[Federal Register Volume 61, Number 148 (Wednesday, July 31, 1996)]
[Notices]
[Pages 40005-40012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-19481]


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DEPARTMENT OF LABOR
[Application No. D-10189, et al.


Proposed Exemptions; Westinghouse Savannah River Company

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 restrictions 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,

[[Page 40006]]

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.

Westinghouse Savannah River Company/Bechtel Savannah River, Inc. 
Pension Plan (the Plan) Located in Aiken, South Carolina

[Application No. D-10189]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 C.F.R. Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption 
is granted, the restrictions of section 406(a)(1)(A), 406(a)(1)(D), 
406(b)(1), and 406(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), 4975(c)(1)(D), and 4975(c)(1)(E) of the Code,1 
shall not apply, effective October 15, 1994, to the past and future use 
by the U. S. Department of Energy (DOE) 2, acting on behalf of 
Westinghouse Savannah River Company (WSRC) and Bechtel Savannah River, 
Inc. (BSRI), parties in interest with respect to the Plan, of portions 
of DOE's interest in Group Annuity Contract GR-409 (GR-409) issued by 
Connecticut General Life Insurance Company (CGLIC), an insurance 
company headquartered in Hartford, Connecticut, to purchase interests 
for the Plan in CGLIC Group Annuity Contract IN-16111 (IN-16111) for 
the purpose of funding the benefits under the Plan; provided that:
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    \1\  For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
    \2\  References to DOE include, where applicable, DOE's 
predecessors, the Energy Research and Development Administration and 
the Atomic Energy Commission.
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    (1) the use by DOE, acting on behalf of WSRC and BSRI, of portions 
of DOE's interests in GR-409 to purchase additional interests in IN-
16111 on behalf of the Plan has benefited and will benefit the Plan to 
the same extent, as contributions of cash by DOE to such Plan;
    (2) the fair market value of the debits to GR-409 that have 
occurred or will occur, as a result of the use of portions of GR-409 by 
DOE to purchase additional interest in IN-16111 on behalf of the Plan, 
has exactly matched and will exactly match the fair market value of the 
credits to IN-16111 acquired by the Plan as a result of such purchase 
transactions;
    (3) the Plan has received and will receive interests in IN-16111 
that have a fair market value equal to the fair market value of the 
interests the Plan would have received had DOE or WSRC acquired 
additional interests in IN-16111 for the Plan for cash;
    (4) the value of the earnings received by the Plan from the 
interests in IN-16111 purchased by DOE with portions of GR-409 have 
been and will be the same, as if those interests were or are purchased 
with cash;
    (5) the named fiduciary of the Plan has determined that the 
transactions have been and will be prudent, feasible, and in the 
interest of and protective of the Plan;
    (6) CGLIC, an independent, qualified third party, has determined 
and will continue to determine the fair market value of the interests 
in GR-409, as of the date of each purchase transaction;
    (7) the actuary for the Plan has determined and will continue to 
determine the minimum funding requirement of the Plan and has 
determined and will continue to determine the extent to which the 
amount credited to the Plan's funding standard account by virtue of the 
use of the interest in GR-409 satisfies the minimum funding 
requirement;
    (8) the actuary of the Plan has monitored and will continue to 
monitor the transactions on behalf of the Plan, as well as the terms 
and conditions of the exemption at all times;
    (9) no more than 25% of the assets of the Plan have been or will be 
involved in the transactions;
    (10) the Plan has not, nor will the Plan in the future, incur any 
fees, costs, or other charges or expenses as a result of the 
transactions; and
    (11) if, by the required filing date of the Form 5500 (including 
extensions) for any year, the aggregate book value 3 of the 
interests in IN-16111 purchased for the Plan is less than the aggregate 
amount credited to the Plan's funding standard account as a result of 
such purchases, DOE will (by the filing date of the Form 5500 for such 
year) purchase an additional interest in IN-16111 for the Plan that has 
a book value equal to the shortfall or contribute to the

[[Page 40007]]

Plan cash in the amount of such shortfall.

    \3\ It is represented that the book value of an annuity contract 
represents the amount contributed to such contract, plus accumulated 
interest credited to date, less amounts withdrawn from such 
contract. Fair market value, on the other hand, represents the 
market value of the general account assets in which a contract is 
deemed to be invested for accounting purposes.
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EFFECTIVE DATE: If the proposed exemption is granted, the exemption 
will be effective, as of October 15, 1994, the date DOE first used, on 
behalf of WSRC and BSRI, portions of its interests in GR-409 to acquire 
additional interests in IN-16111 for the Plan.

Summary of Facts and Representations

    1. The Plan is a non-contributory multiple-employer defined benefit 
pension plan established, as of April 1, 1989, and maintained by WSRC 
and BSRI for their employees. As of January 1, 1995, the Plan covered 
19,316 participants and beneficiaries. Of these individuals, 16,973 
were active, laid-off, or transferred participants, 1,303 were deferred 
vested participants, and 1,040 were retirees or their beneficiaries in 
pay status.
    The named fiduciary of the Plan is a committee (the Benefits 
Committee) which is composed of four (4) senior WSRC managers and a 
representative from BSRI. The Benefits Committee is responsible for the 
general administration of the Plan and for carrying out the provisions 
of the Plan. Acting in its fiduciary capacity, the Benefits Committee 
has appointed seven (7) independent asset management companies which 
serve as investment managers with respect to certain assets of the 
Plan, other than the Plan's interests in IN-16111.
    It is represented that the assets of the Plan are well diversified. 
As of January 1, 1995, approximately 47 percent (47%) or $176,259,918 
of the Plan's assets is invested in a broad range of equities; 36.6 
percent (36.6%) or $137,526,560 is invested in IN-16111; 8.1 percent 
(8.1%) or $30,319,763 is invested in a variety of fixed income 
securities managed by the investment advisors; 5.8 percent (5.8%) or 
$21,954,535 is held in cash and cash equivalents; and the balance 
consists of accounts receivable and unsettled trades.
    Until December 31, 1992, Wilmington Trust Company (Wilmington) 
served as trustee for the Plan. The current trustee of the Plan (the 
Trustee) is NationsBank (Carolinas), N.A. It is represented that the 
assets of the Plan, including IN-16111, are held in trust by the 
Trustee. As of January 1, 1995, the Plan was funded above the required 
minimum funding level. In this regard, as of January 1, 1995, the value 
of assets held by the Plan was $375,411,740. As of the same date, 
liabilities of the Plan totaled $340,770,268. It is represented that as 
of January 1, 1995, the Plan's liability percentage was 110.2 percent 
(110.2%).
    Buck Consultants (Buck) serves as the Plan actuary. It is 
represented that Buck is an unrelated third party that is independent 
of parties involved in the transactions which are the subject of this 
request for exemption. In this regard, Buck is unaffiliated with DOE, 
WSRC, or BSRI.
    2. WSRC is a Delaware corporation headquartered at 1993 Centennial 
Avenue, in Aiken, South Carolina. WSRC is a wholly-owned subsidiary of 
Westinghouse Electric Corporation, a public company incorporated in 
Pennsylvania and headquartered in Pittsburgh, Pennsylvania.
    3. BSRI is a subcontractor to WSRC. BSRI is a private company 
incorporated in Delaware and headquartered in South Carolina. BSRI is a 
wholly-owned subsidiary of Bechtel Operating Services Corporation, a 
private company incorporated in Delaware and headquartered in 
California.
    4. The applicants on behalf of whom exemption relief is sought are 
WSRC and BSRI, the sponsors of the Plan, and the members of the 
Benefits Committee. In this regard, WSRC and BSRI are parties in 
interest in that each is an employer any of whose employees are covered 
by the Plan, pursuant to section 3(14)(C) of the Act.
    5. In 1950, DOE awarded E.I. du Pont de Nemours and Company (Du 
Pont) a contract to manage the U.S. owned nuclear facility in Aiken, 
South Carolina. During Du Pont's management of the facility from 1950 
until 1989, employees of Du Pont were participants in the Du Pont 
Pension and Retirement Plan (the Du Pont Plan), a defined benefit 
pension plan sponsored and maintained by Du Pont for all eligible 
employees of Du Pont and its wholly-owned subsidiaries. Under the terms 
of a management contract between DOE and Du Pont, DOE was obligated to 
reimburse Du Pont for the cost of funding benefits under the Du Pont 
Plan for employees who worked at the nuclear facility.
    6. It is represented that to fulfill its obligations under the 
management contract with Du Pont, DOE purchased GR-409 from CGLIC in 
1950. GR-409, as amended, is an immediate participation guarantee group 
annuity contract issued by CGLIC. Amounts contributed under GR-409 are 
invested in the defined benefit plan segment of CGLIC's general 
account. Under the terms of GR-409, DOE is entitled, subject to certain 
limitations, to make annual withdrawals without effecting the book 
value of remaining funds. Although only DOE made contributions to GR-
409, the group annuity contract originally named both DOE and Du Pont 
as contractholders.
    It is represented that GR-409 was not an asset of the Du Pont Plan. 
Rather, cash payments from GR-409 received by DOE from CGLIC were used 
by DOE for more than forty (40) years to reimburse Du Pont or to 
directly reimburse the Du Pont Plan for benefit payments made to 
retired employees who had worked at the facility and to their 
beneficiaries.
    7. In 1989, Du Pont's contract to manage the facility expired, and 
subsequently in 1991, DOE and Du Pont agreed on a lump sum settlement 
of retiree benefit costs. Under the terms of the settlement, cash and a 
portion of GR-409 were transferred to the Du Pont Plan to settle DOE's 
contractual obligation respecting the funding of the Du Pont Plan and 
other retiree benefits. It is represented that DOE at that time became 
the sole contractholder of the remaining balance in GR-409.
    8. Subsequent to the termination of the contract with Du Pont, in 
1989, DOE selected WSRC to manage and operate the nuclear facility. At 
that time, WSRC established the Plan which is the subject of this 
exemption request. As the Plan was intended to provide continuity for 
former Du Pont employees who had agreed to remain at the nuclear 
facility as employees of WSRC (the Transferred Employees), WSRC 
designed the Plan to replicate the benefits structure of the Du Pont 
Plan. In this regard, it is represented that in material respects, the 
Plan generally provides the same benefits, rights, and features as the 
Du Pont Plan did in 1989, subject to statutorily mandated revisions. At 
the same time, DOE became obligated, under the terms of a management 
contract between DOE and WSRC (the Prime Contract), to reimburse WSRC 
for all funding contributions made by WSRC to the Plan.
    9. In order to preserve the benefits and service credits of 
Transferred Employees, benefits accrued by Transferred Employees under 
the Du Pont Plan (and liabilities attributable thereto) were spun-off 
to the Plan. In this regard, it is represented that full participation, 
vesting, and accrual credit was granted under the Plan for service 
rendered to Du Pont by the Transferred Employees. In order to 
accomplish the spin-off, on December 30, 1990, the Du Pont Plan entered 
into a trust-to-trust transaction with the Plan that involved $246 
million worth of assets. It is represented that the mechanics of the 
trust-to-trust transfer were as follows. DOE, which was responsible for 
funding the Du Pont Plan for employees at the site, instructed CGLIC to 
issue an annuity contract with a book value of

[[Page 40008]]

$246 million, designated GR-AA, to the Du Pont Plan trust in exchange 
for DOE's surrender of a portion of its annuity contract GR-409. Du 
Pont then immediately instructed Wilmington, the trustee of the Du Pont 
Plan trust, to surrender GR-AA and directed CGLIC to issue IN-16111, an 
immediate participation guarantee group annuity contract, to the Plan's 
trust. Finally, WSRC instructed Wilmington, who until 1993 was also the 
trustee of the Plan's trust, to accept IN-16111 from CGLIC.
    10. It is represented that the Trustee is currently the 
contractholder of IN-16111. Under the terms of such contract, CGLIC is 
obligated to pay retirement benefits provided under the Plan, to the 
extent requested by the Trustee, up to an aggregate amount not to 
exceed the book value of IN-16111. In this regard, the book value of 
IN-16111 is equal to the sum of all contributions to such contract, 
plus accumulated interest, less the sum of all amounts withdrawn from 
IN-16111.
    It is represented that shortly after the acquisition by the Plan of 
IN-16111, a portion of IN-16111 with a book value of $50 million was 
liquidated and the proceeds invested by the Plan in equity securities, 
leaving a remaining book value of $196 million for IN-16111. It is 
represented that CGLIC has advised that the book value of IN-16111, as 
of December 31, 1994, was $137.5 million.
    11. It is represented that WSRC manages the nuclear facility and 
BSRI, a subcontractor to WSRC, provides engineering services and 
manages the construction program at the facility. In this regard, the 
annual budget at the facility totals approximately $1.6 billion, of 
which $900 million represents payroll costs.
    12. Since 1989, pursuant to the terms of the Prime Contract between 
DOE and WSRC, DOE has been obligated to reimburse WSRC for reasonable 
compensation expenses, including all legally required funding 
contributions of the Plan. In this regard, DOE's reimbursement 
obligation extends to both contributions for which WSRC is responsible 
as an employer and contributions which WSRC is required to make on 
behalf of BSRI under WSRC's subcontract with BSRI. DOE is also 
obligated to reimburse WSRC for ``reasonable costs arising from any 
past or future prohibited transaction'' resulting from DOE's actions.
    13. It is represented that DOE originally fulfilled its 
responsibility under the Prime Contract by funding the Plan directly, 
rather than by reimbursing WSRC. In 1989 when the Plan was established, 
DOE contributed cash in the amount of $1.63 million to the Plan to 
cover start-up and other interim costs of the Plan. In this regard, it 
is represented that the initial cash contribution by DOE, plus the 
amount involved in the trust-to-trust transfer, adequately funded the 
Plan for a number of years without any additional contribution. 
Thereafter, in September 1993, in connection with a special early 
retirement program, DOE made, on behalf of WSRC, a cash contribution of 
$16,500,000 to the Plan. Subsequently, DOE made a cash contribution of 
$8,031,573 on April 14, 1994; a cash contribution of an equal amount on 
July 15, 1994; and a cash contribution of $15,293,573 on September 15, 
1994.
    14. Rather than continue to make cash contributions to the Plan, 
beginning in mid-October 1994, DOE in four (4) instances has fulfilled 
its responsibility under the Prime Contract by purchasing from CGLIC 
additional interests in IN-16111 for the Plan. However, on those 
occasions, DOE did not purchase such additional interests in IN-16111 
with cash, but rather surrendered to CGLIC portions of GR-409, as 
consideration for such purchase.
    The mechanics of each of the past transactions was accomplished in 
the following steps. Before a contribution was due, Buck advised WSRC 
of the minimum funding requirement for the Plan. WSRC, in turn, 
notified DOE of the amount of the required contribution. When the 
contribution became due, DOE instructed CGLIC that it wished to 
surrender a portion of its interest in GR-409 with a book value equal 
to the amount of the minimum funding requirement of the Plan to 
purchase additional interests in IN-16111 for the Plan. It is 
represented that both GR-409 and IN-16111 represent derivative 
interests in assets held in the defined benefit segment of the general 
account of CGLIC. Accordingly, when instructed by DOE, CGLIC obliged by 
shifting the interest in a pro rata portion of the assets underlying 
GR-409 (with a book value equal to the amount of the required 
contribution) to IN-16111. In this regard, each transfer increased the 
book value of the Plan's interest in IN-16111 by the amount of the 
required funding contribution. The applicants are concerned that these 
transactions may be viewed as contributions by DOE, on behalf of WSRC 
and BSRI, of interests in GR-409 in consideration of the purchase of 
interests in IN-16111 for the Plan.
    It is represented that in this manner, the following transactions 
totaling $29,811,336 were executed: (1) a quarterly contribution of 
$920,106 due October 15, 1994; (2) a quarterly contribution of 
$5,707,777 due January 15, 1995; (3) a voluntary contribution of 
$6,900,000 due April 14, 1995; and (4) a voluntary contribution of 
$16,283,453 paid on July 17, 1995. At the time of the contributions for 
the plan year of 1994, the book value of the interests in GR-409 
exceeded the fair market value of the assets underlying GR-409. In 
order to bring the Plan's funding standard account into balance for the 
1994 plan year based on the fair market value of the transferred 
interests in GR-409, on July 17, 1995, $4,323,800 of interests at book 
value in GR-409 were used as consideration to purchase additional 
interests in IN-16111 for the Plan. In this regard, it is represented 
that Buck determined this amount based on the fair market value of the 
underlying assets of GR-409, as determined by CGLIC.
    DOE wishes to continue, over the next two (2) years until GR-409 is 
exhausted (projected to be towards the end of 1997), to use GR-409 to 
satisfy its obligations under the Prime Contract to reimburse WSRC for 
the cost of funding the Plan. In this regard, the same procedure, as 
described with respect to the past transactions, will be employed in 
the future, except that all prospective transactions will be based on 
fair market value of the interests at the time of the 
contribution.4 As it did in the past transactions, the Plan in the 
future will assume the book value of the respective interests in GR-409 
which are used as consideration to acquire additional interest in IN-
16111 for the Plan. However, if by the required filing date of the Form 
5500 (including extensions) for any year, the aggregate book value of 
the interests in IN-16111 purchased for the Plan to date is less than 
the aggregate amount credited to the Plan's funding standard account as 
a result of such purchases, DOE will (by the filing date of the Form 
5500 for such year) purchase an additional interest in IN-16111 for the 
Plan that has a book value equal to the shortfall. In this regard, DOE 
would make a cash contribution to the Plan to the extent there were 
insufficient annuity interests to cover the shortfall. This will ensure 
that the aggregate book value of annuity interests in IN-16111 
purchased for the Plan are at least equal to the book value of the

[[Page 40009]]

interests in IN-16111 that could have been purchased for the Plan with 
cash for the purpose of satisfying the minimum funding requirements of 
the Plan.
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    \4\ The applicants represent that regardless of the fact that 
interests in GR-409 and IN-16111 will be valued for funding purposes 
on the fair market value of the underlying assets, all of the 
general account assets of CGLIC stand behind IN-16111. Thus, CGLIC 
is at all times obligated to pay retirement benefits to the Plan, as 
contractholder of IN-16111, to the extent requested by the Trustee, 
up to an aggregate amount not to exceed the book value of IN-16111.
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    15. It is represented that neither DOE nor any of the parties on 
behalf of whom the exemption is sought participated in the past 
transactions knowing that such might be prohibited under the Act or 
under the Code. In the opinion of the applicants, the Plan is not 
actually receiving a contribution of interests in GR-409; instead the 
GR-409 interests are consideration used by DOE to purchase additional 
interests in IN-16111 for the Plan. The funding mechanism in this case 
differs from an ``in-kind contribution'' wherein the thing of value 
that is contributed by the plan sponsor is what in fact the plan 
receives. In this regard, the applicants point out that the interests 
in GR-409 which DOE has surrendered and will surrender to CGLIC, as 
consideration for the purchase of additional interest in IN-16111 for 
the Plan, are not in themselves ``contributions.''
    WSRC and BSRI, acting in their settlor capacities, have elected to 
make contributions to the Plan through the purchase of annuity 
interests. However, rather than purchasing additional annuity interests 
with cash for the Plan, WSRC and BSRI have permitted the purchases by 
DOE in the past and will permit purchases by DOE in the future of 
additional interests in IN-16111 for the Plan. Accordingly, the 
applicants believe that the purchases by DOE of IN-16111 for the Plan 
on behalf of WSRC and BSRI, the sponsors of such Plan, are not properly 
characterized as ``sales or exchanges'' between the plan sponsors and 
the Plan any more than contributions in cash would be so characterized. 
Further, the applicants maintain that the surrenders of portions of GR-
409 by DOE to CGLIC are not transactions between DOE and the Plan 
within the meaning of section 406(a) of the Act or section 4975(c) of 
the Code.
    With respect to the prohibition against fiduciary conflicts of 
interest, as set forth in section 406(b) of the Act, the applicants 
believe that the transactions which are the subject of this exemption 
do not raise conflict of interest issues. In this regard, the 
applicants maintain that WSRC and BSRI are acting in their settlor or 
corporate capacities and not as fiduciaries, in permitting DOE to 
surrender on behalf of WSRC portions of DOE's interests in GR-409 to 
purchase interests in IN-16111 for the Plan. The applicants are also of 
the view that no conflict of interest arises with respect to the 
decision of the Benefits Committee to accept the transactions, because 
the Benefits Committee takes such action solely on behalf of the Plan 
and in the interest of the participants and beneficiaries.
    Notwithstanding the reasoning described in the paragraphs above, it 
is represented that the Benefits Committee and WSRC became concerned in 
March of 1995 that there was a possibility that the transactions could 
be considered to be prohibited. As a result, WSRC promptly sought 
guidance as to the propriety of the transactions and expressed its 
concerns to CGLIC and to DOE. As the Benefits Committee represents that 
it was by no means certain that the transactions were prohibited, it 
was not clear that the Plan had a basis to object. It is further 
represented that the Benefits Committee had no reason to complain of 
the past transactions, as the Plan did not have a stake in whether 
CGLIC collected cash from WSRC or from DOE or in whether CGLIC debited 
a portion of GR-409, as either way the value of the Plan's interest in 
IN-16111 increased by the same amount. Accordingly, the applicants are 
aware that the prohibited transaction issue is not entirely free from 
doubt, and that DOE's interests in GR-409 which are used to purchase 
interests in IN-16111 on behalf of WSRC and BSRI may be viewed as 
contributions to the Plan. As a result, the applicants seek retroactive 
and prospective exemption relief from section 406(a)(1)(A) and 
406(a)(1)(D) of the Act and from section 4975(c)(1)(A) and 
4975(c)(1)(D) of the Code, for past and future transactions involving 
DOE's use of portions of GR-409 for the purpose of purchasing 
additional interests in IN-16111 for the Plan. Further, because the 
decision of the Benefits Committee arguably benefits DOE--by permitting 
DOE to satisfy its obligations under the Prime Contract with interests 
in GR-409 rather than with cash, the applicants seek both retroactive 
and prospective relief from section 406(b)(1) and 406(b)(2) of the Act 
and from section 4975(c)(1)(E) of the Code.
    16. At the request of WSRC, DOE did not make the contribution 
scheduled for October 15, 1995, and has temporarily suspended further 
transactions involving GR-409, pending disposition of the requested 
exemption. Under present law funding requirements, funding for the 1995 
Plan year must be completed by September 15, 1996.
    It is represented that although not a party in interest with 
respect to the Plan, DOE believes its budget would be adversely 
affected if the exemption were not granted. In this regard, if the 
requested exemption is not granted, DOE could not use GR-409 as a 
source of Plan funding. This would upset DOE's settled expectation and 
saddle DOE with an asset that serves no other useful purpose. As a 
result, DOE would be forced to divert scarce resources (i.e., 
congressional appropriations) from other areas of its shrinking budget. 
In addition, it would be particularly disruptive, if DOE were required 
to undo the transactions which have already occurred and to contribute 
cash instead.
    17. It is represented that the past and future transactions for 
which relief is requested represent a relatively small percentage of 
the Plan's assets. In this regard, the four (4) contributions by DOE of 
portions of GR-409 which have already taken place represent less than 
8.1 percent (8.1%) of the total fair market value of the assets of the 
Plan. Further, the sum of the nominal book value of the four (4) 
transactions completed to date equals $29.8 million. With respect to 
future transactions, it is represented that, based on CGLIC's valuation 
and Buck's reasonable projection of WSRC's minimum funding obligations, 
that the sum of the nominal book values of such future transactions 
will equal approximately $94.9 million. In this regard, it is 
anticipated that future uses by DOE of portions of GR-409 will increase 
the total percentage of Plan assets involved in the transactions to 
approximately 24 percent (24%). It is represented that as neither the 
past nor future transactions represents a significant percentage of 
Plan assets, the risk is minimal that any one of them could have 
impaired or will impair the ability of the Plan to pay benefits and 
expenses when due.
    18. It is represented that the Plan has accepted transactions which 
are the subject of this exemption in the past and intends to accept 
such transactions in the future, because it is in the interest of the 
Plan and its participants and beneficiaries to do so. In this regard, 
it is represented that the Benefits Committee has thoroughly reviewed 
the transactions and has concluded that it is prudent and in the 
interest of the Plan and its participants and beneficiaries to accept 
such transactions. Among the elements that the Benefits Committee 
relied upon in support of this conclusion are that: (1) The interests 
have had and will have a fair market value at least equal to WSRC's 
minimum funding obligation and equal to the interests that WSRC could 
otherwise have purchased with cash; (2) the interests have consistently 
generated competitive risk-adjusted rate of returns and are reasonably 
expected to continue to do so; (3) the interests are invested in

[[Page 40010]]

a diversified group of investment grade fixed-income securities and 
commercial mortgages and as such balance the equity portfolio held by 
the Plan's trust; and (4) pursuant to the annual withdrawal provisions 
in IN-16111, the Plan is able to cash out a significant portion of such 
interests each year with no market value adjustment, adding a degree of 
liquidity not generally available under an immediate participation 
guarantee group annuity contract. In addition, it is represented that 
CGLIC is consistently ranked by the major ratings organizations in the 
top echelon of insurance companies.
    19. WSRC maintains that both past and future transactions have been 
structured to protect the interests of the Plan and its participants 
and beneficiaries consistent with the objectives of the Act. In this 
regard, it is represented that Buck, a skilled and reputable pension 
actuarial consulting firm, providing services for employee benefit 
plans with more than $100 million in assets, has determined and will 
determine the amount creditable under the Plan's funding standard 
account. Although Buck does provide actuarial and benefits consulting 
services to WSRC and BSRI, and before 1995, did provide such services 
to Westinghouse Electric Corporation and its plans, it is represented 
that these accounts represented only about 1.5 percent (1.5%) of Buck's 
annual gross revenue in 1994 and less than one percent (1%) in 1995.
    With respect to the transactions which are the subject of this 
exemption, it is represented that as the actuary for the Plan, Buck is 
a service provider to the Plan. In this regard, it is represented that 
Buck's allegiance is to the Plan and that it has carried out and will 
carry out its responsibilities solely in the interest of the Plan and 
its participants and beneficiaries.
    Further, protections are provided in that the fair market value of 
the interests in GR-409 surrendered by DOE have been and will be 
established by CGLIC, a qualified third party. It is represented CGLIC 
has advised that as of December 31, 1994, and July 17, 1995, the book 
value of GR-409 was, respectively, $163.3 million and $110.1 million 
and that the fair market value of GR-409 was $154.4 million, as of 
December 31, 1994, and $109.8 million, as of July 17, 1995.
    It is represented that CGLIC is the entity most qualified to make 
the determination of value of GR-409, because it best understands the 
intricacies of its general account and cell accounting methods, and 
because CGLIC has a well-developed expertise in valuing the fixed 
income securities, commercial mortgage interests, and other interests 
in which the general account is invested. Further, it is represented 
that CGLIC has no motivation to misvalue the interests, because the 
value of the debits to GR-409 have matched and will match exactly the 
value of the credits to IN-16111 received by the Plan. In this regard, 
CGLIC's aggregate liability under the contracts will not change as a 
result of the transfers. Accordingly, it is represented that the 
interests will be fairly valued by CGLIC in a way that protects the 
participants and beneficiaries of the Plan.
    20. The applicants maintain that the transactions which are the 
subject of this exemption are feasible in that the WSRC will bear the 
cost of filing the application for exemption, the cost of notifying 
interested persons, and the expenses associated with the proposed 
transaction. In addition, it is represented that there will be no need 
for the Department to monitor or supervise the transactions, as 
independent qualified third parties have determined and will determine 
the value of the interests and the amount of the minimum funding 
requirements.
    Further, the applicants assert that the facts supporting their 
application are highly unusual and are not likely to be replicated. In 
this regard, it is represented that insurance companies as a rule do 
not offer to non-plan entities annuity contracts that are invested in 
the defined benefit plan segment of such insurance companies separate 
account. As a result, it is not generally possible for a sponsor to 
contribute an annuity interest to a plan that would provide the same 
benefit to the plan as had the sponsor purchased an interest in cash. 
It is represented that to the best of CGLIC's knowledge GR-409, which 
was purchased by DOE in 1950 prior to the passage of the Act, is the 
only group annuity contract issued by CGLIC to a non-plan entity that 
is invested in the defined benefit segment of CGLIC's general account. 
Moreover, neither CGLIC or Buck is aware of any such contract issued by 
any other insurance company.
    21. In summary, the applicants represent that the transactions meet 
the statutory criteria of section 408(a) of the Act because:
    (a) the use by DOE, acting on behalf of WSRC and BSRI, of portions 
of DOE's interests in GR-409 to purchase additional interests in IN-
16111 on behalf of the Plan has benefited and will benefit the Plan to 
the same extent, as contributions of cash by DOE to such Plan;
    (b) the fair market value of the debits to GR-409 that have 
occurred or will occur, as a result of the use of portions of GR-409 by 
DOE for the benefit of the Plan, has exactly matched and will exactly 
match the fair market value of the credits to IN-16111 acquired by the 
Plan as a result of such use;
    (c) the Plan has received and will receive interests in IN-16111 
that have a fair market value equal to the fair market value of the 
interests the Plan would have received had DOE or WSRC purchased 
additional interests in IN-16111 for the Plan for cash;
    (d) the value of the earnings received by the Plan from the 
interests in IN-16111 purchased by DOE with portions of GR-409 has been 
and will be the same, as if those interests were purchased with cash;
    (e) the named fiduciary of the Plan has determined that the 
transactions have been and will be prudent, feasible, and in the 
interest of and protective of the Plan;
    (f) an independent, qualified third party has determined and will 
continue to determine the fair market value of the interests in GR-409, 
as of the date of each purchase transaction;
    (g) the actuary for the Plan has determined and will continue to 
determine the minimum funding requirement of the Plan and has 
determined and will continue to determine the extent to which the 
amount credited to the Plan's funding standard account satisfies the 
minimum funding requirement;
    (h) the actuary of the Plan has monitored and will continue to 
monitor the transactions on behalf of the Plan, as well as the terms 
and conditions of the exemption at all times;
    (i) no more than 25% of the assets of the Plan have been or will be 
involved in the transactions;
    (j) the Plan has not, nor will the Plan in the future, incur any 
fees, costs, or other charges or expenses as a result of the 
transactions; and
    (k) if, by the required filing date of the Form 5500 (including 
extensions) for any year, the aggregate book value of the interests in 
IN-16111 purchased for the Plan is less than the aggregate amount 
credited to the Plan's funding standard account as a result of such 
purchases, DOE will (by the filing date of the Form 5500 for such year) 
purchase an additional interest in IN-16111 for the Plan that has a 
book value equal to the shortfall or contribute cash in the amount of 
such shortfall.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested

[[Page 40011]]

exemption include, but are not limited to, all active WSRC employees 
participating in the Plan, all retired or separated participants either 
receiving or entitled to receive benefits, all beneficiaries of 
deceased participants who are receiving or are entitled to receive 
benefits, and all unions representing active BSRI employees who 
participate in the Plan. It is represented that these various classes 
of interested persons will be notified within four (4) business days 
from the date of the publication of the Notice of Proposed Exemption 
(the Notice) in the Federal Register, either by mailing first-class or 
by posting a photocopy of the Notice, plus a copy of the supplemental 
statement (the Supplemental Statement), in the form set forth in the 
Department's regulations under 29 CFR 2570.43(b)(2). In this regard, 
notification will be provided to all retired or separated participants 
either receiving or entitled to receive benefits, and to all 
beneficiaries of deceased participants who are receiving or are 
entitled to receive benefits, by first-class mail to their last known 
mailing address of a copy of the Notice and a copy of the Supplemental 
Statement. Active participants will be provided with notification by 
posting a copy of the Notice and a copy of the Supplemental Statement 
at all WSRC locations, in areas that are customarily used for notices 
to employees with regard to employee benefits or labor relations 
matters. WSRC shall also seek to post a copy of the Notice and a copy 
of the Supplemental Statement at the offices of the unions that 
represent BSRI active employees who participate in the Plan.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Operating Engineers Local 150 Apprenticeship Fund (the Plan) Located in 
Plainfield, Illinois

[Application No. L-10279]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 C.F.R. Part 2570, Subpart B (55 F.R. 32836, 
32847, August 10, 1990). If the exemption is granted the restrictions 
of sections 406(a), 406 (b)(1) and (b)(2) of the Act shall not apply to 
the proposed sale by the Plan of a parcel of unimproved real property 
in Will County, Illinois (the Property) to the International Union of 
Operating Engineers Local 150, AFL-CIO (the Union), a party in interest 
with respect to the Plan; provided the following conditions are 
satisfied:
    (A) All terms of the transaction are at least as favorable to the 
Plan as those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (B) The Plan incurs no costs or expenses related to the 
transaction; and
    (C) The Plan receives a purchase price no less than the greater of 
(1) $65,000, or (2) the fair market value of the Property as of the 
sale date.

Summary of Facts and Representations

    1. The Plan is an employee welfare plan as described in section 
3(c) of the Act with total assets of approximately $6,492,242 as of 
December 31, 1995. The Plan provides training and skill improvement for 
members of the Union, and during 1995 the Plan provided such services 
to approximately 600 apprentices and 5,493 journeymen. The Plan is 
sponsored by the Union and several employer associations, all of which 
appoint trustees to the Plan. The Plan's board of trustees (the 
Trustees) consists of an equal number of representatives of the Union 
and representatives of participating employers.
    2. Among the assets of the Plan are two adjacent parcels of land 
located in the Lockport Township of Will County, Illinois, constituting 
approximately 104.11 acres (the Land). The Land consists of Parcel 1, 
consisting of 8.54 acres, and Parcel 2, consisting of 95.57 acres. The 
Land was purchased by the Trustees for the Plan from unrelated parties 
in 1978 at $2,401.30 per acre, for a total purchase price of $250,000.
    3. The Trustees represent that all of the Land except Parcel 1 has 
been utilized in the Plan's training program for the operation of heavy 
equipment, garages for equipment repair and maintenance, and classroom/
administration buildings. The Trustees represent that the physical 
configuration of Parcel 1 renders it too narrow for the operation of 
heavy equipment and that, accordingly, Parcel 1 has been utilized 
solely to provide convenient access to the Land from Weber Road, a 
major thoroughfare which is east of the Land. Parcel 1 has remained 
vacant and unimproved since its acquisition by the Plan. Adjacent to 
Parcel 1 on the north is a parcel of land owned by the Union (the Union 
Land), on which the Union intends to build a new administration 
building (the New Building). The Union would like to utilize part of 
Parcel 1 for the New Building and has asked the Trustees to sell a 
portion of Parcel 1 for this purpose. The Union is proposing to 
purchase 7.02 acres of Parcel 1 (the Property) from the Plan, leaving 
the Plan with ownership of the remaining 1.52 acres necessary for 
continued access between Parcel 2 and Weber Road. The Trustees have 
adopted a resolution providing for the sale of the Property to the 
Union, and are requesting an exemption to enable this sale transaction 
under the terms and conditions described herein.
    4. After the Trustees received the request of the Union to purchase 
the Property, the Property was appraised for its fair market value by 
independent professional real property appraisers. According to an 
appraisal performed by Gadd, Tibble & Associates, Inc. (Gadd Tibble), 
as of October 30, 1995 the Property had a fair market value of $65,000, 
or approximately $9259.26 per acre. In another appraisal, Shetina 
Appraisal Company determined that as of December 20, 1995 the Property 
had a fair market value of $45,630, or $6,500 per acre.
    The Union proposes to purchase the Property for cash in the amount 
of no less than $65,000, the Property's fair market value determined in 
the Gadd Tibble appraisal. In a supplement to the Gadd Tibble 
appraisal, Roger F. Tibble, MAI, states that the Union's ownership of 
adjacent property, and the intention to use the Property in the 
construction project on the Union Property, do not warrant a higher 
valuation of the Property to the Union as purchaser, as opposed to an 
unrelated purchase, because the Property is not necessary for the 
intended construction project and the Union is able to proceed with 
construction of the intended improvements without the Property. Mr. 
Tibble represents that while the Property would provide the new Union 
building with additional access to Weber Road, the Union Property 
already has sufficient access to Weber Road for the project.
    Commensurate with the sale transaction, the Gadd Tibble appraisal 
shall be updated as of the sale date, and the purchase price will be 
increased accordingly if Gadd Tibble determines that the Property's 
fair market value has increased since its appraisal of October 30, 
1995. The Plan will not incur any expenses in relation to the purchase 
transaction.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the criteria of section 408(a) of the Act for the 
following reasons: (a) The sale will be a one-time cash transaction and 
the Plan will incur no expenses related to the sale; (b) The Plan will 
receive a purchase price for the Property in the amount of no less than 
its fair market value as of the sale

[[Page 40012]]

date, and in no event less than $65,000; and (c) The transaction will 
enable the Plan to liquidate most of Parcel 1, which is too narrow for 
training uses, while retaining enough of Parcel 1 for continued use as 
Parcel 2 access to a major thoroughfare.

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

General Information

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

    Signed at Washington, DC, this 26th day of July, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 96-19481 Filed 7-30-96; 8:45 am]
BILLING CODE 4510-29-P