[Federal Register Volume 75, Number 241 (Thursday, December 16, 2010)]
[Notices]
[Pages 78768-78775]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-31570]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
Proposed Exemptions From Certain Prohibited Transaction
Restrictions
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (ERISA or the Act) and/or the
Internal Revenue Code of 1986 (the Code). This notice includes the
following proposed exemptions: D-11592, TD Ameritrade, Inc. (TD
Ameritrade or the Applicant); and D-11638, Owens & Minor, Inc.; et al.
DATES: 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.
ADDRESSES: 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.
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 applications 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.
Warning: If you submit written comments or hearing requests, do not
include any personally-identifiable or confidential business
information that you do not want to be publicly-disclosed. All comments
and hearing requests are posted on the Internet exactly as they are
received, and they can be retrieved by most Internet search engines.
The Department will make no deletions, modifications or redactions to
the comments or hearing requests received, as they are public records.
SUPPLEMENTARY INFORMATION:
Notice to Interested Persons
Notice of the proposed exemptions 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 comment and to request a hearing
(where appropriate). The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
TD Ameritrade, Inc. (TD Ameritrade or the Applicant) Located in
Omaha, NE.
[Application No. D-11592]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974 (ERISA or 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).\1\
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\1\ For purposes of this proposed exemption, references to
section 406 of ERISA should be read to refer as well to the
corresponding provisions of section 4975 of the Code.
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SECTION I. SALES OF AUCTION RATE SECURITIES FROM PLANS TO TD
AMERITRADE: UNRELATED TO A SETTLEMENT AGREEMENT
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) and (D) and section 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), (D), and (E) of the Code, shall not
apply, effective July 20, 2009, to the sale by a Plan (as defined in
Section V(e)) of an Auction Rate Security (as defined in Section V(c))
to TD Ameritrade, where such sale (an Unrelated Sale) is unrelated to,
is not made in connection with, and is entered into after the
finalization of, a Settlement Agreement (as defined in Section V(f)),
provided that the conditions set forth in Section II have been met.
SECTION II. CONDITIONS APPLICABLE TO TRANSACTIONS DESCRIBED IN SECTION
I
(a) The Plan acquired the Auction Rate Security in connection with
brokerage services provided by TD Ameritrade to the Plan;
(b) The last auction for the Auction Rate Security was
unsuccessful;
(c) The Unrelated Sale is made pursuant to a written offer by TD
Ameritrade (the Unrelated Offer) containing all of the material terms
of the Unrelated Sale, including, but not limited to: (1) The identity
and par value of the Auction Rate Security; (2) the interest or
dividend amounts that are due with respect to the Auction Rate
Security; and (3) the most recent information for the Auction Rate
Security (if reliable information is available).
(d) The Unrelated Sale is for no consideration other than cash
payment against prompt delivery of the Auction Rate Security;
(e) The sales price for the Auction Rate Security is equal to the
par value of the Auction Rate Security, plus any
[[Page 78769]]
accrued but unpaid interest or dividends;
(f) The Plan does not waive any rights or claims in connection with
the Unrelated Sale;
(g) The decision to accept the Unrelated Offer or retain the
Auction Rate Security is made by a Plan fiduciary or Plan participant
or IRA owner who is independent (as defined in Section V(d)) of TD
Ameritrade.\2\
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\2\ The Department notes that the Act's general standards of
fiduciary conduct also would apply to the transactions described
herein. In this regard, section 404 of the Act requires, among other
things, that a fiduciary discharge his duties respecting a plan
solely in the interest of the plan's participants and beneficiaries
and in a prudent manner. Accordingly, a plan fiduciary must act
prudently with respect to, among other things, the decision to sell
the Auction Rate Security to TD Ameritrade for the par value of the
Auction Rate Security, plus unpaid interest and dividends. The
Department further emphasizes that it expects Plan fiduciaries,
prior to entering into any of the proposed transactions, to fully
understand the risks associated with this type of transaction
following disclosure by TD Ameritrade of all relevant information.
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(h) Neither TD Ameritrade nor any affiliate exercises investment
discretion or renders investment advice within the meaning of 29 CFR
2510.3-21(c) with respect to the decision to accept the Unrelated Offer
or retain the Auction Rate Security;
(i) The Plan does not pay any commissions or transaction costs with
respect to the Unrelated Sale;
(j) The Unrelated Sale is not part of an arrangement, agreement or
understanding designed to benefit a party in interest to the Plan;
(k) TD Ameritrade and its affiliates, as applicable, maintain, or
cause to be maintained, for a period of six (6) years from the date of
the Unrelated Sale, such records as are necessary to enable the persons
described below in paragraph (l)(1), to determine whether the
conditions of this exemption, if granted, have been met, except that:
(1) No party in interest with respect to a Plan which engages in an
Unrelated Sale, other than TD Ameritrade and its affiliates, as
applicable, shall be subject to a civil penalty under section 502(i) of
the Act or the taxes imposed by section 4975(a) and (b) of the Code, if
such records are not maintained, or not available for examination, as
required, below, by paragraph (l)(1); and
(2) A separate prohibited transaction shall not be considered to
have occurred solely because, due to circumstances beyond the control
of TD Ameritrade or its affiliates, as applicable, such records are
lost or destroyed prior to the end of the six-year period;
(l)(1) Except as provided below in paragraph (l)(2), and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to above in paragraph (k) are
unconditionally available at their customary location for examination
during normal business hours by:
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the U.S. Securities and
Exchange Commission (the Commission);
(B) Any fiduciary of any Plan, including any IRA owner, that
engages in an Unrelated Sale, or any duly authorized employee or
representative of such fiduciary; or
(C) Any employer of participants and beneficiaries and any employee
organization whose members are covered by a Plan that engages in the
Unrelated Sale, or any authorized employee or representative of these
entities;
(2) None of the persons described above in paragraphs (l)(1)(B)-(C)
shall be authorized to examine trade secrets of TD Ameritrade, or
commercial or financial information which is privileged or
confidential; and
(3) Should TD Ameritrade refuse to disclose information on the
basis that such information is exempt from disclosure, TD Ameritrade
shall, by the close of the thirtieth (30th) day following the request,
provide a written notice advising that person of the reasons for the
refusal and that the Department may request such information.
SECTION III. SALES OF AUCTION RATE SECURITIES FROM PLANS TO TD
AMERITRADE: RELATED TO A SETTLEMENT AGREEMENT
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) and (D) and section 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), (D), and (E) of the Code shall not
apply, effective July 20, 2009, to the sale by a Plan of an Auction
Rate Security to TD Ameritrade, where such sale (a Settlement Sale) is
related to, and made in connection with, a Settlement Agreement,
provided that the conditions set forth in Section IV have been met.
SECTION IV. CONDITIONS APPLICABLE TO TRANSACTIONS DESCRIBED IN SECTION
III
(a) The terms and delivery of the offer (the Purchase Offer) are
consistent with the requirements set forth in the Settlement Agreement;
(b) The Purchase Offer or other documents available to the Plan
specifically describe, among other things:
(1) How a Plan may determine: the Auction Rate Securities held by
the Plan with TD Ameritrade; the number of shares and par value of the
Auction Rate Securities; the interest or dividend amounts that are due
with respect to the Auction Rate Securities; purchase dates for the
Auction Rate Securities; and (if reliable information is available) the
most recent rate information for the Auction Rate Securities;
(2) The background of the Purchase Offer;
(3) That neither the tender of Auction Rate Securities nor the
purchase of any Auction Rate Securities pursuant to the Purchase Offer
will constitute a waiver of any claim of the tendering Plan;
(4) The methods and timing by which Plans may accept the Purchase
Offer;
(5) The purchase dates, or the manner of determining the purchase
dates, for Auction Rate Securities tendered pursuant to the Purchase
Offer;
(6) The timing for acceptance by TD Ameritrade of tendered Auction
Rate Securities;
(7) The timing of payment for Auction Rate Securities accepted by
TD Ameritrade for payment;
(8) The methods and timing by which a Plan may elect to withdraw
tendered Auction Rate Securities from the Purchase Offer;
(9) The expiration date of the Purchase Offer;
(10) The fact that TD Ameritrade may make purchases of Auction Rate
Securities outside of the Purchase Offer following the termination or
expiration of the Purchase Offer and may otherwise buy, sell, hold or
seek to restructure, redeem or otherwise dispose of the Auction Rate
Securities;
(11) A description of the risk factors relating to the Purchase
Offer as TD Ameritrade deems appropriate;
(12) How to obtain additional information concerning the Purchase
Offer; and
(13) The manner in which information concerning material amendments
or changes to the Purchase Offer will be communicated to the Plan.
(c) The terms of the Settlement Sale are consistent with the
requirements set forth in the Settlement Agreement; and
(d) All the conditions of Section II have been met.
SECTION V. DEFINITIONS
For purposes of this proposed exemption:
(a) The term ``affiliate'' means any person directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with such other person;
[[Page 78770]]
(b) The term ``control'' means the power to exercise a controlling
influence over the management or policies of a person other than an
individual;
(c) The term ``Auction Rate Security'' means a security: (1) That
is either a debt instrument (generally with a long-term nominal
maturity) or preferred stock; and (2) with an interest rate or dividend
that is reset at specific intervals through a Dutch Auction process;
(d) A person is ``independent'' of TD Ameritrade if the person is
(1) not TD Ameritrade or an affiliate; and (2) not a relative (as
defined in section 3(15) of the Act) of the party engaging in the
transaction;
(e) The term ``Plan'' means an individual retirement account or
similar account described in section 4975(e)(1)(B) through (F) of the
Code (an IRA); an employee benefit plan as defined in section 3(3) of
the Act; or an entity holding plan assets within the meaning of 29 CFR
2510.3-101, as modified by section 3(42) of the Act; and
(f) The term ``Settlement Agreement'' means a legal settlement
involving TD Ameritrade and a U.S. state or federal authority that
provides for the purchase of an Auction Rate Security by TD Ameritrade
from a Plan.
Effective Date: If granted, this proposed exemption will be
effective as of July 20, 2009.
Summary Of Facts And Representations
1. The Applicant, TD Ameritrade, is a New York corporation
headquartered in Omaha, Nebraska. The Applicant is an online broker-
dealer that provides market access and electronic tools to self-
directed investors. The Applicant is registered as a broker-dealer with
the Commission pursuant to section 15(c) of the Securities Exchange Act
of 1934 and is a member of the Financial Industry Regulatory Authority.
The Applicant is also a wholly-owned subsidiary of TD Ameritrade
Holding Corporation (TD Ameritrade Holding). As of September 30, 2009,
TD Ameritrade Holding had total assets of $18,371,810,000. As of the
same date, TD Ameritrade had total assets of $3,240,360,000.
The Applicant was formed as a result of the consolidation of retail
brokerage operations of Ameritrade, Inc. and TD Waterhouse Investors
Services, Inc. following TD Ameritrade Holding's acquisition of TD
Waterhouse Group, Inc. on January 24, 2006. The Applicant and its
affiliates and subsidiaries provide a wide range of investment-related
services, including discount brokerage and investment advisory
services. In this regard, the Applicant acts as a broker and dealer
with respect to the purchase and sale of securities, including Auction
Rate Securities, as discussed herein.
2. The Applicant describes Auction Rate Securities (or ARS) and the
arrangement by which ARS are bought and sold as follows. Auction Rate
Securities are preferred stock or bonds that are generally issued with
maturities of thirty years, but the maturities can range from five
years to perpetuity. ARS interest rates or dividend yields are
determined and periodically reset at auctions commonly referred to as
``Dutch Auctions,'' during which ARS are auctioned at par. Ordinarily,
ARS can be bought or sold only at a Dutch Auction. Dutch Auctions are
customarily held every seven, twenty-eight, or thirty-five days.
Under the typical procedures for a Dutch Auction, investors who
wish to purchase ARS submit a bid to a broker-dealer selected by the
entity that issued the ARS, which includes the minimum interest or
dividend rate that the investors will accept. Holders of ARS may either
choose to keep their securities until the next auction or submit an
offer to sell their ARS. An auction agent collects all of the bids and
offers for a particular auction. The final rate at which all of the ARS
offered for sale are sold in the auction is the ``clearing rate'' that
applies to that particular ARS until the next auction. Bids with the
lowest rate and then successively higher rates are accepted until all
of the sell orders are filled.
If there are not enough bids to cover the securities offered for
sale in a Dutch Auction, then the auction will fail. In a failed
auction, investors who want to sell securities are not able to do so,
and hold their ARS until at least the next auction. In this event, the
issuer pays the holders a maximum rate or ``penalty'' rate. These rates
might be higher or lower than the prior clearing rate or market rates
on similar products.
3. The Applicant states that to facilitate the auction process, the
issuers of the ARS selected one or more broker-dealers to underwrite
the offering and to manage the auction process. In many instances,
these broker-dealers submitted their own bids to support the auctions
and to prevent the auctions from failing. The Applicant states that it
did not act as an underwriter, manager or agent for any issuer of ARS.
Instead, the Applicant represents that it acted solely as an agent,
both on a solicited and unsolicited basis, for its customers by
submitting their bids to purchase and orders to sell ARS. Specifically,
the Applicant would act as an order taker and process client-generated
requests to purchase ARS. As a so-called ``distributing'' or
``downstream'' broker-dealer, the Applicant represents that it did not
submit bids in an effort to support any of the Dutch Auctions or to
prevent them from failing. The Applicant further represents that it did
not hold any significant inventory of ARS in its proprietary
accounts.\3\ However, the Applicant represents that, in certain
instances, it may have previously advised or otherwise caused a Plan to
acquire and hold ARS.\4\
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\3\ The Applicant states that it did not have a practice of
holding ARS in inventory or for investment purposes. The Applicant
explains that at any given time and in the ordinary course of
business, its Fixed Income Trading Desk (the Desk) may have held a
nominal number of ARS units in proprietary accounts in between
auctions as a result of data entry or communications errors that may
have resulted in a customer account receiving more ARS units than
the customer intended to purchase. The Applicant further explains
that it was the Desk's practice to sell such units in the next
auction. The Applicant also states that on other isolated occasions,
it received the opportunity to obtain a nominal number of ARS units
in connection with an initial public offering by the issuer. On such
occasions, the Applicant states that it would obtain those units at
a discount and sell them at par to clients seeking to purchase such
securities.
The Applicant represents that the sales of ARS units out of its
inventory to plans are exempt transactions under Part II of
Prohibited Transaction Exemption (PTE) 75-1 (40 FR 50845, October
31, 1975, 71 FR 5883, February 3, 2006), with respect to principal
transactions. In those isolated situations when it had ARS units in
its inventory, the Applicant explains that it sold them to plans at
par, which satisfies the condition of PTE 75-1 that the transaction
be at least as favorable to the plan as an arm's length transaction
with an unrelated party. This is because a plan would have paid the
same price for the particular ARS unit regardless of where it
purchased such unit.
The Department expresses no opinion herein on whether these
transactions comply with the provisions of PTE 75-1. Accordingly,
the Department is not proposing any relief beyond that offered by
PTE 75-1.
\4\ The relief contained in this proposed exemption does not
extend to the fiduciary provisions of section 404 of the Act.
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4. According to the Applicant, in the early part of 2008, the
broker-dealers that acted as underwriters of the ARS offerings or as
lead managers for the Dutch Auctions stopped submitting their own bids
in support of the Dutch Auctions. As a result, by February 13, 2008,
the ARS market began experiencing widespread auction failures, leaving
investors unable to sell their ARS holdings. Consequently, Plans
holding ARS may or may not have sufficient liquidity to make benefit
payments, mandatory payments and withdrawals and expense payments when
due.\5\
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\5\ The Department notes that PTE 80-26 (45 FR 28545 (April 29,
1980), as amended at 71 FR 17917 (April 7, 2006)), permits interest-
free loans or other extensions of credit from a party in interest to
a plan if, among other things, the proceeds of the loan or extension
of credit are used only: (1) For the payment of ordinary operating
expenses of the plan, including the payment of benefits in
accordance with the terms of the plan and periodic premiums under an
insurance or annuity contract, or (2) for a purpose incidental to
the ordinary operation of the plan.
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[[Page 78771]]
5. The Applicant further states that from February 13, 2008 through
the present, the ARS market continues to experience widespread
failures, making many ARS holdings illiquid. Although ARS have been
redeemed by their issuers since that time, numerous investors,
including some of TD Ameritrade's customers, currently hold ARS that
they have been unable to sell through the auction process or redeem by
the issuers.
6. The Applicant is requesting exemptive relief for the sale of ARS
under two different circumstances: (a) Where a Plan sells ARS to TD
Ameritrade and such sale (i.e., an Unrelated Sale) is unrelated to, is
not made in connection with, and is entered into after the finalization
of, a Settlement Agreement; and (b) where a Plan sells ARS to TD
Ameritrade and such sale (i.e., a Settlement Sale) is related to, and
made in connection with, a Settlement Agreement. If granted, the
exemption would be effective as of July 20, 2009.
7. With respect to Unrelated Sales, the Applicant represents that
it may purchase ARS from its customers outside the Purchase Offer at
times and on terms other than those provided in the Purchase Offer
(i.e., an Unrelated Offer). For example, TD Ameritrade may purchase ARS
from Plans who failed to respond to the Purchase Offer prior to the
expiration of the Purchase Offer or from Plans not covered by the
Settlements and the Purchase Offer.\6\ In determining whether to make
an Unrelated Offer, TD Ameritrade will consider the relevant facts and
circumstances. With respect to Plans covered by the Settlements and the
Purchase Offer as well as Plans not covered by the Settlements and the
Purchase Offer, any Unrelated Offer will be made at the same price
offered under the Purchase Offer (i.e., par plus accrued and unpaid
interest and/or dividends). Therefore, TD Ameritrade is requesting
retroactive relief (and prospective relief) for an Unrelated Sale that
has occurred outside the Settlement process and in the event a sale of
ARS by a Plan to TD Ameritrade occurs outside the Settlement process in
the future.
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\6\ The Applicant states that there has been only one Unrelated
Sale since the close of the Purchase Offer under the Settlement
Agreement and that the purchase occurred as if there had been a
timely tender of the securities under the Purchase Offer. In that
case, the widow of an IRA holder, who did not realize that her
husband held ARS in his IRA, discovered the holding after the
deadline had passed. TD Ameritrade waited until the tender period
had closed and bought back the ARS on April 12, 2010. TD Ameritrade
treated the Unrelated Sale as though the ARS holder had timely
tendered under the Purchase Offer and used the pricing methodology
set forth in the Settlement Agreement (i.e., par plus accrued and
unpaid interest and/or dividends).
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8. With respect to Settlement Sales, the Applicant represents that
it entered into Settlement Agreements with certain U.S. state and
federal authorities in connection with TD Ameritrade's role in the
acquisition and holding of ARS by various TD Ameritrade customers (the
Eligible Customers), including Plans. As of July 20, 2009, the date
that the Settlements were publicly announced, the Applicant's Eligible
Customers held approximately $456 million in ARS. Of this amount, $5.8
million was held in 87 brokerage accounts for Eligible Customers of the
Applicant that were Plans.
9. Pursuant to the Settlement Agreements, among other things, TD
Ameritrade was required to send a written offer (i.e., the Purchase
Offer) to certain Plans that held ARS in connection with the brokerage
services provided by TD Ameritrade. Only ARS purchased from the
Applicant on or before February 13, 2008 that had failed at auction at
least once since February 13, 2008 were considered ``Eligible ARS'' for
purposes of the Purchase Offer. The Purchase Offer explained what
Eligible Customers had to do to participate and it informed them of the
relevant terms of the Settlement Agreement and other material terms
regarding their rights. The Settlement Agreements required that the
Purchase Offer be sent by August 10, 2009.
10. Eligible Customers had different lengths of time to respond to
the Purchase Offer depending on various factors described in the
Settlement Agreements. In general, Eligible Customers with assets of
$250,000 or less as of March 13, 2009 had 75 days from the date the
Purchase Offer was sent to respond; Eligible Customers with more than
$250,000 had until March 23, 2010, which gave them as much as seven
months or more to respond, depending on when they were identified as
eligible.\7\ As described in further detail below, Eligible Customers
that accepted the Purchase Offer were permitted to sell the ARS to TD
Ameritrade for cash equal to the par value of such securities, plus any
accrued interest and/or dividends. Eligible Customers that did not
respond to the Purchase Offer within a specified period of time were
sent a second notice informing them of the Applicant's Purchase Offer,
the relevant terms of the Settlement Agreement, and any other material
issues regarding such customer's rights. To assist Eligible Customers,
the Applicant established a dedicated toll-free telephone assistance
line and a public Internet page to provide information and to respond
to questions concerning the terms of the Settlement Agreements. The
Applicant maintained the telephone assistance line and Internet page
through March 31, 2010, the date of the Applicant's last payment under
the Settlement Agreement.
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\7\ Pursuant to the Settlement Agreement, TD Ameritrade was
permitted to extend the Purchase Offer period up until, but not
beyond, June 30, 2010 for those Eligible Customers with more than
$250,000 in ``Eligible ARS''.
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11. The Applicant states that ARS units have been tendered by Plans
to TD Ameritrade pursuant to a Purchase Offer issued by TD Ameritrade
under a Settlement Agreement. In this regard, the Applicant states that
with respect to the Purchase Offer that closed on March 23, 2010, it
purchased approximately $302.9 million of ARS from approximately 1,180
Eligible Customers, which includes $5,525,000 \8\ in ARS held by thirty
Eligible Customers that were Plans. The Applicant estimates that as of
the close of the tender offer period on March 23, 2010, approximately
$81.9 million in ``Eligible ARS'' remained outstanding, including ARS
that had been transferred away from TD Ameritrade and that could not be
confirmed. Accordingly, the Applicant is requesting exemptive relief
retroactive to July 20, 2009 for Settlement Sales.
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\8\ The Applicant represents that the amount of ARS involved in
the Unrelated Sale described in Footnote 6 above is included in this
amount.
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12. The Applicant opines that Settlement Sales and Unrelated Sales
(hereinafter, each, a Covered Sale) are in the interests of Plans. In
this regard, the Applicant states that the Covered Sales allow Plans to
normalize their investments. The Applicant represents that each Covered
Sale has been and will be for no consideration other than cash payment
against prompt delivery of the ARS, and such cash has equaled and will
equal the par value of the ARS, plus any accrued but unpaid interest or
dividends. The Applicant represents further that Plans have not paid
and will not pay any commissions or transaction costs with respect to
any Covered Sale.
13. The Applicant also represents that the proposed exemption is
protective of the Plans. The Applicant states that each Covered Sale
has been made and
[[Page 78772]]
will be made pursuant to a written Purchase Offer and the decision to
accept such offer or retain the ARS has been made and will be made by a
Plan fiduciary or Plan participant or IRA owner who is independent of
TD Ameritrade. Additionally, each Purchase Offer has been delivered and
will be delivered in a manner designed to alert a Plan fiduciary that
TD Ameritrade is willing to purchase ARS from the Plan. Purchase Offers
made in connection with a Settlement Agreement have specifically
included, among other things: The background of the Purchase Offer; the
method and timing by which a Plan may accept the Purchase Offer; the
expiration date of the Purchase Offer; a description of certain risk
factors relating to the Purchase Offer; how to obtain additional
information concerning the Purchase Offer; and the manner in which
information concerning material amendments or changes to the Purchase
Offer will be communicated. Further, the Applicant states that, neither
TD Ameritrade nor any affiliate has exercised or will exercise
investment discretion or render investment advice within the meaning of
29 CFR 2510.3-21(c) with respect to a Plan's decision to accept the
Purchase Offer or to retain the ARS.\9\
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\9\ The Applicant states that while there may have been or may
be communication between a Plan and TD Ameritrade subsequent to a
Purchase Offer, such communication has not involved and will not
involve advice regarding whether the Plan should accept the Purchase
Offer.
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In addition, an Unrelated Offer made in connection with an
Unrelated Sale has included and will include all of the material terms
of the Unrelated Sale as follows: The identity and par value of the
ARS; the interest or dividend amounts that are due with respect to the
ARS; and the most recent information for the ARS (if reliable
information is available). The Applicant represents further that Plans
have not waived and will not waive any rights or claims in connection
with any Covered Sale.
14. The Applicant further represents that the proposed exemption,
if granted, would be administratively feasible. In this regard, the
Applicant notes that each Covered Sale has occurred and will occur at
the par value of the affected ARS, plus accrued but unpaid interest and
dividends, to the extent applicable, and such value is readily
ascertainable. The Applicant represents further that TD Ameritrade has
maintained and will maintain the records necessary to enable the
Department and Plan fiduciaries, among others, to determine whether the
conditions of this exemption, if granted, have been met.
15. In summary, the Applicant represents that the transactions
described herein have satisfied or will satisfy the statutory criteria
for an exemption under section 408(a) of the Act because, among other
things:
(a) Each Covered Sale has been made and shall be made pursuant to a
written Purchase Offer;
(b) Each Covered Sale has been and shall be for no consideration
other than cash payment against prompt delivery of the ARS;
(c) The amount of each Covered Sale has equaled and shall equal the
par value of the ARS, plus any accrued but unpaid interest or
dividends;
(d) No Plan has waived nor shall waive any rights or claims in
connection with any Covered Sale;
(e)(1) The decision to accept a Purchase Offer or retain the ARS
has been made and shall be made by a Plan fiduciary or Plan participant
or IRA owner who is independent of TD Ameritrade; and (2) neither TD
Ameritrade nor any affiliate has exercised or shall exercise investment
discretion or render investment advice within the meaning of 29 CFR
2510.3-21(c) with respect to the decision to accept the Purchase Offer
or retain the ARS;
(f) Plans have not paid and shall not pay any commissions or
transaction costs with respect to any Covered Sale;
(g) A Covered Sale has not been part of and shall not be part of an
arrangement, agreement or understanding designed to benefit a party in
interest to the affected Plan;
(h) With respect to any Settlement Sale, the terms and delivery of
the Purchase Offer, and the terms of Settlement Sale, have been
consistent with and shall be consistent with the requirements set forth
in the Settlement Agreement;
(i) TD Ameritrade has made and shall make available in connection
with an Unrelated Sale the material terms of the Unrelated Sale,
including: (1) The identity and par value of the Auction Rate Security;
(2) the interest or dividend amounts that are due but unpaid with
respect to the Auction Rate Security; and (3) the most recent
information for the Auction Rate Security (if reliable information is
available).
(j) Each Purchase Offer made in connection with a Settlement
Agreement has described or shall describe the material terms of the
Settlement Sale, including the following (and shall not constitute a
waiver of any claim of the tendering Plan): (1) How the Plan can
determine: The ARS held by the Plan with TD Ameritrade, the number of
shares and par value of the ARS, interest or dividend amounts, and
purchase dates for the ARS, and (if reliable information is available)
the most recent rate information for the ARS; (2) the background of the
Purchase Offer; (3) the methods and timing by which the Plan may accept
the Purchase Offer; (4) the purchase dates, or the manner of
determining the purchase dates, for ARS pursuant to the Purchase Offer
and the timing for acceptance by TD Ameritrade of tendered ARS for the
payment; (5) the expiration date of the Purchase Offer; and (6) how to
obtain additional information concerning the Purchase Offer.
Notice to Interested Persons
The Applicant represents that the potentially interested
participants and beneficiaries cannot all be identified, and,
therefore, the only practical means of notifying such participants and
beneficiaries of this proposed exemption is by the publication of this
notice in the Federal Register. Comments and requests for a hearing
must be received by the Department not later than 30 days from the date
of publication of this notice of proposed exemption in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Anna Mpras Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
Owens & Minor, Inc.,
Located in Mechanicsville, Virginia.
[Application No. D-11638]
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 proposed
exemption is granted, the restrictions of section 406(a)(1)(A) and (D)
and section 406(b)(1) and (b)(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), (D), and (E) of the Code, shall not apply to
the sale of certain shares in a hedge fund (the Shares) by the Owens &
Minor, Inc. Pension Plan (the Plan) to Owens & Minor, Inc. (the
Employer), a party in interest with respect to the Plan, provided that
the following conditions are satisfied:
(a) The sale is a one-time transaction for cash;
(b) The terms and conditions of the sale are at least as favorable
to the Plan as those that the Plan could obtain in an arm's-length
transaction with an unrelated third party;
[[Page 78773]]
(c) The sales price is the greater of: (1) $1,029.93 per Share (the
highest per share purchase price paid by the Plan), or (2) the net
asset value of the Shares reported in the most recently available
monthly statement, as determined by the hedge fund manager, who is
independent and unrelated to the Employer, (which is supported by the
report of the independent auditors);
(d) The Plan pays no commissions, fees, or other expenses in
connection with the sale;
(e) Upon termination of the Plan, the Plan participants and
beneficiaries will be paid 100% of their accrued benefits from the
assets of the Plan, as a result of the Employer's sufficiency
contribution to the Plan;
(f) The Plan has not waived or released and does not waive or
release any claims, demands, and/or causes of action that the Plan may
have against the Employer, the Plan Fiduciary, or the hedge fund
manager in connection with the acquisition, holding and sale of the
Shares to the Employer; and
(g) The Employer maintains, or causes to be maintained, for a
period of at least six (6) years from the date of the sale, such
records as are necessary to enable the persons described in paragraph
(h), below, to determine whether the conditions of this exemption, if
granted, have been met, except that--
(1) No party in interest with respect to the Plan other than the
Employer shall be subject to a civil penalty under section 502(i) of
ERISA or the taxes imposed by section 4975(a) and (b) of the Code, if
such records are not maintained, or are not available for examination,
as required, below, by paragraph (h); and
(2) A separate prohibited transaction shall not be considered to
have occurred solely because, due to circumstances beyond the control
of the Employer, such records are lost or destroyed prior to the end of
the six-year period; and
(h)(1) Except as provided in subparagraph (2), below, and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of ERISA, the records referred to in paragraph (g), above, are
unconditionally available at their customary location for examination
during normal business hours by--
(A) Any duly authorized employee or representative of the
Department, the Internal Revenue Service, or the U.S. Securities and
Exchange Commission;
(B) Any fiduciary of the Plan, or any duly authorized employee or
representative of such fiduciary; or
(C) Any employer of participants and beneficiaries and any employee
organization whose members are covered by the Plan or any authorized
employee or representative thereof;
(2) None of the persons described above in paragraph (h)(1)(B) or
(C) shall be authorized to examine trade secrets of the Employer, or
commercial or financial information that is privileged or confidential;
and
(3) Should the Employer refuse to disclose information on the basis
that such information is exempt from disclosure, the Employer shall, by
the close of the thirtieth (30th) day following the request, provide a
written notice advising that person of the reasons for the refusal and
that the Department may request such information.
Summary of Facts and Representations
1. The Owens & Minor, Inc. Pension Plan (the Plan) is a defined
benefit plan sponsored by Owens & Minor, Inc. (the Employer or the
applicant), a distributor of national name-brand medical and surgical
supplies who serves its healthcare provider customers from 55
distribution centers located throughout the United States. The Plan was
originally established effective March 31, 1957 and was last amended
and restated effective January 1, 2002. The Plan was frozen effective
December 31, 1996. The aggregate fair market value of the Plan's assets
was approximately $31,276,861, as of April 30, 2010. The Plan had 1,789
participants and beneficiaries, as of June 4, 2010. The Plan's trustee
is Reliance Trust Company. The Employer sponsors two defined
contribution plans, a 401(k) profit sharing plan and an employee stock
purchase plan, in addition to the Plan.
On April 30, 2010, the Employer filed a request for a determination
as to the Plan's qualified status with the Internal Revenue Service
(IRS). The Employer filed PBGC Form 500 (Standard Termination Notice)
with the Pension Benefit Guaranty Corporation (PBGC) by July 30, 2010.
If PBGC does not object to the proposed termination of the Plan within
the 60-day period following the filing of the Standard Termination
Notice, the Plan must distribute all its assets by its ``Distribution
Date,'' which is the later of (i) 180 days after the end of PBGC's 60-
day review period, or (ii) 120 days after receipt of a favorable
determination from the IRS.
2. As of April 30, 2010, the assets of the Plan consisted of: (i)
FDIC-guaranteed bank notes in the amount of $25,540,900, (ii) money
market accounts valued at $1,835,666, (iii) a brokerage account
consisting of several alternative investments valued at $3,058,882, and
(iv) 943.66 shares of a non-publicly traded hedge fund (the Shares),
with a value of $841,413 (based upon a net asset value (NAV) of $891.65
per share). The Plan's investments, including the Shares, are approved
by the Compensation and Benefits Committee (the Committee) of the
Employer's Board of Directors. The Plan purchased 2,570.42 Shares at
$1,029.931 per share on November 28, 2007 and 99.56 Shares at
$1,004.381 per share on July 30, 2008, at a total cost of approximately
$2,747,351.37.\10\ The Employer owns no shares in the Fund.
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\10\ The Department expresses no opinion herein as to whether
the acquisition and holding of the Shares by the Plan have met the
requirements of Part 4 in Title I of the Act.
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The hedge fund is the Selectinvest Institutional ARV ASW Fund (the
Fund), which, in turn, invests substantially all its assets in a ``fund
of funds,'' (the Master Feeder Fund).
The Fund manager is Alternate Strategies Group (ASG), a wholly-
owned subsidiary of Wells Fargo. The Master Feeder Fund is unrelated to
ASG and is managed by Union Bancaire Privee Asset Management LLC
(UBPAM), which is also its investment advisor. The Master Feeder Fund
invests in the following three funds: Selectinvest ARV Ltd. (Master
Fund I); Selectinvest ARV II Ltd. (Master Fund II); and Selectinvest
ARV L.P. (Master Fund III). UBPAM is the investment manager for Master
Fund I, Master Fund II, and Master Fund III (collectively, the Master
Funds).\11\ In February 2009, ASG announced that it intended to
terminate all Selectinvest ARV Funds, including the Fund.\12\
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\11\ It is represented that, in general, the standard investment
management fees assessed by the Fund had been a 1.25% Advisory Fee
per annum and a 0.35% Program Fee per annum. Because ASG is
liquidating all investments in the Fund, however, the Advisory Fee
was reduced to 0.50% per annum starting on March 31, 2009. The
Limited Liability Company Agreement defines the term ``Program'' as
comprised of Feeder Funds that provide access to underlying Master
Funds; thus, the ``Program Fee'' is an annual fee charged to Fund
members to participate in the Program. As is typical with mutual
funds and other collective funds, the Advisory Fee and the Program
Fee are netted out of the Fund's investment performance and
published net asset value (NAV). The applicant further represents
that the Plan is not paying duplicative fees at the underlying funds
level.
\12\ The exemption application states: ``Although a secondary
market exists for the Feeder Fund's investments, it is not active
and individual transactions are typically not observable. When
transactions do occur in this limited secondary market, they may
occur at discounts to the reported net asset value. It is therefore
reasonably possible that if the Feeder Funds were to sell these
investments in the secondary market, a buyer may require a discount
to the reported net asset value, and the discount could be
significant.''
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ASG began the process of redeeming all interests in the Fund on
March 31, 2009. Since that time, ASG has redeemed approximately 1,781
of the
[[Page 78774]]
Plan's Shares, approximately 67% of the Plan's interest in the Fund, in
five separate redemptions. The Plan received its first redemption
payment of $811,700 on May 13, 2009, in exchange for 972.11 shares,
which represents a per share value of $834.988. On September 10, 2009,
the Plan received its second redemption payment of $319,500, in
exchange for 367.01 shares, which represents a per share value of
$870.548. On January 21, 2010, the Plan received its third redemption
payment of $203,100, in exchange for 225.09 shares, which represents a
per share value of $902.306. On April 27, 2010, the Plan received its
fourth redemption payment of $148,000, in exchange for 162.10 shares,
which represents a per share value of $913.016. On October 20, 2010,
the Plan received its most recent redemption payment of $48,100, in
exchange for 54.79 shares, which represents a per share value of
$877.897.
In order for ASG to redeem shares in the Fund, the Master Feeder
Fund must have sufficient cash reserves. Because ASG's complete
redemption request exceeded such reserves, the redemption of the Plan's
Shares will likely not be finalized until a sufficient portion of the
underlying assets of the Master Feeder Fund and its ``down-stream''
investments in the Master Funds are liquidated.
3. The Employer represents that all the assets of the Plan,
including the remaining Shares, must be liquidated and the proceeds
used to fund the purchase of annuity contracts and distributions of
lump sum benefit amounts. The Plan is contractually prohibited from
selling its Shares to a third party without the permission of ASG.
There is only a very limited secondary market for the Shares. In the
event that the Plan's Shares are not entirely redeemed by the Fund
prior to the Distribution Date, the Employer proposes to purchase the
remaining Shares from the Plan for a price that is the greater of: (1)
$1,029.93 per Share (the highest per share purchase price paid by the
Plan), or (2) the NAV of the Shares as determined by ASG. It is
represented that the Plan will pay no commissions, fees, or other
expenses in connection with the sale.
4. The applicant represents that ASG determines the Fund's NAV,
which it publishes at the end of each month in its monthly statements,
according to the Fund's membership agreement, based upon the current
fair market value of the underlying investments (based on the NAV of
the Master Feeder Fund, which in turn is based upon the Master Feeder
Fund's interest in the Master Funds based upon their underlying
investments). The applicant further represents that ASG is the only
qualified appraiser to determine the value of the Plan's interest in
the Fund because ASG is solely responsible for the determination of the
Fund's NAV. It is represented that ASG's method of calculating the
Fund's NAV meets the requirements of FAS 157.\13\ It is also
represented that ASG is independent from the Employer and receives no
income from the Employer. The Fund's independent auditor is KPMG LLP,
located in Boston, Massachusetts and the applicant represents that the
net asset value of the Shares reported in the most recently available
monthly statement, as determined by ASG, is supported by the report of
KPMG.
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\13\ FAS 157 provides guidance for measuring the fair value of
assets and liabilities, including hard-to-value alternative
investments. Effective January 1, 2008, the Fund, the Master Feeder
Fund, and each of the Master Funds adopted FAS 157. The description
of these accounting policies appears in the financial statements of
each fund.
---------------------------------------------------------------------------
The value of the Plan's membership interest in the Fund is
calculated as the number of Shares owned by the Plan relative to all
outstanding Fund shares. According to ASG's determination of the Fund's
NAV as of April 30, 2010, the Plan's remaining Shares have a value of
approximately $792,561.
The applicant represents that the Fund's NAV as set forth in ASG's
most recently available statement prior to the date of the sale would
be used to determine the dollar value of the Plan's Shares.
Furthermore, the Committee, as the Plan fiduciary, will review and
approve the valuation methodology used by ASG, ensure that such
methodology is properly applied in determining the value of the Shares,
and will also determine whether it is prudent to go forward with the
proposed transaction. The proposed sale of the Shares is anticipated to
take place on or about the Distribution Date, contingent upon obtaining
the requested exemption from the Department.
5. Because of the Plan's underfunded status, as the final step in
the Plan termination process, the Employer has made a commitment to
contribute an estimated additional $1,000,000 to the Plan to ensure
that the Plan has sufficient assets to satisfy all its accrued benefit
obligations.
In accordance with the requirements for a Standard Termination
under section 4041(b) of the Act and the PBGC guidelines, the amount
that the Employer will contribute to the Plan to make it sufficient
will be calculated as follows: The actuarial present value of the total
Plan liabilities for accrued benefits less (the amount received for the
remaining Shares, either through the redemption process or consummation
of the proposed sale, plus the value of all other Plan assets).
The applicant represents that, if it completes the standard
termination process for the Plan, the PBGC will not be liable or
responsible for paying any Plan benefits, and, in fact, will not pay
any Plan benefits. Upon termination of the Plan, the Plan participants
and beneficiaries will receive 100% of their accrued benefits, as a
result of the Employer's sufficiency contribution to the Plan.
6. According to the applicant, if the requested exemption is denied
and the Shares are not fully redeemed prior to the Distribution Date,
the Plan will lack sufficient liquid assets to satisfy the distribution
deadline. The failure to distribute all accrued benefits by the
Distribution Date could result in the PBGC issuing the Plan a notice of
noncompliance, which would require re-starting the standard termination
process and nullify all actions taken to date to terminate the Plan,
including the re-issuance of the required multiple notices to the Plan
participants and beneficiaries required by the termination process, and
delay the distribution of plan benefits.
The applicant represents that the proposed transaction is in the
best interests of the Plan and its participants and beneficiaries
because it will enable the Plan to convert an illiquid, non-marketable
asset into cash in order to complete the standard termination process
and purchase of annuity contracts and lump-sum distributions to satisfy
all its accrued benefit obligations. The proposed transaction would
also allow the Plan to avoid the discount that would be expected if the
Shares were sold in the secondary market. The Employer is also bearing
the costs of the exemption application and of notifying interested
persons.
7. In summary, the applicant represents that the proposed
transaction satisfies the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons: (a) The sale will
be a one-time transaction for cash; (b) the terms and conditions of the
sale will be at least as favorable to the Plan as those that the Plan
could obtain in an arm's length transaction with an unrelated third
party; (c) the sales price will be the greater of: (1) $1,029.93 per
Share (the highest per share purchase price paid by the Plan), or (2)
the net asset value of the Shares reported in the most recently
available monthly statement, as determined by the hedge fund manager,
who is independent and unrelated to the Employer, (which is
[[Page 78775]]
supported by the report of the independent auditors); (d) the Plan will
pay no commissions, fees, or other expenses in connection with the
sale; and (e) upon termination of the Plan, the Plan participants and
beneficiaries will be paid 100% of their accrued benefits from the
assets of the Plan, as a result of the Employer's sufficiency
contribution to the Plan.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 693-8557. (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 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 exemptions, 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 exemptions, 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 13th day of December 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2010-31570 Filed 12-15-10; 8:45 am]
BILLING CODE 4510-29-P