[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Notices]
[Pages 6214-6217]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-3051]


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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10355, et al.]


Proposed Exemptions; Equitable Life Assurance Society

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, unless otherwise 
stated in the Notice of Proposed Exemption, 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, 2847, 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.

Equitable Life Assurance Society of the United States (Equitable) 
Located in New York, New York

[Application No. D-10355]

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 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 the past and continuing lease (the Lease) of 
commercial space in One Boston Place by Equitable Separate Account No. 
8, also known as the Prime Property Fund (PPF), to an Equitable 
affiliate, Equitable Real Estate Investment Management, Inc. (ERE), 
provided the following conditions are met:

[[Page 6215]]

    (A) All the terms and conditions of the Lease are at least as 
favorable to PPF as could be obtained in an arm's length transaction 
with an unrelated party;
    (B) The interests of PPF for all purposes under the Lease is 
represented by an independent fiduciary, Lawrence A. Bianchi, a 
principal of the Codman Company in Boston, Massachusetts;
    (C) The rent paid by ERE at all times under the Lease is no less 
than the fair market rental value of the property; and
    (D) The independent fiduciary will continue to monitor the Lease on 
behalf of PPF.

EFFECTIVE DATE: If granted, this exemption will be effective as of July 
24, 1996.

Summary of the Facts and Representations

    1. Equitable is a life insurance company organized under the laws 
of the State of New York. It is represented that Equitable is one of 
the largest life insurance companies in the United States and it offers 
a wide variety of insurance products and services. It is represented 
that Equitable provides funding, asset management and other services 
for several thousand employee benefit plans. In addition, Equitable 
sells interests in separate accounts as investments for qualified and 
governmental plans.
    Equitable maintains several pooled separate accounts, including 
PPF, in which pension, profit-sharing, and thrift plans participate. 
Equitable also offers several single customer separate accounts, and 
investment management services pursuant to which Equitable invests plan 
assets in various separate accounts. In particular, Equitable maintains 
PPF for the investment of corporate qualified and governmental pension 
plan assets in real estate and real estate related investments.
    2. It is represented that PPF is an insurance company separate 
account, as defined in section 3(17) of the Act, which was established 
on August 20, 1973. As of December 31, 1995, PPF held 171 investments 
in wholly-owned properties or equities in real estate partnerships with 
an aggregate net value of $3.1 billion. In addition, as of December 31, 
1995, PPF had eight investments in mortgage loans with an aggregate 
value of $311 million, or 9.2% of PPF's total net asset value. PPF's 
portfolio is diversified by property type and by geographic region.
    3. As of December 31, 1995, approximately 206 plans were invested 
in PPF. No plan holds more than a 20 percent interest in PPF. In 
particular, the Equitable Retirement Plan for Employees, Managers and 
Agents (the Plan) is invested in PPF. The Plan is a defined benefit 
plan which as of December 31, 1995, had invested 4.36% of its assets in 
PPF. As of the same date, 2.2 percent of the fair market value of the 
assets of PPF were represented by the Plan's investment.
    4. ERE provides investment advice to Equitable relating to 
origination, evaluation and monitoring of real estate investments for 
Equitable's pooled and single customer separate accounts that invest in 
real estate and real estate-related investments (the Accounts). ERE was 
an indirect wholly owned subsidiary of Equitable until it was sold on 
June 10, 1997, to Neptune Real Estate, Inc., a Delaware corporation 
which is wholly-owned by Lend Lease Corporation, an Australian 
Corporation. In connection with the sale, Equitable and ERE have 
entered into several separate advisory agreements setting forth the 
terms of ERE's provision of investment advisory services to Equitable 
with respect to the Accounts.
    It is represented that, even though ERE is no longer an affiliate 
of Equitable, the exemptive relief proposed herein is still required 
because ERE will continue to be a fiduciary to Equitable with respect 
to PPF.
    5. Among the assets owned by the PPF is One Boston Place, a 41 
story office building with a total of 769,570 square feet of rentable 
space. On July 24, 1996, PPF entered into a lease for 8,962 square feet 
of office space (Leased Space) in One Boston Place to ERE. The lease 
provides for a non-renewable 5-year term at an annual fixed rent of 
$269,452, with ERE's tenancy beginning October 1, 1996, the date of 
estimated completion of the remodeling of the premises in accordance 
with ERE's plans and specifications. The cost of the remodeling was 
paid for by One Boston Place and it was factored into the rental rate.
    6. Prior to entering into a lease agreement for the Leased Space, 
Equitable hired Lawrence A. Bianchi to act as Independent Fiduciary for 
PPF with regard to the transaction for which exemptive relief is 
proposed, herein. Mr. Bianchi is a principal in the Codman Company, 
Inc., a Boston-based real estate development company. It is represented 
that Mr. Bianchi has over 32 years experience in all aspect of real 
estate development, real estate management and valuation. It is further 
represented that he is experienced and familiar with the real estate 
market in downtown Boston and has particular experience in the area of 
commercial leasing, having leased in excess of 8 million square feet of 
office space. Mr. Bianchi states that he receives less than 1 percent 
of his total fees from income attributable to business dealings with 
Equitable and its affiliates.
    7. It is represented that Mr. Bianchi was authorized to determine 
on behalf of PPF, whether it was in the best interest of PPF to enter 
into the One Boston Place Lease. Pursuant to this authority, Mr. 
Bianchi represented PPF in negotiations regarding the One Boston Place 
lease. In addition, he had sole authority to determine whether and on 
what terms, PPF would enter into the Lease with ERE.
    8. Mr. Bianchi represents that he inspected the Leased Space on 
June 24, 1996. On July 18, 1996, Mr. Bianchi issued a preliminary 
report to PPF, regarding the Lease. This report, which contained 
conclusions regarding the appropriate rental rate and other lease 
terms, served as Mr. Bianchi's basis for the negotiation of the Lease. 
Mr. Bianchi's conclusions and recommendations were incorporated into 
the Lease as executed, on July 24, 1996. On July 31, 1996, he finalized 
the report and confirmed that the July 24, 1996 agreement covering the 
Leased Space was fair to PPF and the rental rate constituted fair 
market rent. In order to determine that the Lease was fair and the rent 
to be paid under the Lease was fair market rent, Mr. Bianchi reviewed 
recent rentals of similar office space located in comparable downtown 
Boston office buildings.
    In addition to accepting responsibility for determining that the 
Lease is in the best interest of the PPF, Mr. Bianchi accepted the 
continuing duty to monitor compliance with the lease terms by ERE under 
its lease in One Boston Place. Mr. Bianchi represents that he will take 
any action necessary to assure that ERE's obligations as lessee are 
being fully performed.
    9. Mr. Bianchi represents that the Lease is in the best interest of 
PPF because it is a fair market lease and no commissions were paid as a 
result of the transaction.
    Equitable represents that the Leased Spaced now occupied by ERE was 
vacant for 8 months prior to ERE's occupancy and the Leased Space was 
actively marketed to unrelated parties during the 15 months prior to 
ERE's occupancy. While it was actively marketed, approximately 90 
unrelated prospective tenants inspected the Leased Space. Equitable 
also represents, that because the Leased Space was only available for a 
five-year term, without the possibility of renewal, and because the 
Leased Space was encumbered by an expansion option in favor of an 
unrelated third party, prospective

[[Page 6216]]

tenants selected other spaces in One Boston Place.
    10. In summary, the applicant represents that the transaction 
satisfies the 408(a) of the Act for the following reasons: (a) All the 
terms and conditions of the Lease are at least as favorable to PPF as 
could be obtained in an arm's length transaction with an unrelated 
party; (b) The interests of PPF for all purposes under the Lease are 
represented by an independent fiduciary; (c) The independent fiduciary 
has determined that the rent paid by ERE under the Lease is no less 
than the fair market rent; and (d) The independent fiduciary will 
continue to monitor the Lease on behalf of PPF.

For Further Information Contact: Ms. Janet L. Schmidt of the 
Department, telephone (202) 219-8883. (This is not a toll-free number.)

Knoxville Surgical Group Qualified Retirement Plan (the Plan) Located 
in Knoxville, Tennessee

[Exemption Application No: D-10506]

    The Department of Labor is considering granting an exemption under 
the authority of section 408(a) of the Act and section 4975(c)(2) of 
the Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, August 10, 1990). If the exemption is 
granted, the restrictions of section 406(a) and 406(b) and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of sections 4975(c)(1)(A) through (E) of the Code shall not 
apply to the proposed sale (the Sale) of a medical office condominium 
(the Property) by the Plan to Hugh C. Hyatt, M.D., Richard A. Brinner, 
M.D., Randal O. Graham, Michael D. Kropilak, M. D., and P. Kevin 
Zirkle, M.D. (the Purchasers), parties in interest with respect to the 
Plan provided the following conditions are satisfied: (1) the Sale will 
be a one time transaction for cash; (2) the Property will be sold at a 
price equal to the greater of $780,000 or the fair market value of the 
Property on the date of the Sale; and (3) the Plan will pay no 
commissions or expenses associated with the Sale.

Summary of Facts and Representations

    1. The Plan is a profit sharing plan with 21 participants. The Plan 
sponsor is the Knoxville Surgical Group. As of October 17, 1997, the 
value of the Plan's assets was $6,747,255.72. The Trust Company of 
Knoxville is the Plan trustee. In 1996, the Plan sponsor merged with 
another medical practice by the name of Premier Surgical Group. Once 
the Sale is complete, the Plan will be merged into the Premier Surgical 
Plan. The Plan proposes to sell the Property to divest itself of real 
estate investments for a cash price of $780,000 with no commissions or 
expenses of the sale to be paid by the Plan. The Purchasers are 
shareholders of the Plan sponsor.
    2. The Property is a medical office condominium located in 
Knoxville Tennessee . The Plan acquired the Property in 1994 pursuant 
to Prohibited Transaction Exemption (PTE) 94-53 (59 FR 35759, July 13, 
1994). PTE 94-53 provided that the Plan exchange a certain parcel of 
improved real property valued at $425,000 for the Property and lease 
the Property to the Plan sponsor subject to certain conditions. The 
applicant represents that all terms and conditions of PTE 94-53 have 
been satisfied. The Property has been leased to the Plan sponsor since 
this time. The lease requires that the lessee pay all taxes, insurance 
and maintenance expenses. The applicant represents that the Plan's 
total holding costs related to the Property is $242,792.
    3. On August 1, 1997, Charles Wesley of Wallace & Associates, a 
State Certified General Real Estate Appraiser, valued the property at 
$780,000 using the market value method. Market value is defined as 
``the most probable price which a property should bring in a 
competitive and open market under all conditions requisite to a fair 
sale, the buyer and seller each acting prudently and knowledgeably 
assuming that price is not affected by undue stimulus.''
    4. In summary, the applicant represents that the transaction 
satisfies the statutory criteria of section 408(a) of the Act and 
section 4975(c)(2) of the Code because: (1) the Sale will be a one time 
transaction for cash; (2) the Plan will pay no commissions or fees 
associated with the Sale; (3) the Plan will receive the greater of 
$780,000 or the fair market value of the Property at the time of the 
Sale; and (4) the Plan will receive a sales price amount greater than 
the acquisition and holding costs of the Property.

FOR FURTHER INFORMATION CONTACT: Allison Padams, U. S. Department of 
Labor, telephone (202) 219-8971. (This is not a toll-free number.)

Overland, Ordal, Thorson & Fennell Pulmonary Consultants, P.C. Profit 
Sharing Plan & Trust (the Plan) Located in Medford, OR 97501

[Application No. D-10523]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR Part 
2570, Subpart B (55 FR 32836, August 10, 1990). If the exemption is 
granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) of 
the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed cash sale (the Sale) of a certain 
parcel of real property (the Property) by the individually directed 
account (the Account) in the Plan of Eric S. Overland, M.D. (Dr. 
Overland) to Dr. Overland, provided that the following conditions are 
met:
    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Account as those obtainable in an arm's length transaction with 
an unrelated party;
    (c) The Account receives the greater of the fair market value of 
the Property as of the date of sale or $105,000; and
    (d) The Account is not required to pay any commissions, costs or 
other expenses in connection with the Sale.

Summary of Factual Representations

    1. The Plan is a defined contribution 401(k) profit-sharing plan 
that provides its 13 participants with the opportunity to direct the 
investment of their individual accounts. The Plan is sponsored by 
Overland, Ordal, Thorson, & Fennell Pulmonary Consultants, P.C. The 
trustees of the Plan are Dr. Overland, Dr. John C. Ordal, Dr. Stuart H. 
Thorson, and Dr. Dan F. Fennell. As of the Plan year ending September 
30, 1996, the Plan held assets valued at approximately $1,305,917. As 
of the same date, Dr. Overland's Account had assets valued at $491,126.
    2. The Property consists of a five (5) acre parcel of undeveloped 
real estate located in the Gardner Subdivision at 1234 Gardner Way, 
Medford, Oregon. A well has been installed on the Property and there is 
an outbuilding located on the southeast corner of the Property.
    3. According to the applicant, the Account acquired the Property on 
June 14, 1994, from an unrelated third party in a cash transaction for 
$95,770.77, including closing costs. Since purchasing the Property, the 
Account has incurred $15,069 of maintenance costs and real estate 
taxes.
    4. The applicant represents that Dr. Overland does not own any land 
adjacent to the Property and that the Property has not been leased or 
used by any parties in interest or disqualified persons.

[[Page 6217]]

    5. The applicant requests an exemption for the proposed sale of the 
Property by the Account to Dr. Overland. The applicant desires to sell 
the Property due to the illiquid nature of the asset, and because the 
investment has failed to appreciably increase in value. In this regard, 
Dr. Overland is concerned about continual Plan expenses concomitant 
with holding the Property such as property taxes, utility costs and 
fire maintenance. Finally, the applicant states that he is apprehensive 
regarding potential property liability issues, and possible changes in 
zoning regulations that could affect the future development and value 
of the Property.
    6. The Property was appraised by two independent, qualified 
appraisers. Both appraisers utilized the market value approach, which 
involves an analysis of similar recently sold properties in the area 
surrounding the Property in question, so as to derive the most valid 
sales price of the Property. On April 1, 1997, Mr. Roy Wright, a Senior 
Residential Appraiser and member of the Appraisal Institute, determined 
a fee simple interest in the Property to be worth $120,000. On April 
20, 1997, David W. Isom, also a Senior Residential Appraiser and member 
of the Appraisal Institute, determined a fee simple interest to be 
worth $90,000. Because of the significant disparity in the two 
appraisals, it has been decided that the average of the two, $105,000, 
should be used as a benchmark with respect to the value of the 
Property.
    7. The applicant represents that the proposed transaction would be 
feasible in that it would be a one-time transaction for cash. 
Furthermore, the applicant states that the transaction would be in the 
best interests of the Account because if the Property were sold, the 
Account would be able to invest the proceeds from the Sale in other 
assets and achieve a higher rate of return. Finally, the applicant 
asserts that the transaction will be protective of the rights of the 
participant and beneficiary as indicated by the fact that the Account 
will receive not less than the fair market value of the Property as of 
the date of sale or $105,000, and will incur no commissions, costs, or 
other expenses as a result of the Sale.
    8. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria of section 408(a) of the 
Act and section 4975(c)(2) of the Code because: (a) the terms and 
conditions of the Sale would be at least as favorable to the Account as 
those obtainable in an arm's length transaction with an unrelated 
party; (b) the Sale would be a one-time cash transaction permitting the 
Account to invest in assets with a higher rate of return; (c) the 
Account would receive not less than the fair market value of the 
Property as of the date of sale or $105,000; and (d) the Account would 
not be required to pay any commissions, costs or other expenses in 
connection with the Sale.

NOTICE TO INTERESTED PERSONS: Because Dr. Overland is the only 
participant to be affected by the proposed transaction, it has been 
determined that there is no need to distribute the notice of proposed 
exemption (the Notice) to interested persons. Comments and requests for 
a hearing are due thirty (30) days after publication of the Notice in 
the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. James Scott Frazier, 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 2nd day of February 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-3051 Filed 2-5-98; 8:45 am]
BILLING CODE 4510-29-P