[Federal Register Volume 60, Number 81 (Thursday, April 27, 1995)]
[Unknown Section]
[Pages 20766-20773]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-10404]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-09875, et al.]
Proposed Exemptions; Toyota Motor Sales, U.S.A., Inc.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restriction of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
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 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.
Toyota Motor Sales, U.S.A., Inc. Money Purchase Pension Plan for
Bargaining Unit Employees (the Plan), located in Torrance, CA
[Application No. D-09875]
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) and 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 by the Plan
(the Sale), of group annuity contract No. GA-4564 (the GAC) issued by
Mutual Benefit Life Insurance Company (Mutual Benefit), located in
Newark, New Jersey, to Toyota Motor Sales, U.S.A., Inc., a California
corporation, (the Employer), a party in interest with respect to the
Plan; provided that (1) the Sale is a one-time transaction for cash;
(2) the Plan experiences no loss nor incurs any expense from the Sale;
and (3) the Plan receives as consideration from the Sale the greater of
either the fair market value of the GAC as determined by the trustee of
the Plan on the date of the Sale, or an amount that is equal to the
total funds expended by the Plan in acquiring and holding the GAC, plus
the amount of interest earned and accrued by the Plan on the GAC to the
date of the Sale,1 less all withdrawals from the Plan to the date
of the Sale, and less all advances made to the Plan by the Employer to
the date of the Sale.
1This takes into account the rate of interest guaranteed
after December 31, 1991, to the Plan by the Employer.
---------------------------------------------------------------------------
Summary of Facts and Representations
1. The Employer is a California corporation with its corporate
headquarters in Torrance, California and other facilities located
throughout the United States, including port facilities, regional sales
offices, and parts distribution centers. The Employer is primarily
engaged in the wholesale distribution of automobiles, light trucks,
industrial equipment and accessories throughout the United States
(excluding Hawaii). In addition, the Employer exports automobiles and
related replacement parts and accessories to Europe, Asia, and the U.S.
Territories. Also the Employer manufactures certain automobiles and
trucks though its subsidiaries in the United States.
2. The Plan is a defined contribution plan that is intended to
qualify under the provisions of section 401(a) of the Code as a money
purchase pension plan with individual accounts for its participants.
The sponsor of the Plan and its principal funding source is the
Employer; however, eligible employees who are participants of the plan
may elect to make additional, voluntary funding contributions. The Plan
is maintained pursuant to various collective bargaining agreements
between the Employer and the unions representing the employees. As of
September 30, 1994, the Plan had 548 active participants and total
assets of $4,468,556.
From April 4, 1986, to October 1, 1987, the named fiduciary of the
Plan was Toyota Body, Inc., and from October 1, 1987, to August 19,
1994, the named fiduciary was the Employer. Since August 19, 1994, the
named fiduciary for the Plan is the Toyota Employee Benefit Committee
(the Benefit Committee), which consists of 4 or more individuals who
are appointed [[Page 20767]] by the president of the Employer. The
Benefit Committee has full authority to control and manage the assets
and administration of the Plan. The powers of the Benefit Committee
includes, among other things, the authority to appoint legal counsel
and other agents for the Plan.
On September 15, 1994, the Eagle Trust Company (the Trustee), a
trust company incorporated under the Pennsylvania Bankruptcy Code, was
selected by the Benefit Committee to serve as the trustee of the assets
of the Plan. The applicant represents the Trustee to be independent and
not affiliated with the Employer in any other capacity.
From July 16, 1984, when the Plan acquired the GAC from Mutual
Benefit until July 16, 1991, the GAC served as the exclusive investment
vehicle for the Plan.2 Until July 16, 1991, Mutual Benefit would
periodically make a determination of the interest rate used to compute
the earnings paid to the Plan by the GAC. This involved the
establishment of a separate subfund by Mutual Benefit for each annual
deposit period of contributions during the life of the GAC, and the
applicable interest rate for such subfund thereafter was reset on an
annual basis. From the issuance of the GAC through December 31, 1991,
the GAC was earning various interest rates, ranging from 8.35 percent
to 14.05 percent. The applicant represents that the GAC had no stated
maturity date. The GAC can be discontinued unilaterally by either the
Employer or Mutual Benefit, or if certain stipulated conditions arise.
2The Department notes that the investment in the GAC is
governed by the provisions of Part 4, Subtitle B, of Title I of the
Act. In this regard, the Department is not proposing herein relief
for any violations of Part 4 which may have arisen as a result of
not diversifying the investments of the Plan.
---------------------------------------------------------------------------
3. On July 16, 1991, Mutual Benefit was placed into rehabilitation
proceedings by the New Jersey Commissioner of Insurance.3 As a
result of these proceedings the assets of the Plan invested in the GAC
were frozen. Following cessation of payments by Mutual Benefit with
respect to the GAC, the Employer decided to make periodic advances of
funds (the 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.4 The applicant
represents that at the same time the Advances commenced, the Employer
committed itself to enhance the rate of return the individual accounts
of the participants would earn and accrue after December 31, 1991, by
guaranteeing a 6 percent per annum return for the calendar year 1992
and a 5 percent per annum return for the subsequent calendar years. The
applicant further represents that the periodic Advances made by the
Employer to the Plan, as of September 30, 1994, totaled $460,668.
3The Department notes that the decision to acquire and
hold the GAC are governed by the fiduciary responsibility provisions
of Part 4, Subtitle B, of the 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 by the Plan.
4The applicant represents that the terms of the periodic
advances to the Plan satisfied the conditions of the class exemption
PTE 80-26 (45 FR 28545, April 29, 1980). The Department express no
opinion herein as to whether the periodic advances to the plan
satisfied the terms and conditions of PTE 80-26.
---------------------------------------------------------------------------
The applicant represents that it desires to enter into the proposed
transaction in order to protect the participants of the Plan from the
risks of investment loss associated with the GAC. Further, the
applicant represents that the Plan needs to sell its interest in the
GAC in order to give the participants of the Plan more investment
flexibility to direct the investments of their respective account
balances to other investments. The applicant also represents that the
Plan will not incur any expense with respect to the proposed
transaction.
4. In order to protect the interests of the participants and
beneficiaries of the Plan, the Employer proposes to purchase the GAC
from the Plan for cash. The proposed purchase price for the GAC is to
be the greater of the fair market value of the GAC as determined by the
Trustee on the date of the Sale or an amount that is equal to the total
funds expended by the Plan in acquiring and holding the GAC, plus the
amount of interest earned and accrued by the Plan on the GAC to the
date of the Sale,5 less all withdrawals from the Plan to the date
of the Sale, and less all advances to the Plan made by the Employer to
the date of the Sale. As of September 30, 1994, the GAC had a fair
market value of $2,349,840.
5This takes into account the rate of interest guaranteed
after December 31, 1991, to the Plan by the Employer.
---------------------------------------------------------------------------
The Trustee has reviewed the proposed transaction as an independent
fiduciary on behalf of the Plan and its participants and beneficiaries.
The Trustee represents that the proposed transaction is in the best
interests of the Plan and its participants and beneficiaries.
5. In summary, the applicant represents that the proposed
transaction will satisfy the criteria for an exemption under section
408(a) of the Act because (a) the Plan will receive, from the Employer
in a one-time transaction, cash in an amount that is the greater of
either (1) the fair market value of the GAC; or (2) the total funds
expended by the Plan in acquiring and holding the GAC plus the amount
of interest earned or accrued by the Plan to the date of the Sale, less
withdrawals and less prior advances of funds to the Plan made by the
Employer; (b) the proposed transaction will enable the Plan and its
participants and beneficiaries to avoid any risk associated with
continued holding of the GAC; (c) the Plan will not incur any loss or
expense from the proposed transaction; and (d) the Trustee of the Plan
has determined that the proposed transaction is in the best interests
of the Plan and its participants and beneficiaries, and that the
proposed price for the GAC is not less than its fair market value.
FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Masik Tool and Die Corporation Profit Sharing Plan (the Plan), located
in Cudahy, WI
[Exemption Application No. D-09899]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to: (1) The past leasing (the Lease) of a lathe
(the Lathe) owned by the Plan and certain individually-directed
accounts in the Plan (the Accounts) to Masik Tool and Die Corporation
(Masik), a party in interest with respect to the Plan; and (2) the
proposed cash sale (the Sale) of the Lathe by the Accounts to Masik.
This proposed exemption is conditioned on the following
requirements:
(1) With respect to the past Lease--
(a) the terms and conditions of the Lease have been at least as
favorable to the Plan and the Accounts as those obtainable in an arm's
length transaction with an unrelated party; (b) the value of the Lathe
did not exceed [[Page 20768]] twenty-five percent of the assets of the
Plan or of any of the Accounts at any time during the duration of the
Lease; (c) an independent, qualified fiduciary approved of the Lease on
behalf of the Plan and the Accounts and has monitored the Lease
throughout its entirety; (d) the rental amount received by the Plan and
the Accounts was based upon the fair market rental value of the Lathe;
and (e) within ninety days of the publication in the Federal Register
of the grant of this exemption, Masik files Forms 5330 with the
Internal Revenue Service and pay all applicable excise taxes that are
due by reason of the past prohibited transactions, which are not
subject to this exemption.
(2) With respect to the prospective Sale--
(a) the terms and conditions of the Sale are at least as favorable
to the Accounts as those obtainable in an arm's length transaction with
an unrelated party; (b) the Sale is a one-time cash transaction; (c)
the Accounts are not required to pay any commissions, costs or other
expenses in connection with the Sale; (d) the Sale price for the Lathe
is based upon its fair market value on the date of the Sale as
determined by an independent, qualified appraiser; and (e) within
ninety days of the publication in the Federal Register of the grant of
this exemption, Masik files Forms 5330 with the Internal Revenue
Service and pay all applicable excise taxes that are due by reason of
the past prohibited transactions, which are not subject to this
exemption.
EFFECTIVE DATE: This exemption, if granted, will be effective as of
June 1, 1988 with respect to the Lease. The proposed exemption will be
effective as of the date of the grant of the exemption with respect to
the Sale.
Summary of Facts and Representations
1. The Plan is a profit sharing plan sponsored by Masik, a closely-
held Wisconsin corporation engaged in the business of manufacturing,
rebuilding, and repairing tools and dies for industrial manufacturers
in Southeastern Wisconsin. Joseph Masik, Jr. and his wife, Patricia
Masik, hold 100 percent of Masik's stock and are its only directors.
Mr. Masik, Mrs. Masik and David Zirkelbach serve, respectively, as
President, Secretary/Treasurer and Vice President of Masik. In addition
to being officers of Masik, Mr. Masik, Mrs. Masik and Mr. Zirkelbach
have been the trustees for the Plan (the Trustees) from the inception
of the Lease until the present time.
On May 31, 1990, the Trustees amended the Plan to provide for
participant directed investment. As of May 30, 1992, the Plan had
twenty-one participants and $322,693 in assets. Such assets are
primarily invested in life insurance annuity contracts and certificates
of deposit.
2. Among the assets of the Plan is the Lathe, which is a seventy-
six inch, used Bullard-Dynatrol Vertical Turret Lathe, serial number
31820. The Lathe weighs 130,000 pounds and measures twenty feet in
height. Within six months of the Plan's purchase of the Lathe, Masik
mounted the Lathe in the concrete floor of Masik's plant and attached a
$20,000 ``tracer unit'' to the Lathe at no cost to the Plan. As of
August 15, 1994, the Lathe remained mounted in the concrete floor.
3. The Trustees acquired the Lathe, on behalf of the Plan, in
January of 1987 from the George Meyer Manufacturing Company, an
unrelated party, for a purchase price of $33,250.6 The Trustees
represent that they purchased the Lathe because, based upon their
experience in the industry, they believed that the purchase price of
the Lathe was less than one-half of its fair market value.7
6The Department is expressing no opinion in this proposed
exemption on whether the acquisition and holding of the Lathe by the
Plan violated any of the fiduciary responsibility provisions of Part
4 of Title I of the Act.
7Subsequently, Russ Bottoni (Mr. Bottoni), the owner of
Russco Sales, Inc., a company specializing in used equipment,
appraised the Lathe. Based upon comparable sales, Mr. Bottoni placed
the fair market value of the Lathe as of February 22, 1989 at
$79,500.
---------------------------------------------------------------------------
4. The Trustees represent that the exact date that the Lathe was
first placed into the service of Masik is unknown. However upon a
review of the Plan's records, partial installation of the Lathe
occurred sometime prior to February 4, 1987. Masik formally commenced
leasing the Lathe from the Plan under a written lease (the Lease)
executed June 2, 1988 with an initial five-year term expiring May 31,
1993. Masik represents that it compensated the Plan for its use of the
Lathe which occurred prior to June 2, 1988. As of June 1, 1987, the
Plan had in excess of $200,000 in assets thereby involving sixteen
percent of the Plan's assets in the Lathe. Masik represents that from
June 2, 1988 until the termination of the Lease on May 31, 1993, the
Plan and the Accounts received $105,540, which represents an annualized
rate of return of sixty-three percent.
5. In March of 1989, Masik applied to the Department for exemptive
relief with respect to the Lease but withdrew that application in June
of 1989. The Trustees represent that the reason for the withdrawal was
the mistaken belief that amending the Plan to allow for participant
directed investments (see Representation #1) would result in correction
of the past prohibited transaction and would ensure that no future
prohibited transactions would occur. Masik represents that in response
to this Plan amendment, all of the eligible participants chose to
direct their account balances (the Accounts) on September 20, 1990
towards the purchase of the Lathe and the leasing arrangements. Masik
and the Trustees amended the Lease to reflect these participant
investment elections. The Trustees represent that no participant
directed more than twenty-five percent of his or her account balance to
the Lease.
6. Roger McManus represents that he served as an independent,
qualified fiduciary on behalf of the Plan and the Accounts with respect
to the Lease beginning in June of 1988. Mr. McManus' qualifications
include twenty-five years of experience practicing law, primarily in
the area of small business. Mr. McManus represents that he was
unrelated to, and independent of, Masik. Mr. McManus states that he
understood and acknowledged his duties, responsibilities, and
liabilities in acting as a fiduciary with respect to the Plan based
upon his familiarity with the fiduciary responsibility provisions of
the Act.
Mr. McManus states that, in 1988, he reviewed the investment
portfolio of the Plan and considered the diversification of the Plan's
assets as well as its liquidity needs. Mr. McManus represents that the
Lease did not represent more than twenty-five percent of the assets of
any of the Accounts. Mr. McManus believed that the Lease would be in
the best interests of the Plan and its participants and beneficiaries
as an investment for the Plan's portfolio based on the Lease's rate of
return, the stability of the lessee, the character and diversification
of the Plan's other assets, and the projected liquidity needs of the
Plan.
Mr. McManus states that, based upon his previous representation of
other businesses and involvement in numerous leasing transactions, he
believed that the Lease provisions were quite favorable to the Plan
participants and were at least comparable to an arm's length
transaction. In addition, Mr. McManus represents that he evaluated the
term of the Lease to assure that the Lease satisfied the established
standards for commercial reasonableness. Mr. McManus represents that
the monthly [[Page 20769]] Lease payments were established at $1,759
based upon calculations which utilized mortgage-type amortization
schedules and the fair market and salvage values of the Lathe, which
were determined by the Plan's accountant, Tom Harmann.
Mr. McManus represents that he monitored the Lease from its
inception through April 10, 1992. Mr. McManus further represents that
from the inception of the Lease in 1988 until April 10, 1992, Masik has
abided by all of the terms of the Lease, the Lathe has been kept in
good working order and all rental due the Plan has been timely paid.
Jeffrey R. Brodek represents that, as of April 10, 1992, he assumed
Mr. McManus' role as the independent, qualified fiduciary on behalf of
the Plan and the Accounts with respect to the Lease. Mr. Brodek's
qualifications include ten years of experience practicing employee
benefits law. Mr. Brodek represents that he is unrelated to, and
independent of, Masik. Mr. Brodek states that he understood and
acknowledged his duties, responsibilities, and liabilities in acting as
a fiduciary with respect to the Plan based upon his familiarity with
the fiduciary responsibility provisions of the Act.
Mr. Brodek represents he assumed the same duties that Mr. McManus
had previously undertaken which included enforcing the terms of the
Lease, making sure that the Lathe was kept in good working order and
making sure that payments due under the Lease were timely paid to the
Plan. Mr. Brodek represents Masik has abided by all of the terms of the
Lease, the Lathe has been kept in good working order and all rentals
due the Plan were timely paid through May 31, 1993, the expiration of
the original five-year term of the Lease. At this time, the Trustees
suspended any future Lease payments pending resolution of the
prohibited transaction issues. However, Masik represents that it
utilized the Lathe in the course of its operations after the cessation
of the Lease payments. Masik represents that it will make payments
pursuant to the rental rate specified by the Lease to the Plan for
every month between June of 1993 through the present time, plus a
reasonable rate of interest.
7. Because of the party in interest relationship and the past
leasing arrangement between the Plan and Masik, the Trustees along with
Masik (the Applicants) are aware of the fact that prohibited
transactions have occurred in violation of the Act as of the date of
Masik's first use of the Lathe. The Applicants have requested
retroactive exemptive relief with respect to the Lease as well as
prospective exemptive relief for the Sale. In this regard, the
Department is not proposing exemptive relief for the prohibited
transactions described in this proposed exemption for the periods: (1)
Prior to June 1, 1988, the date that Masik began leasing the Lathe from
the Plan pursuant to a written lease; and (2) after May 31, 1993, the
cessation of the Lease payments. Accordingly, Masik represents that
within ninety days of the publication in the Federal Register of the
grant of this exemption, it will file Forms 5330 with the Internal
Revenue Service and pay all applicable excise taxes that are due by
reason of the past prohibited transactions, which are not subject to
this exemption.
8. Masik represents that the participants whose accounts are
invested in the Lathe desire to sell the Lathe so that an alternative
investment can be made by the Accounts. The Trustees represent that
because the Lathe is presently mounted in the concrete floor of Masik's
plant, sale to an unrelated party at fair market value is unlikely due
to the cost of removing the Lathe. Therefore, Masik proposes to
purchase the Lathe for its fair market value on the date of the Sale.
The Plan will not be required to pay any commissions, costs or other
expenses in connection with these transactions.
9. The Trustees retained Richard Levo, a sales engineer for L.L.
Richards Machinery Co, Inc. to appraise the Lathe. Mr. Levo has dealt
in new and used chipmaking and fabricating machine tools for forty-
three years. His appraisal, dated June 6, 1994, places the fair market
value of the Lathe at $29,500 based on its age, condition and location.
Mr. Levo states that the Lathe has declined in value since its
acquisition in 1987 due to recent innovations in technology which have
left the Lathe obsolete. The appraisal for the Lathe will be reviewed
and updated prior to the Sale pursuant to this exemption. Mr. Levo
represents that both he and L.L. Richards Machinery Co, Inc. are
independent of and unrelated to Masik.
10. In summary, the Applicants represent that the Lease and the
Sale will satisfy the statutory criteria for an exemption under 408(a)
of the Act because:
(a) With respect to the past Lease--
(1) the terms and conditions of the Lease have been at least as
favorable to the Plan as those obtainable in an arm's-length
transaction with an unrelated party; (2) the Lathe did not exceed
twenty-five percent of the assets of the Plan or of any individually-
directed accounts within the Plan at any time during the duration of
the leasing arrangements; (3) Roger McManus, acting as the Plan's
independent, qualified fiduciary, approved of the Lease; (4) Mr.
McManus and subsequently, Jeffrey Brodek, acting as the Plan's
independent, qualified fiduciary during different periods, monitored
the Lease; (5) the rental charged by the Plan was based upon the fair
market rental value of the Lathe; and (6) within ninety days of the
publication in the Federal Register of the grant of this exemption,
Masik will file Forms 5330 with the Internal Revenue Service and pay
all applicable excise taxes that are due by reason of the past
prohibited transactions, which are not subject to this exemption.
(b) With respect to the prospective Sale--
(1) the Sale will be a one-time cash transaction; (2) the Plan will
not be required to pay any commissions, costs or other expenses in
connection with this transaction; (3) the Lathe will be appraised by
Richard Levo, an independent, qualified appraiser; (4) the sales price
for the Lathe will reflect its fair market value on the date of the
Sale; and (5) within ninety days of the publication in the Federal
Register of the grant of this exemption, Masik will file Forms 5330
with the Internal Revenue Service and pay all applicable excise taxes
that are due by reason of the past prohibited transactions, which are
not subject to this exemption.
FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,
telephone (202) 219-8971. (This is not a toll-free number.)
Simplex Time Recorder Co., Employee Savings Plan (the Plan), located in
Gardner, Massachusetts
[Application No. D-09935]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code shall not apply to (1) the proposed extension of credit (the Loan)
to the Plan by Simplex Time Recorder Co. (the Employer), a party in
interest with respect to the Plan, with regard to a
[[Page 20770]] group annuity contract (the GAC) issued by Executive
Life Insurance Company of California (ELIC), and (2) the Plan's
potential repayment of the Loan (the Repayment); 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
ELIC, its successors, or any other responsible third party making
payment with respect to ELIC's obligations under the GAC (the GAC
Proceeds); and
(C) Repayment of the Loan is waived with respect to the amount by
which the Loan exceed GAC proceeds.
Summary of Facts and Representations
1. The Employer is a Massachusetts corporation with its principal
place of business located in Gardner, Massachusetts. The Plan is a
defined contribution plan with approximately 3,500 participants and
total assets of approximately $82.3 million as of December 31, 1994.
The Plan provides for individual participant accounts (the Accounts)
and participant-directed investment of the Accounts.
2. The terms of the Plan provide that its participants may invest
the Accounts among any of several investment funds (the Funds) managed
by the Plan's trustee, State Street Bank and Trust Company (the
Trustee), including a fixed income fund (the F.I. Fund). The F.I. Fund
invests in part in insurance company group annuity contracts under
which the issuer guarantees repayment of principal and payment of
interest at a fixed annual rate through the date of maturity specified
in the contract. Among the contracts held by the Plan in the F.I. Fund
is the GAC, identified as follows: Contract number CG0124803A, issued
to the Trustee on January 13, 1988 for an initial principal deposit of
$678,987.69, with a principal deposit limit of $4,440,000. The GAC
provides for compound annual interest at the rate of 10 percent (the
Contract Rate), and its terms enable withdrawals to fund distributions,
participant loans, in-service withdrawals, and participant-directed
transfers of Account balances from the F.I. Fund to the other Funds
(the Withdrawal Events). The GAC features a maturity date of June 30,
1993, at which time the Plan was due a payment (the Maturity Payment)
in the amount of the total principal deposits during the term of the
GAC plus interest thereon at the Contract Rate through maturity less
previous withdrawals.
3. On April 11, 1991, ELIC was placed into conservatorship (the
Conservatorship) by the Insurance Commissioner of the State of
California. The Employer represents that ELIC ceased to honor requests
for withdrawals from the GAC upon commencement of the Conservatorship.
The effect of the Conservatorship has been to freeze all assets
invested in the GAC. This freeze has prevented the Plan from making
withdrawals from the GAC to fund Withdrawal Events with respect to
Accounts invested in the GAC.8
\8\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 Executive Life.
---------------------------------------------------------------------------
In response to the Conservatorship, the Employer and the Trustee
provided for the GAC to be segregated from the other assets in the F.I.
Fund and placed in a special fund (the Segregated Fund) on April 30,
1991, in order to confine the risks associated with the GAC to those
Accounts which were invested in the F.I. Fund as of the commencement of
the Conservatorship. Each Account with an interest in the F.I. Fund as
of the date of the Conservatorship obtained a pro-rata interest in the
Segregated Fund, from which withdrawals are prohibited for all
purposes. As of April 30, 1991, the accumulated book value of the GAC
was $4,173,231, representing total principal deposits plus interest at
the Contract Rate less previous withdrawals. This value constituted
approximately 10 percent of the assets in the F.I. Fund and
approximately 7.6 percent of the Plan's total assets. Upon the maturity
of the GAC on June 30, 1993, the Maturity Payment then due was not
made. Approximately 2,100 Plan participants have portions of their
Accounts invested in the Segregated Fund.
4. A rehabilitation plan for ELIC (the Rehab Plan) was approved in
late 1993, which offered to the Plan, as a holder of an ELIC GAC, two
options: The Plan could ``opt in'' to the Rehab Plan by continuing to
hold the GAC with modified terms, or the Plan could ``opt out'' by
agreeing to a cancellation of the GAC in exchange for payments (Rehab
Payments) over a period of approximately five years. In 1994, the
Trustee made the opt-out election on behalf of the Plan. The Trustee
represents that under the opt-out election, the exact amount of the
Rehab Payments is not determinable. However, the Trustee and the
Employer expect a total opt-out recovery of approximately $3.7 million
in Rehab Payments with respect to the GAC. Approximately 65 percent of
this total, i.e., $2.4 million, was received by the Plan shortly after
the opt-out election was processed. An additional $485,000 was received
by the Plan in March 1995. The Trustee and the Employer expect
approximately $815,000 more in Rehab Payments over a remaining three-
year period.
5. Shortly after the Conservatorship commenced, in order to provide
some immediate relief to the Plan with respect to the funding of
Withdrawal Events, the Employer structured a loan arrangement (the
Initial Agreement) which was intended to utilize Prohibited Transaction
Class Exemption 80-26 (PTCE 80-26, 45 FR 35040, May 23, 1980), relating
to interest-free loans for, among other things, the funding of plan
benefits. In accordance with the terms of the Initial Agreement, the
Employer commenced the making of interest-free loans (the Initial
Loans) to the Plan solely to fund the cash payment of benefits by the
Plan to participants with Account balances in the Segregated Fund, in
lieu of the amounts which otherwise would have been withdrawn from the
GAC for such payments. The Employer represents that the Initial Loans
are exempt from the prohibited transaction provisions of the Act
because they satisfy the requirements of PTCE 80-26.9 As of
December 31, 1994, a total of $639,967 had been loaned to the Plan by
the Employer pursuant to the Initial Agreement.
\9\The Department expresses no opinion as to whether the loans
made pursuant to the Initial Agreement satisfy the requirements of
PTCE 80-26, or whether such loans were exempt from the prohibitions
of section 406 of the Act.
---------------------------------------------------------------------------
6. Although the Initial Agreement has enabled former employees to
receive full distribution of their Account balances, including portions
invested in the Segregated Fund, the Employer represents that the
Initial Arrangement is not satisfactory with respect to the
participants of the Plan who remain current employees of the Employer.
Participants who are current employees remain unable to effect
participant loans, in-service withdrawals and transfers with respect to
Account balances in the Segregated Fund. Accordingly, the Employer
seeks to provide the Plan with the ability to effect the full range of
Withdrawal Events with respect to Accounts invested in the Segregated
Fund, by lending the Plan an amount of cash equal to the remaining
balance of the Segregated Fund. The Employer requests an exemption for
such a loan (the Loan), as well as its potential repayment, under the
terms and conditions described herein. [[Page 20771]]
7. The terms of the Loan and its repayment (the Repayments) will be
set forth in a written agreement between the Trustee and the Employer
(the New Agreement). Under the New Agreement, the Employer proposes to
make the Loan in the amount remaining in the Segregated Fund as of the
date of the Loan. The amount remaining in the Segregated Fund as of the
date of the Loan will represent the GAC's accumulated book value as of
the date of the Conservatorship, i.e., $4,173,231, reduced by the sum
of the total Rehab Payments and Initial Loans made as of the Loan date.
Accordingly, the Employer estimates that the Loan will be in the amount
of approximately $600,000. The Employer represents that after the
exemption proposed herein is final, if granted, and the New Agreement
has been approved by the Internal Revenue Service10, the Employer
will make the Loan to the Plan and will then exercise its powers under
the Plan to close the Segregated Fund. Upon closing the Segregated
Fund, all Accounts which remained invested in that Fund will be
transferred back to the F.I. Fund, and the Employer will announce to
Plan participants the availability of the Loan funds to effect all
Withdrawal Events with respect to amounts previously frozen in the
Segregated Fund. The Employer and the Trustee represent that the Plan's
participants will benefit from the proposed Loan because it will ensure
that the participants receive 100% of the Conservatorship-date value of
their Accounts invested in the GAC and such amounts will be available
as soon as approval is received from the Internal Revenue Service and
the Department.11
\10\Internal Revenue Procedure 92-16 provides for a temporary
closing agreement program to settle certain tax liabilities that
arise out of transactions between an employee-sponsor and the trust
of a qualified defined contribution plan.
\11\The Department notes that the exemption, if granted, will
not affect the rights of any participant or beneficiary with respect
to any civil action against Plan fiduciaries for breaches of section
404 of ERISA in connection with any aspect of the GAC transactions.
---------------------------------------------------------------------------
8. The New Agreement provides for repayment of the Loan (the
Repayment), but no interest will be paid on the principal amount of the
Loan. Under the New Agreement, Repayment is limited to amounts, if any,
paid to the Plan by or on behalf of ELIC, or its successor, or any
other responsible third parties making payment with respect to ELIC's
obligations under the GAC (the GAC Proceeds). No other assets of the
Plan will be available for repayment of the Loan. If the GAC Proceeds
are not sufficient to fully repay the Loan, the New Agreement provides
that the Employer will have no recourse against the Plan, or against
any participants or beneficiaries of the Plan, for the unpaid amount.
To the extent the Plan receives GAC proceeds in excess of the total
amount of the Loan, such additional amounts will be retained by the
Trust and allocated among the accounts of the Plans' participants.
9. In summary, the applicant represents that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because: (1) The transaction will restore the Plan's ability to fund
Withdrawal Events with respect to Accounts invested in the GAC; (2) The
Plan will not incur any expenses or pay any interest with respect to
the transaction; (3) Repayment of the Loan will be made only from GAC
Proceeds paid to the Plan; (4) If the GAC Proceeds 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 GAC Proceeds.
FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Employees' Thrift Plan of Columbia Gas System (the Plan), Located in
Wilmington, DE
[Application No. D-09959]
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) and 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 loan of funds (the Loan) to
the Plan by The Columbia Gas System, Inc. (the Employer), the sponsor
of the Plan, and its wholly-owned subsidiary, Columbia Gas Transmission
Corporation (the Subsidiary), with respect to the Guaranteed Investment
Contract No. 61969 (the GIC) issued by Confederation Life Insurance
Company of Canada (Confederation); and (2) the potential repayment by
the Plan of the Loan upon the receipt by the Plan of payments under the
GIC; provided the following conditions are satisfied: (a) No interest
and/or expenses are paid by the Plan in connection with the Loan; (b)
all the terms and conditions of the proposed Loan are no less favorable
to the Plan than those which the Plan could obtain in an arm's-length
transaction with an unrelated party; (c) the Loan will be no less than
the accumulated book value of the GIC as of August 12, 1994; (d) the
repayment of the Loan will not exceed the total amount of the Loan; (e)
the repayment of the Loan by the Plan will be restricted to funds paid
to the Plan under the GIC by Confederation, or State Guaranty Funds, or
other third-party sources; (f) the repayment of the Loan is waived to
the extent the Loan exceeds the proceeds the Plan receives from the
GIC; and (g) any proceeds or future interest credited under the GIC
after August 12, 1994, in accordance with the Rehabilitation Plan by
the State of Michigan, will be allocated and disbursed to the affected
participants of the Plan.
Summary of Facts and Representations
1. The Employer is a Delaware corporation with its principal
offices located in Wilmington, Delaware. It is a public utility holding
company with 15 subsidiaries primarily engaged in the distribution,
transmission, and production of natural gas in the Midwest, Southeast,
and Mid-Atlantic sections of the country and with production facilities
in Texas and West Virginia.
The Employer is also a publicly held corporation with its
securities traded on the New York Stock Exchange. For the fiscal year
ending September 30, 1994, it had revenues of approximately $3.1
billion.
The Employer and all its subsidiaries are participating employers
in the Plan.
2. The Plan is a defined contribution plan with an employer-
matching funding feature. There are provisions in the Plan for
individual accounts and participant-directed investments of assets. The
Plan has been qualified pursuant to the requirements of sections 401(a)
and 401(k) of the Code. There are approximately 9,200 participants in
the Plan and $341.9 million in total assets, as of December 31, 1994.
On October 1, 1989, Bankers Trust Company of New York, New York
became trustee of all of the assets of the Plan. On October 17, 1991,
the Fidelity Bank, N.A., located in Philadelphia, Pennsylvania became
trustee of Plan assets that are invested in common stock issued by the
Employer and held in the Columbia Gas System Stock Fund (the Stock
Fund) of the Plan. As of December 31, 1994, the Stock Fund had an
aggregate fair market value of $155.4 million and represented
approximately [[Page 20772]] 45.5 percent of the total assets of the
Plan.
On April 1, 1992, the Fidelity Management Trust Company, a
Massachusetts trust company, located in Boston, Massachusetts (the
Trustee) became trustee of all the other assets in the Plan and Bankers
Trust Company ceased to be a trustee of any Plan assets.
3. The Board of Directors of the Employer establishes the general
investment policy for the Plan and has sole authority to appoint and
remove any Trustee and any member of the Thrift Plan Committee (the
Committee).
The Committee is the named fiduciary of the Plan and consists of
officers and directors of the Employer and its subsidiaries. The duties
of the Committee include, inter alia, the selection of the various
investment options offered to the participants by the Plan; and the
appointment and removal of investment managers, agents, assistants,
legal counsel, and clericals. The Committee also has the duty to
interpret the terms and conditions provided in the Plan and to adopt
rules and restrictions to implement and administer the Plan and its
general investment policy.
The Trustee is the custodian of the assets of the Plan and is
responsible for the establishment and maintenance of the investment and
disbursement accounts of the Plan. In addition, the Trustee invests
Plan assets as directed by the participants into 14 various investment
options offered by the Plan. These investment options include 13
diversified mutual funds offered by the Trustee. Initially, all the
matching contributions to the Plan by the Employer are invested in the
Stock Fund for the respective participants until the participants
attain the age of 55 years; and then, the participants may direct the
matching contributions by the Employer into any of the 14 investment
options offered by the Plan.
4. The Plan acquired the GIC on January 2, 1990, for the
consideration of $6,500,000. The GIC provides for annual guaranteed
interest payments of 8.8 percent with a maturity date of January 1,
1995. Since the GIC was acquired by the Plan, there have been
withdrawals totalling $2,272,377, which represents annual interest
payments received through January 2, 1994. Interest payments are due
January 2 each year. All interest payments through January 2, 1994 have
been made. As of August 11, 1994, the GIC had a balance of
$6,838,983.56, including $338,983.56 in accrued interest.
When the Plan requested payment of the value of the GIC on its
maturity date, Confederation was unable to grant the request because,
on August 12, 1994, the Ingham County Circuit Court in Lansing,
Michigan had placed Confederation in Conservatorship and
Rehabilitation, causing Confederation to suspend payments on all of its
contracts including the GIC.12 At this time, August 12, 1994, a
segregated subaccount (the Segregated Account) was established within
the Money Market/Investment Contract Fund (MMIC) offered by the Trustee
to hold the assets of the Plan represented by the GIC. The Segregated
Account represents approximately 17 percent of the funds in the MMIC.
\ 12\The Department notes that the decisions to acquire and hold
the GIC are governed by the fiduciary responsibility provisions of
Part 4, Subtitle B, of 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 by the Plan.
---------------------------------------------------------------------------
The applicant represents that the Segregated Account, which holds
the GIC that is subject to suspension of payments, has prevented
participants of the Plan from exercising their rights under the Plan to
receive distributions of benefits, withdrawals, and investment
transfers with respect to the funds invested in the GIC. The applicant
further represents that it is not known whether, when, or under what
circumstances Confederation will resume payments on its contracts,
including the interest and principal amount of the GIC. Approximately
26 percent of the Plan participants (2,423 individuals) are affected by
these restrictions.
5. The Employer proposes to make the Loan to the Plan in order to
permit the participants to exercise their rights under the Plan and
avoid the administrative problems arising from the restrictions on
investment transfers and distributions for terminated, retired, and
disabled participants as imposed by the rehabilitation of
Confederation. The Loan will be made pursuant to two written agreements
by the Employer and the Subsidiary, respectively, with the Plan. The
notes issued pursuant to the agreements will be interest-free and
unsecured. The amount of the Loan will be no less than the accumulated
book value of the GIC (the principal amount, plus interest at the
contract rate, and minus withdrawals) as of August 12, 1994.13 Any
future interest received in accordance with the rehabilitation plan of
the Circuit Court will be allocated and disbursed by the Trustee to the
accounts of the participants of the Plan that are affected by the GIC.
The purpose of the Loan, as represented by the applicant, is to
facilitate distributions and investment transfers from the Plan by the
participants and their beneficiaries. The applicant represents that
repayments of the Loan by the Plan will be limited to proceeds received
from Confederation, or from State Guaranty Funds, or other third-party
sources. The repayment of the Loan will be waived to the extent the
Loan exceeds the proceeds from the GIC and in no event will the
repayment exceed the Loan.
\ 13\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.
---------------------------------------------------------------------------
The Trustee in its independent capacity under the Trust Agreement
with the Employer of April 1, 1992, represents that it has determined
that the proposed transaction is in the best interests of the Plan and
its participants and beneficiaries. Furthermore, the Trustee represents
that it will determine that the Loan when consummated will be as
described herein.
6. In summary, the applicant represents that the proposed
transaction will satisfy the criteria for an exemption under section
408(a) of the Act because (a) the proposed transaction will permit
investment transfers as well as distributions for terminated, retired,
and disabled participants in the Plan; (b) the Plan will not incur
interest charges or other expenses with respect to the proposed
transaction; (c) the Loan will be no less than the accumulated book
value of the GIC as of August 12, 1994; (d) the source of the repayment
of the Loan is restricted to the proceeds under the GIC from
Confederation, or a State Guaranty Fund, or other third-party sources;
(e) the repayment will not exceed the total amount of the Loan; and (f)
the repayment of the Loan will be waived to the extent the Loan exceeds
the proceeds from the GIC.
FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver 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 [[Page 20773]] 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 24th day of April, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 95-10404 Filed 4-26-95; 8:45 am]
BILLING CODE 4510-29-P