Notice of Proposed Individual Exemption To Replace Prohibited
Transaction Exemptions (PTEs) 81-56, 85-19 and 89-5 Involving the
Truman Arnold Companies Retirement Plan and Trust (the Plan) Located in
Texarkana, TX [02/06/2003]
Volume 68, Number 25, Page 6205-6210
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11059]
Notice of Proposed Individual Exemption To Replace Prohibited
Transaction Exemptions (PTEs) 81-56, 85-19 and 89-5 Involving the
Truman Arnold Companies Retirement Plan and Trust (the Plan) Located in
Texarkana, TX
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Notice of proposed individual exemption to replace PTEs 81-56,
85-19 and 89-5.
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SUMMARY: This document contains a notice of pendency before the
[[Page 6206]]
Department of Labor (the Department) of a proposed individual exemption
which, if granted, will replace PTEs 81-56 (46 FR 36273, July 17,
1981), 85-19 (50 FR 3045, January 23, 1985) and PTE 89-5 (54 FR 4348,
January 30, 1989). These are individual exemptions (the Prior
Exemptions) that were previously issued by the Department to the Truman
Arnold Companies (the Employer), a party in interest with respect to
the Plan. Each of the Prior Exemptions permitted the Employer to
contribute and/or lease from the Plan certain improved real property
(the Properties) under the provisions of three distinct written leases.
If granted, the proposed exemption will incorporate many of the
facts and representations contained in the Prior Exemptions and update
information to the extent there have been changes. Because it appears
that PTE 81-56 expired on September 30, 1999, and the parties have been
not been covered by an administrative exemption since that time, the
proposed exemption will provide retroactive exemptive relief from
October 1, 1999, until September 30, 2002. In addition, to resolve
uncertainty regarding the expiration dates of the leases described in
PTEs 81-56 and PTE 85-19, the proposed exemption merges the leases,
along with the lease described in PTE 89-5, under a new master lease
(the Master Lease) and provides retroactive exemptive relief, effective
October 1, 2002, with respect to such past and continued lease
arrangements. This will ensure that the subject Properties are, at all
times, covered by an administrative exemption.
Further, the proposed exemption will permit the replacement of
AmSouth Bank (AmSouth), the Plan's former independent fiduciary, with
Regions Bank (Regions), the Plan's current trustee. Thus, the proposed
exemption will affect participants and beneficiaries of the Plan, as
well as Plan fiduciaries.
EFFECTIVE DATE: If granted, this proposed exemption will be effective
from October 1, 1999, until September 30, 2002, with respect to the
leasing arrangement described in PTE 81-56. In addition, the proposed
exemption will apply retroactively from October 1, 2002, with respect
to the consolidation of the properties described in the Prior
Exemptions under the Master Lease.
DATES: Written comments and requests for a public hearing should be
received by the Department on or before March 24, 2003.
ADDRESSES: All written comments and requests for a public hearing
(preferably, three copies) should be sent by mail to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5649, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington, DC 20210, (Attention: Notice of Proposed Individual
Exemption to Replace Prohibited Transaction Exemptions 81-56, 85-19 and
89-5 Involving the Truman Arnold Companies Retirement Plan and Trust;
Application No. D-11059). Interested persons are also invited to submit
comments and/or hearing requests to the Department by facsimile to
(202) 219-0204 or by electronic mail to moffitb@pwba.dol.gov by the end
of the scheduled comment period. The application pertaining to the
exemptive relief proposed herein and the comments received will be
available for public inspection in the Public Disclosure Room of the
Employee Benefits Security Administration, U.S. Department of Labor,
Room N-1513, 200 Constitution Avenue, NW., Washington, DC 20210.
FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8556. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: Notice is hereby given of the pendency
before the Department of a proposed exemption that will replace PTEs
81-56, 85-19 and 89-5. The Prior Exemptions provided exemptive relief
from the prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (the Act) and from the sanctions resulting
from the application of section 4975 of the Internal Revenue Code of
1986 (the Code). The proposed exemption has been requested in an
application filed on behalf of the Plan pursuant to 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,
August 10, 1990). Effective December 31, 1978, section 102 of
Reorganization Plan No. 4 of 1978 (43 FR 47713, October 17, 1978)
transferred the authority of the Secretary of the Treasury to issue
exemptions of the type requested to the Secretary of Labor.
Accordingly, this proposed exemption is being issued solely by the
Department.
I. Background
The Plan is a defined contribution plan with 369 participants as of
September 30, 2002. Also as of September 30, 2002, the Plan had total
assets with a fair market value of $11,080,680. The Plan is sponsored
by the Truman Arnold Companies, which are engaged in the petroleum
wholesale business in Texarkana, Texas. Currently, Regions of
Texarkana, Texas serves as the Plan trustee and the independent
fiduciary for the leasing arrangements described herein.
Between 1981 and 1989, the Department granted the Prior Exemptions
which provided exemptive relief primarily from the prohibited
transaction provisions of sections 406(a), 406(b)(1) and (b)(2) of the
Act \1\ and from the sanctions resulting from the application of
section 4975 of the Code, as amended, by reason of section
4975(c)(1)(A) through (E) of the Code. Specifically, PTE 81-56
permitted the Employer, which was then known as the ``Truman Arnold
Distributing Company, Inc.,'' to contribute to the Plan a parcel of
real property and the improvements situated thereon (the New Facilities
Property), as part of the Employer's annual contribution to the Plan.
The New Facilities Property is located on South Robison Road in
Texarkana, Texas and it is contiguous to other property also owned by
the Plan and leased to the Employer and its sister corporation, Truman
Arnold Transport Company, Inc. (Transport) for use as the Employer's
headquarters. During 1979, the Employer purchased the land portion of
the New Facilities Property for $33,667 from unrelated parties and
subsequently caused a building to be constructed thereon for $219,372,
or an aggregate cost of $253,039. As of September 30, 1979, the Plan
had $692,797 in total assets and as of March 12, 1980, it had 80
participants.
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\1\ It should be noted that exemptive relief from section 407(a)
of the Act is also provided in PTE 81-56.
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PTE 81-56 also permitted the Employer to lease the New Facilities
Property from the Plan under the provisions of a written, triple-net
lease for an initial annual rental of $37,800. Taxes, insurance or
other costs incident to the ownership of the New Facilities Property
were to result in a corresponding increase in the amount of the rental
payment under the lease.
An independent appraisal report was prepared of the New Facilities
Property on November 17, 1980, by Jim Freeman of P.M. Brown, Inc.
Realtors in Texarkana, Texas. Mr. Freeman, a qualified independent
appraiser and a senior member of both the American Society of
Appraisers and the American Association of Certified Appraisers, placed
the gross fair market rental value of such property at $38,405 and its
net rental value (after expenses) at $34,560.
[[Page 6207]]
Thus, the initial net rental income to the Plan of $37,800 exceeded Mr.
Freeman's net income estimate.
Mr. Freeman also placed the fair market value of the New Facilities
Property at $270,000 as of November 17, 1980. This represented a
$15,000 increase over an earlier appraisal which he had completed in
February 1980. In an addendum to the November 1980 appraisal, Mr.
Freeman represented that the New Facilities Property was a multipurpose
property that could be easily converted to other uses.
Commercial National Bank in Shreveport, Louisiana (Commercial) was
appointed as independent fiduciary to monitor both the contribution and
subsequent leasing of the New Facilities Property on behalf of the
Plan. Commercial was vested with full authority and responsibility to
take all actions necessary to protect the interests of the Plan.
Commercial, through its President and Chief Executive Officer, James E.
Burt III, represented that it had over $700 million in assets and that
it maintained no financial or other relationship with either the
Employer or its principal shareholder, Mr. Truman Arnold. Commercial
also represented that it had reviewed the transaction and determined
that it was in the best interests of the Plan and its participants and
beneficiaries.
Although the Employer was authorized to lease the New Facilities
Property from the Plan until September 30, 1984, it was permitted to
extend the lease for three, additional five year terms, provided
Commercial approved each successive renewal option. The monthly rental
payments for the New Facilities Property were again established on the
basis of an independent appraisal conducted once every three years and
Commercial was responsible for selecting the independent appraiser.
Further, at each lease adjustment period, a lease payment could not be
less than that of the preceding three year term, or less than 14
percent of the fair market value of the New Facilities Property.
Finally, the Employer and Mr. Arnold agreed to indemnify the Plan
against any decrease in the fair market value of the New Facilities
Property below the Plan's original cost basis.
PTE 81-56 expired on September 30, 1999.
PTE 85-19 allowed the Plan, which had net assets of $2.4 million
and 182 participants as of September 30, 1983, to continue leasing the
land and buildings comprising the Employer's Texarkana, Texas
headquarters (the Home Site Property) after June 30, 1984, under the
provisions of a new lease. Previously, the Plan had been leasing the
Home Site Property to the Employer and Transport under a transitional
rule lease that was subject to the provisions of section 414(c)(2) of
the Act.\2\ However, in order to continue the leasing arrangement, the
Employer requested an administrative exemption from the Department on
essentially the same terms and conditions as those contained in PTE 81-
56.
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\2\ In relevant part, section 414(c)(2) of the Act states that
the provisions of sections 406 and 407(a) of the Act would not apply
until June 30, 1984, to a lease or joint use of property involving a
plan and a party in interest pursuant to a binding contract in
effect on July 1, 1974 (or pursuant to renewals of such contract).
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Mr. Freeman, the independent appraiser utilized in PTE 81-56,
placed the fair market value of the Home Site Property at $256,000 as
of September 15, 1983. He also determined that the gross fair market
rental value of the Home Site Property was $33,480 per year and,
adjusting such property for taxes, insurance, maintenance and
management expenses, determined that the net fair market rental value
of the Home Site Property was $28,705 per year. Further, Mr. Freeman
opined that the Home Site Property was a multipurpose property that
could easily be adapted to other uses.
In addition to determining the fair market rental value of the Home
Site Property, Mr. Freeman placed the fair market value of such
property at $256,000 as of September 15, 1983. Thus, the value of the
New Facilities Property, whose lease was covered by PTE 81-56 and the
Home Site Property, whose lease was covered by PTE 85-19, totaled
$566,000 and constituted 23.5 percent of the Plan's assets at that
time.
As in PTE 81-56, Commercial, acting as the independent fiduciary,
negotiated the lease prior to July 1, 1984. The lease was a triple-net
lease having a primary term of five years with three, additional five
year renewal terms that could be exercised solely at Commercial's
discretion. The initial annual rental under the lease was set at
$35,840 based upon an independent appraisal and it provided a 14
percent rate of return to the Plan. Every third year of the lease term,
the fair market rental value of the Home Site Property was to be
adjusted by an independent appraiser selected by Commercial. Again the
rental rate would be the greater of the fair market rental rate, as
determined by the independent appraiser, or 14 percent of the fair
market value of the Home Site Property. The Employer agreed to maintain
adequate fire and casualty insurance on the Home Site Property, as
determined by Commercial, with the Plan named as the loss payee of such
insurance. Further, the Employer and Mr. Arnold agreed to indemnify the
Plan against any decrease in the fair market value of the Home Site
Property if it fell below its $256,000 fair market value.
Commercial, which had exclusive oversight authority over the
leasing and potential sale of the Home Site Property, concluded that
the Plan should retain the property after reviewing the Plan's
financial records and asset portfolio. Commercial also concluded that
the terms of the lease were arm's length and found the guaranteed 14
percent rate of return to be an attractive feature of the lease.
Moreover, Commercial examined the Employer's past lease payment records
and financial statements. Based upon such information, Commercial
discovered that the Employer had never defaulted on any rental payments
and it concluded that the Employer was a responsible lessee and
financially healthy.
Finally, PTE 89-5 permitted the Employer to construct, contribute
to the Plan (which had 214 participants and net assets of $5,029,632 as
of September 30, 1987), and then lease from the Plan two buildings (the
Buildings) located on the Home Site Property. PTE 89-5 also permitted
the Employer and Mr. Arnold to indemnify the Plan against any decrease
in the fair market value of the Buildings. PTE 89-5 became effective as
of June 1, 1988.
Under the terms of its lease of the Home Site Property and with
Commercial's approval, the Employer constructed the Buildings which
connected the original office building portion of the Home Site
Property at a total cost of $556,000. The Buildings were subsequently
appraised by Mr. Freeman as having a combined fair market value of
$587,000 as of October 1, 1987.
On June 1, 1988, the Employer, with Commercial's approval as
independent fiduciary, contributed the Buildings to the Plan as part of
its annual contribution and then leased back the Buildings from the
Plan under a written lease. The subject lease is a triple net lease. It
had an initial term of five years, also commencing June 1, 1988, and it
has three renewal options, each of five years' duration. The initial
annual rental under the lease, as determined by an independent
appraisal, was $82,188. The rental amount was also equal to 14 percent
of the appraised fair market value of the Buildings.
The lease provided for fair market rental adjustments every three
years, again pursuant to an independent appraisal. Although the rental
payments
[[Page 6208]]
for each adjustment period were required to represent 14 percent of the
appraised value of the Buildings, in no event could the lease payments
be less than that of the preceding three year period. The lease
required the Employer to maintain fire and casualty insurance on the
Buildings and to name the Plan as the loss payee. As in the other two
Prior Exemptions, both Mr. Arnold and the Employer agreed to indemnify
the Plan against any decrease in the fair market value of the Buildings
below their $567,000 appraised value.
Commercial was again designated as the independent fiduciary to
approve and monitor the contribution and leaseback transactions on
behalf of the Plan and to determine whether it would be appropriate to
sell the Buildings. Commercial concluded that the transactions were in
the best interests of the Plan and its participants and beneficiaries
and found the Buildings to be of high quality. Moreover, Commercial
examined the Plan's financial records and asset portfolio and concluded
that the Plan had sufficient liquidity. Finally, Commercial determined
that the terms of the lease were arm's length, the Employer was
financially solvent and had never defaulted on rental payments to the
Plan, and the Buildings were readily adaptable to other uses.
It is represented that there were never any defaults or
delinquencies on the part of the Employer under its respective leases
with the Plan. It is also represented that the terms and conditions of
the leases were always complied with by the parties.
II. Replacement of Leases Described in the Prior Exemptions
When the Prior Exemptions were granted, it was the Employer's
understanding that the New Facilities Property, the Home Site Property
and the Buildings (collectively, the Properties) could be wrapped into
a single lease such that the last lease would encompass all of the
Properties. This mistake resulted in both a prohibited leasing
arrangement with respect to the New Facilities Property and an
inconsistency in the actual termination date of the lease involving the
Home Site Property.
As stated above, PTE 81-56, permitted the Employer to lease the New
Facilities Property from the Plan until September 30, 1984. However,
the Employer was allowed to extend the lease for three additional five
year terms, provided Commercial approved each such extension. Because
the Employer extended the lease for the additional terms, it appears
that the lease expired on September 30, 1999. As a result, the Employer
continued to lease the New Facilities Property from the Plan without
the benefit of an administrative exemption, even though the Employer
represents that it had always been compliant with the other terms and
conditions of the lease.
With the exception of its July 1, 1984, commencement date, the
lease described in PTE 85-19 was based on terms that are identical to
those described in PTE 81-56. However, it appears that both the lease
(including all applicable extensions) is due to expire on June 30,
2004.\3\ Nevertheless, it is represented that the Employer expected,
with the approval of the independent fiduciary, to be able to extend
such lease until June 30, 2008. Assuming the extension is approved by
the independent fiduciary, the leasing arrangement would be prohibited,
inasmuch as it would not be covered by an administrative exemption.
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\3\ The Employer, however, determined that the lease would
expire on June 30, 2003.
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To correct the inconsistencies in the termination dates of the
leases described in PTEs 81-56 and 85-19, and to consolidate these
leases, with the lease described in PTE 89-5, into one master lease,
the Plan and the Employer entered into a new leasing arrangement with
respect to the Properties, effective October 1, 2002. Accordingly, an
administrative exemption is requested from the Department to cover this
past and continued leasing arrangement.
The Master Lease has a primary term of three years, which commenced
on October 1, 2002, and will end on September 30, 2005. Under the
Master Lease, the Employer is required to pay the Plan a monthly rental
of $14,933.33 on the first day of each calendar month. The Master Lease
may be renewed by the Employer for four additional three year terms,
exercisable solely at the discretion of Regions, as independent
fiduciary for the Plan. The monthly lease payments for each such
renewal term are to be established by an independent appraisal. Regions
is also responsible for selecting the independent appraiser to conduct
the appraisals for the Plan. As in the provisions of the Prior Leases,
the rental installments due for the renewal terms will be in an amount
equal to a 14 percent return upon the appraised value of the properties
covered under the Master Lease, and in no event will the lease payments
be less than that of the preceding three year period. During each
renewal term, all monthly rental installments will be due and payable
on the first day of each month. In addition, the Employer is required
to pay for all utilities, taxes and assessments, and to insure the
Properties against loss.
As of August 27, 2002, the Properties that are subject to the
Master Lease, had a combined fair market value of $1,280,000 according
to an independent appraisal report prepared by Messrs. P.M. Brown, ASA,
CRA, and Michael Hendrix, qualified, independent appraisers affiliated
with the real estate appraisal firm of P.M. Brown Real Estate
Appraisers, located in Texarkana, Texas. The appraisers also confirmed
that in their opinion, net fair market rentals on comparable properties
within the Texarkana marketing area were equal to or less than 14
percent of the market value of the subject Properties. Thus, the
monthly fair market rental value of the Properties was set at
$14,933.33 on the commencement date of the Master Lease.\4\
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\4\ To the extent that the amount of rent paid by the Employer
to the Plan under the Master Lease exceeds the fair market rental
value of the subject Properties, the Employer represents that such
excess rent, if any, when combined to the balance of the annual
additions to the Plan, will not exceed the limitations prescribed by
section 415 of the Code.
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III. Independent Fiduciary Changes
Since the Prior Exemptions were granted, several unrelated banks
succeeded Commercial as the independent fiduciary for the Plan with
respect to the leases. In this regard, during 1990, Commercial was
acquired by the Deposit Guaranty Bank (Deposit). In 1998, Deposit
merged with First American Bank (First American). During 1999, First
American merged with AmSouth. In each instance, these banks succeeded
to the independent fiduciary responsibilities of Commercial under
applicable banking laws. It is also represented that there were never
any time lags between the departure and replacement of these
independent fiduciaries.
On December 17, 2002, the Employer appointed Regions, the Plan's
current trustee,\5\ as the successor independent fiduciary to AmSouth
with respect to oversight of the Master Lease. Regions was selected by
the Employer to serve as the independent fiduciary for the Plan for
reasons of administrative convenience and to facilitate the handling of
Plan-related matters. Moreover, Regions is not charging the Plan any
additional fees for services
[[Page 6209]]
rendered as an independent fiduciary, aside from its trustee duties.
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\5\ The Plan's former trustee was State First National Bank
(State First) of Texarkana, Texas. On March 10, 1994, State First
was merged into First Commercial Corporation (First Commercial). On
July 31, 1998, First Commercial was merged into Regions Bank
Financial Corporation, the parent of Regions. On that same date,
Regions also became the Plan trustee.
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Regions, a subsidiary of Regions Bank Financial Corporation, a
major Southern bank holding company, is one of the 25 largest banking
companies in America with current assets in excess of $39 billion. Of
these total assets, the Trust Division of Regions holds more than $23.5
billion in trust assets and the assets of the Plan constitute
approximately 0.05 percent of Regions' total trust assets.
Mr. Arnold, the principal owner of the Employer, maintains a
checking account with Regions. However, the total balance of Mr.
Arnold's account with Regions represents a negligible portion of the
bank's total deposits. In addition, the Employer maintains a checking
account with Regions but funds are swept to another bank on a daily
basis, so a zero balance is maintained. Further, neither Mr. Arnold nor
the Employer has a lending relationship with Regions and no officer or
director of Regions sits on the Board of Directors of the Employer or
vice versa. Finally, there are no familial relationships existing
between Mr. Arnold, his son, and Regions or between the Employer and
Regions.
Regions represents that it is knowledgeable and experienced with
lease transactions and it maintains a staff of qualified trust and
investment professionals who provide legal, portfolio management and
consulting services to clients.
As the successor independent fiduciary under the Prior Exemptions
and the Master Lease, Regions has agreed to (a) represent the interests
of the Plan for the duration of the initial term of the Master Lease
and during each renewal term; (b) monitor the transactions on the
Plan's behalf; (c) enforce compliance with all conditions of the
leases; and (d) ensure that the transactions remain in the best
interest of the Plan and protective of the Plan's participants and
beneficiaries. In addition, Regions has also reviewed the Prior
Exemptions and has evaluated the terms and conditions of the subject
leases. Based upon this review, Regions believes the leasing
arrangements should be continued under the Master Lease.
IV. Other Modifications
The Department has modified the operative language of the proposed
exemption in order to clarify the relevant terms of the Master Lease
and the role of the independent fiduciary, thereby replacing the Prior
Exemptions:
If the exemption is granted, the restrictions of sections
406(a), 406(b)(1) and (b)(2) of the Act and the sanctions resulting
from the application of section 4975 of the Code, by reason of
section 4975(c)(1)(A) through (E) of the Code shall not apply, (1)
effective October 1, 1999, until September 30, 2002, to the leasing
by the Plan of a parcel of real property and the improvements
thereon (the New Facilities Property), as described in Prohibited
Transaction Exemption (PTE) 81-56 (46 FR 36273, July 17, 1981), to
the Truman Arnold Companies, Inc. (the Employer), a party in
interest with respect to the Plan; and (2) to the leasing, effective
October 1, 2002, by the Plan to the Employer, under the provisions
of a master lease (the Master Lease) of the New Facilities Property,
another parcel of real property and the improvements comprising the
Employer's headquarters (the Home Site Property), as described in
PTE 85-19 (50 FR 3045, January 23, 1985), and two buildings (the
Buildings) constructed on the Home Site Property and described in
PTE 89-5 (54 FR 4348, January 30, 1989). (The New Facilities
Property, the Home Site Property and the Buildings are collectively
referred to herein as the ``Properties.'')
This proposed exemption is subject to the following conditions:
(a) The terms of the Master Lease remain at least as favorable
to the Plan as those obtainable in an arm's length transaction with
an unrelated party.
(b) The Employer is obligated under the terms of the Master
Lease for expenses incurred by the Properties, including taxes and
assessments, maintenance, insurance and utilities.
(c) The interests of the Plan with regard to the Master Lease
are, at all times, represented by an independent fiduciary. Such
independent fiduciary--
(i) Represents the interests of the Plan for the remaining
duration of the Master Lease;
(ii) Monitors the terms and conditions of the Master Lease on
behalf of the Plan;
(iii) Enforces compliance with all conditions of the Master
Lease;
(iv) Ensures that the Master Lease remains in the best interest
of the Plan and protective of the Plan's participants and
beneficiaries;
(v) Following review and evaluation of the Master Lease,
determines that the retention of the Properties by the Plan and the
continued leasing of such Properties to the Employer are in the best
interest of the Plan and its participants and beneficiaries;
(vi) Adjusts the rental rate under the Master Lease every third
year such lease is in effect based upon independent appraisals of
the Properties and ensures that the rentals equal the greater of 14
percent of the fair market value of the Properties or the prior
rental amounts paid; and
(vii) Takes all actions that are necessary and proper to enforce
and protect the rights of the Plan and its participants and
beneficiaries.
(d) The rental rate under the Master Lease, during its initial
term and each renewal term remains at 14 percent of the fair market
value of the Properties, which amount is not less than the current
fair market value of such Properties;
(e) The aggregate fair market value of the Properties that are
subject to the Master Lease, at no time, exceeds 25 percent of the
Plan's assets.
Tax Consequences of Transaction
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 Code,
including section 401(a)(4), 404 and 415.
Notice to Interested Persons
Notice of the proposed exemption will be provided to interested
persons within 14 days of the publication of the notice of proposed
exemption in the Federal Register. With respect to active employees of
the Employer, notice will be delivered in writing at such employees'
place of employment. With respect to retired employees or participants
having deferred vested interests in the Plan, notice will be provided
by first class mail. The notice will include a copy of the notice of
proposed exemption, as published in the Federal Register, and a
supplemental statement, as required under 29 CFR 2570.43(b)(2), which
shall inform interested persons of their right to comment on and/or to
request a hearing with respect to the proposed exemption. All written
comments and/or requests for a hearing are due within 44 days after the
date of publication of the pendency notice in the Federal Register.
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 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 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 require, among other things, a fiduciary to
discharge his or her 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 requirements of section 401(a) of the Code that the plan
operate for the exclusive benefit of the employees of
[[Page 6210]]
the employer maintaining the plan and their beneficiaries;
(2) The proposed exemption, if granted, will not extend to
transactions prohibited under section 406(b)(3) of the Act and section
4975(c)(1)(F) of the Code;
(3) Before an exemption can be granted under section 408(a) of the
Act and section 4975(c)(2) of the Code, the Department must find that
the exemption is administratively feasible, in the interest of the plan
and of its participants and beneficiaries and protective of the rights
of participants and beneficiaries of the plan;
(4) This proposed exemption, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and the Code,
including statutory or administrative exemptions. 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
(5) This proposed exemption, if granted, is subject to the express
condition that the facts and representations set forth in the Prior
Exemptions and this notice, accurately describe, where relevant, the
material terms of the transactions to be consummated pursuant to this
exemption.
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemption by regular mail,
electronic mail or facsimile to the addresses or facsimile number noted
above, within the time frame set forth above, after the publication of
this proposed exemption in the Federal Register. All comments will be
made a part of the record. Comments received will be available for
public inspection with the referenced applications at the address set
forth above.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the requested
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, August 10, 1990).
If the exemption is granted, the restrictions of sections 406(a),
406(b)(1) and (b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code shall not apply, (1) effective
October 1, 1999, until September 30, 2002, to the leasing by the Plan
of a parcel of real property and the improvements thereon (the New
Facilities Property), as described in Prohibited Transaction Exemption
(PTE) 81-56 (46 FR 36273, July 17, 1981), to the Truman Arnold
Companies, Inc. (the Employer), a party in interest with respect to the
Plan; and (2) effective October 1, 2002, with respect to the leasing by
the Plan to the Employer, under the provisions of a master lease (the
Master Lease) of the New Facilities Property, another parcel of real
property and the improvements comprising the Employer's headquarters
(the Home Site Property), as described in PTE 85-19 (50 FR 3045,
January 23, 1985), and two buildings (the Buildings) constructed on the
Home Site Property, as described in PTE 89-5 (54 FR 4348, January 30,
1989). (The New Facilities Property, the Home Site Property and the
Buildings are collectively referred to herein as the ``Properties.'')
This proposed exemption is subject to the following conditions:
(a) The terms of the Master Lease remain at least as favorable to
the Plan as those obtainable in an arm's length transaction with an
unrelated party.
(b) The Employer is obligated under the terms of the Master Lease
for expenses incurred by the Properties, including taxes and
assessments, maintenance, insurance and utilities.
(c) The interests of the Plan with regard to the Master Lease are,
at all times, represented by an independent fiduciary. Such independent
fiduciary--
(i) Represents the interests of the Plan for the remaining duration
of the Master Lease;
(ii) Monitors the terms and conditions of the Master Lease on
behalf of the Plan;
(iii) Enforces compliance with all conditions of the Master Lease;
(iv) Ensures that the Master Lease remains in the best interest of
the Plan and protective of the Plan's participants and beneficiaries;
(v) Following review and evaluation of the Master Lease, determines
that the retention of the Properties by the Plan and the continued
leasing of such Properties to the Employer are in the best interest of
the Plan and its participants and beneficiaries;
(vi) Adjusts the rental rate under the Master Lease every third
year such lease is in effect based upon independent appraisals of the
Properties and ensures that the rentals equal the greater of 14 percent
of the fair market value of the Properties or the prior rental amounts
paid; and
(vii) Takes all actions that are necessary and proper to enforce
and protect the rights of the Plan and its participants and
beneficiaries.
(d) The rental rate under the Master Lease, during its initial term
and each renewal term remains at 14 percent of the fair market value of
the Properties, which amount is not less than the current fair market
value of such Properties;
(e) The aggregate fair market value of the Properties that are
subject to the Master Lease, at no time, exceeds 25 percent of the
Plan's assets.
The availability of this proposed exemption is subject to the
express condition that the material facts and representations contained
in the application for exemption are true and complete and accurately
describe all material terms of the transactions. In the case of
continuing transactions, if any of the material facts or
representations described in the applications change, the exemption
will cease to apply as of the date of such change. In the event of any
such change, an application for a new exemption must be made to the
Department.
For a more complete statement of the facts and representations
supporting the Department's decision to grant the Prior Exemptions,
refer to the proposed exemptions and the grant notices which are cited
above.
Signed in Washington, DC, this 3rd day of February, 2003.
Ivan L. Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department of Labor.
[FR Doc. 03-2961 Filed 2-5-03; 8:45 am]
BILLING CODE 4510-29-P
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