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Employee Benefits Security Administration

EBSA Federal Register Notice

Proposed Exemptions; George N. Newton, Individual Retirement Account (the IRA) [11/03/2005]

[PDF Version]

Volume 70, Number 212, Page 66854-66858

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11328, et al.]

 
Proposed Exemptions; George N. Newton, Individual Retirement 
Account (the IRA)

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.

George N. Newton, Individual Retirement Account (the IRA), Located in 
Waco, Texas, Application No. D-11328

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, 
32847, 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 proposed arrangement involving the in-kind distributions by the IRA 
to Mr. George N. Newton (Mr. Newton), a disqualified person with 
respect to the IRA, in two installments of 50 percent (50%) each, of 
the IRA's ownership interest in an unencumbered, improved parcel of 
real property (the Property) located in San Antonio, Texas, in 
connection with the required minimum distributions rules under the 
Code; provided the following conditions are satisfied:
    (1) The two installments of the in-kind distributions by the IRA 
occur on December 30, 2005, through January 3, 2006;
    (2) The terms and conditions of the transactions are at least as 
favorable to the IRA, as the terms of similar transactions negotiated 
at arm's length with unrelated third parties;
    (3) The fair market value of the IRA's interest in the Property is 
determined by an independent, qualified appraiser, as of the date the 
first of the two installments of the in-kind distributions is made to 
Mr. Newton; and
    (4) The IRA does not pay any commissions, costs, charges, fees, or 
other expenses in connection with the in-kind distributions.

Summary of Facts and Representations

    1. The IRA which is the subject of this exemption is an individual 
retirement account, as described under section 408(a) of the Code.\1\ 
The approximate aggregate fair market value of the total assets of the 
IRA is $2,648,113, as of June 30, 2005. The assets of the IRA consist 
of cash in the amount of $1,011,113 and two parcels of improved real 
property worth approximately $1,637,000. The custodian of the IRA is 
Sterling Trust Company of Waco, Texas. As custodian, the Sterling Trust 
Company is a disqualified person with respect to the IRA, pursuant to 
section 4975(e)(2)(B) of the Code.
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    \1\ Pursuant to the provisions contained in 29 CFR 2510.3-2(d), 
the IRA is not subject to Title I of the Employee Retirement Income 
Security Act of 1974 (the Act). However, the IRA is subject to Title 
II of the Act, pursuant to section 4975 of the Code.
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    2. Mr. Newton is the owner of the IRA and retains discretion with 
respect to the investment of the assets in the IRA. As such, Mr. Newton 
is a fiduciary with regard to the IRA and a disqualified person, 
pursuant to section 4975(e)(2)(A) of the Code. Mr. Newton was born on 
August 25, 1934, and on February 25, 2005, attained the age of

[[Page 66855]]

70\1/2\. The designated beneficiary under the terms of the IRA is Mr. 
Newton's wife. As such, Mrs. Newton is a disqualified person with 
respect to the IRA, pursuant to section 4975(e)(2)(F) of the Code.
    3. Mr. Newton is the owner of two other rollover individual 
retirement accounts at Commonwealth Financial Network in Waltham, 
Massachusetts with assets of $1,544,401 and $460,787, respectively. 
These individual retirement accounts are invested in cash and 
securities. Neither of these individual retirement accounts owns any 
real property. The combined value of these individual retirement 
accounts is approximately $2 million dollars.
    4. Individual retirement accounts must comply with the minimum 
distribution rules applicable to defined contribution retirement plans 
under section 408(a)(6) of the Code. In this regard, the required 
minimum distributions must commence no later than the first of April 
following the calendar year in which the owner of an individual 
retirement account attains the age of 70\1/2\. A required minimum 
distribution must be made for each ``distribution calendar year.'' The 
first ``distribution calendar year'' is the year such owner of an 
individual retirement account reaches age 70\1/2\. If the owner of an 
individual retirement account makes the election to receive the first 
required minimum distribution on the first of April of the year 
following the year such owner attains the age of 70\1/2\, two minimum 
distributions must be made in that year. If the owner owns two or more 
individual retirement accounts, the required minimum distributions must 
be calculated separately for each account. The separately calculated 
minimum distribution amounts may then be totaled and the total amount 
may be distributed from any one or more of such individual retirement 
accounts.
    5. The IRA that is the subject of this exemption and the other two 
individual retirement accounts owned by Mr. Newton must comply with the 
minimum distribution rules applicable to defined contribution 
retirement plans under section 408(a)(6) of the Code. As Mr. Newton has 
attained the age of 70\1/2\ in 2005, the first ``distribution calendar 
year'' is 2005. If Mr. Newton elects to make the first required minimum 
distribution before April 1, 2006, then two minimum distributions must 
be made in 2006. As Mr. Newton has three (3) individual retirement 
accounts, the required minimum distributions for each of these accounts 
must be calculated separately, but the total amount that is required to 
be distributed may be paid from the IRA which is the subject of this 
exemption.
    6. Mr. Newton proposes to distribute in-kind 50 percent (50%) of 
the IRA's interest in the Property in each of two (2) installments 
which will occur on December 30, 2005, through January 3, 2006. These 
dates were suggested because they are the banking days just before and 
just after the New Year. Accordingly, Mr. Newton seeks an exemption 
from section 4975 of the Code for any violations that may arise in 
connection with the proposed transactions.
    7. The Property which is the subject of this proposed exemption is 
described as a good quality, historic eight-story office building (the 
Building) constructed in 1902. The Property is located on approximately 
.132 acres of land at 314 East Commerce Street in San Antonio, Texas. 
The Building was formerly known as the old Alamo National Bank 
Building.
    It is represented that the Property is unencumbered by debt, and is 
managed by Cambridge Realty Group, Inc., an unrelated third party 
management company.
    The Building contains 33,233 square feet of net rentable area. The 
largest tenant in the Building is River Enterprises which occupies the 
ground floor space. The second largest tenant is Inuit Services, Inc. 
which occupies space on the second floor of the Building. It is 
represented that the occupancy rate of the Building is 92.4 percent 
(92.4%), as of February 17, 2005. It is further represented that none 
of the tenants in the Building are disqualified persons with respect to 
the IRA, as defined in section 4975(e)(2) of the Code.
    8. Richard L. Dugger (Mr. Dugger), MAI, CRE, State Certified 
General Real Estate Appraiser, and Cynthia C. Beard (Ms. Beard), State 
Certified General Real Estate Appraiser, prepared an appraisal report 
of the Property, dated March 7, 2005. Mr. Dugger and Ms. Beard are 
associated with Dugger, Canady, Grafe, Inc., real estate consultants 
and appraisers. Mr. Dugger and Ms. Beard represent that they are 
qualified real estate appraisers with approximately thirty-six (36) 
years and twenty-six (26) years of experience, respectively, in 
preparing real estate appraisals and are familiar with the Property and 
with similar properties located in the surrounding area. In addition, 
Mr. Dugger and Ms. Beard represent that they are independent in that 
they have no present or prospective interest in the Property and have 
no personal interest or bias with respect to the parties involved.
    Mr. Dugger and Ms. Beard's appraisal estimated the value ``as is'' 
of a leased fee interest \2\ in the Property, subject to various tenant 
leases, effective February 17, 2005, the most recent date of 
inspection. Based on their analysis and their inspection of the 
Property, Mr. Dugger and Ms. Beard concluded that the value ``as is'' 
of a leased fee interest in the Property was $1,700,000 dollars. It is 
represented that Mr. Dugger and Ms. Beard will update their appraisal 
of the value of the leased fee interest in the Property, as of the date 
the first of the two installments of the in-kind distributions is made 
to Mr. Newton.
    9. The applicant maintains that the proposed transactions are 
feasible in that the transactions involve a single individual and his 
IRA and address a need arising because of the minimum distribution 
provisions, as required by the Code. By making the distributions as 
close as possible to the end of 2005 and the beginning of 2006, the 
period of time when Mr. Newton and the IRA share an ownership interest 
in the Property will be less than five (5) days of which only portions 
of two (2) days will be business days. In the opinion of the applicant, 
the risk of a conflict of interest developing between Mr. Newton and 
the IRA in this short a period of time is curtailed, if not eliminated 
entirely.
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    \2\ A ``leased fee interest'' is an ownership interest held by a 
landlord with the rights of use and occupancy conveyed by lease to 
others. In this regard, the appraisers valued the ``leased fee 
interest'' in the Property ``as is'' by taking into account the 
various existing leases on space in the Building.
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    10. The transactions are in the interest of the IRA, in that the 
IRA will be able to distribute the Property which is an illiquid asset 
and will avoid a forced sale of the Property. The IRA will not pay any 
commissions, costs, fees, or other expenses in connection with the 
subject transactions. Further, Mr. Newton is personally bearing the 
cost of filing the exemption application and paying the cost of the 
appraisal of the Property.
    11. The transactions are structured to include certain safeguards 
for the protection of the participant and the designated beneficiary of 
the IRA. In this regard, the terms of the transactions will be at least 
as favorable as arm's length terms negotiated with unrelated parties. 
Further, the fair market value of the Property has been determined by 
independent, qualified appraisers, and such value will be updated, as 
of the date the first of the two (2) installments of the in-kind 
distributions is made to Mr. Newton.

[[Page 66856]]

    12. In summary, the applicant represents that the proposed 
transactions will meet the statutory criteria of section 4975(c)(2) of 
the Code because: (a) The transactions involve a single individual and 
his IRA and address a need arising because of the minimum distribution 
provisions, as required by the Code; (b) there is minimal risk of a 
conflict of interest developing between Mr. Newton and the IRA in the 
short period of time that they will share ownership of the Property; 
(c) the terms and conditions of the transactions are at least as 
favorable to the IRA as similar terms negotiated at arm's length with 
unrelated parties; (d) the fair market value of the Property will be 
determined by independent, qualified appraisers, as of the date the 
first of the two installments of the in-kind distributions is made to 
Mr. Newton; and (e) the IRA will not pay any commissions, costs, fees, 
or other expenses in connection with the transactions.

Notice to Interested Persons

    Because Mr. Newton is the only participant in the IRA, 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 must be received by the Department within thirty (30) days of 
the date of publication of the Notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 693-8540. (This is not a toll-free number.)

Anchorage Area Pipe Trades 367 Joint Apprenticeship Committee (the 
Plan), Located in Anchorage, Alaska, [Application No. L-11293]

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 
sections 406(a) and 406(b)(2) of the Act, shall not apply to a proposed 
loan (the Loan) to the Plan, to finance a training facility (the 
Training Facility) constructed by the Plan, in the amount of $750,000, 
by the Local No. 367 of the United Association of Journeymen and 
Apprentices of the Plumbing and Pipefitting Industry of the United 
States and Canada (Local No. 367), a party in interest with respect to 
Plan. This proposed exemption is subject to the following conditions:
    (a) The Plan does not pay any commissions, fees or other expenses 
with respect to this transaction, except certain specified third party 
closing costs;
    (b) An independent qualified fiduciary (the I/F), after analyzing 
the relevant terms of the Loan, determines whether such Loan is in the 
best interest of the Plan and its participants and beneficiaries;
    (c) In determining the fair market value of the Training Facility, 
the I/F obtains a current written appraisal report (the Appraisal) from 
an independent qualified appraiser at the time of the transaction, and 
ensures that such Appraisal is consistent with sound principles of 
valuation;
    (d) The Loan is for the duration of 15 years at the prime rate (the 
Prime Rate) as listed in the Wall Street Journal;
    (e) Under the terms of the Loan agreement, the Loan is secured by 
the Training Facility and in the event of default by the Plan, Local 
No. 367 has recourse only against such facility and not against the 
general assets of the Plan;
    (f) The terms and conditions of the Loan are at least as favorable 
to the Plan as those which the Plan could have obtained in an arm's 
length transaction with an unrelated third party; and
    (g) The Loan is repaid by the Plan with the funds the Plan retains 
after paying all of its operational expenses.

Summary of Facts and Representations

    1. The Plan is a collectively bargained, joint labor-management 
apprenticeship and training trust fund which qualifies as an ``employee 
welfare benefit plan'' under section 3(1) of ERISA. Currently, there 
are approximately 481 participants covered by the Plan. As of August 
31, 2005, the approximate value of the Plan's assets totaled $2,799,491 
and its current liabilities totaled $798,257. The Plan owns an outdated 
training facility which did not meet the training standards of the 
Plan. To better address the training needs of the journeymen and 
apprentices, the Plan constructed the new Training Facility in place of 
the outdated training facility. To finance this construction, the Plan 
borrowed funds from a third party bank. In anticipation of the new 
Training Facility's completion, the Plan was offered permanent 
financing by Local No. 367 in the amount of $750,000 (i.e., the Loan), 
which is the remaining balance of the outstanding construction loan 
with the bank. The Loan from Local No. 367 to the Plan is approximately 
44 percent of the Plan's assets. The loan to value ratio equals 
approximately 0.75 (i.e. 75% of the Training Facility's appraised fair 
market value).
    The Plan provides training to journeymen and apprentices 
represented by Local No. 367 of the United Association of Journeymen 
and Apprentices of the Plumbing and Pipefitting Industry of the United 
States and Canada, which has its offices at 610 West 54th Avenue in 
Anchorage, Alaska 99518. The Plan is administered by the Joint 
Apprenticeship and Training Committee (the Trustees) which consists of 
eight trustees. Four represent the Union, and the remaining four 
represent the contributing employers. The Trustees are responsible for 
negotiating the collective bargaining agreement and managing the Plan 
assets and the Training Facility.
    2. The subject property, on which the Training Facility is 
constructed, is located at 617 West Potter Drive, Anchorage, Alaska. 
The Plan has access to the Training Facility via a public road. The 
subject property is a 40,471 square foot land site, zoned I1-Light 
Industrial and fronting on a medium volume road. The subject property 
has a 30-year old 3,200 square foot steel frame building on site. The 
Training Facility is a new recently constructed and completed building, 
consisting of a two story steel frame structure, with 4,800 square feet 
per floor, for a total of 9,600 square feet. The first floor will be 
shop/warehouse type space; the second floor will be partially finished 
with classroom and office space that will be used as a training center.
    The Plan intends to demolish the 30-year old 3,200 square foot 
building in the near future. The Trustees determined that the old 
structure could not be renovated or adapted to serve the Plan's 
training needs. According to the applicant, the old structure is at the 
end of its useful life, and the usable space is too small to 
accommodate the number of apprentices and journeymen who will be using 
the Training Facility. There will be 39 parking spaces on the subject 
property which will be adequate to satisfy the needs of the Plan. 
Axpproximately 15 to 20 apprentices and 2 instructors will be using the 
facility at any one time. Though the project is planned as a training 
center, the Training Facility's layout could be easily converted to a 
number of alternative light industrial uses.
    3. According to the submission dated September 13, 2005, by the 
counsel to the Plan, the actual and final cost of construction, which 
includes contract change orders, architectural and attorney fees, is 
$1,755,000. The Plan had a process in place to protect itself

[[Page 66857]]

from cost over-runs. Cost over-runs incurred during the project for 
unforeseen building code enforcement were analyzed by the Plan's 
Building Committee (the Committee) for proper interpretation of the 
building codes, discussion of alternatives, and then a vote by the 
Committee for the change order directive. The Plan had some 
construction change directives that were not foreseen at the time of 
the construction bid. The total cost of the construction change 
directives was $76,953.14, which according to the Plan's counsel is 
well within the usual range for similar types of construction 
contracts.
    4. One of the subcontractors who worked on the Training Facility is 
a contributing employer to the Plan and was selected by the general 
contractor, who is not a party in interest, based on competitive 
bids.\3\ Furthermore, Local No. 367 did not lease space in the old 
facility and will not lease space in the new facility.
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    \3\ The provision of services to a plan by a party in interest 
with respect to the plan is a separate prohibited transaction under 
section 406(a)(1)(C) of the Act. However, the provision of services 
to a plan by a party in interest, which are necessary for the 
operation of the plan, are statutorily exempt under section 
408(b)(2) of the Act, if the conditions required therein are met. 
The Department is expressing no opinion, and is providing no relief 
beyond that provided by section 408(b)(2) of the Act, for the 
provision of such services by a subcontractor, who is a contributing 
employer to the Plan. The regulation promulgated by the Department 
which defines the scope of the statutory exemption contained in 
section 408(b)(2) of the Act also states that no relief is provided 
for any arrangement for services which would violate section 406(b) 
of the Act (see 29 CFR section 2550.408b-2). Interested persons 
should review DOL Adv. Op. 99-09A (May 21, 1999) for a discussion of 
these issues.
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    5. The original structure (i.e., the old facility) was built in 
1971 by the Plan for $38,405. The land, on which the old facility was 
constructed, was owned by the local union and transferred to the Plan 
in 1970 (prior to the enactment of ERISA). In July 2001, the Plan 
purchased two additional adjoining lots for $92,318. The Plan is exempt 
from paying State property taxes.
    6. The Appraisal of the Training Facility was conducted by Mr. 
Stanley D. Dunagan of Affiliated Appraisers of Alaska (the Appraiser), 
and is dated March 22, 2004. The Appraiser has been a licensed General 
Real Estate Appraiser in the State of Alaska since September 23, 1991. 
The Appraiser prepared his appraisal while the Training Facility was 
under construction. The Appraiser noted that the estimated replacement 
value for a new facility that combines warehouse storage space and 
office space would be approximately $981,000. The Appraiser also opined 
that the market value of the Training Facility, prospective upon 
completion, would be $1,000,000. The I/F will obtain a current written 
appraisal of the Training Facility as of the date of the transaction. 
The applicant represented that the Appraisal will be sent to the 
Department soon after its completion but in no event later than 90 days 
after the transaction is consummated.
    7. The I/F, described in section 10 of this summary of facts and 
representation, requested an analysis of the construction costs of the 
Training Facility. This analysis was prepared by Mel Morgan, Jr., who 
is a Member of the Appraisal Institute (MAI) and an employee of the I/
F, and it is included in the I/F's report. The I/F stated in its report 
that the Appraiser based his cost estimate on storage warehouse costs 
for the first floor and office costs for the second floor. The I/F 
further stated that it was more appropriate to use cost estimates based 
on a vocational school category because the occupancy's emphasis is on 
trade and technical skills with a greater proportion of shops and 
laboratories.
    Therefore, based in part on statistical information, the I/F 
concluded that regardless of quality considerations, the vocational 
school costs demonstrate that the Appraiser's cost estimates were low, 
and the contractor's costs were within a reasonable range. The I/F 
believes that the $1,000,000 fair market value for the Training 
Facility is a reasonable and very conservative value for the project 
due to recent rising valuations in the local real estate market. The I/
F also stated that the higher actual costs for construction (compared 
to the Appraiser's estimated replacement value) reflect specialized 
tenant improvements (i.e., specialized equipment, work stations and 
ventilation for various types of training involving medical and other 
gases, refrigeration systems and a variety of welding techniques and 
applications) in the building and a more accurate accounting of costs 
to build such a building. Because construction of the Training Facility 
is complete, the Plan has no plans for any additional construction and 
no plans to incur additional construction costs.
    8. The Loan amount is $750,000. The Loan is a non-recourse loan 
amortized over 15 years (180 monthly payments), at the Prime Rate as 
published in the Wall Street Journal under the section of ``Interest 
Rates and Bonds.'' The Plan's annual obligation on the Loan totals 
$77,168.06, which includes principal and interest (the monthly payment 
is $6,430.67). According to the I/F's report, the current annual market 
rental rate for leasing a facility similar to the Training Facility, 
taking into account information from the Appraiser's report, would be 
approximately $109,440. According to a report submitted to the I/F by 
Mr. Morgan, the Appraiser's estimate of market rent was based on the 
assumption that the owner would not be able to find a tenant who would 
pay for the improvements to the building. According to Mr. Morgan, 
basing market rent on this scenario results in a more conservative 
estimate of income and value than basing market rent for a ``build-to-
suit'' tenant. The I/F also concluded that, with a 45-year estimated 
economic life for the Training Facility, the cost of ownership is 
significantly better than would be the cost of renting such a facility. 
Furthermore, there are no prepayment penalties, so the Loan may be pre-
paid at anytime. The lender's only recourse, in the case of default, is 
the Training Facility. All closing costs will be paid by the Plan, and 
are estimated at $30.
    9. The I/F also has represented that the Plan currently has 
adequate excess cash-flow to service the annual loan payment of 
$77,186.06. The Plan's income exceeded its expenses by $193,780 in 
2002, $323,919 in 2003 and $367,439 in 2004. Although, the Plan's 
income from January through July, 2005 was 6% less than its income for 
the same period in 2004, the Trustees expect to have a total income of 
$801,064 for 2005. The Plan's expenses after completion of the Training 
Facility are expected to be approximately the same as 2004, $484,757. 
The Plan expects to have a net operating income of $259,139 even with 
the additional $77,168 per year in payments to service the Loan. 
Therefore, the I/F stated that the Plan has adequate and available 
liquid net worth to service the Loan without creating hardship to the 
Plan.
    10. Washington Capital Management, Inc. (i.e. the I/F) confirms 
that it is an independent third party fiduciary and Qualified 
Professional Asset Manager (``QPAM''), as defined in PTE 84-14 (49 FR 
9494, 9506, March 13, 1984). The I/F has been hired as an independent 
fiduciary to evaluate the Loan provisions and its prudence. The I/F 
confirms that: (i) It is a registered investment adviser under the 
Investment Advisers Act of 1940; (ii) It has total client assets in 
excess of $50.0 million under its management and control; and (iii) The 
firm has shareholders' equity in excess of $750,000.
    The I/F has been providing private pension funds with investment 
management services in real estate lending since 1988 and in real 
estate

[[Page 66858]]

equity investing since 1995. It currently manages mortgage portfolios 
with aggregate assets in excess of $700 million and equity real estate 
investment portfolios with aggregate assets in excess of $550 million. 
The I/F currently manages and monitors approximately 50 real estate 
loans and 36 real estate equity type investments. The I/F and its 
professionals have experience in underwriting, closing, and monitoring 
diversified classes of investments.
    Its real estate division has fifteen professionals, the majority of 
whom have over 20 years of real estate lending and investing 
experience. This assignment is managed by Cory A. Carlson, Director of 
Equity Real Estate, who has over 25 years of real estate underwriting 
experience. Additional review and underwriting expertise was provided 
by Jan Sieberts, Senior Loan Officer and Anchorage Area Manager, with 
over 30 years of Real Estate Lending experience in Anchorage, Alaska. 
The I/F estimates gross annual revenues for 2005 to be approximately 
$12 million. Its fees, for this transaction, are estimated to be 
0.0002% of its 2005 revenues.
    11. The I/F represents that it has been advised of it duties and 
obligations under Title I of ERISA as an independent fiduciary. The I/F 
acknowledges its understanding of Title I of ERISA, and accepts the 
duties and obligations as an independent fiduciary; Furthermore, the I/
F understands and accepts the potential liability of the independent 
fiduciary role. The I/F represents that it will exercise whatever 
actions are reasonable and necessary to safeguard the interests of the 
Plan and its participants and beneficiaries. The I/F will protect the 
rights of the Plan with respect to the Loan. In this transaction, the 
I/F's role is limited to evaluating the risks, benefits and terms of 
the Loan, and confirming that the Loan is funded in accordance with 
terms disclosed in the application. Upon funding of the Loan, the I/F's 
task will be completed. Once the Loan is funded, the Plan's legal 
counsel will advise the Plan in regards to the operation and 
enforcement of the Loan, as may be necessary.
    The I/F represents that it toured the Training Facility, reviewed 
the Appraisal, read each of the proposed loan documents, evaluated the 
Plan's financial statements, and interviewed its legal counsel and 
project manager. According to the I/F, all of the terms of the Loan are 
prudent, reasonable and consistent with market standards; Furthermore, 
the I/F states the Loan is in the best interest of the Plan. The I/F 
also certified that it has no pre-existing relationship with Local 367 
or the Plan, and based upon the information provided by the Plan, to 
the best of its knowledge, it is not a party in interest with respect 
to the Plan. Upon the publication of this exemption in the Federal 
Register, the I/F will confirm that the Loan has been funded in 
accordance with the terms set forth in the application.
    12. The employer contributions to the Plan required by the current 
collective bargaining agreement have increased from $1.15 per hour to 
$1.25 per hour effective July 1, 2004 and to $1.35 per hour effective 
July 1, 2005. Even though the current collective bargaining agreement 
expires on June 30, 2006, Trustees of the Plan, who also represent the 
bargaining parties, anticipate that future collective bargaining 
agreements will continue to provide sufficient funds to meet the 
training needs of the Plan, including the financing of the new 
facility.
    13. In summary, it is represented that the transaction will satisfy 
the statutory requirements for an exemption under section 408(a) of the 
Act because:
    (a) The Plan will not pay any commissions, fees or other expenses 
with respect to this transaction, except certain specified third party 
closing costs;
    (b) The I/F, after analyzing the relevant terms of the Loan, will 
determine whether such Loan is in the best interest of the Plan and its 
participants and beneficiaries;
    (c) In determining the fair market value of the Training Facility, 
the I/F will obtain a current written Appraisal report from an 
independent qualified appraiser at the time of the transaction, and 
will ensure that such Appraisal is consistent with sound principles of 
valuation;
    (d) The Loan will be for the duration of 15 years at the Prime Rate 
as listed in the Wall Street Journal;
    (e) Under the terms of the Loan agreement, the Loan will be secured 
by the Training Facility and in the event of default by the Plan, Local 
No. 367 will have recourse only against such facility and not against 
the general assets of the Plan;
    (f) The terms and conditions of the Loan will be at least as 
favorable to the Plan as those which the Plan could have obtained in an 
arm's length transaction with an unrelated third party; and
    (g) The Loan will be repaid by the Plan with the funds the Plan 
retains after paying all of its operational expenses.

FOR FURTHER INFORMATION CONTACT: Mr. Arjumand A. Ansari of the 
Department at (202) 693-8566. (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 31st day of October, 2005.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 05-21964 Filed 11-2-05; 8:45 am]

BILLING CODE 4510-29-P