[Federal Register Volume 60, Number 28 (Friday, February 10, 1995)]
[Notices]
[Pages 8087-8093]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-3407]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09855, et al.]
Proposed Exemptions; PACCAR Inc. Savings Investment 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, 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 [[Page 8088]] 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.
PACCAR Inc Savings Investment Plan (the Plan) Located in Bellevue,
Washington
[Application No. D-09855]
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 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 section 4975(c)(1) (A) through
(E) of the Code, shall not apply to (1) the proposed guarantee (the
Guarantee) by PACCAR Inc (the Employer), the sponsor of the Plan, of
the Plan's investment in a guaranteed investment contract (the GIC)
issued by Confederation Life Insurance Company (Confederation Life),
including the potential extensions of credit to the Plan by the
Employer (the Advances) pursuant to the Guarantee; and (2) the
potential repayment of the Advances (the Repayments); provided that the
following conditions are satisfied:
(A) All terms and conditions of the transactions are no less
favorable to the Plan than those which the Plan could obtain in an
arm's length transaction with an unrelated party;
(B) The Repayments are made only from GIC Proceeds, defined as the
amounts actually received by the Plan (1) from Confederation Life or
any other entity making payment with respect to Confederation Life's
obligations under the terms of the GIC, or (2) from the sale or
transfer of the GIC to unrelated third parties;
(C) The Repayments will be made only after the Plan has recovered,
through the Advances plus GIC Proceeds, the amount guaranteed by the
Employer with respect to the GIC; and
(D) To the extent the Advances exceed GIC Proceeds, Repayment of
the difference will be waived.
Summary of Facts and Representations
Introduction
Confederation Life was recently placed in a receivership. As a
result, the Confederation Life GIC owned by the Plan is frozen, and the
future of Confederation Life is uncertain. The Employer, PACCAR Inc,
proposes to protect the Plan from loss on its investment in the GIC, by
guaranteeing the value of the GIC as of the commencement of the
receivership, as described below.
1. The Employer is a publicly-owned Delaware corporation engaged in
the production of class 8 trucks, winches, oil drilling equipment and
retail auto parts. Its principal place of business is Bellevue,
Washington. The Employer sponsors the Plan, which is a defined
contribution 401(k) plan, providing for individually-directed
participant accounts (the Accounts). As of September 21, 1994, the Plan
had 4,816 participants and, as of July 31, 1994, total assets of
approximately $211,979,510. The trustee of the Plan is Fidelity
Management Trust Company of Boston, Massachusetts (the Trustee). Plan
participants may invest their accounts in and among six investment
funds, including an income fund (the I Fund) which consists of
guaranteed investment contracts issued by insurance companies, a cash
short-term investment fund, and units in a group trust maintained by
the Trustee and designated as the Fidelity Managed Income Portfolio II
of the Fidelity Group Trust for Employee Benefit Plans (the MI
Portfolio).
2. Among the assets of the I Fund is the GIC, which is identified
as Confederation Life Guaranteed Investment Contract No. 62185, issued
to the Plan by Confederation Life on July 10, 1990 for a principal
deposit of $6 million. The GIC is a single-deposit, non-benefit-
responsive contract, with interest on principal at the annual rate of
9.67 percent, requiring payment to the Plan of $9.49 million on the
maturity date of June 30, 1995 (the Maturity Date). On August 12, 1994
(the Receivership Date), Confederation life was placed in receivership
(the Receivership) pursuant to rehabilitation proceedings by the State
of Michigan.1 Consequently, Confederation Life's assets and
operations were frozen, and payments on all its guaranteed investment
contracts, including the GIC held by the Plan, were suspended effective
as of the Receivership Date. As of the Receivership Date, the total GIC
principal and accumulated interest was $8.752 million (the Receivership
Value), representing 17.92 percent of the assets of the I Fund.
\1\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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3. In order to avoid liquidity problems in the I Fund, after the
Receivership was announced, the Employer and the Trustee froze the I
Fund assets invested in the GIC. The Employer represents that it
appears unlikely that Confederation Life will make timely payment to
the Plan upon the Maturity Date of the GIC. The Employer has notified
Plan participants that it will undertake measures to protect the
Accounts from adverse effects of any nonpayment of the GIC or from the
effects of a lengthy rehabilitation of Confederation Life. Accordingly,
the Employer proposes to guarantee the Plan's investment in the GIC
plus interest, by means of potential extensions of credit to the Plan,
and is requesting an exemption for these transactions under the terms
and conditions described herein.
4. The terms of the Employer's guarantee (the Guarantee) of the
Plan's investment in the GIC and the Employer's potential cash advances
(the Advances) pursuant to the Guarantee will be evidenced in a written
agreement between the Plan and the Employer.2
\2\The Department notes that this exemption, if granted, will
not affect the rights of any participant or beneficiary with respect
to claims under section 404 of the Act in connection with any aspect
of the GIC transactions.
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The Guarantee
In making the Guarantee, the Employer is undertaking to ensure that
in the eventual resolution of the Receivership the Plan receives a
total amount with respect to the GIC which is no less than its
investment in the GIC as of the Receivership Date plus interest
thereafter at a market rate. In accordance with this undertaking, the
amount which the Employer proposes to guarantee (the Guarantee Amount)
is the Receivership Value of the GIC, which is $8.752 million, less GIC
Proceeds (defined as the amounts actually received by the Plan from
Confederation Life or any other entity making payment with respect to
Confederation Life's obligations under the terms of the GIC,
[[Page 8089]] or from the sale or transfer of the GIC to unrelated
third parties) and advances made by the Employer (Advances, as
described below), plus interest on the net of the foregoing amount
after the Receivership Date at the rate earned by the MI Portfolio (the
Guarantee Rate), accrued on a daily basis. The Trustee's MI Portfolio
is a diversified portfolio of short-term and long-term conventional and
synthetic guaranteed investment contracts issued by insurance companies
and other institutions. The average yield on the MI Portfolio Assets
for the month of November, 1994, was 5.81 percent.
The Advances
Although the GIC is non-benefit-responsive, the Employer is
concerned that the Receivership may result in an increase in transfers
of Accounts out of the I Fund to other investment funds maintained by
the Plan, posing potential liquidity problems for the I Fund.
Accordingly, if as a result of Account transfers or withdrawals from
the I Fund the Guarantee Amount commences to represent more than 30
percent of the I Fund, the Employer will make Advances to the I Fund in
an amount sufficient to reduce the ratio to 30 percent.
Final Resolution
If the Receivership and any rehabilitation of Confederation Life
are resolved and completed prior to the end of the year 2000, within 60
days of the Plan's receipt of final payment from or on behalf of
Confederation Life with respect to the GIC, the Employer will honor the
Guarantee by making a final Advance to the I Fund in an amount
sufficient to cause the Guarantee Amount to equal zero. If the
Receivership and any rehabilitation extend beyond the year 2000, the
Employer will make a final Advance to the I Fund on the first business
day in the year 2001 in the amount of the Guarantee Amount.
Repayments
Repayment of the final Advance and all previous Advances will be
restricted to the GIC Proceeds. The Repayments will only be made after
such time as the Plan has recovered, through the Advances plus the GIC
Proceeds, the amount guaranteed by the Employer with respect to the
GIC, as described above. To the extent the total Advances exceed GIC
Proceeds, repayment will be waived.
5. In summary, the applicant represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (1) The Guarantee will enable the Employer to
complete its commitment to Plan participants to protect the Plan from
any loss of its investment in the GIC as of the Receivership Date; (2)
The Advances will protect the I Fund from threats to its liquidity
resulting from possible transfers and withdrawals of Accounts; (3) The
Repayments will be made only from GIC Proceeds, and only after the Plan
has recovered the amount guaranteed by the Employer; (4) After
resolution of the Receivership, the Plan will be made whole with
respect to the Guarantee by means of a final cash Advance; and (5) To
the extent the Advances exceed the GIC Proceeds, Repayment of the
difference will be waived.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202)219-8881. (This is not a toll-free number.)
Shippers Paper Products Company 401(k) Plan (the Plan) Located in
Glenview, IL
[Application No. D-09866]
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 the proposed sale by the Plan of Group Annuity
Contract, No. GA-4725 (the GAC) issued by Mutual Benefit Life Insurance
Company (Mutual Benefit) to Illinois Tool Works Inc., a party in
interest with respect to the Plan; provided the following conditions
are satisfied: (1) The sale is a one-time transaction for cash; (2) the
Plan receives no less than the fair market value of the GAC at the time
of the sale; (3) the Plan's trustee, acting as independent fiduciary
for the Plan, has determined that the proposed sale price is not less
than the current fair market value of the GAC; and (4) the Plan's
trustee has determined that the proposed transaction is appropriate for
and in the best interests of the Plan and its participants and
beneficiaries.
Summary of Facts and Representations
1. The Plan is sponsored by the Shippers Paper Products Company,
which is an wholly-owned subsidiary of Illinois Tool Works Inc. (the
Applicant). The Plan is a defined contribution plan with a salary
reduction feature. There were 91 participants as of October 20, 1994.
As of September 30, 1994, the Plan's total assets were $635,695.00. The
Plan is administered by the Employee Benefits Committee of the Board of
Directors of the Applicant (the Committee). The Plan's trustee,
Northern Trust Company (the Trustee), manages the investment of Plan
funds at the direction of the Committee. The GAC, which is the sole
asset of the Plan, was effective as of July 1, 1985.\3\ The Applicant
represents that the GAC was scheduled to terminate only after
disbursement of the final annuity payment thereunder and, therefore,
had no stated maturity date. The terms of the GAC provided for a
minimum annual interest rate of 4.0%.
\3\The Department notes that the decisions to acquire and hold
the GAC 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 GAC issued by Mutual Benefit.
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2. On July 16, 1991, Mutual Benefit was placed into rehabilitation
proceedings by the New Jersey Commissioner of Insurance. As a result of
these proceedings, the Plan's assets have been frozen.\4\ The Applicant
represents that it wishes to enter into the proposed transaction in
order to protect the accounts of Plan participants and beneficiaries
from the risk of investment loss associated with the GAC. The Applicant
further represents that the Plan needs to sell its interest in
[[Page 8090]] the GAC in order to give the Plan more investment
flexibility to direct the investment of participant account balances to
safer and more prudent investments. The Applicant also represents that
the Plan will not incur any expenses with respect to the sale of the
GAC.
\4\Following the cessation of payments by Mutual Benefit with
respect to the GAC, Shippers Paper Products Company made the
decision to make periodic advances to the Plan to enable the payment
of distributions to terminating and retiring participants and the
payment of certain in-service withdrawals to current participants.
The Applicant represents that, as of November 30, 1994, the periodic
advances to the Plan totaled approximately $178,595. 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.
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3. The Applicant proposes to protect the interests of the affected
participants by purchasing the GAC from the Plan. The purchase price
for the GAC will be the contract balance of the GAC as of September 30,
1994, as determined by Mutual Benefit using the following interest
rates: (1) Interest is credited at the rate of 10.35% for the period
from July 1, 1986 through June 30, 1990; (2) interest is credited at
the rate of 8.7% for the period from July 1, 1990 through June 30,
1991; (3) interest is credited at the rate of 8.35% for the period from
July 1, 1991 through December 31, 1991. These are the rates of interest
actually earned under the GAC until December 31, 1991. After December
31, 1991, pursuant to the terms of the proposed plan of rehabilitation
set forth by the Superior Court of New Jersey, interest is credited at
a rate equal to 5.75% for 1992, 5.25% for 1993, and at a rate equal to
5.10% for 1994. The purchase price will be adjusted to reflect any
contract distributions and additional interest earned from September
30, 1994 to the date the actual purchase takes place.\5\ From January
1, 1995 through December 31, 1999, the GAC will earn interest based on
Mutual Benefit's actual investment performance, with a minimum annual
rate of 3.5%.
\5\The Applicant represents that, following the sale of the GAC
to the Applicant, the Plan will repay any amounts due Shippers Paper
Products Company in connection with the periodic advances discussed
above.
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4. The Trustee has reviewed the proposed transaction on behalf of
the Plan. The Trustee represents that it has determined that the
proposed purchase price for the GAC is at least equal to the fair
market value of the GAC. In addition, the Trustee represents that it
has determined that the proposed transaction is appropriate for the
Plan and in the best interests of its participants and beneficiaries.
5. In summary, the Applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because: (1) The Plan will receive cash for the GAC in the amount of
the contract balance of the GAC, as determined by Mutual Benefit as of
the date of the sale; (2) the transaction will enable the Plan and its
participants and beneficiaries to avoid any risk associated with the
continued holding of the GAC, and to exercise all of their rights under
the Plan to request distributions and withdrawals from the Plan; and
(3) the Plan's trustee, acting as the Plan's independent fiduciary, has
determined that the sale at the proposed price is in the best interests
of the participants and beneficiaries of the Plan, and that the
proposed price is not less than the fair market value of the GAC.
FOR FURTHER INFORMATION CONTACT: Virginia J. Miller of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Manke Lumber Company, Inc. Profit Sharing Plan (the Plan) Located in
Tacoma, Washington
[Exemption Application No. D-09897]
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, 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 cash sale (the Sale) by the Plan
of certain real property (the Property) to Manke Family Resources,
Limited Partnership (MFR).
This proposed exemption is conditioned upon the following
requirements: (1) All terms and conditions of the Sale are at least as
favorable to the Plan as those obtainable in an arm's length
transaction with an unrelated party; (2) the Sale is a one-time cash
transaction; and (3) the Plan is not required to pay any commissions,
costs or other expenses in connection with the Sale; and (4) the Plan
receives a sales price equal to the greater of: (a) The fair market
value of the Property on the date of the Sale; or (b) the Plan's
aggregate costs of acquiring and holding the Property.
Summary of Facts and Representations
1. Manke Lumber Company, Inc. (Manke) sponsors the Plan, a profit
sharing plan which was established on May 1, 1971. The Plan was
amended, effective May 1, 1988, to include 401(k) features which allow
participants to direct the investments of their accounts. As of April
30, 1993, approximately eighty-eight percent of Plan assets were held
as general assets while the remaining twelve percent were subject to
participant direction. As of the same date, the Plan had assets
totalling $9,360,468 and approximately 520 participants.
West One Trust Company (the Trustee) serves as the trustee of the
Plan and has the sole investment discretion with respect to the
Property and certain other non-liquid assets. Piper Capital Management,
a registered investment adviser, has investment management discretion
over the marketable securities and other liquid assets of the Plan.
Under the terms of the Plan, Manke appoints an Advisory Committee (the
Advisory Committee) which is responsible for setting the funding policy
for the Plan. The Advisory Committee does not have any investment
discretion. As of January 9, 1995, the Advisory Committee consisted of
two Manke employees--J. Randal Jordan and Milton Farvour.
2. Manke is a Washington corporation engaged in the manufacturing
and sale of lumber and other wood products. In addition, Manke also
owns and manages timberland. The principal shareholders of Manke
include Charles Manke, Virgil Manke and James Manke, who also comprise
the Board of Directors (the Directors) and are the officers of Manke.
MFR is a Washington limited partnership engaged in the business of
owning, utilizing and developing timberland and personal property
related to the timber business. Tacoma Timber Co. (Tacoma Timber), a
Washington corporation, serves as the general partner of MFR. Both MFR
and Tacoma Timber are wholly owned by sons and daughters of the
Directors, who are parties in interest with respect to the Plan. In
addition, the owners of MFR and Tacoma Timber also own small amounts of
Manke stock.
3. Among the general assets of the Plan is the Property, which
consists of approximately 275 acres of land and timber located in
Clallam County, Washington. The Property lies contiguous to a forty
acre parcel of property owned by Manke. The Plan acquired the Property
on September 25, 1975 for $200,709 from Raymond B. Fife, an unrelated
party. Since its acquisition, the Plan has held the Property as
timberland, and it has not been utilized by, or leased to, any related
or unrelated party. As of December 9, 1994, the Plan had expended a
total of $14,384 in connection with the Property for taxes and other
expenses such as surveying and insurance.
4. Steven D. Lodge of Shorett & Riely, a real estate appraising and
consulting firm located in Seattle, Washington, appraised the Property.
Mr. Lodge is a Washington State-certified General Real Estate Appraiser
and has fifteen years of [[Page 8091]] experience in appraising real
estate. Mr. Lodge represents that both he and Shorett & Riely are
independent of, and unrelated to, Manke, MFR, Tacoma Timber and the
Directors.
Because the timber located on the Property has a substantial value
apart from the underlying land, Mr. Lodge valued the two components of
the Property, the timber and the land, separately and then as one.
Based upon a report prepared by Washington Timberland Management, Inc.,
which estimates harvestable area, timber volume and timber value, Mr.
Lodge placed the fair market value of the timber at $1,519,283 as of
April 30, 1994. In addition, based upon comparable sales of properties
located in the Tacoma area, Mr. Lodge placed the fair market value of
the land within a range of $220,456 and $385,798 as of April 30, 1994.
Finally, as of result of these two valuations, Mr. Lodge placed the
fair market value of the Property at $1,700,000 as of April 30, 1994.
5. The Trustee attempted to sell the Property on October 7, 1994 in
a written/oral bid auction sale. Beginning on September 2, 1994, the
Trustee circulated a written bid proposal, to approximately 100
prospective bidders. The written bid proposal set the minimum bid at
$2,000,000 in cash. None of the prospective bidders submitted an oral
or written bid in response to the written bid proposal, and, as a
result, the Property was not sold. Despite this, the Trustee believes
that a new proposal will result in a sale of the Property and,
therefore, proposes to attempt to sell the Property again through a
written/oral bid auction sale.
Because of its need for timberland, MFR desires to purchase the
Property from the Plan provided that it is the highest bidder. MFR
represents that the Sale price will be at least the greater of: (a) The
fair market value of the Property on the date of the Sale; or (b) the
Plan's aggregate costs of acquiring and holding the Property.
Accordingly, the Advisory Committee of the Plan requests an
administrative exemption from the Department to permit the Sale of the
Property under the terms and conditions described herein. The Sale will
be a one-time cash transaction, and the Plan will not be required to
pay any fees, commissions or expenses in connection with the Sale.
6. The Trustee has indicated that the bid auction sale for the
Property will be conducted sometime in 1995. In preparation of such
auction, the Advisory Committee represents that the Trustee will
circulate a written bid proposal to approximately 100 prospective
bidders which will allow them to bid either in writing prior to the
auction or orally at the action. The minimum bid set forth in the bid
proposal will be at least the Property's fair market value as of the
date of such proposal. The Property will be sold to the highest bidder,
which may or may not be MFR, only if the highest bid exceeds the
minimum bid set by the Trustee. Acceptance of the highest bidder's
offer is subject to final acceptance and approval by the Trustee's
Trust Committee. For purposes of condition #4 of this proposed
exemption, the fair market value of the Property on the date of the
Sale will be determined in the following manner. If the Trustee
receives two or more bids from unrelated individuals or entities, the
highest bid will be deemed to be the Property's fair market value on
the date of the Sale. If the Trustee receives less than two bids from
unrelated individuals or entities, the fair market value on the date of
the Sale will be determined by an independent, qualified appraiser. In
this event, MFR's bid cannot be less than the fair market value of the
Property as determined by the independent, qualified appraiser on the
date of the Sale.
7. In summary, it is represented that the transaction will satisfy
the statutory criteria of section 408(a) of the Act because: (a) All
terms and conditions of the Sale will be at least as favorable to the
Plan as those obtainable in an arm's length transaction; (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 Plan will receive a sales price equal to the greater
of: (1) The fair market value of the Property on the date of the Sale;
or (2) the Plan's aggregate costs of acquiring and holding the
Property.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Virginia Fibre Corporation Employees Retirement Savings Plan (the Plan)
Located in Amherst, Virginia
[Application No. D-09901]
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, effective February 1, 1995, to (1) The
proposed purchase from the Plan (the Purchase) by the Virginia Fibre
Corporation (the Employer), the sponsor of the Plan, of a guaranteed
investment contract (the GIC) issued by the Confederation Life
Insurance Company (Confederation Life); or, in the alternative, (2) the
proposed interest-free loan to the Plan by the Employer (the Loan) with
respect to the GIC, including repayment of the Loan; provided that the
following conditions are satisfied:
(A) All terms and conditions of the transactions are at least as
favorable to the Plan as those which the Plan could obtain in an
arm's-length transaction with an unrelated party;
(B) In the event of the Purchase, the Plan receives a cash
purchase price which is no less than the greater of (1) The fair
market value of the GIC as of the sale date, or (2) the GIC's
Maturity Payment, as described below;
(C) In the event of the Loan: (1) The Loan is in the amount of
the GIC's Maturity Payment, as described below; (2) the Loan is
repaid only from GIC Proceeds, defined as the amounts paid by or on
behalf of Confederation Life or any other entity making payment with
respect to Confederation Life's obligations under the GIC; (3) the
Plan incurs no expenses or interest with respect to the Loan; and
(4) repayment of the Loan is waived to the extent the Loan exceeds
the GIC Proceeds.
EFFECTIVE DATE: This exemption, if granted, will be effective as of
Febraury 1, 1995.
Summary of Facts and Representations
1. The Employer is a Virginia corporation engaged in the
manufacture of corrugating medium and liner board, with its principal
place of business in Amherst, Virginia, and is wholly owned by the
Grief Bros. Corporation, located in Delaware, Ohio. The Plan is a
defined contribution 401(k) plan with 240 participants and total assets
of approximately $5,510,972 as of September 30, 1994. The Plan's assets
are held, managed and invested by its trustee, Society National Bank in
Cleveland, Ohio.
2. The Plan provides for individual participant accounts (the
Accounts) and participant-directed investment of the Accounts. The Plan
participants may direct the investment of their Accounts among various
investment options offered by the Trustee, including the Virginia Fibre
MAGIC Fund (the M Fund), which invests in, among other things,
guaranteed investment contracts issued by insurance companies. Of the
Plan's 280 participants, 168 Accounts are invested in the M Fund. Among
the [[Page 8092]] assets in the M Fund is the GIC, a single-deposit,
non-benefit-responsive guaranteed investment contract issued to the
Plan on February 2, 1990 by Confederation Life, a Canadian life
insurance company doing business in the United States through
subsidiaries in Michigan and Georgia. The GIC was purchased by the Plan
for an initial principal deposit of $250,000 (the GIC Principal), which
earns interest at the rate of 9.18 percent per annum (the Contract
Rate). The GIC terms provide for annual interest payments (the Annual
Payments) on February 1 each year, commencing 1991 through 1995. All
Annual Payments through 1994 have been made by Confederation Life and
received by the Plan. The GIC provides for no pre-maturity withdrawals
of principal, and has a maturity date of February 1, 1995 (the Maturity
Date). Upon the Maturity Date, the Plan is due a final Annual Payment
plus the total GIC Principal, for a total of $272,950 (the Maturity
Payment).
3. On August 12, 1994, Confederation life was placed in
receivership (the Receivership) pursuant to rehabilitation proceedings
by the State of Michigan.\6\ Consequently, Confederation Life's assets
and operations were frozen, and payments on all its guaranteed
investment contracts were suspended effective as of the Receivership
commencement. The Employer represents that under the prevailing
circumstances, it is unlikely that the Maturity Payment will be made to
the Plan when due on February 1, 1995. The Employer is also concerned
that the Plan may never recover the full Maturity Payment in its
entirety. The Employer desires to protect Plan participants and
beneficiaries from any loss resulting from the Receivership, by
purchasing the GIC from the Plan, if allowable, or by lending the Plan
the amount of the Maturity Payment, if the purchase is not allowable.
The Employer is requesting an exemption for such transactions under the
terms and conditions described herein.
\6\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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4. The Employer prefers to purchase the GIC from the Plan on
February 1, 1995 for the amount of the Maturity Payment due the Plan on
that date. However, the terms of the GIC include a prohibition against
assignment of the GIC. The Employer and the Trustee represent that they
have initiated the process of obtaining a release from this contractual
prohibition. If a release is obtained to enable the GIC's transfer to
the Employer, the Employer will purchase the GIC on February 1, 1995
for cash in the amount of the Maturity Payment due on that date. The
Plan will incur no expenses with respect to this proposed sale
transaction.
In the event the parties are unable to obtain a release from the
prohibition on assignability of the GIC, on February 1, 1995 the
Employer will make a cash loan to the Plan (the Loan) in the amount of
the Maturity Payment due on that date. The Loan will be interest-free,
and the Plan will incur no expenses related to the Loan. Repayment of
the Loan will be restricted to the amounts which the Plan receives from
Confederation Life or any other entity making payment with respect to
Confederation Life's obligations under the GIC (the GIC Proceeds). To
the extent the Loan exceeds the GIC Proceeds, repayment of the Loan
will be waived.
5. In summary, the applicant represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (1) The transactions will protect the Plan from any
loss on the GIC's full Maturity Payment which might result from the
Receivership; (2) The Employer's proposed purchase of the GIC will be a
one-time transaction for cash in which the Plan receives no less than
the greater of the fair market value of the GIC or the Maturity
Payment; (3) If a release is not obtained to enable the purchase of the
GIC, the Plan will still receive the Maturity Payment when due, in the
form of the Loan; (4) If the Loan is made, its repayment will be
restricted to GIC Proceeds; (5) To the extent the Loan exceeds GIC
Proceeds, the repayment of the Loan will be waived; and (6) The Plan
will pay no interest or incur any expenses with respect to the proposed
transactions.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Profit Sharing Plan for Employees of Annis, Mitchell, Cockey, Edwards &
Roehn, P.A. (the Plan) Located in Tampa, Florida
[Application No. D-09906]
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 the proposed sale by the Plan to Annis,
Mitchell, Cockey, Edwards & Roehn, P.A. (the Employer), of the Plan's
interest (the Interest) in a limited partnership, for $40,000 in cash,
provided the following conditions are satisfied: (a) The sale is a one-
time transaction for cash; (b) no commissions or other expenses are
paid by the Plan in connection with the sale; and (c) the Plan receives
not less than the fair market value of the Interest as of the date of
the sale as determined by a qualified, independent expert.
Summary of Facts and Representations
1. The Plan is a defined contribution, profit sharing plan which
currently has approximately 105 participants. As of September 30, 1994,
the aggregate fair market value of the Plan's assets was $3,378,407.
The Employer is a professional association engaged in the practice of
law in Tampa, Florida.
2. On June 30, 1988 the Plan acquired the Interest, which is a one-
half unit of limited partnership interest in Hunter's Ridge Associates,
Ltd. (the Partnership). The business of the Partnership is to acquire,
own, operate, improve and otherwise deal with an apartment complex
located in Winter Park, Florida. The Partnership units were not
registered with the Securities and Exchange Commission or the Florida
Division of Securities, but rather were privately placed. The total
number of units offered and sold was 35. No shareholder or employee of
the Employer individually purchased an interest in the Partnership.
3. The Plan has now been modified to permit individual investment
selections by the Plan participants. The Plan's investment in the
Interest is illiquid, difficult to accurately value and hard to
allocate among participants. In order to improve the Plan's liquidity
and to reduce accounting costs for the Plan attributable to this
investment, the Plan would like to sell the Interest to the Employer.
4. If the exemption proposed herein is granted, the Plan will
assign the Interest to the Employer as a substitute investor in the
Partnership, in exchange for a lump sum cash payment equivalent to the
current fair market value of the Interest from the Employer.
Participants' accounts will receive an allocation in cash exactly equal
to the most recent valuation of the Interest. No broker fees
[[Page 8093]] or administrative fees will be incurred by the Plan since
the Employer will absorb the cost of the transfer.
5. Mr. Richard D. Schofield, a registered real estate broker who
has been in the real estate business for 17 years, is the general
partner of the Partnership. Mr. Schofield represents that as of January
5, 1995, the Interest would be appraised as having a fair market value
at its original cost, or $40,000. This is the purchase price that the
Employer proposes to pay to the Plan for the Interest.
6. In summary, the applicant represents that the proposed
transaction satisfies the criteria contained in section 408(a) of the
Act because: (a) The sale is a one-time transaction for cash; (b) the
Plan will pay no commissions or fees in connection with the
transaction; (c) the Plan will receive not less than the current fair
market value of the Interest at the time of the sale; and (d) the fair
market value for the Interest has been determined by Mr. Schofield, a
qualified, independent expert who is the general partner of the
Partnership.
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 7th day of February, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 95-3407 Filed 2-9-95; 8:45 am]
BILLING CODE 4510-29-P