[Federal Register Volume 61, Number 121 (Friday, June 21, 1996)]
[Notices]
[Pages 31953-31958]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-15875]
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[[Page 31954]]
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10146, et al.
Proposed Exemptions; Bill Ussery Motors, Inc.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of Proposed Exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
request for a hearing should state: (1) the name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Bill Ussery Motors, Inc. Fourth Amended and Restated Profit Sharing
Plan and Trust (the Plan), Located in Coral Gables, Florida
[Application No. D-10146]
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) and 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) of
certain real property (the Property) by the Plan to Bill Ussery Motors,
Inc. (the Employer), the sponsoring employer and a party in interest
with respect to the Plan; provided that (1) the Sale is a one-time
transaction for cash; (2) the Plan does not experience any loss nor
incur any expenses from the proposed transaction; and (3) the Plan
receives as consideration from the Sale the greater of either (a) the
fair market value of the Property as determined by a qualified,
independent appraiser on the date of the Sale, or (b) an amount equal
to the appraised fair market value as determined on December 31, 1994.
Summary of Facts and Representations
1. The Employer, a Florida corporation formed in 1959 and located
in Coral Gables, Florida, is in the business of selling new and used
Mercedes-Benz vehicles under a dealership franchise issued by Mercedes-
Benz. The Employer also services Mercedes-Benz vehicles and sells new
replacement or spare parts for the vehicles. The principals of the
Employer are Mr. John C. Brockway, who is the sole shareholder of the
Employer and its Chief Executive Officer, and his son, Robert W.
Brockway, who is the President of the Employer.
2. The Plan is a defined contribution plan that was established by
the Employer on December 1, 1969, and was intended to satisfy the
requirements of sections 401(a) and 401(k) of the Code. The total
assets of the Plan were approximately $5,733,666.64, as of December 31,
1995, and the total participants and beneficiaries were approximately
119.
All investment decisions for the Plan are made by Mr. John C.
Brockway, as Plan Administrator, upon recommendations of Mr. Fred W.
Newcomb, a Plan Trustee, and with the concurrence of Mr. Robert
Brockway, a Plan Trustee. Mr. Newcomb was an employee of the Employer
from 1972 until December 1994 in the capacity of general manager from
1977 through 1991 and president from 1991 until his resignation in
December 1994. Mr. Newcomb is presently employed by the Employer as a
consultant as well as serving as a Trustee of the Plan.
3. The Property is 27.66 acres of land located on Lots 10 and 11
Section 14, Township 5 South Rauge 24 East, Clay County, Florida with
an address given by the applicant as Southeast corner of S.R. 21 and
C.R. 218, Middleburg, Clay County, Florida, and represented by the
applicant as unimproved and zoned as Intermediate Business District and
Agricultural. The applicant represents that the Property was purchased
below the market value at a price considered to be a prudent investment
in four transactions that involved no prohibited transactions under the
Act. The first transaction occurred on June 17, 1985, in which 6.6
acres was acquired for $241,814, and another purchase of 4 acres, not
contiguous to the 6.6 acres, was made on November 12, 1985, for
$15,009. On August 24, 1989, another 17.06 acres, contiguous to the
other two purchased parcels, was acquired for $100,000; and, at the
same time, rights
[[Page 31955]]
were purchased to certain proceeds from the sale of the 6.6 acres for
$290,000.1 Thus, the total purchase price to the Plan of the 27.66
acres was $646,823.2
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\1\ The original sales agreement provided that the seller was to
receive 49% of the net proceeds in excess of $330,000 upon the sale
of the 6.6 acres by the Plan.
\2\ In this proposed exemption, the Department expresses no
opinion as to whether the acquisition and holding of the Property
violated any provision of Part 4 of Title I of the Act.
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The applicant represents that the additional 4 acres and 17 acres
were acquired in order to enhance the value of the Property. Because
portions of the 4 acres and the 17 acres were designated as wetland
areas by governmental authority, the Plan was required to obtain
approval to fill a portion of the wetland areas. This approval enabled
8.7 acres of the Property to have frontage on two state highways and
become suitable for commercial development.
The applicant represents that the Plan expended $208,337 for
improvements to the property during the years from 1990 through
1994,3 and the property taxes on the Property totalled $71,115 for
the years 1985 through 1995. Thus, the applicant represents that the
Plan expended a total of $926,275 from 1985 through 1995 in acquiring
and holding the Property.
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\3\ The improvements were represented by the applicant to
involve an environmental assessment, preparation of conceptual land
use, continuation and permits, finalization of plans, drainage, and
driveways, maintenance land clearing, and additional fill.
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On December 27, 1991, the Property was appraised by Mr. John W.
Veasey, MAI, of Weigel-Veasey Appraisers, Inc. located in Middleburg,
Florida, who determined that the fair market value of the Property was
$1,004,380. On December 31, 1994, in an update to the original
appraisal, Mr. Veasey determined that the fair market value of the
Property had increased to $1,100,880. The original 1991 appraisal
represented, inter alia, that a portion of the Property was located
within jurisdictional wetlands, and that a portion of the commercial
tract of the Property would require a change in its zoning and also
would require fill.
Mr. John R. Seivert, Broker/Salesperson, with Coldwell Banker,
Walter Williams Realty, Inc. located in Jacksonville, Florida (the
Realtor), represented in a letter, dated December 1, 1995, that his
company began marketing portions of the Property in 1987 and continued
offering the additional portions as acquired through 1995. The
marketing involved placing from time to time different signs on the
Property and advertising continuously in the Florida Times Union, a
newspaper published in Jacksonville, Florida. In addition, beginning in
August 1995, the Realtor began placing additional advertisements in the
Real Estate Buyers Guide, that was to provide 10 publications per year
with a distribution of over 200,000 copies per year at over 150
locations in various stores and restaurants. Also, the Realtor has
distributed brochures regarding the Property to other commercial
brokers, and since 1987 the Property has been in the Multiple Listing
Service of the Jacksonville Association of Realtors.
The Realtor also represented that the Property had some problems
with some areas that were low and needed fill, plus having a drainage
fault. The Realtor represented that there were also problems requiring
zoning changes from residential to business. The road construction and
general depressed economic conditions in the area of the Property was
represented by the Realtor as having a detrimental effect on marketing
the Property.
4. The applicant proposes that the Plan sell the Property to the
Employer for the greater of either the fair market value of the
Property as determined by a qualified, independent appraiser on the
date of the Sale, or for an amount equal to the appraised fair market
value determined on December 31, 1994. The purpose of the proposed
transaction is to enable the Plan to avoid the continuing additional
expenses of improving and maintaining the Property. In addition, the
Plan will be able to invest in liquid assets that generate yields and
incur a minimum of expenses. The applicant represents that the Plan
will incur no expenses or losses from the proposed Sale.
The applicant further represents that the proposed transaction is
in the best interests of the Plan and its participants and
beneficiaries because of (a) the difficulty experienced in attempting
to sell the Property, (b) the expenses incurred from maintaining and
improving the Property, and (c) only 8.7 acres of the Property is
usable for commercial purposes with the remainder acreage either
protected wetlands, or portions with no road frontage, and surface
contours sloping deeply towards a creek that frequently floods the
area.
5. In summary, the applicant represents that the proposed
transaction will satisfy the criteria of section 408(a) of the Act
because (a) the Sale of the Property involves a one-time transaction
for cash; (b) the Plan will not incur any expenses from the Sale; (c)
the Plan will receive as consideration from the Sale the greater of
either the fair market value of the Property as determined by a
qualified, independent appraiser on the date of the Sale, or an amount
equal to the appraised fair market value as determined on December 31,
1994; (d) the Sale will permit the Plan to reinvest illiquid and non-
yielding assets into income producing, and liquid assets; and (e) the
Plan will avoid the expenses and risks involved in maintaining and
developing the Property.
FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Hach Company 401(k) Profit Sharing Plan (the Plan), Located in
Loveland, CO
[Application No. D-10203]
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 by the Plan of Group
Annuity Contract No. 5000008 (the GAC) issued by Anchor National Life
Insurance Company (Anchor National), located in Los Angeles,
California, to Hach Company (the Employer), a party in interest with
respect to the Plan.
This proposed exemption is subject to the following conditions:
(a) The sale is a one-time transaction for cash.
(b) The Plan does not experience any losses or incur any expenses
in connection with the transaction.
(c) The Plan receives as consideration an amount that is equal to
the fair market value of the GAC as of the date of the sale.
(d) The trustees (the Trustees) of the Plan have determined that
the proposed transaction is appropriate for the Plan and in the best
interests of the Plan's participants and beneficiaries.
Summary of Facts and Representations
1. The Plan is a profit sharing plan with a deferred compensation
feature allowing participants to self-direct investments. As of April
30, 1995, the Plan had 857 participants and net assets of $24,850,046.
The Trustees of the Plan are Gary Dreher, Randy Petersen and
[[Page 31956]]
Loel Sirovy. The Trustees make investment decisions for the Plan with
respect to investment options and contributions.
2. The Employer sponsoring the Plan is a Delaware corporation
maintaining its principal place of business at 5600 Lindbergh Drive,
Loveland, Colorado. The Employer is engaged in the manufacture of
products that are used in the analysis and testing of chemicals.
3. Among the assets of all of the participant accounts in the Plan
is the GAC investment. The GAC was issued by Anchor National, an
unrelated party, on February 20, 1987. It was purchased by the Plan for
$685,832 through Boettcher & Company, also an unrelated party, on the
issuance date. The GAC represents approximately 9 percent of the Plan's
assets and consists of mutual fund investments that are managed under
the Anchor National American Pathway Fund, an open-end investment
management company registered under the Investment Company Act of 1940.
The mutual fund investments include five variable accounts and one
fixed income account.4 The GAC has no stated maturity date and it
can be discontinued unilaterally by either the Plan or Anchor National
at any time. Since November 1990 which is the date of the earliest
deposit, the interest rates earned by the GAC have ranged from 4.5
percent to 6.0 percent, with the GAC providing for a minimum guaranteed
interest rate of 4 percent. These interest earnings have all been
attributed to the fixed income account investments. Contrarily, the
variable accounts do not earn any interest. Instead, each fund
experiences increases or decreases in value.
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4 Specifically, the five variable accounts constituting
the GAC are the Growth Separate Account, the Growth & Income
Separate Account, the Government Securities Account, the Cash
Management Separate Account and the Asset Allocation Separate
Account. The fixed income account comprising the GAC is the Fixed
Annuity General Account.
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4. The GAC may require that the Plan pay a 3 percent surrender fee
on money that is withdrawn from the GAC during the five year period
following deposit. The surrender fee is ongoing, meaning that the five
year period commences with the date of each deposit. The surrender fee
is paid to Anchor National only if the Plan withdraws an amount that is
in excess of 5 percent of the value of the GAC.5
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5 It is represented that the surrender fee does not apply where
a participant takes a withdrawal in the form of an annuity, in the
case of death benefits or where less than 5 percent of the value of
the GAC is withdrawn in any year.
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The GAC also provides for annual risk charges of 1.15 percent of
the total amount of deposits under the GAC. These risk charges are
similar to a management fee. The risk charges are deducted against
earnings or interest on the mutual funds and are made automatically.
5. Since it has owned the GAC, it is represented that the Plan has
paid no surrender fees. However, the Plan has incurred aggregate risk
charges of $48,179 and made withdrawals for disbursement to
participants totaling $4,715,313. Including the acquisition price of
$685,832, the Plan has also made deposits totaling $4,189,449, received
aggregate interest payments of $558,172 and realized appreciation
totaling $1,359,752. Thus, the Plan's net investment in the GAC is
$1,343,881.6 As of April 24, 1996, the GAC had a current balance
of $2,164,324.
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6 The Plan's net investment in the GAC has been calculated
as follows: $4,189,449 (deposits) + $558,172 (interest) + $1,359,752
(appreciation) = $6,107,373 (gross investment) - $4,715,313
(withdrawals) - $48,179 (risk charges) = $1,343,881.
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6. The GAC is valued on a daily basis by Anchor National which
calculates the fair market values of all securities held in the
variable and fixed income accounts. Market values for the variable
accounts comprising the GAC are also published periodically in
Barron's. As of April 24, 1996, Anchor National placed the aggregate
fair market value of the GAC at $2,164,324. This amount was also
equivalent to the outstanding balance of the GAC as discussed in
Representation 5.
7. To make available cash proceeds to the Plan in order that it may
invest in alternative investments which have no continuing surrender
fees, the Trustees request an administrative exemption from the
Department which would permit the Plan to sell the GAC to the Employer.
The sales price for the GAC will be based upon its fair market value as
of the date of the sale. Specifically, on the date of the transaction,
the Employer will obtain an updated valuation of the GAC from Anchor
National. In addition, the Plan will not pay any transaction fees,
commissions or other expenses in connection with the proposed sale.
8. The Trustees have reviewed the proposed transaction and
represent that it is in the best interests of the Plan and its
participants and beneficiaries. The Trustees also represent that the
proposed purchase price for the GAC is at least equal to fair market
value.
9. In summary, it is represented that the proposed transaction will
satisfy the statutory criteria for an exemption under section 408(a) of
the Act because: (a) the Plan will receive as consideration an amount
that is equal to the fair market value of the GAC as of the date of the
sale; (b) the transaction will enable the Plan to invest in other
investment vehicles which have no surrender fees; (c) the Plan will
incur no expenses with respect to the proposed sale; and (d) the
Trustees have determined that the sale is in the best interests of the
Plan and its participants and beneficiaries.
Notice to Interested Persons
Notice of the proposed exemption will be provided to interested
persons within 10 days of the publication of the notice of proposed
exemption in the Federal Register. The notice will include a copy of
the proposed exemption as published in the Federal Register as well as
a supplemental statement, as required pursuant to 29 CFR 2570.43(b)(2),
which shall inform interested persons of their right to comment on and/
or to request a hearing. Notice will be provided to interested persons
by posting copies of the proposed exemption and supplemental statement
on the Employer's bulletin boards or other employee advisory cites. Any
participant who is not employed by the Employer and any participant's
beneficiary will receive notice of the proposed exemption by certified
mail at such person's last known address. Written comments and hearing
requests with respect to the notice of proposed exemption will be due
within 40 days of the publication of the proposed exemption in the
Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Hoechst Marion Roussel, Inc. Matching Contribution Plan (the Plan),
Located in Kansas City, Missouri
[Application No. D-10242]
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 continuing guarantee by Hoechst Marion
Roussel, Inc. (the Corporation) of a loan made to the Marion Merrell
Dow Inc. Associate Stock Ownership Plan (the ASOP,
[[Page 31957]]
currently known as the Plan), provided the following conditions are
satisfied: a) the transaction is a continuation of a guarantee that was
statutorily exempt at the time it was entered into; and b) the
transaction requires an exemption because of an independent transaction
involving the Plan's sponsor as a corporate entity.
Effective Dates: If the proposed exemption is granted, the exemption
will be effective from July 18, 1995 to August 2, 2005.
Summary of Facts and Representations
1. Effective July 31, 1990, the Corporation [then known as Marion
Merrell Dow, Inc. (MMD)] established the Plan (then known as the ASOP),
a plan designed to qualify under sections 401(a) and 4975(e)(7) of the
Code as a leveraged employee stock ownership plan. The Corporation is
engaged in the development, manufacture and sale of pharmaceutical and
other products for hospital use. As of December 31, 1995, the Plan had
approximately $69 million credited to a suspense account and
approximately $40 million allocated to participants' accounts. For the
Plan year ending on December 31, 1995, the Plan covered 5,447
participants and beneficiaries.
2. On or about July 31, 1990, the Plan borrowed approximately $104
million from a consortium of lenders (the Loan), the proceeds of which
were used by the Plan to purchase Series A ASOP Convertible Preferred
Stock (ASOP Shares) from MMD. MMD guaranteed the Loan and became
obligated to make contributions to the Plan which, in conjunction with
the use of cash dividends paid on the ASOP Shares (Dividends), would be
sufficient for the Plan to make payments on the Loan. In 1991, the Loan
was refinanced through an offering of public debt by the Plan (the
Refinanced Loan). The Refinanced Loan is also guaranteed by the
Corporation and requires the Corporation to make contributions to the
Plan which, in conjunction with the use of Dividends, would be
sufficient for the Plan to make payments on the Refinanced Loan. The
Refinanced Loan was not collateralized by the unallocated ASOP shares
and is not prepayable absent the consent of all bondholders.\7\
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\7\ The Refinanced Loan, however, can be defeased by the Plan by
transferring the Proceeds (as defined below) to a separate
irrevocable trust earmarked for the future repayment of the
Refinanced Loan. Upon the establishment of such trust, the Plan's
obligations under the Refinanced Loan would be discharged.
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3. At all times prior to July 18, 1995, the Plan was operated as an
employee stock ownership plan, and the applicant represents that the
Corporation's guarantee of the Loan and the Refinanced Loan met all the
requirements of the exemption set forth in section 408(b)(3) of the Act
and section 4975(d)(3) of the Code.\8\ On July 18, 1995, H Pharma
Acquisition Corp., a wholly owned subsidiary of Hoechst Corporation,
was merged with and into the Corporation (the Merger). Hoechst
Corporation is a wholly owned subsidiary of Hoechst AG, a German
corporation (the Parent). The Corporation thereby became an indirect
wholly owned subsidiary of the Parent. As required by the applicable
certificate of designation \9\ pertaining to the ASOP Shares, upon the
Merger the ASOP Shares were redeemed for the cash sum of $37.41 per
ASOP Share, plus accrued dividends. As a result of such redemption, the
Plan received approximately $80 million in cash with respect to
unallocated ASOP Shares (the Proceeds) and approximately $25 million
with respect to allocated ASOP Shares. Upon such redemption, the Plan
ceased to hold any ``employer securities'' as defined in section
407(d)(1) of the Act and section 409(l) of the Code.
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\8\ In this proposed exemption, the Department expresses no
opinion as to whether the Corporation's guarantee of the Loan and
the Refinanced Loan met the conditions of Act section 408(b)(3) and
Code section 4975(d)(3).
\9\ The certificate of designation is a document filed in
Delaware which sets forth the powers, rights and preferences with
respect to the ASOP Shares.
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4. As of the date of the Merger, the principal amount of the
Refinanced Loan was approximately $90 million. Since that time, the
principal amount has been reduced to approximately $83 million through
additional contributions by the Corporation to the Plan. The Plan
remains the primary obligor on the Refinanced Loan, and the Refinanced
Loan is still guaranteed by the Corporation. The remaining term of the
Refinanced Loan extends through August 1, 2005.
5. The Parent is a German corporation whose shares are publicly
traded on the Frankfurt exchange. However, no shares of Parent stock or
American Depository Receipts (ADRs), and no stock or ADRs of any of the
Parent's subsidiaries or affiliates, are traded on any United States
securities exchange, or on the market established by the National
Association of Securities Dealers. The applicant represents that
although it is technically possible for the Plan to acquire shares of
stock of the Parent on the Frankfurt exchange and to hold such shares
overseas in a manner consistent with 29 CFR section 2550.404b-1 of the
regulations, there are a number of legal, business and administrative
obstacles to doing so:
(a) German companies do not maintain stock plans since, under
German law, companies are not legally permitted to purchase their own
stock. The Parent does not wish to permit equity ownership for its
United States employees where such ownership is not permitted for its
German employees.
(b) It is the view of the Parent and the Corporation that it would
be inappropriate (and would not achieve the employee incentives
underlying ESOPs generally) to make Parent stock available to the
Plan--the linkage between the performance of the Corporation and the
performance of Parent stock would be attenuated at best.
(c) Use of Parent stock would add significant complexity to the
Plan's administration, particularly with respect to communications with
Plan participants.
(d) Rules regarding ESOPs require that participants be given the
option to receive their distributions in kind. If Parent stock were to
be acquired for the Plan, and if participants elected to receive their
distributions in Parent stock, such distributions would be effected in
the United States, thus subjecting the Parent to reporting and
registration requirements under United States securities laws.
Accordingly, ``employer securities'' as defined in the Act and the
Code are not effectively available for purchase by the Plan with the
Proceeds. As a result, the applicant represents that there is
substantial uncertainty as to whether the Plan's trustee can cause the
Plan to use the Proceeds to repay the Refinanced Loan (even if the
bondholders consent to prepayment) or to defease the Refinanced
Loan.\10\
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\10\ The applicant notes that the Department took the position
in Advisory Opinion 93-35A that where stock does not serve as
collateral for an employee stock ownership plan loan, it may be a
violation of the Act to apply the proceeds of the sale of the stock
to repay the loan.
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6. Accordingly, the Corporation is proposing that the Plan be
operated in the following manner:
(a) Proceeds (including earnings thereon) would continue to be held
in a suspense account maintained under the Plan. Such Proceeds would be
invested in a diversified investment portfolio and would be allocated
to participants' accounts as described in c), below;
(b) The Corporation would continue to make contributions to the
Plan (which has been converted to a profit
[[Page 31958]]
sharing plan), and, to the extent directed by the Plan
Administrator,\11\ such contributions would be used by the Plan to make
principal and interest payments on the Refinanced Loan; \12\
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\11\ If the administrator of the Plan does not direct that the
contributions be used to make principal and interest payments on the
Refinanced Loan, such contributions would be allocated directly to
participant's accounts in accordance with provisions of the Plan.
Such contributions would not be subject to the rules regarding
``release'' from the ASOP suspense account.
\12\ The amortization schedule accompanying the trust indenture
requires that payments on the Refinanced Loan be made in accordance
with the amounts set forth therein. It is also possible that, in
some circumstances, the Corporation may make certain payments on the
Refinanced Loan directly (i.e., outside of the Plan) pursuant to its
guarantee.
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(c) To the extent the Plan applies employer contributions toward
the repayment of the Refinanced Loan, a portion of the Proceeds would
be allocated from the suspense account to participants' accounts in an
amount equal to the amount of employer contributions so used. Any
amounts contributed to the Plan in excess of the amounts used by the
Plan to make principal and interest payments on the Refinanced Loan
would be allocated directly to participants' accounts; and
(d) The Corporation would continue to guarantee the Refinanced Loan
as it did prior to the Merger.
7. As the Plan no longer holds any ``employer security'' as that
term is defined in section 407(d)(1) of the Act and section 409(l) of
the Code (see Reps. 3 and 5, above), the applicant has requested the
exemption proposed herein to permit the continuing guarantee by the
Corporation of the Refinanced Loan. The applicant represents that the
Corporation has received assurance from the Internal Revenue Service
that the operation of the Plan in the manner described in Rep. 6,
above, will not adversely affect its qualified status.
8. In summary, the applicant represents that the subject
transaction satisfies the criteria contained in section 408(a) of the
Act for the following reasons: (a) The transaction is a continuation of
a guarantee that was statutorily exempt at the time it was entered
into; and (b) the transaction requires an exemption because of a
corporate transaction, the Merger, which upon consummation caused
``employer securities'' to become unavailable to the Plan while the
obligations of the Corporation with respect to the Refinanced Loan
remain unaffected.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 18th day of June, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-15875 Filed 6-20-96; 8:45 am]
BILLING CODE 4510-29-P
