[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Notices]
[Pages 14005-14012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6345]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 95-24; Exemption Application No. D-
09787, et al.]
Grant of Individual Exemptions; Boston Cement Masons Union Local
No. 534 Deferred Income Plan, et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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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 [[Page 14006]] 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.
Boston Cement Masons Union Local No. 534 Deferred Income Plan (the
Deferred Income Plan), Boston Cement Masons Union Local No. 534
Pension Plan (the Pension Plan), Boston Cement Masons Union Local
No. 534 Health and Welfare Plan (the Welfare Plan) and Boston
Cement Masons Union Local No. 534 Apprenticeship Plan (the
Apprenticeship Plan; Collectively, the Plans) Located in Boston,
Massachusetts
[Prohibited Transaction Exemption 95-24; Application Nos. D-9787, D-
9788, L-9789 and L-9790, respectively]
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 the proposed leasing of office space in a building
(the Building) owned by the Deferred Income Plan to the Boston Cement
Masons Union Local No. 534, a party in interest with respect to the
Deferred Income Plan.
In addition, the restrictions of section 406(b)(2) of the Act shall
not apply to the proposed leasing of office space in the Building by
the Deferred Income Plan to the Pension Plan, the Welfare Plan and the
Apprenticeship Plan.
This exemption is conditioned upon the following requirements: (1)
The terms of all such leasing arrangements are at least as favorable to
the Plans as those obtainable in an arm's length transaction with an
unrelated party; (2) an independent, qualified fiduciary, who has
approved of the leasing arrangements, agrees to monitor all leases on
behalf of the Deferred Income Plan as well as the terms and conditions
of the exemption at all times; (3) the rental charged by the Deferred
Income Plan under each lease is based upon the fair market rental value
of the premises as determined by an independent, qualified appraiser;
(4) the Building is revalued annually by the independent, qualified
appraiser; (5) if appropriate, the independent, qualified fiduciary
adjusts the rentals charged for the office space based upon the annual
appraisals of the Building; and (6) the trustees determine that the
leasing arrangements are in the best interests of the Pension Plan, the
Welfare Plan and the Apprenticeship Plan.
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 January 18, 1995 at 60 FR
3659.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
General Motors Hourly-Rate Employes Pension Plan (the Plan) Located
in Detroit, Michigan
[Prohibited Transaction Exemption No. 95-25; Application No. D-9734]
Exemption
The restrictions of sections 406(a), 406(b)(1) and (b)(2), and
407(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
(E) of the Code1 shall not apply to:
1For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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(1) The transfer of shares of Class E common stock (the Class E
stock) of General Motors Corporation (GM) to the Plan through the in-
kind contribution of such shares by GM, a party in interest with
respect to such Plan;
(2) The holding of the Class E stock by the Plan;
(3) The sale for cash of shares of Class E stock by the Plan to GM
or its affiliates or to certain defined contribution plans sponsored by
GM or its affiliates;
(4) The exchange of shares of Class E stock for publicly-traded
securities between the Plan and GM or its affiliates under the same
terms and conditions as are made available to all shareholders of Class
E stock; and
(5) The acquisition, holding, and exercise by the Plan of a put
option granted by GM which permits the Plan to sell the Class E stock
or a successor security for which the Class E stock has been exchanged
to GM.
This exemption is conditioned upon the satisfaction of the
following requirements:
(a) GM contributes to the Plan at least 177 million shares of Class
E stock but no more than 186 million shares plus $4 billion in cash,
with at least $2 billion contributed in conjunction with or prior to
the contribution of the Class E stock, and the remaining $2 billion
contributed no later than September 30, 1995;
(b) If less than 177 million shares of Class E stock are
contributed, GM will contribute additional cash in an amount equal to
the difference between 177 million and the number of shares of Class E
stock contributed times the per-share value of such stock at the time
of contribution, or a weighted average price if such stock is not
contributed on a single date;
(c) United States Trust (UST), an independent qualified fiduciary,
or a successor independent fiduciary acceptable to the Pension Benefit
Guaranty Corporation (PBGC) represents the Plan's interests with
respect to the acquisition of Class E stock and also will serve as
trustee of the Plan with sole discretion respecting the management and
disposition of the Class E stock after the acquisition. UST must
determine, prior to entering into any of the transactions described
herein, that each such transaction, including the contribution of the
Class E stock, is in the interest of the Plan;
(d) UST negotiates and approves the terms of any of the
transactions between the Plan and GM or its affiliates or certain
defined contribution plans sponsored by GM or its affiliates;
(e) UST manages the holding and disposition of the Class E stock
and takes whatever action it deems necessary to protect the rights of
the Plan;
(f) The terms of any of the transactions between the Plan and
parties in interest are no less favorable to such Plan than terms
negotiated at arm's length under similar circumstances with unrelated
third parties;
(g) A credit balance reserve is maintained in the Plan consisting
of the cash credit balance or cash generated from stock that has been
sold in an amount equal to at least 25 percent [[Page 14007]] (25%) of
the contributed value2 of the Class E stock which remains unsold
in the Plan, for so long as such stock or any securities received in
exchange exceeds the percentage limitations described in sections
407(a) and 407(f) of the Act (the ERISA Limits);
2Contributed value means the value of the Class E stock
when contributed to the Plan, as determined by Duff & Phelps Capital
Markets Co. (formerly Duff & Phelps Financial Consulting Co.).
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(h) An independent qualified appraiser determines the fair market
value of the Class E stock contributed to the Plan as of the date of
such contribution, and determines the fair market value of the Class E
stock at various other times as required under the agreement between GM
and the PBGC (the Agreement);
(i) With respect to any sale or exchange of Class E stock by the
Plan to GM or its affiliates or to any defined contribution plans
sponsored by GM or its affiliates, no commission will be charged to or
paid by the Plan;
(j) Any sale or exchange of Class E stock between the Plan and GM
or its affiliates will be for no less than ``adequate consideration''
within the meaning set forth in section 3(18) of the Act, and any sale
of Class E stock by the Plan to a defined contribution plan sponsored
by GM or its affiliates will be at the prevailing price for such stock
on the New York Stock Exchange (NYSE); and
(k) The Plan incurs no fees, costs, or other charges or expenses as
a result of its participation in transaction (1), above and, with
regard to other transactions described herein, will not incur fees and
other costs payable by the issuer under the Registration Rights
Agreement (RRA).
EFFECTIVE DATE: This exemption will be effective on March 13, 1995.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department
invited all interested persons to submit written comments and requests
for a hearing on the exemption. All comments and requests for hearing
were due by December 29, 1994.
The Department received 157 letters from interested persons
commenting on the exemption. In addition, a number of interested
persons telephoned the Department. These individuals were assisted with
their questions by members of the staff of the Office of Exemption
Determinations of the Department. With respect to all the written
comments submitted by interested persons, the Department forwarded
copies to the applicant and requested that the applicant address the
concerns raised by the commentators in writing. A description of the
comments and the applicant's responses are summarized below.
Several of the written comments received by the Department
supported adoption of the exemption. In this regard, after review of
GM's application for exemption and the terms of the Agreement between
GM and PBGC, the International Union, United Automobile, Aerospace and
Agricultural Implement Workers of America (the UAW), the certified
collective bargaining representative for approximately 215,000
employees of GM who are participants in the Plan and approximately
255,000 retired former employees of GM who are participants in the
Plan, expressed support for the application and stated its belief that
the transactions which are the subject of this exemption are in the
best interest of the Plan's participants and beneficiaries.
Some commentators neither supported nor opposed the exemption but
either expressed a lack of understanding of the exemption or raised
other concerns that are beyond the scope of this exemption proceeding.
Other commentators opposed the exemption and raised questions and
concerns regarding the transactions described therein. The concerns
expressed by these commentators generally related to: (a) The impact on
pension or health benefits; (b) the holding by the Plan of more than 5%
of its assets in any company; (c) the preference for a cash
contribution over that of stock; (d) the potential loss of value of the
Class E stock; (e) the restrictions on the Plan's ability to sell the
Class E stock under the terms of the RRA; (f) the fact that the Class E
stock is not a qualifying employer security; (g) the control by the
Plan of more than 10% of the voting shares of a company; (h) the
presence of a financial flexibility exception in the Agreement given
GM's recent financial history; (i) the effect of an EDS sale on GM's
future contributions to the Plan; (j) the tax advantages to GM of the
contribution of Class E stock; and (k) the lack of a mandatory
requirement in the exemption to convert the Class E stock into cash.
The following summarizes the response to these concerns submitted
to the Department by GM. With respect to (a) above, GM states that the
exemption does not change or affect in any way the pension benefits
payable under the Plan or health benefits for active or retired
employees. As a result, the exemption will not affect a participant's
eligibility to receive a pension benefit, the amount of a pension
benefit check, or the terms of any health care plan.
With respect to (b), GM states that UST, the independent fiduciary,
has represented that the Plan's receipt of the Class E stock will not
violate the general diversification rule of the Act, which requires
that a plan's assets be sufficiently diversified in order to minimize
the risk of large losses.
With respect to (c), GM responded that while in the abstract the
contribution of cash may be superior to that of stock, the issue posed
by the exemption application was not whether the Plan could choose to
acquire Class E Stock where an equivalent value of cash is available.
In this regard, as the Plan is significantly underfunded, GM believes
it is offering a way to substantially improve the Plan's funding with a
combined contribution of Class E stock and cash.
With respect to (d), GM maintains that the Agreement, deferring
credit for the contribution of Class E stock and the $4 billion in
cash, provides considerable security because in all likelihood the Plan
will receive further cash contributions from GM in excess of minimum
funding rules of the Act in the years between 1995 and 2003. In
addition, GM states that the Agreement contains other protective
features that adequately address the potential for future losses in
value, if any, in the Class E stock. Finally, because the dividends on
Class E stock are based on the earnings of Electronic Data Systems
Corporation (EDS), GM believes the contribution provides more
diversification than a security whose dividends are based on the
performance of GM.
With respect to (e), GM states that UST, the independent fiduciary,
is required by law to act solely in the interest of the Plan and its
participants and beneficiaries. In this regard, UST is satisfied that,
given the size of the block and the likely means of disposition, that
the RRA affords ample opportunity for UST to sell or otherwise dispose
of the Plan's Class E stock while maximizing the value of such stock to
the Plan.
With respect to (f), GM states that although the Class E stock is
not a qualifying employer security because the Plan will acquire and
hold in excess of the limits imposed by the Act, there are sufficient
safeguards to protect the interest of the Plan and the participants and
beneficiaries. In addition, GM points out the Class E stock is widely
traded on the NYSE, and an independent fiduciary, UST, has negotiated a
RRA that will allow it, as trustee for the Class E stock, to dispose
[[Page 14008]] of the stock efficiently while maximizing its value to
the Plan.
With respect to (g), GM states that the Class E stock is widely
traded on the NYSE and generates dividends based on the earnings of EDS
rather than on the performance of GM. Further, an independent
fiduciary, UST, has negotiated a RRA that will allow UST, as trustee
for the Class E stock, to dispose of the stock efficiently while
maximizing its value to the Plan, and UST is satisfied that it can do
so given the size of the block of Class E stock.
With respect to (h), GM states that the commentator erroneously
alleges that GM's North American Operations (the NAO) has met the ``bad
year'' definition under the Agreement in each of the past five (5)
years and asserts that this pattern will continue in the future,
allowing GM to access more of the credit balance than ``what would
appear to the common layperson.'' In fact, the NAO did not meet the
``bad year'' definition in 1994. Moreover, GM notes that, although the
proposed exemption is complex, the Department's notice and comment
process is fair and comprehensive and the financial flexibility
provisions of the Agreement in principle were disclosed in the Notice
on the same basis and in the same fashion as all other parts of the
exemption transaction.
With respect to (i), GM states that the commentator erroneously
concludes that if GM sells EDS, GM's obligation to contribute to the
Plan will be nullified. In this regard, GM represents that the
Agreement provides that the credit balance rules generally apply to
stock for which the Plan's Class E stock has been exchanged. Further,
GM asserts that if the credit balance is unavailable, GM will still
make at least the minimum contributions required by the Act.
With respect to (j), GM states that the contribution of Class E
stock to the Plan does not defer or eliminate any income taxes that
otherwise would be payable on GM's disposition of Class E stock. With
respect to (k), GM states that the commentator erroneously assumes that
GM will have control of the Plan's portfolio after the Class E stock is
contributed. In this regard, GM represents that it will have no control
over the management of such stock. UST, the independent trustee, will
have complete discretion over the management and disposition of the
Class E stock, and, in its sole discretion, will determine how and when
the Class E stock will be liquidated.
In addition to the comments described above, the Department also
received comments from the applicant, GM. The comments from GM
requested certain modifications and clarifications to the exemption as
proposed and to the Summary of Facts and Representations (SFR). GM's
comments fall into three categories: (1) clarification regarding the
relationship of the exemption to the Agreement between the PBGC and GM
regarding the contribution of cash and Class E stock; (2) issues
relating to the conditions of the exemption; and (3) certain technical
corrections to the SFR.
With respect to the first category of the comment, GM informed the
Department that, since May 1994, GM and the PBGC have been negotiating
the terms of a definitive Agreement. In its application for exemption,
GM described the tentative terms of this Agreement, as reflected in an
agreement in principle (the AIP) executed on May 9, 1994, between the
PBGC and GM. The Department summarized certain terms of the AIP in the
SFR. The proposed exemption provided that any final exemption would be
conditioned upon adherence to the material facts and representations
described in the SFR. GM notes that the terms of the AIP have now been
superseded by the executed Agreement. Thus, GM believes that there is a
substantial risk that any change in or non-adherence to a material
provision will vitiate the exemption and, thereby, preclude the Plan
from continuing to hold contributed Class E stock above the limits set
forth in sections 407(a) and 407(f)(1) of the Act. This situation in
turn would place the independent fiduciary, UST, in the position of
potentially having to engage in a forced liquidation of a sufficient
quantity of Class E stock to bring the Plan within the limits of such
sections of the Act. As a result, GM requests clarification as to
whether any change in or non-adherence to either the terms of the AIP,
as described in the SFR, or the Agreement would render the exemption
unavailable.
GM states that the Agreement is a contract between GM and the PBGC.
It is lengthy and complicated, reflecting the nature, size, and
complexity of its subject. Assets likely to be valued in excess of $10
billion will be at issue, and the terms of the Agreement will require
numerous complex calculations to be performed. The Agreement will
continue in force until at least October 1, 2003, and, as with any such
complex document, it is possible that good faith differences may arise
between GM and the PBGC over the meaning and application of its terms.
GM notes in its comment that it believes that the Plan is fully
protected by the reporting and enforcement provisions set forth in the
Agreement, and the interests of the Plan and its participants and
beneficiaries are better served by application of such procedures than
by enforcement through the exemption. These reporting and enforcement
provisions are carefully crafted to facilitate the timely and effective
resolution of disputes, while permitting the Plan to continue the
orderly disposition of Class E stock. The Agreement provides for annual
reporting by GM to the PBGC, and contains a dispute resolution
mechanism through which the PBGC can enforce the terms and conditions
of such Agreement. GM represents that it will comply in all material
respects with the reporting provisions in the Agreement (including as
they may be changed from time to time by mutual agreement of GM and the
PBGC). In addition, the Agreement provides, among other things, for
access to the courts, and under certain circumstances, for the posting
of collateral by GM if a disputed amount exceeds a certain threshold.
Accordingly, GM suggests that the exemption, if granted, contain the
following language, ``Several aspects of the Agreement are of special
importance to the Department and were included as requirements (a),
(b), and (g) of the proposed exemption * * * . Accordingly, if GM
violates a term or condition of the Agreement, other than the specific
requirements noted above (emphasis added), the violation will be
addressed by PBGC under the Agreement and not by withdrawal or other
invalidation of the exemption itself.''
In this regard, the Department requested the views of the PBGC
concerning whether a breach of the Agreement by GM in the future should
void the exemption. The PBGC confirmed that the Agreement contains
adequate enforcement mechanisms in the event of a breach. GM is
required under the Agreement to provide information to the PBGC that
will enable the PBGC to monitor and confirm that the restrictions have
been properly applied. Also, the PBGC will monitor and enforce those
terms of the Agreement adopted by the Department as conditions of the
exemption, as summarized in sections (a), (b), and (g) therein. As a
result, the PBGC stated that it does not believe that voiding the
exemption is a necessary or appropriate enforcement mechanism to ensure
compliance with the Agreement, and that it would not recommend that the
exemption be voided for violation of a term of the Agreement after GM
has contributed the stock and cash required by the Agreement and by
sections (a) [[Page 14009]] and (b) of the proposed exemption. In
addition, the PBGC is of the opinion that voiding the exemption after
the stock is contributed could harm the Plan if the independent
fiduciary were forced to sell stock held by the Plan to bring the
Plan's employer securities within the ERISA Limits.
UAW in its comment letter also concurred with the views expressed
by GM on the question of whether the exemption should be voided in the
event of an alleged breach of the Agreement. UAW believes that the
enforcement mechanisms described in the Agreement are adequate and
appropriate and that termination of the exemption in the event of a
breach of that Agreement would only be harmful to participants and
beneficiaries, in that termination of the exemption would by necessity
force a massive and precipitous sale of the Class E stock. In the
opinion of the UAW, selling the Class E stock under such conditions is
not likely to result in the realization of optimum proceeds and would
therefore diminish the assets in the Plan.
However, the UAW noted that the language suggested by GM to address
this issue, as quoted above, would create the impression that these
requirements of the exemption are precisely co-extensive with the
analogous sections of the Agreement. The UAW further noted that the
language in (a), (b), and (g), as set forth in the Notice, summarized
but did not recite word for word such sections from the Agreement.
Accordingly, the UAW suggested that the word, ``included'' in the first
sentence of GM's language quoted above be replaced with the word,
``summarized,'' and the underlined portion of the second sentence of
GM's language quoted above be changed to read, ``without violating one
of the express conditions of the exemption.''
The Department concurs with GM, the PBGC, and the UAW that the
rights embodied in the reporting and dispute resolution provisions of
the Agreement provide protection to the Plan, and that enforcement by
the PBGC through the procedures negotiated in the Agreement will serve
the interest of the Plan and its participants and beneficiaries.
Further, the Department believes that any ``fire sale'' of Class E
stock which may result from the unavailability of the exemption through
a change in or non-adherence to the terms of the AIP described in the
SFR or the Agreement would not be in the interest of the Plan. However,
the Department has determined that compliance with certain provisions
of the Agreement, as summarized in paragraphs (a), (b), and (g) of the
proposed exemption, are important and necessary to the continued
availability of the exemption. Accordingly, it is the view of the
Department that, if GM violates a term or condition of the Agreement,
without violating one of the express conditions of the exemption, the
violation will be addressed by the PBGC in accordance with the
enforcement terms of such Agreement and will not result in the
unavailability of the exemption. The Department is of the further view
that the exemption will be available despite the fact that the terms of
the final Agreement differed in some respects from the terms of the AIP
which was summarized in the SFR.
With respect to the second category of the comment, GM requests
modifications to the language of certain conditions of the exemption,
as set forth in the Notice. In this regard, condition (c) on page 56541
and repeated in item 18(c) on page 56549 of the Notice as published in
the Federal Register, states: ``United States Trust (UST), an
independent qualified fiduciary, or a successor independent fiduciary
acceptable to the Pension Benefit Guaranty Corporation (PBGC)
represents the Plan's interests for all purposes with respect to the
Class E stock and determines (emphasis added), prior to entering into
any of the transactions described herein, that each such transaction,
including the contribution of the Class E stock, is in the interest of
the Plan.'' GM believes this to be an overly broad description of the
independent fiduciary's responsibilities. GM suggests striking the
underlined phrase above and substituting in lieu thereof, ``with
respect to the acquisition of Class E stock and also will serve as
trustee of the Plan with sole discretion respecting the management and
disposition of the Class E stock after the acquisition. UST must
determine * * *.'' The Department concurs with this comment and has
modified the final exemption accordingly.
Condition (k) on page 56541 and repeated in item 18(k) on page
56549 of the Notice, as published in the Federal Register, states:
``The Plan incurs no fees, costs, or other charges or expenses as a
result of its participation in any of the transactions (emphasis
added).'' GM is concerned that this condition would preclude the
payment by the Plan to UST or any other independent fiduciary of fees
for asset management services as independent fiduciary. In this regard,
the applicant notes that the application indicated that GM would bear
the costs of UST's fees in connection with the Plan's acquisition of
the Class E stock but that fees for UST's trustee services will be
payable by the Plan. It is intended that all fees associated with the
management and disposition of Class E stock, other than certain
underwriting and other fees and costs described in section 9 of the
RRA, will be borne by the Plan. GM suggests striking the underlined
phrase above and substituting the phrase, ``transaction (1), above and,
with regard to other transactions addressed herein, will not incur fees
and other costs payable by the issuer under the Registration Rights
Agreement.'' The Department concurs with this comment and has revised
the language of condition (k).
With respect to the third category of the comment, GM believes that
certain revisions to the SFR would more accurately describe the
transactions. As mentioned above, the AIP was summarized in the SFR.
Subsequently, the AIP was superseded by the terms of the Agreement.
Consequently, GM wishes to point out the following four (4) provisions
of the AIP which were summarized in the SFR but which have now been
modified by the Agreement.
The second sentence of item 6 of the SFR on page 56543, states that
GM's stock contribution will consist of, ``* * * all of the remaining,
222 million unissued shares of Class E stock less approximately 45
million shares reserved for conversion of GM's Series C Preference
Stock, or approximately 177 million shares.'' In accordance with the
terms of the Agreement, GM suggests that the phrase, ``and the number
of shares of GM Class E stock that, as of the last contribution of such
stock, are reserved or committed (as Treasury shares or otherwise) for
employee benefit plans, stock bonus plans, or employee stock
programs,'' should have been inserted after the words, ``Preference
Stock,'' in the above-quoted language.
Item 12 of the SFR, on page 56545 (center column, third full
paragraph), refers to GM's ``* * * access annually to an amount of up
to $1.5 billion of the stock credit balance generated by the stock
which has been sold.'' GM suggests that in accordance with the
Agreement the phrase, ``an average of approximately,'' should have been
inserted in the above-quoted language between the words, ``to'' and
``$1.5,'' because $1.5 assumes GM's access to the stock credit balance
at approximately the mid-point of a plan year and reflects interest
over the first portion of the plan year at the Plan's funding standard
account rate.
Item 12 of the SFR states on page 56545 (center column, sixth
sentence of the second full paragraph) that, the restriction relating
to the 25% credit [[Page 14010]] balance reserve ``* * * will expire on
October 1, 2003, if the Class E stock has been exchanged for non-
employer securities.'' GM notes that the Agreement provides that, the
restriction will expire when the contributed Class E stock or any
shares received in exchange therefor no longer exceed the ERISA Limits.
If the contributed Class E shares are exchanged for non-employer
securities, the restriction will expire on the later of October 1, 2003
or the date on which the Class E stock has been exchanged for non-
employer securities.
Item 12 of the SFR states on page 56546 (center column, top
carryover paragraph, last sentence) that, ``GM's independent auditor
will provide a statement to the PBGC once GM utilizes the financial
flexibility provisions described above.'' GM suggests that in
accordance with the Agreement, striking the quoted sentence and
substituting in lieu thereof, ``[f]or any plan year through the 2002
plan year for which GM utilizes the financial flexibility provisions of
the Agreement, GM will include in its submission to the PBGC a
statement from its independent auditor confirming the accuracy of the
schedule showing GM's cash. In addition, upon request by the PBGC, GM
also will furnish for such plan years a report from its independent
auditor describing agreed upon procedures it has performed in order to
assist the PBGC in evaluating the restructuring charges included in
GM's financial statements, if and to the extent those charges were used
to determine GM's adjusted net income.'' The Department concurs and
notes that the above four (4) clarifications to the SFR are consistent
with the terms of the Agreement.
Also, as part of the third category of the comments, GM has
suggested the following modifications to the language of the SFR.
In item 5 of the SFR on page 56543 (center column), the first and
second sentences in the first full paragraph stated: ``[g]enerally, in
order to correct the unfunded liability of its main U.S. plans, GM has
revised the mortality assumptions in such plans to more closely reflect
recent actual experience. Further, effective for 1993, GM has lowered
the asset earnings rate assumption for its main U.S. plans.'' GM points
out that the mortality and asset earnings rate assumptions were not
adopted in order to correct the unfunded liability of GM's main US
plans but rather to accurately reflect recent experience. Accordingly,
GM believes that the two sentences quoted above should have read,
``[d]uring 1992, GM revised the mortality assumptions for its main U.S.
plans to reflect recent experience and, effective 1993, lowered the
asset earnings rate assumption for those plans, to reflect GM's
reevaluation of the expected long-term rate of return on Plan assets.''
The Department concurs with this comment.
In item 5 of the SFR on page 56543 (center column) in the first
full paragraph, the fourth sentence stated that GM ``* * * will
continue to contribute additional amounts above those required in 1994
and future years.'' Although GM anticipates making such contributions,
GM suggests that substituting in the phrase quoted above, the words,
``intends to,'' in lieu of the word, ``will,'' and the words, ``1994-
1996,'' in lieu of the phrase, ``1994 and future years,'' would have
been more accurate. The Department concurs with this comment.
In the third sentence of item 8 of the SFR on page 56543 (right
column) GM suggests the underlined word, ``or,'' in the phrase,
``assets remaining after payments to creditors or (emphasis added) to
preferred or preference stockholders,'' should have been the word,
``and.'' The Department concurs.
In the first sentence of the first paragraph of item 10 of the SFR
on page 56544 (left column), GM suggests that the phrase, ``based
upon,'' should have been substituted for ``linked to'' in the sentence,
``[d]ividends on Class E stock are linked to the earnings performance
of EDS.'' The Department concurs.
In item 12 of the SFR on page 56545 (center column, first sentence,
first full paragraph), GM suggests that the phrase, ``* * * GM has
agreed to defer for two (2) years the use of the credit balance * *
*,'' should have read, ``GM will defer until 1997 use of the credit
balance arising from the contribution (except for interest on the cash
portion thereof and as otherwise noted below). * * *'' GM states that
because the cash portion of the contribution need not be completed
until September 30, 1995, the deferral period could be as short as one
(1) year. The Department concurs.
In item 12 of the SFR, in the last clause of the first full
sentence in the center column of page 56545, GM suggests that the
underlined portion of the phrase, ``* * * to phase in full access by GM
to the credit balance in the Plan's funding standard account,''
(emphasis added) should have read, ``such credit balance.'' The
Department concurs.
In item 16 of the SFR in the first sentence of the first full
paragraph in the right column of page 56548, GM suggests, and UST
agrees, that in the phrase, ``[b]ecause the marketability and dividends
of Class E stock are based on the earnings and financial performance of
EDS, UST has reviewed the business of EDS, as well as that of GM,'' the
words, ``under the current policy of the GM board,'' should have been
inserted before the word, ``dividends.'' The Department concurs.
In footnote 15 on page 56544 (left column), the fourth sentence
stated, ``[a]t the discretion of the Board, as appropriate, the number
in the denominator from time to time decreases as shares of Class E
stock are purchased and increases as shares are needed in order to meet
certain requirements of GM's employee benefit plans.'' GM suggests that
while the above-quoted statement is correct, in the interest of
accuracy and completeness, the following quoted sentence should have
been added to the footnote: ``[t]he denominator is subject to
adjustment from time to time (but never to a number greater than one)
by GM's Board, the discretion of which is limited in accordance with
criteria specified in GM's Certificate of Incorporation intended to
preserve fairness as between the interests of both the holders of Class
E stock and the holders of $1\2/3\ per value common stock.''
Accordingly, the Department does not object to the inclusion of GM's
additional clarifying language.
The following GM comments relate to the RRA and the Transfer Rights
Agreement (TRA), as described in the SFR.
GM has commented upon the need of UST to be able to amend the RRA
due to circumstances that may arise in the future. In GM's view, the
exemption, if granted, should permit UST to execute amendments to the
RRA that UST believes are in the interest of the Plan and its
participants and beneficiaries, without forcing GM or the Plan to
request another exemption. The Department concurs.
Footnote 20 on page 56546, states that the term, ``transfer''
includes an ``offer.'' GM suggests that, to more closely reflect the
RRA and TRA, the word, ``offer,'' should have been omitted from the
definition of the term, ``transfer.'' The Department concurs.
In the second full paragraph in the right column of page 56546, GM
suggests that, to more closely reflect the RRA, it would have been more
complete to insert the words ``in the aggregate,'' in the first
sentence of the paragraph such that the first sentence would have read
as follows: ``It is represented that there will be no limit, except for
market considerations on the amount of Class E stock that can be sold
in the aggregate (emphasis added) pursuant to a `demand' transfer by
the Plan.'' Further, [[Page 14011]] the word, ``[s]imilarly,'' should
have been substituted in lieu of the phrase, ``[i]n addition,'' at the
beginning of the third sentence of the paragraph, such that the third
sentence should have read as follows, ``[s]imilarly (emphasis added),
in a negotiated transaction, the Plan may not transfer more than 2
percent (2%) of the outstanding Class E stock to any person or related
group. * * *'' The Department concurs.
In the carryover paragraph at the top of the right column on page
56546, GM suggests that, to more closely reflect the RRA, the last
sentence should have read, ``[u]nder the RRA, as long as the Plan owns
2 percent (2%) or more of the outstanding Class E stock, the Plan may
transfer such stock only under certain terms and conditions summarized
in the paragraphs below.'' The Department concurs.
In the second full paragraph in the right column on page 56546, GM
suggests that, to more closely reflect the RRA, in the second sentence
the adjective, ``reasonable,'' should have been inserted before the
phrase, ``best efforts,'' in the sentence, ``However, in any public
offering the lead underwriters must agree to use their best efforts to
assure that no more than 2 percent (2%) of the outstanding Class E
stock is transferred to any person or related group.'' The Department
concurs.
In the last paragraph in the right column on page 56546, GM
suggests that, to more closely reflect the RRA, the underlined phrases
below should have been inserted so that the third sentence should have
read as follows, ``[i]f, at any time that the Plan owns at least 25
million shares of Class E stock (emphasis added), as a result of such
postponements or such market holdbacks, the Plan is not able to effect
a `demand' transfer for a period of thirteen (13) months, and during
such period the Plan has not otherwise transferred 25 million or more
shares of Class E stock or had the opportunity to include at least 25
million shares of Class E stock in a piggyback registration (emphasis
added), GM must terminate the postponement within sixty (60) days of
the Plan's notification to GM of such fact and take all reasonable
actions necessary to effect such transfer.'' The Department concurs.
In the first full paragraph in the left column on page 56547, in
the definition of Strategic Partner, GM suggests that to more closely
reflect the RRA, the second sentence of the paragraph should have read,
``[a] Strategic Partner is an investor or group of investors acting in
concert and designated as such by the Board of GM (or any successor
issuer) that acquires 10 percent (10%) or more of the outstanding Class
E stock (or securities convertible or exchangeable therefor) in a
transaction or series of related transactions intended to achieve a
strategic objective.'' The Department concurs.
In the second full paragraph in the left column on page 56547, GM
suggests that, to more closely reflect the RRA, the second sentence
should have read, ``[i]n a 'piggyback' registration, if GM, in its
reasonable judgment, expects that at least 25 percent (25%) of the
total number of shares of Class E stock to be included in the offering
are shares owned by the Plan, the Plan may select a co-manager
reasonably acceptable to GM.'' The Department concurs.
In its comment, GM states that the Plan and a Strategic Partner
will participate on an equal, not on a pro rata basis in piggyback
registrations. Accordingly, GM suggests that, to more closely reflect
the RRA, the phrase, ``an equal basis,'' should have been substituted
for the phrase, ``a pro rata basis,'' in the last sentence of the
carryover paragraph in the center column on the top of page 56547. The
Department concurs.
In the first full paragraph of the center column on page 56547, GM
suggests that, to more closely reflect the RRA, in the first sentence
the phrase, ``below 7.5 percent (7.5%) should have read ``7.5 percent
(7.5%) or less.'' Further, the fourth and fifth sentences in the same
paragraph should have read, ``In general, if a stockholders rights plan
is in effect when the third-party tender offer commences but, in
connection with such offer, the stockholders rights plan is revoked or
invalidated (or the rights issued thereunder are revoked or redeemed)
either by GM's Board of Directors or by a final and non-appealable
court order, the Plan may tender its shares of Class E stock into such
offer. If there is no stockholders rights plan in effect (other than as
described above), generally the Plan may tender its shares of Class E
stock into a tender offer so long as either the GM Board or at least
one-half of the independent directors on the Board have not recommended
to stockholders that such tender offer be rejected or there are fewer
than the two independent directors on the Board.'' The Department
concurs.
In the second full paragraph in the center column on page 56547, GM
suggests that, to more closely reflect the RRA, the first sentence
should have read, ``[i]n the event the Plan is prohibited as described
above from tendering into a third-party offer and GM does not otherwise
consent to the Plan tendering, in general, if the tender results in a
bidder in the tender offer owning more than 50 percent (50%) of the
total combined voting power of all outstanding securities of GM or
other issuer, the Plan will have the option to put to GM or other
issuer up to the same number of shares that would have been purchased
if tendered in the tender offer for a purchase price in cash equal to
the price per share offered in the tender.'' The Department concurs.
In item 14 of the SFR, GM suggests that, to more closely reflect
the TRA, the first sentence in the second full paragraph in the right
column of page 56547 should have read, ``[t]he Transfer Agreement is
intended to preserve GM's ability to consummate at a later date a tax-
free reorganization, including a split-off in which the Class E stock
is converted into or exchanged for shares of capital stock of EDS in a
transaction that results in GM no longer controlling EDS ('Split-Off').
In this regard, unless and until a Split-Off is consummated, the Plan
will not be permitted to transfer Class E stock if such transfer will
result in more than 5 percent (5%) of the total value of Class E stock
then outstanding being owned by any foreign person, as defined in the
Code.'' The Department concurs.
In the second full paragraph in the right column of page 56547, the
third sentence stated, ``[u]nder certain circumstances after the Split-
Off, the Plan may not transfer any Class E stock if, as a result, the
Plan would own less than 50 percent (50%) of the Class E stock that it
owned immediately after it received notice from GM of the Split-Off.''
GM suggests that, to more closely reflect the TRA, the words, ``after
the Split-Off'' should not have been included in that sentence and the
words, ``a proposed'' should have been inserted in lieu of the word,
``the,'' before the word, ``Split-Off'' the last time it appears.
GM suggests that, to more closely reflect the TRA, the following
quoted sentence should have been included as the next to the last
sentence in the second full paragraph in the right column of page 56547
of the Notice, ``[f]rom the date of the initial contribution until the
first anniversary of the Split-Off, if any, the Plan may not transfer
Class E stock to any person or group, if, as a result, such person or
group would own 5 percent (5%) or more of the Class E stock then
outstanding.'' In addition, GM in its comment provides further
clarification regarding the relationship of the above-quoted sentence
to the last sentence of the second full paragraph in the right column
of page 56547 of the Notice. [[Page 14012]] That sentence reads,
``[f]rom the date of the initial contribution until the second
anniversary of the Split-Off, unless EDS announces a merger with one or
more corporations, the Plan may not transfer Class E stock to any
person or related group, if, as a result, such person or group would
own 5 percent (5%) or more of the Class E stock then outstanding.'' GM
states that the two sentences quoted above, when read together, mean
that during the period that begins on the initial contribution date and
ends on the first anniversary of the Split-Off date, the Plan may not
transfer Class E stock to a person who is (or, as a result of the
transfer would be) a ``5 percent person.'' However, during the period
that begins on the day after the first anniversary of the Split-Off
date and ends on the second anniversary of the Split-Off date (or
later, in the case of a merger event occurring before the second
anniversary of the Split-Off date), the Plan may transfer Class E stock
to a person who would, as a result of the transfer, constitute a ``5
percent person,'' if that person agrees to be bound by the TRA. The
Department concurs.
In addition, to the comments from GM described above, GM informed
the Department of an event which transpired after the Notice was
published in the Federal Register. In this regard, in item 12 on page
56545 of the SFR, GM indicated that it anticipated contributing $750
million to the Plan before the end of 1994 which, at its option, along
with previous cash contributions, could be considered part of the $4
billion dollar contribution which is the subject of this exemption. In
this regard, GM, in a letter dated December 22, 1994, advised the
Department that this $750 million contribution in cash was made on
December 12, 1994.
GM also clarified certain representations regarding the
approximately 17 million shares of Class E stock held by the Plan prior
to the contribution. On page 56546 of the Notice, in the third full
paragraph of the center column, it is stated that the RRA and the TRA
``* * * will apply to all Class E stock held by the Plan whether
acquired pursuant to the proposed contribution in-kind or otherwise
held by the Plan at the time the exemption is granted. In this regard,
the 17 million shares of Class E stock held by the Plan prior to the
contribution will be surrendered to GM so that restrictions may be
placed on such shares.'' Subsequent to the publication of the Notice,
it came to the attention of GM that approximately 300,000 shares of the
17 million shares were acquired on the open market by several
independent investment managers in the course of implementing their
respective portfolio management strategies. These shares are registered
and tradable without restriction. Because these shares are registered,
not subject to any trading restrictions, and under management of
independent managers, GM believes that it would be inappropriate to
transfer management of these shares to UST pursuant to the exemption.
Rather, GM believes that these shares should remain under the control
of their respective managers to be held and disposed of in their
discretion, as they pursue their respective portfolio management
strategies. As a result, these shares will not be subject to the RRA
and the TRA and will continue under the control of their respective
managers, to be held or disposed of in their discretion, rather than
UST's.
A number of individual commentators requested a hearing with
respect to the exemption. Most of these commentators appear to have
requested a hearing because of their belief that the transaction would
reduce their retirement benefits. In addition, several commentators
requested a hearing but did not state a reason for such request. In
response to these requests for hearing, GM states that, given the
number of participants and beneficiaries receiving the Notice of
Proposed Exemption, the number of requests for a hearing is de minimis.
Moreover, none of the requests for a hearing presented a compelling
reason why such hearing should be held.
The Department has considered the concerns expressed by the
individuals who had requested a hearing and the applicant's written
response addressing such concerns. After consideration of the materials
provided, the Department does not believe that any issues have been
raised which would require the convening of a hearing. Further, after
giving full consideration to the record, including the comments by
commentators and the responses of the applicant, the Department has
determined to grant the exemption, as described herein. In this regard,
the comments submitted to the Department have been included as part of
the public record of the exemption application. The complete
application file, including all supplemental submissions received by
the Department, is made available for public inspection in the Public
Documents Room of the Pension Welfare Benefits Administration, room N-
5507, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on Monday, November 14, 1994, 59 FR 56541.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (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 10th day of March, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 95-6345 Filed 3-14-95; 8:45 am]
BILLING CODE 4510-29-P
