[Federal Register Volume 73, Number 171 (Wednesday, September 3, 2008)]
[Notices]
[Pages 51516-51527]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E8-20277]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11396, D-11424, D-11459 & D-11467]
Proposed Exemptions Involving D-11396--Popular, Inc.; D-11424--
Fidelity Brokerage Services, LLC; D-11459--Calpine Corporation and D-
11467--Merritts Antiques, Inc. Employees Pension Plan
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document contains a notice 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 (ERISA or 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 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.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ------, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
[email protected], or by FAX to (202) 219-0204 by the end of the
scheduled comment period. The application for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons in the manner agreed upon by the applicant and the Department
within 15 days of the date of publication in the Federal Register. Such
notice shall include a copy of the notice of proposed exemption as
published in the Federal Register and shall inform interested persons
of their right to
[[Page 51517]]
comment and to request a hearing (where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemption was 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 exemption
are issued solely by the Department.
The application contains representations with regard to the
proposed exemption which is summarized below. Interested persons are
referred to the application on file with the Department for a complete
statement of the facts and representations.
Popular, Inc.,
Banco Popular de Puerto Rico, and
Popular Financial Holdings, Inc. (collectively, the Applicants)
Located in the Commonwealth of Puerto Rico
[Exemption Application No. D-11396]
Proposed Exemption
The Department of Labor is considering granting an exemption under
the authority of section 408(a) of the Employee Retirement Income
Security Act of 1974, as amended (the Act) and section 4975(c)(2) of
the Internal Revenue Code of 1986 (the U.S. Code) and in accordance
with procedures set forth in 29 CFR Part 2570, subpart B (55 FR 32836,
32847, August 10, 1990).
Section I: Transactions
If the proposed exemption is granted:
(a) The restrictions of sections 406(a), 406(b)(1), 406(b)(2), and
407(a) of the Act shall not apply, effective November 23, 2005, to:
(1) The acquisition of stock rights (the Rights) by certain plans,
described, below, in Section I(a)(1)(A) through (D) of this proposed
exemption, in connection with an offering of such Rights (the Offering)
by Popular, Inc. (Popular), a party in interest with respect to such
plans:
(A) Popular, Inc. Retirement Savings Plan for Puerto Rico
Subsidiaries (the Popular PR Plan);
(B) Banco Popular de Puerto Rico Savings and Stock Plan (the BPPR
Savings Plan),
(C) Popular, Inc. U.S.A. Profit Sharing/401(k) Plan (the Popular
USA Plan) \1\,
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\1\ The BPPR Savings Plan, the Popular PR Plan, the Popular USA
Plan, and the PFH Savings Plan are referred to, herein,
collectively, as the Participant Directed Plans.
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(D) Popular Financial Holdings, Inc. Savings and Retirement Plan
(the PFH Savings Plan), and
(2) The holding of the Rights by the certain plans, described,
above, in Section I(a)(1)(A) through (D) of this proposed exemption,
until the expiration of such Rights; provided that the conditions in
Section II of this proposed exemption, as set forth below, are
satisfied, and
(b) The sanctions resulting from the application of section 4975 of
the U.S. Code, by reason of section 4975(c)(1)(A) through (E) shall not
apply, effective November 23, 2005, to the acquisition of the Rights by
certain plans, described, above, in Section I(a)(1)(C), and Section
I(a)(1)(D) of this proposed exemption; \2\ provided that the conditions
in Section II of this proposed exemption, as set forth below, are
satisfied.
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\2\ The Applicants represent that, because the fiduciaries for
the BPPR Savings Plan, and the Popular PR Plan have not made an
election under section 1022(i)(2) of the Act, whereby such plans
would be treated as a trust created and organized in the United
States for purposes of tax qualification under section 401(a) of the
U.S. Code, that jurisdiction under Title II of the Act does not
apply. Accordingly, the Department is not providing any relief for
the prohibitions, as set forth in Title II of the Act, for the
acquisition of the Rights by these plans.
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Section II: Conditions
The relief proposed, herein, is conditioned upon adherence to the
material facts and representations described herein and as set forth in
the application file and upon compliance with the conditions, as set
forth in this proposed exemption.
a. The receipt by each of the Participant Directed Plans of the
Rights occurred in connection with the Offering made available by
Popular on the same terms to all shareholders of the common stock of
Popular (the Popular Stock);
b. The acquisition of the Rights by the Participant Directed Plans
resulted from an independent act of Popular as a corporate entity, and
all holders of the Rights, including the Participant Directed Plans,
were treated in the same manner with respect to the acquisition of the
Rights;
c. All shareholders of the Popular Stock, including the Participant
Directed Plans received the same proportionate number of Rights based
on the number of shares of Popular Stock held by such Participant
Directed Plans;
d. The acquisition of the Rights by the Participant Directed Plans
was made pursuant to provisions of each such plan for individually-
directed investment of participant accounts (the Account(s));
e. All decisions regarding the Rights made by the Participant
Directed Plans were made in accordance with the provisions of each such
plan for individually-directed investment of participant Accounts, by
the individual participants whose Accounts in each such plan received
the Rights in connection with the Offering; and
f. Popular must refund to the Banco Popular de Puerto Rico Profit
Sharing Plan and the Banco Popular de Puerto Rico Profit Restoration
Plan (collectively, the P/S Plans), and to the Accounts of each of the
participants in the Participant Directed Plans, the pro rata portion of
a dealer manager/solicitation fee (the Fee) in the aggregate amount of
$81,261.34. This Fee was received by Popular Securities, Inc., the co-
dealer/manager of the Rights Offering, as a result of the exercise of
the Rights by each such plan and by each such Account, and the payment
by each such plan and each such Account of the subscription price of
$21.00 per share for the Popular Stock. Furthermore, Popular must
refund to each such plan and to each such Account an additional amount
attributable to lost earnings experienced by each such plan and each
such Account on the pro rata portion of such Fee, and interest on such
lost earnings, for the period from December 19, 2005, to the date when
Popular has refunded the pro rata portion of the Fee attributable to
each such plan and each such Account, the lost earnings amount, plus
interest on such lost earnings. For the purpose of calculating the lost
earnings on the pro rata portion of the Fee attributable to each such
plan and each such Account, plus interest, on such lost earnings,
Popular will use the Online Calculator for the Voluntary Fiduciary
Correction Program \3\ that appears on the Web site of the Employee
Benefits Security Administration.
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\3\ 70 FR 17516, April 6, 2005.
EFFECTIVE DATE: This proposed exemption, if granted, will be effective
as of November 23, 2005, the date of the announcement of the Offering.
Summary of Facts and Representations (SFR)
1. Popular is a corporation organized under the laws of the
Commonwealth of Puerto Rico. Popular is a diversified,
[[Page 51518]]
publicly owned bank holding company, registered under the Bank Holding
Company Act of 1956, as amended, and, accordingly, is subject to the
supervision and regulation of the Board of Governors of the Federal
Reserve System. Popular is a full service financial services provider
with operations in Puerto Rico, the United States, the Caribbean, and
Latin America. As of September 30, 2005, Popular had consolidated total
assets of $47.1 billion, total deposits of $22.6 billion, and
stockholders' equity of $3.2 billion.
Principal subsidiaries of Popular include: (a) Popular Securities,
Inc., a securities broker-dealer; (b) Popular International Bank, an
international banking entity; (c) EVERTEC, Inc., a provider of
electronic transaction, processing, and programming services; and (d)
Banco Popular de Puerto Rico (BPPR), a banking subsidiary of Popular.
2. BPPR is a corporation which was organized under the laws of the
Commonwealth of Puerto Rico in 1893. BPPR, the largest bank in Puerto
Rico, offers retail and commercial banking services. As of September
30, 2005, BPPR had total assets of $25.4 billion, deposits of $14.2
billion, and stockholders' equity of $1.6 billion.
3. Popular Financial Holdings, Inc. (PFH) is a corporation
organized under the laws of Delaware and is an indirect subsidiary of
Popular. PFH is engaged in consumer lending services. As of September
30, 2005, PFH had total assets of $8.6 billion.
4. Popular sponsors two (2) of the Participant Directed Plans
involved in the transactions for which an exemption has been requested.
These two plans are described, as follows:
(a) The Popular PR Plan
The Popular PR Plan is a defined contribution profit sharing plan
which includes a qualified cash or deferred arrangement intended to
meet the requirements of Section 1165(e) of the Puerto Rico Internal
Revenue Code of 1994, as amended (the PR Code). The Popular PR Plan was
established for the exclusive benefit of the eligible employees and
beneficiaries of Puerto Rican subsidiaries of affiliates of Popular.
The Popular PR Plan is not intended to meet, and has never in practice
met, the requirements of Section 401(a) of the U.S. Code. The Popular
PR Plan is subject to Title I of the Act.
The Popular PR Plan, allows participants to direct investments of
their own contributions and employer contributions into several
investment alternatives, including Popular Stock.
The Popular PR Plan is funded through a trust. The trustee of the
Popular PR Plan is BPPR. The Popular Puerto Rico Subsidiaries Benefits
Committee (the PR Benefits Committee), a committee appointed by
Popular, is the Plan Administrator of the Popular PR Plan.
As of November 7, 2005, (the Record Date), the Popular PR Plan had
approximately 3,000 participants and total assets of $102,281,000. As
of the Record Date, the shares of Popular Stock held by the Popular PR
Plan were valued at $56,542,469 and comprised approximately fifty-five
percent (55%) of the total assets of the Popular PR Plan. These shares
represented approximately one percent (1%) of the total shares of
Popular Stock outstanding as of the Record Date.
Effective as of January 1, 2006, the Popular PR Plan changed its
name to the Popular, Inc. Puerto Rico Savings and Investment Plan.
(b) The Popular USA Plan
The Popular USA Plan is a defined contribution profit sharing plan
which includes a qualified cash or deferred arrangement intended to
meet the requirements of Section 401(k) of the U.S. Code. The Popular
USA Plan was adopted for the exclusive benefit of employees and their
beneficiaries of Popular's indirect subsidiary, Banco Popular North
America (BPNA), and certain of its affiliates. The Popular USA Plan is
not intended to meet the requirements of Section 1165(a) of the PR
Code. The Popular USA Plan is subject to Title I and Title II of the
Act.
The Popular USA Plan allows participants to direct investments of
their own contributions and a portion of the employer contributions
into several investment alternatives, including Popular Stock. The
employer bonus matching contributions are invested in Popular Stock.
The Popular USA Plan is funded through a trust of which BPNA is the
trustee. The Popular USA Benefits Committee, a committee appointed by
Popular, is the Plan Administrator of the Popular USA Plan.
As of the Record Date, the Popular USA Plan had approximately 2,400
participants and total assets of $59,700,000. The shares of Popular
Stock held by the Popular USA Plan were valued at $31,748,657, as of
the Record Date, and comprised approximately fifty-three percent (53%)
of the total assets in the Popular USA Plan. These shares represented
less than one percent (<1%) of the total shares of Popular Stock
outstanding as of that date.
Effective as of April 1, 2006, the Popular USA Plan changed its
name to Popular, Inc. USA 401(k) Savings and Investment Plan.
5. BPPR sponsors one (1) of the Participant Directed Plans involved
in the transactions for which an exemption has been requested. The BPPR
Savings Plan is a profit sharing plan with a qualified cash or deferred
arrangement intended to meet the requirements of Section 1165(e) of the
PR Code covering employees of BPPR who are residents of Puerto Rico.
This plan is not intended to meet, and has never in practice met, the
requirements of Section 401(a) of the U.S. Code. This plan is subject
to Title I of the Act.
The BPPR Savings Plan allows participants to direct investments of
their own contributions into several investment alternatives, including
Popular Stock. All employer contributions are invested in Popular
Stock.
The BPPR Savings Plan is funded through a trust. BPPR is the
trustee. BPPR also acts as custodian of this plan's assets, holding
legal title to such assets. The PR Benefits Committee is the Plan
Administrator of the BPPR Savings Plan.
As of the Record Date, the BPPR Savings Plan had approximately
7,050 participants and total assets of $68,794,200. As of the Record
Date, the shares of Popular Stock held by this plan were valued at
$65,569,487 and comprised approximately ninety-five percent (95%) of
the total assets in such plan. These shares represented 1.2 percent
(1.2%) of the total shares of Popular Stock outstanding as of that
date.
Effective as of July 1, 2006, the BPPR Savings Plan merged with and
into the Popular PR Plan which on January 1, 2006, had changed its name
to the Popular, Inc. Puerto Rico Savings and Investment Plan, as
discussed above in paragraph 4(a) of the SFR of this proposed
exemption.
6. PFH sponsors one (1) of the Participant Directed Plans, which is
involved in the transactions for which an exemption has been requested.
The PFH Savings Plan is a defined contribution plan which includes a
qualified cash or deferred arrangement intended to meet the
requirements of Section 401(k) of the U.S. Code. The PFH Savings Plan
was adopted for the exclusive benefit of the employees and their
beneficiaries of PFH and its subsidiaries. The PFH Savings Plan is not
intended to meet the requirements of Section 1165(a) of the PR Code.
The PFH Savings Plan is subject to Title I and Title II of the Act.
[[Page 51519]]
The PFH Savings Plan allows participants to direct investments of
their own contributions and employer contributions into several
investment alternatives, including Popular Stock.
The PFH Savings Plan is funded through two trusts of which Banker's
Trust and Delaware Charter Guarantee & Trust Company d/b/a Principal
Trust Company serve as the trustees. PFH is the Plan Administrator of
the PFH Savings Plan.
As of the record date, the PFH Savings Plan had approximately 2,000
participants and total assets of $35,200,000. As of the same date, the
shares of Popular Stock held by the PFH Savings Plan were valued at
$2,793,982 and comprised approximately eight percent (8%) of the total
assets of the PFH Savings Plan. These shares represented less than one
percent (<1%) of the total shares of Popular Stock outstanding as of
that date.
Effective as of April 1, 2006, the PFH Plan merged with and into
the Popular USA Plan, which had changed its name on the same date to
the Popular, Inc. USA 401(k) Savings and Investment Plan, described in
paragraph (4)(b), above, of the SFR of this proposed exemption.
7. On November 23, 2005, Popular announced an offering of up to
10,500,000 shares of Popular Stock to shareholders of record of such
stock, as of the close of business on the Record Date, November 7,
2005, pursuant to the grant of Rights to such shareholders to acquire
Popular Stock. Shareholders did not have to pay any amount to receive
such Rights. As of the Record date, Popular had 10,856 shareholders of
record. As of the Record Date, there were 267,427,050 shares of Popular
Stock outstanding.
The authorized capital stock of Popular consists of 470 million
shares of common stock, with a par value $6.00 per share, and 30
million shares of preferred stock, without a par value per share. The
Popular Stock is traded on the NASDAQ Stock Market under the symbol of
BPOP. It is represented that the last reported sale price of the
Popular Stock on November 22, 2005, before the Offering was $22.59 per
share.
The Rights were non-transferable and were not evidenced by
certificates. No fractional Rights were issued. The number of Rights
granted to each shareholder was rounded up to the next whole number.
There was no market for the Rights.
For each twenty-six (26) shares of Popular Stock held, each
shareholder received one (1) right to acquire one (1) share of Popular
Stock. Each shareholder was entitled to subscribe for all or any
portion of the Popular Stock underlying each shareholder's Rights. Each
shareholder who subscribed for the full number of shares of Popular
Stock received an oversubscription right to subscribe for additional
shares of Popular Stock that were not otherwise subscribed for by other
shareholders. It is represented that if insufficient shares of the
Popular Stock were available to satisfy fully all elections, the
available shares were prorated among those who elected to exercise the
oversubscription rights. In November 2005, it was anticipated that all
or a portion of the Popular Stock not subscribed for in the Rights
Offering would be offered to the public through an underwritten public
offering. However, it is represented that all of the Popular Stock
available for purchase through exercise of the Rights were subscribed
for by the holders of such Rights.
Even though holders of the Rights could exercise the Rights at any
time between November 23, 2005, and December 19, 2005, the exercise of
the Rights was effective as of December 19, 2005. After December 19,
2005, the Rights expired with no value.
To exercise the Rights, shareholders had to return a Subscription
Rights Order Form to Mellon Bank, N.A., the subscription agent, along
with payment in full by either a cashier's check or official check of
the initial subscription price of $21.00 per share (the Initial
Subscription Price), as determined by the Board of Directors of
Popular. It is represented that as a public offering did not occur
within thirty (30) calendar days after the end of the Rights Offering,
the actual subscription price was the lesser of: (i) the Initial
Subscription Price, or (ii) the average closing price at 4 p.m., New
York City time, of Popular Stock for the five (5) trading days up to
and including the expiration date of the Rights offering on December
19, 2005. The closing prices for the Popular Stock for the five (5)
trading days, December 13, 14, 15, 16, 19, 2005, respectively, were
$21.60; $21.69; $21.52; $21.32; and $21.13 per share. The average
closing price was $21.45 per share. It is represented that if the
actual subscription price were lower than the Initial Subscription
Price, the difference would be refunded, without interest, to the
shareholder.
Shareholders that held Popular Stock through the book entry system
of the Depository Trust Company received credit for the Popular Stock
purchased through the exercise of the Rights on December 29, 2005.
Shareholders holding physical certificates received delivery of the
Popular Stock purchased through the exercise of the Rights during
January 2006. The Popular Stock acquired upon exercise of the Rights
did not have any restriction on transferability.
In connection with the subscription Offering, UBS Securities LLC
(UBS) and Popular Securities, Inc. (Popular Securities), an affiliate
of Popular, acting as dealer managers, received a Fee in connection
with solicitation services equal to 2.5% of the aggregate subscription
price per share for shares issued pursuant to the Offering.\4\ It is
represented that UBS and Popular Securities split such Fee on a fifty/
fifty basis. In addition, Popular reimbursed the dealer managers up to
$25,000 for expenses incurred in connection with the Offering.
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\4\ The Department, herein, is not providing any relief for the
receipt of any fees by Popular or any of its affiliates.
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As a condition of this exemption, Popular must refund to the P/S
Plans and to the Accounts of each of the participants in the
Participant Directed Plans, the pro rata portion of the Fee, a dealer
manager/solicitation fee, in the aggregate amount of $81,261.34. This
Fee was received by Popular Securities, Inc., the co-dealer/manager of
the Rights Offering, as a result of the exercise of the Rights by each
such plan and by each such Account, and the payment by each such plan
and each such Account of the subscription price of $21.00 per share for
the Popular Stock. Furthermore, Popular must refund to each such plan
and to each such Account an additional amount attributable to lost
earnings experienced by each such plan and each such Account on the pro
rata portion of such Fee, and interest on such lost earnings, for the
period from December 19, 2005, to the date when Popular has refunded
the pro rata portion of the Fee attributable to each such plan and each
such Account, the lost earnings amount, plus interest on such lost
earnings. For the purpose of calculating the lost earnings on the pro
rata portion of the Fee attributable to each such plan and each such
Account, plus interest, on such lost earnings, Popular will use the
Online Calculator for the Voluntary Fiduciary Correction Program \5\
that appears on the Web site of the Employee Benefit Security
Administration.
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\5\ 70 FR 17516, April 6, 2005.
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In addition, the Applicants have represented that in the future,
Popular, BPPR, and PFH will request a prohibited transaction exemption
from the Department prior to entering into any transaction in which a
fee will be paid to an affiliate of Popular, BPPR,
[[Page 51520]]
and/or PFH by any plan sponsored by Popular, BPPR, and/or PFH.
8. Each of the Applicants, as employers any of whose employees are
covered by one or more of the Participant Directed Plans, subject to
Title I of the Act, and as fiduciaries of one or more of the
Participant Directed Plans, are parties in interest with respect to
each such plan, pursuant to section 3(14)(C) and section 3(14)(A) of
the Act, respectively. In addition, the Applicants, as employers any of
whose employees are covered by one or more of the Participant Directed
Plans, which are subject to Title II of the Act, and as fiduciaries
with respect to one or more of such Participant Directed Plans are
disqualified persons with respect to each such plan, pursuant to
section 4975(e)(2)(C) and section 4975(e)(2)(A) of the U.S. Code,
respectively. Further, Popular as the owner of BPPR and the indirect
owner of PFH is a party in interest, pursuant to section 3(14)(E) of
the Act and a disqualified person, pursuant to section 4975(e)(2)(E) of
the U.S. Code, with respect to the Participant Directed Plans.
9. The Popular Stock and the Rights satisfy the definition of
``employer securities,'' as set forth under section 407(d)(1) of the
Act.\6\ The Popular Stock satisfies the definition of a ``qualifying
employer security,'' as set forth in section 407(d)(5) of the Act.''
However, the Rights do not satisfy the definition of ``qualifying
employer securities,'' as defined under section 407(d)(5) of the
Act.\7\ Under section 407(a)(1) of the Act, a plan may not acquire or
hold any ``employer security'' which is not a ``qualifying employer
security.'' Further, section 406(a)(1)(E) of the Act prohibits the
acquisition, on behalf of a plan, of any ``employer security'' in
violation of section 407(a) of the Act. Further, section 406(a)(2) of
the Act prohibits a fiduciary who has authority or discretion to
control or manage the assets of a plan to permit the plan to hold any
``employer security'' that violates section 407(a) of the Act.
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\6\ Section 407((d)(1) of the Act defines the term, ``employer
security,'' as ``a security issued by an employer of employees
covered by the plan, or by an affiliate of such employer.''
\7\ Section 407(d)(5) of the Act defines the term, ``qualifying
employer security,'' as an employer security which is stock, a
marketable obligation (as defined in subsection (e)), or an interest
in a publicly traded partnership.
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The Applicants have requested retroactive relief, from the
prohibitions, as set forth in Title I of the Act, for the acquisition
and holding of the Rights by the Participant Directed Plans.
The Applicants have also requested retroactive relief from the
prohibitions, as set forth in section 4975(c)(1)(A) through (E) of the
U.S. Code, for the acquisition of the Rights by the Popular USA Plan
and the PFH Saving Plan.
10. With regard to the Rights acquired by the Participant Directed
Plans, it is represented by plan design that the participants of the
Participant Directed Plans controlled the assets in their Accounts in
such plans and that no plan fiduciary had the authority to exercise any
control over such assets. Therefore, upon receipt of the Rights by the
Participant Directed Plans, the Rights were allocated to the Accounts
of the participants in such plans in proportion to the Popular Stock
beneficially owned by each such Account. In addition, it is represented
that each participant in the Participant Directed Plans was given the
opportunity to exercise the Rights. Accordingly, each participant was
able to make an independent decision whether to liquidate his or her
Account assets to purchase additional shares of Popular Stock.\8\
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\8\ The Applicants initially requested an administrative
exemption from the prohibitions, as set forth in Title I and Title
II of the Act, as applicable, for the exercise of the Rights by the
Participant Directed Plans and the P/S Plans. Subsequently, the
Applicants withdrew the request for such administrative exemption
and represented that they would rely on the relief provided by the
statutory exemption, pursuant to section 408(e) of the Act for such
transactions. The Department is offering no view, as to whether the
Applicants have satisfied the requirements of the statutory
exemption provided in section 408(e) of the Act. Further, the
Department, herein, is not providing any relief with respect to the
exercise of the Rights by the Participant Directed Plans and the P/S
Plans.
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All shareholders, including the participants in the Participant
Directed Plans, could exercise the Rights through the close of business
(4 p.m., San Juan, Puerto Rico time) on December 19, 2005. This
deadline for exercising the Rights was implemented by Popular as the
issuer of the Rights. Neither the shareholders nor the participants in
the Participant Directed Plans had any voice in setting the deadline
with respect to the Rights.
On December 19, 2005, the necessary funds for the exercise of the
Rights were transferred by the trustees to the subscription agent for
the purchase of the Popular Stock. Upon receipt of the new shares, the
newly received shares were allocated to the Account of each participant
in the respective plan.
11. Under the Rights Offering, shareholders were entitled to
subscribe to purchase additional shares of Popular Stock up to the
number of shares that were not purchased by the other shareholders (the
Oversubscription Privilege). In order to participate in the
Oversubscription Privilege, every Right issued on every share of
Popular Stock held in the Participant Directed Plans would have had to
have been exercised. Because this did not occur, the Oversubscription
Privilege was not available to the Participant Directed Plans.
12. It is represented that the acquisition and holding of the
Rights by the Participant Directed Plans, pursuant to the Offering, was
in the interests of and beneficial to such plans and to the
participants and beneficiaries of such plans. In this regard, the
Participant Directed Plans were given an opportunity to purchase
additional shares of the Popular Stock at a discount from the market
price.
13. It is represented that the acquisition and holding of the
Rights by the Participant Directed Plans was protective of such plans
and of the participants and beneficiaries of such plans in that all of
the shareholders of Popular Stock, including the Participant Directed
Plans, were treated in a similar manner with respect to the Rights.
14. It is represented that the acquisition and holding of the
Rights by the Participant Directed Plans was feasible, in that the
Offering was a one-time transaction, and all shareholders of the
Popular Stock, including the Participant Directed Plans, were treated
in the same manner with respect to the acquisition and holding of the
Rights. With regard to the fact that the subject transactions were
consummated prior to obtaining an exemption due to the timing of the
Rights Offering, it is represented that the fiduciaries were required
to engage in the Rights Offering before requesting the proposed
exemption, because such fiduciaries had no control over the timing of
the transactions.
Popular will bear all costs of the exemption application, and of
the notification of interested persons.
15. In summary, the Applicants represent that the proposed
transactions satisfy the statutory requirements for an exemption under
section 408(a) of the Act and section 4975(c)(2) of the U.S. Code
because:
a. The receipt by each of the Participant Directed Plans of the
Rights occurred in connection with the Offering made available by
Popular on the same terms to all shareholders of the Popular Stock;
b. The acquisition of the Rights by the Participant Directed Plans
resulted from an independent act of Popular as a corporate entity, and
all holders of the Rights, including the Participant Directed Plans,
were treated in the same manner with respect to the acquisition of the
Rights;
[[Page 51521]]
c. All shareholders of the Popular Stock, including the Participant
Directed Plans, received the same proportionate number of Rights;
d. All decisions regarding the acquisition and holding of the
Rights by the Participant Directed Plans were made in accordance with
the provisions of each such plan for individually directed investment
of participant Accounts, by the individual participants whose Accounts
in each such plan received the Rights in connection with the Offering;
and
e. Popular will refund to the P/S Plans and to the Accounts of each
of the participants in the Participant Directed Plans, the pro rata
portion of the Fee in the aggregate mount of $81,261.34 received by
Popular Securities, Inc., as a result of the exercise of the Rights by
each such plan and by each such Account, and the payment by each such
plan and each such Account of the subscription price of $21.00 per
share for the Popular Stock. Furthermore, Popular will refund to each
such plan and to each such Account an additional amount attributable to
lost earnings experienced by each such plan and each such Account on
the pro rata portion of such Fee, and interest on such lost earnings,
for the period from December 19, 2005, to the date when Popular has
refunded the pro rata portion of the Fee attributable to each such plan
and each such Account, the lost earnings amount, plus interest on such
lost earnings.
Notice To Interested Persons
Those persons who may be interested (the Interested Persons) in the
publication in the Federal Register of the Notice of Proposed Exemption
(the Notice) include:
(1) All participants in the Participant Directed Plans at the time
of the transactions for which relief is proposed (including former
employees with vested account balances in those plans);
(2) all retirees and beneficiaries currently receiving benefits
from the Participant Directed Plans;
(3) all employers with employees who participated in the
Participant Directed Plans at the time of the transactions for which
relief is proposed; and
(4) all the fiduciaries of the Participant Directed Plans.
It is represented that notification will be provided to all such
Interested Persons by first-class mail, within fifteen (15) calendar
days of publication of the Notice in the Federal Register. Such mailing
will contain a copy of the Notice, as it appears in the Federal
Register on the date of publication, plus a copy of the supplemental
statement (the Supplemental Statement), as required, pursuant to 29 CFR
2570.43(b)(2), which will advise all Interested Persons of their right
to comment and to request a hearing.
The Department must receive all written comments and requests for a
hearing no later than thirty (30) days from the last date of the
mailing of copies of the Notice and copies of the Supplemental
Statement to all Interested Persons.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 693-8540 (This is not a toll-free number).
Fidelity Brokerage Services, LLC (FBS), Fidelity Management
Corporation (together Fidelity) Located Boston, Massachusetts
[Application No. D-11424]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act (or ERISA) and section
4975(c)(2) of the Code, and in accordance with the procedures set forth
in 29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990.)
Section I: Covered Transactions
Effective (the date the final exemption is published in the Federal
Register), the restrictions of sections 406(a)(1)(D) and 406(b) of
ERISA, and the sanctions resulting from the application of section 4975
of the Code, including the loss of exemption of an individual
retirement account or annuity pursuant to section 408(e)(2)(A) of the
Code, of a Coverdell education savings account pursuant to section
530(d) of the Code, of a Archer medical savings account pursuant to
section 220(e)(2) of the Code, or of a health savings account pursuant
to section 223(e)(2) of the Code, by reason of section 4975(c)(1)(D),
(E), and (F) of the Code, shall not apply to the receipt of an
Applicable Benefit by an individual for whose benefit a Covered Plan is
established or maintained, or by his or her Family Members, with
respect to a Tiered Product, pursuant to an arrangement offered by
Fidelity under which the Account Value of the Covered Plan is taken
into account for purposes of determining eligibility to receive such
Applicable Benefit, provided that each condition of Section II of this
exemption is satisfied.
Section II: Conditions
(a) The Covered Plan whose Account Value is taken into account for
purposes of determining eligibility to receive the Applicable Benefit
under the arrangement is established and maintained for the exclusive
benefit of the participant covered under the Covered Plan, his or her
spouse, or their beneficiaries.
(b) The Applicable Benefit with respect to the Tiered Product must
be of the type that Fidelity itself could offer consistent with all
applicable federal and state banking laws and all applicable federal
and state laws regulating broker-dealers.
(c) The Applicable Benefit with respect to the Tiered Product must
be provided by Fidelity or its affiliate in the ordinary course of its
business as a bank or broker-dealer to customers of Fidelity who
qualify for such arrangement, but who do not maintain Covered Plans
with Fidelity or its affiliate.
(d) For purposes of determining eligibility to receive the
Applicable Benefit, the Account Value required by Fidelity for the
Covered Plan is as favorable as any such requirement based on the value
of any type of account used by Fidelity to determine eligibility to
receive the Applicable Benefit.
(e) The rate of interest paid with respect to any assets of the
Covered Plan invested in a Tiered Interest Product is reasonable.
(f) The combined total of all fees for the provision of services to
the Covered Plan is not in excess of reasonable compensation within the
meaning of section 4975(d)(2) of the Code and section 408(b)(2) of
ERISA.
(g) The investment performance of the Covered Plan's investment(s)
is no less favorable than the investment performance of an identical
investment(s) that could have been made at the same time by a customer
of Fidelity who is not eligible for (or who does not receive) any
Applicable Benefit.
(h) The Applicable Benefits offered with respect to any Tiered
Product under the arrangement to a Covered Plan customer must be the
same as is offered by Fidelity with respect to such Tiered Product to
non-Covered Plan customers of Fidelity having the same aggregate
Account Value.
(i) If the Covered Plan is established at a broker-dealer or bank
that is unrelated to Fidelity, the assets of the Covered Plan must be
custodied with Fidelity and at the time the Covered Plan is
established, disclosures must be made to the owner of the Covered Plan
specifying that under the arrangement, services are being provided by
Fidelity to the Covered Plan.
III. Definitions
(a) The term ``Fidelity'' means Fidelity Brokerage Services LLC
(FBS) or any of its affiliates. An ``affiliate'' of Fidelity Brokerage
Services LLC
[[Page 51522]]
includes any person directly or indirectly controlling, controlled by,
or under common control with FBS. The term control means the power to
exercise a controlling influence over the management or policies of a
person other than an individual.
(b) The term ``Covered Plan'' means a plan sponsored by Fidelity or
a plan with respect to which Fidelity maintains custody of its assets,
and is an Individual Retirement Plan or other savings account described
in section III(c), or a Keogh Plan described in section III(d).
(c) The term ``Individual Retirement Plan'' means an individual
retirement account (``IRA'') described in Code section 408(a), an
individual retirement annuity described in Code section 408(b), a
Coverdell education savings account described in section 530 of the
Code, an Archer MSA described in section 220(d) of the Code, or a
health savings account described in section 223(d) of the Code. For
purposes of this exemption, the term Individual Retirement Plan shall
not include an Individual Retirement Plan which is an employee benefit
plan covered by Title I of ERISA, except for a Simplified Employee
Pension (SEP) described in section 408(k) of the Code or a Simple
Retirement Account described in section 408(p) of the Code which
provides participants with the unrestricted authority to transfer their
balances to IRAs or Simple Retirement Accounts sponsored by different
financial institutions.
(d) The term ``Keogh Plan'' means a pension, profit-sharing or
stock bonus plan qualified under Code section 401(a) and exempt from
taxation under Code section 501(a) under which some or all of the
participants are employees described in section 401(c) of the Code. For
purposes of this exemption, the term Keogh Plan shall not include a
Keogh Plan which is an employee benefit plan covered by Title I of
ERISA.
(e) The term ``Account Value'' means the dollar value of
investments in cash or securities held in the account for which market
quotations are readily available. For purposes of this exemption, the
term ``cash'' shall include (without limitation) savings accounts that
are federally-insured and deposits as that term is defined in section
29 CFR Section 2550.408b-4(c)(3). The term ``Account Value'' shall not
include investments in securities that are offered by Fidelity
exclusively to Covered Plans.
(f) The term ``Tiered Product'' means an arrangement that is a
``Tiered Interest Product'' or a ``Tiered Loan Product.''
(g) The term ``Tiered Interest Product'' means a bank deposit, an
arrangement for payment of interest on free cash held in a brokerage
account, or any other arrangement under which assets in an individual's
account that is eligible for the arrangement (including Covered Plans)
are invested, and with respect to which interest is paid at a specified
rate based on the aggregate amount of the accounts maintained with
Fidelity by an individual and by his or her Family Members that are
eligible to be taken into account for purposes of the arrangement,
including the Account Value of the Covered Plans.
(h) The term ``Tiered Loan Product'' means any arrangement for the
extension of credit to an individual, with respect to which the
interest and/or Loan Expenses required to be paid are reduced to a
specified rate or amount based on the aggregate amount of the accounts
and other financial relationships of the individual (and his or her
Family Members) eligible to be taken into account for purposes of the
arrangement, including the Account Value of the Covered Plans.
(i) The term ``Loan Expenses'' means application fees, points,
attorneys' fees, appraisal fees, title insurance, and any other fees or
costs that an individual is required to pay in connection with the
origination or maintenance of an extension of credit pursuant to a
Tiered Loan Product.
(j) The term ``Applicable Benefit'' means: (i) in the case of a
Tiered Interest Product, an increase in the interest paid on an account
established or maintained by an individual or any of his or her Family
Members (including, in either case, through a Covered Plan); and (ii)
in the case of a Tiered Loan Product, a reduction in the interest and/
or Loan Expenses that an individual or any of his or her Family Members
is required to pay.
(k) The term ``Family Members'' means beneficiaries of an
individual for whose benefit the Covered Plan is established or
maintained who would be members of the family as that term is defined
in Code Section 4975(e)(6), or a brother, a sister, or spouse of a
brother or sister.
EFFECTIVE DATE: If granted, this exemption will be effective as of (the
date of publication of the final exemption in the Federal Register).
Summary of Facts and Representations
1. FBS is a limited liability company with its principal office
located in Boston, Massachusetts. FBS is wholly owned by FMR Corp.
which is the parent company of the group of entities that together
constitute Fidelity Investments (FBS and its affiliates are
collectively referred to as Fidelity.) Fidelity is a financial services
company that provides investment management, custody, brokerage, and
other services to a wide variety of individuals and entities, including
IRAs and other accounts and plans subject to Section 4975 of the Code
and/or ERISA. Fidelity has approximately $1.7 million trillion assets
under administration.
2. PTE 93-33 as amended (64 FR 11044, March 8, 1999), provides
relief from the restrictions of sections 406(a)(1)(D) and 406(b) of
ERISA and the sanctions resulting from the application of sections
4975(a) and (b), 4975(c)(3) and 408(e)(2) of the Code by reason of
section 4975(c)(1)(D), (E) and (F) of the Code, and permits the receipt
of services at reduced or no cost by an individual for whose benefit an
IRA or Keogh Plan is established or maintained or by members of his or
her family, from a bank pursuant to an arrangement in which the account
balance of the IRA or Keogh Plan is taken into account for purposes of
determining eligibility to receive such services, provided the
conditions of the exemption are met. PTE 93-33 permitted banks to count
IRAs and Keogh Plan established and maintained at the bank to determine
a customer's eligibility to receive reduced or not cost services. Under
PTE 93-33, as amended, banks are permitted to offer its customers only
those services that may be offered by banks under applicable federal
and state banking laws.\9\ In the case where the service is offered by
an affiliate of the bank, the service must be of the type that the bank
itself could offer customers.
---------------------------------------------------------------------------
\9\ In the notice of proposed exemption for PTE 93-2 (PTE 93-33
subsequently amended PTE 93-2) the following examples of
relationship banking services were listed: free checking services,
discounted safe deposit box rents, or free loan closing costs. (52
FR 8365 (February 28, 1992)). In addition, the Department notes that
a bank may offer other services or benefits to customers as part of
its relationship banking program. For example, under PTE 93-33 a
bank may offer its relationship banking customers a higher interest
rate on their investments, provided the conditions of the exemption
are met.
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PTE 97-11 as amended, (67 FR 76425, December 12, 2002) permits the
receipt of services at reduced or no cost by an individual for whose
benefit an IRA or Keogh Plan is established or maintained or by members
of his or her family, from a broker-dealer registered under the
Securities Exchange Act of 1934 pursuant to an arrangement in which the
account value of, or the fees incurred for services provided to, the
IRA or Keogh Plan is/are taken into account for purposes of determining
eligibility to receive such services,
[[Page 51523]]
provided that certain conditions are met. Under PTE 97-11 relief is
provided from the restrictions of sections 406(a)(1)(D) and 406(b) of
ERISA and the sanctions resulting from the application of sections
4975(a) and (b), 4975(c)(3) and 408(e)(2) of the Code by reason of
section 4975(c)(1)(D), (E) and (F) of the Code. PTE 97-11 limits the
services that may be offered by broker-dealers under a relationship
brokerage program to those services that the broker-dealer itself may
offer consistent with federal and state laws regulating broker-
dealers.\10\ Furthermore, in those cases where the services are
provided by an affiliate of the broker-dealer, the service must the
type that the broker-dealer itself could offer customers.
---------------------------------------------------------------------------
\10\ In the notice of proposed exemption for PTE 97-11 (61 FR
39996 (July 31, 1996), the following examples of relationship
brokerage services were listed: financial planning services, direct
deposit/debit and automatic fund transfer privileges, enhanced
account statements, toll-free access to client service center, check
writing privileges, debit/credit cards, special newsletter and
reduced brokerage and asset management fees. In addition, the
Department notes that a broker-dealer may offer its customers
additional services and benefits as part of its relationship
brokerage program. For example, under PTE 97-11, a broker-dealer may
offer its relationship brokerage customers a higher interest rate on
their investments, provided the conditions of the exemption are met.
---------------------------------------------------------------------------
3. Fidelity seeks an exemption that would allow the balance in a
customer's Covered Plan to be taken into account in setting the
interest rate earned on deposits or other similar investments of that
person and family members. Similarly, the requested exemption would
allow such person's Covered Plan balance to be taken into account in
setting the interest or expenses to be charged on a loan to such person
or any of the eligible relatives. The applicant represents that the
exemption is necessary and appropriate because if the exemption is
granted, Covered Plans would be able to receive favorable interest
rates or reductions in borrowing costs based on the total amount that
an individual and certain members of his or her family have in various
relationships with FBS and its affiliates.
These arrangements are similar to those contemplated in PTEs 93-33
and 97-11. However, Fidelity does not believe that the arrangement
described in its application falls within the relief provided by PTEs
93-33 or 97-11 because its arrangement involves the payment of enhanced
rates of interest on deposits or the charging of reduced rates of
interest on loans would constitute ``the receipt of services at reduced
or no cost'' within the meaning of the class exemptions.\11\ In
addition, Fidelity requests exemptive relief to permit plans that are
outside the term ``IRA'' as defined in PTEs 93-33 and 97-11, to engage
in the covered transactions.
---------------------------------------------------------------------------
\11\ In this regard, both of the Class Exemptions define the
term ``service'' to include incidental products of a de minimus
value which are directly related to the provision of services
covered by the exemption. It is noted that in footnote 26 of the
Summary of Facts and Representations related to a recently proposed
exemption sought by Citigroup, Inc. (Application No. D-11417, 72 FR
207, p 60905 (Oct. 26, 2007)), the Department indicated that
offering a higher interest rate on investments and other benefits
could fall within the Class Exemptions. Fidelity does not believe it
can reasonably rely on this notation and requests this exemption.
---------------------------------------------------------------------------
4. The transaction covered by the proposed exemption would apply to
a plan sponsored by Fidelity or a plan to which Fidelity maintains
custody of its assets, and is an IRA or other savings account as
described in section III(c) of the exemption, or a Keogh Plan described
in section III(d) of the exemption. Under section III(c) of the
exemption, the term IRA or other savings account is defined as IRAs
described in section 408(a) of the Code, Individual Retirement
Annuities described in section 408(b) of the Code, Archer Medical
Savings Accounts described in section 220(d) of the Code, health
savings accounts described in section 223(d) of the Code, Coverdell
education savings account described in section 530 of the Code.
However, the relief provided by the exemption, if granted, does not
apply to an IRA that is an employee benefit plan that is covered by
Title I of ERISA except for those IRAs that are part of a Simplified
Employee Pension (SEP) described in section 408(k) of the Code or a
Simple Retirement Account described in section 408(p) of the Code which
provides participants with the unrestricted authority to transfer their
balances to IRAs or Simple Retirement Accounts sponsored by different
financial institutions.
Under section III(d), the term Keogh means a pension, profit-
sharing or stock bonus plan qualified under Code section 401(a) and
exempt from taxation under Code section 501(a) under which some or all
of the participants are employees described in section 401(c) of the
Code. The relief provided by the exemption, if granted, does not apply
to a Keogh Plan which is an employee benefit plan covered by Title I of
ERISA.
Fidelity proposes to take into account the Account Value of the
assets of Covered Plans of a customer or Family Members in calculating
a customer's eligibility to receive Tiered Interest Products. In
addition to situations in which the customer establishes the Covered
Plan with Fidelity, Fidelity requests that the exemption permit
Fidelity to take into account the Account Value of a Covered Plan that
is established with an unrelated bank or broker-dealer, and is
custodied with Fidelity. For example, an individual may establish an
IRA with a broker-dealer that is unaffiliated with Fidelity under an
arrangement which specifies that Fidelity will act as clearing broker
for the account and will have custody of assets of the IRA. In such a
case, the IRA and IRA owner may not be in privity of contract with
Fidelity, but, under its agreement with the unaffiliated broker-dealer,
Fidelity would be providing services to the IRA. Fidelity represents
that disclosures provided to the IRA owner made by the unaffiliated
broker would clearly specify the arrangement that services are being
provided by Fidelity. Further, Fidelity's records would identify each
such IRA and indicate that such brokerage and custodial services are
being performed for the benefit of such IRA. Fidelity states there
would be a significant relationship between Fidelity and the IRA. Such
arrangements would operate under the exemption as arrangements
involving those Covered Plans that are established directly with
Fidelity.
5. According to Fidelity, offering tiered interest rate
arrangements to customers who have a variety of relationships with a
financial institution, have become a standard practice. Under a tiered
interest rate arrangement, the total amount of all of the relationships
that the individual and his or her eligible family members have with
the financial institution is determined, and the rate of interest paid
with respect to the individual's investment in any specified interest-
bearing product (e.g., a CD or other deposit, or a free credit balance
arrangement) will increase, at certain breakpoints, based on that total
amount. The relationships taken into account in determining that total
amount may include, for example, trust, custody, or brokerage accounts
with the institution, loans borrowed from the institution, or bank
deposits with the institution.
Fidelity offers the following example of a tiered arrangement: (a)
If the total amount of the relationships that an individual and his or
her eligible family members have with the financial institution is less
than $100,000, the interest rate paid on amounts held in one of those
accounts and invested in a specific type of CD may be 2.5%; (b) if the
total amount is at least $100,000 but less than $250,000, the interest
rate may be 3.0%; (c) if the total amount is at least $250,000 but less
than $1 million, the interest rate may be 3.5%; and (d)
[[Page 51524]]
if the total amount is $1 million or greater, the interest rate may be
4.0%.
6. Fidelity states that tiered interest rate arrangements have
become prevalent in, e.g., savings, money market, and checking vehicles
because they provide substantial benefits to both the financial
institutions that offer them and the individuals who take advantage of
them. From the perspective of the financial institution, tiered
interest rate arrangements allow the business to offer incentives to
individuals to consolidate assets at that institution and to reward an
individual for making that decision. From the perspective of the
customer, the institution can reward the individual as the relationship
grows. Amounts held in a variety of accounts may earn more favorable
rates of interest through investment in the tiered interest products
than would be earned if the individual's accounts were spread among
various financial institutions. If these tiered arrangements are
extended to Covered Plan, the assets of the Covered Plans would benefit
from favorable rates of interests.
For example, an IRA owner may lock in an interest rate over a
specified period by investing amounts held in the IRA in a certificate
of deposit, or idle cash held in a brokerage account may earn interest
under a free credit balance arrangement with the broker. Obtaining a
favorable interest rate in any situation where an account is invested
in an interest-bearing arrangement will help to maximize the overall
return on the assets held or maintained in the account.
7. Fidelity proposes to offer Tiered Interest Products to certain
eligible accounts, held in the name of customers (and Family Members),
with respect to which management, advisory, custody, brokerage, or
other services are provided by Fidelity. The interest rates to be paid,
based upon the applicable breakpoints, would be established for each
Tiered Interest Product based on the nature of the product, regulatory
requirements applicable to that particular Tiered Interest Product, and
relevant market considerations.
8. In addition, Fidelity proposes to offer customers tiered
arrangements under which the costs of borrowing are reduced in
connection with the relationships the borrower and his or her eligible
family members have with Fidelity. Under such an arrangement, the
aggregate amount the borrower and his or her Family Members have in
relationships (i.e., assets maintained with Fidelity) with Fidelity is
determined, and the interest rate and/or Loan Expenses charged with
respect to the loan will be decreased, at certain breakpoints, based on
that total amount.
9. If the exemption is granted, Fidelity would be able to consider
account balances of Covered Plans in determining a customer's
eligibility to receive: (i) an increased rate of interest with respect
to a Tiered Interest Product, and to other eligible accounts held or
maintained in the name of the customer (or the name of his or her
Family Members); or (ii) a reduction in the interest rate or Loan
Expenses charged to a customer (or one of his or her Family Members)
under a Tiered Loan Product.
10. In summary, and for the reasons stated in the Application,
Fidelity represents the transactions will satisfy statutory criteria of
Section 4975(c)(2) of the Code and Section 408(a) of ERISA since, among
other things:
(a) The Covered Plan whose Account Value is taken into account for
purposes of determining eligibility to receive the Applicable Benefit
under the arrangement will be established and maintained for the
exclusive benefit of the participant covered under the Covered Plan,
his or her spouse, or their beneficiaries.
(b) The Applicable Benefit with respect to the Tiered Product will
be of the type that Fidelity could offer consistent with all applicable
federal and state banking laws and all applicable federal and state
laws regulating broker-dealers.
(c) The Applicable Benefit with respect to the Tiered Product will
be provided by Fidelity or its affiliate in the ordinary course of
business as a bank or broker-dealer to customers of Fidelity who
qualify for such arrangement but who do not maintain Covered Plans with
Fidelity or its affiliate.
(d) For purposes of determining eligibility to receive the
Applicable Benefit, the Account Value of the Covered Plan required by
Fidelity will be as favorable any requirement based on the value of any
type of account used by Fidelity to determine eligibility to receive
the Applicable Benefit.
(e) The rate of interest paid with respect to any assets of the
Covered Plan invested in a Tiered Interest Product will be reasonable.
(f) The combined total of all fees for the provision of services to
the Covered Plan will not be in excess of reasonable compensation
within the meaning of section 4975 (d)(2) of the Code and 408(b)(2) of
ERISA.
(g) The investment performance of the Covered Plan's investment(s)
will be no less favorable than the investment performance of an
identical investment(s) that could have been made at the same time by a
customer of Fidelity who is not eligible for (or who does not receive)
any Applicable Benefit.
(h) The Applicable Benefits offered with respect to any Tiered
Product under the arrangement to a Covered Plan customer will be the
same as is offered with respect to such Tiered Product to non-Covered
Plan customers having the same aggregate Account Value.
(i) When the Covered Plan is established at a broker-dealer or bank
that is unrelated to Fidelity, the assets of the Covered Plan will be
custodied with Fidelity, and at the time the Covered Plan is
established, disclosures will be made to the owner of the Covered Plan
specifying that under the arrangement, services will be provided by
Fidelity to the Covered Plan.
Notice to Interested Persons
The applicant represents that because those potentially interested
persons cannot all be identified at the time this proposed exemption is
published in the Federal Register, the only practical means of
notifying the public is by publication of the notice of pendency in the
Federal Register. Therefore, written comments and/or requests for a
public hearing must be received by the Department not later than 45
days from the date of publication of this notice of proposed exemption
in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Allison Padams-Lavigne, U.S.
Department of Labor, telephone (202) 693-8564. (This is not a toll-free
number.)
Calpine Corporation Located in Houston, TX [Application No. D-11459]
Proposed Exemption
The Department 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 in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, effective January 31, 2008, the restrictions of section
406(a), 406(b)(1) and (b)(2), and 407(a) of the Act and the sanctions
resulting from the application of section 4975(c)(1)(A) through (E) of
the Code, shall not apply to (1) the past acquisition by the Calpine
Corporation Retirement Savings Plan (the Plan) of warrants (the
Warrants) issued by the Calpine Corporation (the Applicant) that would
permit, under certain conditions, the purchase of shares of newly-
issued
[[Page 51525]]
Calpine Common Stock (the New Stock) pursuant to certain bankruptcy
proceedings; (2) the holding of the Warrants by the Plan; and the (3)
disposition of the Warrants. This proposed exemption is subject to the
following conditions:
(a) The acquisition and holding of the Warrants by the Plan
occurred in connection with the Applicant's bankruptcy proceedings
pursuant to which all holders of Calpine Common Stock prior to January
31, 2008 (the Old Stock) were treated in the same manner;
(b) The Plan had little, if any, ability to affect the negotiation
of the Applicant's Plan of Reorganization pursuant to Chapter 11 of the
United States Bankruptcy Code;
(c) The Plan acquired the Warrants automatically and without any
action on the part of the Plan;
(d) The Plan did not pay any fees or commissions in connection with
the acquisition and holding of the Warrants;
(e) All decisions regarding the holding and disposition of the
Warrants by the Plan were made in accordance with Plan provisions for
individually directed investment of participant accounts by the
individual participants whose accounts in the Plan received the
Warrants; and
(f) The Plan received the same proportionate number of Warrants as
other owners of Old Stock.
Summary of Facts and Representations
1. The Plan is a defined contribution plan that provides for
participant-directed investments. As of December 31, 2007, the Plan had
total assets of approximately $162,756,131 and 2,906 participants.
Fidelity Management Trust and Company (Fidelity) is the current trustee
as well as custodian for the Warrants.
2. The Applicant is a Delaware corporation with its principal place
of business in Houston, Texas. The Applicant generates and sells
electricity and electricity-related products.
3. On December 20, 2005, the Applicant filed for relief under
Chapter 11 of the Bankruptcy Code. On December 19, 2007, the U.S.
Bankruptcy Court for the Southern District of New York approved and
confirmed the Debtors' Sixth Amended Joint Plan of Reorganization
Pursuant to Chapter 11 of the United States Bankruptcy Code (POR). The
Applicant represents that during the bankruptcy proceedings, the Plan
had little ability to affect the outcome of the proceedings. Under the
POR, the Old Stock \12\ was Calpine's common stock which traded prior
to January 31, 2008. Pursuant to the POR, the Old Stock was cancelled
on January 31, 2008 and delisted on February 4, 2008. Pursuant to the
POR, holders of the Old Stock received Warrants on January 31, 2008
which would, under certain conditions, permit the holders of the Old
Stock to purchase the New Stock.
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\12\ The Old Stock traded on the Over-the-Counter Market with
the ticker symbol of ``CPNLQ US.'' As of November 2, 2007, there
were 482,200,000 shares outstanding of the Old Stock. The 52-week
high was $3.38 on August 8, 2007 and the 52-week low was $.12 on
February 2, 2008.
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4. The Plan received 210,000 Warrants automatically which represent
.4% of the total Warrants that were issued. Each Warrant entitles the
holder to purchase one share of the New Stock. The Warrant holders have
the ability to purchase up to ten percent (10%) of the Applicant's New
Stock. The Warrants expire on August 25, 2008. On June 10, 2008, the
price of a Warrant was $0.78. As of June 10, 2008, the price of the New
Stock was $22.59. The Warrant exercise price for each share of the New
Stock is $23.88. No fractional shares will be issued and no cash in
lieu of fractional Warrants will be distributed.
5. The Applicant represents that it has analyzed the prohibited
transaction implications under the Act concerning the acquisition,
holding and disposition of the Warrants by the Plan under the POR. The
Applicant, accordingly, has concluded that the acquisition and holding
of the Warrants by the Plan may have resulted in transactions in
violation of section 406 of the Act and section 4975 of the Code.
6. On December 4, 2005, the Applicant retained U.S. Trust to serve
as an independent fiduciary with respect to the Old Stock and the
Warrant fund under the Plan. It is represented that U.S. Trust also
serves as the investment manager for the Warrants and for any New Stock
that may be acquired upon exercise of the Warrants. Accordingly, U.S.
Trust has the authority to dispose of the Warrants if it determines it
is obligated to do so under the Act. In the event that the Warrants are
in the money immediately prior to the expiration of the Warrants, U.S.
Trust, as the independent fiduciary of the Warrant fund, has the
obligation to sell any Warrants that have not been exercised by the
Plan participants. Moreover, U.S. Trust has the power to restrict Plan
participants from exercising the Warrants if the New Stock market price
is less than the Warrant strike price. However, the Applicant
represents that U.S. Trust has no authority to exercise the Warrants
and that only Plan participants will have that authority.\13\
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\13\ The Applicant initially requested administrative relief for
the exercise of the Warrants by Plan participants. Subsequently, the
Applicant withdrew its request for administrative relief and,
instead, is relying on the statutory exemption pursuant to section
408(e) of the Act to provide relief to Plan participants for the
exercise of the Warrants. The Department is offering no view as to
whether the exercise of the Warrants by Plan participants satisfies
the conditions of section 408(e) of the Act. >7. All holders of the
Old Stock have been treated in a similar manner. Plan participants
were not charged a fee or commission to acquire or hold the
Warrants. The Applicant represents that the Warrants are
transferable. The Applicant represents that the commission rate
charged by Fidelity to Plan participants for trades or for the
exercise of the Warrants was 2.9 cents per Warrant.
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8. The Warrants are not listed on an exchange; however, an Over-
the-Counter Market for the Warrants currently exists based on bid and
ask prices listed on an electronic quotation service known as the
``Pink Sheets.'' The Applicant represents that any Warrants sold at the
request of a Plan participant will be sold on the Over-the-Counter
Market.
9. In summary, the Applicant represents that the transactions
satisfy the statutory criteria for an exemption under Section 408(a) of
the Act for the following reasons: (a) All holders of the Old Stock
have been treated in the same manner with respect to the acquisition
and holding of the Warrants pursuant to the Applicant's bankruptcy
proceeding; (b) The Plan was unable to influence the bankruptcy
proceedings; (c) The Plan acquired the Warrants automatically and
without any action on the part of the Plan; (d) The Plan did not pay
any fees or commissions in connection with the acquisition and holding
of the Warrants; (e) Plan participants had the authority to make
decisions regarding the disposition of the Warrants in accordance with
the terms of the Plan. All decisions regarding the holding and
disposition of the Warrants by the Plan were made in accordance with
Plan provisions for individually directed investment of participant
accounts by the individual participants whose accounts in the Plan
received the Warrants; and The Plan received the same proportionate
number of Warrants as other owners of Old Stock.
FOR FURTHER INFORMATION CONTACT: Mr. Anh-Viet Ly, Department of Labor,
telephone number (202) 693-8648. (This is not a toll-free number).
Merritts Antiques, Inc. Employees Pension Plan (the Plan) Located
in Douglasville, Pennsylvania [Application No. D-11467]
[[Page 51526]]
Proposed Exemption
The Department 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 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) and 406(b)(1) and (2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the prospective cash sale (the Sale) by the
Plan of improved real property located at 1172 Old Swede Road, Amity
Township, Berks County, PA (the 1172 Property) to Merritts Antiques,
Inc. (the Employer), a party in interest with respect to the Plan,
provided that:
(a) On the date of the cash sale of the 1172 Property by Plan to
the Employer, the Plan receives an amount for the 1172 Property equal
to the greater of:
(1) $180,000;
(2) The fair market value as determined by an independent,
qualified appraiser, as of the date of such Sale; or
(3) The total costs to the Plan during its ownership which would
include acquisition and holding costs minus all income received.
(b) The Plan incurs no fees, commissions, or other charges or
expenses as a result of its participation in the Sale.
(c) The Sale is a one-time transaction for cash.
Summary of Facts and Representations
1. On March 28, 1969, the Employer adopted the Plan which is a
defined benefit plan. On March 31, 2007 there were 33 Participants in
the Plan and the Plan had total net assets of $2,638,170. National Penn
Investors Trust Company serves as the Trustee. The Employer filed a
Form 5310 (Application for Determination for Terminating Plan) with the
IRS on or about September 20, 2007. On May 28, 2008, the IRS issued a
favorable determination letter allowing the Plan to terminate.
2. The Employer, a corporation located in Douglasville, PA, engages
in the antiques business. As an employer whose employees are covered by
the Plan, the Employer is a party in interest with respect to the Plan
pursuant to section 3(14)(C) of the Act.
3. On June 10, 1994, the Plan acquired a parcel of improved real
property located at 1168 Old Swede Road, Amity Township, Berks County,
PA (the 1168 Property) for $59,000.00 from an unrelated party.
Beginning on September 1, 1998, Anna Mae Shelton, an employee of the
Employer, and Kenneth Shelton (the Sheltons) leased the first floor
unit of the 1168 Property for $575 per month from the Plan.\14\ From
May 15, 2003 until June 30, 2006, the Sheltons paid $600 per month and
from July 1, 2006 until June 30, 2007, they paid $625.00 to the Plan
per month. Subsequent to July 1, 2007, the Sheltons paid the Plan
$650.00 per month. On April 30, 2008, the Plan sold the 1168 Property
to an unrelated third party purchaser for $160,000.
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\14\ The Department is not proposing any relief for the lease by
the Plan to the Sheltons.
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4. On June 7, 1991, the Plan acquired the 1172 Property for
$125,000.00 from an unrelated party. Penny and Steve Lauer (the Lauers)
originally leased the 1172 Property from the Plan for $550 per month
beginning in August 1991. Beginning on October 23, 2006, tenant Penny
Lauer became employed by the Employer.\15\ The Employer represents that
Penny Lauer is not a highly-compensated employee. When the Lauers moved
out of the 1172 Property on February 28, 2007, the lease payments had
increased to $650.00 per month. Penny Lauer remains employed by the
Employer. During the duration of its ownership of the 1172 Property,
the Plan incurred holding costs (taxes, maintenance and insurance) of
$63,671.48 and received gross rental income of $115,800. The total cost
to the Plan for acquisition and holding of the 1172 Property after
subtracting gross rental income is $72,871.48 ($125,000 plus $63,671.48
minus $115,800).
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\15\ The Department is not proposing any relief for the lease by
the Plan to the Lauers.
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5. On February 8, 2007, an appraiser Douglas A. Haring, MAI, SRA
(the Appraiser), reviewed the Plan's leases for the 1168 and 1172
Properties. It is represented that the Appraiser is qualified based on
the fact the Appraiser has been a Society of Real Estate Appraiser
member since April 28, 1980, a Pennsylvania Certified General Appraiser
since October 25, 1991 and a Member of the Appraisal Institute since
October 25, 2001. The Appraiser represents that he is independent
because he received less than one percent of his income in 2006 and
2007 from the Plan and the Employer combined.
The Appraiser determined the rent received by the Plan from the
Sheltons for the 1168 Property represented fair market rental value.
The Appraiser also determined the rent received by the Plan from the
Lauers' for the 1172 Property represented fair market rental value. The
Appraiser's opinion is based on comparable rental data based on a
number of similar rental units located in Berks County, PA.
6. The Employer requests an exemption for the proposed sale of 1172
Property to the Employer. On November 20, 2007, the Appraiser appraised
the value of the 1172 Property at $180,000.00 using a sales comparison
approach.
7. In summary, the Employer represents that the proposed
transaction, in which the Plan is selling real property in order to
make distributions as part of the Plan's termination, satisfies the
statutory criteria for an exemption under section 408(a) of the Act
because:
a. On the date of the Sale, the Plan receives an amount for the
1172 Property equal to the greater of: (i) $180,000; (ii) the fair
market value of the 1172 Property as determined by an independent,
qualified appraiser, as of the date of such Sale; or (iii) the cost to
the Plan to acquire and hold the 1172 Property;
b. The Plan pays no fees, commissions, charges or expenses in
connection to the Sale; and
c. The Sale is a one-time cash transaction.
FOR FURTHER INFORMATION CONTACT: Mr. Anh-Viet Ly of the Department,
telephone 202-693-8648. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the
[[Page 51527]]
exemption is administratively feasible, in the interests of the plan
and of its participants and beneficiaries, and protective of the rights
of participants and beneficiaries of the plan;
(3) The proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 27th day of August, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-20277 Filed 9-2-08; 8:45 am]
BILLING CODE 4510-29-P