[Federal Register Volume 60, Number 90 (Wednesday, May 10, 1995)]
[Notices]
[Pages 24899-24904]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-11536]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09872, et al.]
Proposed Exemptions; T.J. Lambrecht Construction, Inc. 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, N.W., Washington, D.C.
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, N.W., Washington, D.C. 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 [[Page 24900]] 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.
T.J. Lambrecht Construction, Inc., Employees' Profit Sharing Plan and
Trust (the TJLC Plan); Brown & Lambrecht Earthmovers, Inc. Employees'
Profit Sharing Plan and Trust (the B&L Plan; collectively referred to
as the Plans)
Located in Joliet, Illinois
[Application Nos. D-09872 and D-09873]
Proposed Exemption
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 the proposed cash sale (the Sale) by each of
the Plans of a 12.5% partnership interest in Prime Industries (the
Partnership Interest) to Mr. Thomas J. Lambrecht (Mr. Lambrecht), a
party in interest with respect to the Plans; provided the following
conditions are satisfied: (1) The Sale is a one-time transaction for
cash; (2) the sale price for each Partnership Interest will be the
higher of (a) the fair market value of the Partnership Interest as
determined by a qualified independent appraiser at the time of the Sale
or, (b) each Plan's total investment in the Partnership Interest
($300,000); and (3) the Plans do not suffer any loss nor incur any
expenses in connection with the transaction.
Summary of Facts and Representations
1. The Plans are defined contribution profit sharing plans. As of
December 31, 1994, the TJLC Plan had 48 participants and $1,472,427.00
in assets. As of September 30, 1994, the B&L Plan had 29 participants
and $6,253,423.00 in assets. T.J. Lambrecht Construction, Inc. and
Brown & Lambrecht Earthmovers, Inc. (the Employers) are Illinois
subchapter S corporations in the business of earthmoving and road
construction. Mr. Lambrecht is the sole trustee of the TJLC Plan and
co-trustee (with Mr. Paul Lambrecht) of the B&L Plan. Mr. Lambrecht is
also the sole shareholder and sole director of both Employers.
2. The Plans purchased the Partnership Interests in Prime
Industries from Lennon Wallpaper Company in 1991. The total purchase
price of each Partnership Interest was $258,750.00. The applicant
represents that both Lennon Wallpaper Company and Prime Industries are
unrelated to the Employers. Prime Industries' only asset is a 300,000
square foot steel building on 15.6 acres located in Shorewood, Illinois
(the Partnership Property). From 1991 through September 30, 1994, each
Plan advanced additional funds in the amount of $125,000.00 for
improvements to the Partnership Property. The applicant represents
that, during this same time period, the Partnership Property generated
income for each Plan in the amount of $83,750.00. The applicant also
represents that the Partnership Property continues to generate income
for the Plans in the form of rental payments from tenants who are not
related to the Plans or the Employers. In addition, it is represented
that the Partnership Interest currently represents 25.47% of the TJLC
Plan's assets and 6% of the B&L Plan's assets.1
1The Department notes that the decisions to acquire and hold
the Interests are governed by the fiduciary responsibility
requirements of Part 4, Subtitle B, Title I of the Act. In this
regard, the Department herein is not proposing relief for any
violations of Part 4 which may have arisen as a result of the
acquisition and holding of the Interests by the Plans.
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3. The applicant represents that, because the Partnership Interests
are minority interests and because the interests are not publicly
traded, there is not an established market for the Partnership
Interests. Furthermore, it is represented that the Partnership Property
is the only asset owned by the partnership. The applicant represents
that, for the foregoing reasons, the interests are valued according to
the proportionate value of the underlying property. In this regard, the
applicant submitted a letter prepared by Charles Sharp, a general
partner of the partnership, in which Mr. Sharp explained that the sole
value of the Partnership Interests is the value of the Partnership
Property itself and that the Partnership Interests have no value in and
of themselves.
4. The applicant represents that Brown & Lambrecht Earthmovers,
Inc. was merged into T.J. Lambrecht Construction, Inc. on January 1,
1995. As a result, the B&L Plan is in the process of being terminated.
In addition, the TJLC Plan is being terminated and T.J. Lambrecht
Construction, Inc. is in the process of establishing a new profit
sharing plan which will allow for participant-directed investments. The
applicant requests an exemption to permit the Sale by the Plans of the
Partnership Interests to Mr. Lambrecht. Each Plan will receive the
greater of (1) the fair market value of the Partnership Interest as
determined by an independent appraiser at the time of the Sale, or (2)
the Plan's total investment in the Partnership Interest. The applicant
represents that this Sale is in the best interests of Plan participants
and beneficiaries because it will allow the Plans to convert the
Partnership Interests into cash, creating the liquidity needed for
distributions to participants who, at their election, have the right to
roll over their Plan benefits into the new profit sharing plan. It is
also represented that the Sale will facilitate implementation of
participant-directed investment of accounts in the new profit sharing
plan.
5. The Property was appraised by Mr. Joseph Batis, MAI, a State of
Illinois Certified General Real Estate Appraiser who is independent of
the Plans, the Employers, and Mr. Lambrecht. In analyzing the value of
the Partnership Property, Mr. Batis stated that he relied mainly on the
direct sales comparison approach but also considered the cost approach
and the income approach to estimate the value of the property. The
appraised value of the Partnership Property as of September 30, 1994
was $4,000,000.00. The ratable value of each Plan's 12.5% interest in
the Partnership Property as of that date was $500,000.00.2
\ 2\The applicant represents that the fair market value of the
Partnership Interests will not be discounted for lack of
marketability, or for any other reason.
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6. The applicant represents that the Plans would incur no expenses
or commissions with respect to the Sale. The applicant also represents
that the proposed transaction is administratively feasible and
protective of the Plans' participants and beneficiaries. Finally, the
applicant represents that the proposed transaction will provide the
Plans with the liquidity needed to fund participant-directed
investments and cash distributions to Plan participants.
7. In summary, the applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act and
section 4975(c)(2) of the Code because: (1) The Sale will be a one-time
transaction for cash; (2) no [[Page 24901]] commissions or fees will be
paid by the Plans as a result of the Sale; (3) the Sale will enable the
Plans to liquidate their assets and will facilitate implementation of
participant-directed investments; and (4) the Sale price will be the
higher of: (a) The fair market value of the Partnership Interest on the
date of the Sale, or (b) the Plan's total investment in the Partnership
Interest.
FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Pediatric Dentistry Ltd. Profit Sharing Trust (the Plan),
Located in Fargo, North Dakota
[Exemption Application No. D-09903]
Proposed Exemption
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
406(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 Code3 shall not apply to the proposed cash sale of a
parcel of improved real property (the Property) by the Plan to William
Hunter, M.D. (Dr. Hunter), a party in interest with respect to the
Plan; provided that: (1) The sale will be a one-time transaction for
cash; (2) as a result of the sale, the Plan will receive in cash the
greater of $79,000 or the fair market value of the Property, as
determined by an independent, qualified appraiser, as of the date of
the sale; (3) the Plan will pay no commissions, fees, or other expenses
as a result of the transaction; and (4) the terms of the sale will be
no less favorable to the Plan than those it would have received in
similar circumstances when negotiated at arm's length with unrelated
third parties.
\3\For 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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Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan sponsored
by Pediatric Dentistry Ltd. (the Employer). As of November 29, 1994,
there were seven (7) participants. As of November 17, 1994, the assets
of the Plan totaled approximately $1,295,866. Approximately seven
percent (7%) of the Plan's assets are invested in the Property.
Northern Capital Trust Company is the trustee (the Trustee) of the
Plan. Dr. Hunter is the administrator of the Plan.
2. The Employer which sponsors the Plan is a professional service
corporation providing dental services. The Employer's business office
is located in a residential area immediately adjacent to the Property.
Dr. Hunter is the sole shareholder of the Employer.
3. In 1989, the Property was purchased at a price of $67,500 from
third parties unrelated to Dr. Hunter or to any other beneficiary of
the Plan. It is represented that one of the factors contributing to the
purchase was the view that eventually the Property would be needed for
the Employer's business and would at that time satisfy the definition
of ``qualifying employer real property,'' as set forth in section
407(d)(4) of the Act.4
\ 4\The Department notes that the decisions of the fiduciary,
acting on behalf of the Plan, in connection with the acquisition and
holding of the Property are governed by the fiduciary responsibility
requirements of part 4, subpart B, of Title I. The Department
expresses no opinion herein, as to whether any of the relevant
provisions of part 4, subpart B, of title I have been violated
regarding the Plan's investment in and subsequent holding of the
Property, and no exemption from such provisions is proposed herein.
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However, it is represented that since the acquisition by the Plan,
the Property has been rented to various parties unrelated to Dr. Hunter
or to any other beneficiary of the Plan. It is represented that the
annual average return on the investment to the Plan since the Property
was acquired in 1989, has been 4.31%.
4. The Property is described as a one-story detached single family
residence on a corner lot in a newer diversified neighborhood in Fargo,
North Dakota. The Property consists of an 8,447 square foot level site
improved by a structure that contains a 1,253 square foot finished
living area above grade and a basement of the same size below grade.
The Property is located at 1206 15 Avenue South and is situated on the
lot adjacent to the Employer's business office.
5. This exemption is requested to permit the Plan to sell the
Property to Dr. Hunter for the greater of $79,000 or the appraised fair
market value of the Property on the date of sale. Dr. Hunter represents
that beginning in April, 1992, the Property was listed with a local
realtor as part of the multiple listing service. The Property was
initially listed at a price of $71,950 which it is represented
reflected the fair market value of the Property at that time based on
an appraisal. Subsequently, the price of the Property was reduced to
$68,950. Though the Property was shown to prospective buyers by several
realtors who participate in the multiple listing service, it is
represented that the Plan did not receive any offers from those buyers
to purchase the Property.
It is represented that the proposed transaction is feasible in that
it involves a one-time sale of the Property for cash. In addition, the
proposed transaction is in the interest of the Plan in that the price
offered by Dr. Hunter could not be obtained otherwise. In addition, the
Plan will be able to sell the Property without incurring any further
expense of searching for a buyer and without paying brokerage
commissions, fees, or other expenses as a result of the transfer. The
Trustee is desirous of selling the Property, which is illiquid, in
order to facilitate the establishment of participant directed
individual accounts in the Plan. It is anticipated that once the
Property is sold the cash proceeds would be invested in marketable
securities.
In the opinion of the Trustee, the proposed transaction is
protective of the participants and beneficiaries of the Plan in that
the sales price would be based on the fair market value of the Property
as determined by an independent, qualified appraiser, as of the date of
the sale. Further, the Trustee will review the transaction and make the
final determination regarding the sale of the Property to Dr. Hunter.
In this regard, the Trustee represents that in its fiduciary capacity
with respect to the Plan, it will review the contemplated transaction
so as to insure that the interests of the participants of the Plan are
protected.
6. An appraisal of the Property was prepared by Jerry Link (Mr.
Link), of Appraisal Services, Inc., in Fargo, North Dakota. It is
represented that Mr. Link is qualified in that he is licensed by the
State of North Dakota as an appraiser. It is further represented that
he is independent in that he has no present or prospective interest in
the Property and has no personal interest or bias with respect to the
participants in the proposed transaction. Mr. Link represents that
neither his employment nor his compensation was conditioned upon the
appraised value of the Property, nor was he required to report a
predetermined value or base the appraisal on a requested minimum value
for the Property. After physically inspecting the Property, and
reconciling values for the Property established by the cost approach,
income approach, and sales comparison approach, Mr. Link determined
that the fair market [[Page 24902]] value of the Property was $79,000,
as of January 13, 1994.
Because the Property is located on the lot adjacent to the
Employer's business office, Mr. Link was asked to determine whether
there would be any premium value associated with the Property. In this
regard, Mr. Link indicated that the Property is a single family
dwelling located in an R-l, One/Two Family Dwelling District. It is
represented that this zoning category does not allow commercial
development without a special use permit. According to Mr. Link the
highest and best use of the Property is single family. Based on this
highest and best use, it is the opinion of Mr. Link that the Property's
location next to the Employer's business office does not result in a
premium associated with the value of the Property to Dr. Hunter.
7. In summary, the applicant represents that the proposed
transaction meets the statutory criteria for an exemption under section
408(a) of the Act because:
(a) the sale of the Property will be a one-time transaction for
cash; (b) as a result of the sale, the Plan will receive in cash the
greater of $79,000 or the fair market value of the Property, as
determined by an independent, qualified appraiser, as of the date of
the sale; (c) the Plan will pay no commissions, fees, or other expenses
as a result of the transaction; (d) the terms of the sale will be no
less favorable to the Plan than those it would have received in similar
circumstances when negotiated at arm's length with unrelated third
parties; (e) the Plan will be able to invest the proceeds from the sale
of the Property in marketable securities; (f) the Plan will be able to
dispose of the Property which is illiquid; and (g) the sale of the
Property will facilitate the establishment of participant directed
individual accounts in the Plan.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Bob Murphy, Inc. Profit Sharing Plan (the Plan)
Located in Boynton Beach, Florida
[Exemption Application No. D-09949]
Proposed Exemption
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 (the Sale) of certain works of art (the Art Work) by
the Plan to Robert J. Murphy, Jr., a disqualified person with respect
to the Plan.\5\
\5\Since Robert J. Murphy, Jr. and his wife, Gail F. Murphy, are
the only participants in the Plan, there is no jurisdiction under
Title I of the Act pursuant to 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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This proposed exemption is conditioned upon the following
requirements: (1) all terms and conditions of the Sale are at least as
favorable to the Plan as those obtainable in an arm's length
transaction between unrelated parties; (2) the Sale is a one-time cash
transaction; (3) the Plan is not required to pay any commissions, costs
or other expenses in connection with the Sale; and (4) the Plan
receives a sales price equal to the fair market value of the Art Work
on the date of the Sale as determined by an independent, qualified
appraiser.
Summary of Facts and Representations
1. The Plan is a profit sharing Plan whose only participants are
Mr. Murphy and his wife, Gail F. Murphy. As of June 30, 1994, the Plan
had total assets of $572,050. Mr. and Mrs. Murphy serve as the trustees
of the Plan (the Trustees) and have sole investment discretion with
respect to its assets.
2. The Plan has approximately 17 percent of its assets in the Art
Work, which consists of ten Leroy Nieman serigraphs. The Plan received
the Art Work as a rollover from the Bob Murphy, Inc. Defined Benefit
Pension Plan (the DB Plan), which the trustees terminated on November
15, 1987. The DB Plan purchased the Art Work between 1980 and 1987 from
two dealers--Hammers Gallery in New York and Hanson Gallery in New
Orleans. Mr. Murphy represents that he is independent of, and unrelated
to, both Hammers Gallery and Hanson Gallery.
3. Following its acquisition, the Art Work has been in the
possession of Mr. Murphy at his residence at Delray Beach, Florida and
his office at the Delray Dunes Country Club in Boynton Beach, Florida.
In an examination report dated January 6, 1993, the Internal Revenue
Service (the Service) determined that Mr. and Mrs. Murphy had engaged
in prohibited transactions by reason of their use of the Art Work for
the years 1989, 1990 and 1991. Mr. Murphy represents that on August 22,
1994 he filed Forms 5330 with the Service and paid the applicable
excise taxes associated with the past prohibited transaction in the
amount of $9,195.
4. Because the Art Work is not an income producing asset for the
Plan and certain pieces of the Art Work have declined in value, Mr.
Murphy proposes to purchase the Art Work from the Plan for a cash
amount equal to its fair market value on the date of the Sale.
Accordingly, Mr. Murphy requests an administrative exemption from the
Department to permit his purchase of the Art Work from the Plan under
the terms and conditions described herein.
5. Celeste B. Stover, the Assistant Director for Hanson Gallery in
New Orleans, Louisiana, valued the Art Work as of August 10, 1994. In
her capacity as Assistant Director, Ms. Stover has actively represented
the work of Leroy Nieman since 1983. Ms. Stover represents that while
Mr. Murphy has been a client of the Hanson Gallery since 1984, both she
and Hanson Gallery are unrelated to, and independent of, Mr. and Mrs.
Murphy. Ms. Stover states that she derives less than 1 percent of her
annual income from Mr. Murphy.
In determining the fair market value of the Art Work, Ms. Stover
represents that she looked to the recommended retail values of Leroy
Nieman serigraphs provided yearly to Hanson Gallery by Knoedler and
Co., the publishers of Leroy Nieman's prints. The recommended values
are based upon current demand for the specific image as well as
availability of the image and previous bids within the last year. Ms.
Stover's valuations of the Art Work are as follows:
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Fair
Work Market
Value
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Rush Street Bar................................................ $6,500
Elephant Nocturne.............................................. 10,000
New York Stock Exchange........................................ 15,000
P.J. Clarkes................................................... 15,000
Buena Vista Bar................................................ 8,000
Harry's Wall Street Bar........................................ 7,000
Bistro Gardens................................................. 6,800
Polo Lounge.................................................... 11,000
Bar at 21...................................................... 7,000
Fix McRory's Whiskey Bar....................................... 12,000
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6. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
4975(c)(2) of the Code because: (a) All terms and conditions of the
Sale will be at least as favorable to the Plan as those obtainable in
an arm's length transaction between unrelated parties; (b) the Sale
will be a one-time cash transaction; (c) the Plan will not be required
to pay any commissions, costs [[Page 24903]] or other expenses in
connection with the Sale; (d) the Plan will receive a sales price equal
to the fair market value of the Art Work based on a determination by an
independent, qualified appraiser.
Notice to Interested Persons
Since Mr. and Mrs. Murphy are the only participants in the Plan, it
has been determined that there is no need to distribute the notice of
proposed exemption to interested persons. Comments are due within
thirty days after publication of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
The Brown Group, Inc., 401(k) Savings Plan (the Plan),
Located in St. Louis, Missouri
[Application No. D-09951]
Proposed Exemption
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 C.F.R. Part
2570, Subpart B (55 FR 32836, 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 the proposed guarantee (the Guarantee) by The
Brown Group, Inc. (the Employer), the sponsor of the Plan, of amounts
due the Plan with respect to a guaranteed investment contract issued by
Confederation Life (Confederation Life), including the Employer's
potential cash advances to the Plan (the Advances) pursuant to the
Guarantee and the potential repayment of the Advances (the Repayments);
provided that the following conditions are satisfied:
(A) No interest and/or expenses are paid by the Plan;
(B) The Advances are made in lieu of amounts due the Plan under the
terms of the GIC;
(C) The Repayments are restricted to cash proceeds actually
received by the Plan from Confederation Life or any other entity making
payment with respect to Confederation Life's obligations under the
terms of the GIC, or from the sale or transfer of the GIC to unrelated
third parties (the GIC Proceeds), and no other Plan assets are used to
make the Repayments; and
(D) The Repayments will be waived to the extent the Advances exceed
the GIC Proceeds.
Summary of Facts and Representations
1. The Plan is a defined contribution plan which includes a cash or
deferred arrangement under section 401(k) of the Code, and which
provides for employer matching contributions and additional employer
discretionary contributions. As of December 31, 1994 the Plan had
approximately 2,500 participants and total assets of approximately
$44,937,281. The trustee of the Plan is Boatmen's Trust Company (the
Trustee), located in St. Louis, Missouri. The Employer, a New York
publicly-traded corporation, is engaged in the manufacture, import and
retail sales of shoes, with its corporate headquarters in St. Louis,
Missouri.
2. The Plan provides for individual participant accounts (the
Accounts) and for participant-directed investment of each Account. Plan
participants direct investment of their Accounts among four investment
options (the Funds), and may reallocate their Account balances among
the Funds on a periodic basis. The Funds include a guaranteed interest
fund (the G.I. Fund), which invests in guaranteed investment contracts
issued by insurance companies.
3. Among the assets of the G.I. Fund is the GIC, a guaranteed
investment contracts issued to the Plan in 1992 by Confederation Life
Insurance Company (Confederation Life), a Canadian insurance company
doing business in the United States. The GIC is a single-deposit,
benefit-responsive contract, principal amount $1,000,000, earning
interest at a guaranteed annual rate of 7.15% (the Contract Rate). The
GIC's terms enable the G.I. Fund to make monthly withdrawals (the
Withdrawals) to effect, in accordance with the terms of the Plan,
benefit distributions, in-service withdrawals, participant Advances,
and participant-directed transfers of Account balances to other Funds
offered by the Plan (the Withdrawal Events). Interest at the Contract
Rate is credited daily, calculated on the balance remaining deposited
under the GIC. If interest earned under the GIC exceeds the amount
withdrawn, the difference is paid annually (the Interest Payments) on
December 31. All Interest Payments were made when due through December
31, 1993. The terms of the GIC also require Confederation Life to make
a final payment to the Plan on December 12, 1996 (the Maturity Payment)
in the amount of the GIC's total principal deposits plus interest
earnings at the Contract Rate less previous withdrawals (Accumulated
Book Value) as of such date. As of July 31, 1994, the GIC had an
Accumulated Book Value of $1,034,447.59.
4. Commencing August 1, 1994 (the Receivership Date), insurance
regulatory authorities in Canada and the state of Michigan instituted
proceedings to place Confederation Life in receivership (the
Receivership).\6\ Consequently, Confederation Life's assets and
operations are frozen, and payments on all its guaranteed investment
contracts, including the GIC held by the Plan, were suspended effective
as of the Receivership Date. Since the commencement of the
Receivership, the Plan has been unable to make withdrawals from the GIC
to fund Withdrawal Events with respect to Account balances invested in
the GIC, and the Employer represents that it is uncertain whether, or
to what extent, the Plan will receive any GIC payments or withdrawals
to enable funding of future Withdrawal Events. Additionally, the
Employer represents that it is uncertain whether and to what extent the
Maturity Payment under the GIC will be paid. The Employer desires to
alleviate the G.I. Fund of risks associated with investments in the
GIC, and to enable the G.I. Fund to fully fund the Withdrawal Events
with respect to Account balances invested in the G.I. Fund.
Accordingly, the Employer proposes to guarantee (the Guarantee) that
the Plan will recover all amounts due under the GIC, and in its
discretion to make advances to the Plan (the Advances) pursuant to the
Guarantee. The Employer requests an exemption for the Guarantee and the
Advances, as well as the potential repayment of the Advances (the
Repayments), under the terms and conditions described herein.
\6\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 Employer and the Trustee will execute a written agreement
embodying all the terms and conditions of the Guarantee, the Advances
and the Repayments (the Agreement).
The Guarantee: The Guarantee is the Employer's undertaking to
insure that in the eventual resolution of the Receivership, the Plan
recovers a total amount with respect to the GIC which is no less than
its investment in the GIC as of the Receivership Date, plus interest
thereafter at the Contract Rate. Accordingly, the amount which the
Employer guarantees under the [[Page 24904]] Agreement (the Guaranteed
Amount) is the Receivership Date Accumulated Book Value of the GIC,
which is $1,034,447.59, less the sum of GIC Proceeds (cash proceeds
actually received by the Plan from Confederation Life or any other
entity making payment with respect to Confederation Life's obligations
under the terms of the GIC, or from the sale or transfer of the GIC to
unrelated third parties) and Advances under the Agreement as described
below, plus interest on the net of the foregoing amount after the
Receivership date at the Contract Rate of 7.15 percent.
The Advances: On the monthly occasions when the Employer, as Plan
administrator, would otherwise request a withdrawal from the GIC to
fund Withdrawal Events with respect to Account balances invested in the
GIC, the Employer will instead notify the Trustee of the requested
withdrawal amount. The Trustee will then determine whether it can
satisfy the withdrawal request by using the assets in the G.I. Fund
other than the GIC. If the Trustee determines that the funds available
from the G.I. Fund are insufficient to honor the withdrawal request,
the Trustee will determine the amount of additional funds necessary to
honor the withdrawal request, and the Employer will make an Advance in
that amount to the Plan. Valuation of the Account balances invested in
the GIC for purposes of the Advances will be based on the Guaranteed
Amount as described above.
Final Advance: The Agreement provides for a final Advance after the
completion of the Receivership. After the Trustee has determined that
the Plan will not receive any further proceeds from Confederation Life
or its successors with respect to the GIC, the Employer shall make a
final Advance to the Plan in the amount necessary to enable the Plan's
recovery of the Guaranteed Amount. In the event the Receivership
extends beyond the year 2000, the Employer will make the final Advance
on the first business day in the year 2001 in the amount required on
such date to enable the Plan to recover the Guaranteed Amount.
The Repayments: The Agreement provides that the Repayments of the
Advances are restricted to the principal amounts of the Advances, and
the Plan will pay no interest and will incur no expenses with respect
to the Advances. The Repayments may be made only from the GIC Proceeds
received by the Plan. No other Plan assets will be available for the
Repayments. If the GIC Proceeds are not sufficient to repay fully the
Advances, the Agreement provides that the Employer will have no
recourse against the Plan, or against any participants or beneficiaries
of the Plan, for the unpaid amount. To the extent the Plan receives GIC
Proceeds in excess of the total amount of the Advances, such additional
amounts will be retained by the Plan and allocated among the Accounts
invested in the G.I. Fund.
6. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act for the
following reasons: (1) The Advances enable the Plan to resume the full
funding of the Withdrawal Events; (2) The Advances will protect the
Plan's investment in the GIC and will ensure that the Plan will recover
all amounts due under the terms of the GIC; (3) The Plan will pay no
interest or incur any expenses with respect to the Advances; (4)
Repayment of the Advances will be made only from GIC Proceeds and no
other Plan assets will be involved in the transactions; (5) Repayment
of the Advances will be waived to the extent the Plan recoups less from
the GIC Payors than the total amount of the Advances; and (6) In the
event the Plan receives GIC Proceeds in excess of the Guaranteed
Amount, such amounts will be retained by the Plan and allocated among
the Accounts.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department (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.
Ivan Strasfel,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-11536 Filed 5-9-95; 8:45 am]
BILLING CODE 4510-29-P
