[Federal Register Volume 59, Number 3 (Wednesday, January 5, 1994)]
[Notices]
[Pages 602-605]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-117]
[[Page Unknown]]
[Federal Register: January 5, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
[Prohibited Transaction Exemption 94-1, et al.; Exemption Application
No. D-9438, et al.]
Grant of Individual Exemptions; Tenneco, Inc., The General
Employee Benefit Trust, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of Individual Exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, DC. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Tenneco, Inc., The General Employee Benefit Trust (the GEBT) and Case
Corporation Pension Plan for Hourly-Paid Employees (the Plan) Located
in Houston, TX
[Prohibited Transaction Exemption 94-1; Application No. D-9438]
Exemption
The restrictions of sections 406(a) and 406 (b)(1) and (b)(2) of
the Act and 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, shall not apply to the transfer of shares of common stock
(the Stock) of Cummins Engine Company, Inc. (Cummins) to the GEBT by
Tenneco, Inc. (Tenneco), the Plan sponsor, to reflect the contribution
of the Stock to the Plan, provided that: (a) The Stock is valued at its
fair market value as of the date of contribution by a qualified,
independent appraiser; (b) the contribution of the Stock is approved on
behalf of the Plan by a qualified, independent fiduciary; (c) the
GEBT's continued holding of the Stock is monitored by a qualified,
independent fiduciary; (d) the GEBT's independent fiduciary will
monitor and enforce the conditions of the exemption and take whatever
action is necessary to protect the GEBT's rights, including, but not
limited to, the enforcement of a legally enforceable contribution
obligation (the Contribution Obligation) as described in the Notice of
Proposed Exemption, which will remain in force for as long as the GEBT
continues to hold any shares of the Stock; and (e) the Contribution
Obligation is secured by a letter of credit issued by a bank approved
by the GEBT's independent, qualified fiduciary.
Comments
In the Notice of Proposed Exemption, the Department invited
interested persons to submit written comments and requests for a
hearing on the exemption. All comments and requests for hearing were
due by December 20, 1993. The Department received over 100 telephone
inquiries from interested persons who expressed concern over the
effect, if any, of the transaction on their pension benefits. These
inquiries were responded to by a Department representative who informed
the callers that the transaction does not affect the calculation of
pension benefits or the Plan's obligation to make benefit payments.
The Department received a total of 29 written comments with only
one of those comments containing a request for a hearing.\1\ Nine
commentators stated that they did not understand the proposed exemption
or how it would affect their pensions.
---------------------------------------------------------------------------
\1\Because the exemption provides relief from section 406(b) of
the Act, 29 CFR 2570.46 of the Department's regulations provides
that the Department in its discretion may convene a hearing if
requested by interested persons.
---------------------------------------------------------------------------
The remaining commentators were opposed to the granting of the
exemption. The comments addressed 17 general areas of concern about the
proposed transaction. The concerns are summarized as follows:
1. Questions about the correct value of Cummins Stock, including a
question about the discrepancy between the New York Stock Exchange
(NYSE) price quoted in the Notice and the price quoted in a national
newspaper on December 2, 1993.
2. Concerns that the restrictions on the Stock make the Stock less
valuable and increase the risk that the Plan will not be able to
dispose of the Stock in the future.
3. Concerns about the wisdom of investing this much of the GEBT's
assets in one company.
4. Assertions that Tenneco would not be able to stand behind its
obligation under the Contribution Obligation based on its history of
financial troubles.
5. Concern that the letter of credit proposes to protect only 20%
of the value of the Stock, leaving 80% at risk.
6. A request that Tenneco fully fund all of its pension
liabilities.
7. A request that Tenneco guarantee the value of the Stock to be
contributed to the GEBT.
8. Questions about the possibility that the transaction will
decrease the amount of pension payments to participants and
beneficiaries of the Plan.
9. Concerns over changes in retiree medical benefits.
10. Questions regarding the wisdom of allowing Tenneco to
contribute Cummins stock to the GEBT since, according to the
commentator, Tenneco owns Cummins.
11. Comments indicating that the Plan participants would prefer to
receive cash contributions rather than stock.
12. Allegations that individuals who would be affected by the
proposed transaction have not received proper notice.
13. Questions concerning the independent fiduciary's alleged
determination that the Stock will experience no precipitous declines in
value in the future.
14. Confusion over the consequences for the GEBT of any decline in
value of the Stock.
15. Concern over the proper exercise of the voting and other
privileges applicable to shareholders of the Stock.
16. Questions about the guidelines for determining if and when to
adjust the amount of the letter of credit (or alternative collateral)
which secures the Contribution Obligation.
17. A request that Tenneco guarantee that the value of the
contribution will not be diminished by transaction costs when the Stock
is sold at some future date.
Responses to these comments were submitted by the applicant, on
behalf of both Tenneco and Woodbridge, the GEBT'S independent
fiduciary. These responses are summarized as follows, corresponding in
order to the comments listed above:
1. According to the applicant, subsequent to the publication of the
Notice of Proposed Exemption, Cummins had a 2 for 1 stock split which
accounts for the change in the price of the Stock as listed on the
NYSE.
2. The applicant notes that after a review of the Stock's past
performance, Woodbridge has determined that the Stock is a prudent
investment for the Plan despite the restrictions on transferability.
Furthermore, the applicant states that the Stock's value has been
determined by an independent appraisal company, taking the restrictions
into account. Finally, the applicant notes that the restrictions on
transfer of the Stock will expire in July, 1996.
3. The applicant explains that once the Stock is contributed to the
GEBT, it will represent only 5.65% of the assets of the GEBT. In
addition, because each of the Affected Plans has an undivided interest
in the assets of the GEBT, no single plan will hold all of the Stock.
4. The applicant asserts that Standard & Poors and Moody's rating
of Tenneco debt as investment grade, as well as Tenneco's recent sale
of $1 billion of equity, are indications that Tenneco is a viable
company. The applicant again notes that the proposed transaction is
backed by the judgment of Woodbridge as independent fiduciary, by the
independent appraisal of the Stock and by the letter of credit in the
amount of 20% of the value of the Stock.
5. The applicant represents that due to Tenneco's financial
condition, as described in 4. above, a letter of credit in the amount
of 20% of the value of the Stock is sufficient to protect the interests
of the GEBT. The applicant represents that the face value of the letter
of credit is approximately $32,000,000. The applicant also represents
that Tenneco's financial condition is good and that its credit-
worthiness is adequate security for the unsecured portion of the
Contribution Obligation.
6. According to the applicant, the contribution of the Stock to the
GEBT is part of an overall strategy to ensure that the Tenneco Plans
will be fully funded.
7. The applicant represents that the Contribution Obligation
assumed by Tenneco guarantees the value of the contribution since
Tenneco is required to make a cash contribution to the GEBT to
compensate for any loss in the value of the Stock in any calendar
quarter. Furthermore, the Contribution Obligation is secured by a
letter of credit issued by a major bank in the amount of 20% of the
value of the Stock.
8. The applicant responds by explaining that all plans invested in
the GEBT are defined benefit plans, the benefits of which are not
affected by the investment performance of plan assets.
9. Retiree medical benefits are not relevant to the proposed
exemption.
10. Tenneco does not own Cummins. The applicant represents that
Tenneco owns less than 10% of Cummins' stock.
11. The applicant represents that the contribution of the Stock to
the GEBT is essentially the same as a cash contribution to the GEBT
followed by a purchase of Cummins' stock by the GEBT. In addition, the
applicant states that maintaining the Plan assets primarily in
uninvested cash would be a breach of fiduciary duties under ERISA. The
applicant further states that the GEBT will at all times maintain
sufficient liquid assets to pay benefits when due.
The applicant also represents that the Stock is not replacing cash
or other assets in the GEBT; rather, the Stock is being contributed in
addition to the assets already held in the GEBT. According to the
applicant, the contribution of Stock enables Tenneco to accelerate the
time at which the GEBT will receive contributions.
12. The applicant represents that it has complied with all
applicable notice requirements. An authorized representative of Tenneco
has provided the Department with a declaration under penalty of perjury
attesting to the truth of the information regarding Tenneco's notice to
interested persons as required by the Department's regulations (see 29
CFR 2570.43). In addition, in response to information indicating that
several interested persons in and around Hutchinson, Kansas had not
received proper notice of the proposed exemption, the applicant
represents that notice was again provided to people in the Hutchinson
area.
13. The applicant explains that, contrary to the commentator's
assertion, Woodbridge has not made any such determination but has
concluded that the Stock is a prudent investment for the GEBT, based in
part on the Stock's market history over the past 3 years. In addition,
Woodbridge has determined that any decline in value of the Stock would
be adequately compensated for by the Contribution Obligation.
14. The applicant asserts that the Contribution Obligation ensures
that the value of the stock contribution will remain the same even if
the value of the Stock decreases. The applicant explains that, if, for
example, the Stock is valued at $160,000,000 on the date of
contribution to the Plan and, over the course of a year the price
drops, Tenneco would be obligated, over the course of that year, on a
quarterly basis, to contribute cash so that the value of the Stock plus
the aggregate amounts of cash contributed pursuant to the Contribution
Obligation equals $160,000,000. It is represented, therefore, that the
value of the intial contribution will never be diminished.
15. The applicant responds by explaining that Woodbridge, acting in
its capacity as independent fiduciary, will exercise the stock voting
rights and the right to designate a person to the Cummins Board of
Directors, pursuant to the direction of the GEBT's Investment
Committee; provided, that Woodbridge may decline to designate the
Investment Committee's choice if it determines that to do so is in the
GEBT's best interests.
16. The applicant states that the determination regarding the
increase in the amount of the letter of credit or the need to provide
alternative collateral is a simple calculation based on the difference
between (a) the balance of the letter of credit and (b) the product of
the number of shares of the Stock held by the GEBT, the contribution
price of the Stock and 20%.
17. The applicant explains that the Contribution Obligation will be
in effect when the Stock is sold in the future. According to the
applicant, if the Stock is sold at a loss, any transaction costs would
be accounted for by the Contribution Obligation which would require
Tenneco to contribute an amount equal to the number of shares sold,
multiplied by the difference between the realized net price and the
Lowest Price (see paragraph 5 in the Notice of Proposed Exemption). If
the Stock is sold at a gain, the GEBT would bear the transaction costs.
The applicant represents that it is customary for pension plans to bear
such transaction costs in similar circumstances.
Only one of the interested persons who commented on the proposed
exemption requested a public hearing, although several others indicated
that they wished to be notified if a hearing was scheduled. The
Department has considered the concerns expressed by the commentators
and the applicant's written responses addressing such concerns, and, on
the basis of the materials provided, has determined not to hold a
public hearing. Furthermore, after giving full consideration to the
entire record, including the written comments and the responses
thereto, the Department has decided to grant the exemption.
Finally, the applicant has informed the Department that it intends
to enter into the transaction on December 29, 1993, and requests that
the exemption be made effective as of that date. The Department concurs
with this suggested modification.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice of Proposed Exemption published on November 15, 1993, at 58
FR 60217.
EFFECTIVE DATE: This exemption is effective December 29, 1993.
FOR FURTHER INFORMATION CONTACT: Ms. Virginia J. Miller of the
Department, telephone (202) 219-8971. (This is not a toll-free number.)
Lakeshore Foods Corp. Retirement Savings Plan (the Plan) Located in
Michigan City, Indiana
[Prohibited Transaction Exemption 94-2; Exemption Application No. D-
9441]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and the sanctions resulting from the application of section 4975 of
the Code, by reason of section 4975(c)(1)(A) of through (E) of the
Code, shall not apply to (1) past and proposed interest-free loans to
the Plan (the Loans) by Lakeshore Foods Corporation, the sponsor of the
Plan, with respect to guaranteed investment contracts number C90816 and
number C91096 (the GICs) issued by Inter-American Insurance Company of
Illinois (Inter-American); and (2) the Plan's potential repayment of
the Loans (the Repayments); provided that the following conditions are
satisfied:
(A) No interest and/or expenses are paid by the Plan;
(B) The Loans are made to reimburse the Plan for amounts invested
with Inter-American under the terms of the GICs;
(C) The Repayments are restricted to cash proceeds paid to the Plan
(the GIC Proceeds) by Inter-American and/or any other responsible third
party with respect to the GICs, and no other Plan assets are used to
make the Repayments;
(D) Any GIC Proceeds received by the Plan are applied first to make
the Plan whole with respect to the Guaranteed Amount (as defined in the
Notice of Proposed Exemption), and thereafter to repay the Loans; and
(E) The Repayments will be waived to the extent the Loans exceed
the GIC Proceeds.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on October 29, 1993 at 58 FR
58197.
EFFECTIVE DATE: This exemption is effective as of December 23, 1992.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Goodman-Gable-Gould Company Profit Sharing Plan (the Plan) Located
in Baltimore, Maryland
[Prohibited Transaction Exemption 94-3; Exemption Application No. D-
9498]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the
Act and 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,
shall not apply to (1) a loan of up to $250,000 (the Loan) by the Plan
to the Office Property Joint Venture (OPJV), a party in interest with
respect to the Plan; and (2) the personal guarantees of OPJV's
obligations under the Loan by William A Goodman, Harvey M. Goodman,
Lawrence H. Goodman, and Myron Schwartz, each of whom is a party in
interest with respect to the Plan; provided the following conditions
are satisfied:
(A) All terms of the Loan are at least as favorable to the Plan as
those which the Plan could obtain in an arm's-length transaction with
an unrelated party;
(B) For the duration of the Loan, the principal balance of the Loan
does not exceed twenty-five percent of the net assets of the Plan at
any time;
(C) For the duration of the Loan, the Plan's interests with respect
to the Loan are represented by Barry C. Greenberg, an independent
fiduciary who will monitor and enforce the OPJV's compliance with the
Loan terms and the conditions of this exemption; and
(D) Upon the making of the Loan and for its duration, the Loan is
secured by a perfected lien on real property having a fair market value
of no less than 150% of the outstanding principal balance of the Loan.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on November 10, 1993 at 58
FR 59738.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
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 to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, DC, this 30th day of December, 1993.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-117 Filed 1-4-94; 8:45 am]
BILLING CODE 4510-29-P
