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Secretary of Labor Thomas E. Perez

EBSA Federal Register Notice

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]

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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]

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