[Federal Register Volume 59, Number 189 (Friday, September 30, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-24184]
[[Page Unknown]]
[Federal Register: September 30, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9767, et al.]
Proposed Exemptions; Del Monte Savings Plan; et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
request for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing. A request for a hearing must also state the issues to be
addressed and include a general description of the evidence to be
presented at the hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.
20210. Attention: Application No. stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
Pension and Welfare Benefits Administration, U.S. Department of Labor,
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of
the Secretary of the Treasury to issue exemptions of 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.
Del Monte Savings Plan, and Del Monte Certain Hourly Savings Plan
(the Plans) Located in San Francisco, CA
[Application Nos. D-9767 & D-9768]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to (1) The proposed extension of credit to
the Plans (the Loan) by Del Monte Corporation (the Employer), the
sponsor of the Plans, with respect to the Plans' interests in
guaranteed investment contract No. CG01300B3A (the GIC) issued by
Executive Life Insurance Company of California (Executive Life); and
(2) the Plans' potential repayment of the Loan (the Repayments);
provided that the following conditions are satisfied:
(A) All terms and conditions of such transactions are no less
favorable to the Plans than those which the Plans could obtain in
arm's-length transactions with unrelated parties;
(B) No interest or expenses are paid by the Plans;
(C) The Loan is made in lieu of amounts to be paid to the Plan
under the plan of rehabilitation resulting from the bankruptcy of
Executive Life (the Rehab Plan);
(D) The Repayments shall not exceed the principal amount of the
Loan;
(E) The Repayments shall not exceed the amounts actually received
by the Plans under the Rehab Plan; and
(F) Repayment of the Loan shall be waived to the extent that the
amount of the Loan exceeds the amount of cash recovered by the Plans
under the Rehab Plan.
Summary of Facts and Representations
1. The Employer is a New York corporation engaged in the business
of processing and marketing canned vegetables and fruit, with its
corporate headquarters in San Francisco, California. The Employer is a
wholly-owned subsidiary of Del Monte Foods Company (DMFC), a Maryland
corporation. On behalf of its employees and those of its affiliates,
the Employer sponsors both of the Plans, which are defined contribution
pension plans providing for individual participant accounts (the
Accounts) and participant-directed investment of the Accounts. As of
December 31, 1993, the Plans had approximately 3,730 participants.
2. The Plans' assets are held in a master trust (the Master Trust)
of which the trustee is the Merrill Lynch Trust Company of California
(the Trustee). The named fiduciary of each Plan is the Del Monte
Investment Committee (the Committee), which consists of five employees
of the Employer appointed by the Employer's board of directors. The
Committee designates the investment options into which the Plans'
participants may direct the investment of their Accounts. The Plans
currently offer five investment options, one of which is the Interest
Income Fund (the I Fund), which invests in, among other things,
guaranteed investment contracts issued by insurance companies. As of
December 31, 1993, the I Fund represented approximately 54 percent of
the fair market value of the assets of the Master Trust. The assets of
the I Fund include guaranteed investment contract No. CG01300B3A (the
GIC). The GIC was issued to the Plans on or about December 1, 1990 by
Executive Life Insurance Company of California (Executive Life) as part
of an arrangement whereby Executive Life agreed to ``clone'' a contract
previously held by the Plans' predecessor plans (the Predecessor
Plans), in connection with the sale of the Employer to DMFC in 1990 and
the Employer's agreement that the Plans would assume the assets and
liabilities of the Predecessor Plans. The GIC is a benefit-responsive
contract permitting withdrawals for plan benefits, loans, and
participant-directed reallocations among investment options under the
Plans, and was issued in the principal amount of $3,899,130.43, with a
guaranteed simple annual interest rate of 9.22 percent (the Contract
Rate) to the July 1, 1993 maturity date.
The Committee has designated Merrill Lynch Asset Management, Inc.
(MLAM) as the investment manager for the I Fund. MLAM and the Trustee
are both subsidiaries of Merrill Lynch & Co. In accordance with
investment guidelines provided by the Committee, MLAM generally invests
and manages the I Fund's assets, which consist of Plan contributions,
participant reallocations of Account balances to the I Fund, and
proceeds of maturing investments. MLAM represents that it is not an
investment manager within the meaning of Section 3(38) of the Act with
respect to any ``cloned'' contracts, including the GIC, which were
issued to the Plans as part of the asset transfer from the Predecessor
Plans.1
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\1\ In this proposed exemption, the Department expresses no
opinion as to whether or not MLAM constitutes an investment manager
within the meaning of Section 3(38) of the Act.
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3. On April 11, 1991 (the Conservation Date), Executive Life was
placed in conservatorship by the Commissioner of Insurance of the State
of California.2 As of that date, payments under the GIC were
suspended, and no withdrawals or payments from the GIC have been made
since the Conservation Date. As of the Conservation Date, the GIC had a
book value of $3,766,668, representing total principal deposits under
the GIC plus accrued interest at the Contract Rate less previous
withdrawals, and constituting approximately 2.4 percent of the assets
of the I Fund at that time. Effective April 30, 1991, the Committee
froze a proportionate share of each of the 2,918 Accounts invested in
the I Fund. With respect to the frozen portion of each Account, the
Committee has prohibited the crediting of earnings, the making of
distributions, withdrawals and loans, and the reallocation of the
frozen Account portions to other investment options of the Plans.
Printed Account statements provided to the Plans participants have
reported the frozen Account portions separately, indicating the frozen
status.
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\2\ The Department notes that the decision to acquire and hold
the GIC is governed by the fiduciary responsibility requirements of
Part 4, Subtitle B, Title I of the Act. In this proposed exemption,
the Department is not proposing relief for any violations of Part 4
which may have arisen as a result of the acquisition and holding of
the GIC.
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4. In September 1993, the Employer entered into a written agreement
for the sale of substantially all the assets of one of the Employer's
business units to Silgan Containers Corporation (Silgan). Pursuant to
that agreement, the Employer is required to transfer to one or more
individual account plans maintained by Silgan (the Silgan Plans) the
assets and liabilities of the Plans with respect to the Accounts of the
Plans' participants who transferred employment from the Employer to
Silgan as a result of the sale of the business unit. The parties agreed
that the asset transfer is to be made in cash. The asset transfer
includes 288 Accounts which are subject to the proportionate freeze
resulting from the Executive Life conservatorship.
5. On August 13, 1993, the Los Angeles Superior Court approved the
terms of the Rehabilitation/Liquidation Plan for Executive Life (the
Rehab Plan) effective September 3, 1993. On or about December 29, 1993,
each holder of an Executive Life contract was provided with an election
form and summary of the Rehab Plan. Under the Rehab Plan, Executive
Life's guaranteed investment contracts were reduced in value to
approximately 79 percent of the book value as of the Conservation Date
(the Rehab Value), and each holder of such contracts was paid an amount
(the Interim Payment) for accumulated interest and fees for the period
between the Conservation Date and September 3, 1993. Each contract
holder, including the Plans, was informed that each contract holder
could elect by February 12, 1994 to ``opt in'' or ``opt out'' of the
Rehab Plan. The Employer represents that by ``opting in'', according to
the Rehab Plan summary, a contract holder would be issued a new 5-year
contract issued by Aurora National Life Assurance Company, the
successor of Executive Life, in an amount equal to the Rehab Value less
the amount of the Interim Payment, plus the right to receive possible
distributions (Residual Payments) from certain trusts and settlements
which may occur in the liquidation of Executive Life. The Employer
states that, according to the Rehab Plan summary, ``opting out'' of the
Rehab Plan results in a cash settlement, consisting of an immediate
cash payment (the Initial Payment), and the right to receive any
Residual Payments which become available. The Interim Payment was
payable to all contract holders, whether they ``opt in'' or ``opt out''
of the Rehab Plan.
6. The Employer states that after review and consideration of the
Rehab Plan summary and the reports of outside consultants retained for
analysis and advice, the Committee determined that the Plans should
``opt out'' of the Rehab Plan. Accordingly, the Plans received the
Initial Payment on the GIC on March 31, 1994. When combined with the
Interim Payment, the Plans have received approximately 57 percent of
the GIC's Conservation Date book value. The Employer states that the
Residual Payments potentially available to the Plans, as a contract
holder which ``opts out'' of the Rehab Plan, will consist of the net
proceeds, if any, from the following: (a) An allocation holdback equal
to approximately 11 percent of the GIC's Conservation Date book value;
(b) liquidation of three trusts established under the Rehab Plan to
liquidate Executive Life's non-investment grade securities and other
assets, paid through an ``Opt-Out Trust''; and (c) remaining proceeds
from another trust established under the Rehab Plan to deal with bond
indemnification obligations shared by contract holders. The Employer
states that the summary of the Rehab Plan reported that some Residual
Payments may be made annually but others could take a substantial
period of time to realize. The Employer represents that under the Rehab
Plan, neither the timing nor the amount of any Residual Payments can be
determined with certainty. However, the Employer represents that on the
basis of the Rehab Plan summary and the analysis conducted by
consultants retained to assist the Committee, the Committee estimates
that the Plans will receive total Residual Payments of $1,073,500.30
(the Estimated Residuals), or about 28.5 percent of the GIC's book
value as of the Conservation Date.
7. In order that the frozen portions of the Accounts may be
released without the delay and uncertainty of awaiting the Residual
Payments, and in order to enable the transfer of assets from the Plans
to the Silgan Plans, the Employer proposes to loan the Plans the amount
of the Estimated Residuals (the Loan), and is requesting an exemption
to permit the Loan under the terms and conditions described
herein.3 The Loan, pursuant to a written agreement, will be made
in a lump sum in the amount of the Estimated Residuals less any
Residual Payments which the Plans may have received prior to the Loan.
The Loan will be made as soon as practicable after the Committee has
obtained the exemption proposed herein, if granted, and a closing
agreement with respect thereto has been consummated with the Internal
Revenue Service. The repayment of the Loan (the Repayments) will be
limited to the cash proceeds, if any, received by the Plan as Residual
Payments after the date of the Loan. Repayments are due only as and
when Residual Payments are received by the Plans. No interest will be
paid on the Loan, and the Plans will incur no expenses with respect to
the Loan. Under no circumstances will the Repayments exceed the Loan.
At such time as the Trustee or Executive Life notifies the Employer
that no further Residual Payments will be made, repayment of any
outstanding Loan amount will be waived by the Employer.
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\3\The Department notes that this exemption, if granted, will
not affect the ability of any participant or beneficiary to bring a
civil action against Plan fiduciaries for breaches of section 404 of
the Act in connection with any aspect of the GIC transactions.
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8. If the proposed exemption is granted, the Committee intends to
revalue the Plans' investment in the GIC (the Adjusted Value) to equal
the sum of the Initial Payment, the Interim Payment, the Loan, and any
Residual Payments received prior to the Loan. Each frozen Account will
also be adjusted to reflect the Adjusted Value accordingly, reducing
the Plans' recorded investment in the GIC from the Conservation Date
book value to the Adjusted Value, and a proportional percent of each
frozen Account will be recorded as a loss. After the Loan is made and
the Accounts are adjusted, the Committee will remove the freeze on the
Accounts invested in the GIC and the Plans will resume distribution,
withdrawals, loans and interfund transfers with respect to Account
portions previously subject to the freeze. Additionally, the Plans will
be able to complete the transfer of assets to the Silgan Plans, in
accordance with the agreement of sale of the Employer's business unit
to Silgan, by transferring the previously frozen Account portions on
the basis of the Adjusted Value and by utilizing the cash made
available by the Loan.
9. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act for the
following reasons: (a) All terms and conditions of the Loan will be no
less favorable to the Plans than those which the Plans could obtain in
an arm's-length transaction with an unrelated party; (b) The Loan will
enable the Plans to resume normal operations with respect to the frozen
portion of the Accounts; (c) The Loan will enable the completion of the
transfer of assets to the Silgan Plan with respect to 288 frozen
Accounts; (d) No interest or expenses will be paid by the Plans; (e)
The Repayments will be restricted to the Residual Payments received by
the Plans pursuant to the Rehab Plan; (f) The Repayment will not exceed
the Loan or the Residual Payments received after the Loan is made; and
(g) The Repayments will be waived to the extent the Loan exceeds
Residual Payments received by the Plans after the Loan is made.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Xerox Corporation Profit Sharing and Savings Plan (the PSSP); Xerox
Corporation Retirement Income Guarantee Plan (the RIGP); Profit Sharing
Plan of Xerox Corporation and the Xerographic Division, A.C.T.W.U, AFL-
CIO (the Union PSP); and the Retirement Income Guarantee Plan of Xerox
Corporation and the Xerographic Division, A.C.T.W.U, AFL-CIO (the Union
RIGP; Collectively, the Plans) Located in Stamford, Connecticut
[Application Nos. D-9778 through D-9781]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted the restrictions of sections 406(a), 406(b)(1) and (b)(2) of
the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code, shall not apply to the proposed guarantees (the Guarantees)
by the Xerox Corporation (the Employer), the sponsor of the Plans, of
amounts payable to the Plans by the Aurora National Life Assurance
Company (Aurora) with respect to five group annuity contracts (the
GACs) originally issued by Executive Life Insurance Company of
California (Executive Life); provided that the following conditions are
satisfied:
(A) All terms and conditions of such transactions are no less
favorable to the Plans than those which the Plans could obtain in
arm's-length transactions with unrelated parties;
(B) The Guarantees are made solely with respect to the amounts
which are due the Plans, but unpaid, with respect to the GACs; and
(C) The Settlement Agreement described in the Summary of Facts and
Representations, below, is approved by the U.S. District Court,
District of Connecticut.
Summary of Facts and Representations
Introduction: In 1994, the Xerox Corporation and other defendants
to certain litigation entered into a settlement agreement which
requires, among other things, that Xerox Corporation guarantee the
Plans' receipt of certain payments in connection with the
rehabilitation of Executive Life Insurance Company of California. Xerox
Corporation also has undertaken to make a similar guarantee with
respect to certain of the Plans' participants who were not parties to
the litigation settlement agreement. Xerox Corporation is requesting an
exemption to permit these guarantees, under the terms and conditions
described herein.
1. Xerox Corporation (the Employer) is a publicly-held New York
corporation engaged in the development, manufacture, marketing, and
servicing of document processing technology, with its corporate
headquarters in Stamford, Connecticut. The Employer maintains various
qualified employee benefit plans for its employees, including the
Plans, the assets of which are held in the Xerox Corporation Trust
Agreement to Fund Retirement Plans (the Master Trust), which had total
assets of approximately $4.6 billion as of December 31, 1993. The Union
PSP and the Union RIGP (the Union Plans) are maintained pursuant to
collective bargaining agreements between the Employer and the
Xerographic Division of the Amalgamated Clothing and Textile Workers'
Union, A.F.L.-C.I.O. (the Union). The trustee of the Master Trust is
the State Street Bank and Trust Company of North Quincy, Massachusetts
(the Trustee), serving as a directed trustee according to directions of
a delegee of a committee of representatives of the Employer's board of
directors (the Committee). The PSSP and the Union PSP are defined
contribution plans (the DC Plans) which provide for individual
participant accounts and participant-directed investment of such
accounts among investment options in the Master Trust (the MT Funds).
The RIGP and Union RIGP are hybrid defined benefit plans (the DB Plans)
in which certain participants may accrue benefits measured in part by
reference to individual accounts consisting of contributions made on
the participant's behalf. The individual accounts of the DB Plans are
invested among the MT Funds.
2. Included among the MT Funds as of April 1, 1991 was a guaranteed
fund (the G Fund) which invested primarily in group annuity and
guaranteed investment contracts issued by various insurance companies.
As of April 1, 1991, the G Fund had approximately $65.6 million
invested in group annuity contracts (the GACs) issued by Executive Life
Insurance Company of California (ELIC), representing approximately 7.5
percent of the assets in the G Fund as of that date. On April 11, 1991,
the Insurance Commissioner of the State of California (the
Commissioner) ordered a conservatorship (the Conservatorship) of ELIC,
and halted all payments on ELIC's guaranteed contracts, including the
GACs.4 The Employer represents that it took immediate protective
action on behalf of the Plans' participants, by segregating the G Fund
assets attributable to the GACs in a new segregated fund (the
Segregated Fund), effective April 1, 1991. The account of each Plan
participant with an interest in the G Fund as of April 1, 1991 was
assigned an interest in the Segregated Fund, in proportion to the GACs'
total value as of April 1, 1991.5 The remaining G Fund assets were
placed in a new fund designated as the Income Fund. The Plan was
amended, effective April 1, 1991, to prohibit distribution, withdrawal,
and transfer of any account balance attributable to the Segregated
Fund.
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\4\The Department notes that the decision to acquire and hold
the GACs are governed by the fiduciary responsibility requirements
of Part 4, Subtitle B, Title I of the Act. In this proposed
exemption, the Department is not proposing relief for any violations
of Part 4 which may have arisen as a result of the acquisition and
holding of the GACs.
\5\Each participant's interest in the Segregated Fund was
determined by multiplying his interest in the G Fund by a fraction,
the numerator of which was the value of G Fund assets invested in
the GACs as of April 1, 1991, and the denominator of which was the
value of total assets in the G Fund as of April 1, 1991.
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3. The Employer represents that on September 3, 1993 the assets and
restructured liabilities of ELIC were assigned to Aurora Life National
Assurance Company (Aurora), pursuant to the Commissioner's court-
approved rehabilitation plan (the Rehab Plan). Under the Rehab Plan,
each ELIC contract holder was permitted to elect between (1) Opting in
to the Rehab Plan, in which case Aurora would assume the ELIC contract,
or (2) opting out of the Rehab Plan, in which case a cash settlement
would be paid in exchange for the ELIC contract. A determination was
made by a delegee of the Committee that the Plans would elect to opt
out of the Rehab Plan, and the appropriate opt-out election forms were
completed by the Trustee. Subsequently, the Plans received $37.9
million (the Initial Recovery), approximately 58 percent of the
Segregated Fund, as part of the Rehab Plan's provisions for ELIC
contract holders who opted out of the Rehab Plan. The Employer
represents that the Commissioner has estimated that such holders of
ELIC contracts can expect to recover a total of about 85 percent of the
Conservatorship Date value of the contracts. Accordingly, the Employer
states that the Plans can expect to recover from Aurora another $17.8
million on the contracts, approximately 27 percent of the Segregated
Fund, over the remaining estimated four years of the Rehab Plan's
operation.
4. However, on April 6, 1992, a class action (the 1992 Litigation)
was commenced on behalf of affected participants and beneficiaries of
the RIGP and PSSP (the Plaintiffs) against the Employer and members of
the Committee (collectively, the Defendants), Maureen Rose, et al., v.
Joan Ganz Cooney, et al., Civil Action No. 5:92-CV-208, Federal
District Court, District of Connecticut (the Court). The Plaintiffs
alleged that the Defendants' actions in connection with the Plans'
purchase of the GACs violated various provisions of the Act. On July
15, 1994, Plaintiffs and Defendants executed an agreement in settlement
of the 1992 Litigation (the Agreement), which provides as follows:
(A) Defendants are to make an initial cash payment of $13 million
to an interest-bearing escrow account (the Escrow). Amounts in the
Escrow, including interest, less attorney's fees and administrative
costs approved by the Court, are to be transferred to the Master Trust
for the benefit of Plaintiffs no sooner than 10 days after the Court
enters a final order approving the Agreement, but only if the
transactions contemplated by the Agreement are approved by the
Department, in the exemption proposed herein, and by the Internal
Revenue Service (the Service). The Employer represents that it is
expected that the Escrow payment to the Master Trust on behalf of
Plaintiffs, after payment of costs and fees, will be approximately $9
million, or about 15 percent of the Plaintiff's account balances in the
Segregated Fund.
(B) In the event that payments after June 3, 1994, and before
January 1, 1999, from Aurora (and any other source related to the
rehabilitation of ELIC, other than any state insurance guaranty
associations) to the Master Trust for the benefit of Plaintiffs with
respect to the GACs are less than $16.1 million, approximately 27
percent of the Plaintiffs' account balances in the Segregated Fund,
then the Employer shall pay the difference to the Master Trust on or
before January 31, 1999. This undertaking by the Employer is referred
to herein as the Settlement Guarantee. The Employer requests an
exemption to permit the Settlement Guarantee under the terms and
conditions of the Agreement and this proposed exemption.
Each Plaintiff will have a pro rata share of the amounts paid under
the Agreement in proportion to the Plaintiff's account's share of the
Segregated Fund. The Employer represents that when added to the amounts
already received from Aurora, the Employer's payments under the
Agreement are expected to ensure that Plaintiffs will recover 100
percent of their account balances in the Segregated Fund. The
Agreement, after approval by the Court, will be in full satisfaction of
all claims of Plaintiffs arising out of the subject matter of the 1992
Litigation, and the 1992 Litigation will be dismissed with prejudice.
The Agreement will be effective only if approved by the Court and only
if the Employer obtains the exemption proposed herein by the Department
and a favorable ruling on the Agreement by the Service. The Employer
represents that the Court entered a preliminary approval of the
Agreement on July 22, 1994, and rendered its final approval of the
Agreement in a hearing on September 8, 1994.6
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\6\In this proposed exemption, the Department is proposing
exemptive relief solely for the Guarantees, and not for any other
aspects of the GAC transactions or the Agreement. The Department
notes that this exemption, if granted, will not affect the rights of
any participant or beneficiary of the Plans with respect to any
civil action against Plan fiduciaries for breaches of section 404 of
the Act in connection with any aspect of the GAC transactions.
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5. Participants in the Union Plans were not parties to the 1992
Litigation. The Employer represents that since 1991, the Union has
demanded that the Union Plans' participants with rights in the GACs
(the Union Participants) be made whole for their losses on the GACs. On
June 9, 1994, a class action lawsuit was filed against the Trustee (the
1994 Litigation) on behalf of the Plaintiffs in the 1992 Litigation and
the Union Participants, alleging that the Trutees' actions in
connection with the Plans' purchase of the GACs violated various
provisions of the Act. Although the proposed Agreement will provide
that the 1994 Litigation be dismissed with prejudice as to the 1992
Litigation Plaintiffs, it will provide that the 1994 Litigation be
dismissed without prejudice as to the Union Participants. The terms of
the Agreement do not require any payments by the Employer to the
Segregated Fund on behalf of the Union Participants. In response to
ongoing demands on behalf of the Union Participants, the Employer has
agreed to make payments to the Master Trust with respect to the Union
Participants in a manner similar to the Agreement's provisions for the
1992 Litigation Plaintiffs. Specifically, the Employer will make an
initial cash payment to the Master Trust on behalf of the Union
Participants equal to 15 percent of the Segregated Fund account
balances of the Union Participants. The Employer also guarantees to
make additional payments to the extent that amounts received by the
Master Trust from Aurora for the benefit of Union Participants after
June 3, 1994 and before January 1, 1999 are less than $1.8 million, or
27 percent of the Union Participants' account balances in the
Segregated Fund. The Employer's guarantee to make such additional
payments (the Union Guarantee) is included in the Guarantees for which
the Employer requests an exemption, under the terms and conditions of
the exemption proposed herein.7 The Employer represents that, when
added to amounts already received from Aurora, the initial payments and
contingent additional payments by the Employer pursuant to the Union
Guarantee will ensure that the Union Participants recover 100 percent
of their account balances in the Segregated Fund. The Employer's
initial and contingent additional payments to the Union Participants
are conditioned upon the grant of the exemption proposed herein and a
favorable ruling by the Service.
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\7\The Union Guarantee is not evidenced by a written agreement,
like the Settlement Guarantee. Instead, the Employer's commitment to
the Union Guarantee is evidenced in a public announcement by the
Employer's chief executive officer, Paul A. Allaire, reported in the
July 18, 1994 edition of a newsletter, Today at Xerox, which is
published by the Employer.
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8. 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 Guarantees will protect the Plans
participants and beneficiaries from losses on the GACs' value as of the
commencement of the ELIC conservatorship; (b) The Guarantees will
eliminate uncertainty with respect to the value of the GACs in the
Segregated Fund; (c) The Settlement Guarantee will enable the
settlement of Plaintiffs claims arising from the 1992 Litigation and
the 1994 Litigation; and (d) the Union Guarantee will extend to the
Union Participants the same protections with respect to the GACs as
those extended to the Plaintiffs under the Settlement Guarantee.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Vaquero Farms, Inc. Profit Sharing Plan and Agri-Bis, Inc. Profit
Sharing Plan (the Plans) Located in Stockton, California
[Application Nos. D-9711 and D-9712]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of
the Code shall not apply to the past cash sale (the Sale) by the Plans
of certain promissory notes (the Notes) to Vaquero Farms, Inc. (the
Applicant) and Agri-Bis, Inc., a related company, provided that the
following conditions were met at the time of the Sale: (1) The sales
price of the Notes was not less than their aggregate fair market value
on the date of the Sale; (2) the Sale was a one-time transaction for
cash; (3) the Plans did not pay any fees or commissions in connection
with the Sale; and (4) the Plans' independent fiduciary determined that
the transaction was appropriate for and in the best interests of the
Plans and their participants and beneficiaries.
EFFECTIVE DATE: If granted, this proposed exemption would be effective
as of May 31, 1994, the date of the Sale.
Summary of Facts and Representations
1. The Applicant operates a farming enterprise in the San Joaquin
Valley area of California. Agri-Bis, Inc. is related to the Applicant
by common ownership. The Plans are both defined contribution plans. As
of September 30, 1992, the Vaquero Farms, Inc. Profit Sharing Plan had
138 participants and total assets of approximately $4,531,364. As of
January 31, 1993, the Agri-Bis, Inc. Profit Sharing Plan had 41
participants and total assets of approximately $2,039,764.
2. The Plans acquired their interests in the Notes in June of 1989
when each Plan loaned $250,000 to Triad Pacific 1987 Investors (Triad),
a California limited partnership, unrelated to the Applicant. The Notes
are secured by second deeds of trust on industrial leased real property
located at 192-252 West Larch Road, Tracey, California (Drew Centre)
and 3008 East Hammer Lane, Stockton, California (the Pavilion). The
Applicant represents that, prior to investing Plan assets in Triad, the
Plans' trustees conducted a thorough investigation of the potential
investment, including an examination of the properties and the
financial condition of Triad. According to the Applicant, the
investment was consistent with the Plans' investment policies. The
Applicant represents that the Plans have invested from time to time in
other deeds of trust and that they learned of this investment
opportunity directly from the principals of Triad. In accordance with
the terms of the Notes, the principal amount of the loans became due in
June of 1993. The principal amount plus accrued interest from June 1993
remains unpaid.8 In July of 1993, the borrower, Triad, filed a
voluntary petition under Chapter 11 of the Bankruptcy Act. Union Bank,
which holds a first deed of trust on the Drew Centre property securing
a promissory note in the principal amount of $3,301,132, has filed a
motion for relief from the automatic stay seeking to foreclose on its
security interest in the Drew Centre property. Appraisals of the Drew
Centre property indicate a range of values between $2,750,000 and
$3,900,000. Gentra Financial, which holds a first deed of trust on the
Pavilion Property securing a promissory note in the amount of
$3,800,000 has also sought relief from the automatic stay to enable it
to foreclose on its security interest in the Pavilion property.
Appraisals of the Pavilion property indicate a range of values between
$2,366,000 and $3,125,000. Consequently, the Applicant represents that
the Plans are in jeopardy of losing the security for their loans. The
Applicant also represents that full repayment of the loans is very
unlikely.
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\8\The Department notes that the decisions to acquire and hold
the Notes, and all decisions regarding collection on the Notes when
due, are governed by the fiduciary responsibility requirements 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 Notes.
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3. On May 31, 1994, the Applicant purchased the Notes from the
Plans for their full face value, plus interest at the rate provided in
the Notes, through the date of purchase.9 The actual purchase
price for each of the Notes was $269,823.91. The Applicant represents
that the transaction was designed to protect the Plans' participants
and beneficiaries from losses which would have resulted from the
foreclosure of senior lienholders on the real property which secured
the Plans' loans to Triad. The Applicant represents that it was
necessary to purchase the Notes from the Plans prior to receiving an
individual exemption for the transaction because foreclosure was
imminent and the Notes would have been worthless to the Applicants if
foreclosure had occurred prior to the purchase of the Notes.
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\9\The Notes provided for interest at 2\1/2\ percentage points
above the prime lending rate charged by the Bank of America.
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4. Howard L. Seligman, an attorney licensed to practice in the
State of California and a partner in the firm of Seligman and Willet,
Inc., has agreed to serve as an independent fiduciary (the Independent
Fiduciary) in connection with the transaction. The Independent
Fiduciary has acknowledged his status as an ERISA fiduciary and
represents that he understands and accepts his fiduciary duties,
responsibilities and potential liabilities. The Independent Fiduciary
maintains that he has no pre-existing business relationship with the
Applicant or Agri-Bis, Inc. He also represents that, prior to the date
the Sale took place, he reviewed the appraisals of the Pavilion and
Drew Centre, the documents related to the outstanding security
interests on those properties, and documents related to the pending
Chapter 11 proceeding by Triad. Based on his review of these documents,
the Independent Fiduciary represents that the ability of Triad to repay
its obligation to the Plans was questionable. The Independent Fiduciary
also represents that the purchase price for the Notes exceeded the fair
market value of the Notes as of the date of the Sale. The Independent
Fiduciary has determined that the purchase of the Notes by the Employer
resulted in fully satisfying each of the obligations owed by Triad to
the Plans, that the transaction was protective of the Plans'
participants and beneficiaries, and that, therefore the transaction was
in the best interests of the Plans' participants and beneficiaries.
5. In summary, the applicant represents that the transaction meets
the statutory criteria for an exemption under section 408(a) of the Act
because: (a) the Plans' independent fiduciary reviewed the terms and
conditions of the exemption and determined that the purchase of the
Notes for full face value plus interest was in the best interest of the
Plans' participants and beneficiaries; (b) the Plans received a price
which was not less than the fair market value of the Notes; (c) the
Sale was a one-time sale for cash; and (d) the Plans did not pay any
expenses in connection with the Sale.
FOR FURTHER INFORMATION CONTACT: Ms. Virginia Miller of the Department,
telephone (202) 219-8971. (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 27 day of September, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-24184 Filed 9-29-94; 8:45 am]
BILLING CODE 4510-29-P
