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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Bank of America (BofA) [09/23/2002]

[PDF Version]

Volume 67, Number 184, Page 59558-59564

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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.

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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 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.
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    \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.
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    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
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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
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    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.

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                                                                                                     12/31/98
                                                                                       Approx.      Approx. net
                 Plan                                Type                Plan No.      number       fair market
                                                                                    participants    value  (in
                                                                                                    thousands)
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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.
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    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\
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    \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.
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    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:
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    \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