previously, it is not qualified under section 401(a) of the Code.\4\
\3\ Section 501(c)(9) of the Code provides an exemption from
federal taxation for a VEBA which provides for the payment of life,
sick, accident, or other benefits to the members of such VEBA or
their dependents or their designated beneficiaries, if no part of
the net earnings of such association inures (other than through such
payments) to the benefit of any private shareholder or individual.
\4\ Section 401(a) of the Code sets forth the qualification
requirements for pension, profit sharing and stock bonus plans and prescribes special rules thereunder.
As of January 31, 2000, the Plan had 120 participants and net assets available for benefits of approximately $313,431. The persons who have investment discretion over the Plan's assets are F. C. Hadfield, Chairman of the Board of ICED, and Stephen B. Hammerstein, President of ICED. Both Messrs. Hadfield and Hammerstein also serve as the Plan trustees (the Trustees).
2. KwikCopy, the Plan sponsor, is the franchiser of printing centers in various parts of the world. It conducts business under the principal trademarks ``Kwik Copy Printing'' and ``Kall Kwik Printing.'' KwikCopy assists individuals in acquiring and operating these printing centers. KwikCopy maintains its principal place of business at One KwikCopy Way, Cypress, Texas.
3. ICED also maintains its principal place of business at One Kwik Copy Way, Cypress, Texas. KwikCopy is a wholly owned subsidiary of ICED. ICED is engaged in the business of franchising printing centers and other businesses.
4. On April 26, 1984, the Plan entered into a written agreement
(the License) with KwikCopy which entitled the Plan to use a portion
of a tract of land that is adjacent to the KwikCopy's offices for
recreational purposes.\5\ The entire tract of land is legally described
as ``106.0936 acres of land out of the O.T. Taylor Survey, Abstract
759, and the Alexander Burnett Survey, Abstract 109, Harris County,
Texas.'' The land is located along the west line of Telge Road at
Cypress Creek in Northwest Harris County, Cypress Creek, Texas, and is
owned in its entirety by KwikCopy. The portion of the vacant land that
was allocated to the Plan for purposes of the License consisted of 0.4226 acres or 18,585 square feet.
\5\ In a letter dated October 17, 1983 to the Internal Revenue
Service regarding the Plan's taxqualified status, one of the former
Trustees, Mr. Joe A. Lambert, confirmed that KwikCopy would own the
underlying land since property values in the Houston area had
appreciated substantially and a sale of the underlying land to the
Plan would have ultimately increased the cost of the Recreational
Facilities that are described herein and reduced the amount of cash needed to provide other benefits to Plan participants.
The initial term of the License was 10 years, which commenced on May 1, 1984 and ended on April 30, 1994. On May 1, 1994, the License was extended by the parties for an additional 10 year term, which will end on April 30, 2004. The current License term may also be extended again by the parties unless the Plan gives KwikCopy three months advance notice of its intention to terminate the License arrangement.
Since its execution, the License has required the Plan to pay Kwik Copy $1.00 in annual consideration each January 1. However, no such payments have ever been made by the Plan.
The License requires KwikCopy to keep the underlying property in good order, make all repairs and take such other actions as may be necessary or appropriate for the maintenance of such property. In addition, KwikCopy is required to keep the property insured and it has named both itself and the Plan as the insureds under such policy.
4. Between 1984 and 1989, the Trustees had the Recreational
Facilities constructed on the parcel of land that was subject to the
License. The Recreational Facilities consist of a cafeteria, swimming
pool and tennis courts, and they constitute the sole assets of the
Plan. The Recreational Facilities were constructed in order to provide
recreational benefits to participants pursuant to applicable provisions
under the Plan.\6\ In this regard, section 8.16(a) of the Plan document expressly states that
\6\ The Department notes that section 404(a)(1) of the Act
requires, among other things, that a fiduciary of a plan act
prudently, and solely in the interest of the plan's participants and
beneficiaries, and for the exclusive purpose of providing benefits
to participants and beneficiaries. However, in this proposed
exemption, the Department expresses no opinion on whether the Plan's
investment in the Recreational Facilities has satisfied the
requirements of section 404(a)(1) of the Act or has otherwise
violated certain fiduciary responsibility provisions of Part 4 of Title I of the Act.
Participants shall be entitled to the use of a recreation and
vacation facility to be acquired or constructed by the Trustees
within the State of Texas with Trust assets. Said facility, which
shall be owned by the Trustees and subject to the Trustees' control
and disposition, shall provide Participants with healthy activities
of a nature tending to encourage relaxation and thus assist in
combating fatigue by the Participants, thereby protecting against
contingencies interrupting or impairing Participants' earning power.
It is intended that said facility provide recreational benefits such as tennis
[[Page 50225]]
courts, swimming pool(s), a fishing pond, billiard and pingpong tables, etc.
5. The Trustees caused the Recreational Facilities to be constructed on behalf of the Plan based upon cash contributions that the Plan received from KwikCopy and for which KwikCopy took corresponding tax deductions. In this regard, KwikCopy contributed $505,434 to the Plan for the construction of the cafeteria building, $63,128 for the construction of the swimming pool and $22,714 for the construction of the tennis courts, thereby bringing the aggregate contribution to the Plan for the construction of the Recreational Facilities to $591,276. This total contribution for the Recreational Facilities was in addition to amounts that were contributed by Kwik Copy to the Plan for medical and life insurance benefits.
The Plan has incurred no outofpocket expenses in connection with its ownership of the Recreational Facilities nor has it received any additional income. All maintenance expenses that are associated with the Recreational Facilities have been paid by KwikCopy.
According to the Applicants, under Texas law, the Plan's title to
the Recreational Facilities has not merged into the underlying real
property owned by KwikCopy. Therefore, the Recreational Facilities
have not become fixtures.\7\ Also, the Applicants represent that under
applicable Treasury Regulations,\8\ the Recreational Facilities cannot
revert to KwikCopy on the Plan's termination because the assets must be expended to provide benefits to Plan participants.
\7\ The Applicants explain that Texas case law and not Texas
statutory law governs whether property affixed to a parcel of land
by a licensee remains the property of the licensee or becomes the
property of the landowner upon the termination of the license. The
Applicants represent that the general rule in Texas is that property
affixed to the land of another under a license from the owner
remains the personal property of the licensee, unless the licensee
has intended otherwise. To illustrate this principle, the Applicants
cite Wright v. McDonnell, 30 SW 907 (Tex. 1895), which involved buildings affixed to land.
In addition, the Applicants note that the line of Texas cases
pertaining to the issue of whether personalty has merged into the
dominant estate have all involved a dispute between a landowner and
a licensee as to the ownership of certain property at the end of the
license. The Applicants indicate that, in the present case, there is
no such dispute or claim to that effect because KwikCopy has agreed
that it does not, and will not, own the affixed assets at the end of
the License. Thus, the Applicants conclude that the intent of the
parties is that the Recreational Facilities are personalty owned by the Plan.
\8\ The last sentence of Treasury Regulations Section
1.501(c)(9)4(d) generally provides that if, upon termination of a
VEBA, the VEBA's assets are distributed to its contributing
employer, a prohibited inurement will exist and the VEBA will fail to qualify under section 501(c)(9) of the Code.
6. During 1998, efforts were underway to sell either ICED or Kwik Copy to unrelated parties. Although there was no purchaser, the Applicants believe that this transaction could resurface at any time. Therefore, in the interim, the Applicants propose to have ICED purchase the Recreational Facilities from the Plan and hereby request an administrative exemption from the Department for such transaction. The Applicants represent that the sale proceeds will be used to satisfy future health claims of the participants until such amounts have been exhausted. Then, the Applicants contemplate terminating the Plan in order to facilitate the sale of KwikCopy's entire business premises, including the Recreational Facilities, to an unrelated party.
7. The Recreational Facilities were initially appraised by Gary Brown, M.A.I., President of Gary Brown & Associates, Inc. of Houston, Texas. Mr. Brown is an independent fee appraiser who has been actively involved, among other things, in real property valuation, lease negotiations and rendering expert witness testimony. Mr. Brown is unrelated to KwikCopy, ICED and their principals.
In an appraisal report dated February 15, 1998, Mr. Brown placed the fair market value of the Recreational Facilities in an ``as is'' condition at $280,000 as of February 3, 1998. In valuing the Recreational Facilities, Mr. Brown utilized the Cost Approach to valuation due to the ``special use'' nature of the Recreational Facilities, the fact that the Recreational Facilities are not replaceable through purchase or lease, and the lack of sales of comparable properties by which to assess fair market value. Mr. Brown also determined that the ``highest and best use'' of the Recreational Facilities was their ``value in use'' and that an individual component sale would result in a ``liquidation value'' for such properties.
In an addendum to the appraisal report dated August 11, 1998, Mr. Brown again concluded that the fair market value of the Recreational Facilities was $280,000. He noted that the Recreational Facilities were an integral part of KwikCopy's world headquarters and that these structures could not stand alone as a separate economic unit. Therefore, Mr. Brown emphasized that the ``highest and best use'' of the Recreational Facilities was in conjunction with the other improvements comprising KwikCopy's property.
In a full, updated appraisal report dated November 24, 1999, Mr. Brown and his colleague, Mr. Michael E. Gentry, Associate Appraiser, also a qualified, independent appraiser with Gary Brown & Associates, Inc., indicated that they had personally inspected the Recreational Facilities, conducted required investigations, gathered necessary data and analyzed the information in order to determine the appropriate fair market value. Messrs. Brown and Gentry noted that due to the specific use and design of the Recreational Facilities, it would take approximately 18 months to market the subject improvements to a limited number of potential purchasers. Therefore, on the basis of these findings, Messrs. Brown and Gentry placed the fair market value of the Recreational Facilities at $300,000 as of November 24, 1999, again using the Cost Approach to valuation.
8. The Applicants contemplate that the proposed sales price for the Recreational Facilities will be equal to the greater of the independently appraised value of such improvements as of the date of the sale or their total acquisition cost. The consideration will be paid by ICED in cash. In addition, Messrs. Brown and Gentry will be required to update their valuation of the Recreational Facilities on the day the sale is consummated. Further, the Plan will not be required to pay any real estate fees or commissions in connection with such transaction.
Thus, based upon the foregoing, because the $591,276 total cost for the Recreational Facilities is in excess of their $300,000 current fair market value, the Applicants state that ICED will pay the Plan the greater amount for such property.
9. In summary, the Applicants represent that the proposed
transaction will satisfy the statutory criteria for an exemption under section 408(a) of the Act because:
(a) The proposed sale will be a onetime transaction for cash.
(b) The fair market value of the Recreational Facilities has been
determined by qualified, independent appraisers who will update their
valuation of the Recreational Facilities on the date of the sale.
(c) On the date of sale, the Plan will receive an amount which is
equal to the greater of the fair market value of the Recreational Facilities or the Plan's total acquisition costs.
(d) The Plan will pay no fees or commissions in connection with the proposed sale.
[[Page 50226]]
Notice to Interested Persons
Notice of the proposed exemption will be provided to interested persons within 30 days after the publication of the proposed exemption in the Federal Register. Notice will be given to active employees of KwikCopy by hand delivery and by first class mail to each participant who is not actively working for KwikCopy. The notice will include a copy of the notice of proposed exemption, as published in the Federal Register, as well as a supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2), which shall inform interested persons of their right to comment on and/or to request a hearing with respect to the proposed exemption. Comments with respect to the proposed exemption are due within 60 days of the date of publication of the proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT
Ms. Jan D. Broady, of the Department, telephone (202) 2198881. (This is not a tollfree number.)
DuPont Capital Management Corporation, Located in Wilmington, DE [Exemption Application Nos.: D10744 through D10746]
Proposed Exemption
The Department of Labor is considering granting an exemption 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 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\9\
\9\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer to the corresponding provisions of the Code.
I. Transactions
If the exemption is granted, the restrictions of section
406(a)(1)(A) through (D) and the sanctions resulting from the
application of section 4975 of the Code by reason of section
4975(c)(1)(A) through (D), shall not apply to a transaction between a
party in interest with respect to certain plans (the Former DuPont
Related Plans), as defined in Section II(e), below, and an investment
fund in which such plans have an interest (Investment Fund), as defined
in Section II(k), below, provided that DuPont Capital Management
Corporation (DCMC)has discretionary authority or control with respect
to the plan assets involved in the transaction and the following conditions are satisfied:
(a) DCMC is an investment adviser registered under the Investment
Advisers Act of 1940 that has, as of the last day of its most recent
fiscal year, total assets, including inhouse plan assets (Inhouse
Plan Assets), as defined in Section II(g), below, under its management and control in excess of $100 million and either:
(1) shareholders' or partners equity, as defined in Section II(j), below, in excess of $750,000; or
(2) payment of all its liabilities, including any liabilities that
may arise by reason of a breach or violation of a duty described in
sections 404 or 406 of the Act, is unconditionally guaranteed bya
person with a relationship to DCMC, as defined in Section II(a)(1),
below, if DCMC and such affiliate have, as of the last day of their
most recent fiscal year, shareholders' equity, in the aggregate, in excess of $750,000;
(b) At the time of the transaction, as defined in Section II(m),
below, the party in interest or its affiliate, as defined in Section
II(a), below, does not have, and during the immediately preceding one (1) year has not exercised, the authority to
(1) Appoint or terminate DCMC as a manager of any of the Former DuPont Related Plans' assets, or
(2) Negotiate the terms of the management agreement with DCMC
(including renewals or modifications thereof) on behalf of the Former DuPont Related Plans;
(c) The transaction is not described in
(1) Prohibited Transaction Class Exemption 816 (PTCE 816) \10\ (relating to securities lending arrangements);
\10\ 46 FR 7527, January 23, 1981.
(2) Prohibited Transaction Class Exemption 831 (PTCE 831) \11\
(relating to acquisitions by plans of interests in mortgage pools), or \11\ 48 FR 895, January 7, 1983.
(3) Prohibited Transaction Class Exemption 8287 (PTCE 8287) \12\ (relating to certain mortgage financing arrangements);
\12\ 47 FR 21331, May 18, 1982.
(d) The terms of the transaction are negotiated on behalf of the
Investment Fund by, or under the authority and general direction of,
DCMC, and either DCMC, or (so long as DCMC retains full fiduciary
responsibility with respect to the transaction) a property manager
acting in accordance with written guidelines established and
administered by DCMC, makes the decision on behalf of the Investment Fund to enter into the transaction;
(e) At the time the transaction is entered into, and at the time of
any subsequent renewal or modification thereof that requires the
consent of DCMC, the terms of the transaction are at least as favorable
to the Investment Fund as the terms generally available in arm's length transactions between unrelated parties;
(f) Neither DCMC nor any affiliate thereof, as defined in Section
II(b), below, nor any owner, direct or indirect, of a 5 percent (5%) or
more interest in DCMC is a person who, within the ten (10) years
immediately preceding the transaction, has been either convicted or
released from imprisonment, whichever is later, as a result of:
(1) any felony involving abuse or misuse of such person's employee
benefit plan position or employment, or position or employment with a labor organization;
(2) any felony arising out of the conduct of the business of a
broker, dealer, investment adviser, bank, insurance company, or fiduciary;
(3) income tax evasion;
(4) any felony involving the larceny, theft, robbery, extortion,
forgery, counterfeiting, fraudulent concealment, embezzlement,
fraudulent conversion, or misappropriation of funds or securities;
conspiracy or attempt to commit any such crimes or a crime in which any of the foregoing crimes is an element; or
(5) any other crimes described in section 411 of the Act.
For purposes of this Section I(f), a person shall be deemed to have
been ``convicted'' from the date of the judgment of the trial court, regardless of whether the judgment remains under appeal;
(g) The transaction is not part of an agreement, arrangement, or understanding designed to benefit a party in interest;
(h) The party in interest dealing with the Investment Fund:
(1) Is a party in interest with respect to the Former DuPont
Related Plans (including a fiduciary) solely by reason of providing
services to the Former DuPont Related Plans, or solely by reason of a relationship to a service provider described in section
3(14)(F),(G),(H), or (I) of the Act;
(2) Does not have discretionary authority or control with respect
to the investment of plan assets involved in the transaction and does
not render investment advice (within the meaning of 29 CFR Sec. 2510.3 21(c)) with respect to those assets; and
(3) Is neither DCMC nor a person related to DCMC, as defined in Section II(i), below;
(i) DCMC adopts written policies and procedures that are designed to assure
[[Page 50227]]
compliance with the conditions of the exemption;
(j) An independent auditor, who has appropriate technical training
or experience and proficiency with the fiduciary responsibility
provisions of the Act and who so represents in writing, conducts an
exemption audit, as defined in Section II(f), below, on an annual
basis. Following completion of the exemption audit, the auditor shall
issue a written report to the Former DuPont Related Plans presenting
its specific findings regarding the level of compliance with the
policies and procedures adopted by DCMC in accordance with Section I(i), above, of this exemption; and
(k)(1) DCMC or an affiliate maintains or causes to be maintained
within the United States, for a period of six (6) years from the date
of each transaction, the records necessary to enable the persons
described in Section I(k)(2), below, to determine whether the
conditions of this exemption have been met, except that (a) a
prohibited transaction will not be considered to have occurred if, due
to circumstances beyond the control of DCMC and/or its affiliates, the
records are lost or destroyed prior to the end of the six (6) year
period, and (b) no party in interest or disqualified person other than
DCMC shall be subject to the civil penalty that 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 Section I(k)(2), below, of this exemption.
(2) Except as provided in Section I(k)(3), below, of this
exemption, and notwithstanding any provisions of subsections (a)(2) and
(b) of section 504 of the Act, the records referred to in Section
I(k)(1), above, of this exemption are unconditionally available for
examination at their customary location during normal business hours by:
(A) any duly authorized employee or representative of the Department or of the Internal Revenue Service;
(B) any fiduciary of any of the Former DuPont Related Plans
investing in the Investment Fund or any duly authorized representative of such fiduciary;
(C) any contributing employer to any of the Former DuPont Related
Plans investing in the Investment Fund or any duly authorized employee representative of such employer;
(D) any participant or beneficiary of any of the Former DuPont
Related Plans investing in the Investment Fund, or any duly authorized representative of such participant or beneficiary; and,
(E) any employee organization whose members are covered by such Former DuPont Related Plans;
(3) None of the persons described in Section I(k)(2)(B) through
(E), above, of this exemption shall be authorized to examine trade
secrets of DCMC or its affiliates or commercial or financial information which is privileged or confidential.
II. Definitions
(a) For purposes of Section I (a) and (b), above, of this exemption, an ``affiliate'' of a person means
(1) Any person directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control with the person,
(2) Any corporation, partnership, trust, or unincorporated
enterprise of which such person is an officer, director, 5 percent (5%)
or more partner, or employee (but only if the employer of such employee is the plan sponsor), and
(3) Any director of the person or any employee of the person who is
a highly compensated employee, as defined in section 4975(e)(2)(H) of
the Code, or who has direct or indirect authority, responsibility, or
control regarding the custody, management, or disposition of plan
assets. A named fiduciary, within the meaning of section 402(a)(2) of
the Act, of a Plan, and an employer any of whose employees are covered
by the plan, will be considered affiliates with respect to each other
for purposes of Section I(b), if such employer or an affiliate of such
employer has the authority, alone or shared with others, to appoint or
terminate the named fiduciary or otherwise negotiate the terms of the named fiduciary's employment agreement.
(b) For purposes of Section I(f), above, of this exemption, an ``affiliate'' of a person means
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control with the person,
(2) Any director of, relative of, or partner in, any such person,
(3) Any corporation, partnership, trust, or unincorporated
enterprise of which such person is an officer, director, or a 5 percent (5%) or more partner or owner, and
(4) Any employee or officer of the person who
(A) Is a highly compensated employee (as defined in section
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more of the yearly wages of such person), or
(B) Has direct or indirect authority, responsibility or control
regarding the custody, management, or disposition of plan assets.
(c) For purposes of Section II(e) and (g), below, of this exemption an ``affiliate'' of DCMC includes a member of either:
(1) a controlled group of corporations, as defined in section 414(b) of the Code, of which DCMC is a member, or
(2) a group of trades or businesses under common control, as
defined in section 414(c) of the Code, of which DCMC is a member;
provided that ``50 percent'' shall be substituted for ``80 percent''
wherever ``80 percent'' appears in section 414(b) or 414(c) of the rules thereunder.
(d) The term, ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an individual.
(e) ``Former DuPont Related Plans'' mean:
(1) CONSOL Inc. Employee Retirement Plan (the CONSOL Plan);
(2) the Pension Plan for Consolidation Coal Company Local 5400 Union Employees (the CONSOL Union Plan);
(3) the Investment Plan for Salaried Employees of CONSOL, Inc. (the CONSOL DC Plan);
(4) the Thrift Plan for Employees of Conoco, Inc. (the Conoco DC Plan);
(5) any plan the assets of which include or have included assets
that were managed by DCMC, as an inhouse asset manager (INHAM),
pursuant to Prohibited Transaction Class Exemption 9623 (PTCE 9623)
\13\ but as to which PTCE 9623 is no longer available because such
assets are no longer held under a plan maintained by an affiliate of
DCMC (as defined in Section II(c), above, of this exemption); and \13\ 61 FR 15975 (April 10, 1996).
(6) any plan (the AddOn Plan) that is sponsored or becomes
sponsored by an entity that was, but has ceased to be, an affiliate of
DCMC (as defined in Section II(c), above, of this exemption); provided
that: (A) The assets of the AddOn Plan are invested in a commingled
fund (the Commingled Fund) with the assets of a plan or plans,
described in Section II(e)(1)(5), above; and (B) the assets of the
AddOn Plan in the Commingled Fund do not comprise more than 25 percent
(25%) of the value of the aggregate assets of such Fund, as measured on
the day immediately following the commingling of their assets.
(f) ``Exemption audit'' of any of the Former DuPont Related Plans must consist of the following:
(1) A review of the written policies and procedures adopted by DCMC,
[[Page 50228]]
pursuant to Section I(i), above, of this exemption for consistency with
each of the objective requirements of this exemption, as described in Section II(f)(5), below;
(2) A test of a representative sample of the subject transactions
in order to make findings regarding whether DCMC is in compliance with:
(A) the written policies and procedures adopted by DCMC, pursuant to Section I(i), above, of this exemption; and
(B) the objective requirements of this exemption;
(3) A determination as to whether DCMC has satisfied the requirements of Section I(a), above, of this exemption;
(4) Issuance of a written report describing the steps performed by
the auditor during the course of its review and the auditor's findings; and
(5) For purposes of Section II(f) of this exemption, the written
policies and procedures must describe the following objective
requirements of the exemption and the steps adopted by DCMC to assure compliance with each of these requirements:
(A) the requirements of Section I(a), above, of this exemption
regarding registration under the Investment Advisers Act of 1940, total
assets under management, and shareholders' or partners' equity;
(B) the requirements of Part I and Section I(d) of this exemption,
regarding the discretionary authority or control of DCMC with respect
to the asset of the Former DuPont Related Plans involved in the
transaction, in negotiating the terms of the transaction, and with
regard to the decision on behalf of the Former DuPont Related Plans to enter into the transaction;
(C) the transaction is not entered into with any person who is
excluded from relief under Section I(h)(1), above, of this exemption,
Section I(h)(2) to the extent such person has discretionary authority
or control over the plan assets involved in the transaction, or Section I(h)(3); and
(D) the transaction is not described in any of the class exemptions listed in Section I(c), above, of this exemption.
(g) ``Inhouse Plan Assets'' means the assets of any plan
maintained by an affiliate of DCMC, as defined in Section II(c), above,
of this exemption and with respect to which DCMC exercises discretionary authority or control.
(h) The term, ``party in interest,'' means a person described in
section 3(14) of the Act and includes a ``disqualified person,'' as defined in section 4975(e)(2) of the Code.
(i) DCMC is ``related'' to a party in interest for purposes of
Section I(h)(3) of this exemption, if the party in interest (or a
person controlling, or controlled by, the party in interest) owns a 5
percent (5%) or more interest in DCMC, or if DCMC (or a person
controlling, or controlled by DCMC) owns a 5 percent (5%) or more interest in the party in interest.
For purposes of this definition:
(1) The term, ``interest,'' means with respect to ownership of an entity
(A) The combined voting power of all classes of stock entitled to
vote or the total value of the shares of all classes of stock of the entity if the entity is a corporation,
(B) The capital interest or the profits interest of the entity if the entity is a partnership; or
(C) The beneficial interest of the entity if the entity is a trust or unincorporated enterprise; and
(2) A person is considered to own an interest held in any capacity if the person has or shares the authority
(A) To exercise any voting rights or to direct some other person to exercise the voting rights relating to such interest, or
(B) To dispose or to direct the disposition of such interest.
(j) For purposes of Section I(a) of this exemption, the term,
``shareholders' '' or ``partners'' equity,'' means the equity shown in
the most recent balance sheet prepared within the two (2) years
immediately preceding a transaction undertaken pursuant to this
exemption, in accordance with generally accepted accounting principles.
(k) ``Investment Fund'' includes a single customer and pooled
separate account maintained by an insurance company, individual trust
and common collective or group trusts maintained by a bank, and any
other account or fund to the extent that the disposition of its assets
(whether or not in the custody of DCMC) is subject to the discretionary authority of DCMC.
(l) The term, ``relative,'' means a relative as that term is
defined in section 3(15) of the Act, or a brother, sister, or a spouse of a brother or sister.
(m) The ``time'' as of which any transaction occurs is the date
upon which the transaction is entered into. 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 on or
after the date when the grant of this exemption is published in the
Federal Register or a renewal that requires the consent of DCMC occurs
on or after such publication date and the requirements of this
exemption are satisfied at the time the transaction is entered into or
renewed, respectively, the requirements will continue to be satisfied
thereafter with respect to the transaction. Nothing in this subsection
shall be construed as exempting a transaction entered into by an
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 this 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. In
determining compliance with the conditions of the exemption at the time
that the transaction was entered into for purposes of the preceding
sentence, Section I(h) of this exemption will be deemed satisfied if
the transaction was entered into between a plan and a person who was not then a party in interest.
Temporary Nature of Exemption
The Department has determined that the relief provided by this proposed exemption is temporary in nature. The exemption, if granted, will be effective upon the date the final exemption is published in the Federal Register and will expire on the day which is six (6) years from the date of such publication. Accordingly, the relief provided by this proposed exemption will not be available upon the expiration of such sixyear period for any new or additional transactions, as described herein, after such date, but would continue to apply beyond the expiration of such sixyear period for continuing transactions entered into within the sixyear period. Should the applicant wish to extend, beyond the expiration of such sixyear period, the relief provided by this proposed exemption to new or additional transactions, the applicant may submit another application for exemption.
Summary of Facts and Representations
1. DCMC, a wholly owned subsidiary of DuPont, is organized as a
Delaware corporation with its principal office in Wilmington, Delaware.
DCMC is an investment adviser registered under the Investment Advisers
Act of 1940. As of December 31, 1998, DCMC had total assets under its
management with an aggregate market value of approximately $20.7
billion. It is represented that DCMC either has shareholders' equity in
excess of $750,000 or payment of all it liabilities, including any
liabilities that may arise by reason of a breach or violation of a duty
described in sections 404 or 406 of the Act, is unconditionally
guaranteed by an affiliate of DCMC, as defined in Section II(a)(1) of this proposed exemption, if DCMC and such
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affiliate have, as of the last day of their most recent fiscal year,
shareholders' equity, in the aggregate, in excess of $750,000.
DCMC provides investment management services to employee benefit plans, including plans sponsored by DuPont and its subsidiaries and affiliates (the DuPont Group), with respect to a spectrum of investments consisting primarily of domestic and international equities, fixedincome securities, and various alternative investments (including real estate, venture capital and commodity futures). DCMC primarily utilizes valuebased investment strategies with the objective of achieving maximum return consistent with levels of risk suitable to each plan. In this regard, DCMC uses the services of investment professionals employed by DuPont Pension Fund Investment (DPFI), a division of DuPont.
2. In July of 1997, DCMC replaced DPFI as investment manager for
the assets of the DuPont Pension Trust Fund (the Trust). In this
regard, DCMC represents that it qualified as an INHAM, as defined in
section IV(a) of PTCE 9623, and relied on the relief provided by that
class exemption in connection with its management of the assets of the
Trust.\14\ As of December 31, 1997, the value of the assets held by the Trust was approximately $17.7 billion.
\14\ The Department expresses no opinion in this proposed
exemption as to whether DCMC has met, or will continue to meet, the
conditions necessary for relief under PTCE 9623 for transactions
with parties in interest with respect to the Trust, or whether DCMC
qualifies or has qualified as an INHAM with regard to the management of the assets in the Trust.
3. It is represented that CONSOL, Inc. (CONSOL) was a member of the
DuPont Group prior to November 5, 1998. At that time, the Trust held
the assets of the CONSOL Plan and the CONSOL Union Plan both of which
are sponsored by CONSOL. As of December 31, 1997, approximately $184
million of the assets held by the Trust related to the CONSOL Plan and
approximately $759,000 related to the CONSOL Union Plan. On November 5,
1998, DuPont divested substantially all of its holdings in CONSOL. As
of March 3, 1999, the CONSOL Plan and the CONSOL Union Plan had
approximately 6,703 and 44 participants and beneficiaries,
respectively. Based on the success of DCMC's investment strategy and
the long term experience with DCMC's investment professionals, as of
June 1, 1999, CONSOL determined that it was in the best interest of the
CONSOL Plan and the CONSOL Union Plan for DCMC to continue to manage the assets of such plans.\15\
\15\ The Vice President for Human Resources of CONSOL represents
that since 1988 the long term investment performance of DCMC and its
predecessor, as manager of plan assets that were part of the Trust,
compares favorably with other alternatives. In addition, the
Director of Investment Services of DCMC represents that investment
return on the Trust has exceeded the performance benchmark for seven of the eight years during the period since 1992.
As a result of the divestiture of CONSOL, the relief provided to DCMC, as an INHAM, pursuant to PTCE 9623, ceased to be available with respect to DCMC's management of the assets of the CONSOL Plan and CONSOL Union Plan, because under section IV(a)of PTCE 9623, after the divestiture DCMC was no longer an affiliate of the employer maintaining such plans. The applicant represents that during the period since June 1, 1999, DCMC has, in managing assets of the CONSOL Plan and the CONSOL Union Plan, investigated whether counterparties to proposed transactions involving the assets of such plans were parties in interest with respect to such plans. Further, DCMC has not authorized any such transactions with counterparties that were found to be parties in interest, unless a statutory or administrative exemption (other than PTCE 8414 or PTCE 9623) was available.
It is represented that prior to 1999, Conoco, Inc. (Conoco), a whollyowned subsidiary of DuPont was a member of the DuPont Group. Accordingly, at that time the Trust held the assets of a non contributory defined benefit plan (the DuPont Pension Plan) which covered substantially all of the employees of DuPont and its subsidiaries, including Conoco. Approximately 21,763 participants and beneficiaries of the DuPont Pension Plan were attributed to employees of Conoco and their beneficiaries. In September 1999, DuPont divested substantially all of its holdings in Conoco. On July 1, 2000, assets having a value of approximately $820,000,000 were transferred from the DuPont Pension Plan to a separate trust for the Retirement Plan of Conoco Inc. (The Conoco Plan), a qualified defined benefit pension plan covering substantially all of the employees of Conoco Inc. As a result of DuPont's divestiture of Conoco, the relief provided to DCMC, as an INHAM, pursuant to PTCE 9623, ceased to be available with respect to DCMC's management of the assets of the Conoco Plan, because under PTCE 9623, as of September 1999, DCMC no longer is an affiliate of the employer maintaining such plan. It is represented that during the period since July 1, 2000, all steps necessary to avoid violations of the Act have been taken by the Conoco Plan.
In addition to managing pension assets held in the Trust, DPFI, prior to 1997, also managed a portion of the assets of two defined contribution plans, the CONSOL DC Plan and the Conoco DC Plan. Subsequently, DCMC assumed the management of the assets of the CONSOL DC Plan and the Conoco DC Plan. It is represented that the assets of these plans have been managed by the same investment personnel both before and after the substitution of DCMC for DPFI. The investment management activities in the case of each of these plans involved the management of assets held in a fixed income fund that was one of the investment options available to participants in these plans. It is further represented that in managing the assets of the CONSOL DC Plan and the Conoco DC Plan, DCMC and DPFI have taken all steps necessary to avoid violations of the Act.
With respect to the CONSOL DC Plan, the substitution of DCMC for DPFI did not occur until CONSOL had ceased to be an affiliate of Dupont. With respect to the Conoco DC Plan, DCMC began managing the assets of the plan at a time when Conoco was still an affiliate of DuPont. However, it is represented that the INHAM audits required, pursuant to PTCE 9623, did not cover the Conoco DC Plan. Accordingly, DCMC never managed the assets of either the CONSOL DC Plan or the Conoco DC Plan, as an INHAM, pursuant to PTCE 9623.
Because the CONSOL DC Plan and the Conoco DC Plan were never managed by DCMC as an INHAM, these two plans do not fit within the definition of Former DuPont Related Plans, as set forth in Section II(e)(5) of this proposed exemption, nor does either plan fit within the definition of an Add On Plan, as set forth in this proposed exemption under Section II(e)(6). Therefore, the applicant has requested that the CONSOL DC Plan and the Conoco DC Plan be specifically included under the definition of Former DuPont Related Plans by listing each plan separately by name. The applicant believes that to the extent DCMC is appointed as an investment manager of the assets of the CONSOL DC Plan and the Conoco DC Plan, DCMC should have the same degree of flexibility in managing these assets as it will have with respect to the assets of the pension plans sponsored by CONSOL and Conoco which are also under the management of DCMC.
4. DCMC seeks an exemption which would provide appropriate relief for any prospective transactions with certain
[[Page 50230]]
parties in interest (as described in Section I(h), above) in order to
manage, after the divestiture of CONSOL, the assets of the CONSOL Plan,
the CONSOL Union Plan, the CONSOL DC Plan, and after the divestiture of
Conoco, to manage the assets of the Conoco Plan and the Conoco DC Plan,
subject to the conditions discussed herein. Further, DCMC requests
relief which would permit it to manage the assets of other Former
DuPont Related Plans. In this regard, the Former DuPont Related Plans
covered by this exemption include, in addition to those plans
specifically mentioned above: (1) Any plan, the assets of which have
been managed by DCMC, as an INHAM, but as to which PTCE 9623 is no
longer available because such plan is no longer maintained by an
affiliate of DCMC; and (2) any AddOn Plan that is sponsored or becomes
sponsored by an entity that was, but has ceased to be, an affiliate of
DCMC; provided certain conditions, as set forth in this proposed exemption are satisfied.
Given the large number of service providers with which the Former DuPont Related Plans engage, the breadth of the definition of ``party in interest'' under 3(14) of the Act, and the wide array of investment and related services offered by DCMC, it is represented that it would not be uncommon for DCMC, as investment manager, to propose transactions that involve parties in interest to one or more of the Former DuPont Related Plans. In this regard, the transactions for which DCMC seeks an exemption include, but are not limited to, sale and exchange transactions, leasing and other real estate transactions, foreign currency trading transactions, and transactions involving the furnishing of goods, services, and facilities. It is anticipated that relief will most likely be necessary where DCMC has discretion over investments in real estate, mortgages, foreign currency, futures, commodities and overthecounter options, as there is no other class exemption which would permit DCMC, as investment manager, to purchase property from, sell or lease property to, or borrow money from most parties in interest to the Former DuPont Related Plans.
Without the requested relief, DCMC would be unable to offer the
full range of investment opportunities that were available to the
Former DuPont Related Plans prior to divestiture, which could
substantially reduce DCMC's overall effectiveness and adversely affect
the Former DuPont Related Plans' investment returns. In the absence of
the exemption, it would be necessary to examine each transaction to
determine whether it might involve a party in interest.\16\ Such
examinations could prove burdensome for DCMC because of the myriad of
persons that may be parties in interest as service providers to large
plans, such as the Former DuPont Related Plans. Moreover, it is
represented that certain transactions which would be beneficial to the
Former DuPont Related Plans might involve parties in interest and be
prohibited, thereby depriving such plans of a potentially favorable investment opportunity.
\16\ As noted above, DCMC has investigated since June 1, 1999,
whether the counterparties to proposed transactions involving the
assets of the CONSOL Plan and the CONSOL Union Plan were parties in
interest with respect to such plans. Further, with respect to the
Conoco Plan (since July 1, 2000), the CONSOL DC Plan, and the Conoco
DC Plan, DCMC and DPFI have taken all steps necessary to avoid violations of the Act.
5. The proposed exemption will be modeled after Prohibited
Transaction Class Exemption 8414 (PTCE 8414),\17\ which, in general,
permits various parties in interest with respect to an employee benefit
plan to engage in a transaction involving plan assets, if the
transaction is authorized by a qualified professional asset manager
(QPAM) and if certain other conditions are met. Specifically, DCMC
seeks an individual exemption for transactions that are described,
pursuant to Part I of PTCE 8414.\18\ In this regard, Part I of PTCE
8414 provides relief from the restrictions of section 406(a)(1)(A)(D)
of the Act and 4975(c)(1)(A)(D) of the Code for transactions between a
party in interest with respect to an employee benefit plan and an
investment fund in which the plan has an interest and which is managed
by a QPAM, provided certain conditions are satisfied. One such
condition (the Diverse Clientele Test), as set forth in Part I(e) of PTCE 8414, requires that:
\17\ 49 FR 9494 (March 13, 1984), as amended, 50 FR 41430 (October 10, 1985).
\18\ DCMC is not requesting an administrative exemption for the
transactions described in Part II, Part III, and Part IV of PTCE 84 14.
The transaction is not entered into with a party in interest with respect to any plan whose assets managed by QPAM, when combined with the assets of other plans established or maintained by the same employer (or affiliate thereof * * *) or by the same employee organization, and managed by the QPAM, represent more than 20 percent of the total client assets managed by the QPAM at the time of the transaction.
DCMC represents that, as of December 31, 1998, it met the definition of a QPAM, as set forth in Part V(a) of PTCE 8414. With respect to the capitalization requirement, DuPont has agreed to unconditionally guarantee the payment of DCMC's liabilities, including any liabilities that may arise by reason of a breach or violation of a duty described in sections 404 or 406 of the Act, for any year that DCMC's shareholders' equity as of the last day of its preceding fiscal year falls below $750,000. Further, DCMC represents that it is an investment adviser registered under the Investment Advisers Act of 1940. In order to be a QPAM, a registered investment adviser must, among other requirements, have as of the last day of its most recent fiscal year total client assets under its management and control in excess of $50 million. The proposed exemption would include ``Inhouse Plan Assets,'' as defined in Section II(g), in the calculation of total assets under DCMC's management for purposes of meeting the assets under management test required herein (see Section I(a), above). DCMC represents that it currently manages assets, including Inhouse Plan Assets with a value in excess of $100 million.
In the absence of an individual exemption, DCMC is uncertain
whether it would be deemed to satisfy the Diverse Clientele Test, as
required for a QPAM to obtain relief for party in interest
transactions, pursuant to PTCE 8414 (see Part I(e) of PTCE 8414).
DCMC is concerned that the assets for which it serves as an INHAM are
not ``client assets'' for purposes of serving as a QPAM for plan assets
of Former DuPont Related Plans. In this regard, although DCMC manages
the assets of the CONSOL Plan and CONSOL Union Plan which in the
aggregate comprise substantially less than 20 percent (20%) of the
total assets under its management, the remaining assets which DCMC
manages consist entirely of plan assets for which DCMC acts as an
INHAM. As a result, DCMC believes that the relief provided by PTCE 84
14 may not be available for the transactions which are the subject of this exemption.\19\
\19\ The Department expresses no opinion as to whether DCMC
would qualify as a QPAM for purposes of PTCE 8414 and Part I(e)
following DuPont's divestiture of CONSOL and Conoco or with respect
to any of the Former DuPont Related Plans or other unaffiliated plan.
6. It is represented that the conditions of the proposed exemption
provide safeguards for the protection of the rights of participants and
beneficiaries of the Former DuPont Related Plans. In this regard, the
proposed exemption incorporates all but one of the conditions found in
PTCE 8414. Specifically, except for the Diverse Clientele Test, DCMC
represents that it will comply with the remaining conditions, as set forth in Part I of PTCE 8414. Moreover, DCMC, although it
[[Page 50231]]
will no longer be an INHAM with respect to the assets of the Former
DuPont Related Plans, will remain subject to the procedural
requirements of the INHAM class exemption, as set forth in PTCE 9623.
DuPont will be required to maintain written policies and procedures
designed to ensure compliance with the objective requirements of the
exemption and to retain an independent auditor experienced and
proficient with the fiduciary provisions of the Act to conduct an
exemption audit. It is the responsibility of the independent auditor to
evaluate DuPont's compliance with such policies and procedures and to
report annually its findings to each of the Former DuPont Related Plans.
7. Furthermore, the proposed exemption contains several additional conditions which are designed to ensure the presence of adequate safeguards. First, the transactions which are the subject of this proposed exemption cannot be part of an agreement, arrangement, or understanding designed to benefit a party in interest. Second, neither DCMC nor a person related to DCMC may engage in transactions with the Investment Fund. Further, a party in interest (including a fiduciary) which deals with the Investment Fund, may only be a party in interest by reason of providing services to the Former DuPont Related Plans, or by having a relationship to a service provider, and such party in interest may not have discretionary authority or control with respect to the investment of plan assets involved in the transaction nor render investment advice with respect to those assets.
8. DCMC represents that the requested exemption is administratively feasible because it would not impose any administrative burdens on either DCMC or the Department which are not already imposed by PTCE 84 14 or PTCE 9623. Further, DCMC will maintain and make available certain records necessary to enable the Department, the Internal Revenue Service, and other interested parties to determine whether the conditions of the exemption, if granted, have been met.
9. The applicant represents that the proposed exemption is in the interest of the Former DuPont Related Plans and their participants and beneficiaries, because it will allow DCMC, on behalf of the Former DuPont Related Plans, to negotiate transactions with parties in interest where the transactions are beneficial to such plans. Absent the exemption, the Former DuPont Related Plans would be precluded from engaging in such transactions, even though such transactions may offer favorable investment or diversification opportunities.
The applicant states that denial of the exemption could deprive
DCMC of its ability to provide a full range of investment opportunities
to the Former DuPont Related Plans without undue administrative costs.
Further, denial of the exemption would place DCMC in a undue
competitive disadvantage in seeking to manage the assets of the Former DuPont Related Plans.\20\
\20\ While it is represented that DCMC receives no fees from the
DuPont Pension Plan, other than reimbursement of certain expenses
(to the extent permitted by the Act), no special restrictions would
apply to its receipt of fees for managing assets of the Former
DuPont Related Plans, once their sponsors no longer have any
ownership affiliation with the DCMC, provided that the provision of
such services and the receipt of fees related thereto meet the
conditions necessary for relief under section 408(b)(2) and the regulations thereunder.
10. In summary, the applicant represents that the transactions
satisfy the statutory criteria for an exemption under section 408(a) of
the Act and section 4975(c)(2) of the Code because, among other things:
(a) DCMC is an investment adviser registered under the Investment
Advisers Act of 1940 that has under its management and control total
assets, including Inhouse Plan Assets (as defined in Section II(g)),
in excess of $100 million, and either has shareholders' equity, in
excess of $750,000 or a unconditional guarantee of payment of liabilities in that amount from an affiliate;
(b) At the time of the transaction and during the year preceding,
the party in interest or its affiliate dealing with the Investment Fund
does not have and has not exercised, the authority to appoint or
terminate DCMC as a manager of any of the Former DuPont Related Plans'
assets, or to negotiate the terms on behalf of the Former DuPont
Related Plans (including renewals or modifications) of the management agreement with DCMC;
(c) The transaction is not described in PTCE 816; PTCE 831; or PTCE 8287;
(d) The terms of the transaction are negotiated on behalf of the
Investment Fund by, or under the authority and general direction of
DCMC, and either DCMC, or a property manager acting in accordance with
written guidelines established and administered by DCMC, makes the
decision on behalf of the Investment Fund to enter into the transaction;
(e) The transaction is not part of an agreement, arrangement, or understanding designed to benefit a party in interest;
(f) At the time the transaction is entered into, renewed, or
modified that requires the consent of DCMC, the terms of the
transaction are at least as favorable to the Investment Fund as the
terms generally available in arm's length transactions between unrelated parties;
(g) Neither DCMC nor any affiliate, nor any owner, direct or
indirect, of a 5 percent (5%) or more interest in DCMC is a person who,
within the ten (10) years immediately preceding the transaction has
been either convicted or released from imprisonment, whichever is
later, as a result of any felony, as set forth in Section I(f) of this proposed exemption;
(h) The party in interest with respect to the Former DuPont Related
Plans that deals with the Investment Fund is a party in interest
(including a fiduciary) solely by reason of being a service provider to
the Former DuPont Related Plans, or having a relationship to a service
provider, and such party in interest does not have discretionary
authority or control with respect to the investment of plan assets
involved in the transaction and does not render investment advice with respect to those assets;
(i) Neither DCMC nor a person related to DCMC engages in the
transactions which are the subject of this proposed exemption;
(j) DCMC adopts written policies and procedures that are designed
to assure compliance with the conditions of the proposed exemption;
(k) An independent auditor, who has appropriate technical training
or experience and proficiency with the fiduciary responsibility
provisions of the Act and who so represents in writing, conducts an
exemption audit on an annual basis and issues a written report to the
Former DuPont Related Plans presenting its specific findings regarding
the level of compliance with the policies and procedures adopted by DCMC; and
(l) DCMC or an affiliate maintains or causes to be maintained
within the United States, for a period of six (6) years from the date
of each transaction, the records necessary to enable the Department,
the IRS, and other persons to determine whether the conditions of this exemption have been met.
Notice to Interested Persons
The applicant will furnish a copy of the Notice of Proposed
Exemption (the Notice) along with the supplemental statement, described
at 29 CFR Sec. 2570.43(b)(2), to the investment committee or trustees
of each of the Former DuPont Related Plans to inform them of the
pendency of the exemption, by hand delivery or first class mailing, within fifteen (15) days of the
[[Page 50232]]
publication of the Notice in the Federal Register. Comments and
requests for a hearing are due on or before 45 days from the date of
publication of the Notice in the Federal Register. A copy of the final
exemption, if granted, will also be provided to the CONSOL Plan, the
CONSOL Union Plan, the CONSOL DC Plan, the Conoco Plan and the Conoco
DC Plan. Further, DCMC will furnish a copy of the final exemption to
any of the other Former DuPont Related Plans at the time the exemption
becomes applicable to the management of the assets of such plan.