[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40005-40012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19481]
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DEPARTMENT OF LABOR
[Application No. D-10189, et al.
Proposed Exemptions; Westinghouse Savannah River Company
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
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions,
[[Page 40006]]
unless otherwise stated in the Notice of Proposed Exemption, within 45
days from the date of publication of this Federal Register Notice.
Comments and request for a hearing should state: (1) the name, address,
and telephone number of the person making the comment or request, and
(2) the nature of the person's interest in the exemption and the manner
in which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of 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.
Westinghouse Savannah River Company/Bechtel Savannah River, Inc.
Pension Plan (the Plan) Located in Aiken, South Carolina
[Application No. D-10189]
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 section 406(a)(1)(A), 406(a)(1)(D),
406(b)(1), and 406(b)(2) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A), 4975(c)(1)(D), and 4975(c)(1)(E) of the Code,1
shall not apply, effective October 15, 1994, to the past and future use
by the U. S. Department of Energy (DOE) 2, acting on behalf of
Westinghouse Savannah River Company (WSRC) and Bechtel Savannah River,
Inc. (BSRI), parties in interest with respect to the Plan, of portions
of DOE's interest in Group Annuity Contract GR-409 (GR-409) issued by
Connecticut General Life Insurance Company (CGLIC), an insurance
company headquartered in Hartford, Connecticut, to purchase interests
for the Plan in CGLIC Group Annuity Contract IN-16111 (IN-16111) for
the purpose of funding the benefits under the Plan; provided that:
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\1\ For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
\2\ References to DOE include, where applicable, DOE's
predecessors, the Energy Research and Development Administration and
the Atomic Energy Commission.
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(1) the use by DOE, acting on behalf of WSRC and BSRI, of portions
of DOE's interests in GR-409 to purchase additional interests in IN-
16111 on behalf of the Plan has benefited and will benefit the Plan to
the same extent, as contributions of cash by DOE to such Plan;
(2) the fair market value of the debits to GR-409 that have
occurred or will occur, as a result of the use of portions of GR-409 by
DOE to purchase additional interest in IN-16111 on behalf of the Plan,
has exactly matched and will exactly match the fair market value of the
credits to IN-16111 acquired by the Plan as a result of such purchase
transactions;
(3) the Plan has received and will receive interests in IN-16111
that have a fair market value equal to the fair market value of the
interests the Plan would have received had DOE or WSRC acquired
additional interests in IN-16111 for the Plan for cash;
(4) the value of the earnings received by the Plan from the
interests in IN-16111 purchased by DOE with portions of GR-409 have
been and will be the same, as if those interests were or are purchased
with cash;
(5) the named fiduciary of the Plan has determined that the
transactions have been and will be prudent, feasible, and in the
interest of and protective of the Plan;
(6) CGLIC, an independent, qualified third party, has determined
and will continue to determine the fair market value of the interests
in GR-409, as of the date of each purchase transaction;
(7) the actuary for the Plan has determined and will continue to
determine the minimum funding requirement of the Plan and has
determined and will continue to determine the extent to which the
amount credited to the Plan's funding standard account by virtue of the
use of the interest in GR-409 satisfies the minimum funding
requirement;
(8) the actuary of the Plan has monitored and will continue to
monitor the transactions on behalf of the Plan, as well as the terms
and conditions of the exemption at all times;
(9) no more than 25% of the assets of the Plan have been or will be
involved in the transactions;
(10) the Plan has not, nor will the Plan in the future, incur any
fees, costs, or other charges or expenses as a result of the
transactions; and
(11) if, by the required filing date of the Form 5500 (including
extensions) for any year, the aggregate book value 3 of the
interests in IN-16111 purchased for the Plan is less than the aggregate
amount credited to the Plan's funding standard account as a result of
such purchases, DOE will (by the filing date of the Form 5500 for such
year) purchase an additional interest in IN-16111 for the Plan that has
a book value equal to the shortfall or contribute to the
[[Page 40007]]
Plan cash in the amount of such shortfall.
\3\ It is represented that the book value of an annuity contract
represents the amount contributed to such contract, plus accumulated
interest credited to date, less amounts withdrawn from such
contract. Fair market value, on the other hand, represents the
market value of the general account assets in which a contract is
deemed to be invested for accounting purposes.
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EFFECTIVE DATE: If the proposed exemption is granted, the exemption
will be effective, as of October 15, 1994, the date DOE first used, on
behalf of WSRC and BSRI, portions of its interests in GR-409 to acquire
additional interests in IN-16111 for the Plan.
Summary of Facts and Representations
1. The Plan is a non-contributory multiple-employer defined benefit
pension plan established, as of April 1, 1989, and maintained by WSRC
and BSRI for their employees. As of January 1, 1995, the Plan covered
19,316 participants and beneficiaries. Of these individuals, 16,973
were active, laid-off, or transferred participants, 1,303 were deferred
vested participants, and 1,040 were retirees or their beneficiaries in
pay status.
The named fiduciary of the Plan is a committee (the Benefits
Committee) which is composed of four (4) senior WSRC managers and a
representative from BSRI. The Benefits Committee is responsible for the
general administration of the Plan and for carrying out the provisions
of the Plan. Acting in its fiduciary capacity, the Benefits Committee
has appointed seven (7) independent asset management companies which
serve as investment managers with respect to certain assets of the
Plan, other than the Plan's interests in IN-16111.
It is represented that the assets of the Plan are well diversified.
As of January 1, 1995, approximately 47 percent (47%) or $176,259,918
of the Plan's assets is invested in a broad range of equities; 36.6
percent (36.6%) or $137,526,560 is invested in IN-16111; 8.1 percent
(8.1%) or $30,319,763 is invested in a variety of fixed income
securities managed by the investment advisors; 5.8 percent (5.8%) or
$21,954,535 is held in cash and cash equivalents; and the balance
consists of accounts receivable and unsettled trades.
Until December 31, 1992, Wilmington Trust Company (Wilmington)
served as trustee for the Plan. The current trustee of the Plan (the
Trustee) is NationsBank (Carolinas), N.A. It is represented that the
assets of the Plan, including IN-16111, are held in trust by the
Trustee. As of January 1, 1995, the Plan was funded above the required
minimum funding level. In this regard, as of January 1, 1995, the value
of assets held by the Plan was $375,411,740. As of the same date,
liabilities of the Plan totaled $340,770,268. It is represented that as
of January 1, 1995, the Plan's liability percentage was 110.2 percent
(110.2%).
Buck Consultants (Buck) serves as the Plan actuary. It is
represented that Buck is an unrelated third party that is independent
of parties involved in the transactions which are the subject of this
request for exemption. In this regard, Buck is unaffiliated with DOE,
WSRC, or BSRI.
2. WSRC is a Delaware corporation headquartered at 1993 Centennial
Avenue, in Aiken, South Carolina. WSRC is a wholly-owned subsidiary of
Westinghouse Electric Corporation, a public company incorporated in
Pennsylvania and headquartered in Pittsburgh, Pennsylvania.
3. BSRI is a subcontractor to WSRC. BSRI is a private company
incorporated in Delaware and headquartered in South Carolina. BSRI is a
wholly-owned subsidiary of Bechtel Operating Services Corporation, a
private company incorporated in Delaware and headquartered in
California.
4. The applicants on behalf of whom exemption relief is sought are
WSRC and BSRI, the sponsors of the Plan, and the members of the
Benefits Committee. In this regard, WSRC and BSRI are parties in
interest in that each is an employer any of whose employees are covered
by the Plan, pursuant to section 3(14)(C) of the Act.
5. In 1950, DOE awarded E.I. du Pont de Nemours and Company (Du
Pont) a contract to manage the U.S. owned nuclear facility in Aiken,
South Carolina. During Du Pont's management of the facility from 1950
until 1989, employees of Du Pont were participants in the Du Pont
Pension and Retirement Plan (the Du Pont Plan), a defined benefit
pension plan sponsored and maintained by Du Pont for all eligible
employees of Du Pont and its wholly-owned subsidiaries. Under the terms
of a management contract between DOE and Du Pont, DOE was obligated to
reimburse Du Pont for the cost of funding benefits under the Du Pont
Plan for employees who worked at the nuclear facility.
6. It is represented that to fulfill its obligations under the
management contract with Du Pont, DOE purchased GR-409 from CGLIC in
1950. GR-409, as amended, is an immediate participation guarantee group
annuity contract issued by CGLIC. Amounts contributed under GR-409 are
invested in the defined benefit plan segment of CGLIC's general
account. Under the terms of GR-409, DOE is entitled, subject to certain
limitations, to make annual withdrawals without effecting the book
value of remaining funds. Although only DOE made contributions to GR-
409, the group annuity contract originally named both DOE and Du Pont
as contractholders.
It is represented that GR-409 was not an asset of the Du Pont Plan.
Rather, cash payments from GR-409 received by DOE from CGLIC were used
by DOE for more than forty (40) years to reimburse Du Pont or to
directly reimburse the Du Pont Plan for benefit payments made to
retired employees who had worked at the facility and to their
beneficiaries.
7. In 1989, Du Pont's contract to manage the facility expired, and
subsequently in 1991, DOE and Du Pont agreed on a lump sum settlement
of retiree benefit costs. Under the terms of the settlement, cash and a
portion of GR-409 were transferred to the Du Pont Plan to settle DOE's
contractual obligation respecting the funding of the Du Pont Plan and
other retiree benefits. It is represented that DOE at that time became
the sole contractholder of the remaining balance in GR-409.
8. Subsequent to the termination of the contract with Du Pont, in
1989, DOE selected WSRC to manage and operate the nuclear facility. At
that time, WSRC established the Plan which is the subject of this
exemption request. As the Plan was intended to provide continuity for
former Du Pont employees who had agreed to remain at the nuclear
facility as employees of WSRC (the Transferred Employees), WSRC
designed the Plan to replicate the benefits structure of the Du Pont
Plan. In this regard, it is represented that in material respects, the
Plan generally provides the same benefits, rights, and features as the
Du Pont Plan did in 1989, subject to statutorily mandated revisions. At
the same time, DOE became obligated, under the terms of a management
contract between DOE and WSRC (the Prime Contract), to reimburse WSRC
for all funding contributions made by WSRC to the Plan.
9. In order to preserve the benefits and service credits of
Transferred Employees, benefits accrued by Transferred Employees under
the Du Pont Plan (and liabilities attributable thereto) were spun-off
to the Plan. In this regard, it is represented that full participation,
vesting, and accrual credit was granted under the Plan for service
rendered to Du Pont by the Transferred Employees. In order to
accomplish the spin-off, on December 30, 1990, the Du Pont Plan entered
into a trust-to-trust transaction with the Plan that involved $246
million worth of assets. It is represented that the mechanics of the
trust-to-trust transfer were as follows. DOE, which was responsible for
funding the Du Pont Plan for employees at the site, instructed CGLIC to
issue an annuity contract with a book value of
[[Page 40008]]
$246 million, designated GR-AA, to the Du Pont Plan trust in exchange
for DOE's surrender of a portion of its annuity contract GR-409. Du
Pont then immediately instructed Wilmington, the trustee of the Du Pont
Plan trust, to surrender GR-AA and directed CGLIC to issue IN-16111, an
immediate participation guarantee group annuity contract, to the Plan's
trust. Finally, WSRC instructed Wilmington, who until 1993 was also the
trustee of the Plan's trust, to accept IN-16111 from CGLIC.
10. It is represented that the Trustee is currently the
contractholder of IN-16111. Under the terms of such contract, CGLIC is
obligated to pay retirement benefits provided under the Plan, to the
extent requested by the Trustee, up to an aggregate amount not to
exceed the book value of IN-16111. In this regard, the book value of
IN-16111 is equal to the sum of all contributions to such contract,
plus accumulated interest, less the sum of all amounts withdrawn from
IN-16111.
It is represented that shortly after the acquisition by the Plan of
IN-16111, a portion of IN-16111 with a book value of $50 million was
liquidated and the proceeds invested by the Plan in equity securities,
leaving a remaining book value of $196 million for IN-16111. It is
represented that CGLIC has advised that the book value of IN-16111, as
of December 31, 1994, was $137.5 million.
11. It is represented that WSRC manages the nuclear facility and
BSRI, a subcontractor to WSRC, provides engineering services and
manages the construction program at the facility. In this regard, the
annual budget at the facility totals approximately $1.6 billion, of
which $900 million represents payroll costs.
12. Since 1989, pursuant to the terms of the Prime Contract between
DOE and WSRC, DOE has been obligated to reimburse WSRC for reasonable
compensation expenses, including all legally required funding
contributions of the Plan. In this regard, DOE's reimbursement
obligation extends to both contributions for which WSRC is responsible
as an employer and contributions which WSRC is required to make on
behalf of BSRI under WSRC's subcontract with BSRI. DOE is also
obligated to reimburse WSRC for ``reasonable costs arising from any
past or future prohibited transaction'' resulting from DOE's actions.
13. It is represented that DOE originally fulfilled its
responsibility under the Prime Contract by funding the Plan directly,
rather than by reimbursing WSRC. In 1989 when the Plan was established,
DOE contributed cash in the amount of $1.63 million to the Plan to
cover start-up and other interim costs of the Plan. In this regard, it
is represented that the initial cash contribution by DOE, plus the
amount involved in the trust-to-trust transfer, adequately funded the
Plan for a number of years without any additional contribution.
Thereafter, in September 1993, in connection with a special early
retirement program, DOE made, on behalf of WSRC, a cash contribution of
$16,500,000 to the Plan. Subsequently, DOE made a cash contribution of
$8,031,573 on April 14, 1994; a cash contribution of an equal amount on
July 15, 1994; and a cash contribution of $15,293,573 on September 15,
1994.
14. Rather than continue to make cash contributions to the Plan,
beginning in mid-October 1994, DOE in four (4) instances has fulfilled
its responsibility under the Prime Contract by purchasing from CGLIC
additional interests in IN-16111 for the Plan. However, on those
occasions, DOE did not purchase such additional interests in IN-16111
with cash, but rather surrendered to CGLIC portions of GR-409, as
consideration for such purchase.
The mechanics of each of the past transactions was accomplished in
the following steps. Before a contribution was due, Buck advised WSRC
of the minimum funding requirement for the Plan. WSRC, in turn,
notified DOE of the amount of the required contribution. When the
contribution became due, DOE instructed CGLIC that it wished to
surrender a portion of its interest in GR-409 with a book value equal
to the amount of the minimum funding requirement of the Plan to
purchase additional interests in IN-16111 for the Plan. It is
represented that both GR-409 and IN-16111 represent derivative
interests in assets held in the defined benefit segment of the general
account of CGLIC. Accordingly, when instructed by DOE, CGLIC obliged by
shifting the interest in a pro rata portion of the assets underlying
GR-409 (with a book value equal to the amount of the required
contribution) to IN-16111. In this regard, each transfer increased the
book value of the Plan's interest in IN-16111 by the amount of the
required funding contribution. The applicants are concerned that these
transactions may be viewed as contributions by DOE, on behalf of WSRC
and BSRI, of interests in GR-409 in consideration of the purchase of
interests in IN-16111 for the Plan.
It is represented that in this manner, the following transactions
totaling $29,811,336 were executed: (1) a quarterly contribution of
$920,106 due October 15, 1994; (2) a quarterly contribution of
$5,707,777 due January 15, 1995; (3) a voluntary contribution of
$6,900,000 due April 14, 1995; and (4) a voluntary contribution of
$16,283,453 paid on July 17, 1995. At the time of the contributions for
the plan year of 1994, the book value of the interests in GR-409
exceeded the fair market value of the assets underlying GR-409. In
order to bring the Plan's funding standard account into balance for the
1994 plan year based on the fair market value of the transferred
interests in GR-409, on July 17, 1995, $4,323,800 of interests at book
value in GR-409 were used as consideration to purchase additional
interests in IN-16111 for the Plan. In this regard, it is represented
that Buck determined this amount based on the fair market value of the
underlying assets of GR-409, as determined by CGLIC.
DOE wishes to continue, over the next two (2) years until GR-409 is
exhausted (projected to be towards the end of 1997), to use GR-409 to
satisfy its obligations under the Prime Contract to reimburse WSRC for
the cost of funding the Plan. In this regard, the same procedure, as
described with respect to the past transactions, will be employed in
the future, except that all prospective transactions will be based on
fair market value of the interests at the time of the
contribution.4 As it did in the past transactions, the Plan in the
future will assume the book value of the respective interests in GR-409
which are used as consideration to acquire additional interest in IN-
16111 for the Plan. However, if by the required filing date of the Form
5500 (including extensions) for any year, the aggregate book value of
the interests in IN-16111 purchased for the Plan to date is less than
the aggregate amount credited to the Plan's funding standard account as
a result of such purchases, DOE will (by the filing date of the Form
5500 for such year) purchase an additional interest in IN-16111 for the
Plan that has a book value equal to the shortfall. In this regard, DOE
would make a cash contribution to the Plan to the extent there were
insufficient annuity interests to cover the shortfall. This will ensure
that the aggregate book value of annuity interests in IN-16111
purchased for the Plan are at least equal to the book value of the
[[Page 40009]]
interests in IN-16111 that could have been purchased for the Plan with
cash for the purpose of satisfying the minimum funding requirements of
the Plan.
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\4\ The applicants represent that regardless of the fact that
interests in GR-409 and IN-16111 will be valued for funding purposes
on the fair market value of the underlying assets, all of the
general account assets of CGLIC stand behind IN-16111. Thus, CGLIC
is at all times obligated to pay retirement benefits to the Plan, as
contractholder of IN-16111, to the extent requested by the Trustee,
up to an aggregate amount not to exceed the book value of IN-16111.
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15. It is represented that neither DOE nor any of the parties on
behalf of whom the exemption is sought participated in the past
transactions knowing that such might be prohibited under the Act or
under the Code. In the opinion of the applicants, the Plan is not
actually receiving a contribution of interests in GR-409; instead the
GR-409 interests are consideration used by DOE to purchase additional
interests in IN-16111 for the Plan. The funding mechanism in this case
differs from an ``in-kind contribution'' wherein the thing of value
that is contributed by the plan sponsor is what in fact the plan
receives. In this regard, the applicants point out that the interests
in GR-409 which DOE has surrendered and will surrender to CGLIC, as
consideration for the purchase of additional interest in IN-16111 for
the Plan, are not in themselves ``contributions.''
WSRC and BSRI, acting in their settlor capacities, have elected to
make contributions to the Plan through the purchase of annuity
interests. However, rather than purchasing additional annuity interests
with cash for the Plan, WSRC and BSRI have permitted the purchases by
DOE in the past and will permit purchases by DOE in the future of
additional interests in IN-16111 for the Plan. Accordingly, the
applicants believe that the purchases by DOE of IN-16111 for the Plan
on behalf of WSRC and BSRI, the sponsors of such Plan, are not properly
characterized as ``sales or exchanges'' between the plan sponsors and
the Plan any more than contributions in cash would be so characterized.
Further, the applicants maintain that the surrenders of portions of GR-
409 by DOE to CGLIC are not transactions between DOE and the Plan
within the meaning of section 406(a) of the Act or section 4975(c) of
the Code.
With respect to the prohibition against fiduciary conflicts of
interest, as set forth in section 406(b) of the Act, the applicants
believe that the transactions which are the subject of this exemption
do not raise conflict of interest issues. In this regard, the
applicants maintain that WSRC and BSRI are acting in their settlor or
corporate capacities and not as fiduciaries, in permitting DOE to
surrender on behalf of WSRC portions of DOE's interests in GR-409 to
purchase interests in IN-16111 for the Plan. The applicants are also of
the view that no conflict of interest arises with respect to the
decision of the Benefits Committee to accept the transactions, because
the Benefits Committee takes such action solely on behalf of the Plan
and in the interest of the participants and beneficiaries.
Notwithstanding the reasoning described in the paragraphs above, it
is represented that the Benefits Committee and WSRC became concerned in
March of 1995 that there was a possibility that the transactions could
be considered to be prohibited. As a result, WSRC promptly sought
guidance as to the propriety of the transactions and expressed its
concerns to CGLIC and to DOE. As the Benefits Committee represents that
it was by no means certain that the transactions were prohibited, it
was not clear that the Plan had a basis to object. It is further
represented that the Benefits Committee had no reason to complain of
the past transactions, as the Plan did not have a stake in whether
CGLIC collected cash from WSRC or from DOE or in whether CGLIC debited
a portion of GR-409, as either way the value of the Plan's interest in
IN-16111 increased by the same amount. Accordingly, the applicants are
aware that the prohibited transaction issue is not entirely free from
doubt, and that DOE's interests in GR-409 which are used to purchase
interests in IN-16111 on behalf of WSRC and BSRI may be viewed as
contributions to the Plan. As a result, the applicants seek retroactive
and prospective exemption relief from section 406(a)(1)(A) and
406(a)(1)(D) of the Act and from section 4975(c)(1)(A) and
4975(c)(1)(D) of the Code, for past and future transactions involving
DOE's use of portions of GR-409 for the purpose of purchasing
additional interests in IN-16111 for the Plan. Further, because the
decision of the Benefits Committee arguably benefits DOE--by permitting
DOE to satisfy its obligations under the Prime Contract with interests
in GR-409 rather than with cash, the applicants seek both retroactive
and prospective relief from section 406(b)(1) and 406(b)(2) of the Act
and from section 4975(c)(1)(E) of the Code.
16. At the request of WSRC, DOE did not make the contribution
scheduled for October 15, 1995, and has temporarily suspended further
transactions involving GR-409, pending disposition of the requested
exemption. Under present law funding requirements, funding for the 1995
Plan year must be completed by September 15, 1996.
It is represented that although not a party in interest with
respect to the Plan, DOE believes its budget would be adversely
affected if the exemption were not granted. In this regard, if the
requested exemption is not granted, DOE could not use GR-409 as a
source of Plan funding. This would upset DOE's settled expectation and
saddle DOE with an asset that serves no other useful purpose. As a
result, DOE would be forced to divert scarce resources (i.e.,
congressional appropriations) from other areas of its shrinking budget.
In addition, it would be particularly disruptive, if DOE were required
to undo the transactions which have already occurred and to contribute
cash instead.
17. It is represented that the past and future transactions for
which relief is requested represent a relatively small percentage of
the Plan's assets. In this regard, the four (4) contributions by DOE of
portions of GR-409 which have already taken place represent less than
8.1 percent (8.1%) of the total fair market value of the assets of the
Plan. Further, the sum of the nominal book value of the four (4)
transactions completed to date equals $29.8 million. With respect to
future transactions, it is represented that, based on CGLIC's valuation
and Buck's reasonable projection of WSRC's minimum funding obligations,
that the sum of the nominal book values of such future transactions
will equal approximately $94.9 million. In this regard, it is
anticipated that future uses by DOE of portions of GR-409 will increase
the total percentage of Plan assets involved in the transactions to
approximately 24 percent (24%). It is represented that as neither the
past nor future transactions represents a significant percentage of
Plan assets, the risk is minimal that any one of them could have
impaired or will impair the ability of the Plan to pay benefits and
expenses when due.
18. It is represented that the Plan has accepted transactions which
are the subject of this exemption in the past and intends to accept
such transactions in the future, because it is in the interest of the
Plan and its participants and beneficiaries to do so. In this regard,
it is represented that the Benefits Committee has thoroughly reviewed
the transactions and has concluded that it is prudent and in the
interest of the Plan and its participants and beneficiaries to accept
such transactions. Among the elements that the Benefits Committee
relied upon in support of this conclusion are that: (1) The interests
have had and will have a fair market value at least equal to WSRC's
minimum funding obligation and equal to the interests that WSRC could
otherwise have purchased with cash; (2) the interests have consistently
generated competitive risk-adjusted rate of returns and are reasonably
expected to continue to do so; (3) the interests are invested in
[[Page 40010]]
a diversified group of investment grade fixed-income securities and
commercial mortgages and as such balance the equity portfolio held by
the Plan's trust; and (4) pursuant to the annual withdrawal provisions
in IN-16111, the Plan is able to cash out a significant portion of such
interests each year with no market value adjustment, adding a degree of
liquidity not generally available under an immediate participation
guarantee group annuity contract. In addition, it is represented that
CGLIC is consistently ranked by the major ratings organizations in the
top echelon of insurance companies.
19. WSRC maintains that both past and future transactions have been
structured to protect the interests of the Plan and its participants
and beneficiaries consistent with the objectives of the Act. In this
regard, it is represented that Buck, a skilled and reputable pension
actuarial consulting firm, providing services for employee benefit
plans with more than $100 million in assets, has determined and will
determine the amount creditable under the Plan's funding standard
account. Although Buck does provide actuarial and benefits consulting
services to WSRC and BSRI, and before 1995, did provide such services
to Westinghouse Electric Corporation and its plans, it is represented
that these accounts represented only about 1.5 percent (1.5%) of Buck's
annual gross revenue in 1994 and less than one percent (1%) in 1995.
With respect to the transactions which are the subject of this
exemption, it is represented that as the actuary for the Plan, Buck is
a service provider to the Plan. In this regard, it is represented that
Buck's allegiance is to the Plan and that it has carried out and will
carry out its responsibilities solely in the interest of the Plan and
its participants and beneficiaries.
Further, protections are provided in that the fair market value of
the interests in GR-409 surrendered by DOE have been and will be
established by CGLIC, a qualified third party. It is represented CGLIC
has advised that as of December 31, 1994, and July 17, 1995, the book
value of GR-409 was, respectively, $163.3 million and $110.1 million
and that the fair market value of GR-409 was $154.4 million, as of
December 31, 1994, and $109.8 million, as of July 17, 1995.
It is represented that CGLIC is the entity most qualified to make
the determination of value of GR-409, because it best understands the
intricacies of its general account and cell accounting methods, and
because CGLIC has a well-developed expertise in valuing the fixed
income securities, commercial mortgage interests, and other interests
in which the general account is invested. Further, it is represented
that CGLIC has no motivation to misvalue the interests, because the
value of the debits to GR-409 have matched and will match exactly the
value of the credits to IN-16111 received by the Plan. In this regard,
CGLIC's aggregate liability under the contracts will not change as a
result of the transfers. Accordingly, it is represented that the
interests will be fairly valued by CGLIC in a way that protects the
participants and beneficiaries of the Plan.
20. The applicants maintain that the transactions which are the
subject of this exemption are feasible in that the WSRC will bear the
cost of filing the application for exemption, the cost of notifying
interested persons, and the expenses associated with the proposed
transaction. In addition, it is represented that there will be no need
for the Department to monitor or supervise the transactions, as
independent qualified third parties have determined and will determine
the value of the interests and the amount of the minimum funding
requirements.
Further, the applicants assert that the facts supporting their
application are highly unusual and are not likely to be replicated. In
this regard, it is represented that insurance companies as a rule do
not offer to non-plan entities annuity contracts that are invested in
the defined benefit plan segment of such insurance companies separate
account. As a result, it is not generally possible for a sponsor to
contribute an annuity interest to a plan that would provide the same
benefit to the plan as had the sponsor purchased an interest in cash.
It is represented that to the best of CGLIC's knowledge GR-409, which
was purchased by DOE in 1950 prior to the passage of the Act, is the
only group annuity contract issued by CGLIC to a non-plan entity that
is invested in the defined benefit segment of CGLIC's general account.
Moreover, neither CGLIC or Buck is aware of any such contract issued by
any other insurance company.
21. In summary, the applicants represent that the transactions meet
the statutory criteria of section 408(a) of the Act because:
(a) the use by DOE, acting on behalf of WSRC and BSRI, of portions
of DOE's interests in GR-409 to purchase additional interests in IN-
16111 on behalf of the Plan has benefited and will benefit the Plan to
the same extent, as contributions of cash by DOE to such Plan;
(b) the fair market value of the debits to GR-409 that have
occurred or will occur, as a result of the use of portions of GR-409 by
DOE for the benefit of the Plan, has exactly matched and will exactly
match the fair market value of the credits to IN-16111 acquired by the
Plan as a result of such use;
(c) the Plan has received and will receive interests in IN-16111
that have a fair market value equal to the fair market value of the
interests the Plan would have received had DOE or WSRC purchased
additional interests in IN-16111 for the Plan for cash;
(d) the value of the earnings received by the Plan from the
interests in IN-16111 purchased by DOE with portions of GR-409 has been
and will be the same, as if those interests were purchased with cash;
(e) the named fiduciary of the Plan has determined that the
transactions have been and will be prudent, feasible, and in the
interest of and protective of the Plan;
(f) an independent, qualified third party has determined and will
continue to determine the fair market value of the interests in GR-409,
as of the date of each purchase transaction;
(g) the actuary for the Plan has determined and will continue to
determine the minimum funding requirement of the Plan and has
determined and will continue to determine the extent to which the
amount credited to the Plan's funding standard account satisfies the
minimum funding requirement;
(h) the actuary of the Plan has monitored and will continue to
monitor the transactions on behalf of the Plan, as well as the terms
and conditions of the exemption at all times;
(i) no more than 25% of the assets of the Plan have been or will be
involved in the transactions;
(j) the Plan has not, nor will the Plan in the future, incur any
fees, costs, or other charges or expenses as a result of the
transactions; and
(k) if, by the required filing date of the Form 5500 (including
extensions) for any year, the aggregate book value of the interests in
IN-16111 purchased for the Plan is less than the aggregate amount
credited to the Plan's funding standard account as a result of such
purchases, DOE will (by the filing date of the Form 5500 for such year)
purchase an additional interest in IN-16111 for the Plan that has a
book value equal to the shortfall or contribute cash in the amount of
such shortfall.
Notice to Interested Persons
Those persons who may be interested in the pendency of the
requested
[[Page 40011]]
exemption include, but are not limited to, all active WSRC employees
participating in the Plan, all retired or separated participants either
receiving or entitled to receive benefits, all beneficiaries of
deceased participants who are receiving or are entitled to receive
benefits, and all unions representing active BSRI employees who
participate in the Plan. It is represented that these various classes
of interested persons will be notified within four (4) business days
from the date of the publication of the Notice of Proposed Exemption
(the Notice) in the Federal Register, either by mailing first-class or
by posting a photocopy of the Notice, plus a copy of the supplemental
statement (the Supplemental Statement), in the form set forth in the
Department's regulations under 29 CFR 2570.43(b)(2). In this regard,
notification will be provided to all retired or separated participants
either receiving or entitled to receive benefits, and to all
beneficiaries of deceased participants who are receiving or are
entitled to receive benefits, by first-class mail to their last known
mailing address of a copy of the Notice and a copy of the Supplemental
Statement. Active participants will be provided with notification by
posting a copy of the Notice and a copy of the Supplemental Statement
at all WSRC locations, in areas that are customarily used for notices
to employees with regard to employee benefits or labor relations
matters. WSRC shall also seek to post a copy of the Notice and a copy
of the Supplemental Statement at the offices of the unions that
represent BSRI active employees who participate in the Plan.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883 (This is not a toll-free number.)
Operating Engineers Local 150 Apprenticeship Fund (the Plan) Located in
Plainfield, Illinois
[Application No. L-10279]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and in accordance with the
procedures set forth in 29 C.F.R. Part 2570, Subpart B (55 F.R. 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 shall not apply to
the proposed sale by the Plan of a parcel of unimproved real property
in Will County, Illinois (the Property) to the International Union of
Operating Engineers Local 150, AFL-CIO (the Union), a party in interest
with respect to the Plan; provided 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; and
(C) The Plan receives a purchase price no less than the greater of
(1) $65,000, or (2) the fair market value of the Property as of the
sale date.
Summary of Facts and Representations
1. The Plan is an employee welfare plan as described in section
3(c) of the Act with total assets of approximately $6,492,242 as of
December 31, 1995. The Plan provides training and skill improvement for
members of the Union, and during 1995 the Plan provided such services
to approximately 600 apprentices and 5,493 journeymen. The Plan is
sponsored by the Union and several employer associations, all of which
appoint trustees to the Plan. The Plan's board of trustees (the
Trustees) consists of an equal number of representatives of the Union
and representatives of participating employers.
2. Among the assets of the Plan are two adjacent parcels of land
located in the Lockport Township of Will County, Illinois, constituting
approximately 104.11 acres (the Land). The Land consists of Parcel 1,
consisting of 8.54 acres, and Parcel 2, consisting of 95.57 acres. The
Land was purchased by the Trustees for the Plan from unrelated parties
in 1978 at $2,401.30 per acre, for a total purchase price of $250,000.
3. The Trustees represent that all of the Land except Parcel 1 has
been utilized in the Plan's training program for the operation of heavy
equipment, garages for equipment repair and maintenance, and classroom/
administration buildings. The Trustees represent that the physical
configuration of Parcel 1 renders it too narrow for the operation of
heavy equipment and that, accordingly, Parcel 1 has been utilized
solely to provide convenient access to the Land from Weber Road, a
major thoroughfare which is east of the Land. Parcel 1 has remained
vacant and unimproved since its acquisition by the Plan. Adjacent to
Parcel 1 on the north is a parcel of land owned by the Union (the Union
Land), on which the Union intends to build a new administration
building (the New Building). The Union would like to utilize part of
Parcel 1 for the New Building and has asked the Trustees to sell a
portion of Parcel 1 for this purpose. The Union is proposing to
purchase 7.02 acres of Parcel 1 (the Property) from the Plan, leaving
the Plan with ownership of the remaining 1.52 acres necessary for
continued access between Parcel 2 and Weber Road. The Trustees have
adopted a resolution providing for the sale of the Property to the
Union, and are requesting an exemption to enable this sale transaction
under the terms and conditions described herein.
4. After the Trustees received the request of the Union to purchase
the Property, the Property was appraised for its fair market value by
independent professional real property appraisers. According to an
appraisal performed by Gadd, Tibble & Associates, Inc. (Gadd Tibble),
as of October 30, 1995 the Property had a fair market value of $65,000,
or approximately $9259.26 per acre. In another appraisal, Shetina
Appraisal Company determined that as of December 20, 1995 the Property
had a fair market value of $45,630, or $6,500 per acre.
The Union proposes to purchase the Property for cash in the amount
of no less than $65,000, the Property's fair market value determined in
the Gadd Tibble appraisal. In a supplement to the Gadd Tibble
appraisal, Roger F. Tibble, MAI, states that the Union's ownership of
adjacent property, and the intention to use the Property in the
construction project on the Union Property, do not warrant a higher
valuation of the Property to the Union as purchaser, as opposed to an
unrelated purchase, because the Property is not necessary for the
intended construction project and the Union is able to proceed with
construction of the intended improvements without the Property. Mr.
Tibble represents that while the Property would provide the new Union
building with additional access to Weber Road, the Union Property
already has sufficient access to Weber Road for the project.
Commensurate with the sale transaction, the Gadd Tibble appraisal
shall be updated as of the sale date, and the purchase price will be
increased accordingly if Gadd Tibble determines that the Property's
fair market value has increased since its appraisal of October 30,
1995. The Plan will not incur any expenses in relation to the purchase
transaction.
5. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act for the
following reasons: (a) The sale will be a one-time cash transaction and
the Plan will incur no expenses related to the sale; (b) The Plan will
receive a purchase price for the Property in the amount of no less than
its fair market value as of the sale
[[Page 40012]]
date, and in no event less than $65,000; and (c) The transaction will
enable the Plan to liquidate most of Parcel 1, which is too narrow for
training uses, while retaining enough of Parcel 1 for continued use as
Parcel 2 access to a major thoroughfare.
FOR FURTHER INFORMATION CONTACT: Ronald Willett 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 26th day of July, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 96-19481 Filed 7-30-96; 8:45 am]
BILLING CODE 4510-29-P
