[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]



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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.

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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 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.
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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.
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    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.
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    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.
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    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.
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    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.
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    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.
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    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.
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    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