EBSA (Formerly PWBA) Federal Register Notice
Proposed Exemptions; Fish Lake Beach, Inc. Profit Sharing Plan (the Plan) [02/29/2000]
[PDF Version]
Volume 65, Number 40, Page 10826-10831
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10654, et al.]
Proposed Exemptions; Fish Lake Beach, Inc. Profit Sharing Plan
(the Plan)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
Attention: Application No., stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
the Pension and Welfare Benefits Administration, U.S. Department of
Labor, Room N-5638, 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
[[Page 10827]]
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.
Fish Lake Beach, Inc. Profit Sharing Plan (the Plan), Located in
Round Lake, Illinois
[Application No. D-10654]
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 32826, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b) (1) and (2) of
the Act and the sanctions resulting from the application of section
4975 of the Code by reason of section 4975(c)(1) (A) through (E) of the
Code, shall not apply to the proposed cash sale (the Sale) of a certain
parcel of real property (the Plan Parcel) from the Plan to the trust of
Emilie Keil (the Keil Trust), a party in interest with respect to the
Plan, provided the following conditions are met:
(a) The Sale is a one-time transaction for cash;
(b) The terms and conditions of the Sale are at least as favorable
to the Plan as those obtainable in an arm's-length transaction with an
unrelated party;
(c) The Plan receives the greater of $547,080 \1\ or the fair
market value of the Plan Parcel as of the date of the Sale; and
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\1\ Appraised value of the property is $485,000, plus a 12.5%
assemblage value premium ($62,080).
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(d) The Plan is not required to pay any commissions, costs or other
expenses in connection with the Sale.
Summary of Facts and Representations
1. Fish Lake Beach, Inc. (Fish Lake Beach) is a resort located in
Volo, Illinois. Fish Lake Beach is the sponsor of the Plan, a profit
sharing plan located in Round Lake, Illinois having 19 participants and
$1,659,702 in total assets as of December 31, 1998. The sole trustees
of the Plan are Delmar Maassel and Yvonne Maassel (collectively, the
Plan Trustees).
The applicant represents that three of the participants in the
Plan, Yvonne Maassel, Delmar Maassel, and Yvonne Crow, are minority
owners of Fish Lake Beach. In this regard, Yvonne Maassel, Delmar
Maassel, and Yvonne Crow own approximately 16.7%, 3.7%, and 12%,
respectively, of Fish Lake Beach.
2. Yvonne Maassel is also the trustee of the Emilie Keil Trust (the
Keil Trust). The Keil Trust is a trust established on behalf of Emilie
Keil, the mother of Yvonne Maassel, providing Yvonne Maassel with
certain powers to be exercised in a fiduciary capacity with respect to
the disposition of the Keil Trust's assets. The applicant represents
that, as trustee of the Keil Trust, Yvonne Maassel has the power to
invest the Keil Trust's assets in real property such as the Plan
Parcel.
3. The Plan owns the Plan Parcel, a 20 acre parcel of unimproved
real property located in Volo, Illinois. The Plan purchased the Plan
Parcel from the L.B. Anderson Construction Company (the Anderson
Company), an unrelated party, on March 3, 1994. The applicants
represent that the Plan purchased the Plan Parcel for short-term
investment purposes.
The applicants represent that, prior to the Plan's purchase of the
Plan Parcel, the Plan Parcel was a portion of a 40 acre parcel of
unimproved real property owned by the Anderson Company (the Original
Property). The applicants represent that the Anderson Company divided
the Original Property into two parcels of roughly the same size and
value, the Plan Parcel and a parcel also comprising approximately 20
acres of unimproved real property (the Maassel Parcel). The applicants
represent that the Anderson Company sold each parcel (the Anderson
Sales) on March 3, 1994. The Plan purchased the Plan Parcel for
$330,330 and a group of investors related to the Maassels purchased the
Maassel Parcel for $330,330. In this regard, the applicants represent
that of the Maassel Parcel's purchase price of $330,330: Delmar Maassel
and Yvonne Maassel contributed $50,530; Yvonne Crow, a daughter of
Delmar Maassel and Yvonne Maassel, contributed $40,300; Desiree
Maassel, a daughter of Delmar and Yvonne Maassel, contributed $40,300;
and Emilie Keil contributed $199,200.
Upon completion of the Anderson Sales, the Plan Parcel lay adjacent
to the Maassel Parcel and bordered the Maassel Parcel to the north and
the Maassel Parcel lay adjacent to Fish Lake Beach which bordered the
Maassel Parcel to the south. Additionally, after the Anderson Sales
were completed the Plan Trustees and Yvonne Crow each had an ownership
interest in both the Plan Parcel and the Maassel Parcel.
The applicant represents that the related investors purchased the
Maassel Parcel in anticipation of the expansion of Fish Lake Beach's
operations. The Plan Trustees represent that since its acquisition by
the Plan, the Plan Parcel has accounted for 57.4% of the Plan's
unrealized appreciation and 2.5% of the Plan's realized income, as of
December 31, 1997. \2\
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\2\ The Department expresses no opinion as to whether the
purchase and holding of the Plan Parcel by the Plan meets the
requirements of section 404 of the Act.
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4. The Plan Trustees represent that the Plan Parcel has generated
income for the Plan. The Plan Trustees represent that from 1994 to
1998, the Plan leased the Plan Parcel to Ronald Weidner, an unrelated
party (the Lease). The Plan Trustees represent that Mr. Weidner used
the Plan Parcel for farming purposes. As a result, the Plan Trustees
represent that the Plan has received income totaling $5,864 from the
Lease.
The Plan Trustees further represent that the Plan has incurred
certain holding costs associated with the Plan's ownership of the Plan
Parcel. The Plan Trustees represent that the total amount of real
estate taxes on the Plan Parcel was $327.27 since the Plan's
acquisition. Of this amount, the Plan Trustees represent that Plan has
paid $103.02 and Fish Lake Beach has paid $224.25.
5. The Plan Parcel was appraised by Robert Schroeder (Mr.
Schroeder), the owner of Robert P. Schroeder Appraisals. Mr. Schroeder
represents that he is a certified real estate appraiser and is
independent of the Plan. In his appraisal of the Plan Parcel, Mr.
Schroeder compared the Plan Parcel to five similar properties (the
Comparable Properties) which were the subject of recent sales. Based on
his analysis of these recent sales, Mr. Schroeder estimated the value
of the Plan Parcel to
[[Page 10828]]
be $485,000 (the Appraised Value), as of September 10, 1999.
Mr. Schroeder additionally represents that the Sale should include
a price above the Appraised Value because of the ownership by the
Maassels and Emilie Keil of the Maassel Parcel located adjacent to the
Plan Parcel (the Assemblage Value). In this regard, Mr. Schroeder
determined that a premium of 12.5%, or $62,080, should reflect the
Assemblage Value.
6. Therefore, the applicant proposes the sale of the Plan Parcel to
the Keil Trust for the greater of $547,080 ($485,000 + $62,080) or the
Plan Parcel's fair market value as of the date of the transaction (i.e,
the Sale). The applicant represents that the Sale is necessary due to a
liquidity problem facing the Plan in the event the proposed Sale is not
granted. In this regard, the applicant represents that the Plan is
facing a potential liquidity problem due to the approaching retirement
of two of the Plan's participants, Delmar Maassel and Yvonne Maassel.
The applicant represents that the proposed exemption, if granted,
is feasible since the Sale would be a one-time transaction for cash.
The applicant additionally represents that the Sale is in the best
interests of the Plan's participants and beneficiaries since the Sale
will provide the Plan with liquidity which will enable the Trustees to
allocate Plan assets in more suitable investments. The applicant
represents further that the proposed Sale is appropriate for the Plan
since the Plan will receive the current fair market value of the Plan
Parcel without incurring the substantial marketing costs associated
with a Sale to unrelated third-parties.
8. In summary, the applicants represent that the subject
transactions satisfy the statutory criteria contained in section 408(a)
of the Act and section 4975(c)(2) of the Code for the following
reasons:
(a) The Sale is a one-time transaction for cash;
(b) The terms and conditions of the Sale are at least as favorable
to the Plan as those obtainable in an arm's-length transaction with an
unrelated party;
(c) The Plan receives the greater of $547,080 or the fair market
value of the Plan Parcel as of the date of the Sale; and
(d) The Plan is not required to pay any commissions, costs or other
expenses in connection with the Sale.
FOR FURTHER INFORMATION CONTACT: Mr. J. Martin Jara of the Department,
telephone (202) 219-8883 (this is not a toll free number).
Earl R. Waddell & Sons, Inc. Profit Sharing Plan and Trust (the
Plan), Located in Fort Worth, Texas
[Application No. D-10730]
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 (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 arrangement between the Plan and Earl
R. Waddell & Sons, Inc. (The Waddell Company) involving the sale (the
Sale) by the Plan of 5,183.840 shares of the Waddell Holdings Stock to
the Waddell Company, provided the following conditions are satisfied:
(A) The Sale price is the greater of $280.29 per share or the
Waddell Holdings Stock's current fair market value as of the date of
the Sale;
(B) The current fair market value of the Waddell Holdings Stock is
determined by a qualified, independent appraiser;
(C) The Plan incurs no commissions or expenses associated with the
Sale;
(D) The Waddell Company pays in cash to the Plan an additional
$191,126, an amount equal to an eight percent (8%) per annum rate of
return on the Waddell Holdings Stock, as converted, for each year the
Plan owned the Waddell Holdings Stock (the Interest Payment); and
(E) The Plan's Trustees will not receive any portion of the
Interest Payment.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan having 31
participants and $221,000 in assets as of June 30, 1999.\3\ The Plan
was created on July 1, 1962 by the Waddell Company, a manufacturer's
representative company founded by Earl R. Waddell (Mr. Waddell) and
located in Fort Worth, Texas. On April 28, 1992, the Waddell Company
underwent a corporate reorganization (the Reorganization) and the
Waddell Company became a wholly-owned subsidiary of Waddell Holdings,
Inc. (Waddell Holdings), a holding company incorporated in the State of
Texas. In addition to the Waddell Company, Waddell Holdings owns
subsidiaries engaged in the sales of industrial cutting tools,
equipment, and supplies, and in the ownership of real estate and
investment property. After the Reorganization, Waddell Company became,
and remains, the Plan's sponsor.
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\3\ In this regard, the applicant represents that the Plan has
5183.840 shares of common stock of the Waddell Holdings Stock and
$187 in cash. The Waddell Holdings Stock was valued at $42.60 as of
June 30, 1999. As such the Plan has a total of $221,000 in Plan
assets [(5183.840 * 42.60) + 187 = 220,999.84)].
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2. On December 20, 1988, the Plan purchased 5,719 shares of stock
(the Original Stock) from the Waddell Company for $280.29 per share
(the Purchase).\4\ The Original Stock was common stock issued by the
Waddell Company. The price of the Stock was based on an independent
appraisal by Clyde Crum (Mr. Crum), a Texas-certified appraiser, for
Clyde Crum Appraisal Consultants, an appraisal company independent of
the Plan and the Waddell Company. In his appraisal, Mr. Crum analyzed
the assets and liabilities of the Waddell Company and determined the
fair market value of the Waddell Company to be $11,354,000, as of
October 31, 1988. The applicant represents that, at the time of the
Plan's acquisition of the Original Stock, the Waddell Company had
40,507 shares of common stock outstanding resulting in a $280.29 per
share price for the Original Stock.
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\4\ The applicant represents that, at the time of the Purchase
the Original Stock comprised approximately 77% of the Plan's assets.
The Department expresses no opinion as to whether the acquisition of
the Original Stock by the Plan meets the requirements of section
404(a)(1)(B) of the Act.
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3. The applicant represents that after the Reorganization the
Original Stock was exchanged for stock (the Exchange) issued by Waddell
Holdings (i.e., the Waddell Holdings Stock). As a result, after the
Reorganization, the Plan held 5,719 shares of the Waddell Holdings
Stock. In this regard, it is represented that the Original Stock and
the Waddell Holdings Stock are ``qualifying employer securities,'' as
defined in section 407(d)(5) of the Act.
On June 30, 1993, the Plan sold 535.160 shares of the Waddell
Holdings Stock at $280.29 per share to Waddell Holdings (the Prior
Sale). The applicant represents that the Plan sold the Waddell Holdings
Stock to enable the Plan to pay benefits to the Plan's participants.
The applicant states that the Waddell Holdings was unable to obtain an
appraisal at that time because a pending litigation prevented
valuations of the Waddell Holdings Stock. Waddell Holdings was able to
obtain an appraisal as of June 30, 1996,
[[Page 10829]]
valuing the Waddell Holding Stock at $46.50 per share. It is
represented that the sale by the Plan to Waddell Holdings of the
Waddell Holdings Stock satisfied the criteria of section 408(e) of the
Act.\5\
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\5\ The Department is expressing no opinion as to whether the
Original Stock and the Waddell Holdings Stock constitute qualifying
employer securities as defined in Section 407(d)(5) of the Act.
Further, the Department, herein, expresses no opinion as to whether
the Purchase, the Exchange, or the Prior Sale satisfied the
conditions, as set forth under section 408(e) of the Act.
Accordingly, the Department is not proposing relief for the
aforementioned transactions.
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After this sale, the Plan held, and continues to hold, 5,183.840
shares of the Waddell Holdings Stock.
4. The applicant proposes the sale by the Plan of the Plan's
5,183.840 shares of the Waddell Holdings Stock to the Waddell Company
(i.e., the Sale) for the greater of $1,453,000 ($280.29 per share) or
the Waddell Holdings Stock's current fair market value as determined by
an independent appraisal.\6\ The applicant represents that the Waddell
Holdings Stock currently comprises approximately 100% of the Plan's
assets and the proposed Sale is necessary for the Plan to pay benefits
to the Plan's participants and beneficiaries. The applicant represents
that the proposed Sale is in the best interests of the Plan's
participants and beneficiaries since the Waddell Holdings Stock
currently comprises approximately 100% of the Plan's assets and the
Sale will enable the Plan to diversify its assets. The applicant
additionally represents that the proposed Sale is administratively
feasible since the proposed Sale is a one-time transaction for cash in
which the Plan will not incur any fees or expenses. Finally, the
applicant represents that the proposed Sale is protective of the Plan
since the Plan will receive cash equal to the greater of the Waddell
Holdings Stock's current fair market value or $1,453,000.
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\6\ The applicant represents that a recent independent appraisal
on the Waddell Holdings Stock determined its current fair market
value to be $42.60 per share as of June 30, 1999. As a result, the
applicant anticipates the Sale to occur at a price exceeding the
Waddell Holdings Stock's current fair market value. In this regard,
the applicant represents that the Sale does not violate the
requirements set forth in section 415 of the Code.
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The applicant additionally proposes an Interest Payment in cash
from the Waddell Company to the Plan. In this regard, the applicant
represents that it is anticipated that the Sale will occur at a price
which results in a zero rate of return to the Plan despite the Plan's
ownership of the Waddell Holdings Stock for approximately 11 years. The
applicant represents that, in the event this proposed transaction is
granted, the Plan will receive from the Waddell Company cash in the
amount of $191,126, a sum equal to an 8% rate of return on the Waddell
Holdings Stock for each Plan year, beginning July 1, 1989. The
applicant represents that the Interest Payment is due to the Sale
occurring at a price which provides for a zero percent rate of return
to the Plan as a result of the Plan's investment in the Waddell
Holdings Stock. The applicant represents that the Interest Payment will
be distributed to the account balances of all of the Plan's
participants with the exception of Marsha Waddell Moller, Mark Waddell,
Earl R. Waddell, Juanita Waddell, and Allen Waddell.
5. In summary, the applicant represents that the subject
transactions satisfy the statutory criteria contained in section 408(a)
of the Act for the following reasons:
(A) The Sale price is the greater of $280.29 per share or the
Waddell Holdings Stock's current fair market value as of the date of
the Sale;
(B) The current fair market value of the Waddell Holdings Stock is
determined by a qualified, independent appraiser;
(C) The Plan incurs no commissions or expenses associated with the
Sale; and
(D) The Waddell Company pays in cash to the Plan an additional
$191,126, an amount equal to an eight percent (8%) per annum rate of
return on the Waddell Holdings Stock, as converted, for each year the
Plan owned the Waddell Holdings Stock (the Interest Payment); and
(E) The Plan's Trustees will not receive any portion of the
Interest Payment.
FOR FURTHER INFORMATION CONTACT: J. Martin Jara of the Department,
telephone (202) 219-8883 (this is not a toll free number).
Rhode Island Carpenters Local No. 94 Pension Fund (the Pension
Plan), Rhode Island Carpenters Local No. 94 Apprenticeship Fund
(the Apprenticeship Plan; Collectively, the Plans), and Rhode
Island Carpenters Local No. 94 (the Union), Located in Warwick,
Rhode Island
[Application Nos. D-10739 and L-10740]
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 (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: (1) the cash sale (the Parking Lot Sale) of
improved real property (the Parking Lot) by Rhode Island Carpenters
Apprenticeship Fund (the Apprenticeship Plan) to the Carpenters Local
No. 94 (the Union) for the greater of (a) $173,000 or (b) the fair
market value of the Parking Lot as of the date of the Parking Lot Sale;
and (2) the cash sale (the Building Sale) of improved real property
(the Building) by the Rhode Island Carpenters Local No. 94 Pension Fund
(the Pension Plan) to the Union, for the greater of (a) $777,000 or (b)
the fair market value of the Building as of the date of the Building
Sale, provided the following conditions are satisfied:
(A) the Parking Lot Sale occurs at a price not less than the fair
market value of the Parking Lot, as determined by a qualified
independent appraiser;
(B) the Building Sale occurs at a price not less than the fair
market value of the Building, as determined by a qualified independent
appraiser;
(C) The Building Sale and the Parking Lot Sale (collectively, the
Sales) are one-time transactions for cash; and
(D) The Plans pay no fees or commissions in connection with the
Sales.
Summary of Facts and Representations
1. The Union is a labor organization located in Warwick, Rhode
Island. The Union is a sponsor of the Plans.
2. The Plans are comprised of the Apprenticeship Plan and the
Pension Plan. The Apprenticeship Plan is a multi-employer
apprenticeship plan which educates and trains apprentice carpenters in
Rhode Island. The Apprenticeship Plan had approximately 61 apprentices
and $636,730 in assets as of December 31, 1998. The Pension Plan is a
multi-employer pension plan which provides pension benefits to
carpenters in Rhode Island. The Pension Plan had approximately 2,096
participants and approximately $102,239,790 in assets as of December
31, 1998.
3. On May 22, 1974, the trustees of the Pension Plan (the Pension
Plan Trustees) established a corporation, Jefferson Park Building, Inc.
(Jefferson Park), for the purpose of purchasing and owning real estate
in Rhode Island. On May 29, 1974, the Pension Plan Trustees caused
Jefferson Park to purchase the Pension Plan Building for $480,000 from
the Springdale Enterprising Company, an unrelated third party.
[[Page 10830]]
The Pension Plan Building is located at 14 Jefferson Park Road in
Warwick, Rhode Island. The Pension Plan Building consists of a 12,600
square foot, two-story office building located on a 58,172 square foot
lot. The applicants represent that, since its acquisition, the Pension
Plan has used a portion of the Pension Plan Building as an
administrative facility. In addition, the applicants represent that the
Pension Plan also has leased, and continues to lease, space in the
Pension Plan Building to the Apprenticeship Plan for use in the
following: workshops, training, classrooms, and offices. The applicants
also represent that the Pension Plan leases space in the Pension Plan
Building to the Union and other related and unrelated parties. \7\
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\7\ The Pension Plan Trustees represent that the leasing of the
office space to the Union and Union-sponsored employee benefit plans
is in accordance with Prohibited Transaction Class Exemption (PTCE)
76-1, (41 FR 12740, March 26, 1976) and PTCE 77-10 (42 FR 33918,
July 1, 1997). The Department expresses no opinion herein as to
whether such transaction complies with the terms and conditions of
PTCEs 76-1 and 77-10. The Pension Plan Trustees additionally
represent that the rents at the Pension Plan Building are based on a
market survey of similar commercial properties in the Warwick, Rhode
Island area.
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The applicants represent that the Pension Plan Building has
generated rental income for the Pension Plan. In this regard, the
applicants represent that the Pension Plan has generated approximately
$80,000 per year in rental income since 1974. As a result, the
applicants represent that the Pension Plan has received a total of
approximately $2,000,000 in rental income since the Pension Plan
acquired the Pension Plan Building.
The applicants additionally represent that the Pension Plan has
incurred certain expenses as a result of its ownership of the Pension
Plan Building. These expenses include real estate taxes imposed on the
Pension Plan Building. In this regard, the applicants represent that
the Pension Plan has incurred an average of approximately $20,000 per
year in real estate taxes since 1974. As a result, the applicants
represent that the Pension Plan has incurred approximately $500,000 in
real estate taxes since the Pension Plan acquired the Pension Plan
Building.
The applicants also represent that the liability insurance on the
Pension Plan Building for the last twenty-five years averaged
approximately $4,000 per year, totaling $100,000.
The Pension Plan additionally incurred certain repair expenses
associated with the Pension Plan's ownership of the Pension Plan
Building. In this regard, the applicants represent that although the
Pension Plan Building has not been expanded, the Pension Plan has
incurred various expenses in maintaining the Pension Plan Building's
habitability. These expenses include the replacement of the Pension
Plan Building's roof in 1989 in the amount of $27,000, and the
installation of a new heating system in 1988 in the amount of $86,000.
The applicants represent that other miscellaneous maintenance expenses
averaged approximately $4,000 per year.
The applicants represent that the rental income generated from the
Pension Plan Building far exceeds the sum of the repair costs, real
estate taxes and liability insurance.\8\
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\8\ Rental Income ($2,000,000)--Taxes ($500,000)+Liability
Insurance ($100,000)+Other Expenses
($27,000+$86,000+$100,000)]=$1,187,000.
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4. On October 21, 1974, the trustees of the Apprenticeship Plan
(the Apprenticeship Plan Trustees) established a company,
Apprenticeship Properties, for the purpose of purchasing and owning
real estate located in Rhode Island. On October 24, 1974,
Apprenticeship Properties purchased the Parking Lot from Jay Gar, Inc.,
an unrelated party, for $43,220. The Parking Lot is a 28,812 square
foot rectangular-shaped asphalt parking lot located adjacent to the
Pension Plan Building. \9\ The applicants represent that the
Apprenticeship Plan Trustees purchased the Parking Lot in anticipation
of the Apprenticeship Plan's construction of an apprentice training
facility.
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\9\ The applicants represent that the Pension Plan Building has
sufficient parking spaces available for the Pension Plan Building's
tenants and any use of the Apprenticeship Plan Parking Lot by the
Pension Plan Building's tenants did not result in a benefit to the
Union or any other party in interest to the Apprenticeship Plan.
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Since its acquisition, the Apprenticeship Plan has incurred certain
expenses (the Holding Costs) associated with its ownership of the
Apprenticeship Plan Parking Lot. The Holding Costs are comprised of
property taxes imposed on the Parking Lot and improvements made to the
Parking Lot. In this regard, the applicants represent that the
Apprenticeship Plan has incurred a total of $52,500 in property taxes
as a result of its ownership of the Parking Lot. With respect to the
costs incurred by the Apprenticeship Plan for improvements made to the
Parking Lot, the applicants represent that the Apprenticeship Plan has
paid $11,829. The applicants represent that the total cost to the
Apprenticeship Plan associated with the Apprenticeship Plan's ownership
of the Parking Lot is $107,549, the sum of the Parking Lot's
acquisition price ($43,220) and the total Holding Costs ($64,329).
5. The applicants represent that in 1997 the Pension Plan Trustees
determined that the Pension Plan Building was not appreciating at a
satisfactory rate. The applicants represent that the Pension Plan
Trustees decided to sell the Pension Plan Building and invest the
proceeds in assets more suitable to the needs of the Pension Plan. The
applicants represent that on August 18, 1998 the Pension Plan Trustees
decided to sell the Pension Plan Building to the Union for a price
equal to the Pension Plan Building's fair market value.
The applicants additionally represent that the Apprenticeship Plan
Trustees determined that the Parking Lot was no longer needed for the
construction of an apprentice training facility. \10\ The applicants
represent that, due to a downturn in the industry and a decrease in
apprentices in Rhode Island, the Apprenticeship Plan Trustees
determined that the construction of an apprenticeship training facility
should be postponed. The applicants further represent that in July
1996, the Union became part of the New England Regional Council of
Carpenters and shortly thereafter the Apprenticeship Plan Trustees
decided that their apprentices could receive high quality training in a
cost effective manner at the modern, existing facility of the
Massachusetts Carpenters Training Program in Milbury, Massachusetts.
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\10\ The Department expresses no opinion as to whether the
retention of the Pension Plan Building and Parking Lot for such
period of time by the Plans meets the requirements of 404(a) of the
Act.
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The void filled by the existing facility, the applicants represent,
prompted the Apprenticeship Plan Trustees to invest in a more liquid
asset than real estate. Accordingly, the applicants further represent
that on September 8, 1998, the Apprenticeship Plan Trustees decided to
sell the Parking Lot to the Union for a price equal to the Parking
Lot's fair market value.
6. The Pension Plan Building was appraised by three different
appraisers. Each appraiser represented that he was independent of the
Pension Plan and the Union and that his employment and compensation
were not contingent on the appraised value of the Pension Plan
Building. Each appraiser additionally represented that he was a Rhode
Island-certified real estate appraiser.
The first appraisal was completed on February 3, 1998 by Mr. J.
Timothy Reiter (Mr. Reiter) for Andolfo Appraisal Associates, an
appraisal company independent of the Pension Plan, the
[[Page 10831]]
Apprenticeship Plan, and the Union. Mr. Reiter used both the income
approach and the sales comparison approach and determined the fair
market value of the Pension Plan Building to be $777,000 as of February
3, 1998. The second appraisal was completed by Mr. Joseph Accetta (Mr.
Accetta) for Joseph W. Accetta & Associates, Inc., an appraisal company
independent of the Pension Plan and the Union. Mr. Accetta used the
sales comparison approach and compared the Pension Plan Building to
three similar properties. Based on these comparisons, Mr. Accetta
determined the fair market value of the Pension Plan Building to be
$700,000 as of April 6, 1998. The third appraisal was completed by Mr.
Andrew Carbone (Mr. Carbone) for Carbone & Shand Appraisal, LLC, an
appraisal company independent of the Pension Plan, the Apprenticeship
Plan, and the Union. Mr. Carbone used the sales comparison approach and
compared the Pension Plan Building to four similar properties. Based on
these comparisons, Mr. Carbone determined the fair market value of the
Pension Plan Building to be $720,000 as of April 7, 1998.
Mr. Reiter additionally appraised the Apprenticeship Plan Parking
Lot. Mr. Reiter used the income approach and determined the fair market
value of the Apprenticeship Plan Parking Lot to be $173,000 as of
February 3, 1998. Mr. Carbone also appraised the Apprenticeship Plan
Parking Lot. Mr. Carbone used the sales comparison approach and
determined the fair market value of the Apprenticeship Plan Parking Lot
to be $95,000 as of April 7, 1998.
7. The applicants proposed the sale of the Pension Plan Building
from the Pension Plan to the Union (i.e., the Pension Plan Building
Sale) for $732,333, the average of the three appraisals performed on
the Pension Plan Building. Additionally, the applicants propose the
sale of the Apprenticeship Plan Parking Lot from the Apprenticeship
Plan to the Union (i.e., the Apprenticeship Plan Parking Lot Sale) for
$134,000, the average of the two appraisals performed on the
Apprenticeship Plan Parking Lot.
8. The Department requested that the applicants obtain new or
updated appraisals due to the disparate range of the various appraisals
originally submitted by the applicants. Accordingly, the applicants
retained the services of Mr. Thomas S. Andolfo, MAI, for Andolfo
Appraisal Associates, an appraisal company independent of the Plans and
the Union. Mr. Andolfo, in updating the valuation, relied on the direct
sales comparison approach and determined the fair market value of the
Pension Plan Building to be $777,000 as of November 1, 1999. Mr.
Andolfo also updated the appraisal of the Apprenticeship Plan Parking
Lot. Mr. Andolfo, considered market sales and performed a Land Residual
Analysis and determined the fair market value of the Apprenticeship
Plan Parking Lot to be $173,000 as of November 1, 1999. The applicants
state that these latest figures, which represent the highest appraisal
values for the Parking Lot and Building, will be used in the Sales.
9. The applicants represent that, if granted, the proposed Sales
will be administratively feasible since the Sales will be one-time
transactions for cash. Additionally, the applicants represent that the
proposed Sales will be protective of the Plans since the Apprenticeship
Plan will receive the fair market value of the Apprenticeship Plan
Parking Lot and the Pension Plan will receive the fair market value of
the Pension Plan Building. Finally, the applicants represent that the
proposed Sales are in the best interest of the Plans since the Sales
will enable the Plans to invest in assets more suitable for the needs
of the participants and beneficiaries of the Plans.
10. In summary, the Applicants represent that the proposed
transaction satisfies the criteria of section 408(a) of the Act
because:
(A) the Parking Lot Sale occurs at a price not less than the fair
market value of the Parking Lot, as determined by a qualified
independent appraiser;
(B) the Building Sale occurs at a price not less than the fair
market value of the Building, as determined by a qualified independent
appraiser;
(C) The Building Sale and the Parking Lot Sale (collectively, the
Sales) are one-time transactions for cash; and
(D) The Plans pay no fees or commissions in connection with the
Sales.
FOR FURTHER INFORMATION CONTACT: J. Martin Jara at the United States
Department of Labor, telephone (202) 219-8883 (this is not a toll free
number).
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 24th day of February, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 00-4733 Filed 2-28-00; 8:45 am]
BILLING CODE 4510-29-P