[Federal Register Volume 62, Number 213 (Tuesday, November 4, 1997)]
[Notices]
[Pages 59740-59743]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-29174]
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10471, et al.]
Proposed Exemptions; First Bank System Personal Retirement
Account (the Plan)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction 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
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 requests 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.
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
[[Page 59741]]
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.
First Bank System, Personal Retirement Account (the Plan), Located in
Minneapolis, Minnesota
[Application No. D-10471]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 C.F.R. part
2570, subpart B (55 F.R. 32836, 32847, August 10, 1990). If the
exemption is granted the restrictions of sections 406(a), 406(b)(1) and
(b)(2) of the Act and the sanctions resulting from the application of
section 4975 of the Code, by reason of section 4975(c)(1) (A) through
(E) of the Code, shall not apply to (1) the proposed contribution to
the Plan by U.S. Bancorp (the Employer), formerly First Bank System,
Inc., the sponsor of the Plan, of the Employer's interests in two
limited partnership funds (the Interests) organized and managed by
Kohlberg Kravis Roberts & Co. (KKR); and (2) the grant by the Employer
to the Plan of an option (the Put) under which the Plan is empowered at
any time to require the Employer to repurchase the Interests from the
Plan at any time; provided that the following conditions are satisfied:
(a) The Interests are valued at their fair market value as of the
date of contribution by a qualified, independent appraiser;
(b) The sum of the fair market value of the Interests plus the fair
market value of any other KKR-related investments held by the Plan does
not exceed ten percent of the fair market value of the Plan's total
assets at the time of the contribution of the Interests to the Plan;
(c) The Plan is represented for all purposes with respect to the
Interests by a qualified independent fiduciary (the Fiduciary), as
described below, for the duration of the Plan's holding of any of the
Interests;
(d) The Fiduciary takes whatever action is necessary, as determined
by the Fiduciary in its sole discretion, to enforce the conditions of
this exemption and to protect the Plan's investment in the Interests,
including, but not limited to the exercise of the Put;
(e) The Fiduciary retains the right under the Put to require the
Employer, at any time, to purchase some or all of the Interests from
the Plan for the greater of (1) the Interests' fair market value as of
the contribution date, or (2) the fair market value of the Interests as
of the date of such sale pursuant to the Put; and
(f) For the duration of the Plan's investment in the Interests, the
Employer's obligations under the Put are secured by the Collateral (as
described below) in escrow representing no less than one third of the
fair market value of the Interests at the time of their contribution to
the Plan, and the Fiduciary requires additional Collateral to be
deposited in the escrow whenever the value of the Interests increases.
Summary of Facts and Representations
1. The Plan is a defined benefit pension plan with approximately
21,000 participants and assets of approximately $382,392,832 as of June
30, 1997. The Plan is sponsored by the Employer, which was known as
First Bank System, Inc. until August 1, 1997. The Employer is a
Delaware public corporation functioning as a bank holding company with
banks, brokerage, insurance, and credit card operations conducted
through subsidiaries in 14 states. Numerous corporate subsidiaries of
the Employer are also sponsors of the Plan. The trustee of the Plan is
the First Trust National Association (the Trustee), a wholly-owned
subsidiary of the Employer. Under the Plan document, the Employer has
the authority, directly or through a committee of appointed officers of
the Employer, to determine investment policy of the Plan and to appoint
investment managers. The investment manager of the assets of the Plan
is First Asset Management, a division of a wholly-owned subsidiary of
the Employer.
2. The Employer currently has investments in two investment funds
(the KKR Funds) sponsored and managed by KKR designated as the Kohlberg
Kravis Roberts and Co. 1986 Fund and the Kohlberg Kravis Roberts and
Co. 1987 Fund. KKR, established in 1976, serves as manager and general
partner, as well as management and planning services provider, for
investment enterprises and limited partnerships, including the KKR
Funds which are the subject of this proposed exemption. Each of the KKR
Funds invests in, and consists solely of, holdings in five businesses
which are publicly-traded and three business which are privately held.
The Employer represents that its investments in the Interests were
acquired by the Employer over time for general investment purposes. The
Interests are not publicly traded. The Employer represents that the
Interests have increased in value substantially since acquisition by
the Employer, and the Employer represents that continued increases in
value are expected. The Employer represents that investors in the KKR
Funds include individuals, institutions and employee benefit plans.
Because the Interests have proven to be favorable investments with
likely future increases in value and continued favorable performance,
the Employer desires to contribute the Interests to the Plan.
Accordingly, the Employer proposes to contribute the Interests to the
Plan and is requesting an exemption to permit such contribution
transaction under the terms and conditions described herein.
3. The Employer proposes to contribute the Interests to the Plan at
their fair market value as of the date of the contribution transaction
and to grant the Plan the Put, an option empowering the Plan to require
the Employer to purchase the Interests back from the Plan in the event
such repurchase is directed by the independent fiduciary, discussed
below, which represents the Plan's interests with respect to the
Interests. The fair market value of the Interests upon their
contribution to the Plan will be determined by Piper Jaffray Inc. (the
Appraiser), an independent investment banking services provider located
in Minneapolis, Minnesota engaged in, among other activities, the
valuation of securities. The Appraiser represents that as of September
3, 1997, the Interests had a fair market value of $25.5 million. The
Employer represents that the Plan does not yet own any interests in
either of the KKR Funds, although the Plan does own interests in two
other entities of which KKR is either the general partner or an
investment advisor.\1\ The Employer represents that the total fair
market value of the Plan's interests in these other KKR-related
enterprises was $6.2 million as of the most recent valuation of Plan
assets on June 30, 1997.
---------------------------------------------------------------------------
\1\ The Employer represents that the other KKR-related
investments held by the Plan consist of interests in a limited
partnership designated as Union Texas-UTH and another limited
partnership designated as Auto Zone Pittco Assoc. Ltd.
---------------------------------------------------------------------------
4. The Put, which has already been executed by the Employer,
enables the Plan, represented by the Fiduciary (discussed below), to
sell the Interests back to the Employer at any time. The Put requires
the Employer, upon notification by the Fiduciary, to purchase all or
any portion of the Interests from the Plan as directed by the Fiduciary
for a purchase price to be
[[Page 59742]]
the greater of (a) the fair market value of such portion of the
Interests as of the date of its initial contribution to the Plan, as
determined by the Appraiser, or (b) the fair market value of such
portion of the Interests as of the date of the exercise of the Put as
determined by the mutual agreement of the Fiduciary and the Employer
or, if the Fiduciary and Employer are unable to agree, as determined by
an appraiser selected by the Fiduciary. Under the terms of the Put, the
Employer grants the Plan a first security interest in collateral in
escrow which secures the Employer's obligations under the Put. The
Collateral consists of debt obligations of the United States having an
initial fair market value of not less than one third of the fair market
value of the Interests upon their contribution to the Plan. The Put
requires the escrow agent to execute such other instruments and perform
such acts as the Fiduciary may reasonably request to establish and
maintain the Plan's security interest in the Collateral.
5. The interests of the Plan and its participants and beneficiaries
with respect to the proposed contribution transaction, including the
Put, are represented by the Fiduciary, which is the First State Bank of
Bayport. The Fiduciary is a Minnesota state-chartered bank which
represents itself to be independent of and unrelated to the Employer.
The Fiduciary will oversee and monitor the Plan's investment in the
Interests and the Plan's rights under the Put for the duration of the
Plan's investment in the Interests. The Fiduciary will require an
appraisal of the Interests for their fair market value by the Appraiser
upon their contribution to the Plan, and will continue to require
annual valuations of the Interests as long as the Plan remains invested
in the Interests or any portion thereof. The Fiduciary will ensure that
the Collateral required to secure the Employer's obligations under the
Put is deposited in escrow in the appropriate amount, and the Fiduciary
will require additional collateral to be deposited in the escrow from
time to time if the value of the Interests increases. The Fiduciary
represents that it has reviewed and evaluated the proposed contribution
of the Interests to the Plan, including the terms of the Put, and has
determined that the Plan's acquisition of the Interests by the
Employer's contribution would be prudent and would add diversification
to the Plan's assets. The Fiduciary states that due to the Put, the
Plan will have little or no investment risk with respect to the
Interests while the Interests offer the potential for considerable
gain. The Fiduciary states that the contribution of the Interests to
the Plan will comply with the Plan's investment objectives and policies
and would not adversely affect the Plan's liquidity needs with respect
to current and projected benefit obligations. The Fiduciary concludes
that the contribution of the Interests to the Plan will be in the best
interests and protective of the participants and beneficiaries of the
Plan. The Fiduciary states that its duties with respect to the Plan's
investment in the Interests include ongoing monitoring of the
investment performance of the KKR Funds in comparison to performance of
other investment alternatives to determine if continued investment in
the Interests by the Plan is warranted, and to ensure that the
investment objectives and strategies of the KKR Funds remain consistent
with the needs of the Plan. The Fiduciary also states that it will
continue to review the Plan's liquidity needs to determine they are
consistent with continued investment in the Interests. The Fiduciary
represents that if, at any time, it determines that the Interests
constitute an inappropriate investment for the Plan, it will exercise
the Put in order to protect the Plan's participants and beneficiaries
from adverse affects.
5. In summary, the applicant represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons:
(a) The Plan's investment in the Interests will be protected by the
Put, which will require the Employer to purchase the Interests from the
Plan at any time for a price of no less than the greater of the fair
market value of the Interests upon exercise of the Put or the fair
market value of the Interests at the time of their contribution to the
Plan;
(b) The Employer's obligations under the Put will be secured by the
Collateral, consisting of debt obligations of the United States having
an initial fair market value of not less than one third of the fair
market value of the Interests upon their contribution to the Plan;
(c) The interests of the Plan with respect to the contribution of
the Interests and under the terms of the Put will be represented by an
independent fiduciary who will require annual valuations of the
Interests and additional deposits of Collateral by the Employer
whenever the value of the Interests increases; and
(d) After an evaluation of the proposed transactions, the Fiduciary
has determined that the Plan's investment in the Interests, protected
by the Put, will be in the best interests and protective of the
participants and beneficiaries of the Plan.
FOR FURTHER INFORMATION CONTACT: Ron Willett of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
Profit Sharing Keogh Plan of Richard D. Wickerham, Esq. (the Plan)
Located in Schenectady, New York
[Application No. D-10505]
Proposed Exemption
The Department is considering granting an exemption under the
authority of 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 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) Two proposed loans (the Loans) totaling $50,000 by the Plan to Mr.
Richard D. Wickerham (Mr. Wickerham), a disqualified person with
respect to the Plan, and (2) the personal guarantee of the Loans by Mr.
Wickerham, provided the following conditions are satisfied: (a) The
terms of the Loans are at least as favorable to the Plan as those
obtainable in arm's-length transactions with an unrelated party; (b)
the Loans do not exceed 25% of the assets of the Plan; (c) the first
Loan (Loan 1) is secured by a second mortgage on certain real property
(the Property) which has been appraised by a qualified independent
appraiser to have a fair market value not less than 150% of the amount
of Loan 1 plus the balance of the first mortgage which it secures; (d)
the second Loan (Loan 2) is secured by certain personal property (the
Personalty) which has a fair market value, as determined by a qualified
independent appraiser, of not less than 200% of Loan 2; (e) the fair
market value of the collateral remains at least equal to the
percentages described in conditions (c) and (d), above, throughout the
duration of the Loans; and (f) Mr. Wickerham is the only Plan
participant to be affected by the Loan transactions.2
---------------------------------------------------------------------------
\2\ Since Mr. Wickerham is the sole owner of the Plan sponsor
and the only participant in the Plan, there is no jurisdiction under
Title I of the Act pursuant to 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
---------------------------------------------------------------------------
Summary of Facts and Representations
1. Richard D. Wickerham, Attorney and Counsellor at Law (the Firm),
is a law firm located in Schenectady, New York. The Plan is a defined
contribution
[[Page 59743]]
plan with one participant, Mr. Wickerham, who is also the Plan's
trustee. Mr. Wickerham is also the sole owner of the Firm. As of July
31, 1997, the fair market value of the assets in the Plan was
approximately $343,088.
2. Mr. Wickerham wishes to borrow $50,000 from the Plan, which
represents approximately 15% of the current fair market value of the
Plan. The money will be loaned to Mr. Wickerham in two separate Loans.
The Loans will each be amortized over a 5 year period, with equal
monthly payments of principal and interest over the 5 year term. The
interest rate for each Loan will be 9.5% per annum. The total monthly
payments for the Loans will be $1,050.10 per month. Mr. Anthony J.
Lanzillo, Vice President of KeyBank (the Bank) of Clifton Park, New
York, has represented in a letter dated October 1, 1997 that the Bank
would lend money to Mr. Wickerham at the same terms as those of the
Loans.
3. Loan 1 will be secured by the Property, which consists of Mr.
and Mrs. Wickerham's residence, which is located at 6 Delaware Bay
Drive, Villas, Cape May County, New Jersey. The Property has been
appraised by Ms. Dolores K. Lanzalotti of Jersey Cape Realty, Inc., an
independent real estate broker in Cape May, New Jersey, to have a fair
market value of $140,000 as of August 9, 1997. The Property has a first
mortgage in the amount of $75,986. Loan 1 would be secured by a second
mortgage on the Property in the amount of $17,000. Thus, the appraised
fair market value of the Property would represent not less than 150% of
the total outstanding principal amount of debt secured by the Property.
The applicant represents that the mortgage to the Plan will be duly
recorded in the Office of the County Clerk, Cape May County, New
Jersey.
4. Loan 2, which will be in the principal amount of $33,000, will
be secured by the Personalty. The Personalty consists of eighteenth
century antique period furniture and artifacts which are owned by Mr.
and Mrs. Wickerham. The Personalty has been appraised by Ms. Ona
Curran, AAA, Certified Appraiser of Personal Property, an independent
appraiser in Esperance, New York, as having a fair market value of
$69,190 as of August 1, 1997. This amount represents approximately 210%
of the principal amount of Loan 2. The applicant represents that the
Plan's security interest in the Personalty will be duly recorded in the
appropriate County Clerk office.
5. Mr. Wickerham represents that in addition to the collateral
described above, he will also be giving his personal guarantee for each
of the Loans. Mr. Wickerham further states that should the collateral-
to-loan ratio described above for either Loan fall below the described
percentages, he will add additional collateral such that the 150% ratio
will be maintained for Loan 1 and the 200% ratio will be maintained for
Loan 2 throughout the five year period of the Loans.
6. In summary, the applicant represents that the proposed
transactions satisfy the criteria contained in section 4975(c)(2) of
the Code for the following reasons: (a) The Loans represent
approximately 15% of the assets of the Plan; (b) the terms of the Loans
will be at least as favorable to the Plan as those obtainable in arm's-
length transactions with an unrelated party, as demonstrated by the
letter from the Bank; (c) Loan 1 will be secured by a second mortgage
on the Property, which has been determined by a qualified, independent
appraiser to have a fair market value of not less than 150% of the
total principal amount of the loans that it will secure; (d) Loan 2
will be secured by the Personalty, which consists of eighteenth century
antique period furniture and artifacts with a current fair market value
of approximately 210% of Loan 2, as determined by a qualified,
independent appraiser; and (e) Mr. Wickerham is the only participant in
the Plan to be affected by the transactions, and he desires that the
transactions be consummated.
Notice to Interested Persons
Since Mr. Wickerham is the only Plan participant to be affected by
the proposed transactions, the Department has determined that there is
no need to distribute the notice of proposed exemption to interested
persons. Comments and requests for a hearing are due within 30 days
from the date of publication of this notice of proposed exemption in
the Federal Register.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest of disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which among other things require a fiduciary to
discharge his duties respecting the plan solely in the interest of the
participants and beneficiaries of the plan and in a prudent fashion in
accordance with section 404(a)(1)(b) of the act; nor does it affect the
requirement of section 401(a) of the Code that the plan must operate
for the exclusive benefit of the employees of the employer maintaining
the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete and 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 30th day of October, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 97-29174 Filed 11-3-97; 8:45 am]
BILLING CODE 4510-29-P