Acqusition and Sale of Trust REIT Shares by Individual Account Plans Sponsored by Trust REITs

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records as are necessary to enable the
persons described in paragraph (d) of
this exemption to determine whether
the conditions of this exemption have
been met, except that—
(1) if such party in interest or
disqualified person is not a fiduciary
with respect to any assets of the plan,
such party in interest or disqualified
person shall not be subject to the civil
penalty which may be assessed under
section 502(i) of the Act, or to the taxes
imposed by section 4975(a) and (b) of
the Code, if such records are not
maintained, or are not available for
examination as required by paragraph
(d) below; and
(2) a prohibited transaction will not
be deemed to have occurred if, due to
circumstances beyond the control of the
plan fiduciaries, such records are lost or
destroyed prior to the end of such sixyear period.
(d) Notwithstanding anything to the
contrary in subsections (a)(2) and (b) of
section 504 of the Act, the records
referred to in paragraph (c) are
unconditionally available for
examination during normal business
hours by duly authorized employees of
(1) the Department of Labor, (2) the
Internal Revenue Service, (3) plan
participants and beneficiaries, (4) any
employer of plan participants and
beneficiaries, and (5) any employee
organization any of whose members are
covered by such plan. For purposes of
this exemption, the terms ‘‘party in
interest’’ and ‘‘disqualified person’’
shall include such party in interest or
disqualified person and any affiliates
thereof, and the term ‘‘affiliate’’ shall be
defined in the same manner as that term
is defined in 29 CFR 2510.3–21(e) and
26 CFR 54.4975–9(e).
Signed at Washington, DC this 22nd day of
April, 2004.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations,
Employee Benefits Security Administration.
[FR Doc. 04–9632 Filed 4–27–04; 8:45 am]
BILLING CODE 4520–29–P

DEPARTMENT OF LABOR
Employee Benefits Security
Administration
[Prohibited Transaction Exemption 2004–
07; Application Number D–10659]

Class Exemption for the Acquisition
and Sale of Trust REIT Shares by
Individual Account Plans Sponsored
by Trust REITS
AGENCY: Employee Benefits Security
Administration, Department of Labor.

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ACTION:

Grant of class exemption.

SUMMARY: This document contains a
final class exemption from certain
prohibited transaction restrictions of the
Employee Retirement Income Security
Act of 1974 (ERISA or the Act) and from
certain taxes imposed by the Internal
Revenue Code of 1986 (the Code). The
exemption permits the acquisition,
holding and sale of certain publicly
traded shares of beneficial interest in a
real estate investment trust (REIT), that
is structured under state law as a
business trust (Trust REIT), by
individual account plans sponsored by
the Trust REIT or its affiliates. The
exemption affects participants and
beneficiaries of employee benefit plans
involved in such transactions, as well as
the REITs and their affiliates that
sponsor such plans.
FOR FURTHER INFORMATION CONTACT:
Andrea W. Selvaggio, Office of
Exemption Determinations, Employee
Benefits Security Administration, U.S.
Department of Labor, Washington, DC
20210 (202) 693–8540 (not a toll-free
number).

On June 3,
2003, the Department published a notice
in the Federal Register (68 FR 33185) of
the pendency of a proposed class
exemption from the restrictions of
sections 406(a), 406(b)(1) and (b)(2), and
407(a) of the Act and from 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.
Relief for the transactions was requested
in an application (Application No. D–
10659) submitted by the National
Association of Real Estate Investment
Trusts (NAREIT or the Applicant)
pursuant to 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, August 10, 1990).1
The notice of pendency gave
interested persons an opportunity to
comment or request a public hearing on
the proposal. The Department received
two public comments. Upon
consideration of the comments received,
the Department has determined to grant
the proposed class exemption, subject to
certain modifications. These
modifications and the comments are
discussed below.
SUPPLEMENTARY INFORMATION:

1 Section 102 of Reorganization Plan No. 4 of
1978, 5 U.S.C. App. 1 (1996), generally transferred
the authority of the Secretary of the Treasury to
issue exemptions under section 4975(c)(2) of the
Code to the Secretary of Labor. For purposes of this
exemption, references to specific provisions of Title
I of the Act, unless otherwise specified, refer also
to the corresponding provisions of the Code.

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Executive Order 12866
Under Executive Order 12866, the
Department must determine whether the
regulatory action is ‘‘significant’’ and
therefore subject to the requirements of
the Executive Order and subject to
review by the Office of Management and
Budget (OMB). Under section 3(f), the
order defines a ‘‘significant regulatory
action’’ as an action that is likely to
result in a rule: (1) Having an annual
effect on the economy of $100 million
or more, or adversely and materially
affecting a sector of the economy,
productivity, competition, jobs, the
environment, public health or safety, or
State, local or tribal governments or
communities (also referred to as
‘‘economically significant’’); (2) creating
serious inconsistency or otherwise
interfering with an action taken or
planned by another agency; (3)
materially altering the budgetary
impacts of entitlement grants, user fees,
or loan programs or the rights and
obligations of recipients thereof; or (4)
raising novel legal or policy issues
arising out of legal mandates, the
President’s priorities, or the principles
set forth in the Executive Order.
This class exemption has been drafted
and reviewed in accordance with
Executive Order 12866, section 1(b),
Principles of Regulation. The
Department has determined that this
exemption is not a ‘‘significant
regulatory action’’ under Executive
Order 12866, section 3(f). Accordingly,
it does not require an assessment of
potential costs and benefits under
section 6(a)(3) of that order.
Paperwork Reduction Act
In accordance with the Paperwork
Reduction Act of 1995 (44 U.S.C. 3501)
(PRA), the Department submitted the
information collection request (ICR)
included in the Notice of a Proposed
Class Exemption for the Acquisition and
Sale of Trust REIT Shares by Individual
Account Plans Sponsored by Trust
REITs [referred to for the purposes of
the ICR as Disclosures for Transactions
with Trust REIT Shares] to the Office of
Management and Budget (OMB) for
review and clearance at the time the
Notice of a Proposed Rulemaking
(NPRM) was published in the Federal
Register (June 3, 2003, 68 FR 33185).
OMB approved the Notice under OMB
control number 1210–0124. The
approval will expire on July 31, 2006.
The Department solicited comments
concerning the ICR in connection with
the NPRM. The Department received
one comment that provided updated
information on the number of REITs and
the number of Trust REITs described in

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the PRA section of the proposed
exemption. Specifically, because of
consolidation in the industry, rather
than the 228 publicly traded REITs
discussed in the proposal, there are now
173 such REITs. Likewise, the number
of Trust REITs has decreased by one,
from 52 to 51. At the suggestion of the
commenter, the Department has
changed the data used in the
preliminary discussion about REITs
under PRA 95. The Department notes,
however, that the respective changes do
not materially affect the hour or cost
burdens as originally calculated under
the NPRM. The Department considers
its original cost and hour burden
estimates for this ICR to be appropriate
at this time. However, the Department
will continue to monitor the number of
Trust REITs subject to the exemption’s
information collection provisions in
future years.
Discussion of the Comments Received
The comments received by the
Department were generally supportive
of the issuance of a class exemption to
permit certain transactions involving
Trust REITs shares. However, the
commenters requested specific
modifications to the proposal in the
following areas:
(1) Permit the purchase of employer
securities pursuant to a plan provision
requiring that cash contributions by the
employer be used to purchase Trust
REIT shares—The Applicant and the
other commenter requested that the
exemption permit the purchase, by the
Plan, of Trust REIT shares in instances
where the terms of the Plan require that
the employer’s cash contributions be
used to acquire Trust REIT shares. The
commenters explained that some
employers prefer to contribute cash
because contributing treasury shares
would dilute the value of the shares.
NAREIT articulated the concern as
follows: ‘‘the trustee is directed, and
arguably is not acting in a fiduciary
capacity. Consequently, the portion of
the proposed exemption for fiduciary
investment in Qualifying REIT Shares is
probably not applicable.’’
Contrary to NAREIT’s analysis of the
directed trustee’s fiduciary status, the
Department notes that a directed trustee
is a fiduciary under the Act.2 That fact,
however, is not determinative as to
2 Under

ERISA section 403(a)(1), a plan may
expressly provide that a trustee is subject to the
direction of a named fiduciary who is not a trustee,
in which case the trustee shall be subject to proper
directions of such fiduciary which are made in
accordance with the terms of the plan and which
are not contrary to the Act. 29 U.S.C. 1103(a)(1).

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whether the requested relief is
warranted.
After considering the comment, the
Department has decided to modify the
final exemption as requested by the
commenters. The exemption will cover
the purchase of Trust REIT shares in
accordance with the terms of the Plan
that require employer contributions be
used to purchase Trust REIT shares. In
such instances, the Trust REIT shares
may be purchased on the Primary
Exchange or by netting within the Plan.
In following plan provisions that require
the trustee invest employer cash
contributions in Trust REIT shares, the
Department notes that the trustee must
discharge his duties consistent with the
fiduciary responsibility provisions of
ERISA.
For prospective relief, shares may not
be subject to a lockup. The Applicant
has explained that, on a prospective
basis, the Independent Fiduciary will
immediately allocate Qualifying REIT
Shares contributed by the employer or
purchased with employer cash
contributions to the individual
participants’ Accounts. Therefore, each
participant will have discretionary
authority to direct the trustee to sell
such shares.3
(2) Paired Share Arrangement—The
other commenter requested that the
class exemption be modified to cover a
‘‘paired share REIT.’’ According to the
commenter, in its paired share
arrangement, a share of corporate stock
and a share of beneficial interest in the
Trust REIT trade together on an
exchange as a single security. The
commenter’s paired shares trade on the
New York Stock Exchange. The
commenter was concerned that this
paired share arrangement might be
viewed as a trading restriction that
would cause the Trust REIT shares to
fail to satisfy the definition of
Qualifying REIT Shares under section
III(j) of the proposed exemption. After
considering the comment, the
Department has determined to amend
the definition of Qualifying REIT Shares
to include Trust REIT shares that are
part of a paired share arrangement,
provided that the Trust REIT shares
would otherwise satisfy the
requirements of the exemption and the
corporate stock with which it is paired
is a ‘‘qualifying employer security’’ as
defined in section 407(d)(5) of the Act.
3 29 CFR 2550.404c–1(d)(2)(ii)(E)(4)(i) provides
that in order for the limitation on liability of plan
fiduciaries under 404(c) of the Act to apply, the
securities must be qualifying employer securities
(as defined in 407(d)(5) of the Act). The Applicant
sought this exemption to address its concern that
Trust REIT shares might not meet the definition of
qualifying employer securities.

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(3) Number of Trust REITs—The
Applicant also informed the Department
that, as of June 30, 2003, there are a total
of 173 publicly traded REITs in the
United States, and 51 publicly traded
business trust REITs.
Description of the Exemption
The exemption consists of three
sections. Section I provides conditional
exemptive relief for the acquisition,
holding, and sale of Qualifying Trust
REIT Shares by individual account
plans sponsored by the Trust REITs.
Section II(a) describes the conditions for
retroactive relief for transactions
occurring up to six years prior to the
date that the notice granting the final
exemption is published in the Federal
Register and for 60 days thereafter.
Section II(b) provides prospective relief
for transactions that meet certain
additional conditions that are described
below. Finally, section III contains
definitions for certain terms used in the
exemption.
The exemption is generally similar to
an individual exemption previously
granted by the Department, Crown
American, PTE 97–64 (62 FR 66690 (12/
19/97)). Among the conditions of the
individual exemption was a 25 percent
cap on the percentage of trust REIT
shares held in an account. Unlike the
individual exemption, the Department
believed that for purposes of the
proposed class exemption it would not
be practical to develop a single
percentage limitation that would apply
to investment in Qualifying REIT Shares
by all individual account plans
maintained by the Trust REITs or their
Employer Affiliates, in view of the
variety of REITs that would be subject
to the proposal and the different types
of real estate activities engaged in by
such entities. In this regard, the
Department notes that section 404(a) of
the Act requires, among other things,
that a fiduciary discharge his duties
with respect to a plan solely in the
interest of the plan’s participants and
beneficiaries and in a prudent fashion.
Section 404(a)(1)(C) further requires that
a fiduciary diversify the investments of
the plan so as to minimize the risk of
large losses, unless under the
circumstances it is clearly prudent not
to do so. Section 404(a)(2) provides that,
in the case of an eligible individual
account plan, the diversification
requirement of section 404(a)(1)(C) and
the prudence requirement (only to the
extent that it requires diversification) of
section 404(a)(1)(B) are not violated by
the acquisition or holding of qualifying
employer real property or qualifying
employer securities. To the extent that
the Qualifying REIT Shares do not

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constitute stock for purposes of section
407(d)(5) of the Act, the exception
contained in section 404(a)(2) from the
diversification requirements of the Act
would not apply to a Plan’s investment
in Qualifying REIT Shares. Accordingly,
it is the responsibility of a fiduciary of
each Plan intending to take advantage of
the relief provided by this exemption to
determine the appropriate level of
investment in Qualifying REIT Shares,
based on the particular facts and
circumstances, consistent with its
responsibilities under section 404 of the
Act.
The Department continues to believe
that the scope of the class exemption is
consistent with the Applicant’s request
for relief based on the Applicant’s belief
that Trust REIT shares were qualifying
employer securities subject to sections
407 and 408(e) of the Act.
Retroactive Relief
The exemption set forth in section I(a)
provides retroactive relief from the
restrictions of sections 406(a), 406(b)(1)
and (b)(2), and 407(a) of the Act and
from the taxes imposed by section
4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(A) through (E) of
the Code for: (1) The purchase or sale
of Qualifying REIT Shares where the
decision to purchase or sell the
securities was made by a participant, or
by a fiduciary that was independent of
the Trust REIT and its affiliates; (2) the
contribution of Qualifying REIT Shares
to the Plan by an employer or the
purchase of Qualifying REIT Shares
pursuant to a plan provision requiring
that employer contributions of cash be
used to purchase Qualifying REIT
Shares; and (3) the holding of
Qualifying REIT Shares; provided that
the conditions of the exemption were
met at the time of the transaction.
The conditions applicable to the
retroactive exemption are set forth in
Section II(a) described below. Section
II(a)(1) provides retroactive relief where
participants exercised their discretion to
purchase Trust REIT shares for their
own account so long as they were
permitted to give instructions to sell
such shares at least quarterly. Section
II(a)(2) provides relief with respect to
shares purchased by an independent
fiduciary, including shares purchased
pursuant to a plan provision requiring
that cash contributions by the employer
be used to purchase Trust REIT shares.
The purchase of Trust REIT shares, by
an independent fiduciary pursuant to
plan provisions, or the contribution of
Trust REIT shares by the employer,
where such shares are subject to a
lockup, i.e., a restriction on when the

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shares could be sold, is covered
retroactively, but not prospectively.
The exemption requires that the
participant (section II(a)(1)(B)), or a
fiduciary independent of the Trust
REITs (Section II(a)(2)(C)) had the
authority to vote, tender and exercise
similar ownership rights with respect to
shares controlled by them.
Section II(a)(3) requires that Trust
REIT shares be purchased and sold at
the prevailing market price on the
Primary Exchange on which these
shares were traded. In this regard,
section III(h) provides that the term
‘‘Primary Exchange’’ means the New
York Stock Exchange (NYSE), the
American Stock Exchange (AMEX), or
the National Association of Securities
Dealers Automated Quotation System
National Market (NASDAQ National
Market).
Under the final exemption, the
Department has expanded the scope of
section II(a)(4) (netting transactions) to
include, not only transactions between
Accounts, but also transactions between
an Account and the independent
fiduciary purchasing Qualifying REIT
Shares with employer cash
contributions. This change was made to
permit the independent fiduciary to use
netting transactions where it is
purchasing employer securities with
employer cash contributions pursuant to
a plan provision requiring such
purchases. Where investment decisions
are implemented through the netting of
purchases and sales within the Plan, the
transactions must be valued at the
closing market price for that day on the
Primary Exchange on which the shares
are traded. The Department cautions
that, in order for transactions to satisfy
this condition, such trades must be done
in an objective and a mechanical
fashion, so that neither the buyer nor
the seller is favored in the transaction.
Section II(a)(5) provides that the
covered transactions must meet an
arm’s-length test. Under this test, at the
time of the transaction, the terms of the
transaction must be at least as favorable
to the Plan or the Account as the terms
generally available between unrelated
parties.
Pursuant to section II(a)(6) where
Trust REIT shares are contributed to, or
purchased by, the Plan from the Trust
REIT, such shares must be conveyed to
the Plan at or below market price and
no commissions or other fees may be
charged.
Pursuant to section II(a)(7), a
participant’s purchase or sale of Trust
REIT shares is not covered by the
exemption if the participant was subject
to undue influence with respect to the

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investment decision to acquire or sell
Trust REIT shares.
Prospective Relief
The exemption set forth in section I(b)
provides prospective relief from the
restrictions of sections 406(a), 406(b)(1)
and (b)(2), and 407(a) of the Act and
from the taxes imposed by section
4975(a) and (b) of the Code, by reason
of section 4975(c)(1)(A) through (E) of
the Code for: (1) The purchase or sale
of Qualifying REIT Shares by a
participant, or (2) by an Independent
Fiduciary; (3) the contribution of
Qualifying REIT Shares to the Plan by
an employer or the purchase of
Qualifying REIT Shares pursuant to a
plan provision requiring that employer
contributions of cash be used to
purchase Qualifying REIT Shares; and
(4) the holding of Qualifying REIT
Shares; provided that the conditions of
the exemption were met at the time of
the transaction.
The conditions applicable to the
prospective exemption are set forth in
section II(b) described below. Section
II(b)(1)(A) provides that participants
must be able to sell Trust REIT shares
purchased by them or contributed to
their account at least monthly. As a
result, no shares may be subject to a
lockup. Section II(b)(1)(B) provides that
participants must be able to vote, tender
and exercise similar rights with respect
to the shares over which the
participants have investment discretion.
Section II(b)(2) provides that an
Independent Fiduciary must have
investment discretion to purchase
Qualifying REIT Shares, unless such
shares are purchased pursuant to a plan
provision requiring that employer cash
contributions be used to purchase
Qualifying REIT Shares. Shares
purchased pursuant to such a plan
provision must be transferred to the
participants’ Accounts. Section III(e) of
the exemption defines the term
‘‘Independent Fiduciary’’ as a trustee or
investment manager who had equity
capital of at least $1 million and has
assets under management of over $50
million. This fiduciary must be
independent of the Trust REIT, the
Employer Affiliate, and any of their
affiliates. In this regard, the Trust REIT,
the Employer Affiliate, or any of their
affiliates, may not own any interest in
the Independent Fiduciary and the
Independent Fiduciary may not own
more than 5 percent of the Trust REIT,
the Employer Affiliate, or any of their
affiliates. The Independent Fiduciary
must acknowledge in writing that it is
a fiduciary and that it has the
appropriate technical training or
expertise to perform the services

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contemplated by this exemption. The
Independent Fiduciary may not receive
more than one percent (1%) of its
current gross income for Federal tax
purposes, (as measured by the prior
year’s taxable income) from the Trust
REIT, the Employer Affiliate and their
affiliates. Lastly, while serving as an
Independent Fiduciary and for 6 months
after it ceases to serve in this capacity,
the Independent Fiduciary may not
acquire property from, sell property to,
or borrow any funds from the Trust
REIT, the Employer Affiliate, or any
affiliates thereof.
Section II(b)(3) provides that, where
participants have discretionary
authority to purchase or sell Qualifying
REIT Shares, neither the Trust REIT, an
Employer Affiliate, the Independent
Fiduciary, nor any affiliates thereof, has
any discretion or authority over such
investment decisions, renders any
investment advice with respect to these
assets, nor exerts any undue influence
over the decisions of the participants to
acquire or sell Qualifying REIT Shares.
Pursuant to section II(b)(4), prior to or
immediately after the initial investment
in Qualifying REIT Shares, copies of the
most recent prospectus, quarterly report
and annual report concerning the REITs,
must be provided to the person who is
directing the investment. Updates of
these documents must also be provided
as published.
To help ensure that participants are
not subject to pressure to invest in, or
to continue to hold, employer securities,
the confidentiality of their investment
and voting decisions with respect to all
such shares are protected under section
II(b)(5) of the exemption. In this regard,
section II(b)(5)(A) requires the
appointment of a fiduciary that is
responsible for confidentiality. Pursuant
to section II(b)(5)(B), the Plan must
provide participants, in writing, the
procedures established to protect
confidentiality of information relating to
the purchase, holding, and sale of
Qualifying REIT Shares and the exercise
of voting, tender and other similar rights
with respect to such shares. Further,
should any situation arise where the
fiduciary determines that there is a
potential for undue influence upon
participants and beneficiaries with
respect to the exercise of shareholder
rights, section II(b)(5)(C) requires that
the Plan appoint an independent
fiduciary (who may, but need not be, the
Independent Fiduciary (as defined in
section III(e)) to carry out activities
related to this particular situation.4 For
4 This requirement was modeled after the
regulations on ‘‘independent exercise of control’’

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example, tender offers, mergers and
acquisitions are likely to generate the
need for an independent fiduciary to
provide additional safeguards for
participant confidentiality.5
Where Qualifying REIT Shares are
purchased or sold on the Primary
Exchange, Section II(b)(6) provides that
such shares must be purchased for cash
at their market price at the time of the
transaction. It further provides that the
broker executing the transactions must
be independent of the Trust REIT, an
Employer Affiliate, the Independent
Fiduciary and any affiliates thereof. The
Applicant requested, and the
Department agreed, to modify the final
exemption to provide that the broker
executing the transactions covered by
this exemption need not be independent
of the Independent Fiduciary if that
broker does not charge a commission on
these purchases and sales.
Section II(b)(7) provides that
transactions within the Plan between
Accounts and between an Account and
the Independent Fiduciary purchasing
Qualifying REIT Shares with employer
cash contributions are permitted in
order to save brokerage costs. Where
investment decisions are implemented
through the netting of purchases and
sales within the Plan, the transactions
must be valued at the closing market
price for that day on the Primary
Exchange on which the shares are
traded. Such transactions must take
place on the business day on which the
instruction is received, or on the next
business day, using that day’s closing
price, if the instruction is received after
noon, or such later deadline as
designated by the trustee or the named
fiduciary.
Pursuant to section II(b)(8) the
covered transactions must meet an
arm’s-length test. Under this test, at the
time of the transaction, the terms of the
transaction must be at least as favorable
to the Plan or the Account as the terms
generally available between unrelated
parties.
Section II(b)(9) provides that where
Qualifying REIT Shares are purchased
from the Trust REIT, contributed by the
Plan Sponsor, or purchased by the Plan
with employer contributions, such
shares must be conveyed to the Plan at
or below market price and no
commissions or other fees may be
charged.
under section 404(c) of the Act. 29 CFR 2550.404c–
1(d)(2)(ii)(E)(4)(viii) and (ix).
5 In the preamble to the 404(c) regulations cited
above, the Department stated that it agreed with the
commentators that ‘‘situations where the potential
for undue employer influence may exist include
tender offers, exchange offers and contested board
elections.’’ 57 FR 46906, 46927 (October 13, 1992).

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Under section II(b)(10) certain
information must be disclosed to the
participant or the Independent
Fiduciary prior to the initial covered
transaction that occurs 60 days after
publication of the final exemption in the
Federal Register. The disclosures must
describe, among other things, any fees
or transaction costs, the role, if any, of
the Trust REIT as a principal in the
transaction, and the exchange or market
system where Qualifying REIT Shares
are traded. Finally, the participant or
Independent Fiduciary must be
informed that copies of the proposed
and final exemption are available upon
request.
Section II(b)(11) of the exemption
contains a condition requiring the Trust
REIT or its Employer Affiliates on a
prospective basis to maintain, for a
period of six years from the date of each
covered transaction, subject to limited
exceptions, the records necessary to
enable certain persons to determine
whether the applicable conditions of the
exemption have been met. Such persons
include any duly authorized employee
or representative of the Department or
the Internal Revenue Service, any plan
fiduciary, any participant or beneficiary
of the Plan whose Account is invested
in Qualifying REIT Shares, any
employer of employees covered by the
Plan, and any employee organizations
whose members are covered by the Plan.
All records must be unconditionally
available at their customary location for
examination during normal business
hours by the above-described persons.
However, the Trust REIT or its
Employer Affiliates may refuse to
disclose to a person, other than a duly
authorized employee or representative
of the Department or the Internal
Revenue Service, commercial or
financial information that is privileged
or confidential.
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 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 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 require, among other things, that
a fiduciary discharge his duties
respecting the plan solely in the
interests of the participants and
beneficiaries of the plan and in a
prudent fashion in accordance with

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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) In accordance with section 408(a)
of the Act and section 4975(c)(2) of the
Code, and based on the entire record,
the Department finds that the exemption
is administratively feasible, in the
interests of plans and their participants
and beneficiaries and protective of the
rights of the participants and
beneficiaries of the plans;
(3) The class exemption is applicable
to a particular transaction only if the
transaction satisfies the conditions
specified in the class exemption; and
(4) The exemption is supplemental to,
and not in derogation of, any other
provisions of ERISA and 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.

(4) The holding of the Qualifying
REIT Shares by the Plan.
(b) Effective after June 28, 2004, the
restrictions of sections 406(a), 406(b)(1),
406(b)(2), and 407(a) of the Act, and the
taxes imposed by section 4975(a) and (b)
of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to the following
transactions, if the relevant conditions
set forth in section II(b) below are met
at the time of the transaction:
(1) The purchase or sale of Qualifying
REIT Shares on behalf of an Account in
a Plan at the direction of the participant;
(2) The purchase or sale of Qualifying
REIT Shares on behalf of the Plan at the
direction of the Independent Fiduciary
(as defined in section III(e));
(3) The contribution in-kind of
Qualifying REIT Shares to a Plan by an
employer, or the purchase of Qualifying
REIT Shares pursuant to a plan
provision requiring that employer
contributions of cash be used to
purchase Qualifying REIT Shares; and
(4) The holding of the Qualifying
REIT Shares by the Plan.

Exemption

(a) Retroactive Conditions
(1) The participant has discretionary
authority to direct the trustee to:
(A) Sell the Qualifying REIT Shares
purchased by the participant for his
own Account no less frequently than
quarterly; and
(B) Vote, tender and exercise similar
rights with respect to those Qualifying
REIT Shares in the Account over which
the participant has discretion; or
(2) An independent fiduciary has
discretionary authority to purchase,
hold or sell the Qualifying REIT Shares,
or such fiduciary is acting in accordance
with a plan provision that requires
employer cash contributions be used to
purchase Qualifying REIT Shares, and
such independent fiduciary:
(A) Is a trustee, named fiduciary or
investment manager with respect to the
Qualifying REIT Shares;
(B) is neither the Trust REIT (as
defined in section III(i)) an Employer
Affiliate (as defined in section III(d)) nor
an affiliate thereof; and
(C) has the discretionary authority to
exercise the voting, tender and similar
rights with respect to those Qualifying
REIT Shares for which it has investment
discretion. Notwithstanding the
foregoing, this paragraph (2)(C) shall be
deemed met if another fiduciary that is
independent of the Trust REIT had the
right to exercise the voting, tender and
similar rights with respect to the Trust
REIT shares.
(3) Purchases and sales of Qualifying
REIT Shares by the Plan are executed:

Accordingly, the following exemption
is granted 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).
Section I. Covered Transactions
(a) For the period from six years prior
to April 28, 2004, to June 28, 2004, the
restrictions of sections 406(a), 406(b)(1),
406(b)(2), and 407(a) of the Act, and the
taxes imposed by section 4975(a) and (b)
of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code,
shall not apply to the following
transactions, if the relevant conditions
set forth in section II(a) below are met
at the time of the transaction:
(1) The purchase or sale of Qualifying
REIT Shares (as defined in section III(j))
on behalf of an Account (as defined in
section III(a)) at the direction of the
participant;
(2) The purchase or sale of Qualifying
REIT Shares on behalf of the Plan (as
defined in section III(f)) at the direction
of an independent fiduciary (as defined
in section II(a)(2));
(3) The contribution in-kind of
Qualifying REIT Shares to a Plan by an
employer, or the purchase of Qualifying
REIT Shares pursuant to a plan
provision requiring that employer
contributions of cash be used to
purchase Qualifying REIT Shares; and

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Section II. Conditions

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(A) For cash;
(B) on the Primary Exchange (as
defined in section III(h)) or directly with
the Trust REIT; and
(C) at the market price for the Trust
REIT shares on the Primary Exchange at
the time of the transaction.
(4) Notwithstanding paragraph (3)
above, the exemption shall apply to
purchases and sales of Qualifying REIT
Shares within the Plan between
Accounts and between an Account and
the independent fiduciary purchasing
Qualifying REIT Shares with employer
cash contributions, in order to avoid
brokerage commissions and other
transaction costs, provided that each
transaction is executed at the closing
price for the Trust REIT shares on the
Primary Exchange on the date of the
transaction.
(5) At the time the transaction is
entered into, the terms of the transaction
are at least as favorable to the Plan or
the Account as the terms generally
available in comparable arm’s-length
transactions between unrelated parties.
(6) Qualifying REIT Shares
contributed to, or purchased by, the
Plan from the Trust REIT:
(A) Are conveyed to the Plan at or
below the market price for the Trust
REIT shares on the Primary Exchange at
the time of the transaction; and
(B) are conveyed to the Plan without
the payment of any commission or other
fee in connection with the transaction.
(7) Where a participant has
discretionary authority to purchase or
sell Qualifying REIT Shares, neither the
Trust REIT, an Employer Affiliate, the
independent fiduciary, nor any affiliate
thereof exerts any undue influence over
the decisions of the participant to
acquire or sell Qualifying REIT Shares.
(b) Prospective Conditions
(1) The participant has discretionary
authority to direct the trustee:
(A) To sell Qualifying REIT Shares
purchased by, or contributed to, his
Account no less frequently than
monthly; and
(B) to vote, tender and exercise
similar rights with respect to those
Qualifying REIT Shares in the Account
over which the participant has
discretion; or
(2) An Independent Fiduciary, as
defined in section III(e), has
discretionary authority to purchase,
hold or sell the Qualifying REIT Shares,
or such fiduciary is acting in accordance
with a plan provision that requires
employer cash contributions be used to
purchase Qualifying REIT Shares for
transfer to the participants’ Accounts.
The Independent Fiduciary has the
discretionary authority to exercise the

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Federal Register / Vol. 69, No. 82 / Wednesday, April 28, 2004 / Notices
voting, tender and similar rights with
respect to the Qualifying REIT Shares,
unless the participant has discretionary
authority to direct the trustee with
respect to such matters.
Notwithstanding the foregoing, this
paragraph (2) shall be deemed met if
another fiduciary that is independent of
the Trust REIT, the Employer Affiliate
and any affiliates thereof; has the right
to exercise the voting, tender and
similar rights with respect to the
Qualifying Trust REIT Shares.
(3) Where a participant has
discretionary authority to purchase,
hold or sell Qualifying REIT Shares,
neither the Trust REIT, an Employer
Affiliate, the Independent Fiduciary,
nor any affiliate thereof:
(A) Has discretionary authority or
control with respect to the investment of
the Plan assets involved in the
transaction;
(B) renders any investment advice
[within the meaning of 29 CFR 2510.3–
21(c)] with respect to those assets; or
(C) exerts any undue influence over
the decisions of the participants to
acquire, hold or sell Qualifying REIT
Shares.
(4) Prior to or immediately after an
initial investment in Qualifying REIT
Shares, either the Trust REIT, or an
agent or affiliate thereof provides the
person who is directing the investment
(i.e. the participant or the Independent
Fiduciary) with the most recent
prospectus, quarterly report, and annual
report concerning the Trust REIT, and
thereafter, either the Trust REIT, or an
agent or affiliate thereof, provides such
participants and/or Independent
Fiduciary with updated prospectuses,
quarterly statements and annual reports
as published.
(5) Information relating to the
purchase, holding, and sale of
Qualifying REIT Shares, and the
exercise of voting, tender and similar
rights with respect to such Qualifying
REIT Shares by participants is
maintained in accordance with
procedures designed to safeguard the
confidentiality of such information
except to the extent necessary to comply
with Federal or state laws not
preempted by ERISA. To safeguard
confidentiality, the Plan shall:
(A) Designate a fiduciary responsible
for safeguarding confidentiality;
(B) provide participants, when they
become eligible to participate in the
Plan, with a statement describing the
procedures established to provide for
the confidentiality of information
relating to the purchase, holding and
sale of Trust REIT shares, and the
exercise of voting, tender and similar
rights, by participants and beneficiaries

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and the name, address and telephone
number of the fiduciary responsible for
monitoring compliance with the
procedures; and
(C) appoint, if the fiduciary
responsible for safeguarding participant
confidentiality determines that a
situation involves a potential for undue
employer influence upon participants
and beneficiaries with regard to the
direct or indirect exercise of shareholder
rights, an independent fiduciary (who
may, but need not be, the Independent
Fiduciary), to take appropriate action to
protect the confidentiality of the
participants’ and beneficiaries’ votes.
For purposes of this subparagraph (C), a
fiduciary is not independent if the
fiduciary is affiliated with the Trust
REIT, an Employer Affiliate, or any
affiliate thereof.
(6) All purchases and sales of
Qualifying REIT Shares by the Plan are
executed:
(A) For cash;
(B) On the Primary Exchange (as
defined in section III(h)) by a broker that
is independent of the Trust REIT, the
Employer Affiliate, the Independent
Fiduciary and any affiliate thereof, or
directly with the Trust REIT.
Notwithstanding the above, the
Independent Fiduciary or its affiliate
may execute these transactions if no
commission is charged; and
(C) at the market price for the Trust
REIT shares on the Primary Exchange at
the time of the transaction.
(7) Notwithstanding paragraph (6)
above, the exemption shall apply to
purchases and sales of Qualifying REIT
Shares within the Plan between
Accounts and between an Account and
the Independent Fiduciary purchasing
Qualifying REIT Shares with employer
cash contributions, in order to avoid
brokerage commissions and other
transaction costs, provided that the
transaction is executed at the closing
price for the Trust REIT shares on the
Primary Exchange on the date of the
transaction. All such transactions will
take place at the closing price on the
business day on which the instruction is
received, or at the closing price on the
next business day if the instruction is
received after noon or such later
deadline as designated by the trustee or
named fiduciary.
(8) At the time the transaction is
entered into, the terms of the transaction
are at least as favorable to the Plan or
the Account as the terms generally
available in comparable arm’s-length
transactions between unrelated parties.
(9) Qualifying REIT Shares that are
contributed to, or purchased by, the
Plan from the Trust REIT and Qualifying

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23225

REIT Shares purchased by the Plan with
employer cash contributions:
(A) Are conveyed to the Plan at or
below the market price for the Trust
REIT shares on the Primary Exchange at
the time of the transaction;
(B) Can be immediately sold on the
Primary Exchange; and
(C) Are conveyed to the Plan without
the payment of any commission or other
fee in connection with the transaction.
(10) Prior to a participant, Plan
Sponsor (as defined in section III(g)) or
an Independent Fiduciary engaging in
an initial transaction under this
exemption, after June 28, 2004, the
Trust REIT or its Employer Affiliate
provides the following disclosures to
the person who exercises discretionary
authority with respect to the Qualifying
REIT Shares (i.e., the participant or the
Independent Fiduciary). The disclosure
must contain the following information
regarding the transactions and a
supplemental disclosure must be made
to the person directing the covered
investments if material changes occur
subsequent to the initial disclosure.
This disclosure must include:
(A) Disclosure of any fees for
brokerage services or transaction costs
that will be incurred as a result of the
transactions;
(B) Disclosure of the role of the Trust
REIT, if any, as a principal in the
transactions;
(C) The exchange or market system
where the Qualifying REIT Shares are
traded; and
(D) A statement that a copy of the
proposed and final exemption shall be
provided to participants and the
Independent Fiduciary upon request.
(11) The Trust REIT or its Employer
Affiliates for a period of six years
maintains the records necessary to
enable the persons described below in
paragraph (12) to determine whether the
conditions of this exemption have been
met, except that:
(A) If the records necessary to enable
the persons described in paragraph (12)
to determine whether the conditions of
the exemption have been met are lost or
destroyed, due to circumstances beyond
the control of the Trust REIT or its
Employer Affiliates, then no prohibited
transaction will be considered to have
occurred solely on the basis of the
unavailability of those records; and
(B) No party in interest other than the
Trust REIT or its Employer Affiliates
shall be subject to the taxes imposed by
section 4975(a) and (b) of the Code if the
records are not maintained or are not
available for examination as required by
paragraph (12) below.
(12) (A) Except as provided below in
paragraph (12)(B) and notwithstanding

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any provisions of section 504(a)(2) and
(b) of the Act, the records referred to in
paragraph (11) are unconditionally
available at their customary location for
examination during normal business
hours by—
(i) Any duly authorized employee or
representative of the Department or the
Internal Revenue Service,
(ii) Any fiduciary of the Plan or any
duly authorized employee or
representative of such fiduciary,
(iii) Any employer of participants and
beneficiaries and any employee
organization whose members are
covered by the Plan, or any authorized
employee or representative of these
entities; or
(iv) Any participant or beneficiary of
the Plan whose Account is invested in
Qualifying REIT Shares or the duly
authorized employee or representative
of such participant or beneficiary;
(B) None of the persons described in
paragraph (12)(A)(ii)–(iv) shall be
authorized to examine trade secrets of
the Trust REIT, or an Employer Affiliate
or commercial or financial information
which is privileged or confidential.
Section III. Definitions
For purposes of this exemption,
(a) Account—The term ‘‘Account’’
means the individual account of a
participant in a defined contribution
pension plan in which benefits are
based solely upon the amount
contributed to the participant’s account,
and any income, expenses, gains or
losses, and any forfeitures of accounts of
other participants which may be
allocated to such participant’s account.
(b) Affiliate—The term ‘‘affiliate’’ of a
person means:
(1) Any person directly or indirectly
through one or more intermediaries,
controlling, controlled by, or under
common control with such person;
(2) Any officer, director, employee, or
relative (as defined in section 3(15) of
the Act) of such person or partner in
such person; and
(3) Any corporation or partnership of
which such person is an officer,
director, partner, or employee.
(c) Control—The term ‘‘control’’
means the power to exercise a
controlling influence over the
management or policies of a person
other than an individual.
(d) Employer Affiliate—The term
‘‘Employer Affiliate’’ means any
corporation, limited liability company
(LLC), or partnership 50 percent or more
owned by a Trust REIT.
(e) Independent Fiduciary—The term
‘‘Independent Fiduciary’’ means a
person who:
(1) Is a trustee or an investment
manager (as defined in 3(38) of the Act)

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who had equity capital of at least $1
million as of the last day of its most
recent fiscal year and has client assets
under management or control of over
$50 million;
(2) Is not an affiliate of the Trust REIT,
the Employer Affiliate or an affiliate
thereof;
(3) Is not a corporation, partnership or
trust in which the Trust REIT, its
Employer Affiliate or an affiliate thereof
has a one percent or more ownership
interest or is a partner;
(4) Does not have more than a five
percent ownership interest in the Trust
REIT, its Employer Affiliate or an
affiliate thereof;
(5) Has acknowledged in writing that:
(i) It is a fiduciary; and
(ii) It has appropriate technical
training or experience to perform the
services contemplated by the
exemption;
(6) For purposes of this definition, no
organization or individual may serve as
Independent Fiduciary for any fiscal
year in which the gross income received
by such organization or individual (or
partnership or corporation of which
such organization or individual is an
officer, director, or 10 percent or more
partner or shareholder) from the Trust
REIT, its Employer Affiliate and
affiliates thereof, (including amounts
received for services as an independent
fiduciary under any prohibited
transaction exemption granted by the
Department) exceeds one percent of
such fiduciary’s gross income for federal
tax purposes in its prior tax year; and
(7) In addition, no organization or
individual which is an Independent
Fiduciary and no partnership or
corporation of which such organization
or individual is an officer, director or 10
percent or more partner or shareholder
may acquire any property from, sell any
property to or borrow any funds from
the Trust REIT, its Employer Affiliate or
their affiliates, during the period that
such organization or individual serves
as an Independent Fiduciary and
continuing for a period of six months
after such organization or individual
ceases to be an Independent Fiduciary
or negotiates any such transaction
during the period that such organization
or individual serves as an Independent
Fiduciary.
(f) Plan—The term ‘‘Plan’’ means an
individual account plan sponsored by
the issuer of Qualifying REIT Shares or
an Employer Affiliate thereof.
(g) Plan Sponsor—The term ‘‘Plan
Sponsor’’ means the Trust REIT or the
Employer Affiliate that is the employer
of the employees covered by the Plan.
(h) Primary Exchange—The term
‘‘Primary Exchange’’ means the national

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securities exchange or market system on
which the Trust REIT shares are
primarily traded, and which is either
the New York Stock Exchange, the
American Stock Exchange, or the
National Association of Securities
Dealers Automated Quotation System
National Market.
(i) Trust REIT—The term ‘‘Trust
REIT’’ means a ‘‘real estate investment
trust’’ within the meaning of section 856
of the Code that is organized as a trust
under applicable law.
(j) Qualifying REIT Shares—The term
‘‘Qualifying REIT Shares’’ means shares
of beneficial interest in a Trust REIT
that:
(1) Are publicly traded (as defined in
section III(k); and
(2) Have no trading restrictions other
than those necessary to qualify for REIT
status or otherwise to satisfy securities
law or applicable exchange or market
system trading rules. Notwithstanding
the above, the term ‘‘Qualifying REIT
Shares’’ includes a Trust REIT share that
otherwise meets the conditions of this
exemption but trades only as a unit
consisting of a Trust REIT share and a
share of corporate stock (a paired share
arrangement), provided that the
corporate stock with which it trades is
a qualifying employer security as
defined in ERISA section 407(d)(5).
(k) Publicly Traded—The term
‘‘publicly traded,’’ for purposes of this
exemption, means Trust REIT shares of
beneficial interest which are traded on
the New York Stock Exchange, the
American Stock Exchange, or the
National Association of Securities
Dealers Automated Quotation System
National Market System.
(1) Participant—The term
‘‘participant’’ includes beneficiaries.
Signed at Washington, DC, this 22nd day
of April, 2004.
Ivan L. Strasfeld,
Director, Office of Exemption,
Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 04–9631 Filed 4–27–04; 8:45 am]
BILLING CODE 4520–29–P

DEPARTMENT OF LABOR
Employment and Training
Administration
Job Corps: Final Finding of No
Significant Impact (FONSI) for the
Proposed Job Corps Center Located
on Scott Hamilton Drive in Little Rock,
AR
AGENCY: Employment and Training
Administration, Labor.

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