[Federal Register Volume 60, Number 172 (Wednesday, September 6, 1995)]
[Notices]
[Pages 46308-46311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-22042]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 95-76; Exemption Application No. D-
09819, et al.]
Grant of Individual Exemptions; John B. Toomey Rollover IRA (the
IRA), et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
John B. Toomey Rollover IRA (the IRA), Located in Lorton, Virginia
[Prohibited Transaction Exemption 95-76 Exemption Application No. D-
09819]
Exemption
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 installment sale of 36.2 shares of common stock (the
Stock) in JBT Holding Corporation (JBT) by the IRA 1 to JBT, a
disqualified person with respect to the IRA; provided that: (a) The
purchase price JBT pays for the Stock is the greater of $410,146 or the
fair market value of the Stock on the date of the sale; (b) the fair
market value of the Stock is determined by a qualified independent
appraiser, as of the date of the sale; (c) the terms of the transaction
are no less favorable to the IRA than those negotiated at arm's length
with unrelated third parties in similar circumstances; (d) the trustee
of the IRA
[[Page 46309]]
monitors compliance with the terms of the transaction throughout the
duration of the installment sale; (e) the IRA receives a cash
downpayment of no less than $210,146 on the date of the sale and
thereafter receives three (3) equal annual installment payments of
$66,667, the first of which is due and payable December 31, 1995, plus
interest at the fair market rate of interest, as determined by an
independent, qualified third party, as of the date of the transaction,
on the outstanding balance of the installment payments, payable
annually until all the installment payments have been made by JBT on or
before December 31, 1997; (f) the outstanding balance of the
installment payments at no time exceeds 25 percent (25%) of the value
of the assets of the IRA; (g) the outstanding balance on the
installment payments is secured by a recorded first mortgage interest
in real property pledged by JBT in favor of the IRA; (h) the collateral
which secures the installment payments has a value, as determined by an
independent, qualified appraiser, which at all times is no less than
150 percent (150%) of the outstanding balance of the installment
payments; and (i) the IRA pays no commissions, fees, or other expenses
in connection with the transaction.
1 Pursuant to 29 CFR 2510.3-2(d), the IRA is not within
the jurisdiction of Title I of the Act. However, there is
jurisdiction under Title II of the Act, pursuant to section 4975 of
the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on July 21, 1995, at 58 FR
37682.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the Department
(202) 219-8883. (This is not a toll-free number.)
Phillips Petroleum Company (Phillips) Located in Bartlesville, OK
[Prohibited Transaction Exemption 95-77; Exemption Application No. D-
09907]
Exemption
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 making of interest-free loans to the Thrift
Plan of Phillips Petroleum Company (the Plan) by Phillips, the Plan
sponsor pursuant to the terms of a credit facility arrangement; and (2)
the repayment of such loans by the Plan to Phillips.
This exemption is conditioned on the following requirements:
(a) Each loan executed under the proposed credit facility
arrangement provides short-term funds to the Plan in connection with
inter-fund transfers, withdrawals and participant loans and permits the
orderly disposal of Phillips common stock.
(b) Each loan made under the proposed credit facility arrangement
is unsecured and no interest, commissions or expenses are paid by the
Plan.
(c) In the event of a loan default or delinquency, Phillips has no
recourse against the Plan.
(d) Each loan is initiated, accounted for and administered by an
independent fiduciary who monitors the terms and conditions of the
exemption.
Written Comments
The Department received six written comments with respect to the
notice of proposed exemption and no requests for a public hearing. Of
the written comments received, five commenters recommended that the
Department grant the proposed exemption. The sixth commenter questioned
whether the proposed credit facility arrangement would be in the best
interest of the Plan since it would allow no recourse against Plan
assets. The commenter also raised several questions about the Plan's
participant loan program.
In response to the sixth commenter, Bankers Trust Company (BTC),
the Plan trustee and independent fiduciary with respect to the proposed
transactions, notes that the purpose of the credit facility arrangement
is to facilitate participant directions regarding their account
balances on a more timely basis. According to BTC, receiving the loans
on an interest-free basis from Phillips meets this purpose and it
allows the Plan to avoid the expense of its current credit facility
arrangement with NationsBank of Dallas, Texas. BTC further represents
that by requiring that the loans be on a non-recourse basis provides an
additional safeguard to the Plan and ensures that participant account
balances will not be impacted adversely.
With respect to the Plan's participant loan program, the commenter
has inquired about the (a) number of participants in the Plan having
outstanding participant loans, (b) the frequency of loan repayments,
(c) the percentage of such loans that are in arrears or default, and
(d) what safeguards can and should be implemented to prevent
depreciation in the value of Phillips common stock.
Phillips has responded to each of the commenter's concerns on these
matters. In this regard, Phillips represents that as of July 17, 1995,
approximately 2,000 participants had outstanding participant loans with
the Plan. Phillips notes that for these loans, repayment schedules
range from three months to 180 months in duration depending upon the
election of the participant. Phillips further explains that virtually
none of the loans are in arrears or default since the Plan requires
that loan repayments be made by payroll deduction or repaid in full.
However, should a participant loan be in default, Phillips states that
there will be no impact on Plan participants since the participant's
account will serve as security for the loan and the event of default
will become a taxable distribution to the participant. Finally,
Phillips notes that neither the Plan nor BTC can control the value of
Phillips common stock that is held by the Plan and that the intent of
the exemption is to allow participants the flexibility of moving into
or out of stock funds with the value of the stock established as of the
transaction valuation date.
Technical Correction
The Department notes that the correct application number for the
subject request is ``D-09907'' and not ``D-09909'' as it appeared in
the proposed exemption. Therefore, the Department has incorporated this
revision into the grant notice.
After giving full consideration to the entire record, including the
written comment that was submitted and the responses made by BTC and
Phillips, the Department has decided to grant the exemption as
described and revised above. The comment letter and responses have been
included as part of the public record of the exemption application. The
complete application file, including all supplemental submissions
received by the Department, is made available for public inspection in
the Public Documents Room of the Pension and Welfare Benefits
Administration, Room N-5638, U.S. Department of Labor, 200 Constitution
Avenue, NW., Washington, DC 20210.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on June 7, 1995 at 60 FR
30106.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
KeyCorp 401(k) Savings Plan (the Plan), Located in Cleveland, Ohio
[Prohibited Transaction Exemption 95-78; Exemption Application No. D-
10023]
Exemption
The restrictions of sections 406(a) and 406(b)(1) and 406(b)(2) of
the Act and the sanctions resulting from the
[[Page 46310]]
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 loan of
funds (the Loan) to the Plan by KeyCorp the sponsor of the Plan, with
respect to Guaranteed Investment Contract No. 62149 (the GIC) issued by
Confederation Life Insurance Company of Canada (Confederation), and the
potential repayment by the Plan of the Loan upon receipt of payments
under the GIC; provided the following conditions are satisfied: (a) No
interest and/or other expenses are paid by the Plan in connection with
the Loan; (b) All of the terms and conditions of the Loan are no less
favorable to the Plan than those which the Plan could obtain in an
arm's-length transaction with an unrelated party; (c) The Loan will be
no less than the amount described in paragraph 4 of the Notice of
Proposed Exemption; (d) The repayment of the Loan will not exceed the
total amount of the Loan; (e) The repayment of the Loan by the Plan
will be restricted to funds paid to the Plan under the GIC by
Confederation or other responsible third parties with respect to the
GIC; and (f) The repayment of the Loan will be waived to the extent the
amount of the Loan exceeds the proceeds the Plan receives from the GIC.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on June 29, 1995 at 60 FR
33871.
FOR FURTHER INFORMATION CONTACT: Charles S. Edelstein of the
Department, telephone (202) 219-8881. (This is not a toll-free number.)
The Bank of New York (the Bank) Located in New York, New York
[Prohibited Transaction Exemption 95-79; Application No. D-10030]
Exemption
Section I--Exemption for the Acquisition, Holding and Disposition of
BNY Stock
The restrictions of sections 406(a)(1)(D), 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)(D) and (E) of the
Code, shall not apply to the acquisition, holding or disposition of the
common stock of the Bank's parent corporation, The Bank of New York
Company, Inc. (BNY Stock), by Index or Model-Driven Funds, if the
following conditions and the General Conditions of Section II are met:
(a) The Index or Model-Driven Fund is based on an index which
represents the investment performance of a specific segment of the
public market for equity securities in the United States and/or foreign
countries. The organization creating and maintaining the index must be
(1) engaged in the business of providing financial information,
evaluation, advice or securities brokerage services to institutional
clients, (2) a publisher of financial news or information, or (3) a
public stock exchange or association of securities dealers. The index
must be created and maintained by an organization independent of the
Bank and its affiliates. The index must be a generally accepted
standardized index of securities which is not specifically tailored for
the use of the Bank or its affiliates.
(b) The acquisition or disposition of the BNY Stock is for the sole
purpose of maintaining strict quantitative conformity with the relevant
index upon which the Index or Model-Driven Fund is based.
(c) All acquisitions comply with Rule 10b-18 of the Securities and
Exchange Commission, including the limitations regarding the price paid
or received for such stock.
(d) Aggregate daily purchases of BNY Stock constitute no more than
the greater of: (1) 10 percent of the stock's average daily trading
volume for the previous five days; or (2) 10 percent of the stock's
trading volume on the date of the transaction.
(e) If the necessary number of shares of BNY Stock cannot be
acquired within 10 business days from the date of the event which
causes the particular Index or Model-Driven Funds to require BNY Stock,
the Bank appoints a fiduciary which is independent of the Bank and its
affiliates to design acquisition procedures and monitor the Bank's
compliance with such procedures.
(f) All purchases and sales of BNY Stock are executed on the
national exchange on which BNY Stock is primarily traded.
(g) No transactions involve purchases from, or sales to, the Bank
or any affiliate (including officers, directors and employees of the
Bank, as defined in Section III(c) below), or any party in interest
with respect to a plan which has invested in an Index or Model-Driven
Fund.
(h) No more than five (5) percent of the total amount of BNY Stock
issued and outstanding at any time is held in the aggregate by the
Index and Model-Driven Funds.
(i) BNY Stock constitutes no more than two (2) percent of the value
of any independent third-party index on which the investments of an
Index or Model-Driven Fund are based.
(j) A plan fiduciary independent of the Bank and its affiliates
authorizes the investment of such plan's assets in an Index or Model-
Driven Fund which purchases and/or holds BNY Stock.
(k) A fiduciary independent of the Bank and its affiliates directs
the voting of the BNY Stock held by an Index or Model-Driven Fund on
any matter in which shareholders of BNY Stock are required or permitted
to vote.
Section II--General Conditions
(a) The Bank maintains or causes to be maintained for a period of
six years from the date of the transaction the records necessary to
enable the persons described in paragraph (b) of this Section to
determine whether the conditions of the exemption have been met, except
that (1) a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the Bank, the
records are lost or destroyed prior to the end of the six-year period,
and (2) no party in interest other than the Bank shall be subject to
the civil penalty that may be assessed under section 502(i) of the Act
or to the taxes imposed by section 4975(a) and (b) of the Code if the
records are not maintained or are not available for examination as
required by paragraph (b) below.
(b)(1) Except as provided in paragraph (b)(2) and notwithstanding
any provisions of section 504 (a)(2) and (b) of the Act, the records
referred to in paragraph (a) of this Section are available at their
customary location for examination during normal business hours by--
(A) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service,
(B) Any fiduciary of a plan participating in an Index or Model-
Driven Fund who has authority to acquire or dispose of the interests of
the plan, or any duly authorized employee or representative of such
fiduciary,
(C) Any contributing employer with respect to any plan
participating in an Index or Model-Driven Fund or any duly authorized
employee or representative of such employer, and
(D) Any participant or beneficiary of any plan participating in an
Index or Model-Driven Fund, or any duly authorized employee or
representative of such participant or beneficiary.
(2) None of the persons described in paragraph (b)(1)(B) through
(D) shall be authorized to examine trade secrets of the Bank, any of
its affiliates, or commercial or financial information which is
privileged or confidential.
[[Page 46311]]
Section III--Definitions
(a) Index Fund--Any investment fund, account or portfolio
sponsored, maintained and/or trusteed by the Bank, or an affiliate of
the Bank, in which one or more investors invest which is designed to
replicate the capitalization-weighted composition of a stock index
which satisfies the conditions of Section I(a) and (i).
(b) Model-Driven Fund--Any investment fund, account or portfolio
sponsored, maintained and/or trusteed by the Bank, or an affiliate of
the Bank, in which one or more investors invest which is based on
computer models using prescribed objective criteria to transform an
independent third-party stock index which satisfies the conditions of
Section I (a) and (i).
(c) Affiliate--Any person directly or indirectly, through one or
more intermediaries, controlling, controlled by, or under common
control with such person; any officer, director, partner, employee,
relative (as defined in section 3(15) of the Act), a brother, a sister,
or a spouse of a brother or a sister of such person; and any
corporation or partnership of which such person is an officer,
director, or partner.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on July 12, 1995, at 60 FR
35944.
FOR FURTHER INFORMATION CONTACT: Mr. E. F. Williams of the Department,
telephone (202) 219-8194. (This is not a toll-free number.)
Rollover Individual Retirement Accounts for Joseph Shepard, Located in
Jacksonville, Florida; William Haspel, Located in Bethesda, Maryland;
and Richard Geisendaffer, Paul Petryszak, William Kroh and Rolf Graage,
Located in Baltimore, Maryland (Collectively, the IRAs)
[Prohibited Transaction Exemption 95-80; Exemption Application Nos. D-
10054-10059]
Exemption
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 sale by the IRAs of all the common stock (the
Stock) of Purchase Port Services, Inc. (PPS) held by the IRAs to PPS,
provided that the following conditions were satisfied: (1) The sale of
Stock by each IRA was a one-time transaction for cash; (2) no
commissions or other expenses were paid by the IRAs in connection with
the sale; and (3) the IRAs received the greater of: (a) the fair market
value of the Stock as determined by a qualified independent appraiser
as of May 31, 1995, or (b) the fair market value of the Stock as of the
time of the sale.2
2 Pursuant to 29 CFR 2510.3-2(d), the IRAs are not within the
jurisdiction of Title I of the Act. However, there is jurisdiction
under Title II of the Act pursuant to section 4975 of the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on July 21, 1995 at 60 FR
37688.
EFFECTIVE DATE: This exemption is effective July 28, 1995.
WRITTEN COMMENT: The Department received one written comment with
respect to the proposed exemption, which was submitted by the
applicants. The applicants had represented (see notice of proposed
exemption, rep. 4) when they filed their exemption application that
``Business and income tax considerations have compelled PPS to consider
making an election to be treated as a `Subchapter S' Corporation under
section 1362(a) of the Code.'' The applicants noted in their comment
letter that subsequent to the filing of the exemption request, PPS
determined that, rather than electing Subchapter S Corporation status
itself, PPS would merge into its subsidiary, Hobelmann Port Services,
Inc. (HPS), and that HPS would elect Subchapter S Corporation status.
That merger was concluded effective July 31, 1995, and HPS elected
Subchapter S Corporation status effective August 1, 1995. The
applicants represent that the decision to make HPS rather than PPS the
entity to elect Subchapter S status was made for business purposes
unrelated to the redemption of the IRAs' shares, and is not material to
the requested exemption.
The applicants also requested that the exemption be made effective
July 28, 1995, instead of July 31, 1995, as had been proposed. The sale
of shares from the IRAs to PPS occurred on July 28, 1995 to allow
sufficient time before July 31, 1995 to complete other steps relating
to the Subchapter S Corporation election. The applicants represent that
the sale was made in accordance with all of the conditions set forth in
the proposed exemption.
The Department has considered the entire record, including the
comment submitted by the applicants, and has determined to grant the
exemption effective July 28, 1995.
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 or disqualified
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application are true and complete and accurately describe all material
terms of the transaction which is the subject of the exemption. In the
case of continuing exemption transactions, if any of the material facts
or representations described in the application change after the
exemption is granted, the exemption will cease to apply as of the date
of such change. In the event of any such change, application for a new
exemption may be made to the Department.
Signed at Washington, D.C., this 31st day of August, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-22042 Filed 9-5-95; 8:45 am]
BILLING CODE 4510-29-P
