Notice2021-13676
Proposed Exemption for Certain Prohibited Transaction Restrictions Involving the Mitsubishi UJF Trust and Banking Corporation Located in New York, NY
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
June 28, 2021
Issuing agencies
Labor DepartmentEmployee Benefits Security Administration
Abstract
This document provides notice of the pendency before the Department of Labor (the Department) of a proposed individual exemption 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).
Full Text
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<title>Federal Register, Volume 86 Issue 121 (Monday, June 28, 2021)</title>
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[Federal Register Volume 86, Number 121 (Monday, June 28, 2021)]
[Notices]
[Pages 34048-34054]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-13676]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. D-12003]
Proposed Exemption for Certain Prohibited Transaction
Restrictions Involving the Mitsubishi UJF Trust and Banking Corporation
Located in New York, NY
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
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).
DATES: If granted, the exemption will be in effect as of the date the
grant notice is published in the Federal Register. Written comments and
requests for a public hearing on the proposed exemption should be
submitted to the Department by August 12, 2021.
ADDRESSES: All written comments and requests for a hearing should be
sent to the Employee Benefits Security Administration (EBSA), Office of
Exemption Determinations, Attention: Application No. D-12003 via email
to <a href="/cdn-cgi/l/email-protection#ceabe3818b8a8eaaa1a2e0a9a1b8"><span class="__cf_email__" data-cfemail="21440c6e646561454e4d0f464e57">[email protected]</span></a> or online through the Federal eRulemaking Portal:
<a href="http://www.regulations.gov">http://www.regulations.gov</a>. Any such comments or requests should be
sent by the end of the scheduled comment period. The application for
exemption and the comments received will be available for public
inspection in the Public Disclosure Room of the Employee Benefits
Security Administration, U.S. Department of Labor, Room N-1515, 200
Constitution Avenue NW, Washington, DC 20210. See SUPPLEMENTARY
INFORMATION below for additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Frank Gonzalez of the Department,
telephone (202) 693-8553. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments
In light of the current circumstances surrounding the COVID-19
pandemic caused by the novel coronavirus which may result in disruption
to the receipt of comments by U.S. Mail or hand delivery/courier,
persons are encouraged to submit all comments
[[Page 34049]]
electronically and not to follow with paper copies. Comments should
state the nature of the person's interest in the proposed exemption and
the manner in which the person would be adversely affected by the
exemption, if granted. Any person who may be adversely affected by an
exemption can request a hearing on the exemption. A request for a
hearing must state: (1) The name, address, telephone number, and email
address of the person making the request; (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; and (3) a statement of
the issues to be addressed and a general description of the evidence to
be presented at the hearing. The Department will grant a request for a
hearing made in accordance with the requirements above where a hearing
is necessary to fully explore material factual issues identified by the
person requesting the hearing. A notice of such hearing shall be
published by the Department in the Federal Register. The Department may
decline to hold a hearing if: (1) The request for the hearing does not
meet the requirements above; (2) the only issues identified for
exploration at the hearing are matters of law; or (3) the factual
issues identified can be fully explored through the submission of
evidence in written (including electronic) form. WARNING: All comments
received will be included in the public record without change and may
be made available online at <a href="http://www.regulations.gov">http://www.regulations.gov</a>, including any
personal information provided, unless the comment includes information
claimed to be confidential or other information whose disclosure is
restricted by statute. If you submit a comment, EBSA recommends that
you include your name and other contact information in the body of your
comment, but DO NOT submit information that you consider to be
confidential, or otherwise protected (such as Social Security number or
an unlisted phone number) or confidential business information that you
do not want publicly disclosed. However, if EBSA cannot read your
comment due to technical difficulties and cannot contact you for
clarification, EBSA might not be able to consider your comment.
Additionally, the <a href="http://www.regulations.gov">http://www.regulations.gov</a> website is an ``anonymous
access'' system, which means EBSA will not know your identity or
contact information unless you provide it in the body of your comment.
If you send an email directly to EBSA without going through <a href="http://www.regulations.gov">http://www.regulations.gov</a>, your email address will be automatically captured
and included as part of the comment that is placed in the public record
and made available on the internet.
Background: The Department is considering granting an exemption
under the authority of section 408(a) of the Employee Retirement Income
Security Act of 1974, as amended (ERISA) and section 4975(c)(2) of the
Internal Revenue Code of 1986, as amended (the Code), and in accordance
with the procedures set forth in 29 CFR part 2570, subpart B (76 FR
66637, 66644, October 27, 2011).\1\ If the proposed exemption is
granted, the restrictions of ERISA sections 406(a)(1)(A) through (D),
and the sanctions resulting from the application of Code section 4975,
by reason of Code sections 4975(c)(1)(A) through (D), shall not apply
to certain transactions arising from credit arrangements involving
Mitsubishi UJF Trust and Banking Corporation and its indirectly wholly-
owned subsidiary MUFG Alternative Fund Services (Cayman) Limited and
the investment funds in which employee benefit plans invest.
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\1\ For purposes of this proposed exemption, references to the
provisions of section 406 of Title I of ERISA, unless otherwise
specified, should be read to refer as well to the corresponding
provisions of Code section 4975.
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Summary of Facts and Representations \2\
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\2\ The Department notes that availability of this exemption, is
subject to the express condition that the material facts and
representations contained in application D-12003 are true and
complete, and accurately describe all material terms of the
transactions covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply to the covered transactions as of the date of
such change.
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1. Mitsubishi UJF Trust and Banking Corporation is a foreign
banking corporation organized under the laws of Japan, and a subsidiary
of Mitsubishi UFJ Financial Group. MUFG Alternative Fund Services
(Cayman) Limited is an ordinary resident company organized under the
laws of the Cayman Islands, and is an indirectly wholly-owned
subsidiary of Mitsubishi UJF Trust and Banking Corporation
(collectively, Mitsubishi Bank or the Applicant). Mitsubishi Bank may
act as the sole lender (a Lender) or agent for a Lender (an Agent) in
arranging revolving lines of credit (Credit Facilities) that are used
by certain investment vehicles (the Funds). The Funds may be structured
as limited partnerships, limited liability companies, or other business
entities organized under applicable law. Investors in the Funds (the
Investors) include employee benefit plans subject to ERISA and plans
subject to Code section 4975 (the Covered Plans). The Covered Plans
invest in the Funds, and the Funds, in turn, may invest directly or
indirectly in private equity investments, real estate or real estate
related investments, non-real estate operating company ventures, or
other investment opportunities.\3\
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\3\ This proposed exemption is not an endorsement by the
Department of the transactions described herein. The fiduciary
responsibility provisions of Part 4 of Title I of ERISA apply to a
Covered Plan fiduciary's decision to invest in a Fund. Specifically,
ERISA section 404(a)(1) requires, among other things, that a plan
fiduciary act prudently, solely in the interest of the plan's
participants and beneficiaries, and for the exclusive purpose of
providing benefits to participants and beneficiaries when making
investment decisions on behalf of the plan. Such an exemption would
not constitute an opinion as to whether a particular investment
strategy, or arrangement, would be considered prudent or in the best
interests of a plan, as required by ERISA section 404. The
determination of the prudence of a particular investment must be
made by a plan fiduciary, after appropriate consideration of those
facts and circumstances that, given the scope of such fiduciary's
investment duties, the fiduciary knows or should know, are relevant
to the particular investment involved, including the plan's
potential exposure to losses, and the role a particular investment
plays in that portion of the plan's investment portfolio with
respect to which the fiduciary has investment duties and
responsibilities (see 29 CFR 1550.404a-1).
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2. The Funds may use capital calls to facilitate Fund investments.
A capital call (Capital Call) is when a Fund exercises its right to
call on Investors to make cash capital contributions to the Fund. These
cash capital contributions from Investors to a Fund (Capital
Contributions) enable the Fund to make its investments. Investors
typically have 10 to 15 days after a Capital Call to make a Capital
Contribution. A Fund's use of Capital Calls to make investments can
take days, thereby reducing a Fund's investing flexibility and
increasing costs to the Fund's Investors, including the Covered Plans.
3. In addition to Capital Calls, a Fund may use a Credit Facility
to facilitate investments. For purposes of this proposed exemption, a
Credit Facility is a secured revolving line of credit between
Mitsubishi Bank, as sole Lender, or as Agent, and one or more Funds (or
an entity through which a Fund invests). The Fund may use its credit
under the Credit Facility for: (a) Direct or indirect borrowings; (b)
requesting letters of credit; (c) other similar forms of credit
arrangements; or (d) a combination of any of the foregoing.\4\
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\4\ The phrase ``other similar forms of credit arrangements'' is
a catch-all in the event the needs of the Fund change. Occasionally,
a Credit Facility might provide variations on extensions of credit,
for example, banker's acceptances, which are similar to letters of
credit and are commonly used in some non-U.S. jurisdictions.
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[[Page 34050]]
4. Mitsubishi may be a party in interest to a Covered Plan
investing in a Fund that uses a Credit Facility with respect to which
Mitsubishi is a Lender or Agent for one or more Lenders. However,
Mitsubishi will not be a fiduciary with respect to the Covered Plan
when relying on the exemption.
5. In most instances, the Credit Facility will be a recourse
obligation of a Covered Plan to the Fund that will not exceed the
Covered Plan's capital commitment. The following will secure the Fund's
repayments to the Credit Facility: (a) A pledge and assignment of all
the rights of the Fund and its general partner (General Partner) or
manager (Manager), including the right to call for and receive payments
of capital committed by Investors, and rights against defaulting
Investors; (b) the right to make Capital Calls on Investors, and apply
the proceeds to the repayment obligations of the Fund under the Credit
Facility, in the event of a default under the Credit Facility; (c) a
pledge or first priority security interest in an account (the
Collateral Account) that the Fund maintains with a financial
institution or entity into which capital contributions are made; and
(d) Investor agreements evidencing, among other things, the Investor's
acknowledgement of the assignment of rights to the Lenders by the
General Partner (or the Manager) and the Fund (the Investor Consent).
6. In connection with securing a Credit Facility, and to the extent
Mitsubishi Bank requests or requires, either as sole Lender or Agent,
an Investor will execute an Investor Consent consenting to,
acknowledging, and confirming certain aspects of the Credit Facility.
The Investor Consent may include the following documentation: (a) An
acknowledgment and confirmation of the Investor's obligation to deliver
the Investor's financial information statements to Mitsubishi Bank, as
sole Lender or Agent; (b) an acknowledgment, and confirmation, of the
Investor's unpaid, and owing, capital commitment amount, and of the
Investor's obligation to contribute capital (up to its unfunded capital
commitment amount) to satisfy the indebtedness the Fund incurred under
the Credit Facility; (c) an Investor's acknowledgment of the Fund's,
and its General Partner's (or Manager's), assignment and pledge to
Mitsubishi Bank as sole Lender or Agent, of the right to make Capital
Calls upon the Investors, and to collect and enforce the same; (d) an
Investor's agreement to make Capital Contributions to the Fund without
setoff, reduction, counterclaim, or defense of any kind or nature, for
the purpose of repayment of the Credit Facility; (e) a representation
that the Investor has no knowledge of claims, offsets, or defenses that
would adversely affect its obligation to fund Capital Contributions
under the Fund Agreements, or events, which with the passage of time
would constitute a default, or would constitute a defense to, or right
of offset against the Investor's obligation to fund its capital
commitment to the Fund; and (f) an agreement that the Investor will
fund Capital Contributions only into the Collateral Account (except in
certain limited circumstances).
7. With respect to the Fund and its activities, the only direct
contractual relationship between an Investor and Mitsubishi Bank, or
any Lender, will be the execution of the Investor Consent. The Investor
will separately agree in an ``Agreement to Fund'' that, in the event of
default under the Credit Facility, the Investor will make its Capital
Contribution to the Collateral Account in response to a Capital Call
for repayment of the Credit Facility, without setoff, reduction,
counterclaim, or defense of any kind or nature.
8. The Investor Consent acknowledges, and confirms, existing rights
of the Lenders that are created by operation of the Fund Agreements.
The Agreement to Fund does not limit the Investor's right to assert any
claim, or defense, in a separate action against either the Fund or the
General Partner (or Manager).
9. An executed Investor Consent is integral to the Credit Facility,
and the Credit Facility is an integral part of the Fund's investment
program. Prior to, or at the time of, a plan fiduciary's decision to
invest in the Fund, the plan fiduciaries will be aware that the Fund
will have: (a) The power to borrow money; (b) enter into a loan
agreement in which the Fund may pledge its assets, including the
capital commitments of the Investors; and (c) have the right to make
Capital Calls, thereby giving the secured party the right, under
certain circumstances, to make Capital Calls, directly.
10. A Fund Agreement is the written organizing and governing
document forming a Fund that obligates each Investor to make Capital
Contributions, with respect to capital commitments, upon receipt of a
Capital Call from Mitsubishi Bank, either as sole Lender or as Agent.
The Fund Agreement will also allow the Fund, or its general partner
(the General Partner), or its manager (the Manager), to make Capital
Calls for any lawful purpose of the Fund that is consistent with the
terms of the Fund Agreement and other governing documents.
11. Generally, the Fund Agreement will allow the Fund to: (a) Incur
indebtedness (including indebtedness related to a Credit Facility) for
the acquisition of investments, and to provide the Fund with working
capital, among other things; and (b) consummate investments quickly
without having to finalize the debt/equity structure for an investment,
or arrange, for interim or permanent financing, prior to making an
investment, and will have additional advantages to the Investors and
the Fund.
12. Some Fund Agreements contain an Agreement to Fund (or similar
language) in which case the Investor Consent merely acknowledges and
confirms the Investor's funding obligation. All other aspects of the
transaction, including the negotiation of all terms of the Credit
Facility, will be exclusively between Mitsubishi Bank, as sole Lender
or Agent, and the Fund.
Exemption Request
13. The Applicant is requesting an exemption that would permit:
(a) The granting by the Funds to Mitsubishi Bank, as sole Lender or
Agent for one or more Lenders (including Mitsubishi Bank) that will
fund a Credit Facility, of a security interest in and lien on the
Capital Commitments, reserve amounts, and Capital Contributions of
Investors that are Covered Plans investing in the Fund;
(b) Any Fund's collateral assignment and pledge to Mitsubishi Bank,
as sole Lender or Agent, of the Fund's security interest in an
Investor/Covered Plan's equity interest in such Fund;
(c) The Fund's granting to Mitsubishi Bank, as sole Lender or
Agent, of a security interest in a collateral account (Collateral
Account) to which all Capital Contributions in the Fund will be
deposited when paid (except in certain limited circumstances that do
not involve Covered Plans); \5\
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\5\ In most cases, all Investors will make Capital Contributions
into the Collateral Account. However, in some cases, investors that
are not Covered Plans may be directed to make Capital Contributions
to the sole Lender or the Agent, for the benefit of the Lenders,
after an event of default, in some other manner.
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(d) The granting by the Fund and/or its General Partner or Manager
to Mitsubishi Bank, as sole Lender or Agent, of its right to make
Capital Calls under the operative Fund Agreements, to enforce the
Capital Calls, collect the
[[Page 34051]]
Capital Contributions, and apply them to any amount due under the
Credit Facility; and
(e) A Covered Plan's execution of the Investor Consent, consenting
to the assignment by the Fund and General Partner (or Manager) to
Mitsubishi Bank, as sole Lender or Agent, of their right to make
Capital Calls.
Prohibited Transactions
14. Absent an administrative exemption, these transactions may
violate ERISA section 406(a)(l)(A) through (D), and the corresponding
provisions of the Code. The Applicant represents that since the
Lenders, including Mitsubishi Bank, will be generally large, national,
and international financial institutions, it is likely that, in any
given Credit Facility, one or more Lenders will have a relationship
with a Covered Plan, making it a party in interest with respect to the
Covered Plan. However, as a condition of this exemption, no Lender,
including Mitsubishi Bank, will be a fiduciary for any of the Covered
Plans in connection with their investment in the Fund.
15. ERISA section 406(a)(l)(A) prohibits a sale, exchange, or
lease, of any property between a plan and a party in interest. Pursuant
to the Investor Consent, a Covered Plan will make cash contributions to
the Collateral Account for the benefit of a Lender. Because the cash
contribution may come from the Covered Plan's assets, the execution of
the Investor Consent agreement involves an exchange of property between
the Covered Plan and the Lender, which includes Mitsubishi Bank, as
sole Lender or Agent, in violation of section 406(a)(1)(A) of ERISA.
16. In addition, ERISA section 406(a)(1)(B) prohibits the lending
of money, or other extension of credit, between a plan and a party in
interest. The Credit Facility's direct extension of credit to the Fund,
resulting in an indirect extension of credit to Covered Plans investing
in that Fund, pursuant to the Investor Consent, violates section ERISA
406(a)(1)(B).
17. Further, ERISA section 406(a)(1)(C) prohibits the furnishing of
goods, services, or facilities between a plan and a party in interest.
By servicing the loans under the Credit Facility, Mitsubishi Bank
provides indirect services to the Covered Plan Investor. Furthermore,
from time to time, there may be interactions between Mitsubishi Bank
Lenders and the Covered Plan Investors which involve Mitsubishi's
provision of services. For example, Covered Plan Investors may inquire
about the status and/or request information from Mitsubishi Bank
Lenders with respect to the Credit Facility and the outstanding
obligations thereunder, although, typically, such communications would
be relayed by the Covered Plan Investors through the Fund to Mitsubishi
Bank Lenders, and not made directly.
18. Finally, ERISA section 406(a)(l)(D) prohibits, the transfer to,
or use by, or for the benefit of a party in interest of any assets of a
plan. Because an Investor will make cash contributions to the
Collateral Account for the benefit of the Lender, which includes
Mitsubishi Bank, as sole Lender or Agent, cash contribution from Plan
assets would be considered a transfer of Plan assets to a party in
interest, in violation of ERISA section 406(a)(1)(D).
Benefits of the Credit Facility and Investor Consent
19. According to the Applicant, absent the requested exemption, the
inability to use the financing structure described above will result in
economic loss to Investors that are Covered Plans, and their
participants and beneficiaries, due to more onerous, and expensive,
financing terms and conditions that would be required for Plans to
invest in these types of investment ventures. In this regard, the types
of Funds involved in the Covered Transactions are an important element
of a Covered Plan's diversified investment portfolio. Real estate
investments can be valuable components of plan portfolios. However,
investments in a large, diversified limited partnership or similar
entity may have advantages over direct ownership of real estate
properties, and other securities, including limited liability with
respect to such property, if risks are minimized. Most diversified real
estate and other investment programs are carried out through
partnerships or limited liability companies that are substantially-
similar to the Funds.
20. According to the Applicant, a Credit Facility will allow a Fund
to manage its Capital Calls on a scheduled basis and to move quickly to
fund desired investments likely resulting in a more favorable
investment portfolio for the Fund and its Investors, and a potentially
higher return, without appreciably higher risk. In addition, the
ability of the Investors to delay payment on capital commitments allows
such amounts to remain in other investments of the Investor and allows
the Investor to achieve greater overall investment returns.
21. Mitsubishi Bank, as sole Lender or Agent, may receive a pledge
of the Investors' capital commitments, and rights to make Capital Calls
and to collect and enforce the same, in the event of default. The
Investor Consent is an important component of the Credit Facility
arrangement. Absent the Investor Consent, Mitsubishi Bank may be
required to foreclose on the collateral in order to effect a Capital
Call for repayment of the Credit Facility. The Investor Consent, which
would be required by this exemption, enables Mitsubishi Bank, as sole
Lender or Agent, to make a Capital Call immediately on the Investors
for repayment, without the need to first foreclose on the collateral.
22. When the Fund Agreements do not contain the agreement of the
Investors to make capital commitments without setoff, reduction,
counterclaim, or defense of any kind or nature, the Investor Consent
will contain this agreement, thereby permitting Lenders to be repaid
for amounts that have been extended to the Fund prior to the time
Capital Contributions are called, without the risk of repayment being
challenged, or delayed, by claims the Investors may have against the
Fund. This arrangement will keep the risk of the Fund's investment
transactions between the Fund and the Investors.
Conditions for Exemptive Relief
23. The proposed exemption will be subject to a number of
substantive conditions. The decision to invest in the Fund on behalf of
each Covered Plan and to execute an Investor Consent in favor of
Mitsubishi Bank, as sole Lender or Agent, will be made by fiduciaries
of the Covered Plan that are not included among, are independent of,
and are unaffiliated with, the Lenders (including Mitsubishi Bank) and
the Fund. Further, in each Credit Facility covered under this proposed
exemption, no Lender, including Mitsubishi Bank, will be a fiduciary
for any of the Covered Plans in connection with their investment in the
Fund. Relief in this proposed exemption does not extend to Funds that
contain ``plan assets'' for purposes of ERISA or Code section 4975.\6\
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\6\ The Plan Assets Regulation describes what constitutes assets
of a plan with respect to a plan's investment in another entity for
purposes of subtitle A, and Parts 1 and 4 of subtitle 1 of ERISA,
and Code section 4975. Should the Department approve this proposed
exemption, such approval would not constitute an opinion regarding
whether the underlying assets of any Fund would be considered the
assets of a plan under such regulations. Further, this exemption, if
granted, does not provide relief for either the internal
transactions involving the operation of the Fund, or for
transactions involving the Fund and third parties other than the
specific relief proposed herein. Covered Plan Investors, and their
independent fiduciaries, should examine carefully all aspects of the
Fund's organization, operation, and investment programs in order to
determine whether the requirements of the Department's regulations
will be met. See 29 CFR part 2510.3-101 (51 FR 41280, Nov. 13,
1986), as amended at 51 FR 47226, (Dec. 31, 1986).
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[[Page 34052]]
24. Each transaction must be on terms that are no less favorable to
the Covered Plans than those which the Covered Plans could obtain in
arm's-length transactions with unrelated parties. At the time of the
execution of an Investor Consent, the Covered Plan must have assets of
not less than $100 million. Not more than 5% of the assets of any
Covered Plan, measured at the time of the execution of an Investor
Consent, may be invested in the Fund.
25. The proposed exemption requires that the applicable fiduciaries
for Covered Plans that are Investors provide a representation to
Mitsubishi Bank, including a statement, that such fiduciary is
responsible for making the Covered Plan's decision to invest in the
Fund, and is and will be independent of, and unaffiliated with, the
Lenders.
26. In addition, no Lender may have any influence, authority, or
control over a Client Plan's investment in the Fund. No Covered
Transaction may be part of an arrangement, agreement or understanding,
designed to benefit a party in interest or disqualified person with
respect to a Covered Plan. Finally, any service covered by the
exemption must be necessary for the establishment or operation of the
plan, and no more than reasonable compensation may be paid therefor.
Finally, all the facts and representations set forth in the Summary of
Facts and Representations must be true and accurate.
Statutory Findings
27. ``The Proposed Exemption is Administratively Feasible.'' The
Department has tentatively determined that the requested exemption is
administratively feasible because it would cover a class of
transactions between Covered Plans and Lenders when each Covered Plan
will be independently represented by a fiduciary and will have an
independent investment advisor.
28. ``The Proposed Exemption is in the Interests of.'' The
Department has tentatively determined that the proposed exemption is in
the interest of Covered Plans because, absent the exemption, a Fund's
use of Capital Calls to make investments may take days, thereby
reducing the Fund's investing flexibility and increasing costs to the
Fund's Investors, including the Covered Plans.
28. ``The Proposed Exemption is Protective of.'' The Department has
tentatively determined that the proposed exemption is protective of the
rights of the Plan participants and beneficiaries because, among other
things, a fiduciary independent of Mitsubishi Bank and any other Lender
will make the decision to invest in the Fund and determine whether to
accept the credit facility arrangement and terms.
Summary
30. Based on the record developed in connection with this proposed
exemption, the Department has tentatively determined that the relief
sought by the Applicant satisfies the statutory requirements for an
exemption under ERISA section 408(a).
Notice to Interested Persons
Notice of the proposed exemption will be given to all interested
persons within 15 days of the publication of the notice of proposed
exemption in the Federal Register, by electronic mail (if electronic
mail is the usual and customary method by which Mitsubishi Bank
corresponds with the interested person) and/or first class U.S. mail to
the last known address of these individuals. The notice will contain a
copy of the notice of proposed exemption, as published in the Federal
Register, and a supplemental statement, as required pursuant to 29 CFR
2570.43(a)(2). The supplemental statement will inform interested
persons of their right to comment on the pending exemption. Written
comments are due within 45 days of the publication of the notice of
proposed exemption in the Federal Register.
All comments will be made available to the public. Warning: If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but do not submit
information that you consider to be confidential, or otherwise
protected (such as Social Security number or an unlisted phone number)
or confidential business information that you do not want publicly
disclosed. All comments may be posted on the internet and can be
retrieved by most internet search engines.
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 exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemption, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
Section I. Transactions
If the proposed exemption is granted, the restrictions of ERISA
sections 406(a)(1)(A)-(D), and the sanctions resulting from the
application of Code section 4975, by reason of section Code section
4975(c)(l)(A)-(D), shall not apply to:
(a) The granting by the Funds to Mitsubishi UFJ Trust and Banking
Corporation (Mitsubishi Bank), as an agent (Agent) for one or more
financial institutions (Lender(s)), which may include, without
limitation, Mitsubishi Bank) or as sole Lender, that will fund a credit
facility (Credit Facility) providing credit to certain investment funds
(Fund(s)), of a security interest in and lien on the capital
commitments (Capital Commitments), reserve amounts, and capital
contributions
[[Page 34053]]
(Capital Contributions) of certain investors (Investors) that are
employee benefit plans (Covered Plan(s), as defined in Section II(a)),
investing in the Fund;
(b) Any Fund's collateral assignment and pledge to Mitsubishi Bank,
as sole Lender or Agent, of the Fund's security interest in an Investor
Covered Plan's equity interest in such Fund;
(c) The Fund's grant to Mitsubishi Bank, as sole Lender or Agent,
of a security interest in a collateral account (Collateral Account) to
which all Capital Contributions in the Fund will be deposited when paid
(except in certain limited circumstances that do not involve Covered
Plans); \7\
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\7\ In most cases, all Investors will make Capital Contributions
into the Collateral Account. However, in some cases, Investors that
are not Covered Plans may be directed to make Capital Contributions
to the sole Lender or the Agent, for the benefit of the Lenders,
after an event of default, in some other manner.
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(d) The granting by the Fund and/or its general partner (General
Partner) or manager (Manager) to Mitsubishi Bank, as sole Lender or
Agent, of its right to make calls on Covered Plan Investors for Capital
Contributions (the Capital Call), which shall be in cash, under the
operative Fund Agreements (as defined in Section II(d)), enforce the
Capital Calls, collect the Capital Contributions, and apply them to any
amount due under the Credit Facility; and
(e) A Covered Plan's execution of an agreement (the Investor
Consent) consenting to the assignment by the Fund and General Partner
(or Manager) to Mitsubishi Bank, as sole Lender or Agent, of their
right to make Capital Calls.
Section II. Definitions
(a) The terms ``Covered Plan'' or ``Covered Plans'' means an
investor in a Fund (as defined below) that is an employee benefit plan,
as defined in ERISA section 3(3) and that is covered by Title I, Part 4
of ERISA, and/or a plan defined in Code section 4975, that satisfies
the conditions set forth herein in Section II;
(b) The terms ``Covered Transaction'' or ``Covered Transactions''
mean any combination of transactions described in Section I(a) through
(d), in conjunction with the Investor Consent described in Section
I(e);
(c) The terms ``Fund'' or ``Funds'' means an investment or venture
capital fund (organized as a corporation, limited partnership, limited
liability company, or another business entity authorized by applicable
law) in which one or more investors invest, including employee benefit
plans or special purpose entities holding ``plan assets'' subject to
ERISA, as described herein, by making capital contributions in cash to
such Fund, pursuant to specific Capital Commitments as established by
the Fund Agreement(s) and other operative documents executed by the
parties, for purposes of making certain real estate investments
(including real estate-related investments, such as venture capital
investments) or non-real estate investments (including, without
limitation, assets and/or interests relating to infrastructure,
maritime, energy, etc.).
Each Covered Plan investing in such special purpose entity must
satisfy the conditions set forth herein in Section II. The term
``Fund'' includes an entity created by the Fund that may borrow, or
receive, funds from the Credit Facility, provided that such entity is
considered an affiliate of the Fund as a subsidiary or other controlled
entity;
(d) The terms ``Fund Agreement'' or ``Fund Agreements'' mean the
written agreements under which a Fund (as defined above) is formed
(such as a limited partnership agreement, a limited liability company
agreement, trust agreement, or articles of incorporation, together with
ancillary related agreements, such as subscription agreements) that
obligate each Investor to make cash contributions of capital with
respect to Capital Commitments, upon receipt of a call for Capital
Contributions;
(e) The term ``officer'' means a president, any vice president in
charge of a principal business unit, division or function (such as
sales, administration or finance), or any other officer who performs a
policy-making function for the entity;
(f) The term ``Mitsubishi Bank'' means Mitsubishi UJF Trust and
Banking Corporation, which is a foreign banking corporation organized
under the laws of Japan, and its indirectly wholly-owned subsidiary
named MUFG Alternative Fund Services (Cayman) Limited, an ordinary
resident company incorporated and existing under the laws of the Cayman
Islands. This exemption is intended to cover Mitsubishi Bank, and all
of its current and future branches;
(g) For purposes of determining whether a fiduciary is not included
among, is independent of, and unaffiliated with, a Fund, the term Fund
shall be deemed, as appropriate, to include the governing entity of the
Fund, or a member of the governing body of the Fund, as appropriate,
e.g., a general partner of a partnership, a manager of a limited
liability company, a member of a member-managed limited liability
company, or a member of the board of directors of a corporation. For
purposes of this exemption request, a fiduciary of a Covered Plan is
not included among, is independent of, and unaffiliated with, a Lender
(including Mitsubishi Bank) or a Fund, as applicable, if:
(i) The fiduciary is not, directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common
control with such Lender or Fund;
(ii) The fiduciary is not an officer, director, employee or
relative of, or partner in, such Lender or Fund; and
(iii) No officer, director, highly-compensated employee (within the
meaning of Code Section 4975(e)(2)(H)), or partner of the Fund, or any
officer, director or highly-compensated employee, or partner of the
Lender who is involved in the transactions described in Section I of
the exemption request, is also an officer, director, highly-compensated
employee, or partner of the fiduciary. However, if such individual is a
director of the Lender, and if he or she abstains from participation
in, and is not otherwise involved with, the decision made by the
Covered Plan to invest in the Fund, then this condition shall be deemed
satisfied.
Section III. Conditions
(a) The decision to invest in the Fund on behalf of each Covered
Plan and to execute an Investor Consent in favor of Mitsubishi Bank, as
sole Lender or Agent, is made by fiduciaries of the Covered Plan that
are not included among and are independent of and unaffiliated with,
the Lenders (including Mitsubishi Bank) and the Fund;
(b) The transaction is on terms that are no less favorable to the
Covered Plans than those which the Covered Plans could obtain in arm's-
length transactions with unrelated parties;
(c) At the time of the execution of an Investor Consent, the
Covered Plan has assets of not less than $100 million. In the case of
multiple plans maintained by the same employer, or by members of a
controlled group of corporations (within the meaning of Code Section
414(b)), or members of a group of trades or businesses under common
control (within the meaning of Code Section 414(c)) (hereafter,
referred to as ``members of a controlled group''), whose assets are
invested on a commingled basis (e.g., through a master trust), this
$100 million threshold applies to the aggregate assets of the
commingled entity;
(d) Not more than 5% of the assets of any Covered Plan, measured at
the time of the execution of an Investor Consent,
[[Page 34054]]
is invested in the Fund. In the case of multiple plans maintained by
the same employer, or by members of a controlled group, whose assets
are invested on a commingled basis (e.g., through a master trust), the
5% limit applies to the aggregate assets of the commingled entity;
(e) Neither Mitsubishi Bank, nor any Lender, has discretionary
authority or control with respect to a Covered Plan's investment in the
Fund nor renders investment advice (within the meaning of 29 CFR
2510.3-21(c)) with respect to such investment;
(f) Upon request, the Covered Plan fiduciaries must receive from
Mitsubishi Bank, a copy of this notice of proposed exemption and a copy
of the final exemption, as published in the Federal Register;
(g) Mitsubishi Bank receives from the Covered Plan fiduciaries a
written representation, or a written authorization, that permits
Mitsubishi Bank to rely on a written representation made to the Fund,
that the conditions set forth above in Section III(a), (c), and (d) are
satisfied for such transaction with respect to the Covered Plan for
which they are fiduciaries;
(h) No Covered Transaction is part of an arrangement, agreement or
understanding, designed to benefit a party in interest or disqualified
person with respect to a Covered Plan.
(i) The Funds will not hold ``plan assets'' for purposes of ERISA
or Code section 4975; \8\
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\8\ See the Department's Plan Assets Regulation. 29 CFR part
2510.3-101 (51 FR 41280, Nov. 13, 1986), as amended at 51 FR 47226,
(Dec. 31, 1986).
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(j) Any service covered by the exemption must be necessary for the
establishment or operation of the plan, and no more than reasonable
compensation may be paid;
(k) No Lender will have any influence, authority, or control over a
Client Plan's investment in the Fund; and
(l) All the facts and representations set forth in the Summary of
Facts and Representations are true and accurate.
Effective Date: The proposed exemption, if granted, will be
effective as of the date that the notice of final exemption is
published in the Federal Register.
Signed at Washington, DC, this 22nd day of June, 2021.
Christopher Motta,
Chief, Division of Individual Exemptions, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor.
[FR Doc. 2021-13676 Filed 6-25-21; 8:45 am]
BILLING CODE 4510-29-P
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</html>Indexed from Federal Register on June 28, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.