[Federal Register Volume 63, Number 54 (Friday, March 20, 1998)]
[Notices]
[Pages 13693-13696]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-7272]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10421, et al.]
Proposed Exemptions; Tyson Foods, Incorporated Employee Profit
Sharing Plan and Trust (the Plan)
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
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.
ADDRESS: 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 13694]]
Tyson Foods, Incorporated, Employee Profit Sharing Plan and Trust
(the Plan), Located in Springdale, Arkansas
[Application No. D-10421]
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 sale by the Plan of certain
hatcheries, a freezer facility and an office complex (collectively, the
Properties), all located in Arkansas, to Tyson Foods, Incorporated (the
Company), a party in interest with respect to the Plan, provided that
the following conditions were satisfied:
(A) All terms of the transactions were at least as favorable to the
Plan as those which the Plan could obtain in an arm's-length
transaction with an unrelated party;
(B) The sale was a one-time transaction for cash;
(C) The Plan paid no commissions nor other expenses relating to the
sale;
(D) The purchase price was the greater of: (1) the fair market
value of each of the Properties as determined by a qualified,
independent appraiser, or (2) the Plan's original acquisition cost; and
(E) Prior to the sale, an independent fiduciary reviewed the
transactions and determined that the transactions described herein,
were appropriate and in the best interests of the Plan and its
participants and beneficiaries.
EFFECTIVE DATE: If granted, this exemption will be effective May 23,
1997.
Summary of Facts and Representations
1. The Plan is a defined contribution plan with 4,934 participants
and beneficiaries and total assets of $80,648,308 as of March 31, 1996.
The Plan is sponsored by Tyson Foods, Incorporated (the Company), a
Delaware corporation, with its principal operations in Arkansas. The
Company is primarily engaged in the business of producing and selling
chicken-based food products. The Company is in the process of
terminating the Plan. The trustees of the Plan are: John Tyson, Gerard
Dowd, Lois S. Brottomley, William W. Lovette, and Dennis Leatherby
(together, the Trustees). The Company represents that the Trustees are
all currently employees of the Company and that they make investment
decisions for the Plan.
2. Among the assets of the Plan, prior to May 23, 1997, were the
Properties, consisting of four chicken hatcheries, a corporate office
complex and a freezer facility. The Properties were all acquired by the
Plan, from the Company in various transactions between 1966 and 1992.
After each of the Properties was acquired by the Plan, the Plan leased
the Properties to the Company.1 On May 23, 1997, the
Properties were sold by the Plan back to the Company. The percentage of
the Plan's total assets invested in the Properties was 32%, based on
fair market values of the Properties reported on the 1995 Form 5500.
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\1\ The Department is not providing relief herein with respect
to any transactions involving the Properties other than the sale of
the Properties by the Plan to the Company. In this regard, the
Department is referring the other transactions involving the
Properties to the Internal Revenue Service for the imposition of any
applicable excise taxes arising under section 4975 of the Code which
may be due.
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3. The Trustees determined it was necessary to sell the Properties
in order to convert illiquid real estate investments into liquid assets
so that the Plan can make final terminating distributions to
participants and beneficiaries under the terms of the Plan. The Board
of Directors of the Company approved resolutions terminating the Plan.
The Company represents that the Board of Directors also authorized the
Company to purchase the Properties 2, if an independent
fiduciary for the Plan, determined that the sale of the Properties to
the Company was in the best interest of the Plan and its participants
and beneficiaries.
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\2\ Pursuant to the Company's offer to purchase the Properties,
the Company agreed to pay all costs and expenses associated with its
purchase of the Properties, including but not limited to,
appraisals, commissions and taxes, and the costs of seeking the
prohibited transaction exemption, proposed herein.
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4. On February 17, 1997, the Company engaged Arthur Andersen LLP
(Arthur Andersen), of Atlanta, Georgia, to act as independent fiduciary
on behalf of the Plan. Arthur Andersen is a major accounting and
consulting firm which has extensive experience in the business of
commercial real estate consulting and appraisal. Arthur Andersen
represents that the scope of its engagement was to determine whether:
(1) The Plan would receive adequate consideration for the Properties as
determined by a qualified independent appraiser approved by Arthur
Andersen; and (2) the sale of the Properties was appropriate and in the
best interests of the Plan and its participants and beneficiaries. In
addition, Arthur Andersen's duties included making a determination as
to whether the Plan should sell the Properties to the Company.
5. Arthur Andersen represents, in its written report prepared for
the Trustees and for review by the Department, that in its opinion, the
sale of the Properties to the Company for $33,032,000 in cash was in
the best interest of the Plan and its participants and beneficiaries.
Arthur Andersen further states that the $33,032,000 aggregate sales
price for the Properties represents the greater of (1) the fair market
value of the Properties, or (2) the Plan's original acquisition cost
for each of the Properties, on a property by property basis.
6. In order to determine that the sale of the Properties by the
Plan to the Company, was in the best interests of the Plan and its
participants and beneficiaries, Arthur Andersen sought current real
estate appraisals for the Properties. The Trustees selected Reed &
Associates, Inc. (Reed & Associates), a real estate appraisal firm in
Springdale, Arkansas. After interviewing Reed & Associates, Arthur
Andersen approved of the Trustees selection. Tom Reed, an MAI
appraiser, along with another licenced appraiser employed by Reed &
Associates, appraised the Properties between March 25 and May 16, 1997.
Reed & Associates opined that the fair market value of each of the
four chicken hatcheries had declined, and that the corporate office
complex and freezer facilities had both appreciated in value since they
were acquired by the Plan. Reed & Associates assigned specific values
for each of the Properties, as discussed below.
7. Arthur Andersen, in its capacity as independent fiduciary for
the Plan, reviewed and evaluated the appraisals of the Properties
performed by Reed & Associates. Arthur Andersen determined that (1) the
appraisals were accurate, (2) the appraisals established the fair
market value of each of the Properties, and (3) it was appropriate to
rely upon such appraisals for the purpose of determining the sales
price of the Properties.
8. Among the Properties are four chicken hatcheries. Three of the
four hatcheries are located in Washington County, Arkansas. These
hatcheries are known as: the Lincoln Hatchery, Johnson Road Hatchery
and Randall Road Hatchery. The fourth hatchery is the Nashville
Hatchery which is located in Howard County, Arkansas.
9. The Lincoln Hatchery is located on a 12.89 acre parcel of land
and was
[[Page 13695]]
acquired by the Plan in 1973 for $1,173,000. The Plan received net
rentals of $2,567,331 from April 1, 1986 to the date of sale. Reed &
Associates determined that the fair market value of the Lincoln
Hatchery was $710,000 as of March 31, 1997. The Company purchased the
Lincoln Hatchery for $1,173,000.
The Johnson Road Hatchery is located on a four acre parcel of land
and was acquired by the Plan in 1966 for $546,000. The Plan received
net rentals of $747,663 from April 1, 1986 to the date of sale. Reed &
Associates determined that the fair market value of the Johnson Road
Hatchery was $485,000 as of April 2, 1997. The Company purchased the
Johnson Road Hatchery for $546,000.
The Randall Road Hatchery is located on a 15.3 acre parcel of land
and was acquired by the Plan in 1960 for $813,000. The Plan received
net rentals of $1,178,070 from April 1, 1986 to the date of sale. Reed
& Associates determined that the fair market value of Randall Road
Hatchery was $725,000 on March 25, 1997. The Company purchased the
Randall Road Hatchery for $813,000.
The Nashville Hatchery is located on a 2.76 acre parcel of land and
it was acquired by the Plan in 1973 for $460,000. The Plan received net
rentals of $666,543 from April 1, 1986 to the date of sale. Reed &
Associates determined that the fair market value of the Nashville
Hatchery was $290,000 as of April 4, 1997. The Company purchased the
Nashville Hatchery for $460,000.
11. The corporate office complex (Corporate Office Complex),
located in Washington County, Arkansas, is comprised of four buildings
that were purchased in four separate transactions occurring,
respectively, in 1969, 1987, 1991, and 1992. The Plan's original
acquisition cost of the four buildings, in the aggregate, was
$15,549,946. Between April 1, 1986 and the date of sale, the Corporate
Office Complex produced net rental income for the Plan totaling
$21,969,230. Reed & Associates determined that the fair market value of
the Corporate Office Complex on May 9, 1997, was $18,850,000. The
Company purchased the Corporate Office Complex for $18,850,000.
12. The freezer facility (Tyson Valley Freezer Facility) was
acquired by the Plan in 1989, at an original acquisition cost of
$6,023,457. The Tyson Valley Freezer Facility consisted of a ground
lease in property and the freezer facility located thereon. From the
date of acquisition, through the date sale, the Plan collected net
rental income totaling $5,922,906. The Company, at its own expense,
made improvements to the Tyson Valley Freezer Facility while it was
owned by the Plan.
Arthur Andersen represents, that after reviewing the appraisal
provided by Reed & Associates and considering the advice of legal
counsel regarding the ownership of the improvements, it, in its
capacity as independent fiduciary for the Plan, determined that the
fair market value of the Tyson Valley Freezer Facility was $11,190,000.
The Company purchased the Tyson Valley Freezer Facility for
$11,190,000.
13. As to all the sales, Arthur Andersen concluded that the sale of
each of the Properties to the Company was in the best interests of the
Plan and its participants and beneficiaries. In addition, Arthur
Andersen represents that the Company paid the greater of (1) the fair
market value, or (2) and the original acquisition cost to the Plan, for
each of the Properties, on a property by property basis. As a result of
the sale of the Properties to the Company, the Plan received a total of
$33,032,000 in cash, at closing.
14. Mr. Reed, of Reed & Associates, represents that in his capacity
as appraiser, he reviewed the past rental rates paid on each of the
Properties, from April 1, 1991, to the date of sale, and that the
rental rates paid by the Company to the Plan for each of the Properties
constituted fair market rental value.
The Company prepared an analysis of the rents received for each of
the Properties from 1986 to the date of sale. The analysis shows that
the annualized rates of return ranged from 12% to 24.27%, with most
annualized returns in the 12% to 13% range.
15. Arthur Andersen represents, that in its opinion, the sale of
the Properties to the Company was appropriate and in the best interests
of the Plan and its participants and beneficiaries. Further, Arthur
Andersen states that its review of the Plan's records confirm that the
Plan has been terminated and that the Properties needed to be sold to
permit the assets of the Plan to be distributed to the participants and
beneficiaries in accordance with the terms of the Plan.
16. In summary, the applicant represents that the proposed
transaction satisfies the 408(a) of the Act for the following reasons:
(a) Prior to the sale, an independent fiduciary determined that the
transaction was in the best interest of the Plan and its participants
and beneficiaries; (b) the sale will enable the Plan to make
distributions to participants and beneficiaries; (c) as of the date of
sale, the Plan received cash for each of the Properties which was the
greater of (1) the fair market value of the Properties, or (2) the
Plan's original acquisition cost for each of the Properties, on a
property by property basis; and (d) the sale was a one-time cash
transaction and the Plan did not incur any expenses related to the
sale.
For Further Information Contact: Ms. Janet L. Schmidt of the
Department, telephone (202) 219-8883. (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
[[Page 13696]]
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 17th day of March, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 98-7272 Filed 3-19-98; 8:45 am]
BILLING CODE 4510-29-P