[Federal Register Volume 62, Number 32 (Tuesday, February 18, 1997)]
[Notices]
[Pages 7268-7275]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-3837]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application Nos. D-10192, L-10193 through L-10196, et al.]


Proposed Exemptions ILGWU National Retirement Fund, et al. 
(Collectively the Plans)

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

    Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing 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.

[[Page 7269]]

ILGWU National Retirement Fund, et al. (collectively, the Plans), 
Located in New York, New York

[Application Nos. D-10192, L-10193 through L-10196]

Proposed Exemption

Section I--Transactions

    The restrictions of sections 406(a), 406 (b)(1) and (b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, 
shall not apply, effective July 1, 1995, to--
    (A) The provision of banking services (Banking Services, as defined 
in section IV(C)) by the Amalgamated Bank of New York (the Bank) to 
certain employee benefit plans (the Plans, as defined in section 
IV(E)), which are maintained on behalf of members of the International 
Ladies Garment Workers Union;
    (B) The purchase by the Plans of certificates of deposit (CDs) 
issued by the Bank; and
    (C) The deposit of Plans' assets in money market or other deposit 
accounts established by the Bank; provided that the applicable 
conditions of Section II and Section III are met:

Section II--Conditions

    (A) The terms under which the Banking Services are provided by the 
Bank to the Plans, and those under which the Plans purchase CDs from 
the Bank or maintain deposit accounts with the Bank, are at least as 
favorable to the Plans as those which the Plans could obtain in arm's-
length transactions with unrelated parties.
    (B) The interests of each of the Plans with respect to the Bank's 
provision of Banking Services to the Plans, the purchase of CDs from 
the Bank by any of the Plans, and the deposit of Plan assets in deposit 
accounts established by the Bank, are represented by an Independent 
Fiduciary (as defined in section IV(D)).
    (C) With respect to each Plan, the representation of the Plan's 
interests by the Independent Fiduciary is authorized, and confirmed at 
least annually, by the Authorizing Plan Fiduciary (as defined below in 
section IV(A));
    (D) With respect to the purchase by any of the Plans of 
certificates of deposit (CDs) issued by the Bank or the deposit of Plan 
assets in a money market account or other deposit account established 
at the Bank: (1) Such transaction complies with the conditions of 
section 408(b)(4) of the Act; (2) Any CD offered to the Plans by the 
Bank is also offered by the Bank in the ordinary course of its business 
with unrelated customers; and (3) Each CD purchased from the Bank by a 
Plan pays the maximum rate of interest for CDs of the same size and 
maturity being offered by the Bank to unrelated customers at the time 
of the transaction;
    (E) The compensation received by the Bank for the provision of 
Banking Services to the Plan is not in excess of reasonable 
compensation within the meaning of section 408(b)(2) of the Act.
    (F) Following the merger of the International Ladies Garment 
Workers Union with UNITE, the Independent Fiduciary made an initial 
written determination that (1) the Bank's provision of Banking Services 
to the Plans, (2) the deposit of Plan assets in depository accounts 
maintained by the Bank, and (3) the purchase by the Plans of CDs from 
the Bank, are in the best interests and protective of the participants 
and beneficiaries of each of the Plans.
    (G) On a periodic basis, not less frequently than quarterly, the 
Bank provides the Independent Fiduciary with a written report (the 
Periodic Report) which includes the following items with respect to the 
period since the previous Periodic Report: (1) A listing of Banking 
Services provided to, all outstanding CDs purchased by, and deposit 
accounts maintained for each Plan; (2) a listing of all fees paid by 
the Plans to the Bank for the Banking Services, (3) the performance of 
the Bank with respect to all investment management services, (4) a 
description of any changes in the Banking Services, (5) an explanation 
of any problems experienced by the Bank in providing the Banking 
Services, (6) a description of any material adverse events affecting 
the Bank, and (7) any additional information requested by the 
Independent Fiduciary in the discharge of its obligations under this 
exemption.
    (H) On a periodic basis, not less frequently than annually, the 
Independent Fiduciary reviews the Banking Services provided to each 
Plan by the Bank, the compensation received by the Bank for such 
services, any purchases by the Plan of CDs from the Bank, and any 
deposits of assets in deposit accounts maintained by the Bank, and 
makes the following written determinations:
    (1) The services, CDs and depository accounts are necessary or 
appropriate for the establishment or operation of the Plan;
    (2) The Bank is a solvent financial institution and has the 
capability to perform the services;
    (3) The fees charged by the Bank are reasonable and appropriate;
    (4) The services, the depository accounts, and the CDs are offered 
to the Plan on the same terms under which the Bank offers the services 
to unrelated Bank customers in the ordinary course of business;
    (5) Where the Banking Services include an investment management 
service, that the rate of return is not less favorable to the Plan than 
the rates on comparable investments involving unrelated parties; and
    (6) The continuation of the Bank's provision of Banking Services to 
the Plan for compensation is in the best interests and protective of 
the participants and beneficiaries of the Plan.
    (I) Copies of the Bank's periodic reports to the Independent 
Fiduciary are furnished to the Authorizing Plan Fiduciaries on a 
periodic basis, not less frequently than annually and not later than 90 
days after the period to which they apply.
    (J) The Independent Fiduciary is authorized to continue, amend, or 
terminate, without any penalty to any Plan (other than the payment of 
penalties required under federal or state banking regulations upon 
premature redemption of a CD), any arrangement involving: (1) The 
provision of Banking Services by the Bank to any of the Plans, (2) the 
deposit of Plan assets in a deposit account maintained by the Bank, or 
(3) any purchases by a Plan of CDs from the Bank;
    (K) The Authorizing Plan Fiduciary may terminate, without penalty 
to the Plan (other than the payment of penalties required under federal 
or state banking regulations upon premature redemption of a CD), the 
Plan's participation in any arrangement involving: (1) The 
representation of the Plan's interests by the Independent Fiduciary, 
(2) the provision of Banking Services by the Bank to the Plan, (3) the 
deposit of Plan assets in a deposit account maintained by the Bank, or 
(4) the purchase by the Plan of CDs from the Bank.

Section III--Recordkeeping

    (A) For a period of six years, the Bank and the Independent 
Fiduciary will maintain or cause to be maintained all written reports 
and other memoranda evidencing analyses and determinations made in 
satisfaction of conditions of this exemption, except that: (a) A 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of the Independent Fiduciary and 
the Bank the records are lost or destroyed before the end of the six-
year period; and (b) no party in interest other than the Bank and

[[Page 7270]]

the Independent Fiduciary shall be subject to the civil penalty that 
may be assessed under section 502(i) of the Act, or to the taxes 
imposed by section 4975 (a) and (b) of the Code, if the records are not 
maintained, or are not available for examination as required by 
paragraph (2) below;
    (B)(1) Except as provided in section (2) of this paragraph (B) and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (A) of this 
section III shall be unconditionally available at their customary 
location during normal business hours for inspection by: (a) Any duly 
authorized employee or representative of the U.S. Department of Labor 
or the Internal Revenue Service, (b) any employer participating in the 
Plans or any duly authorized employee or representative of such 
employer, and (c) any participant or beneficiary of the Plans or any 
duly authorized representative of such participant or beneficiary.
    (2) None of the persons described in subsections (b) and (c) of 
subsection (1) above shall be authorized to examine trade secrets of 
the Independent Fiduciary or the Bank, or any of their affiliates, or 
any commercial, financial, or other information that is privileged or 
confidential.

Section IV--Definitions

    (A) ``Authorizing Plan Fiduciary'' means, with respect to each 
Plan, the board of trustees of the Plan or other appropriate plan 
fiduciary with discretionary authority to make decisions with respect 
to the investment of Plan assets;
    (B) ``Bank'' means the Amalgamated Bank of New York;
    (C) ``Banking Services'' means custodial, safekeeping, checking 
account, trustee services, and investment management services involving 
fixed income securities (either directly or through a collective 
investment fund maintained by the Bank).
    (D) ``Independent Fiduciary'' means a person, within the meaning of 
section 3(9) of the Act, who (1) Is not an affiliate of the Union of 
Needletrades, Industrial & Textile Employees (UNITE) and any successor 
organization thereto by merger, consolidation or otherwise, (2) is not 
an officer, director, employee or partner of UNITE, (3) is not an 
entity in which UNITE has an ownership interest, (4) has no 
relationship with the Bank other than as Independent Fiduciary under 
this exemption, and (5) has acknowledged in writing that it is acting 
as a fiduciary under the Act. No person may serve as an Independent 
Fiduciary for the Plans for any fiscal year in which the gross income 
(other than fixed, non-discretionary retirement income) received by 
such person (or any partnership or corporation of which such person is 
an officer, director, or ten percent or more partner or shareholder) 
from UNITE and the Plans for that fiscal year exceed five percent of 
such person's annual gross income from all sources for the prior fiscal 
year. An affiliate of a person is any person directly or indirectly, 
through one or more intermediaries, controlling, controlled by, or 
under common control with the person. The term ``control'' means the 
power to exercise a controlling influence over the management or 
policies of a person other than an individual. Initially, the 
Independent Fiduciary is U.S. Trust Company of California, N.A.
    (E) ``Plans'' means any of the following employee benefit plans, 
and their successors by reason of merger, spin-off or otherwise:

International Ladies Garment Workers Union Nation Retirement Fund;
International Ladies Garment Workers Union Death Benefit Fund;
Health Fund of New York Coat, Suit, Dress, Rainwear & Allied Workers 
Union, ILGWU;
Health & Vacation Fund, Amalgamated Ladies Garment Cutters Union, Local 
10;
ILGWU Eastern States Health & Welfare Fund;
ILGWU Office, Clerical & Misc. Employee Retirement Fund;
ILGWU Retirement Fund, Local 102;
Union Health Center Staff Retirement Fund;
Unity House 134 HREBIU Plan Fund;
Puerto Rican Health & Welfare Fund;
Health & Welfare Fund of Local 99, ILGWU;
Local 99 Exquisite Form Industries, Inc. Severance Fund;
Local 99 K-Mart Severance Fund;
Local 99 Kenwin Severance Fund;
Local 99 Lechters Severance Fund;
Local 99 Eleanor Shops Severance Fund;
Local 99 Monette Severance Fund;
Local 99 Moray, Inc. Severance Fund;
Local 99 Petri Stores, Inc. Severance Fund;
Local 99 Netco, Inc. Severance Fund;
Local 99 Misty Valley, Inc. Severance Fund; and
Local 99 Norstan Apparel Shops, Inc. Severance Fund

    (F) ``UNITE'' means the Union of Needletrades, Industrial & Textile 
Employees and any successor organization thereto by merger, 
consolidation or otherwise.

EFFECTIVE DATE: This exemption, if granted, shall be effective as of 
July 1, 1995.

Summary of Facts and Representations

    1. The Plans are pension and welfare benefit plans established 
pursuant to collective bargaining agreements to provide benefits to 
active members, retired members and staff of the International Ladies 
Garment Workers Union (ILGWU) and its local unions. At various times 
prior to July 1, 1995, each of the Plans had retained and commenced to 
utilize the banking services of the Amalgamated Bank of New York (the 
Bank), a New York state-chartered commercial bank located in New York, 
New York. The services for which the Plans contracted with the Bank 
have included custodial, safekeeping, checking account, trustee, and 
fixed-income investment management services. The Plans have also 
purchased certificates of deposit issued by the Bank and utilized the 
Bank's money market and other deposit accounts. The Plans have used 
varying combinations of the services offered by the Bank. For example, 
as of July 1, 1995, six of the Plans were using the Banks's investment 
management services of a fixed-income nature; six Plans were using the 
Bank's custodial services, some in conjunction with the investment 
management services; seven Plans were using the Bank's safekeeping 
services; and one Plan held certificates of deposit issued by the Bank.
    When these service-provision relationships between the Bank and the 
Plans were established, prior to July 1, 1995, all of the common stock 
of the Bank was held by or on behalf of the General Office of the 
Amalgamated Clothing and Textile Workers Union (ACTWU), local unions 
and joint boards of ACTWU, and individuals related to ACTWU. Prior to 
July 1, 1995, ACTWU and ILGWU were not related. Thus, the Bank 
represents that prior to July 1, 1995, the Bank was a party in interest 
with respect to the Plans solely by reason of the provision of services 
to the Plans and not by reason of any ownership of interests in the 
Bank by ILGWU or the Plans.
    2. Effective July 1, 1995 (the Consolidation Date), ACTWU and the 
ILGWU merged and formed a consolidated organization, the Union of 
Needletrades, Industrial and Textile Employees (UNITE). Under the 
agreement governing the merger (the Agreement), UNITE is deemed to be a 
consolidation and continuation of ILGWU and ACTWU and their respective 
affiliates. Neither ACTWU nor ILGWU is deemed to have been

[[Page 7271]]

dissolved or terminated by the consolidation, and each is treated under 
the Agreement as a ``constituent member'' of UNITE. As part of the 
consolidation, new Bank stock was issued to UNITE and Bank stock 
previously held in the name of ACTWU was transferred to and registered 
in the name of UNITE. Pursuant to the Agreement, the president of UNITE 
appointed ten new members of the Bank's board of directors to reflect 
the participation of ILGWU in the ownership of the Bank, and all of the 
newly-appointed Bank directors are trustees of one or more of the 
Plans. The Bank represents that as a result of the consolidation 
pursuant to the Agreement, the Bank became more than fifty percent 
(50%) owned by an employee organization whose members are covered by 
the Plans, and therefore the Bank became a party in interest with 
respect to the Plans by reason of the ownership of the Bank by UNITE.
    3. The Bank is requesting an exemption to permit the continuation, 
after the Consolidation Date, of the Bank's provision to the Plans of 
the banking services which had been provided to the Plans prior to the 
Consolidation Date, under the terms and conditions described herein. 
The services which the Bank will be authorized to continue to provide 
to the Plans are defined in the exemption as (1) services identified in 
the exemption as Banking Services, consisting of custodial, 
safekeeping, checking account, trustee services, and investment 
management services involving fixed income securities (either directly 
or through a collective investment fund maintained by the Bank); (2) 
the purchase by the Plans of certificates of deposit (CDs) issued by 
the Bank; and (3) the deposit of Plans' assets in money market or other 
deposit accounts established by the Plan. Hereafter, references to 
Banking Services will include all three types of services provided to 
the Plans by the Bank.
    4. Under the exemption, with respect to the proposed continuation 
of the Bank's provision of Banking Services to the Plan, the interests 
of the Plans and their participants and beneficiaries must be 
represented by a fiduciary which is independent of and unrelated to the 
Bank (the Independent Fiduciary). The exemption defines the Independent 
Fiduciary as a person (within the meaning of section 3(9) of the Act) 
who has acknowledged in writing its fiduciary capacity under the Act 
and who is unrelated to the Bank and UNITE other than as Independent 
Fiduciary under this exemption. Under the terms of the exemption, the 
Independent Fiduciary is required to conduct an initial evaluation of 
the Banking Services to determine whether their continued provision to 
the Plans after the Consolidation Date is in the best interests and 
protective of the participants and beneficiaries of the Plans, and 
thereafter to monitor and oversee the relationships between the Plans 
and the Bank, representing the Plans' interests therein and conducting 
ongoing periodic evaluations and determinations as to whether the 
Bank's provision of Banking Services to the Plans continues to be in 
the best interests and protective of the Plans. The Independent 
Fiduciary's authority includes the ability to continue, amend or 
terminate, without penalty to a Plan (other than a penalty required for 
early redemption of a CD) any arrangement under which the Bank provides 
the Banking Services to any of the Plans. On a periodic basis no less 
frequent than annually, the Independent Fiduciary is required to review 
the Banking Services provided to each Plan by the Bank, the 
compensation received by the Bank for such services, any purchases by 
the Plan of certificates of deposit (CDs) from the Bank, and any 
deposits of assets in deposit accounts maintained by the Bank, and to 
make a number of written determinations, more fully described in 
section II(H) of the proposed exemption, constituting an analysis of 
whether the Bank's provision of Banking Services to the Plans continues 
to be in the best interests and protective of the participants and 
beneficiaries of the Plans. To enable the Independent Fiduciary to 
fulfill its obligations under the exemption, the Bank is required to 
provide information (listed in section II(G) of the proposed exemption) 
in writing to the Independent Fiduciary no less frequently than 
quarterly, relating to identification and description of the Banking 
Services and the circumstances under which they are rendered. The 
exemption requires that the compensation received by the Bank for the 
provision of services to the Plans is not in excess of reasonable 
compensation within the meaning of section 408(b)(2) of the Act.
    5. With respect to each Plan, the exemption requires that the 
representation of the Plan's interests by the Independent Fiduciary 
regarding the Bank's provision of Banking Services to the Plan is 
authorized and confirmed at least annually by the Plan's board of 
trustees or other appropriate Plan fiduciary with authority to make 
decisions with respect to the investment of Plan assets (the 
Authorizing Plan Fiduciary). The Authorizing Plan Fiduciary of each 
Plan must be furnished copies of the Bank reports to the Independent 
Fiduciary no less frequently than annually and no later than 90 days 
after the period to which they apply. The exemption provides that the 
Authorizing Plan Fiduciary may terminate, without penalty to the Plan 
(other than a penalty required for early redemption of a CD), the 
Plan's participation in any arrangement involving the representation of 
the Plan's interests by the Independent Fiduciary or the provision of 
Banking Services by the Bank.
    6. The exemption requires the Bank and the Independent Fiduciary to 
maintain all written reports and other memoranda evidencing analyses 
and determinations made in satisfaction of the conditions of the 
exemption. The Plans which are covered by the exemption are identified 
in section IV(E) of the exemption. The effective date of the exemption 
will be July 1, 1995, the Consolidation Date.
    7. The U.S. Trust Company of California, N.A. (U.S. Trust) was 
appointed by the Plans (the Appointment) effective July 28, 1995 to 
serve in the capacity of Independent Fiduciary on behalf of the Plans 
with respect to the Bank's provision of the Banking Services to the 
Plans in accordance with the exemption, pursuant to an agreement signed 
and formalized on September 21, 1995 between the Plans, the Bank and 
U.S. Trust. With assets under management totalling approximately $53 
billion, U.S. Trust represents that it has extensive trust and 
management capabilities, including discretionary asset management, 
asset allocation and diversification, investment advice, securities 
trading and independent fiduciary assignments under the Act. U.S. Trust 
represents that immediately upon the Appointment, it undertook a review 
and assessment of the Banking Services and made a preliminary 
determination that the Banking Services were appropriate and adequate 
to satisfy the Plans' banking needs, until a more thorough review and 
assessment could be completed. U.S. Trust represents that it has 
completed this thorough review and assessment with the professional 
assistance of the consulting firm of Towers Perrin (Towers Perrin). 
Towers Perrin, an international firm of consultants and consulting 
actuaries, represents that it is a registered investment advisor under 
the Investment Advisors Act of 1940, providing a broad range of 
services for investment management evaluation and performance 
measurement. U.S. Trust

[[Page 7272]]

represents that in its review and assessment of the Bank and the 
Banking Services provided to the Plans, U.S. Trust gathered information 
from various sources, including various operations of the Bank, the 
Bank's legal counsel, the Plans, and Towers Perrin. U.S. Trust 
represents that its representatives and those of Towers Perrin met with 
various officers of the Bank including the Bank's Chief Executive 
Officer and Chief Investment Officer. U.S. Trust represents that it 
also utilized a written report by Towers Perrin, prepared at the 
request of U.S. Trust, specifically analyzing the investment management 
services which the Bank has provided the Plans.
    8. U.S. Trust has made various findings and determinations with 
respect to the Bank and the provision of Banking Services to the Plans 
which are summarized as follows:
    Financial condition of the Bank: U.S. Trust represents that it 
examined the Bank as a whole, from a financial point view. U.S. Trust 
states that it found the Bank's assets to be liquid and secure, with 82 
percent of assets invested in AAA-rated securities and only 7.4 percent 
invested in loans. U.S. Trust represents that the duration positioning 
of the Bank's assets and liabilities is managed such that, when 
considered in conjunction with the liquidity of the Bank's assets, 
interest rate changes will have a minimal effect on the Bank's income. 
U.S. Trust concludes that the Bank is operated very conservatively and 
is very well capitalized and solvent.
    Custodial and safekeeping services: U.S. Trust represents that it 
determined that the Bank possesses adequate capability to perform all 
custodial and safekeeping services needed by the Plans, utilizing both 
the Bank's own personnel and facilities as well as the contract 
services of qualified third parties for certain data processing and 
sub-custodial services. U.S. Trust determined that these services as 
provided to the Plans are offered by the Bank to the public in the 
ordinary course of business. U.S. Trust states that the fee schedules 
of the Bank for these services are reasonable, based on industry 
standards, and that the actual fees charged the Plans for custodial 
services are lower than the scheduled fees. U.S. Trust concludes that 
the Bank's provision of custodial and safekeeping services to the Plan 
is reasonable and appropriate.
    Certificates of deposit (CDs), money market accounts and checking 
accounts: U.S. Trust determined that the Bank has the capability to 
offer CDs and money market and other deposit account services as needed 
by any of the Plans, and that the Bank offers these same services to 
the general public in the ordinary course of its business. U.S. Trust 
states that the fees are reasonable, because no fees are charged with 
respect to CDs and money market accounts and the Bank customarily does 
not charge the Plans fees for checking accounts. U.S. Trust represents 
that at the time of its review, the rates of return on CDs, as 
published in the Wall Street Journal, were lower than the rates paid by 
the Bank on CDs with the same or shorter maturities. U.S. Trust states 
that the rate paid by the Bank on its money market account also appears 
to be reasonable, based on U.S. Trust's experience and investigation, 
although there are no indices or published rates to use in comparison. 
Considering all the information obtained, U.S. Trust concludes that the 
Plans' utilization of the Bank for CDs and money market and other 
deposit account services is reasonable and appropriate.
    Investment Management Services: U.S. Trust represents that it 
reviewed and evaluated the fixed-income investment products offered by 
the Bank to the Plans, which are of three categories:
    (1) A short-term bond fund (the Short-Term Product) with an average 
duration of 1.7 years in 1995, investing primarily in U.S. Treasury and 
government agency securities, in which four Plans have invested a total 
of $111.6 million;
    (2) A bond fund with an average duration of 3.4 years in 1995 (the 
Intermediate-Duration Product) investing primarily in U.S. Treasury and 
government agency securities and corporate bonds, in which one Plan has 
invested a total of $2.5 million; and
    (3) A bond fund designed for longer term investors (the Core 
Duration Product) with an average duration of 4.6 years in 1995, 
investing primarily in U.S. Treasury and government securities, 
corporate bonds, and mortgage-backed securities, in which one Plan has 
invested a total of $24.1 million.

U.S. Trust represents that in its review and evaluation of these 
investment products, it utilized an extensive report prepared by Towers 
Perrin regarding the products, and attended due diligence meetings with 
various officers of the Bank. U.S. Trust states that it analyzed the 
Bank's investment process, personnel, performance results, fees, 
product and personnel growth, representative clients, historical 
portfolio characteristics and a current portfolio contents summary. 
U.S. Trust represents that in the course of its review it determined 
that the Bank maintains the capability to provide these investment 
management services competently, that the services are offered by the 
Bank to the public in the ordinary course of business, and that the 
fees for the services are reasonable based on industry norms taking 
into account the experience and reputation of the Bank. U.S. Trust 
states that it determined that additional costs to the Plans, 
approximating $80,000, would likely result from a decision to replace 
the Bank as the provider of these investment management services. With 
respect to each of these three categories of investment products, U.S. 
Trust made specific determinations regarding the rates of return 
provided and arrived at specific conclusions as to whether the 
investment products were appropriate for the Plans, summarized as 
follows:
    (1) The Short-Duration Product has consistently outperformed its 
benchmark index, the Merrill Lynch 1-3 Year Treasury Index, earning 8.4 
percent per year over the past seven years on an annualized basis, 
while being conservatively managed and maintaining a high quality of 
investment assets. U.S. Trust notes that the Bank has represented that 
the investment strategy of this product will remain unchanged. U.S. 
Trust has determined that the investment of assets of the Plans in the 
Short-Duration Product is reasonable and appropriate.
    (2) The Intermediate-Duration Product's cumulative performance over 
the past seven years is very close to its benchmark, the Lehman 
Intermediate Government/Corporate Index, and U.S. Trust determined that 
this product is capable of generating returns above its benchmark. U.S. 
Trust notes that the investment parameters of this product have 
recently changed to include investments in corporate bonds and that it 
has since demonstrated an ability to enhance returns. Because this 
product has been managed under its current guidelines for a relatively 
short period of time, U.S. Trust has concluded that the selection of 
this product by certain of the Plans is reasonable and appropriate for 
one more year, after which time another year's investment results will 
be available for consideration and U.S. Trust will undertake a 
reassessment of whether this product remains reasonable and appropriate 
for investments by the Plans.
    (3) U.S. Trust found that the Core Duration Product outperformed 
its benchmark, the Lehman Aggregate Index, for 1995 and that its 
investment parameters were recently changed to expand duration and 
maturity restrictions and include corporate bonds

[[Page 7273]]

and asset-backed securities among its investment assets. U.S. Trust 
concludes that the selection of this product by certain of the Plans is 
reasonable and appropriate for one more year, after which time another 
year's investment results will be available for consideration and U.S. 
Trust will undertake a reassessment of whether this product remains 
reasonable and appropriate for investments by the Plans.
    Conclusion: As a conclusion to its review and analysis, U.S. Trust 
states that in view of the information discussed above and U.S. Trust's 
judgment with respect thereto, subject to the limitations discussed 
regarding the Intermediate and Core Duration Products, U.S. Trust 
believes it is in the best interests of the Plans to use the investment 
management and other banking services provided by the Bank.
    9. In summary, the applicant represents that the proposed exemption 
satisfies the criteria of section 408(a) of the Act for the following 
reasons: (a) The interests of the Plans with respect to the Bank and 
its provision of services to the Plans are represented by an 
Independent Fiduciary, U.S. Trust; (b) The representation of each 
Plan's interests by the Independent Fiduciary with respect to the Bank 
and its provision of services is authorized annually by the Plan's 
Authorizing Plan Fiduciary; (c) U.S. Trust has reviewed and evaluated 
the entire range of services provided by the Bank to the Plans and has 
determined that it is in the best interests of the Plans to utilize 
such services; (d) The Independent Fiduciary will oversee and monitor 
the Bank's provision of services to the Plans and will make written 
determinations at least annually regarding the continuation of such 
provision of services; (e) At least quarterly, the Bank is required to 
submit a Periodic Report to the Independent Fiduciary which relates 
relevant details of the services provided by the Bank to any of the 
Plans; (f) The Authorizing Plan Fiduciary will be provided copies of 
the Bank's Periodic Reports to the Independent Fiduciary; (g) With 
respect to each Plan, the Authorizing Plan Fiduciary is authorized to 
terminate the representation of the Plan's interests by the Independent 
Fiduciary or the provision of any services to the Plan by the Bank; and 
(h) With respect to each Plan, the Independent Fiduciary is authorized 
to continue, amend or terminate the Bank's provision of any services to 
the Plan by the Bank.

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

Hawaiian Airlines, Inc. Pilots' 401(k) Plan (the Pilots' Plan), 
Hawaiian Airlines, Inc. 401(k) Plan for Flight Attendants (the 
Attendants' Plan), and Hawaiian Airlines, Inc. 401(k) Savings Plan (the 
Savings Plan; collectively the Plans) Located in Honolulu, Hawaii

[Application Nos. D-10380, D-10381, and D-10382]

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), 
and 407(a) 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 acquisition by 
the Plans of certain transferable stock rights (the Rights) pursuant to 
a stock rights offering (the Offering) to the Plans by Hawaiian 
Airlines, Inc. (the Employer), the sponsor of the Plans; (2) the past 
holding of the Rights by the Plans during the subscription period of 
the Offering; and (3) the disposition or exercise of the Rights by the 
Plans provided the following conditions are satisfied:
    (A) The acquisitions and holding of the Rights by the Plans 
occurred in connection with the Offering made available to all 
shareholders of the common stock of the Employer; (B) The acquisition 
and holding of Rights by the Plans resulted from an independent act of 
the Employer as a corporate entity and all holders of the common stock 
of the Employer, including the Plans, were treated in the same manner 
with respect to the Offering; and (C) All decisions regarding the 
holding and disposition of the Rights by the Plans were made in 
accordance with provisions of the Plans for individually-directed 
investment of participant accounts by the individual participants of 
the Plans whose accounts in the Plans received Rights in connection 
with the Offering, including all determinations regarding the exercise 
or sale of the Rights received through the Offering, and if no timely 
instructions concerning the Rights were given by participants of the 
Plans, the Rights were sold.

Effective Date: This exemption if granted, will be effective as of 
August 7, 1996.

Summary of Facts and Representations

    1. The Employer, a Hawaii corporation since 1929, is located in 
Honolulu, Hawaii. It is primarily in the scheduled transportation of 
passengers, cargo, and mail over a route system that services the six 
major islands of Hawaii and Las Vegas and four cities on the west 
coast: Los Angeles, San Francisco, Seattle, and Portland. In addition, 
the Employer provides the only direct service from Hawaii to PagoPago, 
American Samoa and Papeete, Tahiti. Also, the Employer provides charter 
service from Honolulu to Las Vegas. The Employer operates a fleet of 
thirteen DC-9 aircraft and eight DC-10 aircraft.
    The common stock of the Employer is listed and traded on both the 
American Stock Exchange and the Pacific Stock Exchange.
    2. The Plans are defined contribution plans intended to satisfy the 
requirements of section 401(a) of the Code. The Pilots' Plan and the 
Attendants' Plan are collectively bargained profit sharing plans with 
cash or deferred arrangements under section 401(k) of the Code.
    Both the Air Line Pilots Association, International (the ALPA) and 
the Association of Flight Attendants (the AFA) separately bargain with 
the Employer for their own members over the terms of the Pilots' Plan 
and the Attendants' Plan, respectively. The Employer appoints two 
members to each Retirement Board for both the Pilots' Plan and the 
Attendants' Plan, respectively, and the ALPA and the AFA each appoints 
two members to the respective Plans of which their members are 
participants. The four members of each of the Retirement Boards select 
investment options for their respective participants, and resolves 
disputes concerning the application, interpretation, or administration 
of each of the Plans. As of August 2, 1996, the Pilots' Plan had total 
assets of $8,960,644 and 333 participants and the Attendants' Plan had 
total assets of $26,305,738 and 602 participants. The Savings Plan 
covers mostly non-collectively and some collectively bargained 
employees, represented by the International Association of Machinists, 
and is a profit sharing plan with a cash or deferred arrangement under 
section 401(k) of the Code. Since September 1, 1993, the Savings Plan 
requires Employer contributions and provides that contributions from 
participants are optional. The Employer solely appoints the three 
members to the Retirement Board for the Savings Plan. The Retirement 
Board for the Savings Plan selects investment options for

[[Page 7274]]

participants and resolves disputes concerning the application, 
interpretation, or administration of the Savings Plan. As of August 2, 
1996, the Savings Plan had total assets of $11,171,947 and 1,408 
participants.
    Pursuant to a trust agreement with the Employer, Vanguard Fiduciary 
Trust Company (Vanguard), a Pennsylvania corporation located in 
Malvern, Pennsylvania, is the trustee for the Plans. Vanguard acts for 
the Plans upon investment instructions from participants of the Plans 
and upon directions from the respective Retirement Boards of the Plans. 
In addition, Vanguard provides the Plans with different investment 
options or combinations thereof that have been selected by the 
different Retirement Boards for the participants of the Plans to direct 
investments for their respective accounts in the Plans. 1
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     1 The Department expresses no opinion as to whether or not the 
provisions of the Plans satisfy the requirements of section 404(c) 
of the Act and regulations thereunder with respect to the various 
investment options offered the participants of the Plans.
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    3. On December 8, 1995, in order to increase its working capital, 
the Employer, with approval of its shareholders, entered into an 
investment agreement with Airline Investors Partnership, L.P. (AIP), 
whereby the Employer during January 1996 issued and sold to AIP 
18,181,818 shares of its common stock at $1.10 per share for a total 
purchase price of $20 million. At the same time, the Employer also 
issued and sold four shares of its Class B Special Preferred Stock to 
AIP for a total purchase price of $4.40.
    AIP, formed in November 1995 to invest in the Employer, is a 
Delaware limited partnership whose general partner is AIP General 
Partner, Inc., a Delaware corporation with its principal office in New 
York City. By its investment in four shares of the Class B Special 
Preferred Stock of the Employer, AIP has the right to nominate six of 
the eleven individuals elected to the board of directors of the 
Employer. Currently the president and a vice president of the general 
partner of AIP and four other nominees of AIP have six of the seats on 
the board of directors of the Employer.
    The price AIP agreed to pay for its common stock investment in the 
Employer in January 1996 was substantially discounted from the common 
stock's closing market price of 2\11/16\ on December 8, 1995. In 
recognition of the dilutive effect of the AIP acquisition, the 
investment agreement with AIP contained a provision for an offering of 
subscription rights to all shareholders of the Employer, including the 
Plans but excluding AIP, to purchase an aggregate of up to 8,151,000 
shares of common stock during the 30-day offering. The applicant 
represents that the objective of the Offering was to permit non-AIP 
shareholders an opportunity to purchase the stock of the Employer at a 
discount price. Also, it was represented by the applicant that an 
additional motivation for the Offering was to raise additional working 
capital above the investment by AIP in order to meet the goal of the 
Employer of improving its financial liquidity.2
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    \2\ Rights were distributed in the Offering to two different 
groups: (i) all shareholders as of August 7, 1996, including the 
Plans but excluding AIP, and (ii) all employees of the Employer, 
other than members of senior management, who were employed at any 
time during 1995 and on the record date, August 7, 1996, without 
regard to their indirect shareholder status as participants in the 
Plans. Also, participants of the 1994 Stock Option Plan of the 
Employer were granted options to purchase common stock from the 
Employer for $3.25 per share. The Employer also entered into stock 
purchase agreements with certain institutional investors, high net 
worth individuals, and non-employee directors which the investors 
agreed to purchase common stock from the Employer at $3.25 per 
share. The applicant represents that a total of 12,085,000 shares of 
common stock were issued during the Rights Offering to the above 
persons.
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    4. Pursuant to the terms of the Offering, each shareholder, 
excluding AIP, received one Right for each share of common stock held 
as of the record date at the close of business on August 7, 1996 (the 
Record Date).3 As of the Record Date, the Plans held a total of 
1,488,703 shares and received the same number of Rights pursuant to the 
Offering. Each Right entitled a holder to purchase one share of the 
common stock issued by the Employer for the exercise price of $3.25. 
The exercise price was determined by the Employer after consultation 
with its independent financial advisor prior to the Offering. The 
Rights were traded on the American and Pacific Stock Exchanges until 
the expiration date of the Offering. The Rights held by the Plans 
required participants to communicate their directions to Vanguard, the 
trustee for the Plans, by September 5, 1996, in order that the 
directions from the participants of the Plans could be properly and 
correctly processed by Vanguard. The applicant represents that prior to 
the effective date of the Offering, the trustee, Vanguard, sent each 
participant in the Plans written information regarding the Offering and 
the Rights. During the effective period of the Offering Vanguard 
provided each participant in the Plans the opportunity to independently 
decide whether to exercise the Rights or to sell them. Also, the 
participants were informed that if Vanguard did not receive timely 
instructions, or received no instructions, Vanguard would sell the 
Rights. The applicant represents that all Rights received by the Plans 
were either exercised or sold.
---------------------------------------------------------------------------

    \3\ The Department notes that the Rights do not constitute 
``qualifying employer securities'' within the meaning of section 
407(d)(5) of the Act.
---------------------------------------------------------------------------

    Approximately 153,929 Rights issued to the Plans were exercised for 
the total sum of $500,269, and the Plans netted approximately 
$118,345.52 from the sale of the remaining Rights. As of the day 
preceding the Record Date, the price of the common stock of the 
Employer at the closing of the American Stock Exchange was $3.75.
    5. The applicant represents that the terms of the offering can be 
verified by the documents filed with the Securities and Exchange 
Commission and with the American and Pacific Stock Exchanges. Also, 
prices of the common stock and the Rights can be verified by examining 
the trading activity as published in the various newspapers. In 
addition, the applicant represents that participants and beneficiaries 
of the Plans had the opportunity to exercise independent decision-
making authority with respect to the Rights in their accounts. 
Furthermore, the applicant represents that the Plans were given the 
Rights at no cost to the Plans, thus enabling the participants to 
enhance their respective account balances that were holding Employer 
common stock by either exercising the Rights at prices below the market 
price or by selling the Rights.
    The applicant represents that the Employer has borne all costs 
associated with the Rights Offering to the Plans and the costs 
associated with the exemption application.
    6. In summary the applicants represent that the transactions 
satisfied the statutory criteria of section 408(a) of the Act for the 
following reasons: (a) the acquisition of the Rights by the Plans 
resulted from an independent act by the Employer as a corporate entity 
and all holders of the common stock of the Employer were treated in a 
like manner, including the Plans; (b) all decisions with respect to the 
rights were controlled by involved participants in accordance with 
provisions of the Plans for individually-directed investments of such 
accounts; (c) the Rights and the common stock of the Employer were both 
traded on the American and Pacific Stock Exchanges with current price 
information readily ascertainable as were the terms of the offering 
from the public documents distributed to the holders of the common 
stock and filed with the Securities and Exchange Commission and the 
Exchanges; (d)

[[Page 7275]]

there were no expenses incurred by the Plans or its participants or 
beneficiaries from the Offering and the resulting transactions; and (e) 
if no instructions were received by the Plans trustee, the Rights were 
sold.

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 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 accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change after the exemption is granted, the exemption will cease to 
apply as of the date of such change. In the event of any such change, 
application for a new exemption may be made to the Department.

    Signed at Washington, DC, this 12th day of February, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 97-3837 Filed 2-14-97; 8:45 am]
BILLING CODE 4510-29-P