EXHIBIT C DEPARTMENT OF LABOR Pension and Welfare Benefit Programs DEPARTMENT OF THE TREASURY Internal Revenue Service Notice of Proposed Extension of Existing Exemp- AGENCIES: ACTION: Department of Labor Department of the Treasury/ Notice of proposed extension of existing SUMMARY: This document contains a notice of pendency before the Department of Labor and the Internal Revenue Service (hereinafter referred to collectively as the Agencies) of a proposed extension, until December 1, 1978, of that portion of an existing class exemption which permits securities broker-dealers, until May 1, 1978, to provide brokerage and incidental services, under certain circumstances, to employee benefit plans with respect to which they are fiduciaries. It is also proposed to make the exemption applicable with respect to transactions occurring between May 1, 1978, and such date as the proposed extension might be adopted. The proposed extension, if granted, might affect brokerdealers providing services to employee benefit plans, and participants and beneficiaries of such plans. In addition, this document contains a notice of hearing on the proposed extension. DATES: Written comments on the proposed extension and requests for time to present oral comments at the hearing must be received by the Department of Labor on or before June 1, 1978. ADDRESSES: Written comments and requests for time to present oral comments should be addressed to the Office of Regulatory Standards and Exceptions, Pension and Welfare Benefit Programs, Room C-4526, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20216, Attention: Extension of Exemption for Certain Brokerage Transactions. All such communications and applications for exemption relating to this proposed extension will be available for public inspection at the Public Documents Room of Pension and Welfare Benefit Programs, U.S. Department of Labor, Room N-4677, 200 Constitution Avenue, N.W. Washington, D.C., and at the Internal Revenue Service National Office Reading Room, 1111 Constitution Avenue, N.W. Washington, D.C. FOR FURTHER INFORMATION CONTACT: Daniel J. Shapiro, Esq., SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency before the Agencies of a proposed extension of an existing class exemption from the restrictions of section 406 of the Employee Retirement Income Security Act of 1974 (the Act) and the taxes imposed by section 4975(a) and (b) of the Internal Revenue Code of 1954 (the Code) by reason of section 4975 (c) (1) of the Code. The class exemption relates to certain securities transactions effected on behalf of employee benefit plans by persons who are fiduciaries of the plan. The existing class exemption applicable to these transactions, which is set forth as paragraph I (a) of Prohibited Transaction Exemption 75-1, 1/ will expire May 1, 1978. It is proposed to extend the exemption until December 1, 1978, and it is proposed also to make the extension apply retroactively from its effective date to May 1, 1978. It should be noted that the action being proposed herein by the Agencies relates only to that portion of Prohibited Transaction Exemption 75-1 which expires May 1, 1978. The other portions of that exemption would not be affected by this proposal. The extension is proposed 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 ERISA Proc. 75-1 (40 FR 18471, April 28, 1975) and Rev. Proc. 75-26, 1975-1 C.B. 722. A class application for an extension of paragraph 1(a) of Prohibited Transaction Exemption 75-1 has been filed by the Securities Industry Association (SIA). 2/ The SIA also has 1/ Notice of the granting of the exemption currently in effect was published in the Federal Register on October 31, 1975 (40 FR 50845). 2/ Exemption Application No. D-1026. The SIA does not requested, in effect, a permanent extension and modification of paragraph 1(a) of that exemption. In addition, the Agencies have received four applications for individual exemptions which might relate to the proposed extension. 3/ To the extent that the transactions which are the subject of those applications are of the type described in this proposed extension of an existing class exemption, such transactions will be exempted if they satisfy the terms and conditions of such extension as might be granted. Because the Agencies believe that it would be administratively feasible to deal with these applications on a class basis, the Agencies, pursuant to section 3.01 of ERISA Proc. 75-1 and Rev. Proc. 75-26, have determined to group such applications in a class. As stated in section 3.04 of ERISA Proc. 75-1 and Rev. Proc. 75-26, an application for an individual exemption will not ordinarily be considered separately if a class exemption which may encompass the applications for individual exemption is under consideration by the Agencies. Accordingly, the Agencies are notifying directly each applicant for an individual exemption of the fact that such applicant's application is not presently being considered separately from this proceeding, and that following disposition of this proposed extension and the above noted class application for permanent modification, such application might be closed, and, therefore, that such applicant's comments with respect to this proposed extension of a class exemption are sought by the Agencies. In granting the pertinent portion of Prohibited Transaction Exemption 75-1, the Agencies determined that securities broker-dealers regularly provide research, information and advice concerning securities, and effect agency transactions for the purchase or sale of securities, in the ordinary course of their business as broker-dealers, and that provision of a combination of such services by a fiduciary with regard to employee benefit plans would constitute prohibited transactions under the Act and the Code unless a statutory or administrative exemption is available. The Agencies took note that in the future most transactions by plan fiduciaries that would be covered by this portion of Prohibited Transaction Exemption 75-1 also would, in effect, be prohibited by section 11(a) of the Securities Exchange Act of 1934 3/ Exemption Application Nos. D-724, D-862, D-888 and D-981. (Exchange Act), as amended by the Securities Acts Amendments of 1975 (Pub. L. 94-29, 89 Stat. 110). That section prohibits any member of a national securities exchange from effecting any transaction on such exchange for an account with respect to which it or an associated person thereof exercises investment discretion. 4/ The Agencies noted also that section 11(a) of the Exchange Act provides an exception from the prohibition described above until May 1, 1978 for members of a national securities exchange who were members on May 1, 1975. The Conference Report relating to the Securities 4/ The term "investment discretion" is defined in section 3 (a) (35) of the Exchange Act. In general a person who exercises investment discretion with respect to a plan within the meaning of that definition would also be a fiduciary with respect to the plan as defined in section 3(21) of ERISA and section 4975 (c) (3) of the Code. A person also would be a fiduciary as a result of rendering investment advice for compensation (within the meaning of 29 CFR 2510.3-21 (c) and section 54.4975-9 of the Pension Excise Tax Regulations) to a plan. It should be noted that the relief provided in paragraph I (a) of Prohibited Transaction Exemption 75-1 is available with respect to any fiduciary of the plan who meets the conditions of that paragraph, whether such person is a fiduciary by reason of exercising investment discretion or for some other reason. However, a broker-dealer which provides investment advice but does not exercise investment discretion with respect to a plan would, under certain circumstances, be able to effect brokerage transactions for the plan without relying upon the relief afforded by paragraph I (a) of Prohibited Transaction Exemption 75-1. This is because section 408 (b) (2) of the Act and section 4975 (d) (2) of the Code and regulations 29 CFR 2550.408b-2 and section 54.4975-6 of the Pension Excise Tax Regulations thereunder provide, in effert, that a fiduciary does not engage in a transaction prohibited by section 406 (b) (1) of the Act and section 4975 (c) (1) (E) of the Code if the fiduciary dose not use any of the authority, control or responsibility which makes such person a fiduciary to cause a plan to pay additional fees for a service furnished by such fiduciary. Acts Amendments of 1975 (H.R. Rep. No. 94-229, 94th Cong., Therefore, with respect to a person who is a plan fiduciary, Prohibited Transaction Exemption 75-1 provided, in part, an exemption for effecting securities transactions on behalf of employee benefit plans and for functions performed incidental to the effecting of such transactions. The pertinent part of the exemption was available whether or not the transaction was effected on a national securities exchange, but it applied only to persons who were ordinarily and customarily effecting securities transactions on May 1, 1975, and it was available only until May 1, 1978. The availability of Prohibited Transactions Exemption 75-1 was also subject to certain other conditions. addition to the exemption requests noted above, legislation has recently been introduced in Congress to postpone the full effectiveness of section 11 (a) of the Exchange Act until November 1, 1979. 6/ This legislation has been passed by the House of Representatives. 7/ The Senate has also passed a bill which, inter alia, would postpone the full effectiveness of section 11(a), but for a period of time shorter than that provided for in the bill passed by the House. 7a/ Furthermore, the Securities and Exchange Commission (SEC) has recently adopted a temporary rule 8/ In 5/ See also Conference Report on the Act, H.R. Rep. No. 93-1280, 93d Cong., 2d Sess. 309-10 (1974). 6/ 121 Cong. Rec. H1486 (daily ed. Feb. 23, 1978). 7/ H.R. 11567, 124 Cong. Rec. H2429 (daily ed. April 4, 1978). 7a/ H.R. 8331, 124 Cong. Rec. S6442 (daily ed. April 26, 1978). 8/ Rule 11a2-2 (T) under the Securities Exchange Act, |