[Federal Register Volume 59, Number 111 (Friday, June 10, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-14169]
[[Page Unknown]]
[Federal Register: June 10, 1994]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 94-43; Exemption Application No. D-
9282, et al.]
Grant of Individual Exemptions; Fidelity Management Trust
Company, 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 aplicaitons have been available for public
inspection at the Department in Washington, DC. 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.
Fidelity Management Trust Company Located in Boston, Massachusetts
[Prohibited Transaction Exemption 94-43; Exemption Application No. D-
9282]
Exemption
The restrictions of sections 406(a)(1)(A) 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) of the Code, shall not apply
to the cross-trading of securities by Fidelity Management Trust Company
(Fidelity) on behalf of employee benefit plan accounts for which
Fidelity acts as fiduciary.
Part I--General Conditions
(A) Each Plan participating in Fidelity's cross-trading program has
assets of at least $25 million;
(B) A Plan's participation in the cross-trade program is subject to
a written authorization executed in advance by a fiduciary with respect
to each such Plan;
(C) The authorization referred to in section (B) of this Part I is
terminable at will without penalty to such Plan, upon receipt by
Fidelity of written notice of such termination;
(D) Before an authorization is made, the authorizing Plan fiduciary
must be furnished with any reasonably available information necessary
for the authorizing fiduciary to determine whether the authorization
should be made, including (but not limited to) a copy of this
exemption, an explanation of how the authorization may be terminated, a
detailed disclosure of the procedures implemented in Fidelity's cross-
trade practices, and any other reasonably available information
regarding the matter that the authorizing fiduciary requests;
(E) Each cross-trade transaction involves only securities for which
there is a generally recognized market;
(F) Each cross-trade transaction is effected at the current market
value for the security on the date of the transactions, which shall be,
for equity securities, the closing price for the security on the date
of the transaction, and for debt securities, as determined in
accordance with paragraph (b) of Rule 17a-7 issued by the Securities
and Exchange Commission (SEC) under the Investment Company Act of 1940;
(G) Fidelity will not charge any Plan affected by a cross-trade
transaction any fee or commission for such transaction;
(H) At least every three months, and not later than 45 days
following the period to which it relates, Fidelity will furnish the
authorizing Plan fiduciary with a report disclosing (1) a list of all
cross-trade transactions engaged in on behalf of the Plan, and (2) with
respect to each cross-trade transaction, the highest and lowest prices
at which the securities involved in the transaction were traded on the
date of such transaction;
(I) The authorizing Plan fiduciary will be furnished with a summary
of certain additional information at least once per year. The summary
must be furnished within 45 days after the end of the period to which
it relates, and must contain the following: (1) A description of the
total amount of Plan assets involved in cross-trade transactions during
the period, (2) a description of Fidelity's cross-trade practices, (3)
A statement that the Plan fiduciary's authorization of cross-trade
transactions may be terminated upon receipt by Fidelity of the
fiduciary's written notice to that effect, and (4) a statement that the
Plan fiduciary's authorization of the cross-trade transaction will
continue in effect unless it is terminated; and
(J) The Accounts involved in cross-trade transactions will not
include assets of any Plan established or maintained by Fidelity or its
affiliates.
Part II--Specific Conditions
(A) Index Accounts
(1) The index of the Account is based on an index which represents
the investment performance of a specific segment of the public market
for equity or debt securities in the United States and/or foreign
countries. The organization creating and maintaining the index must be
(a) engaged in the business of providing financial information,
evaluations, advice or securities brokerage services to institutional
clients, (b) a publisher of financial news or information, or (c) a
public stock exchange or association of securities dealers. The index
must be created and maintained by an organization independent of
Fidelity and its affiliates. The index must be a generally accepted
standardized index of securities which is not specifically tailored for
the use of Fidelity or its affiliates.
(2) The transaction takes place within three business days of the
``triggering event'' giving rise to the cross-trade transaction. A
triggering event is defined as:
(a) A change in the composition or weighting of the index
underlying an Index Account; or
(b) A change in the overall level of investment in an Index
Account as a result of investments and withdrawals made on the Index
Account's opening date (the regularly-scheduled date on which
investments in or withdrawals from an Index Account may be made).
(3) Fidelity 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 section (4) of this Part II (A) to
determine whether the conditions of this exemption have been met,
except that a prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Fidelity or its
affiliates, the records are lost or destroyed prior to the end of the
six-year period.
(4) (a) Except as provided in subsection (b) of this section (4)
and notwithstanding any provisions of subsections (a)(2) and (b) of
section 504 of the Act, the records referred to in section (3) of this
Part II are unconditionally available at their customary location for
examination during normal business hours by--
(1) Any duly authorized employee or representative of the
Department or the Internal Revenue Service,
(2) Any fiduciary of a Plan participating in an Index Account
who has authority to acquire or dispose of the interests of the Plan
or any duly authorized employee or representative of such fiduciary,
(3) Any contributing employer to any Plan participating in an
Index Account or any duly authorized employee or representative of
such employer, and
(4) Any participant or beneficiary of any Plan participating in
an Index Account, or any duly authorized employee or representative
of such participant or beneficiary.
(b) None of the persons described in paragraphs (2) through (4) of
subsection (a) of this section (4) shall be authorized to examine trade
secrets of Fidelity, any of its affiliates, or commercial or financial
information which is privileged or confidential.
(B) Managed Accounts
(1) An independent fiduciary of each Plan must specifically
authorize each cross-trade transaction in accordance with the following
procedure:
(a) No more than three business days prior to the execution of any
cross-trade transaction, Fidelity must inform an independent fiduciary
of each Plan involved in the cross-trade transaction that Fidelity
proposes to buy or sell specified securities in a cross-trade
transaction if an appropriate opportunity is available, the current
trading price for such securities, and the total number of shares to be
acquired or sold by each such Plan.
(b) Prior to each cross-trade transaction, the transaction must be
authorized either orally or in writing by the independent fiduciary of
each Plan involved in the cross-trade transaction;
(c) If a cross-trade transaction is authorized orally by an
independent fiduciary, Fidelity will provide written confirmation of
such authorization in a manner reasonably calculated to be received by
such independent fiduciary within one business day from the date of
such authorization;
(d) The authorization referred to in this Part II(B) will be
effective for a period of three business days; and
(e) No more than ten days after the completion of a cross-trade
transaction, the independent fiduciary authorizing the cross-trade
transaction must be provided a written confirmation of the transaction
and the price at which the transaction was executed;
(2) A cross-trade transaction will be effected only where the
transaction involves less than five percent of the aggregate average
daily trading volume for the securities involved in the transaction for
the week immediately preceding the authorization of the transaction. A
cross-trade transaction may exceed this limit only by express
authorization of independent fiduciaries on behalf of Plans affected by
the transaction; and
(3) The cross-trade transaction is effected at a price which is
within ten percent of the closing price of the security on the day
before the date on which Fidelity receives authorization by the
independent Plan fiduciary to engage in the cross-trade transaction.
Part III--Definitions
(A) ``Account'' means an account holding assets of one or more
employee benefit plans which are subject to the Act (the Plans), for
which Fidelity or an affiliate of Fidelity acts as a fiduciary;
(B) ``Affiliate'' means any person, directly or indirectly through
one or more intermediaries, controlling, controlled by, or under common
control with Fidelity;
(C) ``Cross-trade transaction'' means a purchase and sale of
securities between ERISA Accounts or between an ERISA Account and a
non-ERISA account for which Fidelity or an affiliate of Fidelity acts
as a trustee or investment manager;
(D) ``Index Account'' means an Account for which Fidelity and the
Plan sponsor or other named fiduciary have agreed that the investment
of the assets in question will be designed to replicate the
capitalization-weighted composition of a stock or bond index; and
(E) ``Managed Account'' means an Account for which Fidelity and the
Plan sponsor or other named fiduciary have agreed that the investment
of the assets in question will be managed actively at the discretion of
Fidelity, pursuant to written guidelines as to which types of
securities to buy or sell for the Account.
Written Comments: The Department received one written comment and
no requests for a hearing. The comment was submitted by the applicant,
Fidelity Management Trust Company. The applicant addresses two matters
which are summarized as follows:
(1) The applicant notes a typographical error in Part III of the
proposed exemption: Within the definition of ``Cross-trade
transaction'', the word ``account'' should not be capitalized. The
applicant represents that, as described elsewhere in the Notice of
Proposed Exemption, cross-trade transactions covered by the proposed
exemption may occur between an account holding assets of one or more
employee benefit plans which are subject to the Act (``Account'') and a
non-ERISA account managed by the applicant or an affiliate
(``account'').
(2) The applicant wishes to supplement the summary of facts and
representations of the notice of proposed exemption (the Summary), by
clarifying and revising its explanation of the manner in which
opportunities for cross-trading transactions are allocated among
accounts under its management, which is found in section 10 of the
Summary. The applicant represents that subsequent to the publication of
the Summary, it determined that its cross-trading program will be
effected pursuant to a non-discretionary pro-rata allocation system.
For example, in the event that the number of shares of a particular
security which an Account proposes to sell on a given day is less than
the number of shares of such security which other Fidelity-advised
accounts propose to buy on that date, the direct cross-trade
opportunity will be allocated among potential buyers on a pro-rata
basis. A similar procedure would apply where the number of shares of a
particular security to be sold by Fidelity-advised accounts is less
than the number of such shares which an Account and one or more other
Fidelity-advised accounts proposes to buy on that date. Thus, the
Accounts participating in Fidelity's cross-trade program will have
opportunities to participate on a proportional basis in all cross-trade
transactions during the operation of the cross-trade program. The
applicant represents that this aspect of Fidelity's cross-trading
program is among the information which will be disclosed in writing to
the fiduciaries of the pension plans which invest in the Accounts.
After careful consideration of the entire record, the Department
has determined to grant the exemption, as supplemented by the
applicant's comment.
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 December 10, 1993 at 58
FR 64978.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Lone Star Industries, Inc. Master Retirement Trust (the Master Trust)
Located in Chicago, Illinois
[Prohibited Transaction Exemption No. 94-44; Application No. D-9295]
Exemption
Section I--Transactions
Effective September 10, 1990, the restrictions of sections 406(a),
406(b)(1), 406(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:
(a) The lease (the Lease) by the Master Trust of a certain parcel
of real property (the Property) located in Rancho Cordova, California,
to RMC Lonestar (RMC), a party in interest with respect to plans
participating in the Master Trust (the Plans);
(b) The obligations and guarantees to the Master Trust by Lone Star
Industries, Inc. (LSI), a party in interest with respect to the Plans,
arising under the terms of the Lease on the Property, subsequent to the
assignment by LSI of its leasehold interest in the Property to RMC; and
(c) The payment in the amount of $6,000,000 by LSI to the Master
Trust in exchange for a release of LSI's obligation to perform under
the terms of a certain yield guarantee agreement signed December 18,
1992, by LSI and the Master Trust; provided that the conditions set
forth in section II below are met.\1\
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\1\For purposes of this exemption, references to specific
provisions of Title I of the Act, unless otherwise specified, refer
also to the corresponding provisions of the Code.
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Section II--Conditions
This exemption is conditioned upon the adherence to the material
facts and representations described herein and in the application for
exemption and upon the satisfaction of the following requirements:
(a) The Bankruptcy Court for the Southern District of New York (the
Bankruptcy Court) enters and order confirming the modified amended
consolidated plan of reorganization filed by LSI and its affiliates,
pursuant to Chapter 11 of the Bankruptcy Code;
(b) The obligations and guarantees of LSI to the Master Trust under
the Lease are assumed by LSI and continue after the plan of
reorganization is confirmed by the Bankruptcy Court;
(c) LSI pays the $6,000,000 in a single lump-sum payment in cash to
the Master Trust, not later than sixty (60) days following the later of
(1) the date of the order of the Bankruptcy Court approving the
payment, or (2) the date the grant of this exemption is published in
the Federal Register;
(d) Morrison, Karsten, Ramzy & Arthur, Inc. (MKRA), acting as
independent qualified fiduciary on behalf of the Master Trust (the I/
F), has negotiated, reviewed, and approved the transactions, and has
determined that the transactions were feasible, in the interest of, and
protective of the participants and beneficiaries of the Plans invested
in the Master Trust, as of the effective date of this exemption;
(e) MKRA at the time of its appointment was unrelated to LSI, RMC,
and any other parties involved in the Lease and will at all times
remain independent of such parties;
(f) The provisions of the amendment to the Lease, executed in
December 1992 (the First Amendment) become effective on the date that
the grant of this exemption is published in the Federal Register;
(g) The terms of the Lease, as modified by the First Amendment, are
at least as favorable to the Master Trust, the Plans, and their
participants and beneficiaries, as those which could have been obtained
by the Master Trust in an arm's length negotiation with an unrelated
third party under similar circumstances;
(h) From September 10, 1990, to June 1, 1993, the Northern Trust
Company (the Trustee), an independent party with respect to LSI, RMC,
and their affiliates, managed the Property on behalf of the Master
Trust and monitored and enforced the terms of the Lease;
(i) From June 1, 1993, MKRA managed the Property on behalf of the
Master Trust and monitored and enforced the terms of the Lease, and
MKRA or its successors, will act as I/F with respect to the Property
and will monitor and enforce the provisions of the Lease as long as
such Property is leased to a party in interest;
(j) MKRA or its successors will monitor the fair market value of
the Master Trust in order to insure that the fair market value of the
Property will at no time exceed twenty percent (20%) of the total fair
market value of the assets of the Master Trust;
(k) LSI has either paid directly or reimbursed the Master Trust for
any fees, other than trustee and investment management fees, incurred
in connection with the transactions with respect to the ownership of
the Property by the Master Trust, and in the future, the Master Trust
will incur no fees in connection with the transactions, other than fees
paid to the trustee and to the investment manager; and
(l) LSI has filed Forms 5330 and paid the excise taxes with respect
to the Lease of the Property for years 1987-1989 and, LSI, not later
than sixty (60) days after the date the grant of this exemption is
published in the Federal Register, will file Forms 5330 and will pay
the excise taxes for the period after December 31, 1989, and before the
effective date of this exemption.
EFFECTIVE DATE: This exemption will be effective as of September 10,
1990.
Written Comments
In the Notice of Proposed Exemption (the Notice), the Department
invited all interested persons to submit written comments and any
requests for a hearing on the proposed exemption within forty-five (45)
days from the date of the publication of the Notice in the Federal
Register. All written comments and requests for a hearing were to have
been received by the Department by April 22, 1994.
As of the close of the comment period, the Department had received
eight (8) letters from interested persons commenting on the proposed
exemption in addition to comment letters from the applicant. In this
regard, the Department forwarded copies of the commentators' letters to
the applicant and requested that the applicant address in writing the
concerns raised.
In a letter dated May 4 1994, the applicant responded to the
commentators, as requested by the Department. In this regard, the
applicant stated that in general the concerns of the commentators did
not identify any factual issues or express any direct objection to the
exemption. The comments from the commentators on the proposed exemption
were summarized by the applicant as follows: (1) Some of the comment
letters were generally opposed to anything that would adversely affect
their pension; (2) others of the comment letters expressed general
concerns regarding the effect of the exemption on pension benefits; and
(3) one comment letter supported the exemption.
In the opinion of the applicant the one favorable comment letter
would appear to need no response. In response to the adverse comment
letters, the applicant notes that the granting of the exemption in and
of itself does not affect the security of pensions payable from the
Plans participating in the Master Trust. In this regard, the applicant
maintains: (1) That the granting of the exemption does not reduce the
obligation to pay benefits of any of the Plans participating in the
Master Trust; (2) that the exemption does not affect the duty of the
sponsoring employer to comply with the funding requirements of
applicable law; (3) that the I/F has determined that the terms of the
agreement reached with LSI result in an overall transaction that is
equal to or superior to transactions that could be negotiated with
unrelated third parties; (4) that the terms of the agreement provide
for LSI to pay $6 million to the Master Trust; (5) that based on the
terms agreed to and the receipt of the $6 million dollar payment, the
I/F has determined that the Master Trust is assured an internal rate of
return in excess of 11% on the Property; and (6) that the terms of the
agreement provide the Master Trust with significant opportunity to
obtain an advantageous investment return with very little downside
risk. Based on these considerations, the applicant maintains that no
adverse effect on pension benefits payable by the Plans participating
in the Master Trust should occur if the exemption is granted.
Two of the commentators requested that the Department schedule a
hearing on the matter, in accordance section 29 CFR 2570.46 of the
Department's regulations which provides that the Department in its
discretion may convene a hearing if requested by any interested persons
who may be adversely affected by the exemption and where such exemption
proposes to grant relief from section 406(b) of the Act. In response to
this request for a hearing, the applicant points out that the
commentators do not object to any specific issue in connection with the
grant of the exemption, but expresses only general concern for how the
exemption might affect health insurance, life insurance, and monthly
pension benefits.
The Department's regulations regarding the right to a hearing state
that a request for hearing must include ``a statement of the issues to
be addressed and a general description of the evidence to be presented
at the hearing. Further, the regulations state that the Department will
grant a request for hearing ``where a hearing is necessary to fully
explore material factual issues identified by the person requesting the
hearing'' or may decline to hold a hearing ``where the factual issues
identified can be fully explored through the submission of evidence in
written form.'' The Department has concluded that the issues identified
by the commentators, who requested a hearing, have been full explored
in the case record including the material submitted by the applicant in
response to the comments. Accordingly, the Department has determined
not to hold a public hearing.
In addition to the above comments and request for a hearing
received from interested persons, the applicant informed the Department
in submissions dated April 8, 1994, and April 22, 1994, of certain
factual changes to the information contained in the application and
technical clarifications to the language of the Notice. The following
items represents a summary of the comments submitted to the Department
by the applicant subsequent to the publication of the Notice:
(1) LSI informed the Department that the Bankruptcy Court had
entered an order on March 31, 1994, that approved the $6 million dollar
payment by LSI to the Master Trust. Subsequently, the Department was
informed that on April 14, 1994, LSI emerged from bankruptcy protection
and that in connection with such emergence, LSI made the $6 million
payment to the Master Trust that is a condition, as set forth in
Section II(c), of this exemption. In this regard, such condition
provides that LSI pay ``* * * the $6,000,000 in a single lump-sum
payment in cash to the Master Trust, not later than sixty (60) days
following the later of (1) the date of the order of the Bankruptcy
Court approving the payment, or (2) the date the grant of this
exemption is published in the Federal Register.'' In the opinion of
LSI, since the condition of the exemption states that the payment be
made no later than a specified date, that LSI's payment of the $6
million dollars before the publication of the final exemption complies
with the condition for grant of the exemption. The Department agrees
with the position as expressed by LSI;
(2) LSI commented on the language concerning the condition of the
exemption, as set forth in Section II(g), which states that ``the terms
of the Lease, as modified by the First Amendment, are at least as
favorable to the Master Trust, the Plans, and their participants and
beneficiaries, as those which could have been obtained by the Master
Trust in an arm's length negotiations with an unrelated third party
under similar circumstances.'' With respect to the language in this
sentence from Section II(g), the Department wishes to correct a
typographical error in that the word, ``negotiations,'' written in the
plural should read ``negotiation,'' in the singular. Accordingly, the
Department has made this change in the language of Section II(g) in the
granted exemption.
Further in the language quoted in the paragraph above from Section
II(g), LSI points out that the I/F's opinion regarding the transaction,
including the Lease of the Property, is that the overall transaction,
taking into account all of its provisions including the $6 million
dollar payment, is equal to or superior to transactions that could be
negotiated with unrelated third parties. To the extent the inclusion of
the language in Section II(g) referring to ``under similar
circumstances'' is intended to include the other term of the overall
transaction, LSI states that the condition is accurate as it relates to
opinions provided by the I/F. The Department concurs with LSI's
position;
(3) LSI requested modification of the language in Section II(k)
which provides, in part that, ``LSI has either paid directly or
reimbursed the Master Trust for any fees, other than trustee and
investment management fees, incurred with respect to the ownership of
the Property by the Master Trust.'' In the opinion of LSI the quoted
language in the sentence above implies that the Master Trust has paid
no fees in connection with ownership of the Property other than trustee
or investment manager fees. LSI believes that this language is over
broad, because it is not limited to those fees incurred in connection
with the transactions. For this reason, LSI suggests adding after the
word, ``incurred,'' the phrase, ``in connection with the
transactions.'' The Department has no objection to LSI's proposed
modification, and accordingly, has amended the language of Section
II(k);
(4) LSI proposes clarification of the language of Section II(l)
which states that ``LSI has filed Forms 5330 and paid the excise taxes
with respect to the Lease of the Property for the years 1987-1989 and
will file Forms 5330 and pay the excise taxes for the period after
December 31, 1989, and before the effective date of this exemption.''
Because the effective date of this exemption is September 10, 1990, LSI
believes that this provision should be revised to clarify that the
excise taxes for the period after December 31, 1989, must be paid
within sixty (60) days of the date the grant of this exemption is
published in the Federal Register. For this reason, LSI suggests adding
before the words, ``will file,'' the phrase, ``LSI not later than sixty
(60) days after the date the grant of this exemption is published in
the Federal Register.'' The Department has no objection to LSI's
proposed modification, and accordingly, has amended the language of
Section II(l);
(5) LSI requests modification of the language in the third sentence
of paragraph number one in the Summary of Facts and Representations in
the Notice which states that, ``In addition, LSI is a major source of
ready-mixed concrete and precast concrete products and is a leading
importer of cement and clinker.'' In this regard, LSI has brought to
the Department's attention a more current description of LSI's
business. Accordingly, LSI requests that the sentence be amended to
read ``In addition, LSI is a leading producer of cement, ready-mixed
concrete, sand and gravel, crushed stone, and construction materials.''
The Department has made the requested change to the description of LSI;
and
(6) LSI requests modification of the representation in the fourth
sentence in the fourth full paragraph of paragraph number six of the
Summary of Facts and Representations which states that, ``It is
represented that the royalty payments actually made by RMC have
exceeded the minimum guaranteed royalty amounts for the years 1989
through 1992.'' In this regard, LSI has informed the Department that
the date 1992 should be corrected to read 1991. The Department has made
this change as requested by LSI.
As the Department concurs with the requested the modifications and
clarifications to the language of the proposed exemption, such changes
are hereby incorporated into the exemption, as granted. Accordingly,
after giving full consideration to the record, including the comments
by interested persons and the responses of the applicant, the
Department has determined to grant the exemption, as described herein.
In this regard, the comments submitted to the Department 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 Welfare Benefits
Administration, room N-5507, 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 published on March 8, 1994, 59 FR 10832.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc, of the
Department, telephone (202) 219-8883. (This is not a toll-free number.)
General Motors Hourly-Rate Employees Pension Plan; General Motors
Retirement Program for Salaried Employees; Saturn Individual Retirement
Plan for Represented Team Members; and Saturn Personal Choices
Retirement Plan for Non-Represented Team Members (Collectively, the
Plans) Located in New York, New York
[Prohibited Transaction Exemption 94-45; Application Nos. D-8402 and D-
8405]
Exemption
Section I--Transactions
The restrictions of section 406(a) of the Act and the sanctions
resulting from the application of section 4975 of the Code, by reason
of section 4975(c)(1) (A) through (D) of the Code, shall not apply to
the following transactions if the conditions set forth in Section II
below are met:
(a) The acquisition or sale of a net profits interest (NPI), a
royalty interest (Royalty), or a production payment contract
(Production Payment), in oil and gas properties (the Properties)
between the Plans and oil and gas companies or their affiliates that
are parties in interest with respect to the Plans (collectively, the
Companies);
(b) Any loan by the Plans to the Companies where such loans are
secured by interests in the Properties, including loans with conversion
rights to acquire a NPI, Royalty, or Production Payment in the
Properties;
(c) The acquisition or sale between the Plans and the Companies of
any stock or debt securities which are convertible into such stock,
issued by the Companies (Company Securities); and
(d) The acquisition or sale between the Plans and the Companies of
any interests in certain limited partnerships which invest in such
Properties where the Company is a general partner and/or operating
owner for the Properties (Company Partnership Interest), or interests
in certain joint ventures which invest in such Properties where the
Company is a joint venturer and/or operating owner for the Properties
(Company Venture Interest).
Section II--Conditions
(a) A ``qualified oil and gas investment manager'' (as defined
below) fully reviews each transaction before recommending the
transaction to the Pension Investment Committee of General Motors
Corporation (the PIC) or, as of December 1, 1992, to the General Motors
Investment Management Corporation (GMIMCo), fiduciaries of the Plans.
The decision to enter into the transaction is made by the PIC or
GMIMCo, which retains final approval authority over the transaction.
The ``qualified oil and gas investment manager'' negotiates the
transaction and manages the oil and gas investments for the Plans, in
its capacity as a fiduciary for the Plans, and monitors all
transactions on behalf of the Plans in order to take any appropriate
action necessary to safeguard the interests of the Plans.
(b) The Companies and their affiliates are independent of and
unrelated to:
(i) The General Motors Corporation (GMC);
(ii) Any person directly or indirectly controlling, controlled by,
or under common control with GMC;
(iii) Any officer or director of GMC or any of its subsidiaries or
affiliated companies;
(iv) Any partnership in which GMC is a 10 percent or more (directly
or indirectly in capital or profits) partner; and
(v) Any ``qualified oil and gas investment manager'' which acts for
the Plans with respect to an oil and gas transaction covered by the
exemption, or any other person who exercises discretionary authority,
responsibility or control or who provides investment advice for the
investment of the Plans' assets involved in oil and gas transactions.
(c) In any transaction where the Plans acquire a NPI, Royalty,
Production Payment, Company Security, Company Partnership Interest, or
Company Venture Interest from the Companies, the Plans pay a purchase
price which is no greater than the fair market value of such interests
or securities based on an appraisal developed by the Plans' fiduciaries
or an independent, qualified appraiser selected by the Plans'
fiduciaries.
(d) In any transaction where the Plans sell a NPI, Royalty,
Production Payment, Company Security, Company Partnership Interest, or
Company Venture Interest to the Companies, the Plans receive a price
which is no less than the fair market value of such interests or
securities based on an appraisal developed by the Plans' fiduciaries or
an independent, qualified appraiser selected by the Plans' fiduciaries.
(e) In instances involving the acquisition of the Properties by a
Company from a third party with a simultaneous sale of a NPI, Royalty,
or Production Payment by the Company to the Plans, the Plans pay a
purchase price which reflects the fair market value of the interest as
agreed to by the Plans' fiduciaries in arms-length negotiations
directly involving the Plans, the Company, and the third party seller.
(f) In instances involving the sale of a NPI, Royalty, or
Production Payment by the Plans to a Company in connection with the
Company's simultaneous sale of a WI in the Properties to a third party,
the Plans receive a sales price which reflects the fair market value of
the interest as agreed to by the Plans' fiduciaries in arm's-length
negotiations directly involving the Plans, the Company, and the third
party buyer.
(g) In any loan by the Plans to a Company in connection with an oil
and gas investment, the Plans obtain terms which include: (1) An
interest rate that is commensurate with the prevailing market rate for
such loans at the time of the transaction, as determined by the Plans'
fiduciaries in accordance with rates quoted by established commercial
lenders offering similar loans; and (ii) a security interest in
designated oil and gas investment interests in the Properties, which
have a fair market value that equals at least 150% of the amount loaned
by the Plans throughout the duration of such loan, based on an
appraisal of such interests developed by the Plans' fiduciaries or by
an independent, qualified appraiser selected by the Plans' fiduciaries.
(h) All other terms of each such transaction are not less favorable
to the Plans than the terms generally available in an arm's-length
transaction between unrelated parties.
(i) The amount of each Plan's total assets involved in all
transactions with the Companies represents no more than three percent
(3%) of such Plan's total assets as of the date of approval of each
transaction by the PIC or GMIMCo.
(j) No investment management fee, advisory fee, underwriting fee,
brokerage or sales commission, or similar compensation is paid to the
Companies by the Plans with regard to the transactions.
(k) GMC maintains for the duration of each transaction and for six
years thereafter records necessary to enable persons described below in
subsection (1) to determine whether the conditions of this 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 GMC or an affiliate, the records are lost or destroyed prior to the
end of the six-year period, and (2) no party in interest, other than
GMC and its affiliates, shall be subject to the civil penalty that may
be assessed under section 502(i) of the Act or to 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 subsection (1)
below; and
(l)(1) Except as provided in subsection (1)(2) and notwithstanding
any provisions of section 504(a)(2) and (b) of the Act, the records
referred to in subsection (k) are unconditionally available at their
customary location for examination during normal business hours by--
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service, and
(ii) Any participant or beneficiary of the Plans or duly authorized
representative of such participant or beneficiary.
(2) None of the persons described in subsection (l)(1)(ii) shall be
authorized to examine trade secrets of the Companies or any commercial
or financial information which is privileged or confidential.
Section III--Definitions
For purposes of this exemption,
(a) The term ``Company'' means a publicly or privately owned oil
and gas exploration, development and operating company or partnership
which is independent of an unrelated to GMC, its affiliates, and
various Plan fiduciaries described in Section II(a) above.
(b) The term ``affiliate'' of a Company means any entity directly
or indirectly, through one or more intermediaries, controlling,
controlled by, or under common control with the Company.
(c) The term ``control,'' for purposes of the above definition,
means the power to exercise a controlling influence over the management
or policies of an entity.
(d) The term ``qualified oil and gas investment manager'' means a
fiduciary as defined in section 3(21) of the Act which: (i) Is
independent of and unrelated to any of the Companies and their
affiliates (as defined above); (ii) is a financial institution or
business organization that in the normal course of business advises
institutional investors regarding oil and gas investments; (iii)
acknowledges in writing to the Plans that is will manage specific oil
and gas investments on behalf of the Plans, in its capacity as a
fiduciary of the Plans, as designated by the PIC or GMIMCo; and (iv)
satisfies the definition of ``qualified professional asset manager''
(QPAM) under Section V(a) of Prohibited Transaction Exemption 84-14
(PTE 84-14, 49 FR 9494, March 13, 1984), except for the fact that
either the PIC or GMIMCo retains final approval authority for all oil
and gas investments recommended by such fiduciary.
(e) The term ``Property'' or ``Properties'' means any oil and gas
properties such as long-term leasehold interests in oil and gas
producing fields and the oil and gas in place on the properties. Such
``Property'' may include an interest in the oil and gas wells,
platforms, wellheads, piping, as well as the gas gathering system or
processing facility through which gas produced from the wells is either
transported to the gas pipeline for shipment to various end users or
treated before delivery to the end users.
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 December 29, 1993 at 58
FR 68958.
EFFECTIVE DATE: The effective date of this exemption is May 8, 1990.
TEMPORARY NATURE OF EXEMPTION: This exemption will be effective for all
transactions described herein which have been entered into by the Plans
and the Companies since May 8, 1990. However, this exemption will not
apply to any transactions which are entered into with the Companies
after five years from the date on which this exemption is published in
the Federal Register.
NOTICE TO INTERESTED PERSONS: The applicant represents that it was
unable to notify interested persons within the time period specified in
the Federal Register notice published on December 29, 1993. The
applicant states that all interested persons were notified, in the
manner agreed upon between the applicant and the Department, by January
28, 1994. Interested persons were advised that they had until February
28, 1994 to comment on the proposed exemption.
WRITTEN COMMENTS AND MODIFICATIONS: The applicant submitted a comment
letter which requests that certain modifications be made to the notice
of proposed exemption (the Proposal).
The applicant states that the Plans covered by the exemption should
include the Saturn Individual Retirement Plan for Represented Team
Members and the Saturn Personal Choices Retirement Plan for Non-
Represented Team Members (the Saturn Plans), whose assets are now
included in the trusts which hold the assets of the other Plans
sponsored by GMC and its subsidiaries or affiliated companies. The
applicant has confirmed that the participants of the Saturn Plans
received notice of the proposed exemption in the same manner and during
the same time period as the other participants of the Plans. Therefore,
the Department has modified the Proposal to include such Plans.
With respect to the Summary of Facts and Representations in the
Proposal (the Summary), the applicant wishes to add the following
additional information for purposes of clarification:
First, Paragraph 1of the Summary should state that Mellon Bank,
N.A. (Mellon), in addition to Bankers Trust Company, is a trustee of
the Plans. However, Mellon does not have any discretionary authority
over the investment management of the assets held in the Plans relating
to the subject transactions.
Second, Paragraph 6 of the Summary should be clarified to reflect
the following:
(a) The Company may receive additional compensation, in the form of
operating fees, if the Company operates some or all of the Properties
pursuant to agreements with the Plans which allow the Company to
operate the Properties (Operating Agreements). In addition, a
conveyance of a NPI (the Conveyance) may allow the Company to recoup
certain general or administrative expenses incurred by the Company as
WI owner of the Properties. Such operating fees or expenses are
disclosed in detail in the Operating Agreement and the Conveyance,
respectively, and are not subject to arbitrary changes by the Company.
The applicant states that increases in any operating fees generally
involve expenses related to the operation of a Property and are not
related to any element of operation within the Company's control, such
as the ability to increase the level of production on a Property. The
nature and extent of any operating fees under an Operating Agreement,
and any general or administrative expenses under a Conveyance, will be
reviewed, approved and monitored by the ``qualified oil and gas
investment manager'' acting for the Plans.\2\
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\2\The applicant states that any fees or expenses received by a
Company for operation of a Property in connection with a NPI owned
by the Plans will meet section 408(b)(2) of the Act. However, the
Department is providing no opinion as to whether payment of any fees
or expenses to a Company under the circumstances described herein
would meet section 408(b)(2) of the Act and the regulations
thereunder (see 29 CFR 2550.408b-2).
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(b) The Company's annual report provided to the Plans containing
detailed information on the Company's activities with respect to the
Properties during the preceding year is not ``audited'' by the
``qualified oil and gas investment manager'' each year, but is
``audited'' at intervals recommended by the investment manager and
authorized by GMIMCo. However, the ``qualified oil and gas investment
manager'' will review the information throughout the year for problems
or mistakes which will be corrected by the Company.
Paragraph 10 of the Summary should be clarified to reflect the fact
that, as previously noted, the Company may receive additional
compensation for operating the Properties in the form of operating fees
pursuant to an Operating Agreement and may recoup certain general or
administrative expenses as permitted by the Conveyance.
Paragraph 12 of the Summary should be clarified to reflect the fact
that GMIMCo has appointed other ``qualified oil and gas investment
managers'' for the Plans, in addition to RPI Institutional Services,
Inc., and such managers have met all the requirements of Section III(d)
of the Proposal.
Paragraph 14 of the Summary should be clarified to reflect the
correct NPI sharing percentages of the May 8, 1990 NPI transaction with
Callon Offshore Production Inc. (Callon). The applicant states that
although the Plans did in fact pay 98% of the $28 million purchase
price, the Plans received a 98% NPI in the Properties which will
continue until the Plans recoup their entire share of the purchase
price. After the Plans receive their entire investment in the NPI
acquisition, there will be a reversion to an 88% NPI for the Plans at
that point in time. The applicant believes that this clarification is
important because the Plans will receive all of their investment in the
Properties before Callon is able to collect from its additional NPI
percentage.
The Department also received eleven comment letters from
participants in the Plans regarding the Proposal. Two of the commenters
were opposed to the granting of the exemption. One of these commenters
was concerned that the oil and gas transactions are risky investments
for the Plans and that any appraisal of such assets by the Plans may be
overvalued. The other commenter stated that he was opposed to the
exemption because GMC may either knowingly or unknowingly exercise a
controlling influence over various oil and gas suppliers when it buys
oil and gas to meet its own energy needs and that such influence may be
to the detriment of the Plans' oil and gas investments. This commenter
also stated that GMC's oil and gas purchasing power could be used to
affect certain local markets. Many of the Commenters stated that they
supported the granting of the exemption, but only if GMC offers an
``early retirement package'' to all salaried employees, regardless of
job classification, that meet certain age and service criteria. Some of
these commenters noted that notices regarding the Proposal were posted
late and that interested persons were not given enough time to reply.
By letter dated March 18, 1994, the applicant responded to these
comments.
First, with respect to the comment that oil and gas transactions
are risky investments for the Plans and that appraisals of such assets
may be overvalued, the applicant states that the subject transactions
under the terms and conditions described in the Proposal are in the
best interests of the Plans and their participants and beneficiaries.
The applicant represents that oil and gas investments can be reasonable
and appropriate for a large pension plan, such as the Plans, and that
the subject transactions have been and will continue to be carefully
monitored by GMIMCo. The oil and gas transactions by the Plans under
the requested exemption will represent only a small percentage of each
Plan's total assets (see Section II(i) above) and the existing
investments have yielded the Plans a high rate of return (see Paragraph
11 of the Summary). The applicant states that any activity by GMIMCo or
the ``qualified oil and gas investment manager'' acting for the Plans
that is outside the scope of activity described to the Department in
the Proposal, including any methods for overvaluing the fair market
value of proposed or existing oil and gas assets of the Plans, would be
a breach of fiduciary duty in violation of the Act. In addition, such
activity would be outside the scope of the conditions of the Proposal
and would not be subject to the prohibited transaction relief which
would be afforded by the exemption.
Second, regarding the comment that GMC may exercise a controlling
influence over various oil and gas suppliers when GMC buys oil and gas
to meet its own energy needs and that such influence may be to the
detriment of the Plans' oil and gas investments, the applicant states
that the comment is without merit and is inconsistent with the facts
and representations contained in the Proposal. The applicant maintains
that GMC has a de minimus involvement with any oil and gas suppliers
when acquiring oil and gas to run its own operations. With respect to
GMC's relationship to any such suppliers in the subject oil and gas
transactions by the Plans, the applicant states that the definition of
``Company'' in Section III(a) of the Proposal excludes any operating
company or partnership which is related to GMC or its affiliates. In
addition, the oil and gas investments covered by the Proposal involve
the Plans' in a passive investment role, with very limited control over
the actual sale or distribution of oil and gas obtained from the
Properties.
Third, with respect to whether notification of interested persons
was adequate and timely, the applicant states that all notices,
together with copies of the Proposal as published in the Federal
Register on December 29, 1993, were posted and distributed by GMC in
all primary business locations on or prior to January 28, 1994. In
addition, each of the appropriate unions received copies of the notices
and the Proposal. These notices, a copy of which has been submitted to
the Department by the applicant, informed interested persons of their
right to comment on the Proposal in writing to the Department on or
before February 28, 1994. An authorized representative of GMC has
provided the Department with a declaration under penalty of perjury
attesting to the truth of the information regarding GMC's notice to
interested persons as required by the Department's regulations (see 29
CFR 2570.43). Thus, the applicant represents that GMC has complied with
the Department's exemption procedures regarding notification of
interested persons in the manner agreed to between the applicant and
the Department.
Fourth, with respect to comments which linked the Proposal to GMC
providing an early retirement benefits package to its employees, the
applicant states that matters concerning the eligibility of Plan
participants to certain benefits are totally unrelated to the Proposal.
Since the Proposal only involves investing assets of the Plans in
specific oil and gas investments and has nothing to do with any early
retirement benefits for GMC employees, the applicant requests that the
Department not link the granting of an exemption to any requirement
that GMC provide early retirement benefits for its employees.
The Department agrees with the applicant that the merits of
granting an exemption for the subject oil and gas investments by the
Plans should be judged independent of any decisions by GMC regarding
the eligibility of participants to certain benefits under the terms of
the Plans. In addition, the Department believes that the applicant has
adequately addressed all of the issues raised by the commenters and
that the subject oil and gas transactions, under the terms and
conditions described herein, are in the interests and protective of the
Plans and their participants and beneficiaries.
Accordingly, after consideration of the entire record, the
Department has determined to grant the exemption as modified.
FOR FURTHER INFORMATION CONTACT:
Mr. E.F. Williams of the Department at (202) 219-8194. (This is not a
toll-free number.)
Alberici Companies Retirement Plan (the Plan) Located in St. Louis,
Missouri
[Prohibited Transaction Exemption 94-46; Application No. D-9633]
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 the cash sale (the Sale) by the Plan of Group
Annuity Policy No. GA-3363 (the GAP) issued by the New England Life
Insurance Company (New England Life) to Alberici Corporation, the Plan
sponsor and a party in interest with respect to the Plan; provided that
the following conditions are satisfied: (1) The Sale is a one-time
transaction for cash; (2) the Plan receives no less than the fair
market value of the GAP at the time of the Sale or, the cost of the GAP
to the Plan, whichever is greater; (3) the Plan does not suffer any
loss nor incur any expenses in connection with the transaction; and (4)
the Trustees of the Plan have determined that the proposed transaction
is appropriate for and in the best interests of the Plan and its
participants and beneficiaries.
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 April 22, 1994 at 59 FR
19254.
FOR FURTHER INFORMATION CONTACT: PMs. Virginia J. Miller of the
Department, telephone (202) 219-8971. (This is not a toll-free number.)
Laney & Duke Terminal Warehouse Co., Inc. Profit Sharing Plan and Trust
(the Plan) Located in Jacksonville, Florida
[Prohibited Transaction Exemption 94-48; Exemption Application No. D-
9552]
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 the sale of two adjacent commercial buildings
(collectively; the Buildings) by the Plan to Laney & Duke Terminal
Warehouse Co. Inc. (the Employer), the Plan sponsor and a party in
interest with respect to the Plan; provided that the following
conditions are satisfied:
(1) The Plan will receive the greater of: (1) $1,958,000,
representing the Plan's total investment in the Buildings; or (2) the
aggregate fair market value of the Buildings as determined at the time
of the sale by an independent, qualified appraiser;
(2) The sale will be a one-time transaction; and
(3) The Plan will pay no costs or commissions as a result of this
transaction.
For a more complete statement of facts and representations
supporting the Department's decision to grant this exemption refer to
the notice of proposed exemption published on April 22, 1994 at 59 FR
19252/19253.
FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan of the Department,
telephone (202) 219-8883. (This is not a toll-free number.)
Atlanta Consulting Group, Inc. Retirement Plan (the Plan) Located in
Atlanta, Georgia
[Prohibited Transaction Exemption 94-49; Exemption Application No. D-
9638]
Exemption
The restrictions of section 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 cash sale (the Sale) of certain shares of stock
(the Stock) from the Plan to Atlanta Consulting Group, Inc., a party in
interest with respect to the Plan.
This exemption is conditioned upon the following requirements: (1)
All terms and conditions of the Sale are at least as favorable to the
Plan as those obtainable in an arm's-length transaction; (2) the Sale
is a one-time cash transaction; (3) the Plan is not required to pay any
commissions, costs or other expenses in connection with the Sale; and
(4) the Plan receives a sales price equal to the greater of: (a) The
fair market value of the Stock on the date of the Sale; or (b) the
Stock's original acquisition price of $25,000.
For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on April 22, 1994 at 59 FR 19260.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr 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 or disqualified
person from certain other 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) 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 described 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, DC, this 7th day of June 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 94-14169 Filed 6-9-94; 8:45 am]
BILLING CODE 4510-29-M