PROHIBITED TRANSACTIONS PROVISIONS HAS BEEN CHARACTERIZED BY
A SUSTAINED EFFORT TO INTERPRET, ADMINISTER AND ESTABLISH
STANDARDS UNDER SECTION 4975 OF THE CODE WHICH ARE IN ACCORD
WITH STANDARDS DEVELOPED BY THE DEPARTMENT OF LABOR'S ADMINIS-
TRATION OF PARALLEL PROVISIONS UNDER TITLE I OF ERISA.
ADMITTEDLY, THE FIRST YEARS OF THIS COOPERATIVE EFFORT SAW
SOME TROUBLESOME DELAYS, BUT WE THINK WE NOW HAVE A PROCEDURE
THAT PERMITS US TO CAREFULLY ADMINISTER SECTION 4975, WHILE,
AT THE SAME TIME, KEEP UNNECESSARY DELAYS TO A MINIMUM. ON
DECEMBER 1, 1976, THE SERVICE AND THE DEPARTMENT OF LABOR
JOINTLY PUBLISHED A MEMORANDUM OF UNDERSTANDING THAT CREATED
A FRAMEWORK FOR SETTLING INTERAGENCY DISAGREEMENTS AND
ESTABLISHED A TIME LIMITATION WITHIN WHICH ONE AGENCY MUST
RESPOND TO THE RECOMMENDATIONS OF THE OTHER WITH RESPECT TO
AN EXEMPTION REQUEST. THE MEMORANDUM OF UNDERSTANDING
PROVIDES THAT EXEMPTION APPLICATIONS REQUIRING CONSIDERATION
AND ACTION BY BOTH AGENCIES WILL BE ASSIGNED FOR CASE ANALYSIS
AND RECOMMENDATION TO A CASE INITIATOR IN ONLY ONE AGENCY.
GENERALLY THE AGENCIES ALTERNATE IN ASSUMING INITIAL OR
PRIMARY RESPONSIBILITY FOR EACH APPLICATION RECEIVED. IF THE
INFORMATION SUBMITTED IS INSUFFICIENT TO SUPPORT A DETERMINATION
THAT AN EXEMPTION SHOULD BE PROPOSED, A TENTATIVE DENIAL LETTER
IS SENT TO THE APPLICANT BY THE AGENCY PRIMARILY RESPONSIBLE
INDICATING THAT THE APPLICATION WILL BE DENIED UNLESS ADDITIONAL

30-779 78 - 30

REQUESTED INFORMATION IS SUBMITTED. WHEN THE APPLICATION IS
COMPLETE, THE CASE INITIATOR RECOMMENDS THAT THE APPLICATION
EITHER BE GRANTED OR DENIED, INCORPORATING THAT RECOMMENDATION
IN EITHER A DRAFT DENIAL LETTER OR PROPOSED EXEMPTION. THIS
DRAFT TOGETHER WITH A CASE ANALYSIS IS FORWARDED TO THE
ASSOCIATE AGENCY FOR APPROVAL OR COMMENTS WITHIN A CERTAIN
TIME PERIOD. I WOULD LIKE TO NOTE THAT WHILE THE MEMORANDUM
OF UNDERSTANDING ESTABLISHES RESPONSE DATES THAT THE AGENCIES
ENDEAVOR TO MEET, WE UNDERSTANDABLY HAVE MORE DIFFICULTY
MEETING THESE DATES WHEN PROPOSING TO GRANT AN EXEMPTION
THAN WHEN DENYING AN APPLICATION.

BOTH AGENCIES MUST CONCUR

IN GRANTING AN EXEMPTION AND MUST TAKE CARE TO INSURE THE
ADEQUACY OF PARTICIPANT PROTECTION AND ADMINISTRATIVE
FEASIBILITY. AS A CONSEQUENCE, THE PROCESS OF GRANTING AN
ADMINISTRATIVE EXEMPTION, ALTHOUGH FACILITATED BY THE
MEMORANDUM OF UNDERSTANDING, REMAINS PROTRACTED.

AS OF MARCH 31, 1978, THE SERVICE AND THE DEPARTMENT OF
LABOR HAD RECEIVED 886 APPLICATIONS FOR EXEMPTION. 138 OF
THESE APPLICATIONS HAVE BEEN CLOSED AS A RESULT OF EITHER
AN INDIVIDUAL OR A CLASS EXEMPTION. ANOTHER 49 APPLICATIONS
124 APPLICATIONS HAVE

HAVE BEEN CLOSED BY RULING LETTERS.

BEEN DENIED AND 153 APPLICATIONS HAVE BEEN CLOSED EITHER BECAUSE THE APPLICATION WAS WITHDRAWN OR BECAUSE THE REQUIREMENTS OF REVENUE PROCEDURE 75-26 AND ERISA PROCEDURE 75-1 WERE NOT MET. THUS, OF THE 886 APPLICATIONS SUBMITTED,

464 HAVE BEEN CLOSED. OF THE REMAINING 422 APPLICATIONS THE
SERVICE HAS PRIMARY RESPONSIBILITY FOR 210, ALL OF WHICH HAVE
BEEN ASSIGNED TO MEMBERS OF OUR STAFF AND ARE NOW BEING
PROCESSED. OF THESE, 93 APPLICATIONS ARE COVERED BY INDIVIDUAL
OR CLASS EXEMPTIONS THAT HAVE EITHER REACHED THE REVIEW LEVEL
WITHIN IRS, BEEN FORWARDED FOR REVIEW AT DOL, OR HAVE BEEN
PUBLISHED IN PROPOSED FORM FOR PUBLIC COMMENT. A RECAP OF
OUR STATISTICS REVEALS A RECORD OF CONSIDERABLE PROGRESS IN
THAT APPROXIMATELY 90 PERCENT OF ALL APPLICATIONS FOR EXEMPTION
ARE NOW EITHER CLOSED, COVERED BY AN IMPENDING CLASS OR
INDIVIDUAL EXEMPTION OR IN RECEIPT OF A TENTATIVE DENIAL
LETTER. THIS COMPARES VERY FAVORABLY TO THE SITUATION A YEAR
AGO WHEN ONLY 75 PERCENT OF SUCH APPLICATIONS HAD BEEN CLOSED,
COVERED BY IMPENDING CLASS OR INDIVIDUAL EXEMPTION OR WERE IN
RECEIPT OF A TENTATIVE DENIAL LETTER. A NUMBER OF OLDER CASES
REMAIN UNRESOLVED, BUT WE ARE CONFIDENT THAT MANY OF THESE
CASES WILL BE COVERED IN THE NEAR FUTURE BY CLASS EXEMPTIONS

WHICH THE AGENCIES ARE CURRENTLY DEVELOPING. A STATISTICAL
ANALYSIS OF OUR PROGRESS TO DATE WAS SUBMITTED WITH MY STATE-
MENT, AND I ASK THAT THE SUMMARY BE INCLUDED IN THE RECORD.
WE HAVE PROMOTED THE DEVELOPMENT OF CLASS EXEMPTIONS IN
RECOGNITION OF THE FACT THAT ONE EXEMPTION DIRECTED AT A
CLASS OF TRANSACTIONS WILL DISPOSE OF MANY OF THE PROHIBITED
TRANSACTIONS PROBLEMS ENCOUNTERED BY THOSE PERSONS WHO HAVE

RESPONSIBILITY FOR MANAGING PLAN ASSETS. IT BECAME EVIDENT
TO THE SERVICE AND THE DEPARTMENT OF LABOR THAT A NUMBER OF
EXEMPTION APPLICATIONS WERE MADE WITH RESPECT TO PRACTICES
THAT HAD BEEN CUSTOMARY AMONG MANY EMPLOYEE BENEFIT PLANS.
CLASS EXEMPTIONS DIRECTED AT THESE WIDESPREAD AND RELATIVELY
BENIGN PRACTICES SEEMED TO BE APPROPRIATE, AND, IN VIEW OF
THE FACT THAT THE APPLICANTS WERE NOT REPRESENTED BY TRADE
ASSOCIATIONS OR INDUSTRY REPRESENTATIVES, THE AGENCIES, ON
THEIR OWN INITIATIVE, DEVELOPED RESPONSIVE CLASS EXEMPTIONS.

THE AGENCIES GRANTED EXEMPTIVE RELIEF FOR CERTAIN UNIQUE
PROBLEMS FACED BY MULTIEMPLOYER AND MULTIPLE EMPLOYER PLANS
MAINTAINED PURSUANT TO COLLECTIVE-BARGAINING AGREEMENTS.
THIS TYPE OF CLASS EXEMPTION PERMITS CERTAIN WRITTEN AND
REASONABLE ARRANGEMENTS THAT ENABLE THE PLAN TO DEAL WITH
DELINQUENT EMPLOYER CONTRIBUTIONS. IT ALSO CONDITIONALLY
PERMITS THE USE OF PLAN ASSETS FOR CONSTRUCTION LOANS TO
DISQUALIFIED PERSONS, AND ALLOWS A MULTIPLE EMPLOYER PLAN
TO PROVIDE OFFICE SPACE, ADMINISTRATIVE SERVICES AND GOODS
TO DISQUALIFIED PERSONS.

THE AGENCIES HAVE GRANTED CLASS EXEMPTIONS THAT PERMIT THE TRANSFER OF INDIVIDUAL LIFE INSURANCE CONTRACTS AND ANNUITIES TO EMPLOYEE BENEFIT PLANS AND THE TRANSFER OF INDIVIDUAL LIFE INSURANCE CONTRACTS AND ANNUITIES FROM EMPLOYEE BENEFIT PLANS TO PLAN PARTICIPANTS, EMPLOYERS AND OTHER

EMPLOYEE BENEFIT PLANS. THE AGENCIES FELT THAT THESE EXEMPTIONS

WHICH ENABLE THE CONTINUATION OF PRE-EXISTING INSURANCE
POLICIES ARE BENEFICIAL BOTH TO EMPLOYEES AND TO EMPLOYEE
BENEFIT PLANS.

A CLASS EXEMPTION HAS ALSO BEEN PROPOSED FOR THE SALE OF
CUSTOMER NOTES FROM EMPLOYERS TO THEIR PLANS, IN RECOGNITION
OF THE FACT THAT THIS COMMON PRACTICE HAD PROVIDED A VALUABLE
INVESTMENT VEHICLE TO PLANS.

OTHER CLASS EXEMPTIONS HAVE BEEN GRANTED IN RESPONSE TO APPLICATIONS FILED BY THOSE GROUPS THAT PROVIDE SIGNIFICANT SERVICES TO EMPLOYEE BENEFIT PLANS, NAMELY, THE SECURITIES AND INSURANCE INDUSTRIES.

PROHIBITED TRANSACTIONS EXEMPTION 75-1, THE BROKER-DEALER EXEMPTION, PERMITS A BROAD RANGE OF CUSTOMARY SECURITIES TRANSACTIONS INVOLVING PLANS AND DISQUALIFIED PERSONS. SPECIFICALLY, THE EXEMPTION PERMITS DISQUALIFIED PERSONS TO EFFECT SECURITIES TRANSACTIONS ON BEHALF OF A PLAN; TO PROVIDE CERTAIN NON-FIDUCIARY ADVISORY SERVICES; TO ENABLE THE PURCHASE AND SALE OF SECURITIES BETWEEN PLANS AND DISQUALIFIED PERSONS WHO ARE BROKER-DEALERS, REPORTING DEALERS OR BANKS IF THE INSTITUTION CUSTOMARILY PURCHASES AND SELLS SECURITIES FOR ITS OWN ACCOUNT; TO ALLOW A PLAN TO PURCHASE SECURITIES DURING THE EXISTENCE OF AN UNDERWRITING SYNDICATE WITH RESPECT TO THOSE SECURITIES FROM A PERSON OTHER THAN A PLAN FIDUCIARY EVEN THOUGH A PLAN FIDUCIARY MAY BE A MEMBER OF THE SYNDICATE; TO PERMIT THE PURCHASE OR SALE OF SECURITIES FROM A MARKET-MAKER WHO MAY BE A PLAN FIDUCIARY; AND