Print This Page
E-mail This PageEBSA (Formerly PWBA) Federal Register Notice
Proposed Exemptions; Bank of America (BofA) [09/23/2002]
[PDF Version]
Volume 67, Number 184, Page 59558-59564
-----------------------------------------------------------------------
DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10986, et al.]
Proposed Exemptions; Bank of America (BofA)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
-----------------------------------------------------------------------
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 Pension and Welfare Benefits
Administration (PWBA), 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 PWBA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
moffittb@pwba.dol.gov, 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 Pension and Welfare Benefits 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.
Bank of America (BofA); Located in Bethesda, Maryland
[Application No. D-10986]
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 32,836, 32,847, August 10, 1990). If the
exemption is granted, the restrictions of section 406(a) of the Act and
the sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1)(A) through (D) of the Code, shall
not apply to (1) the granting to BofA by the Westbrook Real Estate Fund
III, L.P. (LP), a Delaware Limited Partnership, of a first, exclusive,
and prior security interest in the capital commitments (Capital
Commitments), reserve amounts (Reserve Amounts), and capital
contributions (Capital Contributions), whether now owned or after-
acquired, of certain employee benefit plans (Plans) investing in the
LP; (2) the collateral assignment and pledge by the LP to BofA of its
security interest in each Plan's limited partnership interest, whether
now owned or after-acquired; (3) the granting by the LP of a first,
exclusive, and prior security interest in a borrower collateral account
to which all Capital Contributions will be deposited when paid
(Borrower Collateral Account); (4) the granting to BofA by Westbrook
Real Estate Partners Management III, L.L.C., a Delaware limited
liability company and the general partner of the LP (the General
Partner), of its right to make calls for cash contributions (Drawdowns)
under the Amended and Restated Agreement of Limited Partnership of
Westbrook Real Estate Fund III, L.P., dated as of June 10, 1998
(Agreement), where BofA is the representative of certain lenders (the
Lenders) that will fund a so-called ``credit facility'' (Credit
Facility) providing credit to the LP, and the Lenders are parties in
interest with respect to the Plans; and (5) the execution of a partner
agreement and estoppel (Estoppel) under which the Plans agree to honor
the Drawdowns; provided that (i) the proposed grants, assignments, and
Estoppels are on terms no less favorable to the Plans than those which
the Plans could obtain in arm's-length transactions with unrelated
parties; (ii) the decisions on behalf of each Plan to invest in the LP
and to execute such Estoppels in favor of BofA, for the benefit of each
Lender, are made by a fiduciary which is not included among, and is
independent of and unaffiliated with, the Lenders and BofA; (iii) with
respect to Plans that may invest in the LP in the future, such Plans
will have assets of not less than $100 million \1\ and not more than 5%
of the assets of such Plan will be invested in the LP; and (iv) the
General Partner is unrelated to any Plan and any Lender.
---------------------------------------------------------------------------
\1\ In the case of multiple plans maintained by a single
employer or a single group of employers treated as a single employer
under Sections 414(b), 414(c), 414(m), and 414(o) of the Code, the
assets of which are invested on a commingled basis (e.g., through a
master trust), this $100 million threshold will be applied to the
aggregate assets of all such plans.
---------------------------------------------------------------------------
Effective Date: If this proposed exemption is granted, it will be
effective July 30, 1998.
Summary of Facts and Representations
1. The LP is a Delaware limited partnership, the sole general
partner of which is the General Partner. The General Partner is a
separate affiliate of Westbrook Real Estate Partners, L.L.C.
[[Page 59559]]
(Westbrook), a Delaware limited liability company, which is the sponsor
of the LP. The LP shall exist for eight years from the end of its
initial investment period, but may be extended. The LP was formed by
the General Partner (as sponsor and sole general partner) with the
intent of seeking Capital Commitments from a limited number of
prospective investors who would become partners (the Limited Partners)
of the LP. There are fifty-three current and prospective Limited
Partners having, in the aggregate, irrevocable, unconditional Capital
Commitments of approximately $1.2 billion.
2. The LP has been organized to establish an integrated, self-
administered and self-managed real estate operating company (see rep.
11, below) to acquire a broad range of real estate-related assets,
portfolios and companies. The LP believes that significant
opportunities exist to achieve superior risk-adjusted returns in real
estate and generally seeks compounded annual returns on its investments
in excess of 18%.
3. Proceeds from the sale or refinancing of properties generally
will not be reinvested. The proceeds will be distributed to the Limited
Partners on at least a quarterly basis so that the LP will be self-
liquidated.
4. The Agreement requires each Limited Partner to make initial
contributions of capital up to a specified maximum. The Agreement
requires Limited Partners to make Capital Contributions to fulfill this
obligation upon receipt of notice from the General Partner. Under the
Agreement, the General Partner may make Drawdowns up to the total
amount of a Limited Partner's Capital Commitment upon 15 business days'
notice, subject to certain limitations. The Limited Partners' Capital
Commitments are structured as unconditional, binding commitments to
contribute equity when Drawdowns are made by the General Partner. In
the event of a default by a Limited Partner, the LP may exercise any of
a number of specific remedies.
Among the Limited Partners and their investments in the LP are:
------------------------------------------------------------------------
Capital
Name of partner commitment
------------------------------------------------------------------------
BellSouth Master Pension Trust......................... $100,000,000
NC/TREIT............................................... 100,000,000
New York State Common Retirement Fund.................. 100,000,000
Commonwealth of Pennsylvania State Employees Retirement 75,000,000
System................................................
JPMorgan Chase Bank, as Trustee for the IBM Personal 75,000,000
Pension Plan Trust....................................
Westbrook Real Estate Fund III Ohio Group Trust........ 75,000,000
------------------------------------------------------------------------
5. The applicant states that the LP will incur short-term
indebtedness for the acquisition of particular investments and for
working capital purposes (with the expectation that such acquisition
indebtedness will be repaid from the Limited Partners' Capital
Commitments and/or from mortgage debt). This indebtedness takes the
form of the Credit Facility, a revolving credit agreement secured by,
among other things, a pledge and assignment of each Limited Partner's
Capital Commitment and by a pledge and assignment by the LP and the
General Partner of the right to make Drawdowns of the Capital
Commitments, and their security interests in the Limited Partners'
limited partnership interests in the LP. This type of facility allows
the LP to consummate investments quickly without having to finalize the
debt/equity structure for an investment or having to arrange for
interim or permanent financing prior to making an investment, and will
have additional advantages to the Limited Partners and the LP. Under
the Agreement, the General Partner may encumber Limited Partners'
Capital Commitments, Reserve Amounts, and Capital Contributions,
including the right to make Drawdowns, to one or more financial
institutions as security for the Credit Facility. Each of the Limited
Partners has appointed the General Partner as its attorney-in-fact to
execute all documents and instruments of transfer necessary to
implement the provisions of the Agreement. In connection with this
Credit Facility, each of the Limited Partners is required to execute
documents customarily required in secured financings, including an
agreement to honor Drawdowns unconditionally.
6. BofA is the agent for a group of Lenders providing a $400
million revolving Credit Facility to the LP. BofA is also a
participating Lender. Some of the Lenders may be parties in interest
with respect to some of the Plans that invest in the LP by virtue of
such Lenders' (or their affiliates') provision of services to such
Plans for assets other than the Plans' interests in the LP. BofA is
requesting an exemption to permit the Plans to enter into security
agreements with BofA, as the representative of the Lenders, whereby
such Plans' Capital Commitments, Reserve Amounts, and Capital
Contributions to the LP, as well as the Plans' limited partnership
interests, are used as collateral for loans made by the Credit Facility
to the LP, when such loans are funded by Lenders who are parties in
interest to one or more of the Plans.
The Credit Facility is used to provide immediate funds for real
estate acquisitions made by the LP, as well as for the payment of LP
expenses. Repayments are secured generally by the Limited Partners'
Capital Contributions, Reserve Amounts, Drawdowns on the Limited
Partners' Capital Commitments, and the Limited Partners' limited
partnership interests. The Credit Facility was originally intended to
be available until 2001 and has been extended to May 9, 2003. The
applicant has requested that the proposed exemption, if granted, be
retroactive to July 30, 1998, which is the date the Credit Facility
originally became effective. The LP can use its credit under the Credit
Facility by direct or indirect borrowings or by requesting that letters
of credit be issued. All Lenders participate on a pro rata basis with
respect to all cash loans and letters of credit up to the maximum of
the Lenders' respective commitments. All such loans and letters of
credit are issued to or for the benefit of the LP or an entity in which
the LP owns a direct or indirect interest (a Qualified Borrower), and
not to any individual Limited Partner. All payments of principal and
interest made by the LP or a Qualified Borrower are allocated pro rata
among all Lenders.
7. The Credit Facility is a recourse obligation of the Partnership.
To secure the Credit Facility, the LP has granted to BofA, for the
benefit of each Lender, a first, exclusive, and prior: (1) Security
interest and lien in and to the Capital Commitments, Reserve Amounts,
and Capital Contributions of the Limited Partners; (2) collateral
assignment and pledge of the LP's security interest in each Limited
Partner's limited partnership interest; and (3) security interest and
lien in the Borrower
[[Page 59560]]
Collateral Account. Additionally, to secure the Credit Facility, the
General Partner has: (1) pledged, through a partner agreement and
estoppel, its partnership interest to BofA for the benefit of each
Lender; and (2) granted to BofA, for the benefit of each Lender, its
right to make Drawdowns of the Capital Commitments and Reserve Amounts,
and all other rights, titles, powers and privileges related to,
appurtenant to or arising out of the General Partner's right under the
Agreement to require or demand that Limited Partners make Capital
Contributions and fund Drawdowns.
8. Each Limited Partner has executed or will execute an agreement
pursuant to which it acknowledges that the LP and the General Partner
have pledged and assigned to BofA, for the benefit of each Lender which
may be a party in interest (as defined in ERISA Section 3(14)) of such
Limited Partner, all of their rights under the Agreement relating to
Capital Commitments, Reserve Amounts, Drawdown notices, and Capital
Contributions. Such agreement will include an acknowledgment and
covenant by the Limited Partner that, if an event of default exists,
such Limited Partner will, consistent with its obligations under the
Agreement, honor any Drawdown made by BofA in accordance with the
Agreement. Such an agreement and covenant by a Limited Partner
effectively limits the assertion of any defense which the Limited
Partner might have against the LP or the General Partner with respect
to the funding of any Drawdown made by BofA.
9. The applicant represents that at the present time the following
Plans are Partners in the LP:
(1) The SBC Master Pension Trust (formerly Ameritech Pension
Trust). The SBC Master Pension Trust (Boston Safe Deposit and Trust
Company, as Trustee) holds the assets of the following Plans, all of
which have EIN 43-1301883.
----------------------------------------------------------------------------------------------------------------
12/31/98
Approx. Approx. net
Plan Type Plan No. number fair market
participants value (in
thousands)
----------------------------------------------------------------------------------------------------------------
Ameritech Management Pension Plan..... Def. Benefit................. 001 41,685 $7,599,667
Ameritech Pension Plan................ Def. Benefit................. 002 76,227 7,197,371
Employees' Pension Plan of Ameritech Def. Benefit................. 011 160 2,189,091
Publishing Ventures, Inc.
----------------------------------------------------------------------------------------------------------------
The fiduciary of these Plans generally responsible for investment
decisions in the real estate area for internally managed assets was the
Ameritech Corporation Asset Management Committee, the Chief Investment
Officer of Ameritech Corporation, and/or the Ameritech Corporation
Investment Management Department's Real Estate Committee (comprised of
the staff real estate professionals and another Investment Management
Department Director), depending on the size and type of investment. The
fiduciary responsible for reviewing and authorizing the Ameritech
Pension Trust's investment in the partnership to which this proposed
exemption relates, an internally managed asset of the Ameritech Pension
Trust, was collectively the Chief Investment Officer of Ameritech
Corporation, and the members of the Ameritech Corporation Investment
Management Department's Real Estate Committee.
(2) BellSouth Master Pension Trust. The BellSouth Master Pension
Trust (State Street Bank Company, as Trustee) holds the assets of two
employee benefit Plans. First is the BellSouth Personal Retirement
Account Pension Plan; type of plan--defined benefit; EIN: 58-1533433;
Plan No. 012; number of plan participants--51,029. The approximate fair
market value of the total assets of the BellSouth Personal Retirement
Account Pension Plan was approximately $7.232 billion as of December
31, 1998. Second is the BellSouth Pension Plan; type of plan--defined
benefit; EIN: 58-1533433; Plan No. 005; number of plan participants--
90,302. The approximate fair market value of the total assets of the
BellSouth Pension Plan was approximately $10.7 billion as of December
31, 1998. The fiduciary generally responsible for investment decisions
in real estate matters on behalf of both the BellSouth Personal
Retirement Account Pension Plan and the BellSouth Pension Plan is the
BellSouth Corporation Treasurer. The fiduciary responsible for
reviewing and authorizing the investment in the LP is the BellSouth
Corporation Treasurer.
(3) BP Master Trust for Employee Pension Plans. The BP Master Trust
for Employee Pension Plans (JPMorgan Chase Bank, as Trustee) (the ``BP
Trust'') is the successor to the BP America Inc. Retirement Trust (the
``Prior Trust'') pursuant to a merger of the Prior Trust into the BP
Trust. The Prior Trust made the decision to invest in the LP and the BP
Trust assumed that investment pursuant to the merger. At the time of
the investment, the Prior Trust held the assets of two Plans. First was
the BP America Retirement Accumulation Plan; type of plan--defined
benefit; EIN: 94-2257553; Plan No. 001; approximate number of plan
participants--22,279. The approximate fair market value of the total
assets of the BP America Retirement Accumulation Plan was approximately
$1.415 billion as of December 31, 1998. Second was the BP America
Master Hourly Plan for Represented Employees; type of plan--defined
benefit; EIN: 94-2257553; Plan No. 018; approximate number of plan
participants--13,872. The approximate fair market value of the total
assets of the BP America Master Hourly Plan for Represented Employees
was approximately $703.8 million as of December 31, 1998.
The fiduciary of these Plans generally responsible for investment
decisions at the time of the investment was the Chief Executive
Officer, BP America Inc. (the ``Chief Executive Officer''). The
fiduciary responsible for reviewing and authorizing the investment in
the LP was also the Chief Executive Officer. The Investment Committee
of BP Corporation North America Inc. is the successor fiduciary to the
Chief Executive Officer.
(4) IBM Personal Pension Plan Trust. The IBM Personal Pension Plan
Trust (JPMorgan Chase Bank, as Directed Trustee) holds the assets of
the IBM Personal Pension Plan; type of plan--defined benefit; EIN: 13-
0871985; Plan No. 001; approximate number of plan participants--
324,808. The approximate fair market value of the total assets of the
IBM Personal Pension Plan was approximately $41.7 billion as of
December 31, 1998.
The fiduciary of this Plan generally responsible for investment
decisions is the Retirement Plans Committee, IBM Corporation. The
fiduciary responsible for reviewing and authorizing the
[[Page 59561]]
investment in the LP is the Retirement Plan Committee, IBM Corporation.
(5) United States Steel Group Trust. The United States Steel
Retirement Trust (United States Steel and Carnegie Pension Fund, as
Trustee) holds the assets of two employee benefit pension Plans
investing in the LP. First is the United States Steel Corporation Plan
for Employee Pension Benefits (the U.S. Steel Plan); type of plan--
defined benefit; EIN: 25-0996816; Plan No. 001; number of plan
participants--98,916. The approximate fair market value of the total
assets of the U.S. Steel Plan was $5.922 billion as of December 31,
1998.
Second is the United States Steel Corporation Plan for Non-Union
Employee Pension Benefits As Amended (the U.S. Steel Non-Union EE
Plan); type of plan--defined benefit; EIN: 25-0996816; Plan No. 100;
number of plan participants--31,262. The approximate fair market value
of the total assets of the U.S. Steel Non-Union EE Plan was $4.293
billion as of December 31, 1998.
The fiduciary of these Plans generally responsible for investment
decisions is the United States Steel and Carnegie Pension Fund. The
fiduciary responsible for reviewing and authorizing the investment in
the LP is the United States Steel and Carnegie Pension Fund.
(6) Marathon Oil Group Trust. The Marathon Oil Group Trust (United
States Steel and Carnegie Pension Fund, as Master Trustee) holds the
assets of three employee benefit pension Plans investing the LP. First
is the Retirement Plan of Marathon Oil Company (the Marathon Plan);
type of plan--defined benefit; EIN: 25-1410539; Plan No. 001;
approximate number of plan participants--6,841. The approximate fair
market value of the total assets of the Marathon Plan was $798 million
as of December 31, 1998.
Second is the Petroleum Marketing Retirement Plan; type of plan--
defined benefit; EIN: 31-1551430; Plan No. 001; approximate number of
plan participants--11,548. The approximate fair market value of the
total assets of the Petroleum Marketing Retirement Plan was $26.5
million as of January 1, 1998.
Third is the Marathon Ashland Petroleum LLC Retirement Plan (the
Marathon Ashland Plan); type of plan--defined benefit; EIN: 31-1537655;
Plan No. 001; number of plan participants--5,960. The approximate fair
market value of the total assets of the Marathon Ashland Plan was $528
million as of December 31, 1998.
The fiduciary of these Plans generally responsible for investment
decisions is the United States Steel and Carnegie Pension Fund. The
fiduciary responsible for reviewing and authorizing the investment in
the LP is the United States Steel and Carnegie Pension Fund.
(7) UPS Retirement Plan Trust. The UPS Retirement Plan Trust
(Bankers Trust Company, as Trustee) holds the assets of the UPS
Retirement Plan; type of plan--defined benefit; EIN: 95-1732075; Plan
No. 001; approximate number of plan participants--86,254. The
approximate fair market value of the total assets of the UPS Retirement
Plan was approximately $5.027 billion as of December 31, 1998. The
fiduciary of this Plan generally responsible for investment decisions
is the Administrative Committee of the UPS Retirement Plan. The
fiduciary responsible for reviewing and authorizing the investment in
the LP is the Administrative Committee of the UPS Retirement Plan.
10. The applicant represents that the Plans in the trusts (the
Trusts) listed in Representation 9 are currently the only employee
benefit Plans subject to the Act that are Limited Partners of the LP
and will be included in this exemption. However, the applicant states
that it is possible that one or more other Plans will become Limited
Partners of the LP in the future. Thus, the applicant requests relief
for any such Plan under this proposed exemption, provided the Plan
meets the standards and conditions set forth herein. In this regard,
such Plan must be represented by an independent fiduciary and the
General Partner must receive from the Plan one of the following:
(1) a representation letter from the applicable fiduciary with
respect to such Plan substantially identical to the representation
letter submitted by the fiduciaries of the other Plans, in which case
this proposed exemption, if granted, will apply to the investments made
by such Plan if the conditions required herein are met; or
(2) evidence that such Plan is eligible for a class exemption or
has obtained an individual exemption from the Department covering the
potential prohibited transactions which are the subject of this
proposed exemption.
11. BofA represents that the LP has obtained an opinion of counsel
that the LP constitutes an ``operating company'' under the Department's
plan asset regulations [see 29 CFR 2510.3-101(c)] if the LP is operated
in accordance with the Agreement and the private placement memorandum
distributed in connection with the private placement of the LP
interests.\2\
---------------------------------------------------------------------------
\2\ The Department notes that the term ``operating company'' as
used in the Department's plan asset regulation cited above includes
an entity that is considered a ``real estate operating company'' as
described therein (see 29 CFR 2510.3-101(e)). However, the
Department expresses no opinion in this proposed exemption regarding
whether the LP would be considered either an operating company or a
real estate operating company under such regulations. In this
regard, the Department notes that it is providing no relief for
either internal transactions involving the operation of the LP or
for transactions involving third parties other than the specific
relief proposed herein. In addition, the Department encourages
potential Plan investors and their independent fiduciaries to
carefully examine all aspects of the LP's proposed real estate
investment program in order to determine whether the requirements of
the Department's regulations will be met.
---------------------------------------------------------------------------
BofA represents that the security and Estoppel constitute a form of
credit security which is customary among financing arrangements for
real estate limited partnerships or limited liability companies,
wherein the financing institutions do not obtain security interests in
the real property assets of the partnership or limited liability
companies. BofA also represents that the obligatory execution of the
Estoppel by the Limited Partners for the benefit of the Lenders was
fully disclosed in the Private Placement Memorandum as a requisite
condition of investment in the LP during the private placement of the
partnership interests. BofA represents that the only direct
relationship between any of the Limited Partners and any of the Lenders
is the execution of the Estoppel. All other aspects of the transaction,
including the negotiation of all terms of the Credit Facility, are
exclusively between the Lenders and the LP. BofA represents that the
proposed execution of the Estoppel do not affect the abilities of the
Trusts to withdraw from investment and participation in the LP. The
only Plan assets to be affected by the proposed transactions are any
funds which must be contributed to the LP in accordance with
requirements under the Agreement to make Drawdowns to honor a Partner's
Capital Commitments and the Plan's Limited Partnership interest in the
LP.
12. BofA represents that neither it nor any Lender acts or has
acted in any fiduciary capacity with respect to the Plans' investment
in the LP. BofA is independent of and unrelated to the fiduciaries (the
Trust Fiduciaries) responsible for authorizing and overseeing the
Trusts' investments in the LP. The Trust Fiduciaries represent
independently that their authorization of the Trusts' investments in
the LP was free of any influence, authority or control by the Lenders.
The Trust Fiduciaries represent that the Trusts'
[[Page 59562]]
investments in and Capital Commitments to the LP were made with the
knowledge that each Limited Partner would be required subsequently to
grant a security interest in Drawdowns and Capital Commitments to the
Lenders and to honor unconditionally Drawdowns made on behalf of the
Lenders without recourse to any defenses against the General Partner.
The Trust Fiduciaries individually represent that they are independent
of and unrelated to BofA and the Lenders and that the investment by the
Trusts for which the Trust Fiduciaries are responsible continues to
constitute a favorable investment for the Plans participating in that
Trust and that the execution of the Estoppel is in the best interests
and protective of the participants and beneficiaries of such Plans. In
the event another Plan proposes to become a Limited Partner, the
applicant represents that it will require similar representations to be
made by such Plan's independent fiduciary. Any Plan proposing to become
a Limited Partner in the future and needing to avail itself of the
exemption proposed herein will have assets of not less than $100
million, and not more than 5% of the assets of such Plan will be
invested in the LP.
13. In summary, the applicant represents that the proposed
transactions satisfy the criteria of section 408(a) of the Act for the
following reasons: (1) The Plans' investments in the LP were authorized
and are overseen by the Fiduciaries, which are independent of the
Lenders, and other Plan investments in the LP from other employee
benefit Plans subject to the Act will be authorized and monitored by
independent Plan fiduciaries; (2) none of the Lenders has any
influence, authority or control with respect to any of the Trusts'
investment in the LP or the Trusts' execution of the Estoppel; (3) each
Fiduciary invested in the LP on behalf of a Plan with the knowledge
that the Estoppel is required of all Limited Partners investing in the
LP, and all other Plan fiduciaries that invest their Plan's assets in
the LP will be treated the same as any other Limited Partners are
currently treated with regard to the Estoppel; (4) any Plan which may
invest in the LP in the future, which needs to avail itself of the
exemption proposed herein, will have assets of not less than $100
million, and not more than 5% of the assets of any such Plan will be
invested in the LP, and (5) the General Partner is unrelated to any
Plan and any Lender.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 693-8546. (This is not a toll-free number.)
A. Raimondo Inc. Pension Plan, (the Plan); Located in Greensburg, PA;
[Application No. D-11085]
Proposed Exemption
Based on the facts and representations set forth in the
application, 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).\3\ If the
exemption is granted, the restrictions of sections 406(a), 406(b)(1)
and 406(b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply, effective May
1, 2002, to (1) the past and continued leasing (the Lease) of certain
improved real property (the Property) by the Plan to A. Raimondo Inc.
(the Employer), a party in interest with respect to the Plan; and (2)
the exercise, by the Employer, of options to renew the Lease, for two
additional terms, provided that the following conditions have been and
continue to be met:
---------------------------------------------------------------------------
\3\ For purposes of this proposed exemption, references to
provisions of Title I of the Act, unless otherwise specified, refer
also to corresponding provisions of the Code.
---------------------------------------------------------------------------
(a) The terms and conditions of the Lease have been, and continue
to be, no less favorable to the Plan than those obtainable by the Plan
under similar circumstances when negotiated at arm's length with
unrelated third parties.
(b) The Plan has been, and continues to be, represented for all
purposes under the Lease, and during each renewal term, by a qualified,
independent fiduciary.
(c) The Plan's independent fiduciary has negotiated, reviewed, and
approved the terms and conditions of the Lease and the options to renew
the Lease on behalf of the Plan and has determined that the
transactions are appropriate investments for the Plan and are in the
best interests of the Plan and its participants and beneficiaries.
(d) The rent paid to the Plan under the Lease, and during each
renewal term, is no less than the fair market rental value of the
Property, as established by a qualified, independent appraiser.
(e) The rent is adjusted annually to reflect changes in the
Consumer Price Index (the CPI) and the Property is re-appraised at
least every three years by a qualified, independent appraiser who is
selected by the independent fiduciary to determine the appropriate fair
market rental value (but in no event is the rental rate less than that
established for the preceding rental term).
(f) The Lease is triple net, requiring all expenses for
maintenance, taxes, utilities and insurance to be paid by the Employer,
as lessee.
(g) The Plan's independent fiduciary has monitored, and continues
to monitor, compliance with the terms of the Lease throughout the
duration of the Lease and each renewal term, and is responsible for
legally enforcing the payment of the rent and the proper performance of
all other obligations of the Employer under the terms of the Lease.
(h) The Plan's independent fiduciary expressly approves any renewal
of the Lease beyond the initial term.
(i) At all times throughout the duration of the Lease and each
renewal term, the fair market value of the Property has not exceeded,
and does not exceed, 25 percent of the value of the total assets of the
Plan.
EFFECTIVE DATE: If granted, this proposed exemption will be effective
as of May 1, 2002.
Summary of Facts and Representations
1. The Employer is a family owned and operated Pennsylvania
corporation specializing in the field of exterior masonry restoration
and preservation. The Employer performs work in the tri-state area of
Pennsylvania, West Virginia and Ohio, while maintaining its principal
place of business in Greensburg, Pennsylvania.
2. The Plan, which is sponsored and administered by the Employer,
is a money purchase pension plan. The Plan covers three participants
and had total assets of $1,170,999 as of December 31, 2001. The
accounts in the Plan are participant-directed and the Employer serves
as the Plan's named fiduciary.
3. Among the assets of the Plan is the Property, which consists of
6.679 acres of land improved by a warehouse, containing 6,150 square
feet of space, and an office addition, containing 1,800 square feet of
space. These structures were built by the Employer in 1986, with 726
feet of road frontage, located on Echo Valley Road (T/R 513) in
Hempfield Township, Westmoreland County, Pennsylvania. The fair market
value of the Property currently represents approximately 21.35 percent
of the Plan's total assets. Further, the Property is not located in
close proximity to other real estate that is owned by the Employer and/
or its principals.
[[Page 59563]]
4. The Plan originally leased the Property to the Employer for an
initial term of ten years, followed by an additional five-year renewal
period, for a combined 15 years which expired on April 30, 2002,
pursuant to the same terms and conditions used for the current Lease.
In response to an exemption application filed by the Employer, the
Department granted an exemption covering the original lease (the
Original Lease): Prohibited Transaction Exemption 87-63 (PTE 87-63), 52
FR 24078 (June 26, 1987).
5. The parties request an administrative exemption from the
Department in order to continue the Original Lease under the provisions
of a new lease. The Lease has an initial term of five years, which
commenced on May 1, 2002 and ends on April 30, 2007, with options to
renew for two additional five year terms, only with the express
approval of the Plan's independent fiduciary. The Lease is triple net
and requires the Employer to pay all real estate taxes on the Property,
as well as all expenses that are associated with insurance, maintenance
and utilities. The applicant represents that the Plan's independent
fiduciary will select a qualified, independent appraiser to reappraise
the Property at least every three years to determine the appropriate
fair market rental value. However, in no event will the rent be
adjusted below the rental amount for the preceding Lease term. In
addition, during each year of the initial term of the Lease and each
renewal term, the rental rate will be increased by an amount equal to
the most recent percentage increase in the CPI. Currently, the Employer
is paying the Plan $4,550 per month in rent.
6. In an independent appraisal report dated July 16, 2001 (the 2001
Appraisal), H. Kenneth Gehr, a qualified, independent real estate
broker/appraiser with Shrader & Gehr Real Estate Agency, of Jeannette,
Pennsylvania, updated an August 26, 2000 independent appraisal that was
prepared by his firm, in which the Property's fair market value,
monthly fair market rental value, and annual fair market rental value
were placed at $248,000, $3,500, and $42,000, respectively as of August
17, 2000. Mr. Gehr states that he is familiar with real estate sales of
all types, including those for commercial and industrial properties in
the Westmoreland County area, since he explains that he has sold and
appraised real estate since 1947, and has given court testimony as an
expert real estate witness. In addition, Mr. Gehr certifies that he has
no interest in the Property, except as a fee appraiser, and that the
fee he received for the 2001 Appraisal and the values reported therein
were in no way related to, nor influenced by, any interested parties to
the subject transactions.
In the 2001 Appraisal, Mr. Gehr determined that the Property had a
fair market value of $250,000 as of July 31, 2001, utilizing the
Replacement Cost Approach to valuation. As of the same date, Mr. Gehr
also placed the monthly fair market rental value of the Property at
$3,800 and its annual fair market rental value at $45,600.\4\
---------------------------------------------------------------------------
\4\ Although the $4,550 per month paid by the Employer to the
Plan under the Lease exceeds the $3,800 per month fair market rental
value that was established by Mr. Gehr in the 2001 Appraisal, the
applicant represents that to the extent that the rent paid by the
Employer to the Plan exceeds fair market rental value, such excess
rent will not, when added to the balance of the annual additions to
such Plan, exceed the limitations prescribed by section 415 of the
Code.
---------------------------------------------------------------------------
7. An independent party, Mr. Lawrence W. Walter, has served as the
Plan's independent fiduciary since he replaced the former independent
fiduciary, Halliwell & Associates, on March 25, 1997. Mr. Walter
represents that he is qualified to act as an independent fiduciary for
the Plan because he is a Licensed Public Accountant, subject to the
requirements of the CPA profession, as well as a Certified Financial
Planner. Mr. Walter further states that he holds a Nasdaq Series Six
License for securities, and has been licensed in the past to sell
property/casualty and life insurance. Mr. Walter also asserts that many
of his clients are involved in the real estate industry, and that,
because he regularly serves as executor, estate administrator, or
trustee for trusts and estates, he is experienced in acting in a
fiduciary capacity. Mr. Walter confirms that he is not affiliated with
the Employer, and derives less than one percent of his gross annual
income from the Employer.
In addition, Mr. Walter states that, to the best of his knowledge,
there was no period of time in which the interests of the Plan were not
represented by an independent fiduciary, and that, since the inception
of the Original Lease, the Employer has complied with all of the terms
and conditions of the Original Lease and PTE 87-63.
8. Mr. Walter, acting as the Plan's independent fiduciary,
represents that the transactions are feasible, in the interest of, and
protective of, the Plan and its participants and beneficiaries. Mr.
Walter certifies that the terms and conditions of the Lease, including
CPI adjustments to the rent, are no less favorable to the Plan than
those obtainable by the Plan in an arm's length transaction with
unrelated third parties. In reaching this conclusion, Mr. Walter states
that he has considered the terms of similar leases between unrelated
parties, the Plan's overall investment portfolio, and the Plan's
liquidity and diversification requirements.
Moreover, Mr. Walter believes that the transactions pose little
risk to the Plan since the business of the Employer primarily involves
restoration work on existing structures, which continues to be in high
demand in the greater Pittsburgh area due to the relatively old age of
the neighborhoods and structures.
Finally, Mr. Walter represents that he will monitor compliance with
the Lease terms throughout the duration of such Lease, and each renewal
term, and, if necessary, will take the appropriate actions to enforce
the payment of the rent and the proper performance of all other
obligations of the Employer under the terms of the Lease.
9. In summary, it is represented that the transactions have
satisfied or will satisfy the statutory criteria for an exemption under
section 408(a) of the Act because:
(a) The terms and conditions of the Lease have been, and will
continue to be, no less favorable to the Plan than those obtainable by
the Plan under similar circumstances when negotiated at arm's length
with unrelated third parties.
(b) The Plan has been, and continues to be represented for all
purposes under the Lease, by a qualified, independent fiduciary.
(c) The Plan's independent fiduciary has negotiated, reviewed, and
approved the terms and conditions of the Lease and the options to renew
the Lease on behalf of the Plan and has determined that the
transactions are appropriate investments for the Plan and are in the
best interests of the Plan and its participants and beneficiaries.
(d) The rent paid to the Plan under the Lease and during each
renewal term will be no less than the fair market rental value of the
Property, as established by a qualified, independent appraiser.
(e) The rent will be adjusted annually to reflect changes in the
CPI and the Property and will be re-appraised at least every three
years by a qualified, independent appraiser who has been selected by
the independent fiduciary to determine the appropriate fair market
rental value (but in no event will the rental rate be less than that
established for the preceding rental term).
(f) The Lease is triple net, requiring all expenses for
maintenance, taxes, utilities and insurance to be paid by the Employer.
[[Page 59564]]
(g) The Plan's independent fiduciary has monitored, and will
continue to monitor, compliance with the terms of the Lease throughout
the duration of the Lease and each renewal term, and is responsible for
legally enforcing the payment of the rent and the proper performance of
all other obligations of the Employer under the terms of the Lease.
(h) The Plan's independent fiduciary will expressly approve any
renewal of the Lease beyond the initial term.
(i) The fair market value of the Property has not exceeded, and
will not exceed, 25 percent of the value of the total assets of the
Plan.
Tax Consequences of the Transactions
The Department of the Treasury has determined that if a transaction
between a qualified employee benefit plan and its sponsoring employer
(or affiliate thereof) results in the plan either paying less than or
receiving more than fair market value, such excess may be considered to
be a contribution by the sponsoring employer to the plan and,
therefore, must be examined under applicable provisions of the Internal
Revenue Code, including sections 401(a)(4), 404 and 415.
Notice to Interested Persons
The Employer will provide notice of the proposed exemption to all
interested persons by first class mail within three days of the date of
publication of the notice of proposed exemption in the Federal
Register. The notice will include a copy of the proposed exemption, as
published in the Federal Register, and a supplemental statement, as
required pursuant to 29 CFR 2570.43(b)(2), which will inform interested
persons of their right to comment on and/or to request a hearing with
respect to the proposed exemption. Comments regarding the proposed
exemption and requests for a public hearing are due within 33 days of
the date of publication of the notice of pendency in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person 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 18th day of September, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 02-24135 Filed 9-20-02; 8:45 am]
BILLING CODE 4510-29-P
