[Federal Register Volume 59, Number 242 (Monday, December 19, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-31086]


[[Page Unknown]]

[Federal Register: December 19, 1994]


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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-9834, et al.]

 

Proposed Exemptions; Alucobond Technologies, Incorporated 
Employees' Savings Plan, 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, 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 NW., 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.

Alucobond Technologies, Incorporated Employees' Savings Plan (the Plan) 
Located in St. Louis, Missouri; Proposed Exemption

[Application No. D-9834]

    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 interest-free loan to the 
Plan (the Loan) by Alucobond Technologies, Incorporated (the Employer), 
a party in interest with respect to the Plan, and (2) the Plan's 
potential repayment of the Loan upon the receipt by the Plan of 
payments under Guaranteed Investment Contract No. CG01285A3A (the GIC) 
issued by Executive Life Insurance Company (Executive Life); provided 
the following conditions are satisfied:
    (A) No interest or expenses are paid by the Plan in connection with 
the proposed transaction;
    (B) The Loan will be repaid only out of amounts paid to the Plan by 
Executive Life, its successors, or any other responsible third party; 
and
    (C) Repayment of the Loan is waived with respect to the amount by 
which the Loan exceeds GIC proceeds.

Summary of Facts and Representations

    1. The Employer is a diversified manufacturer of aluminum composite 
panels, rigid foam P.V.C. panels and polystyrene foamcore boards. The 
Employer has offices and/or production sites in St. Louis, Missouri; 
Benton, Kentucky and Richmond, Indiana. The Plan is a profit sharing 
plan which includes a cash or deferred arrangement under section 401(k) 
of the Code. As of December 31, 1993, the Plan had 93 participants and 
total assets of approximately $1,098,635. Participants are currently 
entitled to direct the investment of their account balances among seven 
investment funds which are managed by Scudder Investor Services, Inc. 
On February 12, 1988, prior to the implementation of participant 
direction, The Boatmen's National Bank of St. Louis (the Bank),\1\ as 
trustee for the Plan, made the decision to invest a portion of the 
Plan's assets in a collective investment fund maintained by the Bank 
and invested primarily in guaranteed investment contracts. The GIC is 
held as the sole asset of sub-fund G-11 of the the collective 
investment fund. The GIC provided a rate of return of 8.65% per annum 
and a maturity date of March 1, 1993.
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    \1\Boatmen's Trust Company (Boatmen's) succeeded The Boatmen's 
National Bank of St. Louis as the Plan's trustee in 1990.
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    2. On April 11, 1991, Executive Life was placed into 
conservatorship by the Insurance Commissioner of the State of 
California. The Employer represents that, pursuant to the 
conservatorship, payouts under the terms of Executive Life's GICs were 
suspended.\2\ In February, 1994, Boatmen's, in its capacity as Plan 
trustee, elected to participate in the rehabilitation plan for 
Executive Life. Although, through the rehabilitation process, the Plan 
has received $147,386.00 from Executive Life, the amount of any 
additional payments to be received over the next several years is 
undetermined. Consequently, Boatmen's has frozen that portion of 
participants' accounts which is attributable to the GIC. This freeze 
has prevented Plan participants from exercising the rights they would 
normally have under the Plan to request distributions and investment 
transfers with respect to amounts currently invested in the GIC.\3\ The 
Employer represents that the Loan would preserve the Plan's rights with 
respect to the GIC, give participants and beneficiaries the ability to 
exercise their right to request investment transfers, and provide 
immediate liquidity which would facilitate benefit distributions. The 
proposed Loan will be made in one lump-sum payment in the amount of the 
maturity value\4\ of the GIC, plus post-maturity interest through the 
date of the Loan, credited at the rate paid on the Collective Employee 
Benefit Trust Fund ``S'';\5\, less any amounts previously received 
pursuant to the rehabilitation process and the total amount of periodic 
advances already made to the Plan. The Employer represents that the 
Loan is non-interest bearing and the Plan will not incur any expenses 
in connection with the transaction.
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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 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 GIC issued by Executive Life.
    \3\Following the cessation of payments by Executive Life with 
respect to the GIC, the Employer made the decision to make periodic 
advances to the Plan to permit the Plan to make distributions to 
participants and beneficiaries entitled to distributions as a 
consequence of termination of employment. The applicant represents 
that, as of November, 1994, the periodic advances to the Plan 
totaled approximately $50,618.00. The applicant also represents that 
the terms of those periodic advances satisfy the conditions of PTE 
80-26 (45 FR 28545, April 29, 1980). This conditional class 
exemption permits a party in interest to make an interest-free loan 
to an employee benefit plan, and the repayment of such loan. 
Specifically, the exemption states, in relevant part, that effective 
January 1, 1975, the restrictions of section 406(a)(1)(B) and (D) 
and section 406(b)(2) of the Act and the taxes imposed by section 
4975(a) and (b) of the Code by reason of section 4975(c)(1)(B) and 
(D) of the Code, shall not apply to the lending of money from a 
party in interest to an employee benefit plan, nor to the repayment 
of such loan in accordance with its terms, if no interest or other 
fee is charged to the plan, the loan is unsecured, and the loan 
proceeds are used only for the payment of ordinary operating 
expenses of the plan, including the payment of benefits in 
accordance with the terms of the plan.
    In this proposed exemption the Department expresses no opinion 
as to whether the periodic advances satisfy the provisions of PTE 
80-26.
    \4\The maturity value is defined as the total amount deposited 
under the GIC, plus interest at the guaranteed interest rate, 
through the date of maturity. The applicant represents that the 
maturity value is $297,210.76.
    \5\The Employer represents that the annualized rate of return on 
the Collective Employee Benefit Trust Fund ``S'' for the period from 
October 1, 1993 through September 30, 1994 was 4.0%. It is 
represented that, this fund, an investment vehicle offered by 
Boatmen's Trust Company, invests in a diversified portfolio of money 
market instruments, such as U.S. Treasury Bills, certificates of 
deposit, commercial paper, and demand notes, as well as other fixed-
rate and variable-rate fixed income securities.
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    3. Repayment of the Loan is limited to payments made to the Plan by 
or on behalf of Executive Life, or its successor, or any other 
responsible third parties. No other assets of the Plan will be 
available for repayment of the Loan. If the payments by or on behalf of 
Executive Life are not sufficient to fully repay the Loan, the Employer 
will have no recourse against the Plan, or against any participants or 
beneficiaries of the Plan, for the unpaid amount. In the event that GIC 
proceeds exceed the amount necessary to repay the Loan, the excess will 
be distributed to the Plan for the benefit of participants and their 
beneficiaries. The Employer represents that it will maintain records of 
the proposed Loan for a period of seven years, and such records will be 
open for inspection at all times by the Department or any Plan 
participant.
    4. 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 Plan's ability to allow 
participant-directed investment re-allocations; (2) The Plan will not 
incur any expenses with respect to the transaction; (3) Repayment of 
the Loan will be made only from amounts paid to the Plan 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 
Loan, the Employer will have no recourse against the Plan, or against 
any participants or beneficiaries of the Plan, for the unpaid amount; 
and (5) Repayment of the Loan will be waived with respect to the amount 
by which the Loan exceeds the amount the Plan receives from GIC 
proceeds.
    For Further Information Contact: Virginia J. Miller of the 
Department, telephone (202) 219-8971. (This is not a toll-free number.)

Regency Marketing Corporation Restated Employees Profit Sharing Plan 
and Trust (the Plan) Located in West Bloomfield, Michigan; Proposed 
Exemption

[Application No. D-9763]

    The Department is considering granting an exemption under 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 
loan (the Loan) of $84,667 by the Plan to Frankenmuth Brewing Company 
(Frankenmuth), a disqualified person with respect to the Plan.6
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    \6\ Since Randall Heine and his wife, Paula Heine, are the only 
participants in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
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    This proposed exemption is conditioned upon the following 
requirements:
    (a) the terms of the Loan are at least as favorable to the Plan as 
those obtainable in an arm's length transaction with an unrelated 
party;
    (b) the Loan does not exceed twenty-five percent of the assets of 
the Plan at any time during the duration of the Loan;
    (c) the Loan is secured by a first deed of trust on certain real 
property (the Property) which has been appraised by an independent, 
qualified appraiser to ensure that the fair market value of the 
Property is at least 150 percent of the amount of the Loan;
    (d) the fair market value of the Property remains at least equal to 
150 percent of the outstanding balance of the Loan throughout the 
duration of the Loan;
    (e) the Plan trustees determine on behalf of the Plan that the Loan 
is in the best interests of the Plan and protective of the Plan's 
participants and beneficiaries; and
    (f) the Plan trustees monitor compliance with the terms and 
conditions of the Loan throughout the duration of the transaction, 
taking any action necessary to safeguard the Plan's interest, including 
foreclosure on the Property in the event of default.

Summary of Facts and Representations

    1. Regency Marketing Corporation (Regency) established the Plan on 
July 1, 1976. On February 1, 1986, the Plan was frozen due to the 
dissolution of Regency. Regency was a Michigan corporation engaged as a 
broker of dairy and other related products. As of June 30, 1993, the 
Plan had total assets of $1,892,429. Randall Heine and his wife, Paula 
Heine, are the only participants in the Plan. Mr. and Mrs. Heine are 
the trustees of the Plan (the Trustees) and have sole investment 
discretion with regard to the Plan's assets. The Trustees represent 
that there will be no new participants in the Plan.
    Mr. Heine is the majority shareholder of Frankenmuth, a Michigan 
corporation with its principal place of business in Frankenmuth, 
Michigan. Frankenmuth manufactures beer and ale both under its own 
labels as well as under private labels.
    2. The Trustees request an administrative exemption from the 
Department to permit the Loan to Frankenmuth under the terms and 
conditions described herein. Frankenmuth proposes to use the loan 
proceeds towards purchasing the Property which will be used for 
Frankenmuth's administrative offices.
    3. The Loan will be in a principal amount of $84,667. The applicant 
states that at no time will the amount of the Loan represent more than 
twenty-five percent of the Plan's total assets. The Loan will be 
secured by a first deed of trust on the Property, which consists of a 
1,250 square foot improved commercial building and the underlying land. 
The Property is located at 435 South Main Street, Frankenmuth, 
Michigan. The deed of trust will be duly recorded in Saginaw County to 
reflect the Plan's security interest in the Property. In addition, 
Frankenmuth will insure the Property against casualty loss and 
designate the Plan as the loss payee of such insurance.
    4. The Loan will have a ten-year term and will be evidenced by a 
promissory note (the Note). The Note will require Frankenmuth to make 
monthly payments of principal and interest which will be fully 
amortized over the ten-year term. Interest will accrue on the Loan at 
11.5 percent per annum. The Plan will not be required to pay any 
commissions, fees or other expenses in connection with the Loan.
    As a condition of the proposed exemption, the terms and conditions 
of the Loan must be at least as favorable to the Plan as those which 
the Plan could obtain in dealing at arm's length with an unrelated 
party. In this regard, NBD Bank, N.A. (NBD), an unrelated entity in 
Troy, Michigan, states in a letter, dated September 22, 1994, that NBD 
would make a secured loan of $84,667 for an initial term of five years 
with a fifteen-year amortization schedule allowing for a balloon 
payment at the end of the fifth year. At the end of the first five 
years, NBD would approve a new five-year note with a ten-year 
amortization schedule. At the end of the tenth year, NBD would then 
approve a five-year note with a five-year amortization schedule. 
Interest would accrue within a range of 9.25 percent to 11.5 percent 
per annum, fixed or floating. In addition, NBD states that it would 
charge Frankenmuth a loan fee of one percent or $846. Accordingly, the 
applicants represent that Frankenmuth will pay a loan fee of $846 to 
the Plan at the inception of the Loan.
    5. The Property was appraised by Lewis H. Weiss of Weiss Appraisal 
Service (Weiss), an appraisal firm located in Frankenmuth, Michigan. 
Mr. Weiss is a licensed real estate appraiser in Michigan and has ten 
years of experience appraising all types of property. Mr. Weiss 
represents that both he and Weiss are independent of, and unrelated to, 
Frankenmuth and the Trustees.
    Mr. Weiss placed a fair market value of $127,000 as of August 23, 
1994. Mr. Weiss utilized the market data approach of valuation by using 
comparable sales of commercial buildings located on the same street as 
the Property.
    6. The Trustees state that the terms of the Loan compare favorably 
with the terms of similar transactions between untreated parties and 
would be a better than arm's length transaction as evidenced by the 
terms offered by NBD (see Item #5 above). The Trustees represent, that 
from the Plan's perspective, the terms of the Loan are better than the 
terms offered by NBD because the Loan allows the Plan to receive higher 
monthly payments at an interest rate of 11.5 percent over a ten- year 
period rather than at a fixed or floating rate between 9.25 and 11.5 
percent over a fifteen-year period. The Trustees represent that they 
believe that the Loan is in the best interests of the Plan and its 
participants and beneficiaries as an investment for the Plan's 
portfolio. The Trustees further represent that they will monitor the 
Loan throughout its entire duration and will take any appropriate 
action necessary to protect the interests of the Plan and its 
participants and beneficiaries, including a foreclosure on the Property 
in the event of default. The Trustees will monitor the Property to 
ensure that the Loan remains secured by collateral worth at least 150 
percent of the Loan at all times.
    7. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act because:
    (a) the terms of the Loan will be at least as favorable to the Plan 
as those obtainable in an arm's length transaction with an unrelated 
party;
    (b) the Loan will not exceed twenty-five percent of the assets of 
the Plan at any time during the duration of the Loan;
    (c) the Loan will be secured by a first deed of trust on certain 
real property (the Property) which has been appraised by an 
independent, qualified appraiser to ensure that the fair market value 
of the Property is at least 150 percent of the amount of the Loan;
    (d) the fair market value of the Property will remain at least 
equal to 150 percent of the outstanding balance of the Loan throughout 
the duration of the Loan;
    (e) the Trustees have determined on behalf of the Plan that the 
Loan is in the best interest of the Plan and protective of the Plan's 
participants and beneficiaries; and
    (f) the Trustees will monitor compliance with the terms and 
conditions of the Loan throughout the duration of the transaction, 
taking any action necessary to safeguard the Plan's interest, including 
foreclosure on the Property in the event of default.

Notice to Interested Persons

    Since Mr. and Mrs. Heine are the only participants in the Plan, it 
has been determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments are due within 
thirty days after publication of this notice in the Federal Register.
    For Further Information Contact: Kathryn Parr of the Department, 
telephone (202) 219-8971. (This is not a toll-free number).

Clarence E. Coker, Jr. and the Clarendon Family Practice, PA Employee 
Retirement Plan (the Plan) Located in Manning, South Carolina; Proposed 
Exemption

[Application No. D-9736]

    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 C.F.R. 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 the proposed sale of approximately eight acres 
of unimproved land (the Land) by the Plan to Dr. Clarence E. Coker, 
Jr., (Dr. Coker), a party in interest with respect to the Plan; 
provided that the following conditions are satisfied:
    (a) the proposed sale will be a one-time cash transaction;
    (b) the Plan will receive the higher of: (1) the original 
acquisition cost7; or (2) the current fair market value plus a 
certain premium related to the adjacency of the Land to other real 
property owned by Dr. Coker, established at the time of the sale by an 
independent qualified appraiser; and
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    \7\The original acquisition cost is determined as follows: 
(original purchase price + aggregate real estate taxes) - aggregate 
rental income = original acquisition cost.
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    (c) the Plan will pay no expenses associated with the sale.

Summary of Facts and Representations

    1. The Plan is a defined contribution plan that was established 
January 1, 1974. The Plan has 13 participants, and as of December 31, 
1993, the Plan's total assets were $755,525.96. The sponsor of the Plan 
is Clarendon Family Practice, PA (the Employer), which is a South 
Carolina subchapter ``C'' corporation engaged in family practice 
medicine. The Plan's trustee is Dr. Coker who is also the sole 
shareholder of the Employer.
    2. On May 18, 1982, the Plan purchased the Land for $41,700 from 
Marian K. Thames, an unrelated third party in a one-time cash 
transaction. The applicant represents that at the time of initial 
acquisition, the Land represented 19.9% of the Plan's total assets. The 
Land consists of 8.34 acres of vacant land and is located adjacent to 
other property owned by Dr. Coker, individually. The applicant 
represents that since 1982 the Land has been rented for approximately 
$400 a year to W. D. Harrington, a neighboring farmer who is unrelated 
to the Plan and the Employer, as grazing land for animals. The 
aggregate rental income received by the Plan for the period 1982-1994 
is $5,200. It is represented that the Land has not been used by a party 
in interest since it was originally acquired by the Plan. Furthermore, 
the Land is not encumbered by any debt.
    3. Dr. Coker in his trustee capacity, upon the advise of a certain 
certified public accountant, made the original decision to acquire the 
Land as a long-term Plan investment.8 With respect to the Land, 
the aggregate real estate taxes for the period 1983-1993 were $153.45. 
In this regard, the original acquisition cost (the Original Acquisition 
Cost) to the Plan for the Land is $36,653.45. The Original Acquisition 
Cost was determined as follows $41,700 (original purchase price) + 
$153.45 (aggregate real estate taxes) - $5,200 (aggregate rental 
income) = $36,653.45.
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    \8\The Department expresses no opinion as to whether the Plan's 
acquisition and holding of the Land violated any provision of part 4 
of title I of the Act.
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    4. The Land was appraised on February 11, 1994 (the Appraisal) by 
W. Burke Watson, Jr., an independent real estate appraiser certified in 
the State of South Carolina (Mr. Watson). Mr. Watson relied on the 
direct sales comparison method and estimated that as of February 11, 
1994, the fair market value of the Land was $12,500. On July 28, 1994, 
in an update to the Appraisal, Mr. Burke stated that adjacency of the 
Land to other property owned by Dr. Coker merits a premium (the 
Premium) above the fair market value of approximately $500 per acre, 
which yields a new purchase price of $17,680 to Dr. Coker in this 
transaction.
    5. Dr. Coker proposes to purchase the Land from the Plan in a one-
time cash transaction. It is represented that as of December 31, 1993, 
the Land represented 1.7 percent of the Plan's assets. The applicant 
represents that the Land has been depreciating steadily over the years, 
but that this depreciation became evident to Dr. Coker in 1987. As 
such, after conferring with the Plan's consultants and administrators 
in 1991, Dr. Coker decided that he should sell the Land because of its 
steady depreciation and because of its illiquidity. Accordingly, the 
Land has been listed for sale with an independent real estate broker 
from October 1991 to January 1992, but there was no willing buyer. 
Therefore, it is represented that the proposed transaction is in the 
best interest and protective of the Plan because the transaction will 
divest the Plan of an asset that has greatly depreciated in value since 
original acquisition, and will enable the Plan to invest in vehicles 
with a higher return. The transaction is protective of the Plan because 
as a result of the sale the Plan will receive the higher of: a) the 
Original Acquisition Cost; or b) the current fair market value plus the 
Premium as established at the time of the sale by an independent 
qualified appraiser. Furthermore, the applicant represents that any 
amounts received by the Plan as a result of the proposed transaction, 
which are in excess of the fair market value of the Land will be 
treated as a contribution to the Plan, but that this contribution will 
not exceed limitations of section 415 of the Internal Revenue Code.
    6. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because:
    (a) the proposed sale will be a one-time cash transaction;
    (b) the Plan will receive the higher of: 1) the Original 
Acquisition Cost; or 2) the current fair market value plus the Premium 
as established at the time of the sale by an independent qualified 
appraiser; and
    (c) the Plan will pay no expenses associated with the sale.

Tax Consequences of Transaction

    The Department of Treasury has determined that if a transaction 
between a qualified employee benefit plan and its sponsoring employer 
(or an affiliate thereof) results in the plan either paying less or 
receiving more than fair market value, such excess may be considered to 
be a contribution by the sponsoring employer to the plan, and therefore 
must be examined under the applicable provisions of the Internal 
Revenue Code, including sections 401(a)(4), 404 and 415.

For Further Information Contact: Ekaterina A. Uzlyan of the Department 
at (202) 219-8883. (This is not a toll-free number.)

American Express Incentive Savings Plan (the Plan) Located in New York, 
New York; Proposed Exemption

[Application No. D-9813]

    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 C.F.R. Part 
2570, Subpart B (55 F.R. 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 sections 4975(c)(1) (A) 
through (E) of the Code, shall not apply to (1) the proposed extensions 
of credit (the Loans) to the Plan by American Express Company (the 
Employer), the sponsor of the Plan with respect to two guaranteed 
investment contracts (the GICs) issued by Confederation Life Insurance 
Company (Confederation); (2) the Plan's potential repayment of the 
Loans; and (3) the potential purchase of the GICs from the Plan by the 
Employer for cash; provided the following conditions are satisfied:
    (A) All terms and conditions of such transactions are no less 
favorable to the Plan than those which the Plan could obtain in arm's-
length transactions with unrelated parties;
    (B) No interest and/or expenses are paid by the Plan in connection 
with the transactions;
    (C) The proceeds of the Loans are used solely in lieu of payments 
due from Confederation with respect to the GICs;
    (D) Repayment of the Loans will be restricted to the GIC Proceeds, 
defined as the cash proceeds obtained by the Plan from or on behalf of 
Confederation with respect to the GICs;
    (E) Repayment of the Loans will be waived to the extent that the 
Loans exceed the GIC Proceeds; and
    (F) In any sale of the GICs to the Employer, the Plan will receive 
a purchase price which is no less than the fair market value of the 
GICs as of the sale date, and no less than the GICs' accumulated book 
value, defined as the total principal deposits plus accrued interest at 
the rates guaranteed by the GICs, less previous withdrawals and any 
Loans made pursuant to this exemption, as of the sale date.

Summary of Facts and Representations

    1. The Plan is a defined contribution 401(k) plan which provides 
for individual participant accounts (the Accounts) and participant-
directed investment of the Accounts. The Plan is sponsored by American 
Express Company (the Employer), a New York public corporation engaged 
in diversified travel and financial services. The trustee of the Plan 
is the IDS Trust Company (the Trustee), a wholly-owned subsidiary of 
IDS Financial Corporation, which is wholly owned by the Employer. The 
Accounts are invested at the directions of individual Plan participants 
among nine investment funds, one of which is the ISP Income Fund (the 
Income Fund), which invests in, among other things, guaranteed 
investment contracts issued by insurance companies.
    2. Among the assets in the Income Fund are two guaranteed 
investment contracts (the GICs) issued by Confederation Life Insurance 
Company (Confederation), a Canadian corporation doing business in the 
United States through branches in Michigan and Georgia. Contract #62516 
was issued to the Plan by Confederation effective June 28, 1991, upon 
an initial principal deposit of $10 million, and it provides for simple 
annual interest at the rate of 8.72 percent, with a maturity date of 
June 27, 1996. Contract #62764 was issued effective June 1, 1993 upon 
an initial principal deposit of $5 million and it provides for simple 
annual interest at the rate of 6.06 percent, with a maturity date of 
June 30, 1998. Both GICs are single-deposit non-participating contracts 
which allow the Plan to make benefit-responsive withdrawals (the 
Withdrawals) to fund benefit payments, investment fund transfers, 
hardship withdrawals and participant loans (collectively, the 
Withdrawal Events). The terms of the GICs provide that interest at the 
interest rates guaranteed by each GIC (the Contract Rates) will be 
credited to the Plan daily, and if the amount of interest earned 
exceeds the amount of Withdrawals, the difference will be paid annually 
(the Interest Payments) on the anniversary of a date specified by each 
GIC for such Interest Payments. Conversely, if the amount of 
Withdrawals exceeds the amount of interest earned during the year, no 
anniversary Interest Payment is made. Upon each GIC's maturity date, 
Confederation is obligated to make a final cash payment to the Plan 
(the Maturity Payment) in the amount of the GIC's principal plus 
interest at the Contract Rate, less previous Withdrawals (the Maturity 
Value).
    3. The Employer represents that on August 11, 1994, the Canadian 
insurance regulatory authorities placed Confederation into a 
liquidation and winding-up process, and on August 12, 1994, the 
insurance authorities of the State of Michigan commenced legal action 
to place the U.S. operations of Confederation into a rehabilitation 
proceeding. As a result of these actions, the Withdrawals and Interest 
Payments with respect to the GICs have been suspended.9 The 
Employer represents that it cannot be determined accurately whether, to 
what extent, or at what time the Withdrawals and Interest Payments will 
be resumed. The Employer desires to alleviate the Plan's participants 
of the risks associated with continued investment in the GICs, to 
prevent any losses of the Income Fund's investments in the GIC, and to 
provide the Plan with the cash which otherwise would have been provided 
by the Withdrawals and Interest Payments. Accordingly, the Employer 
proposes to make the Loans to the Plan from time to time in the amounts 
due the Plan under the GICs as Withdrawals and Interest Payments. Upon 
the stated maturity date of each GIC, the Employer intends either (1) 
to purchase each GIC from the Plan (the Sale), or, alternatively, (2) 
to make a Loan to the Plan in the amount of the GIC's Maturity Value, 
depending upon the circumstances prevailing at such time. The Employer 
is requesting an exemption to permit these transactions under the terms 
and conditions described herein.
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    \9\ 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 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 GICs.
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    3. The Loans and their repayment, and any potential sale of the 
GICs to the Employer will be made pursuant to a written agreement (the 
Agreement) between the Trustee and the Employer.
    The Loans: Under the Agreement, the Employer agrees to make the 
Loans over the remaining terms of the GICs at such times and in such 
amounts as required to enable the Income Fund to fully fund the 
Withdrawal Events and to fully realize the Interest Payments, in lieu 
of the same amounts which otherwise would be paid to the Plan by 
Confederation as Withdrawals and Interest Payments. Accordingly, the 
amount of each Loan will be determined on the basis of the GIC's 
principal plus interest at the Contract Rate, less previous 
Withdrawals, as of the date of the Loan. Each Loan will also be reduced 
by any amounts actually received by the Plan, with respect to the 
particular Withdrawal Event or Interest Payment due, from Confederation 
or any other party making payment with respect to Confederation's 
obligations under the GICs. In addition to the Loans in lieu of 
Withdrawals and Interest Payments, the Agreement authorizes the 
Employer, as an alternative to purchasing the GICs (as described below 
in section 4) to make a final Loan with respect to each GIC upon the 
GIC's Maturity Date in the amount of the GIC's Maturity Value. Any 
final Loan upon the maturity of each GIC will be made within thirty 
days of the Maturity Date in the amount of the GIC's Maturity Value 
plus post-maturity interest as described in section 4 below. The 
Employer will receive no interest or fees for any of the Loans, and the 
Plan will incur no expenses related to the Loans.
    The Repayments: The Agreement provides that the repayments of the 
Loans (the Repayments) with respect to each GIC are restricted to the 
cash amounts, if any, which the Plan receives with respect to the GIC 
from Confederation, any state insurance guaranty funds, any successor 
to Confederation, or any other third party making payments with respect 
to Confederation's obligations under the GICs (collectively, the GIC 
Proceeds). The GIC Proceeds available to make the Repayments also 
include, in the event of any purchase of either GIC, as described 
below, the purchase price of the GIC (the Purchase Price). In this 
regard, in the event of any such sale of a GIC, Repayments of Loans 
with respect to that GIC will be accomplished by crediting the total 
amount of outstanding Loans against the Purchase Price. In any event, 
to the extent the Loans exceed total GIC Proceeds, the Repayments will 
be waived.
    4. With respect to the maturity of each GIC, the Agreement enables 
the Employer to retain the flexibility to decide upon each GIC's 
maturity whether to make a final Loan in the amount of the Maturity 
Value, if not paid when due by or on behalf of Confederation, or to 
purchase the GIC from the Plan. The Employer represents that it is 
unclear under current conditions whether the purchase of the two GICs 
by the Employer would jeopardize the ability of the Plan and/or the 
Employer to successfully assert rights to protection under the 
insurance guaranty fund laws of the various states. The Employer is 
concerned that, if the two GICs are transferred from the Plan prior to 
resolution of issues related to guaranty fund protection, various state 
guaranty fund associations may deny the full range of protection which 
would have been conferred on the Plan and its participants through such 
insurance guaranty laws. For these reasons, the Employer would like to 
wait until the maturity date of each GIC to determine whether to 
purchase the GIC from the Plan or to make a Loan to the Plan in the 
amount of the GIC's Maturity Value. The Agreement requires the Employer 
to make its decision with respect to the maturity of each GIC, and to 
consummate the Loan or purchase transaction, within thirty business 
days after the maturity date of each GIC, during which the GIC's 
Maturity Value will earn interest (Post-Maturity Interest) at the 
prevailing 30-day U.S. Treasury bill rate, from the date of maturity to 
the date of the loan or purchase. In the event the Employer chooses to 
purchase either of the GICs, the purchase price will be cash in the 
amount of the GIC's Maturity Value plus Post-Maturity Interest. The 
Plan will not incur any expenses related to any sale of the GICs. In 
the event the Employer chooses to make a final Loan upon the Maturity 
of each GIC, each Loan will be in the amount of the GIC's Maturity 
Value plus Post-Maturity Interest.
    5. In summary, the Employer represents that the proposed 
transactions satisfy the criteria of section 408(a) of the Act for the 
following reasons:
    (1) The transactions will enable the Plan to recover all amounts 
due with respect to the GICs;
    (2) The Loans will enable the Plan to resume the ability to fund 
benefit payments, participant loans, hardship withdrawals, and 
investment fund transfers within the Plan;
    (3) Repayment of the Loans will be restricted to the GIC Proceeds;
    (4) The Repayments will be waived to the extent the Loans exceed 
the GIC Proceeds; and
    (5) No interest and/or expenses will be incurred by the Plan with 
respect to any of the transactions.
    For further information contact: Ron Willett of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Bermo, Inc. Profit Sharing Plan and Trust (the Plan), Located in Circle 
Pines, Minnesota; Proposed Exemption

[Application No. D-9826]

    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 the proposed series of loans (the Loans), 
originated within a five year period, by the Plan to Bermo, Inc. (the 
Employer), a party in interest with respect to the Plan, provided that 
the following conditions are met:
    (a) The total amount of outstanding Loans shall not exceed 25 
percent of the Plan's total assets at any time during the transaction;
    (b) All terms and conditions of the Loans are at least as favorable 
to the Plan as those which the Plan could obtain in an arm's length 
transaction with an unrelated third party;
    (c) Each Loan will be: (1) for a maximum term of forty-eight months 
fully amortized and payable in equal monthly installments of principal 
and interest, (2) the Loan proceeds shall be used exclusively by the 
Employer to purchase new equipment (the Equipment) used by the Employer 
in the course of its business, (3) collateralized by the Equipment and 
other assets owned by the Employer such that at all times each Loan 
will be collateralized in an amount equal to at least 200% of the 
outstanding balance of such Loan, (4) equal to no more than 80% of the 
purchase price of the Equipment financed, and (5) guaranteed personally 
by Fred Berdass, the principal shareholder of the Employer.
    (d) The value of the collateral offered by the Employer will be 
determined by a qualified independent appraiser;
    (e) Prior to the granting of each Loan, an independent qualified 
fiduciary determines, on behalf of the Plan, that each Loan is feasible 
and in the best interests of the Plan and protective of the Plan and 
its participants and beneficiaries;
    (f) The independent fiduciary will conduct a review of the terms 
and conditions of the exemption and the Loans, including the applicable 
interest rate, the sufficiency of the collateral, the financial 
condition of the Employer and compliance with the 25 percent of the 
Plan asset maximum total Loan amount prior to approving each 
disbursement under the Loan agreement;
    (g) The independent fiduciary will monitor the terms and conditions 
of the exemption and the loans; and
    (h) The independent fiduciary is authorized to take whatever action 
is appropriate to protect the Plan's rights throughout the duration of 
the exemption and throughout the duration of any Loan granted pursuant 
to this exemption.

Temporary Nature of Exemption

    The exemption, if granted, is temporary and will expire five years 
from the date of the publication in the Federal Register of the Final 
Grant of the proposed exemption. Subsequent to the expiration of this 
exemption, the Plan may hold any Loans originated during this five year 
period until the Loans are repaid or otherwise terminated.

Summary of Facts and Representations

    1. The Plan is defined contribution plan having 63 participants and 
total assets of $4,621,936 as of September 39, 1995. Richfield Bank & 
Trust Company of Richfield, Minnesota serves as the Plan's trustee (the 
Trustee).
    2. The Employer is a closely held corporation engaged in the metal-
stamping business. The shareholders of the Employer are Fred P. Berdass 
and members of his family. In the regular course of its business, the 
Employer purchases equipment for its operations. The Employer maintains 
its principal place of business in Circle Pines, Minnesota.
    3. The Department granted two previous exemptions (Prohibited 
Transaction Exemption (PTE) 82-9, 47 FR 2431, January 15, 1982 and PTE 
87-77, 52 FR 29905, August 12, 1987) to permit loans (the Exempt Loans) 
by the Plan to the Employer. Under the terms of the exemption, the Plan 
could make loans on a recurring basis to the Employer for a period of 
five years. The proceeds from the Exempt Loans were used by the 
Employer for the purchases of machinery and equipment. Each Exempt Loan 
was collateralized by specific equipment and assets owned by the 
Employer. The maximum length of any Exempt Loan was 48 months, and the 
interest rate was one percent above the prime rate. The balance on 
total Exempt Loans did not exceed 25 percent of the fair market value 
of the Plan's assets. An independent fiduciary acted on behalf of the 
Plan and certified that each Exempt Loan was an appropriate investment 
for the Plan.
    The Trustee has confirmed that all payments of principal Loans were 
received by the Trustee on a timely basis and each Exempt Loan was paid 
in full in accordance with the terms of PTE 82-9 and PTE 87-77.
    4. The Plan now proposes to make a series of Loans over a five year 
period to the Employer. The proceeds from the Loans will be used by the 
Employer to purchase the Equipment. Each Loan will be collateralized by 
a promissory note and security agreement which provide the Plan with a 
first lien on the Equipment. In addition, the Loan will be 
collateralized by specific equipment or assets which are owned by the 
Employer. At all times each Loan will be collateralized in an amount at 
least equal to 200 percent of the outstanding balance of such loan. The 
amount of each Loan will not exceed 80% of the purchase price of the 
Equipment excluding tax and transportation. In addition, Mr. Berdass 
will personally guarantee each Loan.
    The maximum length of any Loan will be 48 months and will have an 
interest rate of at least one percent above the prevailing prime rate 
of interest of the Trustee which is the prevailing interest rate earned 
on similar loans made by the Trustee to unrelated third parties. The 
outstanding Loan balance will not exceed 25 percent of the market value 
of the assets of the Plan. The Employer will adequately insure the 
Equipment and all other collateral against fire and all other relevant 
hazards with the Plan being named beneficiary of the insurance.
    4. Lake Elmo Bank, of Lake Elmo, Minnesota (the Bank) will serve as 
the independent fiduciary with respect to the proposed Loans. The Bank 
represents that it is qualified to act as an independent fiduciary with 
respect to the Loan transactions and that is understands that its 
responsibility as an ERISA fiduciary. In addition, the Bank represents 
that it has no pre-existing relationship with the Employer nor with Mr. 
Berdass, and that the income derived from the Employer and related 
parties, including the income derived from serving in the capacity of 
independent fiduciary will not exceed 1% of the Bank's gross income.
    5. In its capacity as independent fiduciary, the Bank represents 
that it will determine the appropriateness and suitability of each Loan 
prior to the consummation of each Loan transaction. In this regard, the 
Bank will review the independent appraisals of the Equipment and the 
assets pledged to secure the Loans and confirm the sufficiency of such 
appraisals. The Bank states that the Loans are appropriate investments 
for the Plan and are in the best interests of the Plan's participants 
and beneficiaries and are protective of their interests. The Bank 
further states that the terms of the Loans are at least equal to terms 
available between the Plan and an unrelated third party. The Bank 
represents that it will enforce the terms of the Loan including, but 
not limited to, making demand for timely payment, bringing suit or 
other appropriate process against the Employer in the event of default 
and monitoring the performance of each Loan. In addition, the Bank has 
examined Mr. Berdass's personal financial statements and is assured 
that as guarantor of the Loans, Mr. Berdass will continue to have the 
financial stability to personally assure the repayment of all Loans 
granted pursuant to the proposed exemption.
    6. In summary, the applicant represents that the proposed 
transaction meets the statutory criteria for an exemption under section 
408(a) of the Act because: (a) the rate of return to the Plan on the 
Loans will equal the prevailing rate earned on similar loans made by 
the Trustee; (b) the Plan's interests with respect to the Loans will be 
represented by an independent fiduciary who will monitor the Loans as 
well as the conditions of the exemption, and will take all appropriate 
actions necessary to safeguard the best interests of the Plan; (c) the 
Plan's independent fiduciary has reviewed the terms and conditions of 
the proposed exemption and has determined that the Loans are in the 
best interest of the Plan's participants and beneficiaries; (d) The 
independent fiduciary will review and approve each Loan prior to making 
any disbursements; (e) the Loans will at all times be secured by the 
Equipment and other assets of the Employer which will be valued at not 
less than 200% of the Loan; (f) the aggregate balance of the 
outstanding loans will not exceed 25% of the value of the Plan's 
assets; and (g) the proposed exemption will be of a temporary nature, 
not to exceed five years.
    For Further Information Contact: Allison K. Padams 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 that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 14th day of December, 1994.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 94-31086 Filed 12-16-94; 8:45 am]
BILLING CODE 4510-29-P