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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions; The National Electrical Benefit Fund (the Plan) [11/08/2004]

[PDF Version]

Volume 69, Number 215, Page 64784-64789

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11165, et al.]

 
Proposed Exemptions; The National Electrical Benefit Fund (the 
Plan)

AGENCY: Employee Benefits Security 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 Employee Benefits Security 
Administration (EBSA), 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 EBSA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@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 Employee Benefits Security 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.

The National Electrical Benefit Fund (the Plan) Located in Rockville, 
MD

[Application No. D-11165]

Proposed Exemption

    Based upon the facts and representations set forth in the 
application, the Department of Labor is considering granting an 
exemption under the authority of section 408(a) of the Act (or ERISA) 
and section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of section 406(a)(1)(A) through (D) 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,\1\ shall not apply, 
effective April 1, 2003, to (1) the collateral assignment (the 
Collateral Assignment), by the Plan, of its rights and interests in the 
Stonegate at Bellefaire, LLC (the LLC), a real estate operating company 
(REOC), to M&T Real Estate, Inc. (the Senior Lender), a party in 
interest with respect to the Plan; and (2) the guaranty (the Guaranty) 
by the Plan, executed in favor of the Senior Lender, requiring the Plan 
to reimburse the Senior Lender for any losses the Senior Lender may 
incur as a result of certain affirmative ``bad acts'' that are 
committed by the Plan as a member (the Member) of the LLC.
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    \1\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer also to the corresponding provisions of the Code.
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    This proposed exemption is subject to the following conditions:
    (a) The Plan's execution of the Collateral Assignment and the 
Guaranty

[[Page 64785]]

was on terms no less favorable to the Plan than those which the Plan 
could obtain in an arm's length transaction with an unrelated party;
    (b) The decisions on behalf of the Plan to invest in the LLC and 
consent to the terms of the Collateral Assignment and Guaranty in favor 
of the Senior Lender were made by fiduciaries which were independent of 
and unaffiliated with the Senior Lender;
    (c) At the time of the transactions, the Plan had total assets that 
were in excess of $5 billion, and not more than 1% of the Plan's total 
assets was invested or will be invested in the LLC.
    (d) The other member of the LLC (the Managing Member) also executed 
Guaranties in favor of the Senior Lender;
    (e) As a Member of the LLC, the Plan's total potential liability 
with respect to its investment in the real estate project (the 
Project), which is being developed and will be owned by the LLC, is 
limited to:
    (1) Capital contributions made by the Plan to the LLC.
    (2) Amounts funded by the Plan to the LLC (the Plan Loan).
    (3) Rights and interests given to the Senior Lender under the 
Collateral Assignment.
    (f) In the event the Plan engages in any of the specified ``bad 
acts'' that are described in the Guaranty, the Plan's total potential 
liability does not exceed the greater of $32.98 million or the 
outstanding principal amount of the loan serving as the primary funding 
vehicle for the Project (the Senior Loan).

EFFECTIVE DATE: If granted, this proposed exemption will be effective 
as of April 1, 2003.

Summary of Facts and Representations

    1. The Plan, also referred to herein as ``the Applicant,'' is a 
multiemployer, defined benefit plan covering approximately 489,261 
participants and beneficiaries as of December 31, 2003. As of December 
31, 2003, which is the most recent date that financial information is 
available, the Plan had net assets available for benefits of 
approximately $9.5 billion.
    2. The fiduciaries generally responsible for investment decisions 
in real estate matters on behalf of the Plan, including the subject 
transactions,\2\ are D.R. Borden,\3\ Jr. and Jeremiah J. O'Connor (the 
Trustees). In addition, the Plan currently utilizes CS Capital 
Management, Inc. (CSM), an unrelated party, to provide advisory 
services with respect to the management of the LLC investment described 
herein on an ongoing basis. However, CSM did not review or recommend to 
the Trustees the making of this investment.
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    \2\ The Plan has an in house real estate division that makes 
recommendations concerning the Plan's real estate investments, 
including the subject investment in the Project. With respect to the 
Plan's investment in the Project, the Trustees also received 
assistance and advice from The Weitzman Group (Weitzman), a New 
York-based real estate appraisal/advisory firm, which advises the 
Trustees on real estate acquisition and divestiture decisions. In 
addition to conducting ongoing discussions with Weitzman, the 
Trustees relied on the following written reports in making their 
investment decision for the Plan: (a) An Investment Summary, 
prepared by the Plan's in house real estate investment staff; (b) an 
Executive Summary of the Project investment provided by Weitzman; 
(c) a Real Property Valuation of the Project; (d) a Legal Review 
Letter regarding a construction loan and equity investment in the 
Project; and (e) a Closing Update prepared by the Plan's investment 
staff.
    \3\ On May 22, 2002, the date the transactions closed, the 
Trustee was John M. Grau, not D. R. Borden. Mr. Borden replaced Mr. 
Grau in January of 2003.
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    3. The Plan is one of two members of the LLC, a Delaware limited 
liability company formed in May 2002 for the sole purpose of developing 
and owning the Project, a senior living facility located at 1104 King 
Street, Rye Brook, New York. The only other member of the LLC is the 
Managing Member, FC Bellefair, LLC, a New York limited liability 
company and an unrelated party. The Plan and the Managing Member are 
referred to herein collectively as the ``Members,'' or each 
individually, as a ``Member.'' The Plan and the Managing Member each 
own 50% of the LLC. Eighty percent of the Managing Member is owned by 
Forest City Residential Group, Inc. (FCRG), an Ohio corporation whose 
sole shareholder is Forest City Rental Properties Corporation (FCRPC). 
The remaining 20% of the Managing Member is owned by Four Corners 
Ownership II, LLC (FCO), a New York single asset limited liability 
company. FCRG and FCO are each a ``managing member'' of FC Bellefair, 
LLC. The Applicant represents that the LLC qualifies as a ``real estate 
operating company'' (i.e., a REOC) under the ``plan asset'' regulations 
issued by the Department, 29 CFR 2510.3-101(e).\4\
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    \4\ As noted above, the Applicant believes that the LLC is a 
REOC for purposes of the plan asset regulations. Therefore, the 
Applicant requests no ruling or determination with respect to this 
issue. Furthermore, the Applicant states that according to the 
Department's position in 29 CFR 2510.3-101(a), once plan assets are 
invested in a REOC, they lose their character as ``plan assets.'' 
Thus, the Applicant explains that the equity it contributed to the 
REOC in the form of a capital contribution would cease being an 
asset of the Plan as soon as it is transferred to the REOC. 
Thereafter, the Applicant indicates that the asset belongs to the 
REOC, which in turn, may transfer these assets to a party in 
interest with respect to the Plan without invoking the prohibited 
transaction provisions of the Act. Accordingly, the Applicant 
explains that any use of the Plan's capital contribution to repay 
the Senior Loan described herein would not give rise to a prohibited 
transaction.
    Notwithstanding the Applicant's assumption about the REOC status 
of the LLC, the Department expresses no opinion herein on whether 
the LLC would be considered a REOC.
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    4. The transactions at issue arise in the context of the financing 
obtained by the LLC to fund construction of the Project. The Project 
has a total budget of approximately $59,805,349, of which $32,980,000 
is being primarily funded in the form of a loan (i.e., the Senior Loan) 
dated May 24, 2002 from the Senior Lender (i.e., M&T Real Estate, Inc.) 
to the LLC and another entity known as ``FCD Ryebrook, LLC,'' the 
operator of the completed facility. In order to comply with New York 
law, the Senior Loan has been bifurcated into a primary loan in the 
amount of $28,750,995 for the ``hard'' costs evidenced by a Building 
Loan Agreement, and a smaller loan in the amount of $4,229,005 for 
``soft'' costs evidenced by a Non-Cost of Improvement Loan. The Senior 
Loan requires a balloon payment of the outstanding principal and 
interest on the maturity date of May 1, 2007. The amount of the balloon 
is projected at $31,000,000. However, this amount is subject to 
fluctuation based upon such variables as the actual monthly 
construction/operating draw, the number of occupied units in the 
Project, and the market rent for each unit. Interest only payments are 
being made for the first 3 years the Senior Loan is in effect. Then, 
these payments will be amortized, commencing June 1, 2005, based on a 
25 year amortization schedule. The interest rate, which is an 
adjustable rate, was initially set at 6 percent per annum. Effective 
October 31, 2002, the interest rate floor was reduced to 5.25 percent, 
and then lowered to 4%, effective June 1, 2003.
    The Senior Loan is secured by ``[a]ll property, tangible or 
intangible, real or personal, or fixtures, now or hereafter subject to 
any security instrument or mortgage in favor of the [Senior] Lender 
securing payment of the obligations of the [LLC], including without 
limitation membership interests in the [LLC], permits, licenses and the 
Debt Reserve Account.'' \5\ The documents that specifically 
collateralize the Senior Loan are (a) the Collateral Assignment; (b) 
the Guaranty; (c) certain Senior Mortgages; (d) general Security 
Agreements contained in the Senior Mortgages; and (e) Assignments of

[[Page 64786]]

Leases and Rents from Tenants contained in the Senior Mortgages.
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    \5\ The Debt Reserve Account is an account in which an amount 
equal to six months of principal and interest payable to the Senior 
Lender is kept in reserve.
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    During the construction loan period for the Senior Loan, interest 
was calculated on the basis of a 360 day year consisting of 12 months 
with the actual number of days of each month. However, during the 
permanent loan period, interest is being calculated on the basis of a 
360 day year consisting of 12, thirty day months.
    Once the Senior Loan was fully funded, an additional $13,412,674 in 
Project budget costs were funded by the Plan to the LLC in the form of 
a loan (i.e., the Plan Loan). The Plan Loan, dated May 24, 2002, 
requires a balloon payment of the outstanding principal and interest on 
the maturity date of April 30, 2006. The amount of the balloon will be 
$10,747,583. However, this amount is also subject to fluctuation based 
upon such variables as the actual monthly construction/operating draw, 
the number of occupied units in the project, and the market rent for 
each unit. Payments of principal and interest can be made only after 
the Senior Lender has determined that funds are available to pay the 
Plan and no default of the Senior Loan has occurred. Interest on the 
Plan Loan is equal to 15 percent per annum.
    Like the Senior Loan, the Plan Loan is bifurcated to comply with 
New York law. The Plan Loan is thus evidenced by a Building Loan 
Agreement dated May 24, 2002, in the amount of $2,956,505 for ``hard 
costs'' and a Non-Cost of Improvement Loan of the same date for 
$10,456,169 for ``soft costs.''
    In addition, the Plan Loan is secured by ``all of the property and 
interests encumbered by the Security Documents.'' Such collateral 
includes (a) certain Subordinate Mortgages on the Project; \6\ (b) 
certain Lease Assignments; (c) the Assignment of Project Documents and 
Development Rights; (d) the Limited Liability Interest Pledge 
Agreement; (e) the Guaranty of Completion; (f) the Non-Recourse 
Exception Guaranty; and (g) certain UCC Financing Statements.
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    \6\ The Subordinate Mortgages refer to two components of the 
Plan Loan, i.e., the Building Loan Agreement covering the ``hard 
costs'' and the Non-Cost of Improvement Loan covering the ``soft 
costs.''
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    In accordance with a General Subordination and Intercreditor 
Agreement, dated May 24, 2002, between the Applicant and the Senior 
Lender, the Senior Loan was made senior in priority to the Plan Loan. 
The remaining Project budget costs were funded to the LLC by the Plan's 
initial capital contribution of $6,706,337 (or 11.2 percent of the 
total Project budget costs) and by the Managing Member's initial 
capital contribution of $6,706,337 (or 11.2 percent of the total 
Project budget costs). As of January 31, 2004, each Member had made 
capital contributions to the LLC totaling $7,060,774 and the Senior 
Lender had funded $27,780,337 of the Senior Loan. The remainder of the 
Senior Loan was funded as of April 2004. The Plan began making monthly 
disbursements on the Plan Loan in June 2004.
    5. In addition to the Plan's agreement to subordinate the Plan Loan 
in favor of the Senior Loan, the Plan executed two documents in favor 
of the Senior Lender which are intended to provide additional comfort 
to the Senior Lender that the Senior Loan will be repaid. First, on May 
24, 2002, both the Plan and the Managing Member executed the Collateral 
Assignment of Membership Interests Agreement (i.e., the Collateral 
Assignment) in favor of the Senior Lender, which provided that, in 
order to induce the Senior Lender to make the Senior Loan, each of the 
Members agreed to assign all their respective rights and interests to 
the LLC in such things as compensation, voting, access to the LLC's 
records, proceeds or payments due the assignors, etc., in the event the 
LLC defaults on the Senior Loan. Second, the Plan executed an 
Unconditional and Continuing Limited Liability Guaranty and Indemnity 
Agreement (i.e., the Guaranty) in favor of the Senior Lender, which 
provided that the Plan would indemnify the Senior Lender for any losses 
incurred by the Senior Lender in connection with any affirmative ``bad 
acts''\7\ of the Plan in its capacity as a Member of the LLC.\8\ The 
subject transactions involve less than 1 percent of the fair market 
value of the total assets of the Plan.\9\
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    \7\ According to Article II, Section 2.1 of the Unconditional 
and Continuing Limited Guaranty and Indemnity Agreement, ``bad 
acts'' include, but are not limited to, the following: fraud, 
material misrepresentation, concealment, failure to pay real estate 
taxes, misappropriation of rents, revenues, profits or security 
deposits by the Guarantor or at the direction of the Guarantor, or 
other acts of willful misconduct. It should be noted that the 
Guaranty does not extend to ``bad acts'' of any other party that 
could be imputed to the Plan, or to any passive conduct on the part 
of the Plan (e.g., a failure to investigate or disclose).
    Besides the Plan's Guaranty, the Managing Member of the LLC and 
other entities provided Guaranties to the Senior Lender in the form 
of (a) Unconditional and Continuing Limited Guaranty and Indemnity 
Agreements similar to those executed by the Plan (These agreements 
were entered into by (i) the Managing Member; (ii) FCRG (the 80 
percent owner of the Managing Member); (iii) FCO (the 20 percent 
owner of the Managing Member); (iv) FCRPC (FCRG's parent); and (v) 
Forest City Enterprises, Inc. (FCEI)(FCRPC Corporation's parent.); 
(b) a Completion Guaranty (A Guaranty of Completion was executed by 
the Managing Member's parent, FFCEI. This blanket guaranty obligates 
FCEI (to the extent necessary) to complete the Project in accordance 
with the plans and specifications); and (c) Guaranties of the Plan 
Loan and the Plan's Equity Interest in the Project (The Managing 
Member has provided the following guaranties in favor of the Plan as 
the subordinated lender: (i) A Non-Recourse Exception Guaranty; (ii) 
a Guaranty of Completion; (iii) a Guaranty of Completion (Equity); 
and (iv) a Guaranty of Fraudulent Acts (Equity)).
    \8\ In order to induce a construction lender to fund a 
construction loan, the Applicant states that it is customary for the 
lending bank to be provided with certain guaranties of repayment 
from a party other than the borrower. Such a guaranty by a ``deep 
pocket'' is often required to make the lender comfortable that all 
or a portion of the loan it will make to the borrower will be repaid 
in the event of a default of the borrower. When the borrower is a 
REOC, the Applicant explains that it is customary for the 
construction lender to require the guaranty from one or more 
constituent members of the REOC. In the event that the lender will 
begin funding the construction loan before the members of the REOC 
have fully funded their equity commitments to the REOC, as is the 
case here, the Applicant indicates that the members will assign 
their interests in the REOC to the lender in the event of default.
    \9\ According to the Applicant, the Plan's total potential 
liability in connection with its capital contribution, the Plan 
Loan, and the Collateral Assignment will not exceed the value of the 
investment the Plan actually makes in the Project. The total 
potential investment by the Plan in the Project equals the potential 
capital contribution of $7,206,337, plus a maximum Plan Loan of 
$13,412,674. Thus, the Plan's total liability in connection with 
this investment will not exceed $20,619,011. Although the Guaranty 
separately provides that the Plan may be liable in connection with 
any wrongful acts it takes for losses incurred by the Senior Lender 
in connection with these wrongful acts, this potential liability, 
according to the Applicant, is akin to liability the Plan would 
incur with any willful and tortious actions it may take, and would 
not likely exceed $32.98 million or the amount of the outstanding 
loan.
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    As a Member of the LLC, the Plan's total potential liability with 
respect to its investment in the Project, is limited to: (a) Capital 
contributions it has made to the LLC; (b) amounts funded to the LLC 
under the Plan Loan; and (c) rights and interests given to the Senior 
Lender under the Collateral Assignment. Also, in the event the Plan 
ever engages in any of the specified ``bad acts'' that are described in 
the Guaranty, the Plan's total potential liability will not exceed the 
greater of $32.98 million or the outstanding principal amount of the 
Senior Loan.
    6. In December 2002, shareholders of M&T Bank (MTB), the Senior 
Lender's parent company, and Allied Irish Banks, PLC, (AIB) approved 
MTB's acquisition of Allfirst (Allfirst), AIB's U.S. subsidiary, with 
the resulting merger (the Merger) being consummated on April 1, 2003. 
Under the terms of the acquisition agreement, AIB received 26.7 million 
shares of MTB common stock, plus approximately $886 million in cash, in 
exchange for all of the outstanding stock of Allfirst. (For purposes of 
this proposed exemption, the enlarged entity is referred to as

[[Page 64787]]

MTB/Allfirst). As a result of the Merger, the Senior Lender is now a 
company that is wholly owned by MTB/Allfirst. The Plan is obligated to 
the Senior Lender (a) to the extent of the Plan's equity interest in 
the LLC in the event that the LLC defaults on the Senior Loan pursuant 
to the Collateral Assignment; and (b) in the form of the Guaranty in 
that it will reimburse the Senior Lender in the event the Plan commits 
certain affirmative ``bad acts'' in connection with the LLC. 
Accordingly, the Applicant requests an administrative exemption from 
the Department.
    7. The Applicant represents that for reasons unrelated to the 
transactions described herein, Allfirst is a party in interest with 
respect to the Plan insofar as it provides two types of banking 
services to the Plan. First, the Plan maintains an operating checking 
account with Allfirst that is used to pay day-to-day administrative 
expenses of the Plan. Second, at least one local collection agent used 
by the Plan in connection with the collection of employee benefit plan 
contributions from local covered employers maintains a bank account 
with Allfirst in which it deposits the pension contributions made by 
contributing employers in the area. On a regular basis, the Plan sweeps 
the local Allfirst account of all the contributions that have been 
accumulated.
    8. The Applicant represents that Allfirst does not exercise 
discretionary authority or discretionary control respecting the 
management of the funds deposited with it or the administration of the 
Plan, and thus it is not a fiduciary with respect to the Plan. The 
Applicant further represents that there are no Plan assets invested in 
loans to Allfirst, in property leased to Allfirst, or in securities 
issued by Allfirst. In addition, the Applicant explains that Allfirst 
is not involved in any manner with the Plan Trustees' decision to 
engage in these transactions and it will not be involved in any 
decision making or in an advisory capacity with respect to the Plan.
    9. The Applicant represents that prior to the Merger, MTB was not a 
party in interest with respect to the Plan. Thus, any possible benefits 
or guarantees given to MTB at the time of the Senior Loan were not 
prohibited transactions. The Applicant explains that since the Merger, 
MTB/Allfirst has continued to service the foregoing Allfirst accounts 
under the name of M&T Bank. As a result, MTB/Allfirst is a service 
provider to the Plan as defined in section 3(14)(B) of the Act. In 
addition, the Applicant states that the Senior Lender became a party in 
interest with respect to the Plan under section 3(14)(G) of the Act 
insofar as it is a corporation in which 50 percent or more of the 
combined voting power is owned post-merger by MTB/Allfirst.
    10. Finally, the Applicant states that the transactions were not 
part of an agreement, arrangement or understanding designed to benefit 
a party in interest. In this regard, the Applicant explains that the 
Senior Lender was not, at the time the underlying transactions were 
being entered into, a party in interest to the Plan, nor did the Plan 
have an expectation that Allfirst would be merged into the parent of 
the Senior Lender. The Applicant represents that the Plan's primary 
intent in executing the Guaranty and the Collateral Assignment was to 
further its investment in the LLC, not to benefit a party in interest.
    11. In summary, the Applicant represents that the transactions have 
satisfied and will satisfy the statutory criteria for an exemption 
under section 408(a) of the Act for the following reasons:
    (a) The Plan's execution of the Collateral Assignment and the 
Guaranty was on terms no less favorable to the Plan than those which 
the Plan could obtain in an arm's length transaction with an unrelated 
party;
    (b) The decisions on behalf of the Plan to invest in the LLC and 
consent to the terms of the Collateral Assignment and Guaranty in favor 
of the Senior Lender were made by fiduciaries which were independent of 
and unaffiliated with the Senior Lender;
    (c) At the time of the transactions, the Plan had total assets that 
were in excess of $5 billion, and not more than 1% of the Plan's total 
assets was invested or will be invested in the LLC;
    (d) The other member of the LLC also executed Guaranties in favor 
of the Senior Lender;
    (e) As a Member of the LLC, the Plan's total potential liability 
with respect to its investment in the real estate Project, will be 
limited to:
    (1) Its capital contributions to the LLC.
    (2) Amounts funded under the Plan Loan.
    (3) Rights and interests given to the Senior Lender under the 
Collateral Assignment; and
    (f) In the event the Plan engages in any of the specified ``bad 
acts'' that are described in the Guaranty, the Plan's total potential 
liability will not exceed the greater of $32.98 million or the 
outstanding principal amount of the Senior Loan.

Notice to Interested Persons

    Notice of the proposed exemption will be given to interested 
persons by either hand delivery or overnight mail within 4 days of the 
date of publication of the notice of pendency in the Federal Register. 
Such notice will include a copy of the notice of 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 the proposed exemption. All 
comments are due within 34 days after publication of the proposed 
exemption in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department, telephone (202) 693-8566. (This is not a toll-free number.)

Roy A. Herberger Defined Benefit Pension Plan (the Plan) Located in 
Phoenix, Arizona

[Application No. D-11259]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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 sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975(c)(1)(A) through (E) of the Code, shall not apply to the three 
past in-kind contributions (the Contribution(s)) to the Plan of common 
stock (the Stock) of Pinnacle West Capital Corporation (PNW) by Roy A. 
Herberger, Jr. (the Applicant), a disqualified party with respect to 
the Plan,\10\ provided that the following conditions are met:
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    \10\ Since the Applicant is a sole proprietor and the only 
participant in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
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    (a) The transactions involved publicly traded securities, the fair 
market values of which were based upon published prices at the time of 
each Contribution;
    (b) The cumulative value of the Contributions represented no more 
than 18% of the total assets of the Plan;
    (c) The Plan has not paid any commissions, costs or other expenses 
in connection with the Contributions;
    (d) The Applicant, who is the only person affected by the 
transactions, believes that the transactions were in the best interest 
of the Plan;
    (e) The Applicant made the Contributions based on erroneous advice 
from his tax adviser; and

[[Page 64788]]

    (f) The terms of the transactions between the Plan and the 
Applicant are no less favorable to the Plan than terms negotiated at 
arm's length under similar circumstances between unrelated third 
parties.

Summary of Facts and Representations

    1. The Plan is a defined benefit pension plan. The Plan 
administrator is the Applicant and is the sole participant in the Plan. 
The Applicant receives income from serving on various boards of 
directors. A portion of his fees for serving on the board of directors 
of PNW is paid in the form of common stock of PNW. The Applicant is a 
non-employee outside director of PNW. PNW is a public company, whose 
stock is publicly traded on the New York Stock Exchange. The Applicant 
beneficially owns 8660 shares of the Stock.
    2. On July 23, 2002, the Applicant contributed 900 shares of the 
Stock from his brokerage account to the Plan. On August 14, 2002, the 
Applicant contributed another 2700 shares of the Stock from his 
brokerage account to the Plan. Finally, on July 7, 2003, the Applicant 
contributed another 900 shares of the Stock to the Plan. However, these 
900 shares were transferred back to the Plan months later and cash was 
contributed in its place when it was discovered that the Contributions 
constituted prohibited transactions. The Applicant represents that the 
third transaction was corrected within the meaning of the Code.\11\ The 
values of the Stock used for purposes of the contributions were as 
follows: (1) July 23, 2002 (900 shares) $28.05 (Closing Price); (2) 
August 14, 2002 (2700 shares) $33.53 (Closing Price); and (3) July 7, 
2003 (900 shares) $37.31 (Closing Price).
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    \11\ The Department has no jurisdiction with respect to what 
constitutes correction with respect to a prohibited transaction 
under section 4975 of the Code. Therefore, the Department expresses 
no opinion herein on the whether the transfer of 900 shares of the 
Stock back to the Plan constituted a correction within the meaning 
of the Code.
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    3. The Applicant's motivation for contributing the Stock, rather 
than selling the Stock, contributing the cash proceeds and then 
repurchasing the Stock, was to save brokerage fees. The Stock 
contributed to the Plan was and is publicly traded on the New York 
Stock Exchange and the price was determined based on the closing price 
of the Stock on the day of each Contribution.
    4. Prior to making the first Contribution, the Applicant consulted 
a Deloitte & Touche LLP (Deloitte & Touche) tax specialist regarding 
the Contributions and was mistakenly advised that the Contributions 
were not prohibited transactions. Deloitte & Touche acknowledges 
providing the erroneous advice regarding the Contributions.
    5. On a cumulative basis, the Contributions never constituted more 
than 18% of the assets of the Plan. The value of the Stock has 
increased since the Contributions.
    6. In summary, the Applicant represent that the transactions 
satisfy the statutory criteria for an administrative exemption under 
section 4975(c)(2) of the Code because: (a) The Stock was valued at its 
fair market value at the time of each Contribution; (b) the cumulative 
value of the Contributions represented no more than 18% of the total 
assets of the Plan; (c) the Plan has not paid any commissions, costs or 
other expenses in connection with the Contributions; (d) the Applicant, 
who is the only person affected by the transactions, believes that the 
Contributions were in the best interest of the Plan; (e) the Applicant 
made the Contributions based on erroneous advice from his tax adviser; 
and (f) the terms of the transactions between the Plan and the 
Applicant are no less favorable to the Plan than terms negotiated at 
arm's length under similar circumstances between unrelated third 
parties.

Notice to Interested Persons

    It has been determined that there is no need to distribute the 
notice of proposed exemption (the Notice) to interested persons. 
Comments and requests for a hearing are due thirty (30) days after 
publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8540. (This is not a toll-free number.)

The North Texas Electrical Joint Apprenticeship and Training Trust Fund 
(the Plan) Located in Grand Prairie, Texas

[Application No. L-11245]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act 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 
section 406(a) of the Act shall not apply to the sale (the Sale(s)) of 
(1) a 1.112 acres of land (Parcel 1) to the North Texas Chapter, 
National Electrical Contractors Association (NECA), a party in interest 
to the Plan; and (2) a 5.383 acres of land (Parcel 2) to Local Union 
20, International Brotherhood of Electrical Workers (IBEW), a 
party in interest to the Plan. This proposed exemption is conditioned 
upon adherence to the material facts and representations described 
herein and upon the satisfaction of the following requirements:
    (a) The Sales are one-time transactions for cash;
    (b) The Plan does not pay any commissions, costs or other expenses 
in connection with the Sale of Parcel 1 and Parcel 2 (collectively the 
Parcels); and
    (c) The Plan will receive an amount equal to the greater of: (i) 
$145,000 or the current fair market value of Parcel 1 as established by 
an independent, qualified, appraiser and updated at the time of the 
Sale; and (ii) $655,000; or the current fair market value of Parcel 2 
as established by an independent, qualified, appraiser and updated at 
the time of the Sale; and
    (d) The terms of the Sales will be no less favorable to the Plan 
than terms it would have received under similar circumstances in an 
arm's length negotiation with an unrelated party.

Summary of Facts and Representations

    1. The Plan is an apprenticeship training trust fund. The trustees 
(the Trustees) consist of three members appointed by IBEW and three 
members representing management appointed by NECA. The Trustees have 
investment discretion over all assets of the Plan. As of March 25, 
2004, the Plan has 230 participants. The Plan's assets have an 
aggregate fair market value of $1,807,444.63 as of December 2003. The 
Parcels have an estimated fair market value of $800,000 and constitute 
approximately 44% of the total value of Plan assets. The Plan is 
organized exclusively for educational purposes within the meaning of 
section 501(c)(3) of the Code and operates as a tax exempt nonprofit 
fund solely and exclusively for the purposes of providing a program for 
the training and education of electrical apprentices, journeymen, or 
other appropriate persons, and programs in furtherance thereof and to 
defray the reasonable expense of administering the apprenticeship and 
training programs established under the provisions of the collective 
bargaining agreement.
    2. The Trustees represent that the Sale is in the interest of the 
Plan, and its participants and beneficiaries. The Plan participants 
(the Participants) currently have to drive from the school in Grand 
Prairie to the IBEW office in Dallas for job referrals, benefit 
information, and other business that is handled for them

[[Page 64789]]

by the union as their collective bargaining representative. These 
offices are approximately twenty-five miles apart. NECA handles the 
collection and disbursement of benefit funds for the Participants, and 
their office is in Arlington, TX which is approximately three miles 
away from the school. IBEW and NECA seek to purchase the Parcels from 
the Plan and build offices at this location which would be much more 
convenient for the Participants.
    If the exemption is denied, the parties in interest, IBEW and NECA, 
will not be able to build their buildings next to the Plan facility. 
This will cause the Plan participants to have to drive approximately 
twenty-five miles to the IBEW office and three miles to the NECA office 
in order to conduct business. NECA and IBEW have not indicated any 
desire to build a new building unless it is next to Plan. The 
transactions will be in the best interests of the Plan and will also 
make the school building more accessible to members of the IBEW and 
NECA for their training needs.
    3. On July 26, 2002 an unimproved 11.7 acre of real property (the 
Land) was conveyed to the Plan by an unrelated third party. Fifty 
percent of the Land was donated to the Plan and fifty percent was sold 
to the Plan for $575,000. The Parcels are sections of the Land that the 
applicant now seeks to sell. Parcel 1 consists of a vacant unimproved 
parcel of land containing an area of approximately 1.112 acres located 
at W. Tarrant Road, Grand Prairie, Dallas County, Texas. Parcel 2 
consists of a vacant unimproved parcel of land containing an area of 
approximately 5.383 acres located at W. Tarrant Road, Grand Prairie, 
Dallas County, Texas. The remaining Land is road accessible and is 
surplus property for the Plan.
    4. The Parcels were appraised on October 13, 2003, by Donald J. 
Sherwood (Mr. Sherwood), a MAI Certified General Real Estate Appraiser. 
Mr. Sherwood is independent of the parties to the transactions and is 
an appraiser with Integra Realty Resources located in Dallas, Texas.
    Mr. Sherwood determined the best use and highest value of the 
Parcels was associated with valuing the Parcels with the so-called 
direct sales comparison method. Under this method, sales of similar 
land in the market area are compared to the subject to arrive at an 
indication of value. In arriving at value conclusions, the tracts are 
compared as to the rights conveyed, financing terms, sale conditions, 
market conditions, location, and physical characteristics. Therefore, 
based on the valuation procedures employed by Mr. Sherwood, he 
determined that the fair market value of the Parcels was as follows: 
(i) Parcel 1 = $145,000; and (ii) Parcel 2 = $655,000.
    5. The Plan will receive an amount equal to the greater of: (i) 
$145,000; or (ii) the current fair market value of Parcel 1 as 
established by an independent, qualified, appraiser updated at the time 
of the Sale. The Plan also will receive an amount equal to the greater 
of: (i) $655,000; or (ii) the current fair market value of Parcel 2 as 
established by an independent, qualified, appraiser updated at the time 
of the Sale.
    6. In summary, the applicant represents that the subject 
transaction satisfies the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) The Sale is a one-time transaction for cash;
    (b) The Plan does not pay any commissions, costs or other expenses 
in connection with the Sale;
    (c) The Plan will receive an amount equal to the greater of: (i) 
$145,000; or (ii) the current fair market value of Parcel 1 as 
established by an independent, qualified, appraiser and updated at the 
time of the Sale; and the Plan will receive an amount equal to the 
greater of: (i) $655,000; or (ii) the current fair market value of 
Parcel 2 as established by an independent, qualified, appraiser and 
updated at the time of the Sale; and
    (d) The terms of the Sales will be no less favorable to the Plan 
than terms it would have received under similar circumstances in an 
arm's length negotiation with an unrelated party.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon by 
the applicant and Department within 15 days of the date of publication 
in the Federal Register. Comments and requests for a hearing are due 
forty-five (45) days after publication of the notice in the Federal 
Register.

FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 693-8540 (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 1st day of November, 2004.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 04-24648 Filed 11-5-04; 8:45 am]

BILLING CODE 4510-29-P