[Federal Register Volume 61, Number 141 (Monday, July 22, 1996)]
[Notices]
[Pages 37924-37933]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-18540]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10173, et al.]
Proposed Exemptions; Mewbourne Oil Company, Inc. Plan (the Plan)
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 restrictions 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
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing 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
[[Page 37925]]
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.
Mewbourne Oil Company, Inc., Plan (the Plan) Located in Tyler,
Texas
[Application No. D-10173]
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 past contribution by Mewbourne Oil Company
(the Employer) to the Plan of a US Treasury Strip Bond (the Bond) and
the subsequent exchange by the Employer of the Bond for cash provided
that: (a) the contribution was a one-time transaction; (b) the Bond was
valued at the fair market value as of the date of the contribution; (c)
no commissions were paid in connection with the transaction; (d) the
Bond represented less than 25% of the fair market value of the Plan's
assets at the time of the contribution; and (e) the Bond was returned
to the Employer in exchange for cash in the amount of $173,759 plus
interest.
Effective Date: If the proposed exemption is granted, the exemption
will be effective February 11, 1994.
Summary of Facts and Representations
1. The Plan, established and maintained by Mewbourne Oil Company,
Inc., is a defined benefit plan that currently has 130 plan
participants and plan assets of $4.6 million as of August 25, 1995.
Joseph F. Odom, J. Roe Buckley and Curtis Mewbourne serve as the Plan
trustees.
2. On February 11, 1994, the Bond was transferred to the Plan from
a nonqualified corporate fund (the Transfer) which was established by
the Employer for the purpose of holding future contributions to the
Plan to satisfy the funding requirements for the year ending 1994. The
Bond was U.S. Treasury Zero Strips maturing in August 15, 2010 at
$525,000. At the time of the Transfer, the Plan trustees requested that
Merrill Lynch calculate the value of the Bond. Merrill Lynch
represented that it determined that the Bond had a value of $173,759 on
February 11, 1994. Merrill Lynch used the February 14, 1994 edition of
the Wall Street Journal's published value of $331.25 per $1000 bond to
calculate the Bond's value and adjusted this quote by $147 to reflect
the odd lot transfer to the Plan resulting in the $173,759 value.
3. The applicant represents that the contribution in kind of the
Bond was made in error. Ms. Mitzi Perry of Werntz & Associates, an
actuarial consultant for employee benefit plans, represented that in
late 1993, Mr. Curtis Mewbourne, President of the Mewbourne Oil
Company, Inc., contacted Ms. Perry regarding whether 1994 contributions
could be made from the nonqualified fund. Ms. Perry informed Mr.
Mewbourne that this could be done. Mr. Mewbourne assumed from his
conversation with Ms. Perry that he could transfer the Bond from the
nonqualified account to the Plan. As a result of his misunderstanding,
Mr. Mewbourne instructed Merrill Lynch to transfer the Bond to the Plan
on February 15, 1994.
4. At the end of the Plan year 1994, Ms. Perry reviewed the
financial information in preparation of the actuarial valuation and
discovered that the contributions for the year were made partially in
the cash amount of $126,000 and the Bond. Ms. Perry represents that she
immediately informed Mr. Mewbourne that the contribution of the Bond
was a prohibited transaction. Mr. Mewbourne took immediate steps to
correct the mistake under Ms. Perry's advisement. On January 30, 1995,
a cash contribution of $173,759 was made to the Plan in exchange for
the Bond. An additional $7,853 was paid to the Plan on January 31, 1995
reflecting interest earned based on the average investment earnings
rate for the Plan during the period from February 11, 1994 to January
31, 1995 during which the Plan held the Bond. The applicant represents
that no loss resulted to the Plan as a result of the transactions. In
this regard, the applicant represents that the Plan received more than
the fair market value of the Bond when the Employer exchanged the Bond
in the above described transaction. According to the applicant, Merrill
Lynch's valuation of the Bond as of January 31, 1995 equaled $157,988
reflecting the price that the Plan would have received had it sold the
Bond on January 31, 1995.
5. In summary, the applicant represents that the subject
transaction satisfies the criteria contained in section 408(a) of the
Act because: (a) the contribution was a one-time transaction; (b) the
transaction occurred as a result of a misunderstanding between the Plan
trustees and the pension consultant; (c) when the mistake was
discovered, the Bond was removed from the Plan and replaced with cash
in the amount of the value of the Bond at the time of the Transfer plus
interest.
For Further Information Contact: Allison Padams of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
[[Page 37926]]
Dillard's Marine & Sports Center, Inc., Profit Sharing Plan (the
Plan) Located in Anderson, South Carolina
[Application No. D-10214]
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, 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 loan of $47,962.50 (the
Loan) by the Plan from the individual account of William M. Dillard
Jr., to Dillard's Marine & Sports Center, Inc., the sponsoring employer
of the Plan (the Employer) and a party in interest with respect to the
Plan; provided that (1) the terms and conditions of the proposed Loan
are no less favorable to the Plan than those obtainable in an arm's-
length transaction with an unrelated third-party at the time the
proposed Loan is consummated; (2) the Loan will at all times be secured
by collateral having a value that exceeds 150 percent of its
outstanding principal; (3) the Loan will be at all times less than 25
percent of the balance in the individual account maintained in the Plan
for William M. Dillard, Jr.; and (4) an independent fiduciary will
approve and monitor the transaction and take whatever actions are
necessary to protect the interests of the Plan.
Summary of Facts and Representations
1. The Employer, a South Carolina corporation, is a manufacturer
and wholesaler of sporting goods in several states in the eastern part
of the United States and also in Germany. There are three shareholders
who own the Employer. William M. Dillard, Jr., (Mr. Dillard) holds 63.3
percent of the issued and outstanding shares, his son, William N.
Dillard, III holds 3.8 percent, and Patrick H. Hickok holds 32.9
percent. The Employer currently employs 45 individuals.
2. The Plan is a defined contribution plan with individual accounts
for 33 participants and total assets of $450,682, as of March 31, 1996.
The applicant represented that the individual account in the Plan for
Mr. Dillard had assets of $297,450, as of March 31, 1996. The Plan
trustee is Mr. Dillard.
Richard L. King (Mr. King), a principal of Southeastern Trust
Company (Southeastern Trust), a charted trust company under the banking
laws of South Carolina, serves as investment manager for the Plan and
for Mr. Dillard's personal assets. Southeastern Trust also serves the
Plan as custodian of its assets. The applicant represents that Mr.
Dillard's individual account in the Plan and his personal assets when
combined are less than \1/2\ of 1 percent of the total assets
Southeastern Trust currently administers.
3. The applicant represents that the Loan will be made only from
Mr. Dillard's individual account in the Plan, at his sole direction,
and represents that the Loan will be used by the Employer to pay-off
and partially pay-off loans currently outstanding with commercial
lenders. The Loan will be collaterized by a first mortgage executed by
Mr. Dillard on real property leased to and used by the Employer, and
located at 113 Shockley Ferry Road, Anderson County, South Carolina.
The real property pledged as collateral for the Loan has been
appraised, as of January 4, 1996, by H. Clinton Taylor (Mr. Taylor),
State Certified General Real Estate Appraiser, South Carolina,
Certificate Number CG 189, located in Anderson County, South Carolina.
Mr. Taylor determined that the real property had a fair market value of
$180,000 of which $94,000 is attributable to land. The applicant
represents that at all times the collateral for the Loan will exceed
150 percent of its outstanding principal.
4. The Loan provides for the payment of interest at 9.75 percent
per annum over a period of 5 years with repayments by the Employer made
in quarterly installments of principal and interest in the amount of
$3,058.72. The terms of the Loan also provide that if the quarterly
installments are 15 days late the Employer will pay a penalty of 5
percent of the amount due and owing.
Also, repayment of the Loan may be accelerated by the Employer
without incurring a penalty.
Mr. Robert L. Tennyson, Commercial Real Estate, of the Wachovia
Bank of South Carolina, N.A., located in Greenville, South Carolina, in
a letter to Mr. King, dated December 21, 1995, represented that the
interest rate Wachovia would charge on a 5 year period loan, to be
repaid in quarterly installments, and secured by a first priority
mortgage equal to approximately 150 percent of the loan, would be
approximately 7.75 percent.
The applicant and Mr. King, as independent fiduciary, represent
that the Loan is in the interest of the Plan because the Loan will pay
a higher rate of interest than the current rate of return from the
other investments of the Plan. Also, the applicant and Mr. King
represent that the terms and conditions of the Loan provide more than
adequate protection for the rights of the participant and his
beneficiaries because of the excessive fair market value of the
collateral for the Loan. Mr. King further represents that as
independent fiduciary he will act in the best interests of the Plan and
will protect the interests of the Plan by foreclosing, if necessary,
under the terms of the note and mortgage executed by Mr. Dillard.
5. In summary, the applicant represents that the proposed
transaction will satisfy the provisions of section 408(a) of the Act
because (a) the Loan will be adequately secured at all times; (b) the
Loan at all times will be less than 25 percent of the balance in the
individual account maintained for Mr. Dillard; (c) the terms and
conditions of the Loan will be as favorable to the Plan as obtainable
from an unrelated party; and (d) Mr. Dillard, the only participant in
the Plan whose account is affected by this proposed transaction, has
determined that the proposed transaction would be in the interest of
his account in the Plan, and he desires that the proposed transaction
be undertaken.
Notice to Interested Persons: Since Mr. Dillard is the only person
in the Plan to be affected by the proposed transaction, it has been
determined that there is no need to distribute the notice of proposed
exemption to interested persons. Comments and requests for a public
hearing are due 30 days from the date of publication of this notice of
proposed exemption in the Federal Register.
For Further Information Contact: Mr. C.E. Beaver of the department,
telephone (202) 219-8881. (This is not a toll-free number.)
Normike Industries, Inc., Profit Sharing Plan (the Plan), Located
in Plainville, Connecticut
[Application No. D-10239]
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
[[Page 37927]]
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 by the Plan of certain improved real property located in
Plainville, Connecticut (the Property) to Norman and Diane Stoll,
parties in interest with respect to the Plan; provided that the
following conditions are satisfied:
(A) All terms of the transaction are at least as favorable to the
Plan as those which the Plan could obtain in an arm's-length
transaction with an unrelated party;
(B) The Plan incurs no costs or expenses related to the
transaction;
(C) The Plan receives a cash purchase price for the Property in the
amount of no less than the greater of (1) the Property's fair market
value as of the date of the sale, or (2) $57,500;
(D) Before the transaction is consummated, the Plan has received
rental payments of no less than the Property's fair market rental value
for each month of the Plan's ownership of the Property in which the
Property was occupied by Normike Industries, Inc. (the Employer), the
sponsor of the Plan; and
(E) Within 60 days of the publication in the Federal Register of a
notice granting the exemption proposed herein, if granted, the Employer
makes final payment to the Internal Revenue Service of any remaining
unpaid excise taxes which are applicable under section 4975(a) of the
Code by reason of the Employer's lease of the Property from the Plan.
Summary of Facts and Representations
1. The Plan is a defined contribution profit-sharing plan with
three participants and total assets of $133,603 as of June 30, 1995.
The Plan is sponsored by the Employer, Normike Industries, Inc., a
closely-held Connecticut corporation engaged in the precision jig
grinding of parts for tool and die manufacturing. The trustees of the
Plan are Norman Stoll and his spouse, Diane Stoll (the Stolls), each of
whom is also a participant in the Plan. Mr. Stoll is also president of
the Employer.
2. Among the assets in the Plan is the Property, an industrial
condominium unit located at 1 Town Line Road, Town Line Tradesman
Center in Plainville, Connecticut. The Plan purchased the Property from
an unrelated party on December 11, 1993 for a purchase price of
$57,500.\1\ The Stolls represent that they caused the Plan to purchase
the Property with the intention of leasing it to the Employer, and they
represent that they were not aware that such an arrangement might be in
violation of the prohibited transactions provisions of the Act. In
January and February of 1994 the Employer undertook to improve and
refurbish the Property to enable the Employer to move its operations
into the Property. A lease effective March 1, 1994 (the Lease) was
executed between the Plan and the Employer under which the Employer
agreed to lease the Property from the Plan for an initial term
commencing March 1, 1994 and ending April 30, 1997, with an option to
renew for an additional five years. The Lease provides for fixed rent
of $9,000 per annum, payable monthly, for the first two years and
$12,000 per annum, payable monthly, for the remainder of the Lease's
initial term. During any renewal term, the rent would increase pursuant
to a ``cost of living'' factor utilizing the consumer price index. The
Stolls represent that they determined the rental amounts on the basis
of a survey of the rental market at the time of the Lease execution.
The Lease also required the Employer to pay all real estate taxes and
utility charges. The Stolls represent that other Lease terms are
standard provisions in commercial real property leases. The Stolls
represent that the total rental payments received by the Plan pursuant
to the Lease have resulted in an annual rate of return of seventeen
percent on the Plan's investment in the Property.
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\1\ The Department notes that the decisions to acquire and hold
the Property 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 of the Act which may have arisen as a result of
the acquisition and holding of the Property.
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3. The Stolls represent that after they were advised by the
Employer's accountant that the Lease may constitute a prohibited
transaction under the Act, they met with legal counsel in December 1995
to discuss the alternatives available to address the issue. The Stolls
determined that the Lease should be terminated and that the Plan should
liquidate the Property. The Stolls are proposing to purchase the
Property from the Plan and are requesting an exemption for the purchase
transaction under the terms and conditions described herein.
4. The Stolls propose to purchase the Property from the Plan for
the greater of (a) the Property's fair market value as of the sale
date, or (b) the purchase price originally paid by the Plan. The
Property was appraised for its fair market value by C. Kevin Bokoske, a
professional real estate appraiser who determined that the Property had
a fair market value of $55,000 as of January 26, 1996. Accordingly, the
Stolls propose a purchase price of $57,500, which is the amount the
Plan paid for the Property in 1993. The Employer will pay all expenses
related to the transaction and the purchase price will be paid in cash.
The Stolls represent that the sale transaction will be consummated as
soon as possible after the publication in the Federal Register of a
notice granting the exemption proposed herein, if granted. The Stolls
represent that the commercial and industrial real estate market in
which the Property is situated is very inactive and is described as a
``buyer's market'' in which purchasers are able to aggressively
negotiate the price of the property. In the context of the depressed
market, the Stolls represent that their willingness to pay a purchase
price equal to the Plan's original investment, in excess of the fair
market value, renders the proposed transaction more favorable to the
Plan than the terms which the Plan could obtain from unrelated buyers.
5. The Stolls have agreed that if it is determined that the total
of rental payments paid to the Plan under the Lease are less than the
fair market rental value of the Property for the period of the
Employer's occupancy, commensurate with the sale transaction the Stolls
will remit to the Plan the difference between the fair market rent and
the rent actually paid. An assessment of the Property's fair rental
value has been conducted by the real estate appraisal firm of Aldieri
Associates, Inc. (AAI), of Bristol, Connecticut. In a report dated June
25, 1996, AAI states that the Property had a fair market rental value
of $10,000 per annum for 1994, 1995 and 1996. As a condition of the
exemption proposed herein, the Stolls are required to pay the Plan the
difference between the total rent actually paid through the sale date
and the total rents due at the rate of $10,000 per annum.
6. The Department is not proposing exemptive relief for the
Employer's lease of the Property from the Plan pursuant to the Lease.
The Employer recognizes that the Employer's lease of the Property
effective March 1, 1994 through the sale date constitutes a prohibited
transaction under the Act and Code for which no exemptive relief is
proposed herein. The Stolls represent that in January 1996 the Employer
paid to the Internal Revenue Service (the Service) the excise taxes
arising under section 4975(a) of the Code by reason of the Lease for
the plan years ending June 30, 1994 and June 30, 1995. The Stolls have
agreed that within 60 days of the
[[Page 37928]]
publication in the Federal Register of a notice granting the exemption
proposed herein, the Employer will make final payment to the Service of
any remaining unpaid excise taxes applicable under section 4975(a) of
the Code by reason of Lease the through the date of the sale.
7. In summary, the applicants represent that the proposed
transaction satisfies the criteria of section 408(a) of the Act for the
following reasons: (a) The transaction will enable the termination of
an ongoing prohibited transaction, the Lease; (b) the Plan will receive
cash for the Property in the amount of no less than its original
purchase price and no less than its fair market value as of the sale
date; (c) the sale will be a one-time cash transaction and the Plan
will incur no expenses related to the sale; (d) as part of the
transaction, the Plan will receive the difference between the rents
actually paid under the Lease and the rents due in accordance with the
AAI appraisal; and (e) the Employer will be required to pay all excise
taxes applicable under section 4975(a) of the Code with respect to the
Lease which remain unpaid at the time of the sale transaction.
For Further Information Contact: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Pacific Mutual Life Insurance Company (PM), Located in Newport
Beach, California
[Application No. D-10258]
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 section 406(a) of the Act and the
sanctions resulting from the application of section 4975 of the Code,
by reason of section 4975(c)(1) (A) through (D) of the Code, shall not
apply to the sale to employee benefit plans (the Plans) of a synthetic
guaranteed investment contract (the Buy/Hold Synthetic GIC) offered by
PM, which is a party in interest with respect to the Plans, provided
the following conditions are satisfied: (a) Prior to the execution of
such Buy/Hold Synthetic GIC, an independent fiduciary of such Plan
receives a full and detailed written disclosure of all material
features of the Buy/Hold Synthetic GIC, including all applicable fees
and charges; (b) following receipt of such disclosure, the Plan's
independent fiduciary approves in writing the execution of the Buy/Hold
Synthetic GIC on behalf of the Plan; (c) all fees and charges imposed
under such Buy/Hold Synthetic GIC are reasonable; (d) each Buy/Hold
Synthetic GIC will specifically provide for an objective means for
determining the fair market value of the securities owned by the Plan
pursuant to the Buy/Hold Synthetic GIC; (e) each Buy/Hold Synthetic GIC
will specifically provide for an objective means for determining the
interest rates to be credited periodically under the contract; (f) PM
will maintain books and records of all transactions which will be
subject to annual audit by independent certified public accountants
selected by and responsible solely to the Plan; and (g) the Buy/Hold
Synthetic GICs will only be marketed to Plans or collective investment
funds which have at least $50 million in assets.
Effective Date: If the proposed exemption is granted, the exemption
will be effective September 2, 1993.
Summary of Facts and Representations
1. PM is a mutual life insurance company incorporated under the
laws of the State of California. PM is also a Registered Investment
Adviser under the Investment Adviser's Act of 1940. PM is currently
rated as follows: A.M. Best--A+; Standard & Poor's--AA+; Duff &
Phelps--AA+; and Moody's--Aa3. As of December 31, 1995, PM had assets
of approximately $18 billion and net policy reserves of approximately
$10.8 billion. A significant portion of PM's business consists of
writing insurance and annuity contracts, guaranteed investment
contracts, and other types of funding agreements for numerous pension
plans subject to the Act.
2. PM has requested the exemption proposed herein with respect to a
``Buy/Hold'' Synthetic GIC, which is a variation on traditional
guaranteed investment contracts (GICs). PM's Buy/Hold Synthetic GIC
will be marketed to Plans (including, without limitation, defined
contribution plans). PM will negotiate the terms of the Buy/Hold
Synthetic GIC with the appropriate fiduciary of such a Plan, which is
generally expected to be the Plan's named fiduciary and not an
independent investment professional.2
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\2\ The Department notes that section 404(a)(1) of the Act
requires, among other things, that a fiduciary of a plan must act
prudently, solely in the interest of the plan's participants and
beneficiaries, and for the exclusive purpose of providing benefits
to participants and beneficiaries when making investment decisions
on behalf of a plan. The Department notes that in order to act
prudently in making investment decisions, plan fiduciaries must
consider, among other factors, the availability, risks and potential
return of alternative investments for the plan.
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PM represents that the Buy/Hold Synthetic GIC provides purchasers
with the advantages of a traditional GIC, while providing purchasers
with greater security with respect to their investment than a
traditional GIC. Under PM's Buy/Hold Synthetic GIC, each Plan retains
legal title to all of its investments and has the benefit of a contract
which guarantees that all employee initiated benefit payments and
transfers will be paid at the Contract Value Record (see rep. 4,
below).
3. Like traditional GICs, PM's duties and obligations with respect
to the Buy/Hold Synthetic GIC are governed by the terms of an insurance
contract (the Contract) between the Plan and PM. The Contract is issued
pursuant to applicable state insurance law and is subject to the
jurisdiction of the appropriate state Department of Insurance. While
certain terms and conditions of each Contract will be negotiable by the
Plan and PM, once the Contract has been executed PM will have no
discretion over any of the terms. The Buy/Hold Synthetic GIC is issued
by PM in the ordinary course of its business. PM represents that it
will only market the Buy/Hold Synthetic GIC to Plans (or to collective
investment funds established for the investment of assets of more than
one Plan) which have at least $50 million in assets. The Buy/Hold
Synthetic GIC is described in greater detail below.
4. Each Buy/Hold Synthetic GIC will consist of two components. One
component is the underlying security or portfolio of investment assets
(the Investment Assets), title to which will remain with the Plan. The
underlying Investment Assets will primarily be high grade, fixed income
securities, which will be selected and managed by a Plan fiduciary
independent of PM. The value of the investment assets will be
determined by objective standards. While the Investment Assets do not
come under PM's administration or control, they affect the second
component of each Contract, as will be discussed more fully below. The
second component under each Buy/Hold Synthetic GIC will be an
accounting record (the Contract Value Record or Book Value Record)
established by PM to record the Plan's interest under the Synthetic
GIC. This is the amount available to Plan participants in the event
they elect to withdraw funds pursuant to provisions of the Plan. The
Contract Value Record will initially be equal to the value of the
Investment
[[Page 37929]]
Assets at the inception of the Contract. Thereafter, the Contract Value
Record will be credited with a rate of interest (the Credited Rate)
that will be reset periodically (monthly, quarterly, semi-annually or
annually) in accordance with an objective formula established under the
Contract (see rep. 7, below). No element of the Credited Rate formula
is within PM's discretion.
In addition, solely with respect to certain Contracts issued before
August 11, 1995, PM has established a deposit account (the Deposit
Account), consisting of certain cash contributions made to PM by the
Plan under the terms of the Contract. The applicant represents that,
under California law as in effect prior to August 11, 1995, a Deposit
Account may have been required to have the Contract qualify as an
insurance contract under the law of that State. The applicant further
represents that after such date, a Deposit Account is no longer
required under California law.
5. Under the Buy/Hold Synthetic GIC the Investment Assets will be a
single security or a fixed portfolio of securities which will be
established at the inception of the Contract and held until maturity.
6. The Buy/Hold Synthetic GIC will be supported by one or more
specific fixed income securities that are bought in the primary or
secondary market and held until the Contract matures. High quality
mortgage-backed securities will be the primary security utilized,
although other high quality securities may be used to support a Buy/
Hold Synthetic GIC. Regardless of whether a mortgage-backed or other
type of security is utilized, all Investment Assets will have
predictable yield and cash flow characteristics. As principal and
interest payments are made on the Investment Assets, such amounts will
be made available to the Plans for reinvestment outside of the Buy/Hold
Synthetic GIC at the direction of a fiduciary independent of PM.
Investment Assets will be sold or otherwise distributed to the Plan
only upon termination of the Contract or, under circumstances set forth
in the Contract, to provide amounts for benefit payments due to Plan
participants or for participant-directed transfers to other investments
under the Plan.
7. PM represents that the attractive feature of the Buy/ Hold
Synthetic GIC to a Plan is that PM assumes certain obligations with
respect to the availability of funds for benefit withdrawals and
transfers and the return realized from the Investment Assets.
Mechanically, this is accomplished through the establishment of a
Contract Value Record.
The Contract Value Record reflects a guarantee of principal and the
Credited Rate, pursuant to the formula established in the Contract. The
Credited Rate is equal to the projected internal rate of return 3
of the underlying Investment Assets and is guaranteed never to be below
0%. The Credited Rate of interest is reset periodically, so that it
will at all times reflect the projected rate of return for the
Investment Assets (determined without regard to any return from the
reinvestment of dividends and other proceeds on such Investment Assets,
which will be so reinvested outside the Buy/Hold Synthetic GIC). Each
component of this formula will be set forth in the Contract and be
explained to the independent fiduciary who decides whether to purchase
the Buy/Hold Synthetic GIC on behalf of any Plan. PM will have no
discretion in setting this Credited Rate.
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3 The term ``internal rate of return'' means the rate of
return on the Investment Assets determined without regard to any
return from the reinvestment of dividends and other proceeds on such
Investment Assets, which will be so reinvested outside the Buy/Hold
Synthetic GIC.
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All participant initiated benefit payments and transfers are
guaranteed to be paid at the Contract Value Record. The Contract Value
Record will be reduced each month dollar for dollar for the benefit and
transfer payments made to the Plan and for the amount of principal
payments and coupon interest received by the Plan from the underlying
Investment Assets. The Contract matures when the Contract Value Record
is equal to 5% of its original balance. PM guarantees that the Plan
will receive the greater of the Investment Assets or the Contract Value
Record on the maturity date (see rep. 9, below). Since the Contract
Value Record's Credited Rate will be equal to the underlying Investment
Assets' projected internal rate of return, any difference between the
value of the Investment Assets and the Contract Value Record should be
insignificant on the maturity date. Thus, any payment PM will have to
make to support the Contract Value Record should be negligible.
8. A Plan's fiduciary may also elect to terminate the Buy/Hold
Synthetic GIC at any time. If the Plan's fiduciary terminates the
Contract, the Plan will have complete control over the Investment
Assets (i.e., they may be invested without any contractual constraints)
and PM will have no further obligations with respect to the Contract
Value Payment (see rep. 10, below). In the ordinary course, if the
Contract is terminated within three years of its effective date, an
early termination charge, intended to enable PM to recoup its costs and
determined under a fixed objective formula to be set forth in the
Contract, may apply.
9. Under the Buy/Hold Synthetic GIC, PM guarantees the availability
of funds for participant initiated withdrawals up to the amount of the
Contract Value Record balance as of any date. Neither PM, the Plan nor
the Plan's fiduciaries will have any discretion over when a withdrawal
may be made from the Contract. The Contract will not be accessed for
withdrawals until other specified sources of funds (e.g., contributions
to the Plan's fixed income fund under which the Buy/Hold Synthetic GIC
is held, current investment income, maturing proceeds, and cash
equivalents) have been depleted. If the Plan does make withdrawals from
the Contract, they will be made from the following sources in the order
listed until exhausted:
(a) Available cash attributable to the underlying Investment Assets
including all cash flow available from the Investment Assets; and
(b) Cash realized from the sale of the Investment Assets. The
percentage of the securities sold will be equal to the percentage the
Contract Value Record is decreased to recognize the benefit payment.
This means that if 10% of the Contract Value Record is to be accessed
to meet a withdrawal, 10% of the Investment Assets will be sold.
A fiduciary of the Plan independent of PM will generally determine
which of the Investment Assets will be sold, except that PM may require
that the Plan sell the asset in the size category required to effect
the withdrawal that has the highest ratio of market value to book
value. If any Investment Assets have to be sold to effect any
withdrawal, the Contract will specify that the value of the Investment
Assets will be determined based upon the highest of three competitive
bids for such Investment Assets received from parties independent of PM
and the Plan. If the proceeds realized by the sale of the underlying
securities are less than the portion of the Contract Value Record
decreased to recognize the benefit payment, PM will make up the
difference. If the proceeds to be realized by the sale of the
underlying securities are greater than the portion of the Contract
Value Record expected to be decreased to recognize the benefit payment,
it is expected that the Plan's fiduciary would exercise its right to
terminate the Contract and take full control over the Investment
Assets. This
[[Page 37930]]
is because, as the Buy/Hold Synthetic GIC is designed, the value of the
Contract Value Record and the Investment Assets are supposed to be
equal at maturity. If at any given point in time the value of the
Investment Assets exceeds the value of the Contract Value Record, it
would generally reflect an unanticipated increase in the market value
of the underlying Investment Assets, the benefit of which could likely
be lost if the Investment Assets were held to maturity. If the
fiduciary does not terminate the Contract when the proceeds realized by
the sale of the underlying securities are greater than the portion of
the Contract Value Record decreased to recognize the benefit payment,
the Plan will have to pay PM an additional fee equal to such
difference. This additional fee is intended to protect PM from the
additional risks associated with the sale of assets with superior
performance, while underperforming assets are left subject to PM's
obligation to make a Contract Value Payment (see rep. 10, below).
10. Upon maturation of the Contract, the value of the Investment
Assets will be determined by taking the highest of at least three
competitive bids from unrelated third parties. If the Contract Value
Record exceeds the value of the Investment Assets at the time the
Contract matures, PM will make a one-time payment to the Plan equal to
such excess (the Contract Value Payment). Any Contract Value Payment
will be paid from PM's General Account. If the value of the Investment
Assets equals or exceeds the Contract Value Record, no Contract Value
Payment will be made, and such excess belongs exclusively to the Plan.
As and when such Investment Assets mature, the Plan's fiduciaries
will reinvest the proceeds of the Investment Assets as they see fit
(outside the Buy/Hold Synthetic GIC Contract). Accordingly, the value
of the Investment Assets will decline over time as dividends, interest
and other proceeds are paid out on the Investment Assets. The Contract
Value Record will be correspondingly reduced as amounts are distributed
from the arrangement. By reason of these distributions, it is expected
that the Contract Value Record will decrease significantly from its
initial value by the time the Contract matures. Given this reduction in
the Contract Value Record and the fact that the Contract Value Record's
Credited Rate is calculated based upon the expected return of the
Investment Assets, any Contract Value Payment at maturity should be de
minimis.
11. PM represents that it believes that the Synthetic GIC is
superior to traditional GICs in that each Buy/Hold Synthetic GIC serves
the dual functions of: (a) affording a Plan substantially greater
protection against the risk that it will lose its investment; and (b)
providing the Plan with an opportunity for a greater rate of return
than a traditional GIC. PM represents that it guarantees that all
participant initiated benefit payments and transfers will be paid at
the Contract Value Record. This means that, despite fluctuations in the
market value of the Investment Assets, each participant in the Plan is
protected against any loss of principal by PM's contractual commitment.
The Investment Assets to be held under the Contract will be
determined at the inception of the Contract. These Investment Assets
will be disposed of only upon termination of the Contract or upon the
occurrence of certain events specified in the Contract (see rep. 9,
above). The Plan holds legal title to the Investment Assets. Subject to
the Plan's obligations to pay PM's fees, any appreciation in value of
the Investment Assets, as well as current interest and principal
payments, belong to the Plan. The only risk to the Investment Assets
posed by the financial condition of PM relates to the amount
representing the excess, if any, of the balance on the Contract Value
Record over the actual value of the Investment Assets. PM represents
that the Buy/Hold Synthetic GIC provides greater security than a
traditional GIC wherein a plan places a substantial amount of its
assets at risk based on the credit worthiness of the issuer of the GIC.
12. PM will maintain full and complete records and books reflecting
the various accounts maintained in accordance with the Buy/Hold
Synthetic GICs. Upon written request from a Plan, PM will also make its
records pertaining to the Synthetic GICs available during normal
business hours for audit by independent certified public accountants
hired by the Plan's fiduciary.
13. The applicant makes the following representations with respect
to the valuation of assets under the Synthetic GICs. Under the Buy/Hold
Synthetic GIC, the time at which the value of the Investment Assets is
relevant to PM's obligations is at the time of any withdrawal,
including upon termination of the entire arrangement. At such time, the
value of the Investment Assets will be determined based upon the
highest of three competitive bids for such Investment Assets received
from an independent party (see rep. 10, above).
14. PM and the Plan's fiduciary will agree to an expense charge
(determined at the inception of the Contract) payable to PM with
respect to the Buy/Hold Synthetic GIC that will be stated as a fixed
percentage of the average value of the Contract Value Record during the
preceding calendar quarter. This charge covers four elements: (a) A
benefit risk charge, (b) a maturity risk charge, (c) an expense charge
and (d) a profit charge. The benefit risk charge is a fee for assuming
the risk of loss associated with benefit responsive withdrawals. It
will be developed on a Plan specific basis after a review of the Plan's
benefit payment cash flow history and the structure of the Plan itself
(i.e., the frequency at which withdrawals and investment transfers are
permitted, and the structure of alternate investment opportunities).
This charge may be supplemented under certain circumstances if the
effect of certain withdrawals increases PM's potential exposure (see
rep. 9, above). The maturity risk charge will be based on a review of
the volatility of, and the guidelines for the investment of, the
Investment Assets. The expense and profit charges will be assessed
based on the expected expenses related to the arrangement and the
payment to PM of a reasonable profit. The expense charge will be based
on an annual rate to be determined by negotiations between PM and the
Plan's fiduciary at the inception of the Contract, stated as a fixed
percentage and multiplied by an average balance of the value of the
Investment Assets determined pursuant to a fixed formula under the
Contract. Such negotiated charge would remain in effect for the initial
period until the maturity date agreed to by the Plan and PM, subject to
PM's right to make changes to such charge upon 30 days' advance notice
if and solely to the extent that there has been a material change to
the provisions or administration of the Plan which adversely affects
deposits or withdrawals, or another action by the Plan's sponsor which
results in significant withdrawals (such as, but not limited to, plant
closings, divestitures, a partial termination of the Plan, the
implementation of an early retirement incentive program and the Plan
sponsor's bankruptcy) from the Contract.
Based on its review of competitive practices, PM represents that
the aggregate charges with respect to each of the Synthetic GICs are,
and are expected to continue to be, comparable to the charges made by
other Buy/Hold Synthetic GIC providers.
[[Page 37931]]
15. PM represents that to date, the Buy/Hold Synthetic GIC has been
purchased by a number of Plans, with the first such purchase occurring
as of September 2, 1993. PM has accordingly requested that the
exemption proposed herein be made retroactive to that date. PM
represents that it entered into the Buy/Hold Synthetic GICs with the
good faith belief that the transactions involved therein were, to the
extent they constituted prohibited transactions, exempted by Prohibited
Transaction Exemption 84-24 (PTE 84-24, 49 FR 13208, April 3,
1984).4 However, because PM is unable to conclude affirmatively
that at all times from and after September 2, 1993, the Buy/Hold
Synthetic GICs constituted insurance contracts within the meaning of
PTE 84-24, PM has requested the exemption proposed herein.
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4 In this proposed exemption, the Department expresses no
opinion as to whether the subject transactions would be exempt under
PTE 84-24.
---------------------------------------------------------------------------
16. In summary, the applicant represents that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The decision to enter into a Buy/Hold Synthetic GIC
will be made on behalf of a Plan by a fiduciary of the Plan who is
independent of PM, after receipt of full and detailed disclosure of all
material features of the Contract, including all applicable fees and
charges; (b) following receipt of such disclosure, the Plan's
independent fiduciary approves in writing the execution of the Buy/Hold
Synthetic GIC on behalf of the Plan; (c) all fees and charges under the
Buy/Hold Synthetic GICs are reasonable; (d) each Buy/Hold Synthetic GIC
will specifically provide for an objective means for determining the
fair market value of the securities owned by the Plan pursuant to the
Buy/Hold Synthetic GIC; (e) PM will maintain books and records of all
transactions which will be subject to annual audit by certified public
accountants selected by and responsible solely to the Plan; and (f) the
Buy/Hold Synthetic GICs will only be marketed to Plans or collective
investment funds which have at least $50 million in assets.
For Further Information Contact: Gary H. Lefkowitz of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
Mei Technology Corporation 401(k) Plan (the Plan), Located in
Lexington, MA
[Application No. D-10281]
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 sections 4975(c)(1) (A) through (E) of
the Code shall not apply to the proposed cash sale (the Sale) of
Guaranteed Annuity Contract No. GA-7192, Certificate Nos. 0001-0004
(collectively, the GAC), issued by Mutual Benefit Life Insurance
Company (Mutual Benefit) located in Newark, New Jersey, by the Plan to
Mei Technology Corporation (the Employer), the sponsor of the Plan and
party in interest with respect to the Plan; provided that (1) the Sale
is a one-time transaction for cash; (2) the Plan experiences no loss
nor incurs any expenses from the Sale; and (3) the Plan receives as
consideration from the Sale an amount, as expressed below in paragraph
No. 5, that is equal to the total amount expended by the Plan when
acquiring the GAC, less withdrawals and/or proceeds paid from the GAC,
plus interest as described in paragraph 5 of this Notice of Proposed
Exemption.
Summary of Facts and Representations
1. Mei Technology Corporation is a Massachusetts corporation having
its principal offices in Lexington, Massachusetts. The Plan is a
defined contribution profit sharing plan with individual accounts for
the participants, which is intended to satisfy the qualification
requirements of sections 401(a) and 401(k) of the Code. The Employer
may make discretionary matching contributions and/or profit sharing
contributions to the Plan. As of March 31, 1996, the estimated number
of Plan participants and beneficiaries was 252. Forty-five participants
may be effected by the requested exemption. As of January 4, 1996,
total assets of the Plan equaled $3,751,431.97, with approximately 10%
of total Plan assets as of that date invested in the Guaranteed
Certificate Account (Guaranteed Account) under the GAC. The remaining
90% of Plan assets ($3,362,314.95) were invested in designated mutual
funds offered under the Plan and in participant loans.
The Trustee of the Plan for all assets other than the GAC and
participant loans is Scudder Trust Company of Boston Massachusetts.
Those assets are invested in mutual funds available under the Plan at
the participant's direction. Elaine B. Mei and Peng-Siu Mei, Office
Manager and President of the Employer, are Trustees for the
Nondesignated Investments Trust, which holds the GAC and participant
loans.
2. The Nondesignated Investments Trust holds the GAC which was
issued on or about April 12, 1987. The effective date of the GAC is
October 1, 1987. For the period October 1987 through July 1991,
participants could direct their 401(k) contributions into any of six
investment accounts offered under the GAC. The Guaranteed Account is
the subject of this exemption; all other amounts under the GAC have
been withdrawn.
Amounts deposited to the Guaranteed Account were accumulated in an
individual certificate; the certificate identified the portion of the
Account covered by a particular Certificate Rider and interest rate.
Contributions were made to Certificate No. 0001 of the Guaranteed
Account from October 1, 1987 to September 30, 1988. In accordance with
the terms of Certificate No. 0001, interest was to be credited at the
rate of 7.05% per annum until its maturity on September 30, 1991, at
which time assets were to be paid out to the Plan and made available
for reinvestment in accordance with participants' instructions. For the
period October, 1988 through 1991, deposits were made to Certificate
Nos. 0002-0004 with the following terms: No. 002, deposit dates of
October 1, 1988 through September 30, 1989, interest rate of 8.15% and
maturity date of September 30, 1992; No. 003, deposit dates of October
1, 1989 through September 30, 1990, interest rate of 7.90% and maturity
date of September 30, 1993; No. 004, deposit dates of October 1, 1990
through September 30, 1991 (actual deposits terminated by the Employer
in July, 1991, see below), interest rate of 7.70% and maturity date of
September 30, 1994.
3. On July 16, 1991, the Commissioner of Insurance for the State of
New Jersey placed Mutual Benefit in conservatorship and rehabilitation,
causing Mutual Benefit to suspend all payments on Mutual Benefit
accounts,
[[Page 37932]]
including the GAC.5 As a result of the proceedings, the assets of
the Plan invested in the Guaranteed Account of the GAC were frozen. A
Third Amended Plan of Rehabilitation (the Approved Rehabilitation Plan)
was filed and approved by the Superior Court of New Jersey on January
28, 1994. Under the Approved Rehabilitation Plan, group annuity
contracts were divided into various groups, those covered by a state
guaranty association, those not covered by a state guaranty
association, those covered by the New York State guaranty association
and partially covered contracts.
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5 The Department notes that the decision by the named
fiduciaries to offer the GAC as an investment vehicle is governed by
the fiduciary responsibility requirements of Part 4, Subtitle B,
Title I of the Act. The Department is not proposing relief herein
for any violations of Part 4 of the Act which may have arisen as a
result of the acquisition and holding by the Plan of the GAC issued
by Mutual Benefit.
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In March 1994, the Employer was notified that the Plan's GAC was
deemed to be not covered by a state guaranty association (Wrapped
Contracts, see below). Wrapped Contracts are backed by a consortium of
insurance companies, see below. In March 1994, the Nondesignated
Investment Trustees were given the choice to ``opt in'' or ``opt out''
of the Approved Rehabilitation Plan. ``Opting in'' resulted in
accepting a restructured contract subject to certain terms including:
(a) distributions of the remaining Guaranteed Account from a Wrapped
Contract are very restricted; ordinary distributions will be made in
five annual installments beginning in the year 2000. However, the
industry group which supports the Wrapped Contracts has the right to
delay any of these installment payments for a period of seven years if
there are liquidity problems; and (b) investment return provisions were
modified so that the Wrapped Contracts will be credited with the
contract rate of interest through 1991; 4% in 1992, 3.5% in 1993- 94
and 3.55% in 1995. After 1994 no minimum rate of interest is
guaranteed; interest is determined by formula each year based on the
investment performance of the MBL Life Assurance Corporation
(MBLLAC).6 MBLLAC has determined that the 1996 rate will be 5.25%.
---------------------------------------------------------------------------
6 MBLLAC was incorporated as part of the Rehabilitation
Plan; subsequently substantially all of Mutual Benefit Life
Insurance Company's asset base was transferred to MBLLAC.
---------------------------------------------------------------------------
``Opting out'' would have resulted in a payment of 55% of the GAC's
value based on its original terms, with a payment to be made over a
period of up to 27 months. After evaluating the two options the
Trustees chose the ``opt in'' election on behalf of the Plan.
4. The value of the GAC as of March 31, 1996 was $396,803.62, as
determined by MBLLAC. This amount represents the principal amounts
deposited pursuant to Certificates 0001-0004, less withdrawals and/or
proceeds paid from the account, plus (i) the interest that accrued
under the Certificates to December 31, 1991, and (ii) the interest that
had accrued until March 31, 1996 at the Approved Rehabilitation Plan
rates stated above.
The applicant represents that it desires to enter into the proposed
transaction in order to protect the participants in the Plan from the
risks of investment loss associated with the GAC. Further, the
applicant represents that the Plan needs to sell its interest in the
GAC in order to give participants more investment flexibility to direct
the investments of the respective account balances to other
investments. In addition, the applicant represents that the sale will
allow participants to be able to exercise all of their rights under the
Plan to request distributions, loans, withdrawals and investment
transfers, with respect to amounts currently invested in the GAC which
are not liquid.
5. In order to eliminate the risk associated with the continued
investment in the GAC and to allow the Plan to distribute or otherwise
invest assets currently invested in the GAC, the Employer proposes to
purchase the GAC from the Plan for cash in an amount equal to its book
value on the date of the Sale, as specified in the Rehabilitation Plan
(i.e., the principal amounts deposited pursuant to Certificates 0001-
0004, less withdrawals and/or proceeds paid from the account, plus: (i)
the interest that accrued under the Certificates to December 31, 1991,
and (ii) the interest that has accrued until the date of the Sale at
the Approved Rehabilitation Plan rates stated in paragraph 3 above).
The applicant represents that the elimination of the risks inherent in
the GAC investment would be in the best interest of the Plan and its
participants and would serve to protect their rights under the Plan.
The Plan will incur no expense nor loss from the proposed transaction.
6. In summary, the applicant represents that the proposed
transaction will satisfy the criteria for an exemption under section
408(a) of the Act for the following reasons: (a) the Plan will receive
cash in a one-time transaction for the Mutual Benefit GAC, in an amount
equal to the book value, as specified in paragraph 5; (b) the proposed
Sale will enable the Plan and its participants and beneficiaries to
avoid any risk that would be associated with the continued holding of
the GAC, and will permit the directing of assets to safer investments;
(c) the Plan will not incur any expenses with respect to the proposed
transaction; and (d) the Nondesignated Investments Trustees have
determined that the proposed transaction is in the best interest of the
Plan and its participants and would serve to protect their rights under
the Plan.
For Further Information Contact: Ms. Marianne H. Cole 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 accurately describe all
material terms of
[[Page 37933]]
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, DC, this 17 day of July, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-18540 Filed 7-19-96; 8:45 am]
BILLING CODE 4510-29-P
