[Federal Register Volume 59, Number 232 (Monday, December 5, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-29833]


[[Page Unknown]]

[Federal Register: December 5, 1994]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-09847, et al.]

 

Proposed Exemptions; Erick M. Jansson, IRA (the IRA) et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request for a hearing on the pending exemptions, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
request for a hearing should state: (1) the name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
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, NW., Washington, DC 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.

Erick M. Jansson, IRA (the IRA) Located in Fayetteville, Arkansas; 
Proposed Exemption

[Application No. D-09847]

    The Department is considering granting an exemption under the 
authority of 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 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 sale of an overriding royalty interest in oil and gas (the 
Interest) by the IRA to Mr. Erick M. Jansson (Mr. Jansson), a 
disqualified person with respect to the IRA, for $95,000 in cash, 
provided:
    (a) the IRA pays no commissions or other expenses in connection 
with the sale;
    (b) the fair market value of the Interest is determined by a 
qualified independent appraiser; and
    (c) the IRA receives no less than the fair market value of the 
Interest on the date of the sale.1
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    \1\Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the 
jurisdiction of Title I of the Act. However, there is jurisdiction 
under Title II of the Act pursuant to section 4975 of the Code.
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Summary of Facts and Representations

    1. The IRA is a self-directed IRA described in section 408(a) of 
the Code. Arkansas Trust Management, Inc. of Fayettevillle, Arkansas, 
is the custodian of the IRA. As of September 6, 1994, the IRA had 
approximately $169,150 in total assets.
    2. On April 20, 1993, the IRA purchased the Interest, which 
consists of an overriding royalty interest of one-quarter of one 
percent of 8/8ths of all oil and gas produced from Block Q/13(a), a 
proposed offshore oil and gas drilling operation to be located on 
property near the Netherlands. The IRA purchased the Interest from the 
Van Dyke Energy Company (VDE) for a consideration of $95,000. VDE is 
unrelated to Mr. Jansson and the IRA. Mr. Jansson, who had worked for 
over 25 years in the field of oil and gas drilling management, had 
determined that the Interest was a suitable investment for his IRA.
    3. At the time the Interest was purchased by the IRA, the parties 
were unaware that the Dutch government would impose a 35% foreign 
income tax on the oil and gas proceeds produced by the Interest (the 
Foreign Tax). The parties learned of the Foreign Tax after the Interest 
was acquired when VDE announced it had been advised by the Dutch 
government that any proceeds from the asset were subject to Dutch 
income tax and the Foreign Tax would be withheld from the proceeds 
before payments to the IRA. In addition, Mr. Jansson has determined 
that he wishes to invest the IRA's assets in a more liquid and less 
speculative investment. Accordingly, he proposes to purchase the 
Interest from the IRA for cash at its appraised fair market value. No 
commissions or other expenses will be paid by the IRA in connection 
with the sale.
    4. Mr. John R. Gorman, financial consultant for VDE, has stated 
that as of August 22, 1994, no development plan has been filed for 
Block Q/13(a), nor has there been any oil or gas production on the 
Block. Accordingly, Mr. Gorman has appraised the Interest as still 
having a fair market value of $95,000 as of August 22, 1994.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the criteria contained in section 4975(c)(2) of 
the Code because: a) the sale is a one-time transaction for cash; b) 
the IRA will pay no commissions or other expenses in connection with 
the sale; c) the sales price has been determined by a qualified, 
independent appraiser; and d) Mr. Jansson is the only participant in 
the IRA, and he has determined that the transaction is appropriate for 
and in the best interest of the IRA and desires that the transaction be 
consummated.

notice to interested persons: Because Mr. Jansson is the only 
participant in the IRA, it has been determined that there is no need to 
distribute the notice of proposed exemption to interested persons. 
Comments and requests for a hearing are due 30 days after publication 
of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Stratus Computer, Inc. Employees' Capital Accumulation Plan (the Plan) 
Located in Marlboro, Massachusetts; Proposed Exemption

[Application No. D-9823]

    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 
Stratus Computer, Inc. (Stratus) to the Plan in the form of a loan (the 
Loan) with respect to Guaranteed Investment Contract, Number 62456 (the 
GIC) issued by Confederated Life Insurance Company of Canada (CL); and 
(2) the Plan's potential repayment of the Loan (the Repayments), 
provided:
    (a) all terms of such transactions are no less favorable to the 
Plan than those which the Plan could obtain in arm's-length 
transactions with an unrelated party;
    (b) no interest and/or expenses are paid by the Plan;
    (c) the amount of the Loan is no less than the accumulated book 
value of the GIC as of August 12, 1994;
    (d) the Repayments are restricted to the amounts, if any, paid to 
the Plan after August 12, 1994, by CL or other responsible third 
parties with respect to the GIC (the GIC Proceeds);
    (e) the Repayments do not exceed the total amount of the Loan; and
    (f) the Repayments are waived to the extent the Loan exceeds the 
GIC Proceeds.

Summary of Facts and Representations

    1. Stratus manufactures and sells fault-tolerant superminicomputer 
hardware, develops and licenses computer software, and provides 
computer consulting services. Stratus is a public company, traded on 
the New York Stock Exchange, and had revenues of approximately $525 
million for 1993. Stratus currently sponsors the Plan for the benefit 
of all its United States employees and employees of its United States 
subsidiaries. The Plan is a defined contribution plan with an employer 
matching feature. The Plan has approximately 1,200 participants and 
beneficiaries, and as of June 30, 1994, the approximate aggregate fair 
market value of the Plan's assets was $68,679,205.
    2. Under the Plan, participants are able to self-direct their 
savings contributions as well as Stratus matching contributions into 
seven diversified investment funds, which are a Money Market Fund, a 
Fixed Income Fund, a Balanced Fund, a Growth and Income Fund, two 
Growth Funds and an International Fund, all of which are managed by 
Fidelity Investments (Fidelity) of Boston, Massachusetts. The 
investment options under the Plan are all mutual funds. The Plan no 
longer acquires individual guaranteed investment contracts, but rather 
participates through Fidelity in a GIC ``Fund'', which is the Fixed 
Income Fund. As of January 1, 1994, contributions and/or transfers into 
the Fixed Income Fund are invested in Fidelity's GIC Fund.
    3. The Fixed Income Fund contains five Investment Contracts which 
are issued by various insurance companies. These five Investment 
Contracts were purchased prior to the Plan's participation in and 
offering of Fidelity's GIC Fund. One of these five Contracts is the 
GIC, which was issued by CL. The GIC was issued on April 1, 1991 and is 
due to mature on March 31, 1996. The stated interest rate on the GIC is 
8.52%. The total contributions made to the GIC have been $5,031,214. 
Withdrawals have been made in the amount of $2,001,214. As of August 
11, 1994, the GIC had a balance of $3,119,540.
    4. However, on August 12, 1994, CL was seized by Canadian 
governmental authorities, and all CL assets were frozen. To ensure the 
financial viability of CL commitments in the United States, the State 
of Michigan froze all assets of CL in the U.S. until a Rehabilitation 
Plan (the Rehab Plan) can be secured.\2\ At the time CL was seized, a 
segregated fund (the Segregated Fund) was established within the Fixed 
Income Fund of the Plan. Participants with assets in the Fixed Income 
Fund had approximately 13.5% of that amount allocated to the Segregated 
Fund, which represents the percentage of assets attributable to the GIC 
in the Fixed Income Fund.
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    \2\The Department notes that the decisions to acquire and hold 
the GIC are governed by the fiduciary responsibility requirements of 
Part 4, Subtitle B, Title I of the Act. In this proposed exemption, 
the Department is not proposing relief for any violations of Part 4 
which may have arisen as a result of the acquisition and holding of 
the GIC.
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    5. The applicant represents that the Segregated Fund component of 
the Plan poses various administrative problems, including the fact that 
investment transfers, loans and hardship withdrawals, as well as 
distributions for terminated and retired participants are precluded. 
Approximately 54% of the Plan participants are affected.
    6. Stratus has accordingly requested an exemption to permit it to 
make the Loan to the Plan. The Loan will be made pursuant to a written 
agreement, in which all Loan terms will be stated. The Loan will be an 
interest-free, unsecured loan in an amount equal to the Segregated Fund 
balance (i.e., the accumulated book value of the GIC--deposits, plus 
interest at the contract rate, minus withdrawals) as of August 12, 
1994. Any future interest credited in accordance with the Rehab Plan 
will be allocated to Plan participants. The purpose of the Loan is to 
facilitate distributions, participant loans, hardship withdrawals and 
investment transfers from the portion of the participants' account 
balances that are allocated to the Segregated Fund. Such distributions 
would otherwise be at best delayed due to the uncertainty of the terms 
of the Rehab Plan. The applicant represents that the Plan's Repayments 
of the Loan will be limited to the GIC Proceeds, will be waived to the 
extent the Loan exceeds the GIC proceeds, and in no event will exceed 
the amount of the Loan.
    7. 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 
Plan than those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (b) no interest and/or expenses will be paid by the Plan;
    (c) the Loan will be no less than the accumulated book value of the 
GIC as of August 12, 1994;
    (d) the Repayments are restricted to the GIC Proceeds;
    (e) the Repayments will not exceed the total amount of the Loan; 
and
    (f) the Repayments are waived to the extent the Loan exceeds the 
GIC Proceeds.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Mid-Hudson Medical Group, P.C. Money Purchase Pension Trust (the Plan) 
Located in Fishkill, New York; Proposed Exemption

[Application No. D-9721]

    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 acquisition by the Plan of certain 
improved real property (the Property) from unrelated parties for a 
sales price of $562,500; and (2) the leasing (the Lease) of the 
Property by the Plan to Mid-Hudson Medical Group, P.C. (the Employer), 
a party in interest with respect to the Plan, provided the following 
conditions are satisfied:
    (a) the Plan pays no more than the fair market value of the 
Property;
    (b) the Property represents no more than 25% of the value of the 
Plan's assets;
    (c) the terms of the Lease are, and will remain, at least as 
favorable to the Plan as those obtainable in an arm's-length 
transaction with an unrelated party;
    (d) the fair market rental value has been, and will continue to be 
determined on an annual basis by a qualified, independent appraiser;
    (e) the Plan's independent fiduciary has determined that the 
transaction is appropriate for the Plan and in the best interests of 
the Plan's participants and beneficiaries; and
    (f) the Plan's independent fiduciary will continue to monitor the 
transaction and the conditions of the exemption and take whatever 
action is necessary to enforce the Plan's rights under the Lease.

Summary of Facts and Representations

    1. The Employer is a professional corporation engaged in the 
practice of medicine. The Plan is a defined contribution money purchase 
plan with 108 participants. As of June 30, 1993, the Plan had total 
assets with a value of $7,265,571.
    2. The Plan proposes to purchase the Property from two unrelated 
parties, Martin Koloski and Durgadevi Soma. The purchase price for the 
Property will be $562,500. The Property consists of land and a building 
located at 30 Columbia Street, Poughkeepsie, New York. The sellers 
previously used the building for offices for a medical practice.
    3. Following the acquisition of the Property by the Plan, it will 
be leased by the Plan to the Employer for its medical practice. A 
portion of the Property will be subleased by the Employer to other 
unrelated tenants. The initial annual rental for the Property is to be 
$62,458. The Lease is to be on a triple-net basis; thus, all expenses, 
including real estate taxes, will be paid by the Employer. The Lease 
will be for an initial term of ten years, and will be automatically 
renewed at the end of the term for an additional five year period, 
subject to the approval of the Plan's independent fiduciary (see rep. 
5, below).
    4. The annual rental for the Property has been established by an 
independent appraisal performed by Messrs. Kenneth Golub, MAI, and 
Harvey Cohen (the Appraisers) of American Property Counselors of 
Armonk, New York, as of April 30, 1994. The Appraisers have also 
determined that the Property had a fair market value of $565,000 as of 
that date. The applicant represents that the Property will be 
personally inspected every year by a qualified, independent appraiser 
chosen by the Plan's independent fiduciary (see rep. 5, below) who will 
provide the Plan with an annual fair market rental value update. The 
applicant represents that the rental payment will be adjusted annually 
in accordance with the fair market rental value stated by the 
independent appraiser. The adjusted rent will either stay the same or 
be adjusted upward, but will never be decreased from the prior year's 
rent paid.
    5. The applicant represents that Mr. Joseph J. Berger of Joseph J. 
Berger Management Associates in White Plains, New York, has been 
appointed to serve as the Plan's independent fiduciary with respect to 
the subject transactions. Mr. Berger represents that he has been a CPA 
for over 35 years, and that he is knowledgeable in the area of real 
estate and experienced in working with qualified retirement plans. The 
applicant represents that Mr. Berger has no relationship to the Plan or 
the Employer other than serving as the independent fiduciary to the 
Plan.3 Mr. Berger represents that he is aware of his duties, 
liabilities and responsibilities as a fiduciary under the Act, and he 
has accepted them.
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    \3\Mr. Berger also serves as the independent fiduciary for the 
profit sharing plan sponsored by the Employer with respect to the 
transaction which was exempted by Prohibited Transaction Exemption 
93-27, 58 FR 25673, April 27, 1993.
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    6. Mr. Berger represents that he has undertaken the following 
duties as independent fiduciary to the Plan with respect to the Lease:
    (a) to review the Plan's proposed purchase of the Property, and in 
that connection to determine whether the purchase will be at fair 
market value as determined by an independent real estate appraiser and 
based upon arm's-length negotiations, and whether the purchase will be 
in the best interest of the Plan and its participants, taking into 
account the diversity of Plan assets and the Plan's need for liquidity;
    (b) to review the Lease (and any proposed renewals thereof) 
covering the Property to confirm in each case that the Lease (or 
renewal) is in the best interest of the Plan and its participants;
    (c) to confirm that the Lease (or renewal thereof) reflects the 
current fair market rental rate as determined by an independent real 
estate appraiser;
    (d) to review all financial statements and other documents to be 
filed by the Plan in connection with the Lease (or the renewal 
thereof);
    (e) to monitor the Lease to ensure that all actions are taken that 
are necessary or proper to safeguard the interests of the Plan; and
    (f) to review the Plan's assets periodically to determine whether 
the value of the Property remains less than 25% of the total value of 
Plan assets.
    7. Mr. Berger represents that he completed his analysis of the 
transactions and, based upon his review and analysis, it is his opinion 
that the Property is an appropriate investment for the Plan and the 
acquisition and Lease thereof is in the best interests of the Plan's 
participants and beneficiaries. Mr. Berger represents that he has 
reviewed the Plan's investment portfolio and determined that while it 
is prudently diversified among its various securities, less than 20% of 
the total corpus is invested in intermediate and long-term securities. 
Mr Berger believes that it would be appropriate to further diversify 
the portfolio with a long-term investment such as the Property and the 
subject Lease.
    8. Mr. Berger represents that after having examined the purchase 
contract, the proposed Lease, the appraisal report, the physical 
Property and the Plan's assets, he considers the purchase of the 
Property to be a sound and secure investment which will earn a fair 
market return for the Plan and will enhance the diversification of the 
Plan's assets and provide a more consistent and level flow of current 
income. Mr. Berger represents that he will continue to monitor the 
Lease throughout its duration and take whatever action is necessary to 
protect the Plan's rights under the Lease.
    9. In summary, the applicant represents that the proposed 
transactions satisfy the criteria contained in section 408(a) of the 
Act for the following reasons:
    (a) the Property represents approximately 7.7% of the Plan's total 
assets;
    (b) the rental for the Property has been, and will continue to be, 
established by a qualified, independent appraiser;
    (c) the Plan's independent fiduciary, Mr. Berger, has determined 
that the transactions are appropriate for the Plan and in the best 
interests of the Plan's participants and beneficiaries; and
    (d) Mr. Berger will continue to monitor the Lease and take whatever 
action is necessary to protect the Plan's rights under the Lease.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest of disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which among other things require a fiduciary to 
discharge his duties respecting the plan solely in the interest of the 
participants and beneficiaries of the plan and in a prudent fashion in 
accordance with section 404(a)(1)(b) of the act; nor does it affect the 
requirement of section 401(a) of the Code that the plan must operate 
for the exclusive benefit of the employees of the employer maintaining 
the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 30th day of November, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-29833 Filed 12-2-94; 8:45 am]
BILLING CODE 4510-29-P