[Federal Register Volume 62, Number 68 (Wednesday, April 9, 1997)]
[Notices]
[Pages 17207-17209]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-8972]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-20; Exemption Application No. D-
10227 thru D-10232, et al.]
Grant of Individual Exemptions; Real Estate Equity Trust No. 1
(the Trust), 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, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, effective December
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR
47713, October 17, 1978) transferred the authority of the Secretary of
the Treasury to issue exemptions of the type proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
Real Estate Equity Trust No. 1 (the Trust), et al. Located in
Cincinnati, OH
[Prohibited Transaction Exemption 97-20; Exemption Application Nos. D-
10227--D-10232]
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 purchase of units in the Trust by certain
multiemployer pension plans (the Plans) that will enable State Street
Global Advisors, Inc. (SSGA), the independent fiduciary for the Plans
investing in the Trust, to make initial and subsequent equity
investments on behalf of the Trust, in the Cincinnati Development Group
Limited Partnership (the Partnership), which may result in a benefit
inuring to Fifth Third Bank (Fifth Third), the trustee of the Trust and
a party in interest with respect to the Plans.
This exemption is subject to the following conditions:
(a) Each Plan investing in the Trust has total assets that are in
excess of $50 million.
(b) No Plan that purchases units in the Trust that will permit the
Partnership investment has, immediately following the acquisition of
such units, more than 5 percent of its assets invested therein.
(c) The decision to purchase units in the Trust that will allow
SSGA to make the initial and any subsequent equity contributions to the
Partnership is made by a Plan fiduciary (the Second Fiduciary) which is
independent of Fifth Third and its affiliates and which is not SSGA.
(d) As independent fiduciary for the Trust, SSGA determines
whether--
(1) It is in the best interests of the Trust and the Plans
participating therein to make the initial and subsequent investments in
the Partnership;
(2) It is appropriate for the Trust to assign, transfer, pledge or
otherwise encumber its interest in the Partnership provided the Trust
obtains written consent from Cincinnati Development Group, LLC (CDG);
(3) It is appropriate for the Trust to withdraw as a limited
partner from the Partnership or to withdraw its capital from such
Partnership provided the Trust obtains the written consent of CDG;
[[Page 17208]]
(4) It is appropriate for the Trust to consent to the sale by CDG
of substantially all of the assets of the Partnership or the transfer
by CDG of its interest in the Partnership to a third party;
(5) It is appropriate for the Trust to contribute to the
Partnership the amount necessary to complete construction of the
Fountain Square West Project and to require that CDG release control of
the Partnership to an entity designated by the Trust, if CDG fails to
provide for construction cost overruns;
(6) It is appropriate for the Trust to elect to continue the
Partnership by appointing a successor general partner.
(7) An entity designated by the Trust to serve as general partner
is appropriate upon the occurrence of (d)(5) or (d)(6).
(e) At the time the Partnership investment is made, the terms of
the transaction are at least as favorable to each Plan participating in
the Trust as those obtainable in an arm's length transaction with an
unrelated party.
(f) Prior to investing in the Partnership, Fifth Third provides
SSGA and the Second Fiduciary of each Plan participating in the Trust
with offering materials disclosing all material facts concerning the
purpose, structure and operation of the Partnership.
(g) Subsequent to investing in the Partnership, the Trust and SSGA
receive the following ongoing information from CDG:
(1) Within 120 days after the end of the Partnership's fiscal year,
an unaudited annual report containing--
(A) A balance sheet and statements of income, Partners' equity,
changes in financial position and cash flow for the year then ended;
(B) A report of the activities of the Partnership during the period
covered by the report; and
(C) An itemization of any fees or payments made to CDG or any
related party or affiliate.
(2) Within 60 days of the end of each year, an appraisal report,
prepared by a qualified, independent appraiser, of each property held
in the Partnership.
(3) Periodically (but not less frequently than quarterly),
operating and development budgets of the Partnership as well as
unaudited operations and financial reports. (Information with respect
to the Partnership is disseminated by Fifth Third to the Second
Fiduciaries of Plans investing in the Trust through annual audited
financial statements of the Trust, prepared by independent, certified
public accountants and in quarterly communications setting forth
Partnership financial data. SSGA will also be given copies of this
information.)
(h) As to each Plan participating in the Trust, the total fees paid
to Fifth Third will constitute no more than ``reasonable compensation''
within the meaning of section 408(b)(2) of the Act.
(i) Fifth Third maintains, for a period of six years, the records
necessary to enable the persons described in paragraph (j) to determine
whether the conditions of this exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Fifth Third
and/or its affiliates, the records are lost or destroyed prior to the
end of the six year period; and
(2) No party in interest other than Fifth Third shall be subject to
the civil penalty that may be assessed under section 502(i) of the Act,
or to the taxes imposed by section 4975 (a) and (b) of the Code, if the
records are not maintained, or are not available for examination as
required below by paragraph (j).
(j)(1) Except as provided in section (i)(2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of section
504 of the Act, the records referred to in paragraph (i) are
unconditionally available at their customary location during normal
business hours by:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) Any fiduciary of a participating Plan or any duly authorized
representative of such fiduciary;
(C) Any contributing employer to any participating Plan or any duly
authorized employee representative of such employer; and
(D) Any participant or beneficiary of any participating Plan, or
any duly authorized representative of such participant or beneficiary.
(j)(2) None of the persons described above in paragraphs (j)(1)(B)-
(j)(1)(D) of this paragraph (j) are authorized to examine the trade
secrets of Fifth Third or commercial or financial information which is
privileged or confidential.
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 December 17, 1996 at 61
FR 66314.
Written Comments
The Department received one written comment with respect to the
proposed exemption and no requests for a public hearing. The written
comment was submitted by the applicant, Fifth Third, and is intended to
clarify the notice of proposed exemption in the following areas:
(1) Role of the Independent Fiduciary. Fifth Third notes that SSGA
serves as the independent fiduciary with respect to investments by the
Trust in the Partnership. Because the Trust is a limited partner in the
Partnership and many actions that may be undertaken by the Trust would
require the consent of CDG, the general partner of the Partnership,
Fifth Third represents that the opportunity for the Trust to act
unilaterally would be extremely rare. In this regard, Fifth Third
explains that the operative and conditional language of the proposal
state that SSGA will make the initial and any subsequent investments in
the Trust as well as monitor the Trust on behalf of the investing
Plans. Although Fifth Third represents that this language is not
inconsistent with the provisions of the proposal, it asserts that it
will remain the Trustee of the Trust and that it will not be replaced
by SSGA.
In response, the Department notes that SSGA has been appointed to
serve as the independent fiduciary for the Trust with respect to the
initial, and possibly, future equity investments made by the Trust to
the Partnership. In undertaking these duties, we further note that SSGA
is responsible for monitoring and protecting the rights of the Trust
and the Plans investing therein to the extent that any actions by Fifth
Third may impact adversely on the Partnership. Because actions that may
be taken by Fifth Third could result in a conflict of interest by
reason of the Trust's investment, through the Partnership, in the
Fountain Square West Project, we would expect that SSGA will have a
continuing role in enforcing the rights of the Plans investing in the
Trust.
(2) Assets Required for Investment. Footnote 5 of the proposed
exemption states, in relevant part, that if ``less than'' $6.5 million
in units are subscribed for by the investing Plans, the Trust will
combine those proceeds with its existing liquid assets to make the $7
million investment in the Partnership. Fifth Third wishes to modify the
language in the footnote by clarifying that if ``at least'' $6.5
million in units are subscribed for by the Plans, the Trust will
combine those proceeds with existing assets to make the investment in
the Partnership.
(3) Rents under the Lease with the City of Cincinnati (the City
Lease). Fifth Third notes that a portion of Footnote 7 of the proposal
indicates that no gross rents in excess of $3 million for any year are
projected during the initial 10 years
[[Page 17209]]
of the Fountain Square West Project. Fifth Third wishes to emphasize
that no gross rents in excess of $3 million are actually projected for
any year during the initial term of the Fountain Square West Project.
Fifth Third also points out that the issue of gross rents in excess of
$3 million is relevant because such rents would result in additional
payments being made to the City of Cincinnati under the City Lease.
Thus, after giving full consideration to the entire record,
including the written comment, the Department has made the
aforementioned changes to the proposed exemption. In addition, the
Department has decided to grant the exemption subject to the
clarifications described above. The comment letter has been included as
part of the public record of the exemption application. The complete
application file, as well as all supplemental submissions received by
the Department, is 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, NW,
Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Orders Distributing Co., Inc. Profit Sharing Plan and 401(k) Retirement
Savings Plan (the Plan) Located in Greenville, South Carolina
[Prohibited Transaction Exemption 97-21; Exemption Application No. D-
10341]
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 past sale by the Plan of certain units of
limited partnership interests (the Units) to Orders Distributing Co.,
Inc. (the Employer), a party in interest with respect to the Plan,
provided that the following conditions are satisfied: (1) The terms of
the sale were at least as favorable to the Plan as those the Plan could
have obtained in a comparable arm's length transaction with an
unrelated party; (2) the sale was a one-time transaction for cash; (3)
the Plan paid no commissions nor other expenses relating to the sale;
(4) the Plan received an amount no less than the fair market value of
the Units as of the date of the sale, as determined by an independent
appraisal; and (5) within 30 days of publication in the Federal
Register of the notice of the grant of this exemption, the Employer
makes an additional cash contribution to the Plan to make up for
opportunity costs attributable to the Units.
EFFECTIVE DATE: The exemption is effective as of January 1, 1995.
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 31, 1997 at 62 FR
4802.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions to which the exemptions does not
apply and the general fiduciary responsibility provisions of section
404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(B) of the Act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional rules. Furthermore, the
fact that a transaction is subject to an administrative or statutory
exemption is not dispositive of whether the transaction is in fact a
prohibited transaction; and
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, D.C., this 3rd day of April, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor
[FR Doc. 97-8972 Filed 4-8-97; 8:45 am]
BILLING CODE 4510-29-P
