[Federal Register Volume 67, Number 233 (Wednesday, December 4, 2002)]
[Notices]
[Pages 72234-72236]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-30564]


-----------------------------------------------------------------------

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 2002-52; Exemption Application No. D-
10986, et al.]


Grant of Individual Exemptions; Bank of America (BofA)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

-----------------------------------------------------------------------

SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) 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).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, effective December 31, 
1978, section 102 of Reorganization Plan No. 4 of 1978, 5 U.S.C. App. 1 
(1996), transferred the authority of the Secretary of the Treasury to 
issue exemptions of the type proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:
    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

Bank of America (BofA), Located in Bethesda, MD

[Prohibited Transaction Exemption 2002-52; Exemption Application No. D-
10986].

Exemption

    The restrictions of section 406(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 (D) of the Code, shall not apply to 
(1) the granting to BofA by the Westbrook Realbrook Real Estate Fund 
III, L.P. (LP), Delaware Limited Partnership, of a first, exclusive, 
and prior security interest in the capital commitments, reserve 
amounts, and capital contributions (Capital Contributions), whether now 
owned or after-acquired, of certain employee benefit plans (Plans) 
investing in the LP; (2) the collateral assignment and pledge by the LP 
to BofA of its security interest in each Plan's limited partnership 
interest, whether now owned or after-acquired; (3) the granting by the 
LP of a first, exclusive, and prior security interest in a borrower 
collateral account to which all Capital Contributions will be deposited 
when paid; (4) the granting to BofA by Westbrook Real Estate Partners 
Management III, L.L.C., a Delaware limited liability company and the 
general partner of the LP (the General Partner), of its right to make 
calls for cash contributions (Drawdowns) under the Amended and Restated 
Agreement of Limited Partnership of Westbrook Real Estate Fund III, 
L.P., dated as of June 10, 1998, where BofA is the representative of 
certain lender (the Lenders) that will fund a so-called ``credit 
facility'' providing credit to the LP, and the Lenders are parties in 
interest with respect to the Plans; and (5) the execution of a partner 
agreement and estoppel (Estoppel) under the Plans agree to honor the 
Drawdowns; provided that (i) the grants, assignments, and Estoppels are 
on terms no less favorable to the Plans than those which the Plans 
could obtain in arm's-length transactions with unrelated parties; (ii) 
the decisions on behalf of each Plan to invest in the LP and to execute 
such Estoppels in favor of BofA, for the benefit of each Lender, are 
made by a fiduciary which is not included among, and is independent of 
and unaffiliated with, the Lenders and BofA; (iii) with respect to 
Plans that may invest in the LP in the future, such Plans will have 
assets of not less than $100 million \1\ and not more than 5% of the 
assets of such Plan will be invested in the LP; and (iv) the General 
Partner is unrelated to any Plan and any Lender.
---------------------------------------------------------------------------

    \1\ In the case of multiple plans maintained by a single 
employer or a single group of employers treated as a single employer 
under sections 414(b), 414(c), 414(m), and 414(o) of the Code, the 
assets of which are invested on a commingled basis (e.g., through a 
master trust), this $100 million threshold will be applied to the 
aggregate assets of all such plans.
---------------------------------------------------------------------------

    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on September 23, 2002, at 67 
FR 59558.
    Effective Date: This exemption is effective July 30, 1998.
    For Further Information Contact: Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (This is not a toll-free number.)

A. Raimondo Inc. Pension Plan (the Plan), Located in Greensburg, PA

[Prohibited Transaction Exemption 2002-53; Exemption Application No. D-
11085]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and 406(b)(2) of the 
Act and the sanctions resulting from the application of section 4975 of 
the Code,\2\ by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply, effective May 1, 2002, to (1) the past and 
continued leasing (the Lease) of certain improved real property (the 
Property) by the Plan to A. Raimondo Inc. (the Employer), a party in 
interest with respect to the Plan; and (2) the exercise, by the 
Employer, of options to renew the Lease, for two additional terms.
---------------------------------------------------------------------------

    \2\ For purposes of this exemption, references to provisions of 
title I of the Act, unless otherwise specified, refer also to 
corresponding provisions of the Code.
---------------------------------------------------------------------------

    This exemption is subject to the following conditions:
    (a) The terms and conditions of the Lease have been, and continue 
to be, no less favorable to the Plan than those obtainable by the Plan 
under similar circumstances when negotiated at arm's length with 
unrelated third parties.
    (b) The Plan has been, and continues to be, represented for all 
purposes under the Lease, and during each renewal

[[Page 72235]]

term, by a qualified, independent fiduciary.
    (c) The Plan's independent fiduciary has negotiated, reviewed, and 
approved the terms and conditions of the Lease and the options to renew 
the Lease on behalf of the Plan and has determined that the 
transactions are appropriate investments for the Plan and are in the 
best interests of the Plan and its participants and beneficiaries.
    (d) The rent paid to the Plan under the Lease, and during each 
renewal term, is no less than the fair market rental value of the 
Property, as established by a qualified, independent appraiser.
    (e) The rent is adjusted annually to reflect changes in the 
Consumer Price Index (the CPI) and the Property is re-appraised at 
least every three years by a qualified, independent appraiser who is 
selected by the independent fiduciary to determine the appropriate fair 
market rental value (but in no event is the rental rate less than that 
established for the preceding rental term).
    (f) The Lease is triple net, requiring all expenses for 
maintenance, taxes, utilities and insurance to be paid by the Employer, 
as lessee.
    (g) The Plan's independent fiduciary has monitored, and continues 
to monitor, compliance with the terms of the Lease throughout the 
duration of the Lease and each renewal term, and is responsible for 
legally enforcing the payment of the rent and the proper performance of 
all other obligations of the Employer under the terms of the Lease.
    (h) The Plan's independent fiduciary expressly approves any renewal 
of the Lease beyond the initial term.
    (i) At all times throughout the duration of the Lease and each 
renewal term, the fair market value of the Property has not exceeded, 
and does not exceed, 25 percent of the value of the total assets of the 
Plan.
    Effective Date: This exemption is effective as of May 1, 2002.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on September 23, 2002, at 67 
FR 59562.

Written Comments

    The Department received one written comment with respect to the 
proposed exemption and no requests for a public hearing. The comment 
was submitted by the Employer and confirmed by Mr. Lawrence Walter, the 
Plan's independent fiduciary. The comment is intended to clarify two 
issues raised in the Summary of Facts and Representations (the Summary) 
of the proposed exemption. These issues are discussed below.
    1. Impact of Adjacent Real Estate on the Property's Value. 
Representation 3 of the Summary states, in part, that the Property is 
not located in close proximity to other real estate that is owned by 
the Employer and/or its principles. The Employer explains that although 
certain of its principals do own a parcel of residential real property 
that is adjacent to a corner of the Property, it does not believe such 
ownership impacts on the merits of the transactions involving the 
Lease. Because the Property is zoned for commercial use and the 
adjacent property is zoned solely for residential use, the Employer 
indicates that the two properties cannot be combined or used for the 
same purpose, and therefore, the ownership of the adjacent residential 
property by certain of its principals does not affect the value of the 
Property.
    In response to this comment, Mr. Walter has confirmed the 
representations made by the Employer. Mr. Walter also concurs that no 
additional value is attributable to the Property by reason of the 
ownership of contiguous residential property by certain of the 
Employer's principals.
    2. Excess Rental Value of the Property and Potential Code 
Violations. Representation 6 of the Summary states, in part, that an 
independent appraisal report dated July 16, 2001 (the 2001 Appraisal), 
placed the monthly fair market rental value of the Property at $3,500. 
Representation 5 of the Summary further states, in part, that the 
Employer is currently paying the Plan $4,500 per month in rent. The 
Employer indicates that these facts suggest that the rent paid to the 
Plan exceeds the fair rental value of the Property, and that such 
excess amount might be treated as an additional contribution to the 
Plan.\3\ In this regard, the Employer notes that Mr. Walter has been in 
communication with Mr. H. Kenneth Gehr, the independent appraiser, 
throughout the exemption application period and that based upon his 
experience in the real estate industry, Mr. Walter concluded that a 
slightly higher rental value was justified. Therefore, Mr. Walter set 
the current monthly rent at $4,500 rather than the $3,800 amount 
calculated by Mr. Gehr in the 2001 Appraisal.\4\
---------------------------------------------------------------------------

    \3\ The Department notes that the Department of the Treasury has 
determined that if a transaction between a qualified employee 
benefit plan and its sponsoring employer (or affiliate thereof) 
results in the plan either paying less than or receiving more than 
fair market value, such excess may be considered to be a 
contribution by the sponsoring employer to the plan and, therefore, 
must be examined under applicable provisions of the Code, including 
sections 401(a)(4), 404 and 415.
    \4\ In an appraisal report dated August 20, 2002, which was 
subsequent to the effective date of the Lease, Mr. Gehr updated the 
2002 Appraisal. As of August 16, 2002, Mr. Gehr placed the fair 
market value of the Property at $258,700 and its fair market rental 
value at $4,200 monthly or $50,400 annually.
    Under the terms of the former exemption that was issued to the 
Employer (Prohibited Transaction Exemption 87-63, 52 FR 24078, June 
26, 1987) and the new exemption, the appraisal is only required to 
be updated once every three years. However, under both exemptions, 
the annual rent is to be adjusted by the independent fiduciary to 
reflect changes in the CPI.
---------------------------------------------------------------------------

    In addition, the Employer states that Mr. Walter was selected to 
serve as the Plan's independent fiduciary because he is a Licensed 
Public Accountant and Certified Financial Planner who does substantial 
work involving the real estate industry. Moreover, the Employer 
explains that Mr. Walter's determination of the Property's fair market 
value is not only entitled to weight, but, in light of his ongoing 
responsibility as the Plan's independent fiduciary, he is the final 
arbiter of fair market value to the Plan. Based upon Mr. Walter's 
determination of the fair market rental value of the Property, the 
Employer is of the belief that the Plan should not be viewed as 
receiving excess rental value for the Property that would cause 
violations of the Code.
    In response to this comment, Mr. Walter again confirms the 
representations made by the Employer. In addition, Mr. Walter concurs 
that the Plan should not be viewed as receiving an amount that is in 
excess of the fair market rental value of the Property that would 
violate the Code.
    On the basis of the Employer's comment letter and Mr. Walter's 
confirmation and agreement with the statements contained therein, the 
Department notes the foregoing clarifications to the Summary. The 
Department also notes that the valuation date for the 2001 Appraisal is 
July 16, 2001, instead of July 31, 2001.
    For further information regarding the Employer's comment, Mr. 
Walter's confirmation statement, and other matters discussed herein, 
interested persons are encouraged to obtain copies of the exemption 
application file (Exemption Application No. D-11085) the Department is 
maintaining in this case. The complete application file, as well as all 
supplemental submissions received by the Department, are made available 
for public inspection in the Public Disclosure Room of the Pension and 
Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 
200 Constitution Avenue, NW., Washington, DC 20210.

[[Page 72236]]

    Accordingly, after giving full consideration to the entire record, 
including the written comment and the confirmation statement, the 
Department has decided to grant the exemption
    For Further Information Contact: Ms. Anna M.N. Mpras of the 
Department, telephone (202) 693-8565. (This is not a toll-free number.)

J. Penner Corporation Profit, Sharing Plan (the Plan), Located in 
Doylestown, PA

[Prohibited Transaction Exemption 2002-54; Exemption Application No. D-
11099].

Exemption

    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,\5\ shall not apply to (1) the sale (the Sale) of certain improved 
real property (the Property) by Thomas G. Frazier and Carol G. Frazier 
(the Fraziers) to their respective participant-directed individual 
investment accounts in the Plan (together, the Frazier Accounts); and 
(2) the simultaneous lease (the Lease) of the Property by the Frazier 
Accounts to J. Penner Corporation (the Corporation), the Plan sponsor 
and a party in interest with respect to the Plan.
---------------------------------------------------------------------------

    \5\ For purposes of this exemption, references to provisions of 
title I of the Act, unless otherwise, specified, refer also to 
corresponding provisions of the Code.
---------------------------------------------------------------------------

    This exemption is subject to the following conditions:
    (a) The terms and conditions of the transactions are not less 
favorable to the Frazier Accounts than those which the Frazier Accounts 
would receive in an arm's length transaction with an unrelated party.
    (b) The Sale is a one-time transaction for cash.
    (c) The acquisition price that is paid by the Frazier Accounts for 
proportionate interests in the Property is not more than the fair 
market value of the Property as determined by a qualified, independent, 
appraiser on the date of the Sale.
    (d) The value of the proportionate interests in the Property that 
are acquired by each of the Frazier Accounts does not exceed 25% of 
each of the Frazier Accounts' assets at the time of the Sale nor 
throughout the duration of the Lease.
    (e) The Frazier Accounts do not pay any real estate fees, 
commissions or other expenses with respect to the transactions.
    (f) The rental amount under the Lease is no less than the fair 
market rental value of the Property, as determined by a qualified, 
independent appraiser on the date the Lease is entered into by the 
parties.
    (g) The Lease is a triple net lease under which the Corporation, as 
lessee, pays, in addition to the base rent, all normal operating 
expenses of the Property, including taxes, insurance, maintenance, 
repairs and utilities.
    (h) The Frazier indemnify and hold the Plan and the Frazier 
Accounts harmless from any liability arising from the Sale, including, 
but not limited to, hazardous material found on the Property, violation 
of zoning, land use regulations or restrictions, and violations of 
Federal, State or local environmental regulations or laws.
    (i) The Sale is effected and the Lease comments only upon 
completion of the following transactions, which shall occur no later 
than sixty days after the granting of the final exemption: (1) The 
Fraziers and the Bucks County Industrial Development Corporation 
(BCIDC) fulfill all of their obligations to the Pennsylvania Industrial 
Development Authority; (2) the Fraziers pay off their debt obligation 
to BCIDC in accordance with the terms of an installment sale agreement 
and reacquire legal title to the Property; and (3) the lease agreement 
between the Fraziers and the Corporation is terminated.
    For a more complete statement of the fats and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on October 8, 2002, at 67 FR 
62824.
    For Further Information Contact: Ms. Anna M.N. Mpras of the 
Department, telephone (202) 693-8565. (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 or disqualified 
person form certain other 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) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory of 
administrative exemptions and transactional 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
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed in Washington, DC, this 27th day of November, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 02-30564 Filed 12-3-02; 8:45 am]
BILLING CODE 4510-29-M