[Federal Register Volume 59, Number 232 (Monday, December 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29833]
[[Page Unknown]]
[Federal Register: December 5, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09847, et al.]
Proposed Exemptions; Erick M. Jansson, IRA (the IRA) et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
request for a hearing should state: (1) the name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR part 2570, subpart B (55 FR 32836, 32847, August 10, 1990).
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 requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Erick M. Jansson, IRA (the IRA) Located in Fayetteville, Arkansas;
Proposed Exemption
[Application No. D-09847]
The Department is considering granting an exemption under the
authority of section 4975(c)(2) of the Code and in accordance with the
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,
32847, August 10, 1990). If the exemption is granted, 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 an overriding royalty interest in oil and gas (the
Interest) by the IRA to Mr. Erick M. Jansson (Mr. Jansson), a
disqualified person with respect to the IRA, for $95,000 in cash,
provided:
(a) the IRA pays no commissions or other expenses in connection
with the sale;
(b) the fair market value of the Interest is determined by a
qualified independent appraiser; and
(c) the IRA receives no less than the fair market value of the
Interest on the date of the sale.1
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\1\Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the
jurisdiction of Title I of the Act. However, there is jurisdiction
under Title II of the Act pursuant to section 4975 of the Code.
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Summary of Facts and Representations
1. The IRA is a self-directed IRA described in section 408(a) of
the Code. Arkansas Trust Management, Inc. of Fayettevillle, Arkansas,
is the custodian of the IRA. As of September 6, 1994, the IRA had
approximately $169,150 in total assets.
2. On April 20, 1993, the IRA purchased the Interest, which
consists of an overriding royalty interest of one-quarter of one
percent of 8/8ths of all oil and gas produced from Block Q/13(a), a
proposed offshore oil and gas drilling operation to be located on
property near the Netherlands. The IRA purchased the Interest from the
Van Dyke Energy Company (VDE) for a consideration of $95,000. VDE is
unrelated to Mr. Jansson and the IRA. Mr. Jansson, who had worked for
over 25 years in the field of oil and gas drilling management, had
determined that the Interest was a suitable investment for his IRA.
3. At the time the Interest was purchased by the IRA, the parties
were unaware that the Dutch government would impose a 35% foreign
income tax on the oil and gas proceeds produced by the Interest (the
Foreign Tax). The parties learned of the Foreign Tax after the Interest
was acquired when VDE announced it had been advised by the Dutch
government that any proceeds from the asset were subject to Dutch
income tax and the Foreign Tax would be withheld from the proceeds
before payments to the IRA. In addition, Mr. Jansson has determined
that he wishes to invest the IRA's assets in a more liquid and less
speculative investment. Accordingly, he proposes to purchase the
Interest from the IRA for cash at its appraised fair market value. No
commissions or other expenses will be paid by the IRA in connection
with the sale.
4. Mr. John R. Gorman, financial consultant for VDE, has stated
that as of August 22, 1994, no development plan has been filed for
Block Q/13(a), nor has there been any oil or gas production on the
Block. Accordingly, Mr. Gorman has appraised the Interest as still
having a fair market value of $95,000 as of August 22, 1994.
5. In summary, the applicant represents that the proposed
transaction satisfies the criteria contained in section 4975(c)(2) of
the Code because: a) the sale is a one-time transaction for cash; b)
the IRA will pay no commissions or other expenses in connection with
the sale; c) the sales price has been determined by a qualified,
independent appraiser; and d) Mr. Jansson is the only participant in
the IRA, and he has determined that the transaction is appropriate for
and in the best interest of the IRA and desires that the transaction be
consummated.
notice to interested persons: Because Mr. Jansson is the only
participant in the IRA, it has been determined that there is no need to
distribute the notice of proposed exemption to interested persons.
Comments and requests for a hearing are due 30 days after publication
of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Stratus Computer, Inc. Employees' Capital Accumulation Plan (the Plan)
Located in Marlboro, Massachusetts; Proposed Exemption
[Application No. D-9823]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, 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) the proposed extension of credit by
Stratus Computer, Inc. (Stratus) to the Plan in the form of a loan (the
Loan) with respect to Guaranteed Investment Contract, Number 62456 (the
GIC) issued by Confederated Life Insurance Company of Canada (CL); and
(2) the Plan's potential repayment of the Loan (the Repayments),
provided:
(a) all terms of such transactions are no less favorable to the
Plan than those which the Plan could obtain in arm's-length
transactions with an unrelated party;
(b) no interest and/or expenses are paid by the Plan;
(c) the amount of the Loan is no less than the accumulated book
value of the GIC as of August 12, 1994;
(d) the Repayments are restricted to the amounts, if any, paid to
the Plan after August 12, 1994, by CL or other responsible third
parties with respect to the GIC (the GIC Proceeds);
(e) the Repayments do not exceed the total amount of the Loan; and
(f) the Repayments are waived to the extent the Loan exceeds the
GIC Proceeds.
Summary of Facts and Representations
1. Stratus manufactures and sells fault-tolerant superminicomputer
hardware, develops and licenses computer software, and provides
computer consulting services. Stratus is a public company, traded on
the New York Stock Exchange, and had revenues of approximately $525
million for 1993. Stratus currently sponsors the Plan for the benefit
of all its United States employees and employees of its United States
subsidiaries. The Plan is a defined contribution plan with an employer
matching feature. The Plan has approximately 1,200 participants and
beneficiaries, and as of June 30, 1994, the approximate aggregate fair
market value of the Plan's assets was $68,679,205.
2. Under the Plan, participants are able to self-direct their
savings contributions as well as Stratus matching contributions into
seven diversified investment funds, which are a Money Market Fund, a
Fixed Income Fund, a Balanced Fund, a Growth and Income Fund, two
Growth Funds and an International Fund, all of which are managed by
Fidelity Investments (Fidelity) of Boston, Massachusetts. The
investment options under the Plan are all mutual funds. The Plan no
longer acquires individual guaranteed investment contracts, but rather
participates through Fidelity in a GIC ``Fund'', which is the Fixed
Income Fund. As of January 1, 1994, contributions and/or transfers into
the Fixed Income Fund are invested in Fidelity's GIC Fund.
3. The Fixed Income Fund contains five Investment Contracts which
are issued by various insurance companies. These five Investment
Contracts were purchased prior to the Plan's participation in and
offering of Fidelity's GIC Fund. One of these five Contracts is the
GIC, which was issued by CL. The GIC was issued on April 1, 1991 and is
due to mature on March 31, 1996. The stated interest rate on the GIC is
8.52%. The total contributions made to the GIC have been $5,031,214.
Withdrawals have been made in the amount of $2,001,214. As of August
11, 1994, the GIC had a balance of $3,119,540.
4. However, on August 12, 1994, CL was seized by Canadian
governmental authorities, and all CL assets were frozen. To ensure the
financial viability of CL commitments in the United States, the State
of Michigan froze all assets of CL in the U.S. until a Rehabilitation
Plan (the Rehab Plan) can be secured.\2\ At the time CL was seized, a
segregated fund (the Segregated Fund) was established within the Fixed
Income Fund of the Plan. Participants with assets in the Fixed Income
Fund had approximately 13.5% of that amount allocated to the Segregated
Fund, which represents the percentage of assets attributable to the GIC
in the Fixed Income Fund.
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\2\The Department notes that the decisions to acquire and hold
the GIC are governed by the fiduciary responsibility requirements of
Part 4, Subtitle B, Title I of the Act. In this proposed exemption,
the Department is not proposing relief for any violations of Part 4
which may have arisen as a result of the acquisition and holding of
the GIC.
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5. The applicant represents that the Segregated Fund component of
the Plan poses various administrative problems, including the fact that
investment transfers, loans and hardship withdrawals, as well as
distributions for terminated and retired participants are precluded.
Approximately 54% of the Plan participants are affected.
6. Stratus has accordingly requested an exemption to permit it to
make the Loan to the Plan. The Loan will be made pursuant to a written
agreement, in which all Loan terms will be stated. The Loan will be an
interest-free, unsecured loan in an amount equal to the Segregated Fund
balance (i.e., the accumulated book value of the GIC--deposits, plus
interest at the contract rate, minus withdrawals) as of August 12,
1994. Any future interest credited in accordance with the Rehab Plan
will be allocated to Plan participants. The purpose of the Loan is to
facilitate distributions, participant loans, hardship withdrawals and
investment transfers from the portion of the participants' account
balances that are allocated to the Segregated Fund. Such distributions
would otherwise be at best delayed due to the uncertainty of the terms
of the Rehab Plan. The applicant represents that the Plan's Repayments
of the Loan will be limited to the GIC Proceeds, will be waived to the
extent the Loan exceeds the GIC proceeds, and in no event will exceed
the amount of the Loan.
7. In summary, the applicant represents that the proposed
transactions will satisfy the criteria contained in section 408(a) of
the Act because:
(a) all terms of the transactions will be no less favorable to the
Plan than those which the Plan could obtain in an arm's-length
transaction with an unrelated party;
(b) no interest and/or expenses will be paid by the Plan;
(c) the Loan will be no less than the accumulated book value of the
GIC as of August 12, 1994;
(d) the Repayments are restricted to the GIC Proceeds;
(e) the Repayments will not exceed the total amount of the Loan;
and
(f) the Repayments are waived to the extent the Loan exceeds the
GIC Proceeds.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Mid-Hudson Medical Group, P.C. Money Purchase Pension Trust (the Plan)
Located in Fishkill, New York; Proposed Exemption
[Application No. D-9721]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, 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) the acquisition by the Plan of certain
improved real property (the Property) from unrelated parties for a
sales price of $562,500; and (2) the leasing (the Lease) of the
Property by the Plan to Mid-Hudson Medical Group, P.C. (the Employer),
a party in interest with respect to the Plan, provided the following
conditions are satisfied:
(a) the Plan pays no more than the fair market value of the
Property;
(b) the Property represents no more than 25% of the value of the
Plan's assets;
(c) the terms of the Lease are, and will remain, at least as
favorable to the Plan as those obtainable in an arm's-length
transaction with an unrelated party;
(d) the fair market rental value has been, and will continue to be
determined on an annual basis by a qualified, independent appraiser;
(e) the Plan's independent fiduciary has determined that the
transaction is appropriate for the Plan and in the best interests of
the Plan's participants and beneficiaries; and
(f) the Plan's independent fiduciary will continue to monitor the
transaction and the conditions of the exemption and take whatever
action is necessary to enforce the Plan's rights under the Lease.
Summary of Facts and Representations
1. The Employer is a professional corporation engaged in the
practice of medicine. The Plan is a defined contribution money purchase
plan with 108 participants. As of June 30, 1993, the Plan had total
assets with a value of $7,265,571.
2. The Plan proposes to purchase the Property from two unrelated
parties, Martin Koloski and Durgadevi Soma. The purchase price for the
Property will be $562,500. The Property consists of land and a building
located at 30 Columbia Street, Poughkeepsie, New York. The sellers
previously used the building for offices for a medical practice.
3. Following the acquisition of the Property by the Plan, it will
be leased by the Plan to the Employer for its medical practice. A
portion of the Property will be subleased by the Employer to other
unrelated tenants. The initial annual rental for the Property is to be
$62,458. The Lease is to be on a triple-net basis; thus, all expenses,
including real estate taxes, will be paid by the Employer. The Lease
will be for an initial term of ten years, and will be automatically
renewed at the end of the term for an additional five year period,
subject to the approval of the Plan's independent fiduciary (see rep.
5, below).
4. The annual rental for the Property has been established by an
independent appraisal performed by Messrs. Kenneth Golub, MAI, and
Harvey Cohen (the Appraisers) of American Property Counselors of
Armonk, New York, as of April 30, 1994. The Appraisers have also
determined that the Property had a fair market value of $565,000 as of
that date. The applicant represents that the Property will be
personally inspected every year by a qualified, independent appraiser
chosen by the Plan's independent fiduciary (see rep. 5, below) who will
provide the Plan with an annual fair market rental value update. The
applicant represents that the rental payment will be adjusted annually
in accordance with the fair market rental value stated by the
independent appraiser. The adjusted rent will either stay the same or
be adjusted upward, but will never be decreased from the prior year's
rent paid.
5. The applicant represents that Mr. Joseph J. Berger of Joseph J.
Berger Management Associates in White Plains, New York, has been
appointed to serve as the Plan's independent fiduciary with respect to
the subject transactions. Mr. Berger represents that he has been a CPA
for over 35 years, and that he is knowledgeable in the area of real
estate and experienced in working with qualified retirement plans. The
applicant represents that Mr. Berger has no relationship to the Plan or
the Employer other than serving as the independent fiduciary to the
Plan.3 Mr. Berger represents that he is aware of his duties,
liabilities and responsibilities as a fiduciary under the Act, and he
has accepted them.
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\3\Mr. Berger also serves as the independent fiduciary for the
profit sharing plan sponsored by the Employer with respect to the
transaction which was exempted by Prohibited Transaction Exemption
93-27, 58 FR 25673, April 27, 1993.
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6. Mr. Berger represents that he has undertaken the following
duties as independent fiduciary to the Plan with respect to the Lease:
(a) to review the Plan's proposed purchase of the Property, and in
that connection to determine whether the purchase will be at fair
market value as determined by an independent real estate appraiser and
based upon arm's-length negotiations, and whether the purchase will be
in the best interest of the Plan and its participants, taking into
account the diversity of Plan assets and the Plan's need for liquidity;
(b) to review the Lease (and any proposed renewals thereof)
covering the Property to confirm in each case that the Lease (or
renewal) is in the best interest of the Plan and its participants;
(c) to confirm that the Lease (or renewal thereof) reflects the
current fair market rental rate as determined by an independent real
estate appraiser;
(d) to review all financial statements and other documents to be
filed by the Plan in connection with the Lease (or the renewal
thereof);
(e) to monitor the Lease to ensure that all actions are taken that
are necessary or proper to safeguard the interests of the Plan; and
(f) to review the Plan's assets periodically to determine whether
the value of the Property remains less than 25% of the total value of
Plan assets.
7. Mr. Berger represents that he completed his analysis of the
transactions and, based upon his review and analysis, it is his opinion
that the Property is an appropriate investment for the Plan and the
acquisition and Lease thereof is in the best interests of the Plan's
participants and beneficiaries. Mr. Berger represents that he has
reviewed the Plan's investment portfolio and determined that while it
is prudently diversified among its various securities, less than 20% of
the total corpus is invested in intermediate and long-term securities.
Mr Berger believes that it would be appropriate to further diversify
the portfolio with a long-term investment such as the Property and the
subject Lease.
8. Mr. Berger represents that after having examined the purchase
contract, the proposed Lease, the appraisal report, the physical
Property and the Plan's assets, he considers the purchase of the
Property to be a sound and secure investment which will earn a fair
market return for the Plan and will enhance the diversification of the
Plan's assets and provide a more consistent and level flow of current
income. Mr. Berger represents that he will continue to monitor the
Lease throughout its duration and take whatever action is necessary to
protect the Plan's rights under the Lease.
9. In summary, the applicant represents that the proposed
transactions satisfy the criteria contained in section 408(a) of the
Act for the following reasons:
(a) the Property represents approximately 7.7% of the Plan's total
assets;
(b) the rental for the Property has been, and will continue to be,
established by a qualified, independent appraiser;
(c) the Plan's independent fiduciary, Mr. Berger, has determined
that the transactions are appropriate for the Plan and in the best
interests of the Plan's participants and beneficiaries; and
(d) Mr. Berger will continue to monitor the Lease and take whatever
action is necessary to protect the Plan's rights under the Lease.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz 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 of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
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) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
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
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 30th day of November, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-29833 Filed 12-2-94; 8:45 am]
BILLING CODE 4510-29-P
