[Federal Register Volume 70, Number 248 (Wednesday, December 28, 2005)]
[Notices]
[Pages 76870-76886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-24493]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11306, et al.]


Proposed Exemptions; Pennsylvania Institute of Neurological 
Disorders, Inc. 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.

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.

Pennsylvania Institute of Neurological Disorders, Inc. Profit Sharing 
Plan (the Plan) Located in Sunbury, PA

[Application No. D-11306]

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 to the proposed sale (the Sale) by the Plan of a 
parcel of unimproved real property known as Lot 20, Section ``F'', 
Monroe Manor, Inc., (Lot 20 Kingswood Drive, Selinsgrove, PA 
17870) (the Property) to Mahmood Nasir, M.D. (Dr. Nasir), a party in 
interest with respect to the Plan, provided that the following 
conditions are satisfied:

[[Page 76871]]

    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (b) The Sales price is the greater of $81,000 or the fair market 
value of the Property as of the date of the Sale;
    (c) The fair market value of the Property has been determined by a 
qualified independent appraiser;
    (d) The Sale is a one-time transaction for cash;
    (e) The Plan does not pay any commissions, costs, or other expenses 
in connection with the Sale; and
    (f) The Plan fiduciaries will determine, among other things, 
whether it is in the interest of the Plan to go forward with the Sale 
of the Property, will review and approve the methodology used in the 
appraisal that is being relied upon, and will ensure that such 
methodology is applied by a qualified independent appraiser in 
determining the fair market value of the Property as of the date of the 
Sale.

Summary of Facts and Representations

    1. The Pennsylvania Institute of Neurological Disorders, Inc. (the 
Employer) is the sponsor of the Plan. Dr. Nasir is the sole owner and 
shareholder of the Employer. Dr. Nasir is also the President of the 
Employer. The Employer is located in Sunbury, Pennsylvania.
    The Plan is a defined contribution profit sharing plan which was 
effective as of September 1, 1993. As of December 31, 2004, the Plan 
had seven participants, who are as follows: Dr. Nasir, Denise Bebenek, 
Teresa Gelnett, Julie Rebuck, Judy S. Smink, Hollie Vankirk, and Cassie 
J. Wolfe. The Trustees of the Plan are Dr. Nasir and Rubina Nasir. As 
of December 31, 2004, the Plan had total assets of $403,241.99.
    2. In July 1995, the Plan purchased the Property from John A. Bolig 
and Christabelle M. Bolig, unrelated third parties, for $49,000.\1\ The 
Property is a 22,500 square foot parcel of unimproved real property 
located at Lot 20 Kingswood Drive, Selinsgrove, Pennsylvania 
17870. The Property is adjacent to property owned and resided on by Dr. 
Nasir. The applicant represents that the Property has not been leased 
to, or used by, any party in interest with respect to the Plan since 
the date of acquisition by the Plan. The value of the Property 
represents approximately 16.57% of the Plan's total assets as of 
December 31, 2004. The applicant represents that the only Plan 
expenditure with respect to the Property is $511.72 in annual real 
estate taxes from 1995 (i.e., the year of original acquisition) until 
the present. Therefore, the total cost to the Plan for the Property was 
$54,628.92 as of the present date ($5,628.92 + $49,000 = $54,628.92). 
Since the date of the purchase, the Property has remained vacant and no 
income has been generated.
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    \1\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Property by the Plan violated any of 
the provisions of part 4 of Title I of the Act.
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    3. The Property was appraised (the Appraisal) on June 21, 2005, by 
Mary Beth Rodriguez (the Appraiser), of the Bowen Agency in 
Selinsgrove, Pennsylvania. The Appraiser is certified by the 
Commonwealth of Pennsylvania as a General Appraiser. The Appraiser has 
certified that she is independent of the Employer, the Trustees, and 
any other parties in interest.
    The Property was valued using the sales approach. The Appraiser 
compared the Property to three other similar properties sold within a 
one-half mile of the Property since March 2004. She adjusted the sale 
price of the comparable properties based upon date of the sale, 
location, and site/view. The Appraiser determined that the fair market 
value of the Property was $81,000 as of June 21, 2005.
    The Appraiser did not attribute any special benefit to the value of 
the Property from the ownership of Dr. Nasir of the adjacent property 
due to a number of factors. First, there is a driveway dividing the two 
parcels. Second, the ownership of the Property by Dr. Nasir does not 
affect Dr. Nasir's interest in the adjacent lot. Finally, the value of 
the sum of the separate values for the Property and the adjacent parcel 
already owned by Dr. Nasir is greater than the value if the Property 
and the adjacent lot were sold as one combined lot. Therefore, the 
Appraisal does not include any premium for assemblage value.\2\
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    \2\ ``Assemblage'' value reflects the willingness of a purchaser 
to pay above market value for a parcel of property in order to 
preserve such purchaser's interest in their present holdings of 
other parcels which are adjacent to such property.
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    4. The applicant represents that the proposed transaction is in the 
interest of the Plan because a gain will be realized when the parcel of 
land is sold to Dr. Nasir and the proceeds can be reinvested in other 
investments with a higher rate of return without incurring carrying 
costs such as real estate taxes. The Property is the only real property 
owned by the Plan. The transaction will be a one-time cash sale and 
will enable the Plan to diversify its investment portfolio.
    Furthermore, the applicant represents that the proposed transaction 
is in the best interest and protective of the Plan because the Sale 
will be for an amount equal to the greater of: (i) $81,000 which 
represents the fair market value of the Property as of June 21, 2005, 
or (ii) the current fair market value of the Property, as established 
by a qualified independent appraiser on the date of the Sale. This 
amount exceeds the original acquisition cost of the Property, plus 
expenses and real estate taxes incurred by the Plan from the date of 
the acquisition until the date of the proposed Sale. The Plan will not 
pay any commissions, costs, or other expenses in connection with the 
Sale. The applicant states that the Appraisal will be updated as of the 
date of the transaction.\3\
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    \3\ For this purpose, the updated appraisal must take into 
account any new data on recent sales of similar property in the 
local real estate market, which may affect the valuation conclusion.
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    5. The Plan fiduciaries will determine, among other things, whether 
it is in the interest of the Plan to go forward with the Sale of the 
Property, will review and approve the methodology used in the appraisal 
that is being relied upon, and will ensure that such methodology is 
applied by a qualified independent appraiser in determining the fair 
market value of the Property as of the date of the Sale.
    6. The proposed transaction will occur within 30 days of the 
publication of the grant of the prohibited transaction exemption.
    7. In summary, the applicant represents that the subject 
transaction satisfies the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) All terms and conditions of the Sale will be at least as 
favorable to the Plan as those that the Plan could obtain in an arms-
length transaction with an unrelated party;
    (b) The fair market value for Property has been determined by a 
qualified independent appraiser;
    (c) The Sale will be a one-time transaction for cash;
    (d) The Plan will not pay any commissions, costs, or other expenses 
in connection with the Sale; and
    (e) The Plan will receive an amount equal to the greater of: (i) 
$81,000; or (ii) the current fair market value of the Property as of 
the date of the Sale.

Notice to Interested Persons

    Notice of the proposed exemption shall be given to all interested 
persons in the manner agreed upon by the

[[Page 76872]]

applicant and Department within 15 days of the date of publication in 
the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Ms. Blessed Chuksorji of the 
Department, telephone (202) 693-8567 (this is not a toll-free number).

The Zieger Health Care Corporation Retirement Fund (the Plan) Located 
in Farmington, Michigan

[Exemption Application No. D-11313]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act (the Act) and section 4975(c)(2) of the Internal Revenue Code of 
1986 (the Code), and in accordance with the procedures set forth in 29 
CFR part 2570, subpart B, 55 FR 32836, 32847 (August 10, 1990).\4\
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    \4\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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I. Transactions

    If the exemption is granted, the restrictions of sections 406(a), 
406(b)(1), 406(b)(2), and 407(a) of the Act and the sanctions resulting 
from the application of section 4975, by reason of sections 
4975(c)(1)(A) through (E) of the Code, shall not apply to:
    (a) The in-kind contribution and transfer to the Plan (the In-Kind 
Contribution) by Zieger Health Care Corporation (ZHCC), acting through 
its wholly-owned subsidiary, Botsford General Hospital (the Hospital), 
both of which are parties in interest with respect to the Plan, of the 
Hospital's right, title, and interest in five (5) limited liability 
corporations, (collectively, the LLCs or individually, an LLC) where 
the sole asset of each such LLC is one of five (5) parcels of improved 
real property situated in southeastern Michigan (individually, an 
Underlying Property, collectively, the Properties).
    (b) The holding by the Plan of ownership interests in the LLCs that 
own the Properties.
    (c) The leaseback by the Plan to the Hospital of the Underlying 
Property held by each of the LLCs, (individually, a Lease or 
collectively, the Leases).
    (d) The sale of an Underlying Property (or ownership interest in an 
LLC, as the case may be) by the Plan to ZHCC or its affiliates, 
pursuant to a right of first offer (the RFO), as described in each 
Lease, at any time during the term of such Lease.
    (e) Any payment or payments to the Plan by the Hospital, pursuant 
to contingent rent payments(s) (the Contingent Rent Payment(s)), as 
described in each Lease, during the term of such Lease.\5\
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    \5\ The transactions described in section I (a)-(e), above, 
collectively, are referred to herein as the Transactions.
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II. Conditions

    The exemption is conditioned upon adherence to the material facts 
and representations described herein and upon satisfaction of the 
following requirements:
    (a) ZHCC contributes to the Plan no less than:
    (1) Cash in the amount of $3.3 million in the year 2005;
    (2) Cash in the amount of $2 million in each of the years 2006, 
2007, and 2008; and
    (3) Cash in the amount of $3 million in the year 2009.
    (b) A qualified, independent fiduciary, as defined in section 
III(c), below, (the Independent Fiduciary), acting on behalf of the 
Plan, determines in accordance with the fiduciary provisions of the 
Act, whether and on what terms to enter into each of the Transactions.
    (c) The Independent Fiduciary represents the Plan's interests for 
all purposes with respect to each of the Transactions and determines, 
prior to entering into any of the Transactions, that each such 
transaction is feasible, in the interest of the Plan, and protective of 
the Plan and its participants and beneficiaries.
    (d) The Independent Fiduciary reviews, negotiates, and approves the 
specific terms of each of the Transactions.
    (e) The Independent Fiduciary monitors compliance by ZHCC and its 
affiliates, as defined in section III(a), below, with the terms of each 
of the Transactions and with the conditions of this proposed exemption 
to ensure that such terms and conditions are at all times satisfied.
    (f) The Independent Fiduciary manages the acquisition, holding, 
leasing, and disposition of the Plan's ownership interests in the LLCs 
that own the Properties and takes whatever actions are necessary to 
protect the rights of the Plan with respect the Plan's ownership 
interests in such LLCs.
    (g) The terms and conditions of each of the Transactions are no 
less favorable to the Plan than terms negotiated at arm's length under 
similar circumstances between unrelated third parties.
    (h) The Independent Fiduciary determines the fair market value of 
the In-Kind Contribution, as of the date such contribution is made. In 
determining the fair market value of the In-Kind Contribution, the 
Independent Fiduciary obtains an updated appraisal from an independent, 
qualified appraiser selected by the Independent Fiduciary and ensures 
that the appraisal is consistent with sound principles of valuation.
    (i) Each Lease has a term of years, commencing on the closing date 
of the In-Kind Contribution and ending ten (10) years thereafter. Each 
Lease is a triple net ``bondable'' lease in which the Hospital's 
obligation to pay rent to the Plan is absolute and unconditional. The 
rental payment under each Lease is no less than the fair market rental 
value of the leased premises, as determined by the Independent 
Fiduciary, and is net of all costs related to the leased premises, 
including costs of capital improvements and all other costs to operate, 
maintain, repair and replace in good condition, and repair the systems 
and structural and non-structural components of the buildings on the 
leased premises, including without limitation, the roof, foundation, 
landscaping, storm water management, utilities, and all other capital 
and non-capital repairs and replacements, all in a manner befitting 
office buildings comparable to the buildings on the leased premises and 
in accordance with all applicable laws. Each Lease contains a 
commercially reasonable standard for determining whether repair or 
replacement is necessitated. All such maintenance, repair, and 
replacement work is the responsibility of the Hospital. As discussed in 
representation number 6 in the Summary of Facts and Representations, 
below, and except as otherwise provided in each Lease, the Hospital is 
required to restore the leased premises in the event of casualty or 
condemnation, regardless of any lack or insufficiency of insurance 
proceeds or condemnation awards therefore (but subject to all 
applicable laws);
    (j) ZHCC and the Hospital agree to make one or more Contingent Rent 
Payment(s) to the Plan, if the Plan does not earn an annual return on 
each of the Properties equal to a fixed interest rate of 8 percent (8%) 
in any year (the Minimum Funding Rate). Each Contingent Rent Payment is 
due on the earliest of: (1) The end of the ten (10) year term of the 
Leases, (2) the termination of any of the Leases (including a 
termination due to default,

[[Page 76873]]

destruction, or condemnation), or (3) the sale by the Plan of any 
parcel included in the Properties (or the sale by the Plan of the 
entity that owns any parcel) (each a Minimum Return Date). If the 
actual return to the Plan (the Actual Return), as defined in section 
III (d), below, is less than the sum of the contribution value of the 
Properties, plus a return on such contribution value equal to the 
Minimum Funding Rate (the Minimum Return), then ZHCC and the Hospital 
shall pay to the Plan a Contingent Rental Payment equal to the amount 
of any such difference. ZHCC and the Hospital shall pay each Contingent 
Rent Payment to the Plan in cash within 180 days after each Minimum 
Return Date.
    (k) If the Plan desires to sell or convey any of the Properties (or 
any of the LLCs, as the case may be), during the term of a Lease, the 
Plan shall first offer the Hospital the right to purchase or otherwise 
acquire such property or LLC, pursuant to a right of first offer (the 
RFO): (1) On such terms and conditions as the Plan proposes to market 
such property or such LLC for sale (Soliciting Offer), which terms and 
conditions shall reflect the Plan's good faith determination of market 
conditions and the fair market value for such property or LLC, or (2) 
on such terms and conditions as are contained within an unsolicited 
bona fide offer from an unaffiliated third party that the Plan desires 
to accept (Unsolicited Offer). The parties shall negotiate in good 
faith the terms and conditions of any purchase based on a Soliciting 
Offer for a period of thirty (30) days following the Plan's notice to 
the Hospital. In all events, the Hospital shall exercise such right to 
purchase, if at all, upon notice to the Plan within the thirty (30) day 
period described above with respect to a Soliciting Offer or within 
thirty (30) days after notice to the Hospital of an Unsolicited Offer. 
If the Hospital fails to exercise such right to purchase, the Plan is 
free to sell such property or LLC (i.e., close on the transfer) to a 
third party on such terms for the next 360 days. However, the Plan 
shall not have the right to sell to a third party at a lower effective 
purchase price or on any other materially more favorable term than the 
effective purchase price and terms proposed by the Plan to the Hospital 
without first re-offering such property or LLC to the Hospital at such 
lower effective purchase price or other more favorable term, nor to 
sell on any terms following the expiration of such 360-day period, 
without in either event first re-offering such property or LLC to the 
Hospital. The RFO shall terminate upon the commencement of the exercise 
by the Plan of its remedies under the Leases as the result of a 
monetary event of default by the Hospital that continues uncured 
following notice and the expiration of applicable cure periods (and a 
second notice and cure period provided fifteen (15) days before the 
loss of such right on account of such default).
    (l) Subject to the Hospital's RFO, the Plan retains the right to 
sell or assign, in whole or in part, any of its interests in the 
Properties (or any of its interests in the LLCs, as the case may be) to 
any third party purchaser.
    (m) ZHCC indemnifies the Plan with respect to any liability for 
hazardous materials released on the Properties, whether such release 
occurs prior to or after the execution of the Leases or the In-Kind 
Contribution;
    (n) The In-Kind Contribution is conditioned on the Independent 
Fiduciary's receipt of favorable engineering and environmental reports 
prior to closing.
    (o) The Plan incurs no fees, commissions, or other charges or 
expenses as a result of its participation in any of the Transactions.

III. Definitions

    (a) The term, ``affiliate,'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner of any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (b) The term, ``control,'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.
    (c) The term, ``Independent Fiduciary,'' means a fiduciary that:
    (1) Has a minimum of five (5) years of experience acting on behalf 
of employee benefit plans covered by the Act and/or the Code;
    (2) Can demonstrate, through experience and/or education, 
proficiency in matters involving the acquisition, management, leasing, 
and disposition of real property;
    (3) Is an expert with respect to the valuation of real property or 
has the ability to access (itself or through persons engaged by it) 
appropriate data regarding the purchase, sale, and leasing of real 
property located in the relevant market;
    (4) Has not engaged in any criminal activity involving fraud, 
fiduciary standards, or securities law violations;
    (5) Is appointed to act on behalf of the Plan for all purposes 
related to, but not limited to (i) the In-Kind Contribution, (ii) the 
Leases, (iii) the RFO, (iv) the Contingent Rent Payment(s), and (v) any 
other transactions between the Plan and ZHCC and its affiliates related 
to the LLCs and Properties; and
    (6) Is independent of and unrelated to ZHCC or its affiliates. For 
purposes of this exemption, a fiduciary will not be deemed to be 
independent of and unrelated to ZHCC and its affiliates if:
    (i) Such fiduciary directly or indirectly controls, is controlled 
by, or is under common control with ZHCC,
    (ii) Such fiduciary directly or indirectly receives any 
compensation or other consideration in connection with any Transactions 
described in this exemption; except that an Independent Fiduciary may 
receive compensation from ZHCC for acting as an Independent Fiduciary 
in connection with the Transactions contemplated herein if the amount 
or payment of such compensation is not contingent upon or in any way 
affected by the Independent Fiduciary's ultimate decisions, and
    (iii) The annual gross revenue received by such fiduciary, during 
any year of its engagement, from ZHCC and its affiliates exceeds five 
percent (5%) of the fiduciary's annual gross revenue from all sources 
for its prior tax year.
    (d) The definition of Actual Return to be used in calculating the 
amount of each Contingent Rent Payment is the sum of: (1) The sales 
price of any parcel sold, net of selling costs, (2) any net insurance 
proceeds or net condemnation awards received by the Plan (if any Lease 
is terminated due to destruction or condemnation), (3) the fair market 
value of any parcel(s) that the Plan continues to hold, as determined 
by a three appraiser method (if the parties are unable to otherwise 
agree), plus (4) the rental income received by the Plan under the 
Leases prior to the Minimum Return Date, less expenses incurred by the 
Plan with respect to the Properties and the Leases up to the Minimum 
Return Date. The liabilities and obligations of the Hospital and ZHCC 
survive the expiration date of a Lease, or a termination of a Lease, 
and continue until such liabilities and obligations have been fully 
paid and fulfilled.

Temporary Nature of Exemption

    The exemption, if granted, is temporary and will become effective 
on the date of publication of the grant of the final exemption in the 
Federal Register. The exemption will expire on the date which is ten 
(10) years from the date of the grant of the exemption. If the

[[Page 76874]]

Hospital wishes to renew the Leases on the Properties between the 
Hospital and the LLCs (or between the Hospital and the Plan, as the 
case may be), the Department would encourage the applicant to submit 
another application prior to the expiration of this exemption, provided 
that the Independent Fiduciary determines that the conditions of the 
renewal are feasible, in the interest and protective of the Plan and 
the Hospital can demonstrate that it can satisfy the terms of such 
renewal.

Summary of Facts and Representations

    1. ZHCC is a not-for-profit Michigan corporation established in 
1968 to provide a centralized governance and management structure for 
its subsidiaries. ZHCC's business operations include the following 
wholly-owned subsidiaries: (a) The Hospital, (b) Community Emergency 
Medical Services (CEMS), and (c) Botsford Continuing Care Corporation 
(BCCC).
    The Hospital is a community osteopathic hospital that operates a 
full service hospital, providing an array of ambulatory and inpatient 
services for the benefit of the residents living in southeastern 
Michigan. CEMS provides emergency and non-emergency medical 
transportation to the general public and health care providers in 
approximately twenty (20) communities in southeastern Michigan. BCCC 
owns and operates a 179-bed skilled nursing facility in Farmington, 
Michigan, a 64 unit assisted living facility, and a 51 unit independent 
living apartment building. BCCC also provides services to an 
independent living condominium development that consists of 86 
separately owned units located within its campus.
    2. The Plan was established January 1, 1968, and restated effective 
January 1, 2000. The Plan is a non-contributory, single employer, 
defined benefit pension plan. The Plan covers all employees of the 
Hospital, CEMS, and BCCC. It is represented that the Hospital, CEMS, 
and BCCC are the only entities in the controlled group that have 
employees. As of December 31, 2003, the Plan had approximately 3,344 
participants and beneficiaries. As of February 11, 2005, the date the 
application for exemption was filed, the Plan had approximately 3,300 
participants and beneficiaries.
    On November 26, 2002, the Board of Directors of ZHCC approved a 
resolution to freeze benefit accruals under the Plan, effective 
December 31, 2002. All participants, as of December 31, 2002, are 
deemed 100 percent (100%) vested. After December 31, 2002, employees 
could not become participants in the Plan.
    As of September 30, 2004, the Plan was approximately 71 percent 
(71%) funded with assets of $71.2 million and liabilities of $101 
million measured on an accumulated benefit obligation basis using a 6 
percent (6%) discount rate, under Financial Accounting Standard (FAS) 
No. 87, Employers' Accounting for Pensions. Of the total assets of the 
Plan after the execution of the In-Kind Contribution, approximately ten 
percent (10%) will be involved in the Transactions that are the subject 
of this exemption.
    ZHCC is the sponsor of the Plan, the administrator of the Plan, and 
the named fiduciary for the Plan. As such, ZHCC is a party in interest 
with respect to the Plan, pursuant to section 3(14)(A) and 3(14)(C) of 
the Act. The Hospital, CEMS, and BCCC, as corporations 50% or more 
owned by ZHCC, are also parties in interest with respect to the Plan, 
pursuant to 3(14)(G) of the Act.
    The general administration of the Plan and the responsibility for 
carrying out the provisions of the Plan are vested in a Retirement 
Committee (the Committee) consisting of designated members of the Board 
of Directors of ZHCC and two (2) members of management. The Board of 
Directors of ZHCC appoints the members of the Committee. The function 
of the Committee is to administer the Plan exclusive of those functions 
assigned to the trustee of the Plan (the Trustee). The Committee is a 
party in interest with respect to the Plan, pursuant to section 
3(14)(A) of the Act.
    Under the terms of the Zieger Health Care Corporation Retirement 
Plan Trust (the Trust), the Trustee of the Plan is Standard Federal 
Corporate and Institutional Trust (formerly, Standard Federal Bank). 
The Trustee is a division of LaSalle Bank, a national banking 
association. The Trustee has discretion with respect to the investment 
of the assets of the Plan. Pursuant to its authority under the Trust, 
ZHCC has appointed investment managers to manage the Plan's assets. 
ZHCC has the power to appoint and remove the Trustee. The Trustee is a 
party in interest with respect to the Plan, pursuant to section 
3(14)(A) of the Act.
    The Plan has invested $3,272,836 and $2,691,285, as of December 31, 
2003, and December 31, 2002, respectively, in shares of funds managed 
by the Trustee or its subsidiaries. The applicant represents that these 
transactions are exempt under Prohibited Transaction Class Exemption 
77-4 (PTCE 77-4).\6\
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    \6\ The Department is offering no view, herein, as to the 
applicant's reliance on PTCE 77-4 with respect to the purchases by 
the Plan of interests in funds managed by the Trustee or its 
subsidiaries, nor has the Department made a determination that the 
applicant has satisfied all of the requirements of PTCE 77-4. 
Further, the Department is not providing any relief, herein, with 
respect to such purchases.
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    3. The Properties that are the subject of this proposed exemption 
are described below:
    (a) Botsford Center for Rehabilitation and Health Improvement (the 
Rehab Center) is located at 26905 Grand River Avenue in Redford, 
Michigan, on a rectangular, level site containing 27,443 square feet or 
0.63 gross acres with frontage along Grand River Avenue and Denby 
Street. All of the typical utilities are available to the site.
    The Rehab Center is a one-story building totaling 5,288 square feet 
of gross building area. The construction of the improvements is 
represented to be Class C, with average quality of construction. The 
condition of the building is average.
    The Rehab Center was built in 1963, originally as offices of Junior 
Achievement, with renovations in 1985 and 2001. The Rehab Center is 
currently 100 percent (100%) owner occupied by the Hospital.
    (b) Botsford Kidney Center (the Kidney Center) is located at 28425 
West Eight Mile Road in Livonia, Michigan, on a slightly irregular 
level site containing 209,959 square feet or 4.82 gross acres frontage 
along West Eight Mile Road. All of the typical utilities are available 
to the site.
    The Kidney Center is a one-story building totaling 16,217 square 
feet of gross building area. The building has 13,947 square feet of net 
rentable area, which does not include the common areas of the building. 
The construction of the improvements is represented to be Class C, with 
average quality of construction. The condition of the Kidney Center is 
average.
    The Kidney Center was built in 1976 as offices for an architect and 
was renovated in 1991 and 1995. A tenant owned by the Hospital occupies 
28 percent (28%) of the building. The remaining 72 percent (72%) of the 
building is occupied on a month to month basis with only an expired 
lease in place by Botsford Kidney Center, Inc. (BKCI). BKCI is a 
Michigan business corporation owned 80 percent (80%) by individual 
physicians and 20 percent (20%) by the Hospital.
    (c) Brentwood Medical Center (the Medical Center) is located at 
28711

[[Page 76875]]

West Eight Mile Road in Livonia, Michigan, on a slightly irregular, 
level site containing 84,158 square feet or 1.93 gross acres with 
frontage along Brentwood Avenue and West Eight Mile Road. All of the 
typical utilities are available to the site.
    The Medical Center is a one-story building with 9,895 square feet 
of gross building area. The building has 8,542 square feet of net 
rentable area, which does not include the common areas of the building. 
The construction of the improvements is represented to be Class C, with 
average quality of construction. The condition of the building is 
average.
    The Medical Center was built in 1977, and has had several minor 
renovations since 1997. The Medical Center is currently 63 percent 
(63%) occupied by the Hospital, the owner, and 37 percent (37%) 
occupied by Tri-County Urologists, an unrelated third party.
    (d) The Planning and Development Building (the P&D Building) is 
located at 29134 Grand River Avenue in Farmington Hills, Michigan, on a 
slightly irregular, level site containing 22,744 square feet or 0.52 
gross acres. The site is comprised of two parcels, one that has 
frontage on Grand River Avenue, and one that has frontage on Jefferson 
Avenue. The only access to the property is via Jefferson Avenue. All 
typical utilities are available to the site.
    The P&D Building is a one-story building totaling 4,063 square feet 
of gross building area and net rentable area. The construction of the 
improvements is represented to be Class C, with average quality of 
construction. The condition of the building is good.
    The P&D Building was built in 1987. A department of the Hospital 
currently occupies 100 percent (100%) of the building.
    (e) The South Professional Office Building (the SPO Building) 
located at 28100 Grand River Avenue in Farmington Hills, Michigan, on 
an irregular, level site containing 80,150 square feet or 1.84 gross 
acres. The site does not have any frontage on Grand River Avenue but is 
located on the campus of the Hospital. The only access to the property 
is via the access drive to the Hospital. All typical utilities are 
available to the site.
    The SPO Building is a three-story building totaling 43,200 square 
feet of gross building area. The building has 35,470 square feet of net 
rentable area, which is comprised of fourteen tenant suites that are 
located on all three floors. The construction of the improvements is 
represented to be Class C, with average quality of construction. The 
condition of the building is average.
    The SPO Building was built in 1987. The SPO Building is currently 
87.3 percent (87.3%) occupied by multiple tenants, including Hospital 
departments and unrelated third party tenants.
    The SPO Building is currently held in the Botsford Professional 
Office Building Limited Partnership, LLP (BPOB). BPOB is 90 percent 
(90%) owned by the Hospital and 10 percent (10%) owned by Botsford Real 
Estate Services Corporation (BRESC), a wholly owned subsidiary of ZHCC. 
It is represented that prior to the In-Kind Contribution, BRESC will be 
merged into the Hospital, thereby dissolving BPOB and resulting in the 
SPO Building being 100 percent (100%) owned by the Hospital.
    The SPO Building is subject to a $1.9 million mortgage. It is 
represented that the Hospital will pay-off the SPO Building mortgage 
debt before executing the In-Kind Contribution.
    4. ZHCC, the applicant, seeks an individual administrative 
exemption: (a) For the immediate, voluntary In-Kind Contribution to the 
Plan of interests in five (5) LLCs each of which will hold one of the 
Properties, described in paragraph 3, above, and (b) for the continued 
holding by the Plan of ownership interests in such LLCs and Properties.
    It is anticipated that the Hospital will transfer its fee simple 
interest in each Underlying Property to a separate Michigan LLC of 
which the Hospital will own a 100 percent (100%) interest. The Hospital 
then intends to transfer its entire interest in each LLC to the Plan. 
Because the LLCs will be formed immediately before the In-Kind 
Contribution, it is represented that the LLCs will have no outstanding 
obligations or liabilities other than those generated by the 
transaction.
    5. ZHCC believes that the In-Kind Contribution of the Properties 
does not satisfy the requirements of section 408(e) of the Act relating 
to the acquisition, lease, or sale of ``qualifying employer real 
property,'' as defined in section 407(d)(4) of the Act. In this regard, 
among the provisions in the definition of ``qualifying employer real 
property,'' set forth in section 407(d)(4) of the Act, is the 
requirement that parcels of property must be dispersed geographically. 
ZHCC believes that the In-Kind Contribution of the Properties would 
violate sections 406 and 407(a) because the Properties are all located 
within five (5) miles of each other; and therefore, arguably would not 
be geographically dispersed.
    Likewise, as it is anticipated that each of the Properties is to be 
transferred into an LLC and the interests in the LLCs transferred to 
the Plan, ZHCC believes that the interests in the LLCs would fail to 
meet the requirements of 408(e) of the Act applicable to the 
acquisition or sale of ``qualifying employer securities,'' set forth in 
section 407(d)(5) of the Act, as interests in the LLCs would fail to 
meet the requirements of section 407(f)(1) of the Act. Accordingly, 
ZHCC has requested relief from sections 406(a), 406(b)(1), 406(b)(2) 
and 407(a) of the Act for the In-Kind Contribution and for the 
continued holding of ownership interests in the LLCs and the 
Properties.
    6. In addition to the In-Kind Contribution, ZHCC requests an 
administrative exemption from section 406(a) and 406(b)(1) and 
406(b)(2) of the Act for the Leases of the Properties between the 
Hospital and the LLCs. It is represented that execution of the Leases 
between the Hospital and the LLCs is a condition to acceptance by the 
Plan of the In-Kind Contribution. Under the terms of the Leases, the 
Plan, acting by and through the Independent Fiduciary who manages the 
LLCs, will lease each Underlying Property to the Hospital under a 
separate lease agreement. Each of the Leases will be identical as to 
material terms. For the purpose of each Lease, the Plan will maintain 
each of the Properties in its respective LLC in which: (1) the Plan 
will be the sole member and the Independent Fiduciary will be the LLC 
manager, and (2) the LLC will own such Underlying Property and be the 
lessor under the Lease.
    Each of the Leases has a term of ten (10) years. Each Lease is an 
absolute net lease (i.e., all costs are paid by the lessee, the 
Hospital) throughout the term of such Lease. The Leases are 
``bondable'' leases in which the Hospital's obligation to pay rent to 
the LLC is absolute and unconditional. The rental payments are 
exclusive of all costs related to the leased premises, including real 
estate taxes, utilities, and insurance, which the Hospital must pay.
    The Hospital also bears the costs of capital improvements to the 
Properties. Under the provisions of the Leases, the Independent 
Fiduciary must approve any capital alterations made to the Properties.
    The Hospital will also bear all costs to operate, maintain, repair 
and replace in good condition the systems and structural and 
nonstructural components of the buildings on the Properties, in a 
manner befitting comparable office buildings in the area and in 
accordance with all applicable laws. In this regard, it is represented 
that the Independent Fiduciary has retained and will retain annually an 
engineering firm to conduct a property condition assessment and make

[[Page 76876]]

recommendations for maintenance, repair, and replacements. In this 
regard, the Independent Fiduciary represents that it has received a 
Property Condition Assessment Report that has identified a number of 
repairs and replacements that should be made on the Properties. Based 
on the recommendations of the inspector, the Independent Fiduciary and 
the Hospital are working to develop a timetable to complete these 
repairs and replacements and will annually develop a budget for 
maintenance, repair, and replacement. All such maintenance, repair, and 
replacement work is the responsibility of the Hospital.
    The Leases will contain a commercially reasonable standard for 
determining whether repair or replacement is necessary. Any disputes 
between the Independent Fiduciary and the Hospital concerning the 
Properties will be resolved through mediation. If mediation is 
unsuccessful, either party may bring suit.
    The Leases contain certain casualty provisions that are described, 
in part, in this and the following paragraphs. In this regard, the 
Hospital, as lessee, is required at its sole expense to restore, 
repair, rebuild, or remove and replace all or any part of the leased 
premises damaged or destroyed in the event of any casualty, regardless 
of any lack or insufficiency of insurance proceeds. In this regard, the 
Hospital shall commence such activity after the occurrence of any such 
casualty within the time period, as set forth in the Lease, unless 
prevented by circumstances beyond the Hospital's control, and shall 
pursue such activity to completion. All casualty insurance proceeds are 
deposited with the LLC or the Plan, as the lessor, and disbursed to the 
Hospital, as needed in accordance with the capital alteration 
provisions of the Lease.
    Failure by the Hospital to commence or substantially complete the 
restoration, repair, rebuilding, or removal and reconstruction, within 
certain timeframes as set forth in the Lease, shall be deemed an event 
of default under the Lease. Any insurance proceeds paid to the Hospital 
but not applied to the restoration, repair, rebuilding, or removal and 
reconstruction of the leased premises are due and payable, as 
additional rent by the Hospital, immediately prior to the termination 
of the Lease. All insurance proceeds not yet paid to the Hospital 
become the property of the LLC or the Plan, as lessor, upon such an 
event of default.
    In the event that all or part of the leased premises are damaged or 
destroyed at any time during the last three (3) years of the term of 
the Lease, and either (a) the cost to repair or replace exceeds 50 
percent (50%) of the full replacement cost, or (b) repair or 
replacement cannot reasonably be completed within 360 days of the date 
of the damage or destruction, the Hospital may elect to terminate the 
Lease; provided all insurance proceeds are paid to the LLC or the Plan, 
as lessor. If the estimated cost to reconstruct or repair the leased 
premises exceeds the amount of the insurance proceeds payable as a 
result of the damage or destruction, the Hospital shall be obligated to 
contribute any excess amounts needed to fully restore the leased 
premises. Any such excess amounts shall be paid to the LLC or the Plan, 
as lessor together with the insurance proceeds.
    The Lease contains certain condemnation provisions that are 
described, in part, in this and the following paragraphs. If at any 
time during the term of a Lease, there shall be a taking of 
substantially all of the leased premises, the Lease shall terminate, as 
of the date of such taking, and the base rent and additional rent shall 
be apportioned and paid by the Hospital to the date of such taking. If 
the Lease terminates because of such taking, as of such date, the LLC 
or the Plan, as the lessor, shall be entitled to the entire 
condemnation award, except that the Hospital shall be entitled to any 
portion explicitly attributable to the Hospital's personal property and 
relocation costs.
    In the event of a partial taking, the Lease shall continue and 
remain unaffected, except that the Hospital shall promptly after such 
partial taking, at its expense, take commercially reasonable efforts to 
restore or demolish and reconstruct any improvements altered or damaged 
by such partial taking. In this regard, the Hospital is entitled to 
reimbursement from the condemnation award for the aggregate of the 
funds expended and all other reasonable and customary costs directly 
related to such restoration or demolition and reconstruction. The 
balance of the award shall be paid to the LLC or the Plan, as lessor. 
Following any partial taking, the base rent shall be re-determined by 
the independent fiduciary based on an independent determination of fair 
market value by a qualified, independent appraiser.
    Failure by the Hospital to commence and substantially complete 
restoration or reconstruction of the leased premises, within the time 
periods set in the Lease, unless such failure is due to circumstances 
beyond the Hospital's control, shall be deemed an event of default 
under the Lease, whereupon LLC or the Plan, as lessor, shall be 
entitled to the entire award, or so much thereof as has not been 
disbursed and used in such reconstruction or restoration.
    In the event of a taking of all or part of the leased premises for 
temporary use, the Lease shall continue without change. There shall be 
no re-determination of base rent. Any periodic payments of the 
condemnation award made for such temporary use will be made to the 
Hospital until the expiration or termination of the Lease and to the 
LLC or the Plan, as lessor thereafter. In the event of a lump sum 
payment of the condemnation award, the Hospital shall be entitled to an 
amount equal to a maximum of three (3) months rent with the balance of 
such condemnation award deposited with the LLC or the Plan, as lessor. 
In addition, the Hospital is entitled to file any claim against the 
condemnor for damages for negligent use, waste or injury to the leased 
premises throughout the balance of the term of the Lease. The amount 
recovered for such damages shall be first applied by the Hospital to 
any necessary repair or restoration of the leased premises.
    The Hospital in the event of any taking shall not be entitled to 
any payment based upon the value of the unexpired term of the Lease, 
other than the unearned portion of prepaid base rent or amounts 
attributable to the Hospital's personal property and any reasonable 
removal and relocation costs.
    The Hospital, as the sole lessee under each of the Leases, will be 
solely responsible for all payments of rent to the LLC or the Plan, as 
lessor. The rental payments under the Leases are set at fair market 
rates. Subject to final due diligence and the approval of the 
Independent Fiduciary, the annual base rent for each of the Properties 
will be the current fair market rental value identified in appraisals 
prepared by an independent, qualified appraiser. It is estimated that 
the Leases will generate in the aggregate an average of $1 million in 
annual rental income for the Plan over the ten (10) year term of the 
Leases.
    Under the terms of each Lease, the rental rate increases at 2.5 
percent per year, compounded. The Independent Fiduciary represents that 
this provision is intended to protect the Plan against inflation. In 
this regard, the Independent Fiduciary represents that over the past 
ten (10) years, the average annual increase in the Consumer Price Index 
(CPI) has been 2.45 percent (2.45%). The Independent Fiduciary 
maintains that using a fixed percentage, rather than pegging the rent 
to a variable

[[Page 76877]]

index, such as the CPI, provides certainty for the Plan as owner of the 
Properties. Further, it is represented that: (a) In recent years, 
negotiated base rental rates have increased by less than 2.5 percent 
(2.5%); and (b) the Congressional Budget Office estimates that the 
average annual increase in the CPI over the next ten (10) years will be 
2.2 percent (2.2%).
    The Leases provide that the Hospital will indemnify and hold the 
Plan harmless from all liabilities, obligations, damages, penalties, 
claims, costs, charges, and expenses, including reasonable architects' 
and attorneys' fees (excluding consequential damages and indirect 
losses) \7\ during the term of a Lease, related to (i) any work done in 
or about the leased premises or any part of the leased premises by the 
Hospital or any party claiming by or through or at the request of the 
Hospital; (ii) any use, non-use, possession, occupation, condition, 
operation, maintenance, or management of the leased premises by the 
Hospital or any party acting on behalf of the Hospital; (iii) any 
negligence on the part of the Hospital or any of its agents, 
contractors, employees, subtenants, licensees, or invitees; (iv) any 
failure on the part of the Hospital to perform or comply with any of 
the covenants, agreements, terms, provisions, conditions, or 
limitations in the Leases; (v) any violation of any environmental law, 
the ADA, and other applicable laws; and (vi) any liability for 
hazardous materials released on the leased premises, whether such 
release occurred prior to or after (a) the execution of the Leases, or 
(b) the In-Kind Contribution.
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    \7\ The applicant has represented that the exclusion for 
consequential damages and indirect losses referred to in this 
sentence, would prevent the Plan from making a claim for damages 
that do not flow directly and immediately from the Hospital's 
activities, but only from some indirect result of those activities. 
For example, if the Hospital's negligence leads to a loss of rental 
income, this loss would be part of the Plan's direct damages. But if 
the loss of rental income causes the Plan to default on an 
obligation to a third party, this default would result in 
consequential damages that do not flow directly from the Hospital's 
activities.
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    It is represented that the Independent Fiduciary has retained 
Atwell-Hicks Development Consultants (Atwell) to conduct a Phase I 
Environmental Site investigation. In this regard, it is represented 
that Atwell did not identify any environmental concerns associated with 
the Properties or surrounding adjacent properties that could impact 
business environmental risk. No further investigations or actions were 
recommended at this time.
    The Hospital will have the authority to sublease all or a portion 
of any of the Properties to a third party. Currently, portions of the 
Kidney Center, the SPO Building and the Medical Center are leased to 
unrelated third parties. Any leases currently in existence between the 
Hospital and unrelated third parties with regard to any of the 
Properties will be treated as subleases upon consummation of the Leases 
between the Hospital and the LLCs.
    The provisions of all of the subleases are similar. The term of 
each of the subleases is generally for a period of five (5) years. It 
is represented that the initial rental rates due from the Hospital 
under the Leases of the Properties are higher than the aggregate rents 
to be paid under the subleases. In this regard, for calendar year 2005, 
the annual sublease income, including a proportionate share of expenses 
related to the SPO Building, the Kidney Center, and the Medical Center 
was $783,221. Taking into account the expenses that the Hospital bears 
with respect to the subleasing of the Properties, the applicant 
maintains that there are no current or anticipated profits to share 
with the Plan. In this regard, the Independent Fiduciary represents 
that since the tenant in an absolute net lease bears all of the costs 
of a property (as does the Hospital under the provisions of the 
Leases), such leases do not normally provide for profit sharing.
    The Independent Fiduciary has negotiated an arrangement designed to 
ensure that any economic benefit derived from the subleases flows 
through to the Plan. In this regard, rents paid by subtenants will be 
sent to a postal lockbox and deposited directly into a cash account 
that can be used only to pay the rent and other obligations of the 
Hospital, as lessee under the Leases. Neither ZHCC nor the Hospital 
will have the right to withdraw funds from this cash account. The 
Independent Fiduciary will direct withdrawal of funds from this 
account. In this regard, on a monthly basis, the Independent Fiduciary 
will notify the Hospital of the amount of funds applied toward its 
rental obligations during the previous month, and the Hospital will 
have the right to deduct such amount from the next installment of rent 
due under the Leases. If any rentals are set aside, recovered, 
rescinded, or required to be returned for any reason, including the 
bankruptcy, insolvency, or reorganization of any subtenant, then the 
rental obligations of the Hospital to which the subtenant's rentals 
were applied will remain in existence, and the Leases will be 
enforceable as to such rentals. The Hospital will pay all fees and 
expenses related to the lockbox, the cash account, and any related 
postal or banking services.
    The subleases will survive the expiration of the Leases, if entered 
into on commercially reasonable terms and for fair market rent. Any new 
subleases will include a provision stating that in the event of default 
by the Hospital under the Leases, the subtenant will pay all rents to 
the Plan or as directed by the Plan.
    The applicant maintains that the Independent Fiduciary did not 
require a security deposit. In this regard, it is represented that 
security deposits are not customarily required under medical office 
leases because of the favorable risk profile of medical office tenants. 
It is further represented by the applicant that the subtenants, like 
the Hospital, are reliable tenants who have fulfilled their rental 
obligations on a timely basis.
    7. The applicant has also requested an administrative exemption 
from section 406(a) and 406(b)(1) and 406(b)(2) for the sale of any of 
the Properties (or ownership interest in any of the LLCs, as the case 
may be), pursuant to the RFO, specified in the provisions of the Leases 
of the Properties as negotiated by the Independent Fiduciary. In this 
regard, the Properties (or LLCs, as the case may be) are to be offered 
to the Hospital, in accordance with a Soliciting Offer the terms of 
which are set by the Plan, or in accordance with an Unsolicited Offer 
made to the Plan by an unrelated third party.
    The Independent Fiduciary will be responsible for any negotiations 
if the Hospital elects to purchase any of the Properties under terms of 
the RFO. The Hospital has a period of thirty (30) days to decide 
whether to accept such offer on its terms and, if the Hospital fails to 
do so, the Plan may sell to a third party on the offered terms or 
better. It is represented that the RFO does not ``run with the land'', 
so that the Hospital has no rights once the Plan sells to a third 
party. The Hospital cannot avail itself of the RFO, if there is an 
uncured monetary default under any Lease.
    8. Further, an administrative exemption from sections 406(a) and 
406(b)(1) and 406(b)(2) of the Act is needed for any Contingent Rent 
Payment(s) made to the Plan by ZHCC and/or the Hospital under the terms 
of the Leases on the Properties. In this regard, ZHCC and the Hospital 
have agreed to make one or more Contingent Rent Payment(s) that will 
provide a return to the Plan on each of the Properties equal to the 
Minimum Funding Rate. As of a Minimum Return Date, if the Actual Return 
(as defined in section III(d), of the exemption) to the

[[Page 76878]]

Plan is less than the sum of the fair market value of such property 
when contributed plus a return equal to the Minimum Funding Rate, then 
ZHCC and/or the Hospital within 180 days, will pay to the Plan a 
Contingent Rent Payment equal to the difference. Under the terms of 
each of Leases of the Properties, the liabilities and obligations of 
ZHCC and the Hospital survive the expiration date or termination of a 
Lease and continue until such liabilities and obligation have been 
fully paid and fulfilled.
    9. The applicant maintains that the requested exemption is 
administratively feasible in that the subject Transactions are similar 
to those granted by the Department in Prohibited Transactions Exemption 
2004-19 \8\ and include similar terms which protect the interests of 
the Plan and its participants and beneficiaries.
---------------------------------------------------------------------------

    \8\ ARINC Incorporated Retirement Income Plan granted 69 FR 
68391 (November 24, 2004) and proposed 69 FR 55179 (September 13, 
2004).
---------------------------------------------------------------------------

    10. The applicant maintains that the exemption is in the interest 
of the Plan in that the proposed contributions, both those to be made 
in-kind and in cash are entirely in excess of the minimum funding 
obligations of ZHCC under section 302 of the Act and section 412 of the 
Code. As a result of the In-Kind Contribution, including the additional 
contributions of cash, and the income from the Leases, the Plan will be 
more than 110 percent (110%) funded for the actuarial present value of 
the accumulated Plan benefits liability under FAS 35. The Independent 
Fiduciary represents that the proposed exemption would place the Plan 
in a better actuarial and financial position over a five (5) year 
period from 2005-2009, with a higher funding percentage and a large 
funding standard account credit balance, with lower cash contributions 
from ZHCC. It is represented that the Plan will be less reliant on the 
ZHCC's ability to generate cash for payments to the Plan. Further, as 
the Properties are marketable and have a value independent of the 
Hospital, as the lessee, the Plan's reliance on the Hospital's 
creditworthiness would be reduced.
    In addition to improving the Plan's funded status, it is 
represented that the overall diversification of the Plan's portfolio 
will improve as a result of the In-Kind Contribution. In this regard, 
the Plan's investment policy statement currently permits investments in 
equities (domestic and international), fixed income, real estate, 
immediate participation guarantee contracts issued by insurers, and 
cash equivalents. Currently, the Plan holds no real estate assets and 
owns no employer securities. If the exemption is granted and the 
Properties become assets of the Plan, the contributed real estate would 
replace a portion of the Plan's fixed income allocation. It is 
represented that adding real estate assets like the Properties to a 
portfolio of publicly-traded securities should enhance the overall 
portfolio diversification, given the low correlation of returns between 
real estate and other asset classes, and can be expected to improve the 
Plan's risk adjusted returns. It is further represented that the In-
Kind Contribution and the Leases would not cause the Plan to fail to 
satisfy the diversification requirement as set forth in section 404 of 
the Act, notwithstanding the fact that approximately 10 percent (10%) 
of the Plan's assets would be invested in real estate in a single 
metropolitan area.
    11. The applicant maintains that there are sufficient safeguards in 
place with regard to the subject Transactions that are designed to 
protect the interests of the Plan and its participants and 
beneficiaries. In this regard, pursuant to a letter agreement (the 
Agreement) between Fiduciary Counselors Inc. (FCI) and the Committee, 
FCI has been appointed to act as the qualified Independent Fiduciary on 
behalf of the Plan and investment manager with authority and discretion 
to acquire, hold, lease, and dispose of the Properties and acquire, 
hold, and dispose of the LLCs, as the case may be. FCI represents that 
it understands and acknowledges its duties and responsibilities, and 
obligations to act as a fiduciary under the Agreement and in accordance 
with the applicable fiduciary responsibility provisions of the Act.
    If any party terminates the Agreement or if FCI decides to assign 
its obligations to perform services, the parties to the Agreement shall 
notify the Department within 15 days of any decision regarding the 
resignation, termination, or change in control of the Independent 
Fiduciary. Any replacement or successor Independent Fiduciary must be 
independent and qualified and must assume responsibility prior to the 
effective date of the removal of the predecessor Independent Fiduciary.
    It is represented that FCI is qualified to serve as the Independent 
Fiduciary and investment manager for the Plan. In this regard, FCI is 
an investment adviser registered under the Investment Advisers Act of 
1940 and a ``qualified professional assets manager'' as that term is 
defined in Prohibited Transaction Exemption 84-14. Since its inception 
in 1999, FCI has been involved in a variety of transactions requiring 
an independent fiduciary, such as prohibited transaction exemptions, 
conversions of common and collective mutual funds, mergers of mutual 
funds and ESOP transactions, and other transactions involving plan 
assets totaling more than $5 billion.
    With regard to its independence, neither FCI nor its affiliates are 
affiliates of ZHCC or its affiliates within the meaning of 29 CFR 
2570.31(a) of the Department's regulations. FCI represents that the 
fees it will receive in the current year from ZHCC will not exceed five 
percent (5%) of its annual gross income for the prior fiscal year. It 
is represented that while ZHCC is paying FCI's fees, the contract with 
FCI specifically provides, and ZHCC has acknowledged, that FCI's duties 
and obligations are solely for the benefit of the Plan and its 
participants and beneficiaries.
    Nell Hennessy (Ms. Hennessy), President of FCI, will lead the 
project on behalf of FCI with respect to the Transactions that are the 
subject of this proposed exemption.
    FCI is responsible for deciding whether and on what terms to agree 
on behalf of the Plan to the In-Kind Contribution and the Leases of the 
Properties. FCI will negotiate the specific terms of and the closing of 
the In-Kind Contribution and the Leases and will determine on behalf of 
the Plan the value of the assets to be obtained by the Plan by virtue 
of the consummation of such transactions. In making such decision, FCI 
will review the Plan's financial and actuarial condition, asset 
allocation, investment portfolio, investment policy statement, and 
other material relevant to making a determination as to the suitability 
of engaging in these transactions within the context of the Plan's 
overall assets.
    In addition to its responsibilities with regard to the In-Kind 
Contribution and the Leases, FCI will be responsible for the following 
ongoing functions: (a) Monitor and enforce the Plan's rights and 
interests with respect to the Properties that are the subject of this 
exemption and any Leases or other agreements with ZHCC regarding the 
use of such Properties; (b) propose, negotiate, and decide whether to 
enter into any agreement to amend the Leases; (c) evaluate and decide 
whether to grant requests for forbearance of the terms of the Leases; 
(d) arrange for such appraisals of the Properties as may be necessary 
to satisfy the Plan's responsibilities under the Act and the subject 
exemption to establish and report the value of such Properties; (e)

[[Page 76879]]

report annually to the Committee concerning the physical and financial 
condition of the Properties; (f) determine whether continued ownership 
of the Properties is in the interest of the participants and 
beneficiaries of the Plan and whether, when, and on what terms to seek 
prudently to sell any of the Properties in accordance with the 
provisions of any contract between the Plan and ZHCC; and (g) in the 
event FCI determines to sell or otherwise dispose of any of the 
Properties, negotiating the terms and conditions of, and consummating 
the sale or disposition.
    To carry out its responsibilities, FCI retained an experienced 
legal counsel in the law firm of Warner, Norcross & Judd LLP (Warner 
Norcross) to advise with respect to legal issues raised by the 
Transactions. In addition, FCI retained a qualified, independent 
appraiser, as discussed more fully, in paragraph 12 below, to determine 
the fair market value of the Properties and the fair market rent for 
the Leases. In this regard, it is represented that Ms. Hennessy 
physically inspected the Properties with the appraiser and a real 
estate partner from Warner Norcross.
    FCI represents that it has retained and, if the Transactions are 
consummated, periodically will retain engineering and environmental 
experts to assess the physical condition of the Properties and make an 
environmental site assessment. It is represented that an engineering 
firm has conducted and will conduct its assessment in general 
conformance with the American Society of Testing and Materials 
guidelines for property condition assessments. It is further 
represented that an environmental firm has produced and periodically 
will produce Phase I environmental reports. FCI represents that any 
defects identified by the engineering and environmental experts will 
either be corrected or taken into account in determining whether to 
accept the Properties and the fair market value at which the Properties 
will be contributed.
    FCI has represented that it will also retain an expert in insurance 
issues to evaluate the adequacy of the insurance coverage that ZHCC 
currently maintains and will maintain on the Properties. FCI further 
represents that, if appropriate, it will recommend changes in or 
additions to such coverage. Further, it is represented that FCI and its 
advisors will continue to analyze the condition of the Properties and 
the safeguards available to protect the Plan if the Transactions are 
consummated.
    12. It is represented that FCI retained Stout Resius Ross Inc. 
(SRR), a qualified independent appraiser, to determine the fair market 
value of the Properties for purposes of the In-Kind Contribution and 
the fair market rental value of the Properties for purposes of the 
Leases. It is represented that the FCI solicited proposals from a 
number of appraisal firms, interviewed two firms and selected SRR based 
on their experience and references.
    It is represented that SRR is qualified in that it has 19 
professionals focusing on real estate valuation and consulting, 
including two professionals that are designated members of the 
Appraisal Institute with the MAI designation. SRR professionals hold 
general certified appraiser licenses in a number of states, including 
Michigan. It is represented that the real estate valuation group at SRR 
completes valuations of over 500 commercial properties per year. SRR 
has experience in the valuation of different property types, including 
hospital office buildings.
    As requested by FCI, the scope of SRR's assignment for each of the 
Properties included the following: (a) Inspection of each of the 
Properties and surrounding area; (b) collection of current assessment 
and zoning data; (c) estimation of the highest and best use of each of 
the Properties; (d) research and analysis of sales and rentals of 
similar properties; (e) an estimate of the value of the Properties; (f) 
an estimate of the fair market rent for a ten-year absolute net lease; 
(g) an estimate of the fair market rent for a standard term lease; (h) 
consideration of the rent escalation factor contained in the Leases; 
(i) consideration of the RFO contained in the Leases; and (j) 
consideration of the adaptability of the Properties for alternative 
uses.
    As requested by FCI, SRR determined the fair market value of the 
Rehab Center, the Medical Center, the Kidney Center, and the P&D 
Building based on: (a) The fee simple \9\ ``as is,'' because these 
properties were not leased to third parties or were only subject to 
short-term leases; and (b) the leased fee estates \10\ under the Leases 
with the Hospital. For the SPO Building, SRR determined the fair market 
value based on: (a) The leased fee estate ``as is,'' because a portion 
of the SPO Building is currently leased to third parties at below 
market rental rates, and (b) the leased fee estate under the Lease with 
the Hospital.
---------------------------------------------------------------------------

    \9\ SRR defines a ``fee simple'' as absolute ownership 
unencumbered by any other interest or estate, subject only to the 
limitations imposed by governmental powers of taxation, eminent 
domain, police power, and escheat.
    \10\ SRR defines a ``leased fee estate'' as an ownership 
interest held by a landlord with the rights of use and occupancy 
conveyed by lease to others. The rights of the lessor (the leased 
fee owner) and the leased fee are specified by contract terms 
contained within the lease.
---------------------------------------------------------------------------

    In making its determinations of the fair market value of each of 
the Properties ``as is'', SRR used the ``sales comparison'' \11\ and 
the ``income capitalization'' \12\ approaches, but did not use the cost 
approach,\13\ due to the age of the improvements and the difficulty in 
accurately estimating physical depreciation.
---------------------------------------------------------------------------

    \11\ The ``sales comparison approach'' estimates the market 
value based on sales and listing of similar properties.
    \12\ The ``income capitalization approach'' estimates value by 
capitalizing the net income a property is capable of generating at 
market rates.
    \13\ The ``cost approach'' estimates the market value of the 
land as if vacant and the cost to replace the improvements less 
depreciation to their current conditions.
---------------------------------------------------------------------------

    In making its determination of the fair market value of the leased 
fee estate under the Leases with the Hospital, SRR incorporated a lease 
structure that would have the Hospital as a tenant for a ten (10) year 
term of the Lease, on an absolute net \14\ basis. According to SRR, the 
ten (10) year term of the Lease, reduces rollover risk for the landlord 
under the Leases. The following factors influenced the estimation of a 
fair market rental rate and influenced an overall capitalization rate 
of 9.25 percent (9.25%): (a) The terms of the Leases, (b) the market 
rental rates applicable to each of the Properties to be included in the 
Leases, and (c) an estimation of management fees and replacement 
reserves. Additionally, SRR determined that the rental rate for each of 
the Properties is calculated by deducting $0.75 per square foot from 
the applicable market rental rate. This was calculated by accounting 
for the additional reimbursement of management fees and replacement 
reserves.
---------------------------------------------------------------------------

    \14\ SRR defines an ``absolute net lease'' as a lease in which 
tenant pays its pro-rata share of all operating expenses, including 
management fees and capital expenditures.
---------------------------------------------------------------------------

    SRR examined the Leases under three (3) separate scenarios, one 
utilizing a direct capitalization approach and the other two utilizing 
a discounted cash flow analysis (DCF). The first DCF analysis examined 
the result if the Hospital were to vacate the premises after the 
expiration of the ten-year term of the Leases.
    The second DCF analysis examined the result if the Hospital were to 
renew the Leases after the expiration of the ten-year term of the 
Leases.
    It is represented that SRR concluded that the final reconciled 
value should be the fair value based on the actual terms of the Leases, 
including the actual

[[Page 76880]]

distribution of responsibility and cost for capital maintenance, and 
not on a more generalized market value based on market standard lease 
terms. FCI concurs with SRR in this view. As of March 22, 2005, the 
fair market values of the Properties and fair market rental value of 
the Properties were as follows:

------------------------------------------------------------------------
                                          Fair market
                                         rental value      Fair market
                                          per square        value of
           Name of property              foot absolute   ``Leased fee''
                                           net under      estate under
                                          Leases with      Leases with
                                           Hospital         Hospital
------------------------------------------------------------------------
Rehab Center..........................          $12.25          $630,000
Kidney Center.........................           12.25       1.7 million
Medical Center........................           12.25         1 million
P&D Building..........................           12.75           510,000
SPO Building..........................           14.75       5.1 million
------------------------------------------------------------------------

    It is represented that FCI will continue to do due diligence before 
accepting the Properties for the Plan and that SRR's final valuation 
will be adjusted to reflect any subsequent information or developments 
so that the value of the Properties and the LLCs will reflect fair 
market value when contributed.
    In determining whether the In-Kind Contribution will be in the 
interest of the Plan and its participants and beneficiaries, FCI 
considered not only the abstract value of the Properties, as determined 
in SRR's appraisals but a realistic assessment of the marketability of 
the Properties to parties other than ZHCC in the event the Leases are 
terminated and the Hospital no longer occupies the Properties, either 
by choice at the end of the Leases or due to a default under the 
Leases. The Properties are currently occupied almost exclusively by the 
Hospital or by medical practices that are associated with the Hospital. 
However, it is represented that the Properties are suitable for use by 
other occupants so the value of the Properties can be realized even if 
the Hospital were to default on the Leases. Based on the appraisals 
prepared by SRR, FCI believes that the Plan could recoup 87 percent 
(87%) of the leased value if the Properties were sold to independent 
third parties. In this regard, it is represented that with the 
exception of the SPO Building, the Properties are not on the campus of 
the Hospital; and therefore, could be sold separately.
    All of the Properties are on or near major thoroughfares, in 
commercial areas. Thus, there should be multiple opportunities for sale 
or rental of the Properties to one or more unrelated users.
    Under the terms of each of the Leases, ZHCC will have a RFO to 
purchase the leased premises, if the Plan chooses to sell any of the 
Properties prior to the end of the term of the Lease. FCI considered 
whether the RFO would materially impair the Plan's ability to sell the 
Properties for fair value during the term of the Leases. In this 
regard, FCI represented that, as structured, the RFO will not bar the 
Plan from marketing the Properties for sale at fair market value, since 
ZHCC can only purchase the Properties at fair market value. It is the 
opinion of FCI that any purchaser will not be burdened by the RFO, and 
therefore, the RFO should not affect the price that a purchaser is 
willing to pay for any of the Properties.
    As the Properties are currently used for professional medical 
offices and facilities, FCI requested that SRR analyze the fitness of 
each of the Properties for alternative uses within the overall area and 
market in which they are located. This analysis is presented in the 
Highest and Best Use section of SRR's report. Factors affecting this 
include the strength and growth patterns of the region and the physical 
structure as well as the permitted uses of the Properties.
    In the opinion of SRR, the most probable use of the Rehab Center, 
the Kidney Center, and the Medical Center is as a medical office space 
given the medical design of the examination rooms. However, it is 
represented that each of these buildings could be converted to a 
general office use for a tenant other than the Hospital by utilizing 
the tenant improvement allowances to reconfigure the interior of the 
buildings.
    SRR represented that the most probable use of the P&D Building 
based on the design of the building is general office use. However, by 
utilizing tenant improvement allowances, it is the opinion of SRR that 
the P&D Building could likely be reconfigured for commercial/retail 
use.
    SRR represented that medical office use is the most probable use 
for the SPO Building. In the opinion of SRR, significant renovations 
would be required to convert the SPO Building to general office use. 
Furthermore, SRR represented that general office use for the SPO 
Building would not be a likely alternative given the location of the 
SPO Building on the campus of the Hospital.
    FCI has addressed whether the SPO Building would continue as a 
medical office building if the Hospital were to fail. In this regard, 
although the SPO Building could be reconfigured for other professional 
offices if necessary, FCI anticipates that the SPO Building would 
continue to be leased to doctors and other medical specialists. It is 
represented that vacancy rates for medical offices within a 7-mile 
radius of the site are significantly lower than general office space (8 
percent (8%) compared to 18 percent (18%)) and this difference has been 
consistent over the last three (3) years. In the opinion of FCI, since 
this space has already been configured for medical offices, which 
generally command a higher rent because of the build outs needed for 
medical practices, it is likely that the space in the SPO Building 
would remain leased to doctors and other medical professionals.
    13. FCI has determined that the In-Kind Contribution and the Leases 
are appropriate and in the interest of the Plan's participants and 
beneficiaries. FCI believes that the terms of the In-Kind Contribution 
and the Leases when taken as a whole are consistent with an arm's 
length negotiation between unrelated parties. In this regard, the In-
Kind Contribution and the Leases include the following important 
features to protect the interests of the Plan and its participants and 
beneficiaries:
    (a) The bondable nature of the absolute net Leases for the entire 
term of such Leases means that the Hospital, not the Plan, will bear 
not only the ordinary maintenance, tax and insurance expenses 
associated with a triple net lease but also all capital expenses 
associated with the Properties.

[[Page 76881]]

In addition, the Hospital will not have a tenant's typical right to 
rent abatement in the event any of the Properties suffer damages and 
cannot be occupied.
    (b) The Plan has the unencumbered right to sell the Properties and 
to lease them to any party when the Leases expire.
    (c) ZHCC has accepted a RFO. The RFO is subject to forfeiture in 
the event of ZHCC's unsecured monetary default. The RFO will not run 
with the land but will be extinguished, if the Hospital declines to 
exercise the right with respect to any of the Properties and the Plan 
sells that property to a third party.
    (d) ZHCC and the Hospital have agreed to provide the Plan a minimum 
rate of return on each of the Properties as of the 10th anniversary of 
the In-Kind Contribution or on the earlier sale of any of the 
Properties or termination of a Lease or related lease on such property 
(including a termination due to default, destruction, or condemnation). 
This will take the form of one or more Contingent Rent Payment(s) to 
the Plan so that the Plan's actual return on the property (including 
rental payments) will not be less than the Minimum Funding Rate. This 
provision will protect the Plan if the value of any of the Properties 
were to decline.
    (e) The Properties are discreet parcels of real estate with office 
buildings suitable for other tenants. FCI has insisted that each of the 
Properties be owned by a separate LLC, because that will facilitate 
separate sales in the future if FCI determines that such sales would be 
in the best interests of the Plan and its participants and 
beneficiaries. The LLCs are special purpose entities that will be 
single member LLCs, owned and managed entirely by the Plan. This LLC 
structure protects the remaining assets of the Plan from any liability 
arising from the Properties and facilitates future sales without 
transfer taxes, and without changing the underlying economic benefits 
for the Plan. For tax purposes, the LLCs will be treated as 
partnerships so the attributes of the Properties will be passed through 
to the Plan. This is the structure typically used by plans that acquire 
real estate.
    FCI requested SRR to consider the potential impact on the value if 
each of the Properties is owned by a separate LLC. In this regard, SRR 
represented that if the LLC is 100% owned by the Plan, and the owner 
has control over the operation of the entity as well as the assets 
within the entity, then there would not be any discount to the value of 
the entity. The LLC would be valued based on the opening balance sheet 
of the entity, reflecting the market value of the assets less any 
applicable liabilities (e.g. mortgages), if they exist.
    14. It is represented that ZHCC's cash position is the key to its 
ability to make the payments required by the proposed Transactions. In 
the opinion of FCI, the proposed Transactions would not appear to place 
a financial burden on ZHCC that would jeopardize its ability to satisfy 
its obligations to the Plan and its other creditors. It is represented 
that at the end of 2004, ZHCC had $79.7 million in cash and marketable 
securities (which could easily be converted to cash) of which $50.3 
million (63%) was unrestricted. The annual rent under the Leases, 
$915,254, represents less than five percent (5%) of ZHCC's anticipated 
net cash for operations for 2005. FCI represents that it will continue 
to review ZHCC's financial situation prior to entering into the 
proposed Transactions and will take ZHCC's financial situation into 
consideration both in deciding whether it is prudent to enter into the 
proposed Transactions and what should be the final value assigned to 
the contributed Properties.
    Further, FCI examined the Hospital's most recent financial 
information. In this regard, the Hospital's financial results for the 
first half of 2005 indicate that the Hospital's revenue was up 4 
percent (4%) and expenses were down 3 percent (3%) for the six-month 
period ending June 30, 2005, compared to the same period last year.
    FCI did not require financial projections for the full ten (10) 
years of the Leases. FCI states that projections beyond five (5) years 
were not available and would be highly speculative. FCI did review the 
Hospital's financial projections through 2010. In this regard, FCI 
represents that the Hospital provided five-year projections, even 
though it normally prepares one-year projections for its lenders. Based 
on five-year projections, it is the opinion of FCI that the Hospital 
should have sufficient cash flow to make the payments under the Leases, 
the Contingent Rent Payment, and the additional contributions to the 
Plan as required under the conditions of this exemption.
    15. FCI provided a written report to the Department of its 
conclusions and summarized the analysis and consideration it took into 
account in reaching such conclusions. In the opinion of FCI, the In-
Kind Contribution and the Leases will immediately improve the Plan's 
funding, improve the Plan's overall portfolio of assets in terms of 
anticipated risk-adjusted return, and reduce the Plan's reliance on 
future cash contributions from ZHCC. The Plan will receive a portfolio 
of marketable real estate, fully leased to a single tenant obligated to 
pay rent at fair market value with regular annual increases. The terms 
of the Leases relieve the Plan of any exposure to the costs, including 
capital improvements, for the first ten (10) years after the Properties 
are contributed to the Plan. Further, in the view of FCI, the In-Kind 
Contribution and the Leases satisfy the criteria set forth in sections 
404 and 408(a) of the Act. Accordingly, for the reasons set forth 
above, FCI concluded, as the Independent Fiduciary for the Plan, that 
the In-Kind Contribution and the Leases are prudent and in the interest 
of the Plan's participants and beneficiaries.
    16. The Department notes that the appointment of an independent 
fiduciary to represent the interests of the Plan with respect to the 
transactions that are the subject of the exemption request is a 
material factor in its determination to propose exemptive relief. The 
Department believes that it would be helpful to provide its views on 
the responsibilities of an independent fiduciary in connection with the 
in-kind contribution, directly or indirectly, of property to an 
employee benefit plan.
    As noted in the Department's Interpretive Bulletin, 29 CFR 2509.94-
3(d),\15\ apart from consideration of the prohibited transaction 
provisions, plan fiduciaries must determine that acceptance of an in-
kind contribution is consistent with the general standards of fiduciary 
conduct as set forth in the Act. It is the view of the Department that 
acceptance of an in-kind contribution is a fiduciary act subject to 
section 404 of the Act. In this regard, section 404(a)(1)(A) and (B) of 
the Act requires that fiduciaries discharge their duties to a plan 
solely in the interests of the participants and beneficiaries, for the 
exclusive purpose of providing benefits to participants and 
beneficiaries and defraying reasonable administrative expenses, and 
with the care, skill, prudence, and diligence under the circumstances 
then prevailing that a prudent person acting in a like capacity and 
familiar with such matters would use in the conduct of an enterprise of 
a like character and with like aims.
---------------------------------------------------------------------------

    \15\ 59 FR 66736, December 28, 1994.
---------------------------------------------------------------------------

    In addition, section 404(a)(1)(C) of the Act requires that 
fiduciaries diversify plan investments so as to minimize the risk of 
large losses, unless under the circumstances it is clearly prudent not 
to do so. Accordingly, the fiduciaries of a plan must act 
``prudently,'' ``solely in the interest'' of the plan's participants 
and beneficiaries, and with a view to the need to diversify plan assets 
when

[[Page 76882]]

deciding whether to accept an in-kind contribution. If accepting an in-
kind contribution is not ``prudent,'' not ``solely in the interest'' of 
the participants and beneficiaries of the plan, or would result in an 
improper lack of diversification of plan assets, the responsible 
fiduciaries of the plan would be liable for any losses resulting from 
such a breach of fiduciary responsibility, even if a contribution in-
kind does not constitute a prohibited transaction under section 406 of 
the Act.
    The selection of an independent qualified appraiser to determine 
the value of an in-kind contribution and the acceptance of the 
resulting valuation are fiduciary decisions governed by the provisions 
of part 4 of Title I of the Act. In discharging its obligations under 
section 404(a)(1) of the Act, the independent fiduciary must take steps 
calculated to obtain the most accurate valuation available. In 
addition, the fiduciary obligation to act prudently requires, at a 
minimum, that the independent fiduciary conduct an objective, thorough, 
and analytical critique of the valuation. In conducting such 
verification, the independent fiduciary must evaluate a number of 
factors relating to the accuracy and methodology of the valuation and 
the expertise of the independent qualified appraiser. Reliance solely 
on the valuation provided by the appraiser would not be sufficient to 
meet this prudence requirement.
    17. In summary, the applicant represents that the subject 
Transactions meet the statutory criteria of section 408(a) of the Act 
and 4975(c)(2) of the Code because:
    (a) The Leases are expected to generate approximately $1 million in 
income for the Plan annually for a period of ten (10) years; (b) 
subject to the Hospital's RFO, the Plan retains the right to sell or 
assign, in whole or in part, any of its interests in the Properties (or 
any of its interests in the LLCs, as the case may be) to any third 
party purchaser; (c) FCI has established the fair market value of the 
Properties and the fair market rental value of the Properties with the 
assistance of a independent, qualified appraiser; (d) the Plan will be 
in a stronger financial position as a result of the In-Kind 
Contribution; (e) the Plan will acquire a valuable investment in that 
the Properties are likely to appreciate in value and are adaptable for 
other uses; (f) the In-Kind Contribution of real property will 
diversify the Plan holdings; (g) FCI has determined that the In-Kind 
Contribution and the Leases are appropriate and in the interest of the 
Plan's participants and beneficiaries; (h) FCI is responsible for 
reviewing, negotiating, and approving the specific terms of each of the 
Transactions, and has determined that the terms of the In-Kind 
Contribution and the Leases are consistent with an arm's length 
negotiation between unrelated parties; (i) the In-Kind Contribution is 
conditioned on receipt of favorable engineering and environmental 
reports prior to closing; (j) the Plan will incur no fees, commissions, 
or other charges or expenses as a result of its participation in any of 
the Transactions; (k) ZHCC will indemnify the Plan with respect to any 
liability for hazardous materials released on the Properties, whether 
such release occurs prior to or after the execution of the Leases or 
the In-Kind Contribution; (l) if the Actual Return to the Plan is less 
than the sum of the contribution value of the Properties plus a return 
on such contribution value equal to the Minimum Funding Rate, then ZHCC 
and the Hospital will make Contingent Rent Payments to the Plan equal 
to the amount of any such difference; (m) each Lease is a triple net 
``bondable'' lease in which the Hospital's obligation to pay rent to 
the Plan is absolute and unconditional; (n) FCI will manage the 
acquisition, holding, leasing, and disposition of each of the 
Properties and the acquisition, holding, and disposition of the 
interests in each of the LLCs and will take whatever actions are 
necessary to protect the rights of the Plan with respect the Plan's 
ownership of such Properties and LLCs; (o) FCI will represent the 
Plan's interests for all purposes with respect to each of the 
Transactions and determine, prior to entering into any of the 
Transactions, that each is feasible, in the interest of the Plan, and 
protective of the Plan and its participants and beneficiaries; (p) FCI 
will monitor compliance by ZHCC and its affiliates with the terms of 
each of the Transactions and with the terms of this exemption; (q) the 
In-Kind Contribution plus the additional voluntary cash contributions 
will exceed the minimum funding requirement for the year 2005; and (r) 
FCI has determined that the Hospital should have sufficient cash flow 
to make the Lease payments, the Contingent Rent Payment(s), and the 
additional cash contributions to the Plan.

Notice to Interested Persons

    Those persons who may be interested in the pendency of the 
requested exemption include participants and beneficiaries of the Plan, 
trustees, unions, vested terminates, retirees, and all other interested 
persons or parties involved in the Transactions. It is represented that 
these various classes of interested persons will be notified as 
follows.
    All interested persons will be provided with a copy of the notice 
of this proposed exemption (the Notice), plus a copy of the 
supplemental statement (the Supplemental Statement), as required, 
pursuant to 29 CFR 2570.43(b)(2), which will advise such interested 
persons of the right to comment and to request a hearing. The Notice 
and the Supplemental Statement will be provided to all interested 
persons within seven (7) days of the publication of the Notice in the 
Federal Register. The Notice and the Supplemental Statement will be 
sent by first class mail to all interested persons. It is represented 
that for the purpose of sending the Notice and Supplemental Statement 
by mail, the last known addresses of such interested persons will be 
used.
    The Department must receive written comments and requests for a 
hearing no later than thirty-seven (37) days from the date of the 
publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

The Donlar Corporation Profit Sharing Plan (the Plan) Located in 
Roseville, MN

[Exemption Application No. D-11325]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act (the Act) and section 4975(c)(2) of the Internal Revenue Code of 
1986 (the Code), and in accordance with the procedures set forth in 29 
CFR part 2570, subpart B, 55 FR 32836, 32847 (August 10, 1990).\16\ If 
the exemption is granted, the restrictions of sections 406(a)(1)(A) 
through (D), 406(b)(1), and 406(b)(2) of the Act and the sanctions 
resulting from the application of section 4975, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply, in connection 
with the termination of the Plan, to the cash sale of a parcel of 
improved real property (the Property) owned by the Plan to Mr. Donald 
A. Kainz (Mr. Kainz), a party in interest with respect to the Plan; 
provided that:
---------------------------------------------------------------------------

    \16\ For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.

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

[[Page 76883]]

    (a) The Plan receives a price for the sale of the Property to Mr. 
Kainz equal to the greater of:
    (1) $418,000; or
    (2) The fair market value of the Property, plus the ``assemblage 
value'' to Mr. Kainz, as determined by an independent, qualified 
appraiser, as of the date of such sale; or
    (3) The cost to the Plan to acquire and hold the Property;
    (b) The Plan incurs no fees, commissions, or other charges or 
expenses as a result of its participation in the sale of the Property 
to Mr. Kainz;
    (c) Prior to entering into the subject transaction:
    (1) With respect to the past use and/or leasing of the Property by 
the Donlar Corporation (the Employer), the Employer files a Form 5330 
with the Internal Revenue Service (IRS);
    (2) With respect to the entire period of such use and/or leasing, 
the Employer pays all appropriate excise taxes, plus interest on such 
taxes to the IRS; and
    (3) With respect to the past use and/or leasing of the Property by 
the Employer, the Employer pays to the Plan the present value of the 
fair market rent, including interest, due to the Plan from the Employer 
in the form of a lump sum total rent payment in arrears with respect to 
the past use and/or leasing of the Property by the Employer, as 
determined by Mike Amo (Mr. Amo) an independent, qualified, appraiser, 
for the entire period of such use and/or leasing of the Property by the 
Employer;
    (d) The termination of the Plan and the distribution of its assets 
is in accordance with the provisions of the Plan and all applicable 
statutes and regulations, including section 4044 of the Act, relating 
to the allocation of assets; and
    (e) Upon termination of the Plan, each participant in the Plan 
receives 100 percent (100%) of the balance of his or her account in the 
Plan in cash, including each participant's pro rata share of the value 
of the Property, as of the date of the sale of the Property to Mr. 
Kainz.

Summary of Facts and Representations

    1. The Employer, a corporation located in Roseville, Minnesota, 
engages in the construction business. As an employer any of whose 
employees are covered by the Plan, the Employer is a party in interest 
with respect to the Plan, pursuant to section 3(14)(C) of the Act.
    Mr. Kainz is a shareholder and director of the Employer. As such, 
Mr. Kainz is a party in interest with respect to the Plan, pursuant to 
sections 3(14)(E) and 3(14)(H) of the Act.
    2. The Plan is a defined contribution pension plan with individual 
participant accounts. The Employer adopted the Plan, effective July 1, 
1973, as amended and restated July 1, 1997. As of July 7, 2005, the 
date of the application for exemption, there were sixteen (16) 
participants in the Plan. Mr. Kainz is a participant in the Plan.
    Mr. Kainz and Lawrence S. Dotte (Mr. Dotte) serve as trustees of 
the Plan (the Trustees). As Trustees, Mr. Kainz and Mr. Dotte are 
fiduciaries and parties in interest with respect to the Plan, pursuant 
to section 3(21) and 3(14)(A) of the Act.
    The financial statement for the Plan prepared by Larson Allen, CPA, 
indicates that, as of June 30, 2004, the aggregate fair market value of 
the total assets in the Plan was $5,481,798. As of June 30, 2004, 
approximately 60.9 percent (60.9%) of the assets of the Plan consisted 
of real property valued at $3,342,500.\17\
---------------------------------------------------------------------------

    \17\ It would appear that a substantial percentage of the assets 
of the Plan involve real property. In this regard, the Department 
notes that the general standards of fiduciary conduct under section 
404 of the Act would apply to investments by the Plan. Section 
404(a)(1)(C) of the Act requires, among other things, that a 
fiduciary diversify the investments of a plan so as to minimize the 
risk of large losses, unless under the circumstances it is clearly 
prudent not to do so. It is the responsibility of the fiduciary of 
the Plan to determine whether the diversification requirements of 
section 404(a)(1)(C) of the Act have been satisfied. It is the 
Department's position that both section 408(a) of the Act and the 
regulations promulgated thereunder make clear that a fiduciary of a 
plan that has received an administrative exemption is not insulated 
from responsibility and/or potential liability under section 404 of 
the Act.
---------------------------------------------------------------------------

    Effective December 31, 2004, the Board of Directors of the Employer 
resolved to terminate the Plan and to cease contributions. As of the 
same date, participation in the Plan ceased, as did crediting service, 
vesting, and benefit accrual under the Plan. On April 1, 2005, the 
Employer submitted to the IRS Form 5310, Application for determination 
for Terminating Plan, with respect to the Plan. In connection with the 
termination of the Plan, it is represented that all participants became 
100 percent (100%) vested. A favorable determination letter from the 
IRS is expected upon termination of the Plan. It is represented that 
the Plan's trust will be liquidated after the IRS issues a favorable 
determination letter.
    3. On June 1, 1984, the Plan purchased the Property that is the 
subject of this exemption for a purchase price of $73,000 from Gordon 
R. and Shirley Hove and Robert A. and Hazel G. Lindborg. It is 
represented that none of the previous owners were parties in interest 
with respect to the Plan.
    It is represented that the Trustees made the decision to purchase 
the Property as a long term growth investment for the Plan. Since the 
acquisition of the Property in June 1984, until November 30, 2004, the 
Plan has paid $13,426 in real estate taxes, $45,126 in financing costs, 
and $5,447 in utility costs. Accordingly, the total cost to the Plan to 
acquire and hold the Property, as of November 30, 2004, was 
approximately $136,999.
    At the time the Plan acquired the Property approximately 18.37% of 
the Plan's total assets were invested in the Property. As of December 
31, 2003, and June 30, 2004, respectively, the value of the Property 
represented approximately 6.60 percent (6.60%), and 7 percent (7%) of 
the Plan's total assets.\18\
---------------------------------------------------------------------------

    \18\ The Department, herein, is providing no relief from section 
404 of the Act for the acquisition and holding of the Property by 
the Plan.
---------------------------------------------------------------------------

    4. The Employer and the Trustees (collectively, the Applicants) 
have requested a prospective administrative exemption that would permit 
the sale of the Property to Mr. Kainz for cash; provided that, among 
other conditions the Plan receives a price equal to the greater of: (1) 
$418,000; or (2) the fair market value of the Property, plus the 
``assemblage value'' to Mr. Kainz, as determined by an independent, 
qualified appraiser, as of the date of such sale; or (3) the cost to 
the Plan to acquire and hold the Property. In addition, the Plan will 
not incur fees, commissions, or other charges or expenses as a result 
of its participation in the sale of the Property to Mr. Kainz.
    5. The Property is described as a rectangular 51 acre tract of 
cropland and woods located adjacent to and south of 100th Street 
Northeast, within the eastern half of Section 11 of Watab Township, 
Benton County, Minnesota.
    It is represented that the northern half of the Property is level 
but slopes gradually down to Sucker Creek and back up again south of 
the creek. The highest and best use of the Property is described as 
rural residential development. It is represented that access for the 
purpose of developing areas south of Sucker Creek would require the 
acquisition of an easement for a road from the south.
    The Property is improved by a one-story, steel and wood storage 
garage (the Garage) situated on a concrete slab.
    Overhead electric and underground telephone lines are available to 
the site. Water and sewer would be via private drilled well and sewer 
disposal systems. There are two wells on the site.

[[Page 76884]]

    5. It is represented that Rita Kainz, the wife of Mr. Kainz, the 
proposed purchaser of the Property, owns a parcel of real estate (the 
Kainz Land) contiguous to the Property owned by the Plan. In this 
regard, the Kainz Land is situated within the eastern half of Section 
11 (14.2 acres) and western half of Section 12 (14 acres) of Watab 
Township, Benton County, Minnesota. It is represented that the Kainz 
Land was purchased in 1979, five (5 years) prior to the Plan's 
acquisition of the Property in 1984 and was purchased from unrelated 
individuals that were different than the sellers of the Property to the 
Plan.
    The Kainz Land is described as an irregular-shaped 28.20 acre tract 
consisting of approximately 19 acres of cropland and 9 acres of woods. 
The Kainz Land is predominately south of Sucker Creek, but a portion of 
the Kainz Land lies north of Sucker Creek.
    Overhead electric and underground telephone lines are available to 
the Kainz Land. Water and sewer for the Kainz Land would be via private 
drilled well and sewer disposal systems or a cluster system or future 
area sewer district.
    Accessibility to the Kainz Land is adequate for residential and 
agricultural uses. Most of the Kainz Land is nearly level and 
developable for residential use.
    6. The applicant maintains that the requested exemption is 
administratively feasible in that Mr. Kainz is a willing buyer of the 
Property, for a purchase price that includes ``the assemblage value'' 
of the Property.
    The applicant further maintains that the exemption is feasible in 
that it involves a one-time sale by the Plan of the Property to Mr. 
Kainz for cash. The applicant also points out that if the exemption 
were not to be granted, the Plan would incur additional costs, fees, 
commissions or other charges or expenses associated with the sale of 
the Property to an unrelated third party.
    7. The applicant maintains that safeguards will be in place at the 
time the transaction is entered that are designed to protect the 
interests of the Plan and its participants and beneficiaries. In this 
regard, the application file contains two (2) appraisals reports of the 
fair market value of the Property, dated June 30, 2004, and December 6, 
2004, respectively.
    These appraisals were prepared by Mr. Amo, an Associate Appraiser 
with St. Cloud Appraisal, Inc. in St. Cloud, Minnesota.
    In these appraisals, Mr. Amo estimated the value of the Property 
using only the Sales Comparison Approach. In this regard, Mr. Amo 
indicates that vacant land is typically valued using the Sales 
Comparison Approach. Even though there are improvements on the 
Property, the Cost Approach was not applied, as Mr. Amo believes the 
Garage situated on the Property, does not contribute to the value of 
the Property in its projected highest and best use as residential 
development land. Further, Mr. Amo did not consider the Income 
Capitalization Approach to be valid in this case. It is represented 
that Mr. Amo is qualified to appraise the Property in that he is a 
member of the Appraisal Institute, a Certified Assessment Evaluator, a 
Certified General Appraiser, and a Certified Appraiser Assessor. Mr. 
Amo represents that he has had twenty (20) years of experience with St. 
Cloud Appraisal, Inc. Mr. Amo has also served as county assessor of 
Morrison County and city assessor of St. Cloud. In addition, Mr. Amo 
has experience as a lecturer and instructor in appraisal courses for 
the University of Minnesota.
    Mr. Amo is independent in that he has no present or prospective 
interest in the Property and has no personal or professional interest 
with respect to the parties involved. It is represented that Mr. Amo's 
engagement and compensation were not contingent upon the development or 
reporting of predetermined results.
    To measure the ``assemblage value'' of the Property to Mr. Kainz by 
virtue of the fact that the Kainz Land is contiguous to the Property, 
Mr. Amo prepared the December 6, 2004, appraisal report. In this 
regard, Mr. Amo appraised: (1) The value of the Property at $398,000 
($7,804 per acre); (2) the value of the Kainz Land at $259,000 ($9,184 
per acre); and (3) the value of the Property and the Kainz Land under 
one ownership (the Combined Site) (79.20 acres) at $677,000 ($8,548 per 
acre). In the opinion of Mr. Amo, the Combined Site: (1) Benefits from 
the amenity of Sucker Creek, and (2) is fully able to be developed from 
both the north and the south access points. According to Mr. Amo, the 
``assemblage value'' of the Combined Site is $20,000 ($253 per acre), 
as of December 6, 2004, as calculated by subtracting the value of the 
Combined Site from the sum of the values of the subject Property and 
the Kainz Land. ($677,000 minus ($398,000 + $259,000) = $20,000) 
Accordingly, the fair market value of the Property, as of December 6, 
2004, plus an ``assemblage value'' is $418,000. ($398,000 + $20,000 = 
$418,000)
    8. The applicant maintains that the subject transaction is in the 
interest of the Plan, because the Plan has been terminated and the sale 
of the Property to Mr. Kainz is the most effective means of liquidating 
the Plan's assets in preparation for making cash distributions to 
participants. In this regard, it is represented that the termination of 
the Plan and the distribution of its assets will be in accordance with 
the provisions of the Plan and all applicable statutes and regulations, 
including section 4044 of the Act, relating to the allocation of 
assets. Further, upon termination of the Plan, each participant in the 
Plan will receive 100 percent (100%) of the balance of his/her account 
in the Plan in cash, including each participant's pro rata share of the 
value of the Property, as of the date of the sale of the Property to 
Mr. Kainz.
    9. It is represented that, in the past, a portion of the Property 
was used and/or leased by the Employer as a staging site for 
construction equipment, materials, and supplies. In this regard, the 
Employer confirms that it has used, since 1990, a portion of land area 
of the Property and since 1994, the Garage on the Property to store 
equipment and building materials. It is represented that the Employer's 
use of the Property ceased on June 29, 2005.
    The Employer has represented that on July 7, 2005, it filed a Form 
5330 with the IRS and attached a check made payable to the United 
States Treasury in the amount of $11,582.11 which the Employer has 
represented reflects the excise tax due from the Employer for engaging 
in a use of plan assets by a disqualified person from July 1, 1990 
through June 29, 2005.
    The application file contains an appraisal report, prepared by Mr. 
Amo, dated May 31, 2005, of the present value of the fair market rent, 
including interest, due to the Plan from the Employer for the 
Employer's prior use of all or part of the Garage and a portion of land 
area of the Property for the period from June 30, 1990, through June 
30, 2005.
    The scope of Mr. Amo's assignment was to estimate the nature and 
extent of the Employer's occupancy of the Property, including the term 
and intensity of such occupancy. To assist him in this task, Mr. Amo 
represents that he reviewed the appraisals of the Property which he 
prepared during the past decade. Further, Mr. Amo represents that those 
reviews were supplemented by statements from representatives of the 
Plan. In this regard, Mr. Kainz, as one of the Trustees, assisted Mr. 
Amo with the development of an occupancy schedule for the dates 
preceding the time period

[[Page 76885]]

covered by Mr. Amo's appraisals and inspections of the Property. In 
this regard, Mr. Amo has estimated that the Employer utilized one-half 
acre of the land area of the Property during 1990, 1991, 1992, and 
1993. For the period from 1994 through June 30, 2005, Mr. Amo concluded 
that the Employer utilized one acre of the land area of the Property in 
addition to all or part of the Garage located on the Property.
    The scope of Mr. Amo's assignment also included estimating the 
market rent for rural industrial land, as well as for rural garage 
storage space, during the term of the Employer's occupancy of the 
Property, and calculating the present value of the fair market rent, 
including interest, due to the Plan from the Employer in the form of a 
lump sum total rent payment in arrears.
    In reaching his conclusion on the present value of the fair market 
rent, including interest, due to the Plan, Mr. Amo used the following 
assumptions: (a) A 4.5 percent (4.5%) effective rate of interest, as 
being a representative average during the relevant time period; (b) an 
annual frequency of conversion; (c) the land rent calculated using the 
market value estimate for the site utilized times a capitalization rate 
of 8 percent (8%); (d) occupancy of the land of the Property commencing 
on June 30, 1990, and occupancy of the Garage commencing after June 30, 
1994, and (e) Garage market rent based on comparisons with unheated, 
basic storage unit rents in residential garages with additional 
consideration for the remote and un-secure location of this structure.
    In addition, in a letter dated September 28, 2005, Mr. Amo 
clarified that in completing his analysis of the present value of the 
fair market rent, including interest, due to the Plan he considered the 
access roadway to the Property. In this regard, Mr. Amo indicated that 
in the market where the Property is located, rents paid for land and 
building occupancy include the rights to ingress and egress.
    Mr. Amo's final conclusion, as of June 30, 2005, of the present 
value of the fair market rent, including interest, due to the Plan from 
the Employer in the form of a lump sum total rent payment in arrears, 
was $19,595.11. In this regard, the Employer represents that on June 
30, 2005, it paid $19,595.11 to the Plan for the use and/or leasing of 
the Property for the period from July 1, 1990 through June 30, 2005, 
and that such amount represented the fair market rental value of the 
Property due to the Plan.\19\
---------------------------------------------------------------------------

    \19\ The Department, herein, is providing no retroactive relief 
from the prohibitions as set forth in section 406 of the Act for the 
past use and/or leasing of the Property by the Employer.
---------------------------------------------------------------------------

    10. In summary, the applicant represents that the subject 
transaction meets the statutory criteria of section 408(a) of the Act 
and 4975(c)(2) of the Code because:
    (a) The Plan will receive a price for the sale of the Property to 
Mr. Kainz equal to the greater of:
    (1) $418,000; or
    (2) The fair market value of the Property, plus the ``assemblage 
value'' to Mr. Kainz, as determined by an independent, qualified 
appraiser, as of the date of such sale; or
    (3) The cost to the Plan to acquire and hold the Property;
    (b) The Plan will incur no fees, commissions, or other charges or 
expenses as a result of its participation in the sale of the Property 
to Mr. Kainz;
    (c) Prior to entering into the subject transaction:
    (1) With respect to the past use and/or leasing of the Property by 
the Employer, the Employer filed a Form 5330 with the IRS and with 
respect to the entire period of such use and/or leasing, the Employer 
paid all appropriate excise taxes, plus interest on such taxes to the 
IRS; and
    (2) With respect to the past use and/or leasing of the Property by 
the Employer, the Employer paid to the Plan the present value of the 
fair market rent, including interest, due to the Plan from the Employer 
in the form of a lump sum total rent payment in arrears, as determined 
by an independent, qualified, appraiser, for the entire period of such 
past use and/or leasing of the Property by the Employer;
    (d) The termination of the Plan and the distribution of its assets 
will be in accordance with the provisions of the Plan and all 
applicable statutes and regulations, including section 4044 of the Act, 
relating to the allocation of assets;
    (e) Upon termination of the Plan, each participant in the Plan 
receives 100 percent (100%) of the balance of his or her account in the 
Plan in cash, including each participant's pro rata share of the value 
of the Property, as of the date of the sale of the Property to Mr. 
Kainz;
    (f) The subject transaction is a one-time sale by the Plan of the 
Property for cash; and
    (g) Mr. Amo, an independent, qualified appraiser determined the 
present value of the fair market rent, including interest, due to the 
Plan from the Employer in the form of a lump sum total rent payment in 
arrears with respect to the past use and/or leasing of the Property by 
the Employer and will determine the fair market value of the Property 
including ``assemblage value,'' as of the date of the sale of the 
Property to the Employer.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc 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.


[[Page 76886]]


    Signed at Washington, DC, this 21st day of December 2005.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 05-24493 Filed 12-27-05; 8:45 am]
BILLING CODE 4510-29-P