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a transaction described in an applica- (3) The exemption is supplemental Prohibited Transaction Exemption tion submitted by the trustees of the to, and not in derogation of, any other

78-9 Plan. The notice set forth a summary provisions of the Act, including statof the facts and representations con

DEPARTMENT OF utory or administrative exemptions tained in the application for exemp- and transitional rules. Furthermore,

THE TREASURY tion, and referred intrested persons to the fact that a transaction is subject Internal Revenue Service the application for the complete state- to an administrative or statutory ex

DEPARTMENT OF LABOR ment of the facts and representations. emption or transitional rule is not dis

Pension and Welfare Benefit Programs On March 21, 1978, notice was pub- positive of whether the transaction is lished in the Federal Register (43 FR in fact a prohibited transaction;

Exemption from the Prohibitions 55), correcting a typrographical error (4) In accordance with section 408

Respecting a Transaction Involving which appeared in the notice of pend- (a) of the Act and the procedure set the Pension Plan and Trust of Enency published on October 25, 1977. forth in ERISA Procedure 75-1 (40 dodontic Associates, P.A. The application has been available FR 18471, April 28, 1975) and based

AGENCIES: for public inspection at the Depart- upon the entire record, the Depart

Department of the ment in Washington, D.C. The notice ment makes the following determina

Treasury/Internal Revenue Service, also invited interested persons to subtions:

Department of Labor mit comments on the requested ex- (i) The exemption is administra- ACTION: Grant of individual exemption to the Department. In additively feasible;

emption tion, the notice stated that any inter

(ii) The exemption is in the inested person might submit a written

SUMMARY: This exemption enables terests of the Plan and of the parrequest that a hearing be held relating ticipants and beneficiaries of the Plan;

the Pension Trust of Endodontic Asto the requested exemption. No com

sociates, P.A. (the Trust) to sell cerand ments and no requests for a public

tain Trust assets to Dr. William N.

(iii) The exemption is protective Gressette, an officer and stockholder hearing were received by the Depart

of the rights of participants and benement.

of Endodontic Associates (the Emficiaries of the Plan.

ployer) and sole trustee of the Trust. General Information

Exemption

FOR FURTHER INFORMATION The attention of interested persons is directed to the following:

Accordingly, the following exemp

CONTACT: Timothy Smith of the

Prohibited Transactions Staff of the tion is hereby granted under the au(1) The fact that a transaction is

Employee Plans Division, Internal thority of section 408(a) of the Act the subject of an exemption granted and in accordance with the procedures

Revenue Service, 1111 Constitution under section 408(a) of the Act does set forth in ERISA Procedure 75-1.

Avenue, N.W., Washington, D.C. not relieve a fiduciary or other party

20224

(Attention: E:EP:PT:1) in interest with respect to a plan to

The restrictions of section 406(a)

(202-566-6761). This is not a toll which the exemption is applicable (1) and 406(b)(2) of the Act shall

free number. from certain other provisions of the

not apply to the purchase by the Plan Act, including any prohibited transof a certain parcel of property from

SUPPLEMENTARY action provisions to which the exempthe Union, subject to the terms, con

INFORMATION tion does not apply and the general ditions, and representations set forth

On April 18, 1978, notice was pubfiduciary responsibility provisions of in the application.

lished in the Federal Register (43 section 404 of the Act which, among The availability of this exemption FR 16437) of the pendency before the other things, require that a fiduciary is subject to the express conditions Internal Revenue Service and the Dedischarge his duties respecting the plan

that the material facts and representa- partment of Labor (the Agencies) of solely in the interests of the partici

tions contained in the application are an exemption from the taxes imposed pants and beneficiaries of the plan true and complete, and that the ap

by section 4975(a) and (b) of the and in a prudent fashion in accord

all

plication accurately describes ance with section 404(a)(1)(B) of

Internal Revenue Code of 1954 (the

Code) by reason of section 4975(c) the Act; material erms of the transaction to

(1)(A) through (E) of the Code and (2) The exemption does not extend be consummated pursuant to the ex

from the provisions of section 406(a) to transactions prohibited under secemption.

(1), 406(b)(1) and 406(b)(2) of tion 406(b)(1) and (b)(3) of the Signed at Washington, D.C., this

the Employee Retirement Income Act; 30th day of June, 1978.

Security Act of 1974 (the Act), Pub.

L. 93-406, 1974-3 C.B. 1, for a trans- (2) This exemption does not ex- approximately 3.18 acres of land on action described in an application sub- tend to transactions prohibited under Howard Drive, Greenville, S.C., by mitted by the trustee of the Trust. The section 4975(c)(1)(F) of the Code the Trust to Dr. Gressette, for $8,000 notice set forth a summary of the facts and section 406(b)(3) of the Act. cash, provided that this amount is not and representations contained in the (3) This exemption is supplemental less than the fair market value of the application for exemption and referred to, and not in derogation of, any other property. interested persons to the application provisions of the Code and the Act, The availability of this exemption is for a complete statement of the facts including statutory or administrative

subject to the express conditions that and representations. The application exemptions and transitional rules. the material facts and representations has been available for public inspec- Furthermore, the fact that a transac- contained in the application are true tion at the Agencies in Washington, tion is subject to an administrative or and complete and that the application D.C. The notice also invited interested statutory exemption or transitional

accurately describes all material terms persons to submit comments on the re- rule is not dispositive of whether the of the transaction consummated purquested exemption to the Internal transaction is in fact a prohibited suant to the exemption. Revenue Service (the Service). In transaction.

Signed at Washington, D.C. this addition, the notice stated that any (4) This document does not meet 10th day of July, 1978. interested person might submit a writ- the criteria for significant regulations ten request that a hearing be held re- set forth in paragraph 8 of the prolating to this exemption. No public posed Treasury directive appearing in

Prohibited Transaction coinments and no requests for a hear- the Federal Register for Wednesday, Exemption 78-10 ing were received by the Service. May 24, 1978 (43 FR 22319).

DEPARTMENT OF LABOR GENERAL INFORMATION

EXEMPTION

Pension and Welfare Benefit

Programs The attention of interested per

In accordance with section 4975(c) sons is directed to the following: (2) of the Code and section 408(a)

DEPARTMENT OF (1) The fact that a transaction is of the Act and the procedures set

THE TREASURY the subject of an exemption granted

forth in Rev. Proc. 75-26, 1975-1 C.B. under section 4975(c) (2) of the Code

722, and ERISA Proc. 75-1 (40 FR Internal Revenue Service and section 408(a) of the Act does not 18471, April 28, 1975), and based

EXTENSION OF CLASS EXEMPrelieve a fiduciary or party in interupon the entire record, the Agencies

TION FOR CERTAIN TRANSACest or disqualified person with respect make the following determinations:

TIONS INVOLVING EMPLOYEE to a plan to which the exemption is

(a) The exemption is administra

BENEFIT PLANS AND BROKERapplicable from certain other provi- tively feasible;

DEALERS sions of the Code and the Act. These

(b) It is in the interests of the Plan provisions include any any prohibited and of the participants and benefici

Prohibited Transaction Exemption aries; and transaction provisions to which the exemption does not apply and the gen

(c) It is protective of the rights of AGENCIES: Department of Labor, eral fiduciary responsibility provisions participants and beneficiaries of the

Department of the Treasury/Internal of section 404 of the Act, which among Plan.

Revenue Service. other things require a fiduciary to dis

Accordingly, the following exemption charge his duties respecting the plan

ACTION: Grant of extension of class is hereby granted under the authority solely in the interests of the partici

exemption. of section 4975(c) (2) of the Code and pants and beneficiaries of the plan

section 408(a) of the Act and in ac- SUMMARY: This document contains and in a prudent fashion in accord

cordance with the procedures set forth a notice by the Department of Labor ance with subsection (a)(1)(B) of

in Rev. Proc. 75-26 and ERISA Proc. and the Internal Revenue Service section 404 of the Act, nor does the 75-1.

(hereinafter referred to collectively as fact the transaction is the subject of

The taxes imposed by section 4975 the Agencies) of the grant of an exan exemption affect the requirement

(a) and (b) of the Code by reason of tension until February 1, 1979 of that of section 401(a) of the Code that a

section 4975(c)(1)(A) through (E) portion of a previously granted class plan must operate for the exclusive

of the Code and the restrictions of exemption which permitted securities benefit of the employees of the em- section 406(a) (1), 406(b) (1) and broker-dealers, until May 1, 1978, ployer maintaining the plan and their 406(b)(2) of the Act shall not apply to provide brokerage and incidental beneficiaries.

to a transaction involving the sale of services, under certain circumstances, to employee benefit plans with respect by the Securities Industry Association 94-229, 94th Cong., 1st Sess. (1975)) to which they are fiduciaries. The (SIA). The Agencies have also re- had indicated, at page 107, that it was Agencies are also granting a retro- ceived four applications for individual the view of the conferees that the active exemption with regard to exemptions which might relate to Agencies should grant an exemption transactions which have occurred since this extension.? To the extent that the from the prohibited transaction proMay 1, 1978. The exemption affects transactions which are the subject visions of the Act and the Code to broker-dealers who provide services of those applications are of the type permit broker-dealers to continue to to employee benefit plans, and partic- described in this exemption, such provide brokerage services to plans ipants and beneficiaries of such plans. transactions will be exempted if they with respect to which they exercised FOR FURTHER INFORMATION

satisfy the terms and conditions of this investment discretion until May 1, CONTACT: Daniel J. Shapiro, exemption.

1978, in order to conform the perti

In granting the pertinent portion Esq., Office of the Solicitor, Plan

nent provisions of ERISA and the of Exemption 75-1 in 1975, the Agen- Code to section 11(a) of the ExBenefits Security Division, Room C

cies determined that securities broker4508, U.S. Department of Labor, 200

change Act and thereby permit brokerConstitution Avenue, N.W., Wash

dealers regularly provided research, dealers to phase out, in an orderly

information and advice concerning fashion, the business of both serving ington, D.C. 20210, (202) 523-7931;

securities, and effected agency transor Ivan Strasfeld, Esq., Prohibited

as investment advisers to plans and Transactions Staff, Employee Plans

actions for the purchase or sale of providing brokerage services to such

securities, in the ordinary course of Division, Internal Revenue Service,

plans. 1111 Constitution Avenue, N.W.,

their business as broker-dealers, and Therefore, with respect to a person Washington, D.C. 20224, (202) 556

that the provision of a combination who was a plan fiduciary, Prohibited 3045. These are not toll free numbers.

of such services by a fiduciary with re- Transaction Exemption 75-1 progard to employee benefit plans would

vided, in part, an exemption for efSUPPLEMENTAL INFORMA- constitute prohibited transactions un- fecting securities transactions on beTION: On May 5, 1978, notice was

der ERISA and the Code unless a half of employee benefit plans and for published in the Federal Register (43 statutory or administrative exemption

functions performed incidental to the FR 19481), that the Agencies had was available. The Agencies took effecting of such transactions. The under consideration a proposed exnote that in the future most transac

pertinent part of the exemption was tension until December 1, 1978, of a tions by plan fiduciaries that would

available whether or not the transacclass exemption from the restrictions be covered by the relevant portion of tion was effected on a national securiof section 406 of the Employee ReExemption 75-1 also would, in effect,

ties exchange, but it applied only to tirement Income Security Act of 1974 be prohibited by section 11(a) of the

persons effecting securities transac(ERISA) [Pub. L. 93-406, 1974-3 C.B. Securities Exchange Act of 1934 (Ex

tions on May 1, 1975 and it was avail1, 48] and from the taxes imposed by change Act), as amended by the able only until May 1, 1978. The section 4975(a) and (b) of the InSecurities Acts Amendments Act of

availability of Prohibited Transaction ternal Revenue Code of 1954 (the 1975 (Pub. L. 94-29, 89 Stat. 110). Exemption 75-1 was also subject to Code) by reason of section 4975(c) That section prohibits any member of certain other conditions. (1) of the Code. Specifically, the a national securities exchange from ef

In publishing the notice of the proAgencies proposed an extension of fecting any transaction on such ex

posed extension of paragraph I(a) of paragraph I(a) of Prohibited Trans- change for an account with respect to

Prohibited Transaction Exemption action Exemption 75-1 (1975-2 C.B. which it or an associated person there

75-1, the Agencies took note of, among 543); that portion of the exemption of exercises investment discretion.

other things, the fact that both houses expired on May 1, 1978. The per- The Agencies noted also that sec- of Congress had at that time passed tinent portion of Prohibited Trans- tion 11(a) of the Exchange Act bills which would postpone the full action Exemption 75-1 relates to cer- provided an exception from the pro- effectiveness of section 11(a) of the tain securities transactions effected on hibition described above until May 1, Exchange Act beyond May 1, 1978, behalf of employee benefit plans by 1978 for members of a national securi

although no such legislation had yet persons who are fiduciaries of the plan. ties exchange who were members on been enacted into law. The SIA had The extension of the class exemption May 1, 1975. The Conference Re

May 1, 1975. The Conference Re- suggested that, in view of these and was requested in an application filed port relating to the Securities Acts

other developments, the Agencies Amendments of 1975 (H.R. Rep. No. * Prohibited Transaction Exemption 75-1

3 See also Conference Report on ERISA, was published in the Federal Register on Exemption Application Nos. D-724, D- H.R. Rep. No. 93-1280, 93d Cong., 2d October 31, 1975 (40 FR 50845). 862, D-888 and D-981.

Sess. 309-10 (1974) (1974-3 C.B. 416).

2

7

was

should reconsider their earlier deter- that, if the prohibited transaction fective on February 1, 1979. The mination that the transactions de- provisions of ERISA prevented Agencies have also determined to scribed above should not be permitted broker-dealers who managed plan ac- make the exemption retroactive to after May 1, 1978.

counts from effecting transactions for May 1, 1978. In adopting the original The extension of the exemption was the plans while at the same time the exemption until May 1, 1978, the proposed in accordance with the pro- amended section 11(a) of the Ex- Agencies noted that, in enacting cedure set forth in ERISA Procedures change Act permitted those broker- ERISA, Congress had expressed its 75-1 (41 FR 18471, April 28, 1975) dealers to effect transactions for other expectation that the Agencies would and Rev. Proc. 75-26, 1975-1 C.B. types of accounts which they man- act consistently with any action taken 722. Interested persons were invited aged, there might be instances where by Congress in connection with the to submit written comments on the it would be impossible for the broker- general issue of institutional investproposed extension and the Agencies dealers to arrange purchases or sales ment management by brokers which held a public hearing on the matter of particular stocks for the plans at was then under consideration.” The on June 12, 1978. Almost all of the prices as favorable as those paid or Agencies' decision to adopt the origipersons filing written comments and received by the other accounts.

nal exemption was based largely upon appearing at the public hearing sup- Additionally, in urging that the pro

this expression of congressional intent, ported an extension of the pertinent posed extension be granted, many

coupled with a similar indication of portion of Prohibited Transaction Ex

commentators contended that failure congressional intent when Congress emption 75-1.

to adopt the extension would create passed section 11(a) the following Commentators pointed out that disruption in existing arrangements

year. Similar considerations militate subsequent to issuance of notice of the for plans without any demonstrable

in favor of the extension now being proposed extension, Congress had benefit or protection for the plans. granted until February 1, 1979.9 passed and the President had signed

The only commentator objecting to a bill which amended section 11 (a) of

the proposed extension the See Conference Report on ERISA, the Exchange Act to delay the full American Council of Life Insurance

note 3, supra. effectiveness of that section for nine

* See H.R. Rep. No. 94-229, 94th Cong., (ACLI). The ACLI suggested that

1st Sess. 107 (1975). months, from May 1, 1978 to Febru

the provision of both investment man- "As noted earlier, the Agencies proposed ary 1, 1979.5 It was argued that Conagement and brokerage services by

to extend the exemption only until Decemgress, in enacting this amendment,

ber 1, 1978. However, subsequent to pubbroker-dealers to plan accounts re- lication of notice of the proposed extenhad recognized that the relief afforded

sults in an unacceptable conflict of sion, the legislation postponing the full by the legislation would be available interest which is contrary to the in

effectiveness of section 11(a) until Febru

ary 1, 1979 was enacted. For the reasons with respect to transactions effected for tent of ERISA. Furthermore, the

discussed above, the Agencies believe that employee benefit plans only if the

ACLI asserted that broker-dealers the expiration date of the exemption being Agencies extended the exemption, and have had sufficient notice that the ex

granted herein should be the same as the that Congress had expressed its ex

corresponding date under section 11(a) emption would expire to enable them as amended. On the other hand, the exemppectation that the Agencies would pro- to make other arrangements regarding

tion being adopted herein, like the original vide such relief. It was also argued the multiple services previously per

one adopted in 1975, will be available with

respect only to broker-dealers who were formed for ERISA accounts.

performing the described functions on be*Most of the persons filing comments, After consideration of the written

half of a plan on May 1, 1975. This proand all of those appearing at the hearing,

vision of the previous exemption correwere broker-dealers or represntatives of

comments and the views presented at sponded to a provision of the original secbroker-dealers.

the hearing, the Agencies have de- tion 11(a) which limited the availability 5 Pub. L. 95-283, 95th Cong. 2d Sess. cided that it would be appropriate to

of the transitional relief provided in that

section to broker-dealers who were mem(1978). * In its report accompanying the bill,

extend the pertinent portion of Pro- bers of a national securities exchange on the Senate Committee stated: hibited Transaction Exemption 75-1

May 1, 1975. Although this "grandfather" In order to avoid confusion and undue

date was changed to February 1, 1978 in until the amended section 11(a) of disruption respecting securities transactions

the amended section 11(a), the Agencies involving employee benefit plans subject to

the Exchange Act becomes fully ef- believe that it is appropriate to retain the [ERISA), the Committee expects that the

original "grandfather" date of May 1, Agencies] will act expeditiously to extend

1975 in the exemption. This is because, be consistent with the desire of the Con[Prohibited Transaction Exemption

under the terms of the previous exemption, 75-1]. S. Rep. No. 95-763, 95th Cong. 2d

gress that, to the maximum degree consist- a broker-dealer who was not performing Sess. 5-6 (1978).

ent with the policies of ERISA (the Agen- the described functions on May 1, 1975 on

cies] conform those ERISA prohibitions behalf of a plan could not, in the absence Similarly, the House Committee stated:

applicable to securities firms and municipal of an exemption, have performed such The Committee believes that the con- securities dealers to the provisions and functions on behalf of a plan after the date tinuation of [Exemption 75-1] . . . would policies of the Exchange Act. H. Rep. No. without engaging in a prohibited transfoster the objectives of this bill and would 95-1010, 95th Cong. 2d Sess. 5 (1978). action.

11

The Agencies note that certain com- have previously explained, 12 the regu- be expected to charge for similar mentators, in their submissions con- lations under section 408(b)(2) of services. 14 cerning the proposed exemption, sug- ERISA and section 4975(d) (2) of It should be emphasized that where gested that the Agencies should revise the Code13 provide, in effect, that a a broker-dealer acts as an investment their regulations concerning the defini- fiduciary does not engage in a trans- adviser in recommending securities tion of fiduciary under ERISA and action prohibited by section 406(b) transactions and a second fiduciary dethe Code.io Specifically, it has been (1) of ERISA and section 4975(c) cides whether each such transaction suggested that the Agencies should (1)(E) of the Code if the fiduciary should be entered into, both the take the position that a person who is does not use any of the authority, con- broker-dealer and the approving an investment adviser to a plan is not, trol or responsibility which makes fiduciary are under an obligation to merely for that reason, a plan fidu- such person a fiduciary to cause a plan comply with the general fiduciary ciary if prior authorization for each to pay additional fees for a service responsibility requirements of section transaction effected for the plan must furnished by such fiduciary.

404 of ERISA regarding the approbe obtained from some other person. A broker-dealer-fiduciary would not priateness of each such transaction.15 It is argued that, if such a definition be using any of the authority, control

General Information of fiduciary were adopted, a broker

or responsibility which makes such dealer which was a plan's investment

person a fiduciary to cause the plan to The attention of interested persons adviser would be able to effect securi

retain him/her to effect a brokerage is directed to the following: ties transactions for the plan without transaction for the plan, even if such (1) The fact that a transaction is relying upon the class exemption be

fiduciary offered his/her services to the subject of an exemption granted ing granted herein provided that each

effect the transaction for the plan, if under section 408(a) of ERISA and such transaction was approved in ad- he/she effected such a transaction only section 4975(c) (2) of the Code does vance by another person who was a after receiving approval for the trans- not relieve a fiduciary of a plan to plan fiduciary, since in such cases the

action from a secondary fiduciary who which the exemption is applicable adviser would not be a fiduciary." had no interest in the matter which from certain other provisions of

The Agencies believe that such a might affect his/her best judgment as ERISA, including any prohibited definition of fiduciary would be incon- a fiduciary, and who was in possession transaction provisions to which the sistent with section 3(21) (A) (ii) of of sufficient information to enable a exemption does not apply and the ERISA and section 4975(e) (3) (B) reasonable plan fiduciary to reach an general fiduciary responsibility proof the Code, relating to persons who independent judgment as to whether visions of section 404 of ERISA are fiduciaries by reason of providing the broker-dealer should effect the which, among other things, require a investment advice to plans. Nonethe- transaction.

fiduciary to discharge his duties with less, the Agencies point out that a

The approving fiduciary, in order respect to the plan solely in the interbroker-dealer which provides invest- to make an independent judgment ment advice to a plan and is there- concerning which broker-dealer should Also, if the transaction is to be exfore a fiduciary may, under certain be selected to effect a transaction,

ecuted by another broker, the approving circumstances, be able to effect bro

fiduciary would have to be given informawould have to possess information as

tion as to the portion of the brokerage kerage transactions for the plan with- to the size and complexity of the commission to be given to the executing out relying upon the class exemption, transaction, as well as any other fac

broker and the portion to be retained by

the investment adviser/broker for his/her provided that he/she obtains prior tors which might affect such a selec

services in effecting the transaction. authorization from another plan fidu

tion, including the amount of the 15 The broker-dealer would be a fiduciciary before effecting any such transbrokerage commission to be charged

ary, and thus subject to the requirements action. This is because, as the Agencies

of section 404, by reason of providing inon the transaction and information

vestment advice within the meaning of secrelated to the reasonableness of that

tion 3(21)(A)(ii) of ERISA and section 10 29 CFR 2510.3-21 and section 54.

4975(E)(3)(B) of the Code. However, commission in relation to the value

since he would not have the power to man4975-9 of the Pension Excise Tax Regulations. of the brokerage services and any re

age, acquire, or dispose of plan assets with

out the approval of the second fiduciary, 11 Moreover, if such a definition of fidu- search services being provided, and he would not be an investment manager ciary were adopted, a person would be a fiduciary by reason of being an investment in relation to what other brokers would as that term is defined in section 3(38) of

ERISA. Therefore, the fact that the brokeradviser only where he exercised investment

dealer was acting as a fiduciary in making discretion as that term is defined by the

his recommendations would not excuse the Securities and Exchange Commission un

See notice of proposed exemption, 43

second fiduciary from also meeting the reder section 3(a)(35) of the Exchange Act. FR 19481, note 4.

quirements of section 404 in deciding See Securities Exchange Act Release No. 13 29 CFR 2550.408b-2 and 26 CFR

whether those recommendations should be 14563 (March 4, 1978), 43 FR 11542. 54.4975-6.

followed.

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