00-27916. Grant of Individual Exemptions; Kwik Kopy Corporation Employees Welfare Benefit Plan and Trust (the Plan)

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, 5 U.S.C. App. 1 (1996), 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.

Kwik-Kopy Corporation Employees Welfare Benefit Plan and Trust (the Plan) Located in Cypress Creek, TX

Exemption

The restrictions of sections 406(a), 406(b)(1) and (b)(2) of the Act shall not apply to the cash sale by the Plan of certain recreational facilities (the Recreational Facilities) to the International Center for Entrepreneurial Development, Inc., the parent of Kwik-Kopy Corporation (Kwik-Kopy), the Plan sponsor, and a party in interest with respect to the Plan.^[1]

This exemption is subject to the following requirements:

(a) The proposed sale is a one-time transaction for cash.

(b) The fair market value of the Recreational Facilities has been determined by qualified, independent appraisers who propose to update their valuation of the Recreational Facilities on the date of the sale.

(c) On the date of the sale, the Plan receives an amount which is equal to the greater of the fair market value of the Recreational Facilities or the Plan's total acquisition costs.

(d) The Plan pays no fees or commissions in connection with the proposed sale.

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 August 17, 2000 at 65 FR 50223.

Technical Correction

The Department notes that in the notice of proposed exemption, the word “Copy,” as used in references to “Kwik-Copy Corporation” or “Kwik Copy,” has been misspelled. For purposes of this exemption, the Department wishes to point out that correct spelling of the term is “Kopy.”

FOR FURTHER INFORMATION CONTACT:

Ms. Jan D. Broady, of the Department, telephone [phone]. (This is not a toll-free number.)

American Mutual Holding Company (AMHC) Located in Des Moines, IA

Exemption

Section I. Covered Transactions

The restrictions of section 406(a) 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 (D) of the Code, shall not apply, effective September 20, 2000, to (1) the receipt of certain common stock (Common Stock) issued by AMHC,^[2] or (2) the receipt of cash (Cash) or policy credits (Policy Credits), by or on behalf of a policyowner (the Eligible Member) of AmerUs Life Insurance Company (AmerUs Life), which is an employee benefit plan (the Plan), other than a Plan maintained by AMHC and/or its affiliates, in exchange for such Eligible Member's membership interest in AMHC, in accordance with the terms of a plan of conversion (the Plan of Conversion), implemented under Iowa law.

This exemption is subject to the following conditions set forth below in Section II.

Section II. General Conditions

(a) The Plan of Conversion is subject to approval, review and supervision by the Iowa Commissioner of Insurance (the Commissioner) and is implemented in accordance with procedural and substantive safeguards that are imposed under Iowa law.

(b) The Commissioner reviews the terms and options that are provided to Eligible Members of AMHC as part of such Commissioner's review of the Plan of Conversion and the Commissioner approves the Plan of Conversion following a determination that such Plan is fair and equitable to Eligible Members.

(c) Each Eligible Member has an opportunity to vote to approve the Plan of Conversion after full written disclosure is given to the Eligible Member by AMHC.

(d) Any determination to receive Common Stock, Cash or Policy Credits by an Eligible Member which is a Plan, pursuant to the terms of the Plan of Conversion, is made by one or more Plan fiduciaries which are independent of AMHC and its affiliates and neither AMHC Group nor any of its affiliates exercises any discretion or provides investment advice, within the meaning of 29 CFR 2510.3-21(c), with respect to such decisions.

(e) After each Eligible Member entitled to receive Common Stock is allocated at least 20 shares, additional consideration is allocated to Eligible Members who own participating policies based on actuarial formulas that take into account each participating policy's contribution to the surplus and asset valuation reserve of AMHC, which formulas have been approved by the Commission.

(f) All Eligible Members that are Plans participate in the transactions on the same basis as all Eligible Members that are not Plans.

(g) No Eligible Member pays any brokerage commissions or fees in connection with their receipt of Common Stock or Policy Credits or in connection with the implementation of the commission-free program.

(h) All of AmerUs Life's policyowner obligations remain in force and are not affected by the Plan of Conversion.

Section III. Definitions

For purposes of this exemption:

(a) The term “AMHC” means American Mutual Holding Company, its successor, AmerUs Group, and any of their affiliates, as defined in paragraph (b) of this Section III.

(b) An “affiliate” of AMHC includes—

(1) Any person directly or indirectly through one or more intermediaries, controlling, controlled by, or under common control with AMHC. (For purposes of this paragraph, the term “control” means the power to exercise a controlling influence over the management or policies of a person other than an individual.)

(2) Any officer, director or partner in such person, and

(3) Any corporation or partnership of which such person is an officer, director or a 5 percent partner or owner.

(c) The term “Eligible Member” means a person who is (or, collectively, persons who are) the owner(s) of one or more “eligible policies” (the Eligible Policy or Eligible Policies) on the adoption date of the Plan of Conversion. An “Eligible Policy” is defined as a policy that has been in force for at least one year prior to the adoption date and that remains in force on the effective date of the Plan of Conversion. A mutual member of AMHC who owns both an Eligible Policy and a policy that is not an Eligible Policy will be an Eligible Member only with respect to the Eligible Policy.

(d) The term “Policy Credit” means either an increase in the accumulation account value (to which no surrender or similar charge will be applied) or an increase in a dividend accumulation on a policy or contract issued by AmerUs Life.

EFFECTIVE DATE:

This exemption is effective as of September 20, 2000.

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 that was published on August 17, 2000 at 65 FR 50240.

Written Comments

The Department received nine written comments with respect to the proposed exemption. Eight comments were submitted by Plan policyowners. The ninth comment, which was submitted by AmerUs Group, the successor to AMHC, and also referred to herein as “the Applicant,” is intended to update and clarify the proposal in certain areas.

Of the policyowner comments received, four commenters expressed their approval of the exemption. Three commenters made general comments. Of the comments falling into this category, one comment was not germane to the exemption request, while the two others focused on either the commenter's retirement eligibility or the form of demutualization consideration to be received. (Both of these comments were subsequently forwarded to the Applicant for handling by appropriate personnel.) Finally, another commenter objected to the granting of the exemption because he believed the exemption would favor officers and owners of AMHC at the expense of the investors.

Following is a discussion of the comment submitted by the objecting policyowner as well as the Applicant's response to this comment. Also discussed is the Applicant's comment and the Department's responses to the specific areas of the Applicant's concern.

Opposing Policyowner's Comment

As discussed briefly above, the commenter is of the view that the Restructuring will not benefit investors but will entirely benefit the officers and the owners of AMHC. Therefore, the commenter asserts that he is opposed to the granting of the exemption.

In response to this comment, the Applicant explains that the Restructuring provides significant benefits to the policyowners of AmerUS Life, which are the “investors” in and “owners” of AMHC for periods prior to the Restructuring, and does not serve to benefit AMHC's officers. The Applicant notes that the Restructuring provides AmerUS Life policyowners with Common Stock, Cash or Policy Credits in exchange for such policyowners' illiquid membership interests in AMHC. Thus, according to the Applicant, policyowners may effectively convert the economic value of their membership interests into a marketable equity position, cash or an enhanced return on their AmerUs Life insurance products. The Applicant states that this realization of economic value occurs while the underlying insurance or annuity contacts remain in force, without compromising any benefits, guarantees or other rights and interests (apart from membership in AMHC) under the existing policies and contracts. Additionally, the Applicant points out that policyowners receiving Common Stock as consideration for their membership interests are expected to benefit, along with other AMHC shareholders, from the increased financial flexibility that the organization of AMHC as a stock company (rather than a mutual company) will realize. For these reasons, the Applicant believes that the view expressed by the commenter should not prevent the Department from granting the final exemption.

Applicant's Comments

1. Status of the Restructuring and Renaming of AMHC. The Applicant states that the Plan of Conversion was approved by the Commissioner on August 1, 2000 and that the restructuring (the Restructuring) of AMHC occurred on September 20, 2000. Specifically, on that date, the Applicant explains that AmerUs Group liquidated into AMHC and AMHC converted to a stock corporation. In addition, the Applicant states that AmerUs Life Holdings, Inc. merged into AMHC, with AMHC as the surviving corporation. Further, the Applicant points out that AmerUs Life (i.e., AmerUs Life Insurance Company) became a wholly owned subsidiary of AMHC and AMHC was renamed “AmerUs Group Co.”

Because of the foregoing changes, the Applicant requests that the final exemption reflect that: (a) The Plan of Conversion was approved by the Commissioner on August 1, 2000; (b) the Restructuring occurred on September 20, 2000; and (c) the Applicant's name was changed from AMHC to “AmerUs Group Co.”

The Department has noted these modifications to the proposed exemption. With respect to the Applicant's name change, the Department has added a new footnote to the operative language of the exemption to clarify that, for purposes of this exemption, all references to AMHC are deemed to include references to AmerUs Group, the successor in interest to AMHC. The Department believes that by incorporating references to AmerUs Group into the definition of the term “AMHC,” the continuity of the proposed and final exemptions will be preserved and reader confusion will be minimized. In addition, the Department has made a corresponding change to Section III(a) of the final exemption in order that it will read as follows:

For purposes of this exemption:

(a) The term “AMHC” means American Mutual Holding Company, its successor, AmerUs Group, and any of their affiliates, as defined in paragraph (b) of this Section III.

2. Effective Date of Exemption and Use of the Escrow Arrangement. When the exemption application was initially filed, the Applicant explains that the timing and sequence of events for the Restructuring and the final exemption were uncertain. For this reason, the Applicant notes that the exemption application indicated that “[i]n the event that a final exemption ha[d] not been granted by the Department as of the effective date of the Restructuring, consideration otherwise payable to the Plans [would] be held in an interest-bearing escrow account, at the expense of AMHC, pending the grant of the final exemption.” The Applicant also noted that a subsequent submission to the Department stated more definitely that an escrow arrangement would be established.

However, because the publication of the proposed exemption was so close to the effective date of the Restructuring, the Applicant states that the use of the escrow arrangement became potentially burdensome. If an escrow arrangement were utilized, the Applicant explains that it would have been in place for a brief period of time and all of the fixed costs of such an arrangement would be have been borne by the Applicant.

In lieu of establishing an escrow account, the Applicant represents that it decided to distribute the demutualization consideration between October 18-24, 2000, which occurrence would be prior to the granting of the final exemption. Therefore, the Applicant requests that the final exemption be made retroactive to September 20, 2000, the date of the Restructuring. Additionally, the Applicant requests that the final exemption not be conditioned on AMHC's use of an escrow arrangement.

In response to this comment, the Department has made the final exemption effective as of September 20, 2000. This text appears in Section I of the final exemption, in the operative language, as well as in the section captioned EFFECTIVE DATE.

The Department notes that while the failure to describe the escrow arrangement in the Summary of Facts and Representations (the Summary) may have been due to an oversight, the Applicant counsel subsequently informed the staff, in telephone communication, of the time and monetary problems that would result if such an arrangement were ever adopted. Therefore, the Applicant requested that the exemption be made retroactive to the date of the Restructuring. The Department has complied with this request and it has not conditioned the final exemption on AMHC's use of the escrow arrangement.

3. Identification of Insurance Company. In the operative language, Section I of the proposed exemption refers to “a policyowner of AMHC.” Similarly, Representation 18(g) of the Summary refers to “AMHC's policyholder obligations.” As indicated in the exemption application, the Applicant states that AMHC was a mutual holding company in which the policyowners of AmerUs Life held mutual membership interests. However, the Applicant believes that the present wording of the proposed exemption could result in some confusion as to the actual policyowners covered by the exemption because there were no policyowners of AMHC. Therefore, the Applicant requests that Section I of the final exemption replace the phrase “a policyowner of AMHC” with the phrase “a policyowner of AmerUs Life” and that Representation 18(g) of the Summary refer to “policyholder obligations of AmerUs Life” rather than “AMHC's policyholder obligations.”

In response to this comment, the Department has modified the operative language of Section I of the final exemption to reflect this change. In addition, the Department has deleted the reference to “AMHC's policyholder obligations” in section I(h) of the proposed exemption and has substituted the phrase “AmerUs Life's policyowner obligations.” Further, the Department notes the modification to Representation 18(g) of the Summary.

4. Approval of Plan of Conversion by Voting Members. The fourth full paragraph of Representation 9 of the Summary states that “Section 508B.6 of the Iowa Code requires that the plan of conversion be approved by two-thirds of the policyholders ^[3] of the mutual company who are entitled to vote on the conversion.” The Applicant represents that Iowa law does not require two-thirds approval by the members who are eligible to vote. Rather, it requires two-thirds approval by the members who do vote. The Applicant notes that this matter was misstated in the exemption application.

Therefore, to correct this error, the Applicant requests that the sentence be revised to read as follows: “Section 508B.6 of the Iowa Code requires that the plan of conversion be approved by two-thirds of the policyowners of the mutual company voting on the conversion.”

In response, the Department notes this revision to the Summary.

5. Scope of Determination. Section II(b) of the proposed exemption and Representation 18(b) of the Summary condition the exemption on the Commissioner determining that the Plan of Conversion “is fair and equitable to Eligible Members and is not detrimental to the general public.” The Applicant states that although Iowa law requires the Commissioner to determine that the Plan of Conversion is “fair and equitable” to policyowners, it does not require that the Commissioner make a determination regarding the effect on the general public.

The Applicant explains that under Section 508B.7 of the Iowa Code, the full legal standard for the Commissioner's approval of the Plan of Conversion is a determination that “the plan complies with all provisions of law, the plan is fair and equitable to the mutual company and its policyholders, and that the reorganized company will have the amount of capital and surplus deemed by the commissioner to be reasonably necessary for its future solvency.” Therefore, the Applicant requests that Section II(b) of the final exemption and Representation 18(b) of the Summary be amended to conform with the Iowa Code.

In response to this comment, the Department has revised Section II(b) of the final exemption to read as follows:

(b) The Commissioner reviews the terms and options that are provided to Eligible Members of AMHC as part of such Commissioner's review of the Plan of Conversion and the Commissioner approves the Plan of Conversion following a determination that such Plan is fair and equitable to Eligible Members.

In addition, the Department notes the modification to Representation 18(b) of the Summary.

6. Filing of Indianapolis Life Plan of Conversion with the Commissioner. In Representation 10 of the Summary, Footnote 36 of the proposed exemption states that “[i]t is anticipated that a plan of conversion for the demutualization of ILICo will be filed with the Indiana Insurance Commissioner in August 2000.” The Applicant wishes to clarify that this filing was actually made in September 2000. Accordingly, the Department notes this clarification.

For further information regarding the comments and other matters discussed herein, interested persons are encouraged to obtain copies of the exemption application file (Exemption Application No. D-10874) the Department is maintaining in this case. The complete application file, as well as all supplemental submissions received by the Department, are made available for public inspection in the Public Documents Room of the Pension and Welfare Benefits Administration, Room N-5638, U.S. Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Accordingly, after giving full consideration to the entire record, including the written comments, the Department has decided to grant the exemption subject to the modifications and clarifications described above.

FOR FURTHER INFORMATION CONTACT:

Ms. Jan D. Broady of the Department, telephone [phone]. (This is not a toll-free number.)

Richard E. Lobenherz Profit Sharing Plan (the Plan) Located in Charlevoix, Michigan

Exemption

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 proposed sale of certain unimproved real property (the Land) by the Plan to Richard E. Lobenherz (Mr. Lobenherz), a disqualified person with respect to the Plan,^[4] provided that the following conditions are satisfied:

(a) The proposed sale will be a one-time transaction for cash;

(b) The Plan will receive the current fair market value for the Land established at the time of the sale by a qualified, independent appraiser;

(c) The Plan will pay no real estate expenses or commissions associated with the sale; and

(d) The sale will provide the Plan with greater liquidity and further diversification of the Plan's assets.

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 September 22, 2000 at 65 FR 57396.

FOR FURTHER INFORMATION CONTACT:

Ekaterina A. Uzlyan of the Department at [phone]. (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 accurately describes all material terms of the transaction which is the subject of the exemption.

Signed at Washington, DC, this 25th day of October, 2000.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits Administration, Department of Labor.

Footnotes

1.  Because the Plan is a voluntary employees' beneficiary association trust, it is not qualified under section 401 of the Code. Therefore, there is no jurisdiction under Title II of the Act pursuant to section 4975 of the Code. However, the Department is assuming, for purposes of this final exemption, that there is jurisdiction under Title I of the Act pursuant to section 3(1) of the Act.

2.  For purposes of this exemption, all references to AMHC are deemed to include references to AmerUs Group Co. (AmerUs Group), the successor in interest to AMHC.

3.  AMHC's Plan of Conversion refers to “Owners” of “Policies” issued by AmerUs Life or “policyowners” while the Iowa Code refers to “policyholders.” For purposes of this exemption, the Department notes that both terms have the same meaning.

4.  Because Mr. Lobenherz is the sole owner of the Plan sponsor and the only participant in the Plan, there is no jurisdiction under Title I of the Employee Retirement Income Security Act of 1974 (the Act) pursuant to 29 CFR 2510.3-3(b). However, there is jurisdiction under Title II of the Act pursuant to section 4975 of the Code.