[Federal Register Volume 60, Number 153 (Wednesday, August 9, 1995)]
[Notices]
[Pages 40615-40622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-19663]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09981, et al.]
Proposed Exemptions; Boston Safe Deposit
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
request for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
The nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of the type requested
to the Secretary of Labor. Therefore, these notices of proposed
exemption are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Boston Safe Deposit and Trust Company Located in Boston,
Massachusetts; Proposed Exemption
[Application No. D-9981]
[[Page 40616]]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and
406(b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through
(E) of the Code, shall not apply as of January 12, 1995, to the cash
sale of certain commercial paper notes (the Notes) for $25,031,269 by
the Common Trust Cash Investment Fund (the Fund) to Boston Safe Deposit
and Trust Company (Boston Safe), a party in interest with respect to
employee benefit plans invested in the Fund, provided that the
following conditions are met:
(a) The sale was a one-time transaction for cash;
(b) The Fund received an amount which was equal to the greater of
either (i) the amortized cost of the Notes, plus accrued but unpaid
interest, as of the date of sale, or (ii) the fair market value of the
Notes, as determined by an independent pricing service at the time of
sale;
(c) The Fund did not pay any commissions or other expenses in
connection with the sale;
(d) Boston Safe, as trustee of the Fund, determined that the sale
of the Notes was appropriate for and in the best interests of the Fund,
and the employee benefit plans invested in the Fund, at the time of the
transaction;
(e) Boston Safe took all appropriate actions necessary to safeguard
the interests of the Fund, and the employee benefit plans invested in
the Fund, in connection with the transactions; and
(f) If the exercise of any of Boston Safe's rights, claims or
causes of action in connection with its ownership of the Notes results
in Boston Safe recovering from the issuer of the Notes, or any third
party, an aggregate amount that is more than the sum of:
(1) the purchase price paid for the Notes by Boston Safe (i.e.
$25,031,269);
(2) the original issue discount on the Notes which remained
unamortized as of the date Boston Safe acquired the Notes from the
Fund; and
(3) the interest due on the Notes from and after the date Boston
Safe purchased the Notes from the Fund, at the rate specified in the
Notes, Boston Safe will refund such excess amounts promptly to the Fund
(after deducting all reasonable expenses incurred in connection with
the recovery).
EFFECTIVE DATE: The proposed exemption, if granted, will be effective
as of January 12, 1995.
Summary of Facts and Representations
1. Boston Safe is a Massachusetts trust company which provides a
wide range of banking and fiduciary services to a broad array of
clients, including employee benefit plans subject to the Act. The Fund
is a common trust fund established and maintained by Boston Safe as
trustee for the collective investment and reinvestment of assets
contributed thereto by Boston Safe and its affiliates on behalf of
their trust services clients, including employee benefit plans. The
Fund is exempt from federal income tax pursuant to section 584 of the
Code. As of December 6, 1994, the value of the Fund's portfolio
(including the Notes) was approximately $935 million. As of such date,
participating investors in the Fund included seventeen employee benefit
plans (primarily voluntary employees' beneficiary associations).
2. The Fund purchased the Notes on August 1, 1994 for $24,988,375.
The Notes were one year debentures with a par value of $25 million,
issued by Orange County, California (the Issuer) on July 8, 1994 with a
maturity date of July 10, 1995. The aggregate principal amount of the
entire series of the Notes was $600 million. Interest on the Notes was
taxable and payable monthly at a variable rate which was reset on the
first day of each month. The interest rate was equal to the one-month
London Interbank Offered Rate (LIBOR) set forth on the second business
day prior to the reset date. The interest on the Notes was payable on
the first business day of every month and at maturity. The principal of
and unpaid accrued interest on the Notes were payable at maturity.
The Notes were secured by a repayment fund (the Repayment Fund)
established by the Issuer at the time the Notes were issued. The assets
of the Repayment Fund were invested in the Orange County Investment
Pool (the Orange County Pool), an investment fund established by the
Issuer for the collective investment of the assets of the Issuer and
its several governmental sub-divisions.
3. The decision to invest Fund assets in the Notes was made by
Boston Safe as trustee of the Fund. Prior to the investment, Boston
Safe conducted an investigation of the potential investment, including
an examination of the financial condition of the Issuer. Boston Safe
represents that the Fund's investment in the Notes was consistent with
the Fund's investment policies and objectives.\1\ At the time the Fund
acquired the Notes, the Notes were rated ``A-1 plus'' by Standard &
Poor's Corporation and ``P-1'' by Moody's Investor Services, Inc.
\1\ The Department is expressing no opinion in this proposed
exemption regarding whether the acquisition and holding of the Notes
by the Fund violated any of the fiduciary responsibility provisions
of Part 4 of Title I of the Act.
The Department notes that section 404(a) of the Act requires,
among other things, that a fiduciary of a plan 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.
Section 404(a) of the Act also states that a plan fiduciary should
diversify the investments of a plan so as to minimize the risk of
large losses, unless under the circumstances it is clearly prudent
not to do so.
In this regard, the Department is not providing any opinion as
to whether a particular category of investments or investment
strategy would be considered prudent or in the best interests of a
plan as required by section 404 of the Act. The determination of the
prudence of a particular investment or investment course of action
must be made by a plan fiduciary after appropriate consideration to
those facts and circumstances that, given the scope of such
fiduciary's investment duties, the fiduciary knows or should know
are relevant to the particular investment or investment course of
action involved, including a plan's potential exposure to losses and
the role the investment or investment course of action plays in that
portion of the plan's portfolio with respect to which the fiduciary
has investment duties (see 29 CFR 2550.404a-1). The Department also
notes that in order to act prudently in making investment decisions,
a plan fiduciary must consider, among other factors, the
availability, risks and potential return of alternative investments
for the plan. Thus, a particular investment by a plan, which is
selected in preference to other alternative investments, would
generally not be prudent if such investment involves a greater risk
to the security of a plan's assets than other comparable investments
offering a similar return or result.
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4. On December 6, 1994, due to large trading losses in the Orange
County Pool, the Issuer filed two voluntary petitions under Chapter 9
of the Bankruptcy Code--one on behalf of the Issuer and the other on
behalf of the Orange County Pool. Responding to these events, after
written notice to participating investors, Boston Safe transferred the
Notes to a liquidating account (the Liquidating Account) maintained on
behalf of the participating investors then having an interest in the
Fund. This transfer was effective December 6, 1994. As of such date,
the seventeen employee benefit plans held approximately 15% of the
interests in the Liquidating Account.
Boston Safe states that placing the Notes in the Liquidating
Account allowed for the continued operation of the Fund because the
segregation of the Notes from the other assets in the Fund confined the
potential investment losses resulting from the Notes to those investors
participating in the Fund as of December 6, 1994. Boston Safe was able
[[Page 40617]]
to continue to permit additions and withdrawals from the Fund at $1.00
per share and investments in the Fund after December 6, 1994 were not
affected by the Notes.
5. Boston Safe determined that, as a result of the trading losses
incurred by the Orange County Pool and the subsequent bankruptcy filing
by the Issuer, the security for the Notes had become inadequate and
that full repayment of the Notes was questionable. Boston Safe also
determined that the purchase of the Notes by Boston Safe would be
permissible under the regulations of the Office of the Comptroller of
Currency relating to common trust funds. Therefore, in order to protect
the Fund and the participating investors (including the employee
benefit plans) having an interest in the Liquidating Account from
potential investment losses, Boston Safe decided to purchase the Notes
from the Fund. Notice of this resolution was given to the appropriate
representative of each of the participating investors having an
interest in the Liquidating Account by telephone prior to the date of
the transaction.
6. The purchase of the Notes was consummated on January 12, 1995
when Boston Safe purchased the Notes from the Fund for a lump sum cash
payment of $25,031,269. This sum represented the amortized cost of the
Notes (i.e. $24,993,915) plus the accrued interest owing on the Notes
(i.e. $37,354) as of January 12, 1995, the date of the transaction.
Therefore, Boston Safe states that the amount received by the Fund for
the Notes represented the book value of the Notes on the date of the
sale. This amount reflected the discounts received by the Fund when it
purchased the Notes at a price that was slightly less than the par
value of the Notes. The amortized cost of the Notes was determined by
Boston Safe using the standard accounting methods employed by the Fund.
In this regard, Boston Safe used the straight-line method of
amortization in calculating the amortized cost of the Notes as of
January 12, 1995, the date of sale. The amortized cost of the Notes was
determined using a series of computations.
First, the discount on the Notes at purchase was calculated as the
difference between the par value of the Notes (i.e., the principal
amount which the Issuer is obligated to repay upon the maturity of the
Notes) and the price at which the Fund originally purchased the Notes
on August 1, 1994. Thus, $25,000,000 (par value) -$24,988,375 (purchase
price) = $11,625 (discount).
Second, in order to accrete the discount equally over the life of
the Notes, Boston Safe computed the amount of the discount to be
accreted on a daily basis by dividing the discount by the number of
days the Fund anticipated holding the Notes (i.e., from August 1, 1994,
the date of purchase, until maturity on July 10, 1995). Thus, $11,625
(discount) divided by 342 (number of days) 2 = $33.99123 (daily
accretion factor).
\2\ For this purpose, Boston Safe represents that it is standard
practice to determine the number of days by excluding the date of
purchase and the date of maturity on the Notes.
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Third, the accreted discount on the Notes as of January 12, 1995,
the date of sale, was calculated by multiplying the daily accretion
factor by the number of days the Fund had actually held the Notes on
such date. Thus, $33.99123 (daily accretion factor) x 163 (number of
days) = $5,540 (accreted discount).
Finally, the accreted discount was then added to the purchase price
paid by the Fund for the Notes, with the final figure being the
amortized cost of the Notes as of January 12, 1995. Thus, $5,540
(accreted discount) + $24,988,375 (purchase price) = $24,993,915
(amortized cost).
7. Prior to the consummation of the transaction, Boston Safe
obtained valuations of the Notes as of the date of the sale from two
independent pricing services, Kenny S&P Evaluation Services, Inc., and
Muller Data Corporation. Boston Safe states that these pricing services
are the industry standards with respect to the pricing of municipal
bonds. The valuations of the Notes obtained from these independent
pricing services were 85.50 percent of par value and 86.40 percent of
par value, respectively. On the basis of these valuations, Boston Safe
determined that the purchase price paid by Boston Safe to the Fund
exceeded the aggregate fair market value of the Notes as of the date of
the transaction. The purchase price was paid to the Liquidating Account
and then distributed to participating investors holding interests in
the Liquidating Account.
Boston Safe represents that the purchase price paid for the Notes
was distributed to each of the participating investors in the
Liquidating Account, including the employee benefit plans, based on
their respective interests in that account. Such interests were
determined based solely upon the relative values, including accrued
interest on the Notes, of the investors' interests in the Fund on
December 6, 1994. The value of an investor's interest in the Fund on
December 6, 1994 was equal to the amounts deposited by or on behalf of
the investor as of such date, plus its allocable share of the income of
the Fund, less any withdrawals or distributions.
8. Boston Safe, as trustee of the Fund, believed that the sale of
the Notes to Boston Safe was in the best interests of the Fund, and the
employee benefit plans invested in the Fund, at the time of the
transaction. Boston Safe states that any sale of the Notes on the open
market would have produced significant losses for the Fund and for the
individual employee benefit plan investors involved. Boston Safe
represents that the sale of the Notes by the Fund to Boston Safe
benefitted the participating investors in the Fund having an interest
in the Liquidating Account by placing such investors, including the
employee benefit plans, in the same economic position they would have
occupied absent the insolvency of the Issuer. The participating
investors in the Fund benefitted further because the purchase price
paid by Boston Safe for the Notes substantially exceeded the aggregate
fair market value of the Notes, as determined by the two independent
pricing services from whom valuations were obtained. In addition,
Boston Safe states that the transaction was a one-time sale for cash in
connection with which the Fund did not bear any brokerage commissions,
fees, or other expenses.
9. Boston Safe represents that it took all appropriate actions
necessary to safeguard the interests of the Fund investors, including
the employee benefit plans, in connection with the sale of the Notes.
Boston Safe ensured that each Fund investor with interests in the
Liquidating Account received the appropriate amount of cash from Boston
Safe representing its respective interest in the Liquidating Account.
10. Boston Safe states that the sale of the Notes by the Fund to
Boston Safe resulted in an assignment of all of the Fund's rights,
claims, and causes of action against the Issuer or any third party
arising in connection with or out of the issuance of the Notes or the
purchase of the Notes by the Fund. Boston Safe states further that if
the exercise of any of the foregoing rights, claims or causes of action
results in Boston Safe recovering from the Issuer or any third party an
aggregate amount that is more than the sum of: (a) the purchase price
paid for the Notes by Boston Safe (i.e. $25,031,269); (b) the original
issue discount on the Notes which remained unamortized as of the date
Boston Safe acquired the Notes
[[Page 40618]]
from the Fund (i.e. $6085); 3 and (c) the interest due on the
Notes from and after the date Boston Safe purchased the Notes from the
Fund, at the rate specified in the Notes, Boston Safe will refund such
excess amounts promptly to the Fund (after deducting all reasonable
expenses incurred in connection with the recovery).
\3\ This amount represents the difference between the original
discount received by the Fund on the purchase of the Notes ($11,625)
and the accreted discount received by the Fund for purposes of the
sale of the Notes to Boston Safe at the amortized cost ($5,540).
Thus, $11,625 - $5,540 = $6085.
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11. In summary, the applicant represents that the transaction
satisfied the statutory criteria of section 408(a) of the Act and
section 4975 of the Code because: (a) The sale of the Notes by the Fund
was a one-time transaction for cash; (b) the Fund received an amount
equal to the amortized cost of the Notes, plus accrued but unpaid
interest, at the time of sale, which was greater than the aggregate
fair market value of the Notes as determined by independent pricing
services at the time of sale; (c) the Fund did not pay any commissions
or other expenses with respect to the sale; (d) Boston Safe, as trustee
of the Fund, determined that the sale of the Notes was in the best
interests of the Fund, and the employee benefit plans invested in the
Fund, at the time of the transaction; (e) Boston Safe took all
appropriate actions necessary to safeguard the interests of the Fund in
connection with the transactions and ensured that each Fund investor
having an interest in the Liquidating Account received the appropriate
amount of cash representing its respective interest in the Liquidating
Account; and (f) Boston Safe will promptly refund to the Fund any
amounts recovered from the Issuer or any third party in connection with
its exercise of any rights, claims or causes of action as a result of
its ownership of the Notes, if such amounts are in excess of: (i) The
purchase price paid for the Notes by Boston Safe (i.e. $25,031,269);
plus (ii) the original issue discount on the Notes which remained
unamortized as of the date Boston Safe acquired the Notes from the Fund
(i.e. $6085); plus (iii) the interest due on the Notes from and after
the date Boston Safe purchased the Notes from the Fund, at the rate
specified in the Notes.
Notice to Interested Persons
The applicant states that notice of the proposed exemption shall be
made by first class mail to the appropriate plan fiduciaries for each
employee benefit plan that was a Fund investor with an interest in the
Liquidating Account at the time of the transaction. Notice to the plan
fiduciaries shall be made within fifteen (15) days following the
publication of the proposed exemption in the Federal Register. This
notice shall include a copy of the notice of proposed exemption as
published in the Federal Register and a supplemental statement (see 29
CFR 2570.43(b)(2)) which informs interested persons of their right to
comment on and/or request a hearing with respect to the proposed
exemption. Comments and requests for a public hearing are due within
forty-five (45) days following the publication of the proposed
exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Times Mirror Savings Plus Plan (the Plan) Located in Los Angeles,
California; Proposed Exemption
[Application No. D-10019]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted the restrictions of sections 406(a) and 406 (b)(1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1) (A) through
(E) of the Code shall not apply to (1) the proposed extensions of
credit (the Loans) to the Plan by the Times Mirror Company (the
Employer), the sponsor of the Plan, with respect to three guaranteed
investment contracts issued by Confederation Life Insurance Company of
Canada (Confederation); (2) the Plan's potential repayment of the
Loans; and (3) the potential purchase of the GICs from the Plan by the
Employer for cash; provided the following conditions are satisfied:
(a) All terms and conditions of the transactions are no less
favorable to the Plan than those which the Plan could receive in arm's-
length transactions with unrelated parties;
(b) No interest and/or expenses are paid by the Plan in connection
with the transactions;
(c) Repayment of the Loans will be restricted to the GIC Proceeds,
defined as cash proceeds obtained by the Plan from Confederation, state
guaranty funds, any successor to Confederation, or any other third
party making payments with respect to the obligations of Confederation
under the GICs;
(d) Repayment of the Loans will be waived to the extent that the
Loans exceed the GIC Proceeds; and
(e) In any sale of the GICs to the Employer, the Plan will receive
a purchase price which is the higher of (1) the fair market value of
the GIC less any amounts previously received by the Plan with respect
to the GIC, or (2) the value of the GIC as set forth in paragraph 6 of
this Proposed Exemption, with such purchase price determination to be
made by the Bank of America, the Plan's Trustee (the Trustee).
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan which
includes a cash or deferred arrangement which is intended to qualify
under sections 401(a) and 401(k) of the Code. In addition to salary
deferral contributions, the Plan provides for voluntary participant
contributions and Employer matching contributions from company profits.
The employees eligible to participate in the Plan are employees of the
Employer and seventeen subsidiaries including the Baltimore Sun
Company, Matthew Bender & Company, Newsday, Inc., and the Sporting News
Publishing Company. The Plan currently has approximately 17,600
participants, and Plan assets totalled $397.9 million as of December
31, 1994.
Individual participant accounts are maintained within the Plan. The
Plan also holds accounts attributable to a payroll-based tax credit
employee stock ownership plan on behalf of certain participants (PAYSOP
Accounts), although no contributions have been made to the PAYSOP
Accounts with respect to participant compensation paid after December
31, 1986. The PAYSOP Accounts are invested in Employer stock. All other
accounts are invested at the direction of individual Plan participants
among five investment funds, one of which is the Income Fund. The
Income Fund invests in fixed income contracts, including the GICs, and
short-term marketable securities. As of December 31, 1994, the Income
Fund had assets of $103.4 million, and 9,473 Plan participants had a
portion of their account balances invested in the Income Fund.
The Employer is the Plan administrator and named fiduciary under
the Act. The Employer's authority to control and manage the Plan is
delegated to the Retirement Plan Administrative Committee, the members
of which are appointed by the Retirement Plan Committee, a sub-
committee of the Board of Directors of the Employer. The assets of the
Plan are held in Trust by the Bank of America. Investment authority is
held by the
[[Page 40619]]
Retirement Plan Committee which may invest Plan assets or may appoint
an investment manager or managers. In any event, the Retirement Plan
Committee is charged with the responsibility to monitor the investment
performance of Plan assets.
2. The Employer is organized under the laws of the state of
Delaware with its principal offices located in Los Angeles, California.
It is publicly owned, and its shares are traded on the New York Stock
Exchange. The Employer's primary business activities are newspaper
publishing and the publication of professional information.
3. Among the assets of the Income Fund are the three GICs issued by
Confederation. The GICs were purchased in April 1990, June 1990 and
April 1991. Each of the GICs has a length of five years, and have
interest rates of 9.43%, 9.21%, and 8.38% respectively. The GICs
purchased in June 1990 and April 1991 permit benefit responsive
withdrawals to fund benefit payments, investment fund transfers and
hardship and other in-service withdrawals. The GIC purchased in April
1990 does not permit withdrawals without penalty. The terms of each GIC
provide that a payment is to be made to the Plan each year consisting
of the interest earned for the year less any withdrawals during the
year. All interest payments due from Confederation through 1994 have
been paid to the Plan. A final payment of principal and interest is due
on the maturity date of each GIC. The final payment on the GIC
purchased in April of 1990 was due on April 12, 1995, and the final
payment on the GIC purchased in June of 1990 was due on July 1, 1995.
Such payments have not been made by Confederation, nor has
Confederation paid the April 1995 interest payment due on the GIC
purchased in April 1991. As of August 12, 1994 the three GICs had a
total book value (principal payments plus accrued interest) of $7.14
million.
4. On August 11, 1994, Canadian insurance company regulators seized
the assets of Confederation. On the following day, the State of
Michigan Insurance Commissioner seized the U.S. assets of Confederation
and commenced legal action to place the U.S. operations of
Confederation in a rehabilitation proceeding.4 As a result of
these actions, withdrawals and interest payments have been suspended,
except to the extent the Plan holds a benefit-responsive contract. In
the latter case, the Plan may withdraw up to 1.5% of the contract value
each year for the purpose of making participant-requested withdrawals.
A Special Deputy Rehabilitator (the Rehabilitator) has been appointed
by the State of Michigan to oversee the rehabilitation of
Confederation. The Rehabilitator will set the interest rate to be paid
on Confederation contracts following the seizure by the Michigan
authorities. The applicant represents that it is not possible to
determine the extent to which earnings under the Rehabilitation Plan
will fall short of the interest rates stated in each GIC, when interest
and maturity payments will resume, and the extent to which the Plan
will suffer a loss of principal. In order to relieve the uncertainty
with respect to the GICs, and to prevent losses that may result from
the Rehabilitation of Confederation, the Employer proposes to enter
into the transactions described below.
\4\ The Department notes that the decisions to acquire and hold
the GICs are governed by the fiduciary responsibility provisions of
Part 4 of Title I of the Act. In this proposed exemption, the
Department is not proposing relief for any violations of Part 4
which may have arisen as a result of the acquisition and holding of
the GICs.
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5. The Employer proposes to make Loans to the Plan pursuant to a
written agreement (the Agreement) under which the Loans will be non-
interest bearing and non-recourse against the Plan and its participants
and beneficiaries, except for the GIC Proceeds. In addition, the Plan
will incur no expenses related to the Loans. The Loans will be made
over at least the remaining terms of the GICs to fund any withdrawals,
including investment fund transfers, and hardship and other in-service
withdrawals, (offset by amounts paid for withdrawals by Confederation,
see 4 above). In addition, the Employer will make Loans to enable the
Income Fund to receive the interest payments due under the GICs.
Interest through October 31, 1994, will be calculated at the rate
specified in each GIC. Interest from November 1, 1994 until the date
the Rehabilitator announces an interest rate for the GICs will be a
Market Rate of interest described below. Interest for the period
following the Rehabilitator's announcement will be at the rate set by
the Rehabilitator. The Market Rate of interest for each month will be
the rate reported for one year GICs in the Wall Street Journal on the
last business day of the prior month. If the interest rate announced by
the Rehabilitator exceeds the Market Rate, the Employer will advance
the difference for the period the Market Rate was used. Further, the
Employer may, at any time, lend the Plan the entire amount of principal
and interest, as computed above, due under the GICs to allow the Plan
to reinvest the proceeds and increase the return to Plan participants.
The Agreement also provides that repayment may only be made from
the GIC Proceeds. To the extent the GIC proceeds are insufficient to
repay the Loans, repayment will be waived by the Employer.
6. In addition to the Loans, the Agreement provides that Employer
may purchase the GICs from the Plan. Upon the maturity date of each
GIC, the Employer has the option of continuing to make the Loans to
fund withdrawals and interest payments or to purchase the GICs as
described herein. Within 60 days of the latest of: (a) The maturity
date of the GIC; (b) the announcement of the Rehabilitation interest
rate, or (c) the date of grant of this proposed exemption; the Employer
may purchase each GIC from the Plan for the principal amount of each
GIC plus interest at the contract rate through October 31, 1994, and
the higher of the Market Rate or the Rehabilitation Rate from November
1, 1994 through the date of sale, less previous withdrawals and
outstanding Loans (exclusive of Loans made to fund withdrawals) with
respect to that GIC. In no event will the sales price for each GIC be
less than the fair market value of the GIC less amounts previously
received by the Plan with respect to the GIC.
7. The Trustee has determined that the proposed transactions are in
the best interests of the Plan and its participants and beneficiaries.
Further, should the Employer decide to purchase the GICs, such purchase
price will be the higher of (a) the fair market value of the GICs (less
amounts previously received by the Plan), or (b) the value as computed
in 6. above, as determined by the Trustee.
8. In summary, the Employer represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (a) The transactions will enable the Plan to recover
all amounts due with respect to the GICs; (b) the Loans will able the
Plan to resume the ability to fund benefit payments, participant loans,
hardship withdrawals and investment fund transfers within the Plan; (c)
repayment of the Loans will be restricted to the GIC proceeds; (d)
repayment will be waived to the extent the Loans exceed the GIC
proceeds; (e) no interest or expenses will be incurred by the Plan with
respect to the transactions; and (f) the Trustee has determined that
the proposed transactions are in the best interests of the Plan and its
participants and beneficiaries, and in the event of a
[[Page 40620]]
sale of the GICs to the Employer, the price will be determined by the
Trustee.
NOTICE TO INTERESTED PERSONS: Notice to interested persons will be
provided within 30 days of the date of publication of this Notice in
the Federal Register. Comments and requests for a hearing are due 60
days from the date of publication of this Notice.
FOR FURTHER INFORMATION CONTACT: Charles S. Edelstein of the
Department, (202) 219-8881. (This is not a toll-free number.)
Acushnet Company Employee Savings Plan (the Plan) Located in Fairhaven,
Massachusetts; Proposed Exemption
[Application No. D-10026]
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
406(b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1) (A)
through (E) of the Code, shall not apply to the proposed cash sale by
the Plan of guaranteed investment contract No. GA-5244 (the GIC) issued
by Mutual Life Insurance Company of New Jersey (Mutual Benefit), to the
Acushnet Company (the Employer), a Delaware corporation and a party in
interest with respect to the Plan, provided the following conditions
are met: (1) The sale is a one-time transaction for cash; (2) the Plan
experiences no loss and incurs no expense from the sale; (3) the Plan
receives as consideration for the sale the greater of either (a) the
fair market value of the GIC on the date of the sale, or (b) the
accumulated book value of the GIC as set forth in paragraph 3 of this
Notice, with such determination to be made by the State Street Bank and
Trust Company, the Plan fiduciary with respect to the GIC.
Summary of Facts and Representations
1. The Employer is a Delaware corporation with its principal
offices in Fairhaven, Massachusetts. It is a wholly- owned subsidiary
of American Brands, Inc. a publicly held corporation whose stock is
traded on the New York Stock Exchange. The Employer is engaged in the
manufacture and distribution of golf balls, golf shoes, gloves and
related products.
2. The Plan is a defined contribution plan with individual accounts
for Plan participants which is intended to qualify under sections
401(a) and 401(k) of the Code. Participants have the right to self
direct the investment of the assets in their individual accounts. Plan
assets totaled $70.6 million as of February 28, 1995. Also as of
February 28, 1995, there were 2,183 Plan participants and beneficiaries
who will be affected by the proposed transaction.
Prior to July 1, 1991, the Plan permitted investments in two
investment funds. One of the investment funds, the Fixed Fund, was
invested in several guaranteed investment contracts including the GIC
issued by Mutual Benefit. The GIC was purchased effective December 1,
1990, with a maturity date of September 30, 1992, and an interest rate
of 8%. The GIC was to be paid in full by Mutual Benefit on its maturity
date. The GIC represented approximately 10% of the Fixed Fund's assets.
Effective July 1, 1991, the Plan was amended to transfer the GIC from
the Fixed Fund to a new investment fund called the Frozen Mutual
Benefit GIC Fund (the Frozen GIC Fund). The sole asset of the Frozen
GIC Fund is the GIC which is the subject of this proposed exemption.
The Plan was also amended to prohibit: (1) Investments into the Frozen
GIC Fund; (2) investment transfers from the Frozen GIC Fund into other
investment funds; and (3) withdrawals from the Frozen GIC Fund for loan
requests. On April 1, 1992, the Fixed Fund was discontinued and six new
funds were made available to Plan participants for the investment of
their individual accounts.
3. On July 16, 1991, the New Jersey Department of Insurance took
control of Mutual Benefit pursuant to an order of the Superior Court of
New Jersey. The court imposed a moratorium on cash withdrawals from
Mutual Benefit's GICs.5 On November 10, 1993, the New Jersey
Superior Court approved a rehabilitation plan for Mutual Benefit (the
Rehabilitation Plan). On April 29, 1994, the GIC was restructured and
transferred to MBL Life Assurance Corporation (MBLLAC). Pursuant to the
Rehabilitation Plan, principal payments with respect to the GIC will
generally not be made until December 31, 1999, a lower rate of interest
will be credited on the GIC for periods after December 31, 1991 than is
guaranteed under the terms of the GIC and interest will be credited
each year after 1994 based on MBLLAC's investment performance.
\5\ The Department notes that the decision to acquire and hold
the GIC is governed by the fiduciary responsibility provisions of
Part 4, Subtitle B, Title I of the Act. In this regard, the
Department is not herein proposing relief for any violations of Part
4 which may have arisen as a result of the acquisition and holding
of the GIC by the Plan.
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In lieu of subjecting participants of the Plan to the investment
risks associated with retaining the GIC, and to permit the participants
to redirect the funds invested in the Mutual Benefit GIC to safer
investments without loss to the individual accounts of the participants
in the Plan, the Employer proposes to purchase the GIC from the
Plan.6 In this regard, the Employer proposes to pay the Plan, in a
one-time cash sale transaction, an amount that is not less than the
accumulated book value of the GIC, which was $3,722,435 as of May 31,
1995. The accumulated book value is the total amount paid by the Plan
for the GIC plus interest, less prior withdrawals. Interest will be
calculated at the contract rate of 8% until September 30, 1992 which
was the maturity date of the GIC. For the period beginning on October
1, 1992 through December 31, 1992, interest will be credited at a rate
equal to 4%. For the period beginning on January 1, 1993 through
December 31, 1994, interest will be credited at an annual rate equal to
3.5%. For 1995, interest will be credited at 3.55%. The rates of
interest for periods after the maturity date of the GIC are the rates
applicable to the GIC for those periods according to the Rehabilitation
Plan. No expenses will be incurred by the Plan for the proposed
transaction. In no event will the purchase price be less than the fair
market value of the GIC on the date of sale.
\6\ The applicant previously applied for an administrative
exemption to permit the Employer to make interest-free loans to the
Plan which would enable the Plan to make benefit distributions to
Plan participants (Exemption Application D-9146). The Department
responded by letter dated August 5, 1992, that such loans may be
encompassed by Prohibited Transaction Class Exemption (PTCE) 80-26
(45 FR 28545, April 29, 1980), and thus to the extent the
transactions satisfy the conditions of PTCE 80-26, an administrative
exemption is not necessary. The applicant represents that the
Employer has not implemented the interest-free loan program
described in application D-9146.
4. The State Street Bank and Trust Company of Boston,
Massachusetts, (State Street) which was the Plan trustee at the time
the GIC was purchased, is the current Plan fiduciary with respect to
the GIC. At the time of the consummation of the transaction, State
Street as Plan fiduciary will determine the purchase price for the GIC
with such price to be the higher of (a) The fair market value of the
GIC, or (b) the accumulated book value of the GIC as described in 3.
above.
5. In summary, the applicant represents that the proposed
transaction will satisfy the criteria of section 408(a)
[[Page 40621]]
of the Act because: (a) The proposed transaction is a one-time
transaction for cash; (b) the proposed transaction will enable the Plan
and its participants and beneficiaries to avoid any risks associated
with the continued holding of the GIC; (c) the Plan will receive the
higher of: (1) The fair market value of the GIC or (2) the accumulated
book value of the GIC, with such determination be made by State Street;
and (d) the Plan will not incur any expenses or loss from the proposed
transaction.
FOR FURTHER INFORMATION CONTACT: Charles S. Edelstein of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
New Bedford Institution for Savings Employee Stock Ownership Plan (the
Plan) Located in New Bedford, Massachusetts; Proposed Exemption
[Application No. D-10033]
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),
and 407(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 (E) of the Code, shall not apply to the past acquisition and
holding by the plan of certain stock warrants (the Warrants) in
connection with a merger (the Merger) of NBB Bancorp, Inc. (NBB), the
parent company of the Plan's sponsor, New Bedford Institution for
Savings (NBB Bank), with Fleet Financial Group, Inc. (Fleet), provided
the following conditions were satisfied: (a) The Plan's acquisition and
holding of the Warrants occurred in connection with the Merger pursuant
to which (i) all shares of common stock of NBB (NBB Stock) were
converted, at the election of the shareholder, into cash or shares of
common stock of Fleet (Fleet Stock) and (ii) each shareholder received
0.28 Warrants for each share of NBB Stock; (b) the acquisition and
holding of the Warrants resulted from the independent action of NBB as
a corporate entity, and all holders of NBB Stock, including the Plan,
were treated in the same manner with respect to the Merger; and (c) the
Warrants were automatically issued to the Plan, which made no
affirmative election to acquire the Warrants.
Effective Date: If the proposed exemption is granted, the exemption
will be effective January 27, 1995.
Summary of Facts and Representations
1. The Plan is an employee stock ownership plan which, prior to the
Merger, was maintained by NBB Bank, a Massachusetts savings bank and
wholly owned subsidiary of NBB, a Delaware corporation. As of September
30, 1994, the Plan had 349 participants and total assets of
approximately $7 million. As of that date, the assets of the Plan
consisted of NBB Stock and cash.7 The Plan is administered by a
committee (the ESOP Committee) which, prior to the Merger, was
appointed by the Board of Directors of NBB Bank and is currently
composed of members appointed by Fleet Bank of Massachusetts, N.A.
(Fleet Bank). The trustee of the Plan is Investors Bank and Trust
Company (the Trustee), a Massachusetts trust company.
\7\ The applicant represents that the NBB Stock constituted
``qualifying employer securities'' within the meaning of section
407(d)(5) of the Act, and therefore, the Plan's ownership of such
stock satisfied the requirements of section 407(a) of the Act. In
this proposed exemption, the Department expresses no opinion as to
whether the requirements of section 407 of the Act were satisfied.
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2. Fleet is a Rhode Island corporation which is parent company to a
number of direct and indirect wholly-owned subsidiary banks, including
Fleet Bank. On May 9, 1994, Fleet entered into an Agreement and Plan of
Merger with NBB (the Agreement), providing for the Merger. As part of
the Merger, Fleet Bank and NBB Bank entered into a separate merger
agreement providing for the merger of NBB Bank with and into Fleet
Bank. As a result of the Merger, Fleet Bank became the sponsor of the
Plan.8
\8\ The applicant represents that each shareholder of NBB Bank,
including the Plan, was entitled to vote on the Merger. The right to
vote the Plan's NBB Stock was passed through to the participants.
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3. Under the terms of the Agreement, on the effective date of the
Merger, January 27, 1995 (the Effective Date), each share of NBB Stock
issued and outstanding immediately prior to the Effective Date (except
treasury shares, shares held by NBB, Fleet or any of their subsidiaries
in a fiduciary capacity or as collateral for a debt, and certain
dissenting shares) was converted, at the election of the shareholder,
into either cash in the amount of $48.50 or 1.457 shares of Fleet
Stock. Each shareholder also received 0.28 Warrants for each share of
NBB Stock. Each Warrant confers upon its holder the right to acquire
one share of Fleet Stock at a purchase price of $43.875. Warrants may
be exercised at any time during the five-year period commencing on the
first anniversary of the Effective Date. The Warrants are treated as
separate securities under federal securities laws and are traded on the
New York Stock Exchange separately from Fleet Stock. The applicant
represents that the Warrants and Fleet Stock issued in connection with
the Merger were issued pursuant to an appropriate registration
statement filed with the U.S. Securities and Exchange Commission prior
to the Effective Date.
4. The applicant represents that immediately prior to the Effective
Date, the Plan held 126,061 shares of NBB Stock, all of which were
allocated to participants' accounts under the Plan. The Plan's holdings
represented approximately 1.3% of the total issued and outstanding
shares of NBB Stock.
5. The terms of the Agreement required the termination of the Plan
upon the consummation of the Merger.9 In preparation for the
termination of the Plan, and the subsequent distribution of the
participants' accounts, NBB Bank amended the Plan to permit the
participants to direct the Trustee to exchange the NBB Stock allocated
to their Plan accounts for cash, Fleet Stock or a combination thereof
in accordance with the terms of the Agreement. The applicant represents
that in order to avoid a prohibited transaction under section 406(a)(2)
of the Act, the Plan was also amended to direct the Trustee to sell the
Warrants received by the Plan as soon as practicable.10
\9\ The applicant represents that the Plan was terminated
effective September 30, 1994. The termination was approved by the
Internal Revenue Service by letter dated June 12, 1995. The Plan
currently is in the process of distributing its assets to the
participants and beneficiaries.
\10\ In this regard, we note that although Plan provisions
directed the Trustee to sell the Warrants, the Department has taken
the position that a trustee may follow such plan provisions only to
the extent permitted by section 404(a)(1)(D) of the Act, i.e.,
insofar as such plan provisions are consistent with the provisions
of Titles I and IV of the Act. For example, if a conflict between
the prudence standard and plan provisions occurs, section
404(a)(1)(D) requires that plan provisions give way to the statutory
requirements. Thus, in this case, the Trustee was responsible for
determining, among other things, whether following such provisions
would result in an investment decision which would be prudent for
the Plan and would produce a result which would be for the exclusive
purpose of providing benefits to the Plan participants and
beneficiaries.
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6. Prior to the Effective Date, each participant in the Plan
received written information concerning his/her right to elect cash or
Fleet Stock in exchange for the NBB Stock allocated to his/her account,
and an election form to be returned to the ESOP Committee.11 The
[[Page 40622]]
Plan acquired 51,116 shares of Fleet Stock and cash in the amount of
$4,412,384 as a result of the Merger.12 The Plan also acquired
35,295 Warrants. The applicant represents that the Warrants were
automatically issued to each shareholder of NBB Stock in connection
with the Merger on January 27, 1995. Thus, the Plan did not make any
affirmative decision to accept the Warrants. Pursuant to the terms of
the Plan as amended, the Warrants were sold by the Trustee in a blind
transaction on the open market on April 7, 1995, for a price equal to
$4.428 per Warrant or $156,301.50 in the aggregate. This amount was
allocated among the Plan participants' accounts in the same proportion
as the NBB Stock held in a participant's account immediately prior to
the Effective Date bore to the total NBB Stock held by the Plan at such
time.
\11\ Out of over 300 Plan participants, only 14 failed to make
an election. As to these participants, the ESOP Committee directed
that they be treated in the same manner as non-Plan holders of NBB
Stock who made no election. Accordingly, like the non-Plan holders
of ``no election'' shares, these participants received Fleet Stock
in connection with the Merger pursuant to provisions in the
Agreement requiring that a minimum amount of Fleet Stock be issued
in connection with the Merger and establishing a procedure for
allocating such Stock among the holders of NBB Stock.
\12\ The applicant represents that the Fleet Stock constitutes
``qualifying employer securities'' within the meaning of section
407(d)(5) of the Act and, therefore, the Plan's ownership of Fleet
Stock satisfies the requirements of section 407(a) of the Act. In
this proposed exemption, the Department expresses no opinion as to
whether the requirements of section 407(a) of the Act are satisfied.
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7. In summary, the applicant represents that the subject
transaction satisfied the criteria contained in section 408(a) of the
Act because: (a) The Plan's acquisition and holding of the Warrants
resulted from an independent action of NBB as a corporate entity; (b)
all holders of NBB Stock, including the Plan, were treated in the same
manner in connection with the Merger; and (c) the Warrants were
automatically issued to the Plan, which made no affirmative election to
acquire the Warrants.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 4th day of August, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-19663 Filed 8-8-95; 8:45 am]
BILLING CODE 4510-29-P
