[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]


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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.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    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\
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    \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).
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    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\
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    \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.
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    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\
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    \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.
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    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\
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    \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.
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    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.
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    \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.
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    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
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    \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.
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    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.
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    \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.
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    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