[Federal Register Volume 59, Number 143 (Wednesday, July 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-18265]
[[Page Unknown]]
[Federal Register: July 27, 1994]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
[Application No. D-9654, et al.]
Proposed Exemptions; Profit Sharing Plan for Employees of Lewis-
Gale Clinic, Inc., et al.
AGENCY: Pension and Welfare Benefits Administration, Labor
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
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
Unless otherwise stated in the Notice of Proposed Exemption, all
interested persons are invited to submit written comments, and with
respect to exemptions involving the fiduciary prohibitions of section
406(b) of the Act, requests for hearing 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.
Profit Sharing Plan for Employees of Lewis-Gale Clinic, Inc. (the
Plan) Located in Salem, Virginia
[Exemption Application No. D-9654]
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 section 406(a), 406(b)(1) and 406(b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the proposed cash sale (the Sale) of certain
shares of stock (the Shares) from certain individually-directed
accounts in the Plan (the Accounts) to Lewis-Gale Clinic, Inc. (the
Clinic), a party in interest with respect to the Plan.
This proposed exemption is conditioned on the following
requirements: (1) the terms and conditions of the Sale are at least as
favorable to the Accounts as those obtainable in an arm's-length
transaction with an unrelated party; (2) the Sale is a one-time cash
transaction; (3) the Accounts are not required to pay any commissions,
costs or other expenses in connection with the Sale; (4) the Sales
price for the Shares is based upon its fair market value as determined
by a qualified, independent appraiser; and (5) within ninety days of
the grant of this proposed exemption, the Clinic files Forms 5330 with
the Internal Revenue Service and pay all applicable excise taxes due
with respect to past prohibited transactions.
Summary of Facts and Representations
1. The Plan is a profit sharing plan sponsored by the Clinic, a
Virginia professional corporation owned exclusively by licensed
physicians engaged in the practice of medicine. The Clinic employs 837
full-time and part-time employees of which 124 are licensed physicians.
The Clinic services the Greater Roanoke Valley with a central location
located in Salem, Virginia. The Clinic also operates various satellite
clinics in towns and counties within a fifty mile radius of its primary
location.
2. As of March 31, 1994, the Plan had total assets of $58,733,461
and 690 participants. The Plan permits each participant to direct the
investments of his or her account among several funds including a fund
commonly referred to as Fund F. First Union National Bank of Virginia
(First Union) serves as trustee of all Plan assets except those held in
Fund F. The board of directors of the Clinic serves as the trustee with
respect to the Plan assets held in Fund F.
3. Fund F is designed to be invested exclusively in the common
stock of the Lewis-Gale Building Corporation (the Building
Corporation), which was incorporated on December 22, 1970. From the
time of such incorporation until 1983, all of the outstanding common
stock of the Building Corporation (the Stock) was owned exclusively by
the physicians and certain administrative personnel. The primary
purpose of the Building Corporation is to own and operate certain real
property facilities which are leased to the Clinic and other health
care providers for use in rendering medical services.\1\
---------------------------------------------------------------------------
\1\The Clinic represents that the Building Corporation is a real
estate operating company within the meaning of 29 CFR 2510.3-101(e).
Therefore, with regard to any ownership by the Plan, the Building
Corporation's assets are not considered plan assets. However, the
Department expresses no opinion as to whether the underlying assets
of the Building Corporation contain plan assets under 29 CFR 2510.3-
101(e).
---------------------------------------------------------------------------
4. As a condition to employment, each physician is contractually
required to purchase a fixed dollar amount of the Stock. In 1983, the
Building Corporation and the physicians, upon the advice of counsel,
amended the Plan and the pre-existing stock restriction agreement to
permit the Plan to acquire the Stock, thereby allowing the physicians
to satisfy their contractual obligations to purchase the Stock by self-
directing portions of their individual account balances into Fund F.\2\
---------------------------------------------------------------------------
\2\The Department notes that the decisions of the fiduciaries on
behalf of the Plan, in connection with the acquisition and holding
of the Building Corporation Stock are governed by the fiduciary
responsibility requirements of Part 4, Subpart B of Title I. In this
regard, the Department herein is not proposing relief for any
violations of Part 4 of the Act which may have arisen as a result of
the investment in and subsequent holding of the Stock.
---------------------------------------------------------------------------
Because the Stock is not publicly traded, the Building Corporation
values the Stock on an annual basis using its historic valuation
formula under the existing stock purchase agreement between the
Building Corporation and its shareholders. The valuation formula
incorporates the fair market values of the underlying assets of the
Building Corporation, which are valued annually by a qualified,
independent real estate appraiser. The Building Corporation has
consistently utilized this valuation formula to set the price per share
for all sale and purchase transactions involving the Stock.
Fund F has experienced an average annual rate of return of 11.3
percent, and investment in this fund is open to all participants in the
Plan. As of May 11, 1994, Fund F held 16,413 shares (the Shares) of the
Stock which represents approximately eighty-two percent of the issued
and outstanding shares of the Stock. The remaining issued and
outstanding shares of the Stock are owned by physicians and certain
administrators. The terms of Fund F require a participant electing to
invest in Stock to remain invested in Fund F until his or her death,
disability, retirement or other termination of employment. Upon such
occurrences, a number of shares of the Stock equal to the value of such
participant's Fund F account balance will be sold back to the Building
Corporation for cash and such cash proceeds distributed to the
participant as a part of his or her Plan account balance.\3\
---------------------------------------------------------------------------
\3\The Department expresses no opinion as to whether the terms
and conditions of Fund F violated any provision of Part 4, Subpart B
of Title I of the Act.
---------------------------------------------------------------------------
5. Between 1988 and 1990, thirteen physicians (the Physicians),
upon the advice of counsel, sold their individual shares of the Stock
for cash to their individually-directed accounts in the Plan indirectly
through the Building Corporation. Three of the Physicians were officers
of the Clinic. The Clinic states that, as an indirect result of these
sales, some of the accounts of the Physicians held shares of the Stock
in excess of twenty-five percent of the balance of their account at
some point. Because of the party in interest/ disqualified person
relationships and the past purchases by the accounts from the
Physicians, the Clinic is aware of the fact that prohibited
transactions have occurred in violation of the Act. Accordingly, the
Clinic represents that within ninety days of the grant of this proposed
exemption, the Clinic will file Forms 5330 with the Internal Revenue
Service and will pay all applicable excise taxes due with respect to
past prohibited transactions.\4\
---------------------------------------------------------------------------
\4\Because of the administrative difficulties involved in
locating certain Physicians who were involved in these prohibited
purchases by their accounts, the Clinic has represented that it will
be responsible for the filing of the Forms 5330 and the payment of
all applicable excise taxes resulting from these prohibited
purchases.
---------------------------------------------------------------------------
6. Upon discovering that certain accounts in the Plan had engaged
in prohibited transactions, the board of directors, acting as trustee,
froze the assets in Fund F pending resolution of the prohibited
transaction issues. As a result, retiring participants are limited to
receiving only a partial distribution. In order to allow participants
to receive full distributions, the trustee proposes to sell the Shares
to the Clinic. Accordingly, the Clinic requests an administrative
exemption from the Department to permit the Sale under the terms and
conditions described herein.
The Sale will be a one time cash transaction, and the Accounts will
pay no fees or commissions in connection with the Sale. Prior to the
Sale, First Union will become trustee with respect to the Plan assets
in Fund F. At this time, First Union will have the sole investment
discretion over the entire assets of the Plan. Although the initial
decision to sell the Shares was made by the board of directors acting
as trustee, First Union will have the ultimate authority to approve or
disapprove the terms and conditions of the Sale.
7. The Clinic obtained an appraisal of the Stock dated May 13,
1994, from Dianne D. Cobb, CFA, ASA. Ms. Cobb is the Senior Vice
President of Investment Managements Services of Wachovia Bank of North
Carolina which provides analysis with regard to non-publicly traded
securities and securities of closely held businesses. Ms. Cobb
represents that both she and Wachovia Bank of North Carolina are
unrelated to and independent of the Clinic and its affiliates. Relying
upon the discounted future cash flow and recent trades of the Stock,
Ms. Cobb placed the fair market value of the Stock at $764 per share.
Based on this valuation, the value of the Shares, which represent Fund
F's eighty-two percent interest in the Building Corporation, total
$12,539,532.
8. In summary, it is represented that the proposed transaction will
satisfy the statutory criteria for an exemption under section 408(a) of
the Act because: (a) the terms and conditions of the Sale will be at
least as favorable to the Plan as those obtainable in an arm's-length
transaction with an unrelated party; (b) the Sale will be a one-time
cash transaction; (c) the Plan will not be required to pay any
commissions, costs or other expenses in connection with the Sale; and
(d) the Sales price for the Shares will be based upon its fair market
value as determined by a qualified, independent appraiser; and (e)
within ninety days of the grant of this proposed exemption, the Clinic
will file Forms 5330 with the Internal Revenue Service and will pay all
applicable excise taxes due with respect to past prohibited
transactions.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Raytech Corporation Salaried Employees Savings Plan (the Salaried
Plan) and Raytech Corporation Hourly Employee Savings Plan (the
Hourly Plan; together, the Plans) Located in Shelton, Connecticut
[Application Nos. D-9722 and D-9723]
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 by
Raytech Corporation (Raytech) to the Plans in the form of payments (the
Makeup Payments) with respect to group annuity contract CG01274B3A (the
GIC) issued by Executive Life Insurance Company (ELIC); and (2) the
Plans' potential repayment of the Makeup Payments (the Repayments),
provided: (a) all terms of such transactions are no less favorable to
the Plans than those which the Plans could obtain in arm's-length
transactions with an unrelated party; (b) no interest and/or expenses
are paid by the Plans; (c) the Makeup Payments are made only in lieu of
payments due from ELIC with respect to the accumulated book value of
the GIC at the time of the Makeup Payments; (d) the Repayments are
restricted to the amounts, if any, paid to the Plans after March 27,
1994, by ELIC or other responsible third parties with respect to the
GIC (the GIC Proceeds); (e) the Repayments do not exceed the total
amount of the Makeup Payments; and (f) the Repayments are waived to the
extent the Makeup Payments exceed the GIC Proceeds.
Summary of Facts and Representations
1. Raytech is a multi-national manufacturer and marketer of
specialty engineered products for heat resistant, inertia control,
energy absorption and transmission applications. In 1988, Raytech
became the sponsor of the Plans, which are defined contribution plans
under section 401(k) of the Code.
2. The Salaried Plan currently has 281 participants and
beneficiaries, and has assets with an approximate aggregate fair market
value of $9,793,000. The Hourly Plan currently has 236 participants and
beneficiaries, and has assets with an approximate aggregate fair market
value of $1,051,000. Effective January 1, 1994, Charles Schwab Trust
Company (the Trustee) was appointed as trustee to the Plans.
3. Investments of funds contributed under the Plans are made by the
Trustee as directed by participants in accordance with provisions of
the Plans. In 1988, the Plans provided two investment options: (i) a
``Guaranteed Interest Fund'' in which the monies were to be held under
a contract or contracts issued by one or more major insurance companies
providing for a stipulated minimum rate of interest, as selected by the
Plans' administrative committee (the Committee) or (ii) a ``Managed
Securities Fund'', consisting of a mutual fund managed by a bank which
was selected by the Committee. Under the provisions of the Salaried
Plan, Raytech's matching contributions could be delivered in cash or
Raytech common stock at the direction of Raytech's Board of Directors.
4. In 1992, both Plans were amended, revising the name of the
Equity Fund from ``Managed Security Fund'' to ``Equity Fund'', and the
Salaried Plan was amended to add an additional investment option in a
Balanced Fund as selected by the Committee. In 1993, both Plans were
amended to change the Guaranteed Interest Fund option. Prior to this
amendment, the Guaranteed Interest Fund provided for monies contributed
in a particular year to be held by a single insurance company (e.g.,
ELIC). Pursuant to this amendment, the Plans now permit investments in
a ``pooled investment fund'' that features insurance company contracts
issued by multiple insurance companies. Under the terms of each of the
Plans, the participants have withdrawal and transfer rights with
respect to their accounts (Withdrawal Events). The circumstances
triggering Withdrawal Events include severance from service,
disability, retirement, death, hardship, transfer of funds and loans.
5. The GIC was issued by ELIC to the Plans in 1988. Employee
savings contributions directed to the Guaranteed Interest Fund and
related Raytech contributions were invested in the GIC during 1988. As
of April 11, 1991, total principal deposited under the GIC plus
accumulated interest under the GIC, less previous withdrawals (the
Accumulated Book Value) for the Plans amounted to $1,774,779. On April
11, 1991 (the Conservation Date), ELIC was seized by the California
Insurance Commissioner and its assets were frozen and its payments
suspended, including the GIC.\5\ Effective September 3, 1993 (the
Closing Date), the California Superior Court approved a rehabilitation/
liquidation plan (the Rehab Plan).\6\ The Rehab Plan provides for the
resolution of ELIC's contractual obligations.
---------------------------------------------------------------------------
\5\In this proposed exemption the Department expresses no
opinion as to whether the acquisition and holding of the GIC
violated any provisions of Part 4 of Title I of the Act.
\6\In October, 1992, the Secretary of Labor filed suit against
Raymark Industries, Inc. (Raymark) and certain named fiduciaries in
the U.S.District Court for Connecticut in a case now captioned
Robert B. Reich, Secretary of the U.S. Department of Labor v.
Raymark Industries, Inc., et.al., Civil Action No. 5:92CV 614 (EBB).
The suit named Raytech as a successor in liability to Raymark. The
suit alleged the breach of fiduciary duties under the Act in
connection with the purchase of a group annuity contract from ELIC
to fund the benefits of three Raymark pension plans following an
investigation that began in June, 1991. The Department notes that
the exemption proposed herein is not intended to affect any cause of
action by any participant of the Plans or the Department with
respect to the GIC.
---------------------------------------------------------------------------
6. Pursuant to the Rehab Plan, an interim benefit payment (the
Interim Payment) was received by the Plans in the combined amount of
$288,528 in September, 1993. In January, 1994, the Plans were provided
an option to elect to participate in the Rehab Plan or to opt out.
Notice was given that the contract values and terms of the original GIC
had been adjusted down as required by the Rehab Plan. The Plans were
advised that there was no participating state guaranty association, and
thus no such source of makeup funds. The Plans' Committees elected to
opt out of the Rehab Plan, and the GIC was surrendered (see rep. 8,
below).
7. Under the Rehab Plan, a new insurance company, Aurora, was
created to receive the ELIC assets. ELIC contractholders, however, were
not forced to invest in the new company and could opt out. Upon opting
out, however, the ELIC contractholders were to receive only a portion
of their Accumulated Book Value, or a reduction of 31.5%. After that
reduction, further amounts were to be held back to cover potential
liabilities from ELIC indemnities in the sale of the assets and ongoing
litigation concerning allocation of the ELIC assets, leaving the
balance for the first opt out payment.
In addition to the first opt out payment, the Rehab Plan provides
for future potential payments as follows: (a) distributions from
enhancement trusts; and (b) release of holdbacks. These are described
below.
Three enhancement trusts were created at the ELIC sale to protect
certain ELIC assets that were not part of the sale, one for real
estate, one for below grade stocks and bonds, and one for ELIC rights
not transferred. All of these assets are to be liquidated by the
enhancement trusts over time and the proceeds distributed to the ELIC
contractholders. As required by the Rehab Plan, a specified amount was
held back to cover the indemnity and allocation contingencies.
The holdback amounts, if any remain, will be released to the
participants in the future if not used to cover the indemnities and
allocation litigation result. The Rehab Plan provided no assurance that
there would be distributions from enhancement trusts or releases of
holdbacks.
8. The opt out provision of the Rehab Plan was equivalent to a
repurchase of the GIC in return for the opt out payment. Having elected
to opt out, the Plans on March 27, 1994, received the first opt out
payment in the amount of $730,912. When added to the Interim Payment
(see rep. 6, above) of $288,528, the Plans have received a total of
$1,019,440 from ELIC. In addition, approximately $200,000 was held back
by ELIC (see rep. 7, above). When the opt out payment was received, the
Plans surrendered the GIC to Aurora.
9. Following the receipt of the first opt out payment and assuming
no future payments from the enhancement trusts or from the holdback,
each affected participant in the Plans will have lost approximately 42%
of his/her account balance invested in the GIC as of the Conservation
Date of April 11, 1991. The applicant represents that the realization
of these losses and uncertainties surrounding the ELIC situation have
caused substantial concern and anxiety among the Plans' participants.
In order to relieve the affected participants' concerns, to protect the
participants' accounts invested in the GIC, and to restore to the Plans
the ability to fulfill obligations with respect to Withdrawal Events
involving amounts invested in the GIC, Raytech desires to make up the
losses the participants have suffered as a result of the investment in
the GIC by way of the Makeup Payments. The Makeup Payments have been
calculated as follows:
------------------------------------------------------------------------
Hourly Salaried Total
------------------------------------------------------------------------
Accumulated Book Value on
Conservation Date............ $85,189 $1,689,590 $1,774,779
Interest Values Lost (April
11, 1991 to March 27, 1994).. 23,332 463,167 486,499
-----------------------------------------
Totals.................. 108,521 2,152,757 2,261,278
-----------------------------------------
Payments Made By ELIC......... 49,598 969,842 1,019,440
Makeup........................ 58,923 1,182,915 1,241,838
-----------------------------------------
Totals.................. 108,521 2,152,757 2,261,278
------------------------------------------------------------------------
The totals that should have been earned match the payments made by
ELIC (Interim Payment plus first opt out payment) plus the Makeup
Payment. (The totals will increase to account for interest at 6.19% up
to the actual Makeup Payment date.)
The Makeup Payments, which are shown in the above chart, have been
calculated in order to restore to the Plans the full Accumulated Book
Value of the GIC as of March 27, 1994 (the date of the first opt out
payment), which is $2,261,278. In addition, the applicant represents
that it will pay interest to the Plans up to the actual Makeup Payment
date at a rate of 6.19%, since funds invested in the GIC would have
been rolled over by the Trustee into the Hartford Insurance Company
GIC, having a guaranteed interest rate of 6.19% and expiring December
31, 1997.
10. Raytech is prepared and able to contribute the above-calculated
Makeup Payments plus interest to the Plans to eliminate the
participants' losses and future payment contingencies. The first opt
out payments (including the Interim Payment) and the Raytech Makeup
Payments will fully restore the participants' accounts. Immediately
following the granting of the exemption proposed herein and the
execution of a closing agreement with the Internal Revenue Service
pursuant to Rev. Proc. 92-16, the Makeup Payment will be contributed
directly to the Trustee, who is obligated under the terms of the Plans
to invest the contribution directly into the Guaranteed Interest Fund.
As future payments from the enhancement trusts or return of holdbacks
are received, the Trustee is to pay such amounts over to Raytech to
reimburse it for that portion of the Makeup Payments. The transaction
can be characterized as a non-interest bearing loan by Raytech to the
Plans requiring no security or collateralization.
11. The applicant represents that the losses suffered by the
affected participants are known numbers since the Rehab Plan has been
implemented and the payment has been made except for enhancement trusts
and holdbacks. In the absence of the Makeup Payments, such participants
stand to lose 42% of their account balances as of the Conservation Date
of April 11, 1991 and interest since such date totaling approximately
$1,242,000. To summarize, Raytech is proposing to make up the lost
amounts and to cover the amounts not paid due to the enhancement trusts
and the holdbacks under the Rehab Plan. Raytech is looking to recoup
such amounts only to the extent that they are subsequently paid under
the Rehab Plan.
12. In summary, the applicant represents that the proposed
transactions will satisfy the criteria contained in section 408(a) of
the Act because: (a) all terms of the transactions 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) no interest and/
or expenses will be paid by the plans; (c) the Makeup Payments will be
made only in lieu of payments due from ELIC with respect to the
accumulated book value of the GIC at the time of the Makeup Payments;
(d) the Repayments are restricted to the GIC Proceeds; (e) the
Repayments will not exceed the total amount of the Makeup Payments; and
(f) the Repayments are waived to the extent the Makeup Payments exceed
the GIC Proceeds.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
The Bally Manufacturing Corporation, Bally's Employee Savings Trust for
Administrative, Employees, et al. (the Plans), Located in Chicago, IL
[Application Nos. D-9646 and D-9647]
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 advance of funds (the
Advances) to the master trust which was established to hold the assets
of the Plans (the Master Trust) by Bally Manufacturing Corporation (the
Employer), a party in interest with respect to the Plans and the Master
Trust, and (2) the Master Trust's potential repayment of the Advances
upon the receipt by the Master Trust of payments under two guaranteed
investment contracts (the GICs) issued by Executive Life Insurance
Company (Executive Life); provided the following conditions are
satisfied:
(A) No interest or expenses are paid by the Plans in connection
with the proposed transaction;
(B) The Advances will be repaid only out of amounts paid to the
Master Trust by Executive Life, its successors, or any other
responsible third party; and
(C) Repayment of the Advances is waived with respect to the amount
by which the Advances exceed GIC proceeds.
Summary of Facts and Representations
1. The Employer is a Delaware Corporation with its principal place
of business located in Chicago, Illinois. The Plans are all defined
contribution plans. The estimated number of participants in each of the
Plans as of December 31, 1993 is:
a. Bally's Employee Savings Trust for Administrative Employees: 729
b. Bally's Employees Savings Trust for Club Employees: 4,775
c. Bally's Grand, Inc. Contributory Savings Plan: 1,269
d. Bally's Grand (GNOC Corp.) Retirement Savings Voluntary
Participation Plan: 1,164
e. The Amended and Restated Bally's Park Place, Inc. Profit Sharing
Plan: 2,162
2. The assets of all five Plans are held in the Master Trust. Each
Plan holds units of participation representing an undivided interest in
the assets of the Master Trust. As of December 31, 1993, the total
amount of Plan assets held in the Master Trust was approximately
$95,000,000. The terms of the Plans permit participants to direct the
investment of their accounts under the Plans. Each of the Plans
provides its participants the option of investing in any of six mutual
funds managed by Fidelity Management and Research Company, including
the Interest Income Fund. The GICs, which were acquired directly by the
Master Trust, are considered part of the Interest Income Fund. The
Interest Income Fund has investments in several guaranteed investment
contracts. On April 4, 1989, the Master Trust acquired GIC A (#CGO 1318
A3A) from Executive Life for $4,000,000. GIC A provided for annual,
guaranteed interest at the rate of 10.13%, with a maturity date of
October 15, 1992. On July 3, 1989, the Master Trust acquired GIC B
(#CGO 1331 A3A) from Executive Life for $3,000,000. GIC B provided for
annual guaranteed interest at the rate of 9.01%, with a maturity date
of October 15, 1993.
3. On April 11, 1991, Executive Life was placed into
conservatorship by the Insurance Commissioner of the State of
California. The Employer represents that Executive Life ceased payments
on the GICs upon commencement of the conservatorship. The effect of the
conservatorship has been to freeze all assets invested in the GICs.
This freeze has prevented Plan participants from exercising their
rights under the Plans to request distributions, loans, withdrawals and
investment transfers with respect to amounts currently invested in the
GICs.7
---------------------------------------------------------------------------
\7\The Department notes that the decisions to acquire and hold
the GICs 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 GICs issued by Executive Life.
---------------------------------------------------------------------------
4. The Employer proposes to make the Advances to the Master Trust
in a series of payments, pursuant to a written loan agreement (the
Agreement). The total amount of Advances will not exceed the aggregate
account balances of the Plans' participants attributable to the GICs as
of April 11, 1991,8 adjusted for interest, as follows: Commencing
on the date the Employer and the Internal Revenue Service enter into a
closing agreement pursuant to Internal Revenue Procedure 92-16,9
interest will be credited at the rate paid on the Interest Income
Fund.10 The Employer represents that it wishes to enter into the
proposed transaction in order to protect the Plan participants from the
effects of a prolonged rehabilitation process and from any potential
loss resulting from Executive Life's inability to meet its obligations
under the GICs. In this regard, the Employer represents that the Plans'
participants will benefit from the proposed transaction because the
Advances will ensure that the participants receive 100% of the
conservatorship date value of their accounts and such amounts will be
available as soon as approval is received from the Internal Revenue
Service and the Department.11 The Employer further represents that
the Advances will facilitate benefit distributions, loans, hardship
withdrawals and investment transfers which would not otherwise be
possible because of Executive Life's suspension of payments under the
GICs. The Employer also represents that the Advances will be non-
interest bearing and the Plan will not incur any expenses in connection
with the proposed transaction.
---------------------------------------------------------------------------
\8\The balances as of April 11, 1991 consist of contributions
plus interest at the contract rate, less prior withdrawals.
\9\Internal Revenue Procedure 92-16 provides for a temporary
closing agreement program to settle certain tax liabilities that
arise out of transactions between an employer-sponsor and the trust
of a qualified defined contribution plan.
\1\0The Employer represents that the annualized rate of return
on the Interest Income Fund for the period from April 1, 1993
through March 31, 1994 was 7.35%.
\1\1The Department notes that the exemption, if granted, will
not affect the ability of a participant or beneficiary to bring a
civil action against Plan fiduciaries for breaches of section 404 of
ERISA in connection with any aspect of the GIC transactions.
---------------------------------------------------------------------------
5. Repayment of the Advances under the Agreement is limited to
payments made to the Master Trust by or on behalf of Executive Life, or
its successor, or any other responsible third parties. No other assets
of the Master Trust will be available for repayment of the Advances. If
the payments by or on behalf of Executive Life are not sufficient to
fully repay the Advances, the Agreement provides that the Employer will
have no recourse against the Plans or the Master Trust, or against any
participants or beneficiaries of the Plans, for the unpaid amount. To
the extent the Master Trust receives GIC proceeds in excess of the
total amount of the Advances, such additional amounts will be retained
by the Master Trust and allocated among the accounts of the Plans'
participants.
6. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because: (1) The transaction will preserve the Plans' ability to timely
fund participants' benefits, including participant loans, hardship
withdrawals and participant-directed investment re-allocations; (2) The
Master Trust will not incur any expenses with respect to the
transaction; (3) Repayment of the Advances will be made only from
amounts paid to the Master Trust by Executive Life, its successor, or
any other third party; (4) If the payments by or on behalf of Executive
Life are not sufficient to fully repay the Advances, the Employer will
have no recourse against the Plans or the Master Trust, or against any
participants or beneficiaries of the Plans, for the unpaid amount; and
(5) Repayment of the Advances will be waived with respect to the amount
by which the Advances exceed the amount the Master Trust receives from
GIC proceeds.
FOR FURTHER INFORMATION CONTACT: Ms. Virginia J. 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 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, DC, this 22nd day of July 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 94-18265 Filed 7-26-94; 8:45 am]
BILLING CODE 4510-29-P