1 See Institute Memorandum to Pension Committee No. 84-98, dated December 8, 1998.
[10920]
April 21, 1999
TO: PENSION COMMITTEE No. 30-99
RE: DOL ISSUES FINAL EXEMPTION AMENDING TRAK EXEMPTION
______________________________________________________________________________
The Department of Labor has granted a prohibited transaction exemption to Salomon Smith
Barney to amend the previously issued exemption involving its Personalized Investment Advisory
Service product, otherwise known as the TRAK exemption, PTE 94-50.1 The final exemption includes
the following provisions: (1) amendment of PTE 94-50 for corporate mergers that have changed the
names of the parties described in PTE 94-50 to permit broader distribution of TRAK-related products;
(2) implementation of a recordkeeping reimbursement offset system under the TRAK program; and (3)
institution of an automated reallocation option under the TRAK program.
The merger provision permits the organizations created by the subsequent mergers involving
Smith Barney since the issuance of PTE 94-50, including those with Salomon Brothers and Citicorp Inc.,
to participate in the TRAK program. The recordkeeping reimbursement provision permits funds
involved in the TRAK program to reimburse plan recordkeepers certain recordkeeping fees. The Board
of Trustees of the funds has approved a recordkeeping reimbursement amount of $12.50 for each
investment position held by a participant. In addition, after applying such reimbursement to
recordkeeping expenses charged by recordkeepers of the plans, any excess reimbursement is applied to
reduce other fees and expenses, including, but not limited to, the plan-level investment advisory fee for
asset allocation recommendations. If implemented, the funds would pay the appropriate reimbursement
amount directly to the recordkeeper of the plan. The affected plan would then be required to pay only
the balance of the fee.
Finally, the exemption modified the TRAK program to include an automatic reallocation feature
whereby an independent plan fiduciary could elect to have his current asset allocation adjusted
automatically whenever the consulting group changes the recommended asset allocation model followed
by a plan or participant. An independent plan fiduciary would be required to make such an election in
writing. However, if the reallocation to be made in response to the consulting group’s recommendation
exceeds an increase or decrease of more than 10 percent of the percentage allocation to any one
investment option, Salomon Smith Barney will not automatically readjust a plan account. Under such
circumstances, a written notice would be sent to the plan fiduciary describing the proposed reallocation.
If the plan fiduciary would like Salomon Smith Barney to automatically adjust the account, the notice
would instruct the plan fiduciary to do nothing. However, if the plan fiduciary does not want to follow
the reallocation recommendation, he or she must contact the financial consultant within 30 days.
A copy of the final exemption is attached.
Kathryn A. Ricard
Assistant Counsel
Attachment