[Federal Register Volume 68, Number 242 (Wednesday, December 17, 2003)]
[Notices]
[Pages 70307-70311]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 03-31102]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11198, et al.]
Proposed Exemptions; Bangs, McCullen, Butler, Foye & Simmons,
L.L.P. Employees Profit Sharing Plan (the Plan)
AGENCY: Employee Benefits Security 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
requests 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.
[[Page 70308]]
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5649,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ------, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to EBSA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
``[email protected]'', or by FAX to (202) 219-0204 by the end of
the scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Employee Benefits Security Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 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, 5 U.S.C. App. 1 (1996), 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.
Bangs, McCullen, Butler, Foye & Simmons, L.L.P. Employees Profit
Sharing Plan (the Plan) Located in Rapid City, South Dakota
[Application No. D-11198]
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)
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 January 1, 2004, to the proposed lease
by the Plan (the New Lease) of certain improved real property (the
Property) located in Rapid City, South Dakota, to Bangs, McCullen,
Butler, Foye & Simmons, L.L.P. (the Employer), the sponsor of the Plan,
and a party in interest with respect to the Plan; provided that the
following conditions are satisfied:
(A) All terms and conditions of the New Lease are 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 New Lease is a triple net lease under which the Employer is
obligated to pay for all costs of maintenance, repair, and taxes
related to the Property;
(C) The interests of the Plan for all purposes under the New Lease
are represented by an independent fiduciary, Wells Fargo Bank, N.A.,
Rapid City, South Dakota (the Trustee);
(D) The rent paid by the Employer under the New Lease is no less
than the fair market rental value of the Property; and
(E) If the summary appraisal of the Property (the Summary
Appraisal), due in mid-December 2003, contains a fair market rental
value that is higher than the current fair market rental value set
forth in the New Lease, the Employer will amend the New Lease to pay
the Plan the higher amount, retroactive to January 1, 2004.
Effective Date: This exemption, if granted, will be effective as of
January 1, 2004.
Summary of Facts and Representations
1. The Plan is a profit sharing retirement plan which was
established December 31, 1964. As of July 31, 2003, the Plan had 42
participants and $9,693,762.89 in assets. The Plan is maintained by the
Employer, which is a South Dakota general partnership engaged in the
practice of law. Investment discretion over the Plan's assets is
exercised by Thomas H. Foye, Charles Riter and John H. Raford. Mr.
Riter and Mr. Raford are partners of the Employer, and Mr. Foye is an
employee of the Employer. The Plan's assets are held in trust by Wells
Fargo Bank, N.A., Rapid City, South Dakota (i.e., the Trustee), which
will also be serving as the independent fiduciary for purposes of the
New Lease. The Trustee was formerly named Norwest Bank South Dakota,
N.A. (Norwest Bank). Norwest Bank was acquired by Wells Fargo Bank,
N.A., effective November 2, 1998. The Trustee represents that it is
independent of the Employer and its affiliates. In this regard, the
applicant represents that while the Employer has deposits with the
Trustee, those deposits constitute less than one percent (1%) of the
Trustee's total deposits. It is represented that the Trustee does not
have common officers or directors with the Employer. While the Employer
may have occasional loans with the Trustee, such loans would be less
than 1% of the Trustee's total outstanding loans. The Trustee and its
predecessors have served as trustees for the Plan since the time it was
adopted in 1964.
2. Among the assets of the Plan is the Property, a parcel of
improved real estate which constitutes the Employer's principal place
of business. The Property is located in downtown Rapid City, South
Dakota, and is a two-story brick office building containing
approximately 9,600 square feet of office space. The Employer has
leased the Property from the Plan under a triple net lease (the Prior
Lease) with a ten year term commencing January 1, 1994 and ending
December 31, 2003. The Prior Lease was exempt from the prohibitions of
section 406 of the Act and section 4975(c) of the Code by virtue of an
individual administrative exemption, Prohibited Transaction Exemption
94-25 (PTE 94-25, 59 FR 12355, March 16, 1994), granted by the
Department. The interests of the Plan under the Prior Lease were
represented by the Trustee's predecessor, Norwest Bank.
Under PTE 94-25, Norwest Bank monitored the Employer's performance
and represented the Plan in enforcing the terms and the conditions of
the Prior Lease. The Trustee represents that the Employer occupied the
Property in compliance with all terms and conditions of the Prior Lease
for its duration. The Prior Lease expires on December 31, 2003.
3. The Trustee states that the Plan's lease of the Property to the
Employer
[[Page 70309]]
continues to be a favorable Plan investment because, among other
things, it provides the Plan with an annual rate of return which is
better than annual returns produced by other Plan investments at this
time.
Therefore, the Trustee concludes that, effective January 1, 2004,
the continued leasing of the Property by the Plan to the Employer for
approximately a three (3) year period would be in the best interest of
the Plan. The Trustee is attempting to sell the Property and has listed
the Property for sale with the real estate firm of Coldwell Banker
Kirkeby-Hall. The Property has been listed for sale since May 20, 2003.
However, no offers have been received to date. The Trustee states that
a shorter term lease is preferable because a long-term lease may
dissuade a potential buyer from purchasing the Property, especially if
the buyer desires to occupy the Property. Therefore, the Trustee and
the Employer have agreed to a new leasing arrangement (i.e., the New
Lease), effective January 1, 2004, which will provide for the Plan's
continued leasing of the Property to the Employer for at least three
(3) years (as discussed below). Accordingly, the Employer and the
Trustee are requesting an exemption for the New Lease under the terms
and conditions described herein.
4. The New lease is a triple net lease for a term of three (3)
years commencing January 1, 2004 and terminating December 31, 2006,
both dates inclusive. The New Lease may be renewed by the Employer as
the tenant for an additional period of one (1) year (the Option). The
Option may be exercised upon giving sixty (60) days written notice to
the Plan, as the landlord.
The interests of the Plan under the New Lease will be represented
by the Trustee. In this regard, the Trustee states that it knows of no
capital repairs or improvements that are required to the Property at
this time, and does not anticipate any such repairs in the foreseeable
future. The annual rental under the New Lease is payable in equal
monthly installments. Initial rental under the New Lease will be $7,200
per month, or $86,400 annually.
5. The fair market rental value of the Property has been
established periodically (pursuant to the terms of the Prior Lease and
PTE 94-25) by Richard S. Kahler, CCIM, GAA, CFP (Mr. K), a professional
real estate appraiser with Kahler Appraisal Services, located in Rapid
City, South Dakota. Mr. K discusses the current fair market rental
value of the Property in letters dated March 31, 2003 and August 6,
2003 (the Updates). In the Updates, Mr. K refers to an appraisal
prepared during the Prior Lease, as required under PTE 94-25. Mr. K
states, among other things, that in 2002, the fair market rent for the
Property was increased to $9.00 per square foot. Furthermore, Mr. K
also states that his market review prepared in March, 2003, did not
evidence an additional increase in the fair market rental value for the
Property at that time.
In anticipation of the New Lease or a possible sale of the Property
to a third-party buyer, the applicant had Mr. K prepare an immediate
restricted appraisal report (the Report) of the Property on October 15,
2003. In the Report, Mr. K relied on the sales comparison approach (SC
Approach) and the income approach (Inc. Approach) in appraising the
fair market value of the Property. Mr. K states that the current fair
market value of the Property under the SC Approach is between $748,000
and $770,000. Under the Inc. Approach, Mr. K used an appropriate
capitalization rate (i.e., 9.0%),\1\ to determine an estimated market
value of between $760,000 and $785,000 for the Property. Therefore, as
of October 15, 2003, Mr. K determined that the fair market value of a
fee simple interest in the Property would be in the range of $750,000
to $800,000.
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\1\ A capitalization rate is a rate of interest used to convert
a series of future payments into a single present value.
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6. Furthermore, Mr. K has represented to the applicant and the
Department that he will provide a full updated summary appraisal
(Summary Appraisal) of the fair market value and fair rental value of
the Property by middle of December, 2003. The New Lease has a provision
stating that if the Summary Appraisal contains a fair market rental
value for the Property that is higher than the current fair market
rental value set forth in the New Lease (i.e., $7,200 per month, or
$86,400 annually), the Employer will amend the New Lease to pay the
Plan the higher amount. Any new rental amount will be adjusted
retroactive to January 1, 2004, to provide for the higher rental value
as of that date. In addition, commencing January 1, 2004, any
appropriate higher amount of rent will be paid to the Plan by the
Employer within 30 days of the receipt of the Summary Appraisal.
Furthermore, the Trustee states that it will monitor the New Lease
and its fair market rent provisions annually. The Trustee will obtain
annual independent determinations of the fair market rental value of
the Property. The Trustee will ensure that the Plan receives annual
increases in rents that reflect the fair market rental value of the
Property.
Under the New Lease, the Employer will indemnify and hold the Plan
harmless from all penalties, claims, demands, liabilities, expenses and
losses of any nature arising from the Employer's use of the Property.
7. The Trustee will monitor the Employer's performance under the
New Lease, on behalf of the Plan, and will enforce its terms and
conditions. As the Plan's independent fiduciary, the Trustee will take
whatever actions are necessary to protect the interests of the Plan and
its participants and beneficiaries.
The Trustee has reviewed and evaluated the Plan's continued leasing
of the Property to the Employer under the New Lease and has determined
that the transaction would be in the best interests of the Plan's
participants and beneficiaries. Specifically, the Trustee states that
the Employer has proven to be a successful, reliable tenant of the
Property, and that the Property constitutes a productive Plan asset.
8. In summary, the applicant represents that the subject
transaction satisfies the criteria of section 408(a) of the Act
because:
(A) The New Lease is a triple net lease requiring the Employer to
pay all costs for repair, maintenance, taxes and insurance on the
Property;
(B) The interests of the Plan under the New Lease are represented
by the Trustee, an independent fiduciary which will monitor and enforce
the Employer's performance under the terms and conditions of the New
Lease;
(C) The New Lease ensures that the rental payments will remain no
less than the fair market rental value of the Property for the duration
of the transaction;
(D) The New Lease contains a provision stating that if the Summary
Appraisal, due in mid-December 2003, contains a fair market rental
value for the Property that is higher that the current fair market
rental value set forth in the New Lease, the Employer will amend the
New Lease to pay the Plan the higher amount, retroactive to January 1,
2004; and
(E) The Trustee has reviewed the Plan's continued leasing of the
Property under the New Lease and has determined that the transaction
would be in the best interests of the Plan and its participants and
beneficiaries.
For Further Information Contact: Ekaterina A. Uzlyan of the Department
at (202) 693-8540. (This is not a toll-free number.)
[[Page 70310]]
Painters District Council No. 4 Apprenticeship, Upgrading & Retraining
Trust Fund (the Plan) Located in Cheektowaga, New York
[Application No. L-11190]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act 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) of the Act shall not apply to a lease (the Lease) of
certain space (the Leased Premises) in a building (the Building) owned
by the Plan to Lipsitz, Green, Fahringer, Roll, Salisbury & Cambria,
LLP (the Applicant), a party in interest with respect to the Plan;
provided that the following conditions are satisfied:
(a) All terms and conditions of the Lease are 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 decision by the Plan to enter into the Lease will be made
by the trustees of the Plan (the Trustees); and
(c) The fair market rental amount for the Lease will be determined
by an independent, qualified appraiser as of the date of the
commencement of the Lease; and
(d) After commencement of the Lease, an additional fair market
rental appraisal of the Leased Premises will be performed by an
independent, qualified appraiser every thirty months with the rental
rate being adjusted accordingly.
Summary of Facts and Representations
1. The Plan is a defined contribution plan, covering members of the
Painters District Council No. 4 whose employers contribute to the Plan
under the terms of Collective Bargaining Agreements with the Painters
District Council. The Plan is subject to the provisions of ERISA, and
became effective on September 25, 1966. The Plan provides
apprenticeship training and journeyman upgrading to participants. In
addition, the Plan offers training and certification in the following
Health and Safety Disciplines: OSHA Hazard Awareness, Scaffolding,
Welding, Fall Protection, Ergonomics, Confined Space, Respirator Fit
Testing, Hazwoper, Lead Abatement, Asbestos and CPR-First Aid for the
Painting and Glazing Industry. The Plan currently has approximately 500
active participants. The Applicant provides legal services to the Plan
and to other multi-employer pension and welfare plans.
The Applicant is a law firm that practices in a broad range of
legal concentrations. The Applicant has an employment law practice that
represents a number of jointly administered employee benefit funds. One
of the Applicant's clients is the Plan.
2. The Leased Premises and the Building are located at 585 Aero
Drive, Cheektowaga, New York. The Building is a one-story office and
warehouse facility containing 11,922 square feet. The Leased Premises
has 1,500 square feet of office area. On December 11, 2002, the Plan
purchased the Building for $450,000 from the Niagara Frontier
Transportation Authority, an unrelated third party. The Plan continues
to lease the other office space to the same parties to whom it was
previously subleased including multi-employer funds (the Funds) who are
parties in interest to the Plan. The Applicant represents that the
lease agreements with the Funds operate pursuant to the guidelines
established by Prohibited Transaction Exemption 76-1 (41 FR 12740,
12744, March 26, 1976) (PTE 76-1).\2\
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\2\ The Department expresses no opinion herein as to whether the
lease agreements between the Funds and the Plan satisfy the
provisions of PTE 76-1.
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Due to the Applicant's hiring of a new attorney who now seeks to
rent the Leased Premises, the Applicants will become parties in
interest with respect to the Plan upon the inception of the Lease. The
Applicants seek to enter into a five-year lease agreement for the
Leased Premises. The decision by the Plan to enter into the Lease will
be made by the Trustees who are independent of the Applicant. The fair
market rental amount for the Lease will be determined by an
independent, qualified appraiser. Additionally, fair market rental
appraisals will be performed at the commencement of the Lease and at
thirty month intervals thereafter by an independent, qualified
appraiser. Rental rates will be adjusted in accordance with each
subsequent appraisal.
3. The fair market rent of the Leased Premises has been established
by an appraisal dated February 25, 2003 and will be updated prior to
the commencement of the Lease. The appraisal was prepared by Howard P.
Schultz & Associates. The appraisal relied on the market sales
comparison approach to determine the fair market rental value of the
Leased Premises. The appraisal states that the fair market rent for the
Leased Premises is $15/square foot, which equates to $22,500 annually.
The rental rate includes real estate taxes, insurance, utilities,
cleaning and janitorial service all of which will be paid by the
Applicant. The Lease will be on the terms no less favorable to the
Applicant than an arm's length transaction with an unrelated party.
4. The Applicant states that the Lease will be protective of the
Plan and consistent with the Plan's investment needs and objectives.
The exemption would be protective of the rights of the Plan
participants and their beneficiaries because the Lease will provide
rental income to the Plan as owners of the Building. Moreover, the
Applicant will pay rent in an amount determined to be commercially
identical to an arm's length business transaction. Not only would the
Lease constitute an arm's length business transaction, but having legal
counsel close to the Plan would be beneficial for the Plan fiduciaries.
Legal issues typically arise with some of the Plan participants that
require immediate legal attention or advice. Having the Applicant
located next to the office for the Plan's employees would reduce
telephone costs and the time needed to get answers for legal questions
that require immediate assistance.
The location of the office is also extremely beneficial for trustee
meetings, and meetings with other Plan officials who normally would
have to assume the cost for travel for the Applicant's employees. In
addition, many of the apprenticeship standards and procedures for Plan
operations are changed on a regular basis. These changes are not made
effective until legal counsel has reviewed the changes to all of the
corresponding documents. Having the Applicant within the same Building
as the Plan's employees would decrease the expenses and time associated
with multiple mailings. Documents can be reviewed instantly without
redlined copies having to be mailed back and forth.
5. In summary, the Applicant represents that the transaction
satisfies the statutory criteria of section 408(a) of the Act because:
(a) All terms and conditions of the Lease are 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 decision by the Plan to enter into the Lease will be made
by the Trustees;
(c) The fair market rental value for the Lease will be determined
by an independent, qualified appraiser as of the date of the
commencement of the Lease; and
(d) Thirty months after commencement of the five year lease an
additional fair market rental appraisal of the Leased Premises will be
performed
[[Page 70311]]
by an independent, qualified appraiser every thirty months with the
rental rate being adjusted accordingly.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the applicant and Department within 15 days of the date of publication
in the Federal Register. Comments are due forty-five (45) days after
publication of the notice in the Federal Register.
For Further Information Contact: Khalif Ford of the Department,
telephone (202) 693-8540 (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 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 12th day of December, 2003.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department of Labor.
[FR Doc. 03-31102 Filed 12-16-03; 8:45 am]
BILLING CODE 4510-29-P