Proposed Exemptions; The Young Men’s Christian Association
Retirement Fund-Retirement Plan (the Plan)
[07/21/2006]
Volume 71, Number 140, Page 41470-41483
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11330, et al.]
Proposed Exemptions; The Young Men's Christian Association
Retirement Fund-Retirement Plan (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-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210.
[[Page 41471]]
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 Young Men's Christian Association Retirement Fund-Retirement
Plan, (the Plan) Located in New York, NY, [Application No. D-11330].
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act (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).
Transactions and Conditions
(a) If the proposed exemption is granted, the restrictions of
section 406(a) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code, shall not apply, effective July
1, 2006, to:
(1) Any arrangement, agreement or understanding between The Young
Men's Christian Association Retirement Fund-Retirement Plan (the Plan)
and any participating employer whose employees are covered by the Plan,
whereby the time is extended for the making of a contribution by such a
participating employer to such Plan, if the following conditions are
met:
(i) Prior to entering into such arrangement, agreement or
understanding, the Plan has made, or has caused to be made, such
reasonable, diligent and systematic efforts as are appropriate under
the circumstances to collect such contribution;
(ii) The terms of such arrangement, agreement or understanding are
set forth in writing and are reasonable under the circumstances based
on the likelihood of collecting such contribution or the approximate
expenses that would be incurred if the Plan continued to attempt to
collect such contribution through means other than such arrangement,
agreement or understanding;
(iii) Such arrangement, agreement or understanding is entered into
or renewed by the Plan in connection with the collection of such
contribution and for the exclusive purpose of facilitating the
collection of such contribution;
(iv) The Plan's procedures and the guidelines to be followed in
undertaking to collect such contributions are described in a notice
provided to all the employers participating in the Plan. This notice
details the Plan's standard operating guidelines for the collection of
late employer contributions (the Notice). The Notice provided to all
participating employers contains the methodology of the Plan that
applies with respect to the determination to extend the time period for
the making of such delinquent contribution or to permit such delinquent
contribution to be made in periodic payments. New participating
employers will receive the Notice within 30 days of signing the written
participation agreement; and
(v) The extension of time does not apply to any failure of an
employer to timely remit participant contributions to the Plan.
(2) A determination by the Plan to consider a contribution due to
the Plan from any participating employer any of whose employees are
covered by the Plan as uncollectible and to terminate efforts to
collect such contribution, if the following conditions are met:
(i) Prior to making such determination, the Plan has made, or has
caused to be made, such reasonable, diligent and systematic efforts as
are appropriate under the circumstances to collect such contribution or
any part thereof;
(ii) Such determination is set forth in writing and is reasonable
and appropriate based on the likelihood of collecting such contribution
or the approximate expenses that would be incurred if the Plan
continued to attempt to collect such contribution or any part thereof;
(iii) The Notice provided to all participating employers, which is
described in section (a)(1)(iv) above, must also contain the
methodology used by the Plan with respect to the determination that the
delinquent contribution is uncollectible and in deciding to terminate
efforts to collect such contribution; and
(iv) The determination that the contribution is uncollectible and
the decision to terminate efforts to collect such contribution do not
apply to any failure of an employer to timely remit participant
contributions to the Plan.
(b) If an employer any of whose employees are covered by the Plan
enters into an arrangement, agreement or understanding with the Plan as
described in subparagraph (a)(1) with respect to the payment of such
contribution, or if the Plan makes a determination described in
subparagraph (a)(2), such employer shall not be subject to the civil
penalty which may be assessed under section 502(i) of the Act, or to
the taxes imposed by section 4975(a) and (b) of the Code, by reason of
section 4975(c)(1)(A) through (D) of the Code, except in the case of an
arrangement, agreement or understanding described in subparagraph
(a)(1), where the terms thereof are clearly unreasonable under the
circumstances based on the likelihood of collecting such contribution
or the approximate expenses that would be incurred if the Plan
continued to attempt to collect such contribution through means other
than such arrangement, agreement or understanding.
(c) The Plan maintains for a period of six years the records
necessary to enable the persons described in paragraph (d)
[[Page 41472]]
below to determine whether the conditions of this exemption have been
met, except that:
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of the Plan, the
records are lost or destroyed prior to the end of the six-year period,
and
(2) No party in interest other than the Plan's fiduciaries shall be
subject to the civil penalty that may be assessed under section 502(i)
of ERISA or to the taxes imposed by section 4975(a) and (b) of the Code
if the records are not maintained or not available for examination as
required by paragraph (d) below.
(d)(1) Except as provided in subparagraph (d)(2) below and
notwithstanding any provisions of section 504(a)(2) and (b) of ERISA,
the records referred to in paragraph (c) above are unconditionally
available at their customary location for examination during normal
business hours by:
(i) Any duly authorized employee or representative of the
Department of Labor or the Internal Revenue Service;
(ii) Any fiduciary of the Plan or any duly authorized employee or
representative of such fiduciary;
(iii) Any participating employer of the Plan; and
(iv) Any participant or beneficiary of the Plan or duly authorized
employee or representative of such participant or beneficiary.
(2) None of the persons described in subparagraph (d)(1)(ii), (iii)
and (iv) above shall be authorized to examine commercial or financial
information which is privileged or confidential, or records that are
unrelated to the Plan.
DATES: Effective Date: This proposed exemption, if granted, will be
effective as of July 1, 2006, the date of the beginning of the Plan
year.
Summary of Facts and Representations
1. The Application for this proposed exemption was submitted on
behalf of the Young Men's Christian Association Retirement Fund (the
Sponsor or Fund) and the Plan it sponsors, The Young Men's Christian
Association Retirement Fund--Retirement Plan (the Plan) with respect to
the Plan's procedures for the collection of employer contributions from
participating employers in the Plan for plan years commencing July 1,
2006 and thereafter. The Applicant states that no provision of the
proposed exemption would extend to the failure of an employer to timely
forward participant contributions to the Plan.
The Fund is the named fiduciary for the Plan and acts as trustee of
the Plan. The Applicant states that other ERISA fiduciaries include the
senior officers of the Fund in their capacity as plan administrator.
These executive officers are employees of the Fund, who may act as plan
administrator, and they acknowledge fiduciary responsibility in that
context. The Sponsor will bear the costs of the exemption application
and notifying interested persons.
2. The Applicant states that the Plan is a multiple employer church
money purchase pension plan under Code section 401(a). The Applicant
further states that as of July 1, 2006, the Plan will be treated as
having made an election under Code section 410(d) and, thus, will be an
``electing'' money purchase defined contribution church plan, subject
to the applicable provisions of ERISA and the Code.\1\ The Sponsor is a
separately incorporated New York not-for-profit corporation, which was
established in 1921 for the express purpose of providing retirement
benefits to employees of Young Men's Christian Associations (YMCAs or
employers) throughout the United States.
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\1\ The Applicant notes that pursuant to legislation passed by
Congress and signed into law by President Bush on December 21, 2004
(Pub. L. 108-476) (Legislation), the Sponsor's status as a church
pension fund (within the meaning of Code section 414(e)(3)(A)) and
the Plan's status as a defined contribution money purchase church
pension plan (within the meaning of Code section 414(e)) was
confirmed.
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Since its founding, the Plan has provided retirement benefits to
the employees of participating YMCAs. As of June 30, 2005, the Plan
covered more than 75,000 participants, including over 8,600 retired
participants and beneficiaries. The Plan's participating employers
consist entirely of separately incorporated YMCAs throughout the United
States. As of May 5, 2006, there were 967 corporate chartered YMCAs
that operate 2,600 branches. As of June 30, 2005, the Plan had 920
participating employers, and in the last year, has received over $168
million in plan contributions. As of June 30, 2005, the most recent
available valuation date for the Plan, the aggregate fair market value
of the Plan's assets was $2,171,230,098, and as of June 30, 2005, the
fair market value of the total assets that are attributable to the
contributions to the Plan was approximately $803,355,137. The fair
market value of the total assets that are attributable to contributions
made to the Plan in the three year period ending June 30, 2005 was $480
million of which approximately $400,000 represented delinquent employer
contributions. The delinquent amounts represent less than one tenth of
1% of such contribution to the Retirement Plan.
3. The Applicant states that, under the Plan, a participant's
benefit is based upon the sum of the contributions made by the
participant and his employer, plus interest that is periodically
credited as determined by the Board of Trustees of the Sponsor.
According to the Applicant, pursuant to the terms of the Plan,
participation by a YMCA employer in the Plan is voluntary but if a YMCA
does participate, it is mandatory that the YMCA submit employer
contributions to the Plan on behalf of all of its eligible employees,
including employees located at the YMCA's various chapters (also known
as branches). The Applicant represents that, pursuant to the
Legislation, commencing with the plan year beginning on July 1, 2006,
the Plan (but not any reserves held by the Sponsor with respect to such
Plan or other assets held by the Sponsor) will be treated as having
made an election under Code section 410(d). At that time, the Plan will
be treated as an ``electing'' church plan subject to the applicable
provisions of ERISA and the Code.
The Applicant notes that, pursuant to Sections 1.4 and 14.3 of the
Plan, participating YMCA employers are required to sign a written
participation agreement with the Board of Trustees of the Sponsor,
pursuant to which the employer agrees to make participation in the Plan
a condition of employment for all new employees and also agrees to
enroll its eligible employees and make regular timely payments required
by the Plan on behalf of its employees. In addition, each participating
association agrees to permit auditors selected by the Sponsor's Board
of Trustees to examine the books and records of the participating
employer to determine whether the participating employer is
participating in accordance with the provisions of the Plan.
4. The Applicant asserts that the Plan, like many other multiple
employer plans, especially plans analogous in size, from time to time
encounters participating employers who fail to make timely
contributions to the Plan. This delinquency in the past has resulted
from various reasons, including personnel changes at the participating
YMCA which caused an administrative failure to make the contribution on
time and failures relating to data collection issues at the
participating employers. These delinquencies have been pursued through
reasonable, diligent and systematic collection efforts by the Sponsor,
which require that the employer make up the contributions with
interest.
[[Page 41473]]
The YMCA Retirement Fund Collection Procedure submitted by the
Applicant in a June 28, 2006 correspondence to the Department provides
that employer contributions are required to be transmitted by the YMCA
employers to the Fund by the 15th business day of the month following
the due date. On the 9th business day of the following month, the Fund
sends an ``urgent reminder'' fax or email to the Plan Administrator of
the participating employers who have not yet remitted their
contributions. On the 12th business day, a second notice is sent to the
employer's CFO and on the 14th business day, a third notice is sent to
the employer's CEO. On the 16th day, the Fund sends a letter indicating
contributions are delinquent to the employer's CFO and copies the CEO
and the Chairman of the employer's Board of Trustees. At 2 months past
due, a personal letter is sent to the CEO of the employer and at 3
months past due, a personal letter is sent to the CEO and the Chairman.
At 4 months past due, the Fund sends a letter to each participant at
the employer outlining the situation with copies to the CEO and the
Chairman. At 5 months past due, the Fund sends a letter to the CEO and
the Chairman detailing the IRS consequences for delinquent
contributions and offering assistance in working out a payment schedule
if the YMCA is experiencing ``extreme financial hardship.'' At 6 to 8
months past due, there are continued efforts to encourage payments by
the employer and a possible warning of expulsion from the Fund.
Delinquencies are reported monthly to the corporate offices of the
YMCA of the U.S.A. and to the appropriate regional Network Consultants
after the close of the month. Quarterly confirmations are sent to the
CEO of each employer indicating whether contributions were made timely.
The Fund's Finance Department periodically runs reports to track any
employers that are delinquent and the Executive V.P. of the Fund
maintains a ``Past Due Contributions Report'' on the status of each
delinquent employer. The Fund's management may determine that yearly
reminders or questionnaires regarding timely remittance of employer
contributions should be sent to previously delinquent employers to
encourage compliance. On occasion, the Fund's internal audit staff will
conduct on-site reviews to access an employer's compliance.
5. The Plan will distribute a notice to the participating employers
describing the Plan's procedures for the collection of late employer
contributions and the determination by the Plan that a delinquent
contribution is uncollectible (the Notice).\2\ New participating
employers will receive the Notice within 30 days of signing the written
participation agreement. The Notice will provide the participating
employers with a detailed explanation of the steps used by the Plan to
determine: the time period for the making of such delinquent
contribution; whether to permit such delinquent contribution to be made
in periodic payments; that the delinquent contribution is
uncollectible; and whether to terminate efforts to collect such
contribution.
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\2\ The Notice will be distributed in conjunction with the
notice to interested persons that is required to be provided within
30 days after this proposed exemption is published in the Federal
Register.
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6. The Applicant states that often the delinquency is a result of
an administrative failure, and as a result of its diligent collection
efforts, the contributions and interest, are made to the Plan. The
Applicant notes, however, that in certain situations, the participating
employer is not able to make the required contributions, for example,
when the participating employer's solvency is in jeopardy or where
there are other adverse financial conditions that exist. In such cases,
the Sponsor still seeks full contributions from the participating
employer, although often the Sponsor will agree to accept the required
contributions over a longer period of time in installments until the
solvency issues are resolved. In rare cases, the Sponsor decides to
terminate further collection efforts based on the participating
employer's insolvency coupled with the expense of continued collection
efforts with respect to such participating employer. The Sponsor may,
as it deems appropriate, expel a delinquent YMCA employer and preclude
it from all future participation in the Plan or pursue civil action
against a delinquent YMCA employer to collect contributions. The
Applicant further states that, although the Sponsor seeks to prevent
such delinquent payments through communication and the use of the audit
function permitted by the Plan, given the size of the Plan, the number
of participating employers, and the varying size of the workforces at
the participating employers, it is likely that the Plan will face
delinquent contributions in the future. This is even more significant
given the amount of contributions the Plan receives.
The approximately 920 participating employers in the Plan vary in
size and financial health, which can at times result in the delinquent
payment of contributions to the Plan. The Plan, through diligent and
systematic collection efforts, has been able to recover delinquent
employer contributions, plus interest. By virtue of the Plan's efforts
to collect delinquent payments, including extending the time by which
participating employers must make such contributions, the Plan has
benefited by increasing the total assets available to provide
retirement benefits to its participants. By continuing such collection
efforts, the participants and beneficiaries of the Plan will benefit
through the receipt of the full amount of their promised plan benefits.
7. Once the Plan's Code section 410(d) election becomes effective,
for the July 1, 2006 plan year and plan years thereafter, the Plan will
be subject to the prohibited transaction provisions of section 406 of
ERISA. Under ERISA sections 406(a)(1)(B) and 406(a)(1)(D), a fiduciary
shall not cause a plan to engage in a transaction if he knows or should
know that such transaction constitutes a direct or indirect (i) lending
of money or other extension of credit between the plan and a party in
interest; or (ii) a transfer to, or use by or for the benefit of, a
party in interest, of any assets of the plan. Section 4975 of the Code
contains parallel prohibited transaction provisions. By allowing
participating employers to make payments at a later date, over a longer
period of time than prescribed by the Plan or in rare instances,
ceasing collection efforts against a participating employer (where the
costs of collection may far outweigh the amounts involved), the Plan
may be viewed as extending credit from the Plan to the participating
employer, (i.e., a party in interest pursuant to ERISA section
3(14)(C)), or transferring plan assets to a participating employer in
violation of ERISA sections 406(a)(1)(B) and 406(a)(1)(D) (and the
related parallel prohibited transaction provisions under the Code).
The Applicant represents that the Sponsor, as a church pension fund
sponsoring a multiple employer church pension plan under the Code, is a
unique organization. However, in the context of multiple employer plans
generally, the practice of delaying or extending the time for payment
of employer contributions under the plan is not uncommon. Prohibited
Transaction Class Exemption 76-1 (41 FR 12740, Mar. 26, 1976) (PTE 76-
1) provides an exemption from ERISA sections 406(a) and 407(a) for
multiple employer plans maintained pursuant to one or more collective
bargaining agreements between an employee organization and more than
one employer. The preamble to the proposed
[[Page 41474]]
class exemption recognizes that ``multiemployer plans are often
confronted with the problem of delinquency in participating employer
contributions * * * and at times one or more participating employers
may be delinquent in making such contributions.'' 40 FR 23798 (Jun. 2,
1975). Further, the preamble notes, ``[I]n the course of their
collection efforts, multiemployer plans frequently delay or extend the
time for payment of contributions pursuant to understandings,
arrangements or agreements in circumstances where it appears that
collection of the full amount due the plan would be jeopardized were
the plan to attempt to force immediate full payment.'' Id.
8. The Applicant states that although PTE 76-1 was reserved for
multiple employer plans \3\ maintained pursuant to a collective
bargaining agreement, such fact does not decrease the significance of
the acknowledgement that multiple employer plans (regardless of the
industry or whether it is pursuant to a collective bargaining
agreement) face the same issues that were the basis for such class
exemption. Any multiple employer plan, especially one that is similar
in size to the Plan, would confront the issue of delinquent
contributions and the need for reasonable and cost effective collection
procedures.
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\3\ As the Department noted in paragraph (5) of the General
Information section of the preamble, this class exemption covers not
only multiemployer plans, but also other multiple employer plans.
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The Department notes that the preamble to PTE 76-1 recognized that
the delinquency problem existed in other contexts in responding to a
comment received from an employer association, the sponsor of an
employee benefit plan which was not collectively bargained, that had a
significant number of unaffiliated employers contributing to the plan.
The employer association stated that its plan had many of the same
problems regarding delinquent employer contributions that are
encountered by multiemployer plans and, therefore, PTE 76-1 should be
made applicable to plans that are not collectively bargained. The
Department responded that ``because plans which are not collectively
bargained are not jointly administered within the meaning of section
302(c)(5) of the LMRA, the circumstances and safeguards involved in the
collection of delinquent employer contributions by such plans may be
different from those involved in collectively bargained, jointly
administered multiple employer plans.'' The Department further noted
that the ``letter of comment did not contain sufficient information
regarding this question and, therefore, the Department and the Service
are not able at this time to grant a class exemption covering plans
which are not collectively bargained.'' The Department, however, noted
that the agencies are ``prepared to consider applications for an
exemption for transactions involving the collection of delinquent
employer contributions by employee benefit plans which are not
collectively bargained.''
9. The Applicant asserts that the Plan requires employers to make
contributions in order to provide participants and beneficiaries with
retirement benefits. To the extent that an employer does not make such
required contributions, delinquent contributions would directly and
adversely affect the value of the account balances for the plan
participants of that employer, which in turn could adversely affect the
amount converted into a retirement annuity by the Sponsor for such
participants. As a defined contribution plan, benefits are measured
directly by the value of a participant's account balance, which account
is credited with employer contributions. Failure to receive all
required contributions will diminish a participant's account balance
value and, thus, his or her retirement benefit amount and post-
retirement financial security. Participants have a reasonable
expectation that the full amount of their employer's contributions will
be made on their behalf. The Sponsor's procedure for the recovery of
delinquent contributions allows the participants' retirement benefit
expectations to be realized.
Additionally, the Applicant states that the extended payment plan
contributions are required under Plan procedures to include lost
earnings (based upon the Plan's crediting interest rate) and thus, the
Plan's procedures are designed to make the participants whole.
The Applicant notes that, because the proposed transaction is
expected to be a recurring transaction between the Plan and the
participating employers, the Plan has established specified written
collection procedures, which create appropriate safeguards that should
make it feasible for the Department to grant the requested exemption.
The proposed transaction is in the interests of the Plan and its
participants and beneficiaries since the ability of the Plan to collect
employer contributions promotes the purpose of the Plan of providing
retirement benefits to its participants and beneficiaries.
Additionally, the ability of the Plan to delay or extend the time for a
participating employer to make its contributions to the Plan aides the
Plan in helping a participating employer manage its retirement plan
obligations when the participating employer is going through a
difficult financial period or when it experiences personnel changes or
administrative issues that prevent the employer from making its
contributions on time.
The Applicant believes the proposed exemption will permit the Plan
to facilitate employer participation, which, in turn, supports the
provision of retirement benefits to all YMCA employees. The proposed
transaction is protective of the rights of the Plan participants and
its beneficiaries because the ability to collect delinquent employer
contributions will result in increased assets for the Plan. The
Applicant adds that the manner in which collection of such delinquent
contributions is proposed to be carried out protects participants' and
beneficiaries' interests.
10. In summary, the Applicant represents that the proposed
transactions meet the requirements set forth in the proposed exemption
in light of the Plan's adoption of procedures for the orderly
collection of delinquent employer contributions that involve
reasonable, diligent and systematic methods for the review of employer
contribution accounts. Prior to the Plan entering into an alternative
arrangement, agreement or understanding, the Plan uses reasonable,
diligent and systematic efforts, as appropriate under the
circumstances, to collect outstanding employer contributions. The terms
of such arrangement or the Plan's determination to consider a
contribution due to the Plan as uncollectible and to terminate efforts
to collect such contribution, are in writing and are reasonable under
the circumstances in light of the likelihood of collecting the
contributions weighed against the expenses that would be incurred by
continuing to attempt to collect the contributions through other means.
Any arrangement by the Plan in connection with the collection of such
contributions will be for the exclusive purposes of facilitating the
collection of such contributions. The Plan's procedures and the general
guidelines to be followed in undertaking to collect such contributions
or in determining that the delinquent contribution is uncollectible and
in deciding to terminate efforts to collect such contribution are
described in a notice to be provided to all the participating employers
in the Plan.
[[Page 41475]]
Notice to Interested Persons
The notice to interested persons, along with the supplemental
statement required by Department Regulation 2570.43(b)(2), will be
provided by mailing notices to all terminated YMCA employees who have a
deferred vested benefit under the Plan by first-class mail to their
last known address on the books and records of the Fund and to all
active YMCA employees who currently participate in the Plan by posting
such notice at their place of employment in those locations which are
customarily reserved for employer-employee communications or by
personal delivery. Interested persons include all active employees who
currently participate in the Plan and all former YMCA employees with
deferred vested benefits. The notice to interested persons, which will
contain the information required by Department Regulation Sec.
2570.43, will be mailed, posted or delivered, as the case may be,
within 30 days after the Notice of Proposed Exemption is published in
the Federal Register. The notice to interested persons will inform such
persons of their right to comment on the proposed exemption within 60
days after the Notice of Proposed Exemption is published in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Wendy M. McColough of the Department,
telephone (202) 693-8540. (This is not a toll-free number.) Little Rock
Diagnostic Clinic, P.A., Profit Sharing Plan (the Plan). Located in
Little Rock, AR, [Application No. D-11350].
Proposed Exemption
The Department 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 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 to the proposed
cash sale by the Plan of a leased fee interest (the Leased Fee
Interest) in certain real property (the Property) to LRDC Real Estate,
LLC (the LLC), a party in interest with respect to the Plan.
This proposed exemption is subject to the following conditions:
(a) The sale is a one-time transaction for cash.
(b) The sales price for the Leased Fee Interest is based on its
fair market value as established by a qualified, independent appraiser,
who updates the appraisal on the date the sale is consummated.
(c) The terms of the proposed transaction are at least as favorable
to the Plan as those obtainable in an arm's length transaction with an
unrelated party.
(d) The Plan does not pay any real estate fees or commissions in
connection with the sale.
(e) An independent fiduciary is appointed to approve and monitor
the sale transaction on behalf of the Plan.
(f) Within 90 days of the date the notice granting this exemption
is published in the Federal Register, the Little Rock Diagnostic
Clinic, P.A. (LRDC), the Plan sponsor, files a Form 5330 with the
Internal Revenue Service (the Service) and pays all applicable excise
taxes that are attributed to the past and continued leasing arrangement
(the Ground Lease) between the Plan and the LRDC Land Company (the Land
Company) of certain land (the Land) comprising part of the Property.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan, which as
stated above, is sponsored by LRDC. The Plan's current trustees and
decision makers with respect to Plan investments are Richard W. Houk,
J. Neal Beaton and Paul Williams (the Trustees). The Trustees are
employees and shareholders of LRDC, and participants in the Plan.
As of December 31, 2005, the Plan had 137 participants and
beneficiaries. As of December 31, 2005, the Plan had approximately
$23,917,262 in assets.
2. LRDC is a professional corporation located on the campus of the
Baptist Medical Center at 10001 Lile Drive, Little Rock, Arkansas. LRDC
provides medical services in the internal medicine field as well as
ancillary services such as laboratory work and radiology services.
3. The Land Company is a general partnership that was created in
1974 for the sole purpose of leasing real property to LRDC for the
operation of a medical clinic. The Land Company is owned 24% by current
shareholder/employees of LRDC. The 76% remainder of the Land Company is
owned by former shareholder/employees of LRDC and former employees of
LRDC who were not shareholders of LRDC.
4. The LLC is a limited liability company that was formed in 2005
for the purpose of purchasing real estate. The principals of the LLC
are LRDC physicians. Six of the physician owners are also partners in
the Land Company.
5. Among the assets of the Plan is its Leased Fee Interest in the
Property, which also bears the 10001 Lile Drive address and is legally
described as ``Lot 4A, Baptist Medical Center Development, City of
Little Rock, Pulaski County, Arkansas.'' The Plan's Leased Fee Interest
or ``leased fee estate'' \4\ consists of a present possessory interest
in approximately 4.444 acres of land that was acquired by the Plan in
1972 for $56,000 from an unrelated party. The Land is subject to the
provisions of the Ground Lease executed between the Plan and the Land
Company. In addition, the Plan's Leased Fee Interest includes a future
reversionary interest in a 64,945 square foot medical building (the
Building) that was constructed on the Land by the Land Company in 1976.
The Land Company leases the Building to LRDC. At the conclusion of the
Ground Lease, both the Land and the Building will revert to the Plan.
The Land and the Building, which are together referred to herein as
``the Property,'' are contiguous to other real property owned by the
LLC.\5\
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\5\ The term ``leased fee estate'' refers to an ownership
interest held by a landlord with the right of use and occupancy
conveyed by lease to others. The rights of the lessor (the leased
fee estate owner) and the lessee are specified by contract terms
contained within the lease. See APPRAISAL INSTITUTE, THE DICTIONARY
OF REAL ESTATE APPRAISAL (4th ed. 2002).
\6\ Specifically, in Final Authorization Number 2005-11E (July
11, 2005), the Department approved a transaction involving the sale
by the Plan to the LLC of a 2.2 acre tract of vacant real property
(Tract 2), that is adjacent to the subject Property.
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6. On July 20, 1982, the Department granted Prohibited Transaction
Exemption (PTE) 82-126 at 47 FR 31457. PTE 82-126 permitted the Plan to
lease the Land \6\ underlying the Building to the Land Company under
the provisions of the Ground Lease. In addition, PTE 82-126 allowed the
Plan to subordinate its title on the leased premises to the mortgage
lien holder of the Building constructed thereon, which was an unrelated
bank.
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\6\ Although PTE 82-126 states that the Land consists of 4.368
acres, this description is in error and should have been revised to
read ``4.444 acres.''
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The Ground Lease was divided into two parts. It had a temporary
term beginning April 1, 1974 and ending July 31, 1975, and a permanent
term of 25 years, beginning August 1, 1975 and ending July 31, 2000.
The rent for the temporary term was equal to the 1974 real estate taxes
and any other taxes assessed against the premises. The rent for the
permanent term was equal to $27,000 per year subject to adjustment
every five years based on the Cost of
[[Page 41476]]
Living Index published by the Department. At the time the proposal
underlying PTE 82-126 was published in the Federal Register (see 47 FR
22251, May 21, 1982), the annualized rent being paid to the Plan was
$41,196 or $3,433 per month, which was in excess of fair market value.
The Ground Lease was triple net to the Plan and it could be extended
for two additional five year terms, provided appropriate notice was
given to the Plan.
Pursuant to an agreement dated May 8, 1974 and commencing August 1,
1975 for a period of 25 years (but subject to extensions), the Land
Company started leasing the Building to LRDC under the provisions of a
written lease (the Building Lease). Rents generated from the Building
Lease were intended to pay the Land Company's obligations under the
Ground Lease and to amortize its indebtedness under the mortgage. (In
effect, LRDC also commenced subleasing the Land from the Land Company
under the established leasing arrangements.)
Eventually, the Trustees and the Land Company proposed to amend the
Ground Lease to provide for annual cost of living adjustments. On April
8, 1982, the partners of the Land Company, who had a net worth in
excess of $8 million agreed to indemnify the Plan from all losses,
damages, and expenses the Plan might sustain by the subordination of
its title under the terms of an indemnification agreement. No other
modifications of the Ground Lease were made.
The fair market rental value of the amended Ground Lease was
determined by Ronald E. Bragg, MAI, a qualified, independent appraiser.
In an appraisal report dated August 28, 1981, Mr. Bragg placed the fair
market rental value of the Land at $3,161.67 per month or $37,940,
annually. Mr. Bragg also determined that the fair market value of the
Land was $271,000 as of August 1981.
On September 10, 1981, Twin City Bank (TCB) of North Little Rock,
Arkansas, was appointed as an ``independent real estate investment
manager.'' In this capacity, TCB had sole responsibility and discretion
to direct the Trustees regarding the management of real property held
by the Plan. TCB was responsible for making the determination that the
amended Ground Lease was an appropriate and suitable investment for the
Plan and in the best interests of the Plan's participants and
beneficiaries. TCB was required to reconsider the appropriateness of
the amended Ground Lease prior to the time of its execution and to
monitor and enforce the terms of such lease on behalf of the Plan,
including making demand for timely payment, bringing suit in the event
of a breach, keeping accurate records regarding computations of the
cost-of-living adjustments, and reporting annually to the Trustees.
Further, TCB reviewed the subordination provision of the amended
Ground Lease.\7\ In this regard, TCB determined that the subordination
provisions were in accordance with normal business practices and the
requirements of lenders in the area and this factor did not alter its
opinion of the contemplated transactions.
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\7\ The original loan for the construction of the Building was
$1.35 million. At the time PTE 82-126 was proposed, the loan balance
was approximately $1.2 million. TCB estimated that the fair market
value of the Building was $2.28 million as of July 1, 1980 and that
there was sufficient equity present to protect the Plan and its
participants.
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On December 31, 1983, the Ground Lease was again amended to make
the cost of living adjustment annual instead of once every five years
and to remove an option to purchase provision. In addition, the base
period for the calculating the cost of living adjustment was revised to
``June 30, 1980'' instead of ``December 31, 1981.''
7. The Ground Lease is currently in its first five year extension
and there is no mortgage encumbering the Building.\8\ As of August 31,
2005, the amount of monthly rental was $7,994, which is above fair
market rental value. At the end of the Ground Lease on July 31, 2010,
the Land and the Building will revert to the Plan.\9\ Although it is
represented that the provisions of the Ground Lease have been complied
with by the parties (i.e., rent has been paid in a timely manner and
there have been no defaults or delinquencies), LRDC acknowledges that
the ``independent real estate investment manager'' described in the
proposal to PTE 82-126 was not always present to oversee such lease.
Accordingly, LRDC has agreed to file a Form 5330 with the Service
within 90 days of the date the notice granting this proposed exemption
is published in the Federal Register and pay all applicable excise
taxes that are attributed to the past and continued prohibited leasing
of the Land between the Plan and the Land Company under the Ground
Lease, due to the lack of oversight of such lease on a continuing basis
by a qualified, independent fiduciary.\10\
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\8\ Similarly, the Building Lease is subject to two five year
extensions.
\9\ The term ``reversionary right'' refers to ``the right to
possess and resume full and sole use and ownership of real property
that has been temporarily alienated by a lease, an easement, etc.;
[sic] may become effective at a stated time or under certain
conditions, e.g., the termination of a leasehold, the abandonment of
a right of way, the end of the estimated economic life of the
improvements.'' See APPRAISAL INSTITUTE, THE DICTIONARY OF REAL
ESTATE APPRAISAL (4th ed. 2002).
\10\ The Department is of the view that the presence of an
independent fiduciary to represent the Plan's interest with respect
to the Leased Fee Interest was a material factor in the Department's
determination to grant exemptive relief. Accordingly, PTE 82-126 was
no longer effective when TCB stopped acting on behalf of the Plan as
the ``independent real estate investment manager.''
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8. Although there has been development around the vicinity of the
Property, the value of the Property has not appreciated significantly
in recent years. Moreover, the Building is a single-use building that
was constructed in 1976. Due to the age of the Building, significant
improvements would be required to bring it up to current medical office
standards. The Property has been on the market since December 2001 but
it has drawn no firm offers. In order that the Plan may divest itself
of its Leased Fee Interest in the Property, the Trustees propose to
sell such interest to the LLC. Accordingly, an administrative exemption
is requested from the Department.
If the exemption is granted, the sale will allow the Plan to
convert the Property into a liquid asset and provide a better
opportunity for growth and permit Plan participants to direct their
account balances in the Plan into other investment vehicles. Also, in
order to pay participants who will retire in the coming years, a
significant amount of liquidity will be needed in the Plan's portfolio.
Therefore, a cash sale of the Property will provide the needed
liquidity. Furthermore, due to its ownership of a Leased Fee Interest,
the Plan's options for administration and management are limited.
9. The proposed sale will be a one-time transaction for cash. The
sales price for the Leased Fee Interest will be based upon its fair
market value, as determined by a qualified, independent appraiser on
the date the sale is consummated. Moreover, the Plan will not be
required to pay any real estate fees or commissions in connection with
the transaction.
10. The Property has been appraised annually by Mr. Ronald Bragg,
the same qualified, independent appraiser utilized in PTE 82-126. Mr.
Bragg represents that he is independent of the parties involved in the
proposed transaction, and states that he derives less than 1% of his
gross annual revenues from LRDC and its affiliates. Mr. Bragg also
states he is aware that his appraisal will be used by the LLC for
purposes of obtaining an administrative exemption from the Department.
[[Page 41477]]
In an appraisal report dated January 6, 2006 (the 2006 Appraisal),
Mr. Bragg states that the Property rights being appraised are the
rights of the holder of a ``leased fee estate.'' Mr. Bragg notes that
this ownership interest does not confer to the Plan direct ownership
rights in the Building. However, he explains that the Plan will have
reversion rights to the Building upon the termination of the Ground
Lease. For these reasons, Mr. Bragg does not believe the sales
comparison approach or the cost approach to valuation is applicable.
Nonetheless, he states that the sales comparison approach will be
utilized in projecting the future reversion value of the Property.
Therefore, Mr. Bragg concludes in the 2006 Appraisal that the only
approach to valuation that can directly address the ownership benefits
that accrue to the Plan is the income capitalization approach. He
explains that the ownership benefits are limited to the Plan's right to
receive rental income under the Ground Lease and the right to the
reversion of the Land and the Building at the termination of the Ground
Lease. Under the income capitalization approach, he notes that the
valuation would consist of a discounted cash flow analysis based upon
the projected net cash flows to be generated under the terms of the
Ground Lease and the projected reversion. This analysis would include
current rent, projections of future rent increases as required by the
Ground Lease, and an estimate of the net reversion value upon the
termination of the Ground Lease.
Mr. Bragg states that based on his inspection, investigation and
analysis of the Property, it is his opinion that the fair market value
of the Leased Fee Interest was $3.1 million as of December 31, 2005. In
making this determination, Mr. Bragg projected the Plan's reversionary
interest in the Property at $4.6 million upon the termination of the
Ground Lease. Then, selecting a discount rate of 12% to discount the
Property's income stream, Mr. Bragg arrived at the $3.1 million
estimated market value of the Leased Fee Interest. Mr. Bragg will
update his appraisal on the date of the sale.
Thus, based upon the 2006 Appraisal, the Leased Fee Interest
represents approximately 13% of the Plan's assets.
11. In an addendum to the 2006 Appraisal dated January 9, 2006, Mr.
Bragg has provided three related value issues concerning the subject
Property: (a) The fee simple value of the Property, as if unencumbered
by the Ground Lease; (b) the contributory present value of the
projected future reversion value of the Property; and (c) the
relationship between the current rent paid by the Land Company under
the Ground Lease and the current fair market ground rent.
With respect to the fee simple value of the Property, Mr. Bragg
states that it would be the fair market value of the Property if it
were not encumbered by either the Ground Lease or the Building Lease.
In the 2006 Appraisal, he states that he provided an estimate of $4.6
million as the projected reversion value of the Property upon the
termination of the Ground Lease. He says this estimate of value can
also be considered as an estimate of the fee simple value of the
Property at that point in time when it is no longer encumbered by
either the Ground Lease or the Building Lease.
With respect to the contributory present value of the Property upon
the termination of the Ground Lease, Mr. Bragg again utilizes the $4.6
million projected reversion value for the Property. He also has
utilized a discount rate of 12% in converting the projected reversion
value (and the projected ground rent) into an indication of present
value. On the basis of his calculations, Mr. Bragg concludes that the
projected reversion value of $4.6 million, four years and seven months
from January 9, 2006, discounted at 12% would be $2,736,476.
As for the relationship between contract rent under the Ground
Lease and the current fair market ground rent, Mr. Bragg states that if
the Ground Lease was negotiated today, the first year's rent would be
based upon 10% of the fee simple value of the Land ($700,000). Mr.
Bragg explains that the annualized rent would be $70,000 or $5,833.33
per month. Because the current ground rent of $7,994 per month is
contract rent, Mr. Bragg further explains that such rent substantially
exceeds the fair market rental value of the Land. He notes that this is
not a recent occurrence.
12. With respect to the proximity of the subject Property to other
real property owned by the LLC (i.e., Tract 2, see Footnote 2), Mr.
Bragg maintains that the proximity of the Property to Tract 2 had no
impact on his estimate of the fair market value of the Leased Fee
Interest and that no premium is warranted. In this regard, Mr. Bragg
notes that there is an abundance of vacant, undeveloped land on the
Baptist Medical Center Campus and it is ``basic supply and demand that
creates value.'' According to Mr. Bragg, market value does not consider
the specific buyer and seller but rather the market at large. Although
Mr. Bragg concedes that the Property is adjacent to Tract 2, he states
that the Property is also contiguous to vacant land along its southern
and western sides. Due to the presence of the vacant land, Mr. Bragg
represents that prospective buyers would have choices. Therefore, he
does not believe the LLC should be required to pay a premium in order
to acquire the Leased Fee Interest.
13. The Bank of Ozarks (the Bank) located in Little Rock, Arkansas
will act on behalf of the Plan as the independent fiduciary with
respect to the proposed sale. Specifically, the Bank through its Trust
Division, has agreed to undertake the duties of the independent
fiduciary. The Bank is a custodian of plan assets only and it maintains
no retail banking relationship with LRDC, its affiliates, or their
principals.
Writing on behalf of the Bank, Mr. Rex W. Kyle, President of the
Bank's Trust Division states, in a letter dated January 4, 2006, that
the Bank is an Arkansas state-chartered bank with trust powers. He
explains that the Trust Division administers and/or manages in excess
of $500 million in accounts which include ERISA accounts.
Mr. Kyle states that the Bank is the largest state chartered bank
fiduciary in Arkansas and has $2.1 billion in assets. Moreover, he
indicates that the Bank's staff has over 150 years of combined
experience and has served as both an independent and special trustee in
various fiduciary capacities. Mr. Kyle represents that the Bank
understands and accepts its duties, responsibilities and liabilities
under the Act in serving as independent fiduciary for the Plan.
14. In determining whether the sale transaction is in the best
interest of the Plan and its participants and beneficiaries, Mr. Kyle
states that the Bank has relied on various appraisals of the Property,
including the 2006 Appraisal. Based on these appraisals, Mr. Kyle
states that the sale would permit the conversion of an illiquid
investment with potentially high future maintenance costs into cash.
Mr. Kyle also notes that the Building is over 20 years old and
extensive renovations would be necessary to modernize it. He explains
that without these renovations, LRDC would be required to move. Because
there are no potential tenants in the immediate area, Mr. Kyle
indicates that the Plan would hold an asset that would generate no
income.
Mr. Kyle states that based on the 2006 Appraisal, the sale is
consistent with sales of similar properties which might be achieved in
the marketplace. He also indicates that the sale would eliminate any
conflict of interest and associated administrative burdens of ongoing
supervision that would be involved in continuing the Ground Lease.
Moreover, Mr. Kyle notes that the current rent
[[Page 41478]]
under the Ground Lease exceeds fair market rent for the Land.
Additionally, Mr. Kyle states that the sale would allow a greater
portion of the Plan's assets to be allocated to participant-directed
accounts and would lower the overall cost of administration of the
Plan.
As independent fiduciary, the Bank will monitor the sale
transaction on behalf of the Plan and take all actions that are
necessary and proper to enforce and protect the rights of the Plan and
its participants and beneficiaries. In this regard, the Bank will be
given full and complete discretion regarding all aspects of the sale.
15. In summary, it is represented that the proposed sale
transaction will satisfy the statutory criteria for an exemption under
section 408(a) of the Act because:
(a) The sale will be a one-time transaction for cash.
(b) The sales price for the Leased Fee Interest will be based on
its fair market value as established by a qualified, independent
appraiser, who will update the appraisal on the date of the sale is
consummated.
(c) The terms of the sale will be at least as favorable to the Plan
as those obtainable in an arm's length transaction with an unrelated
party.
(d) The Plan will not pay any real estate fees or commissions in
connection with the sale.
(e) An independent fiduciary will approve and monitor the proposed
sale transaction on behalf of the Plan.
(f) Within 90 days of the date the notice granting this exemption
is published in the Federal Register, LRDC will file a Form 5330 with
the Service and pay all applicable excise taxes that are attributed to
the past and continued prohibited leasing of the Land under the
provisions of the Ground Lease.
Notice to Interested Persons
Notice of the proposed exemption will be given to interested
persons within 5 calendar days of the publication of the notice of
proposed exemption in the Federal Register. The notice will be provided
to active participants in the Plan by personal delivery and it will be
mailed by first-class mail to all others. The notice will inform
interested persons of their right to comment on and/or to request a
hearing with respect to the proposed exemption. Comments and requests
for a hearing are due within 35 days of the publication of the proposed
exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Ekaterina A. Uzlyan, U.S.
Department of Labor, telephone (202) 693-8552. (This is not a toll-free
number).
American Maritime Officers Safety & Education Plan (the S&E Plan);
American Maritime Officers Pension Plan (the Pension Plan); American
Maritime Officers Vacation Plan (the Vacation Plan); American Maritime
Officers Medical Plan (the Medical Plan); and American Maritime
Officers 401(k) Plan (the 401(k) Plan); (Collectively the AMO Plan(s)).
Located in Dania Beach, Florida and Toledo, Ohio, [Exemption
Application Nos. L-11148; D-11149; L-11150; L-11151; D-11152; and D-
11153].
Proposed Exemption
The Department is considering granting the following 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).
Section I
If the exemption is granted, the restrictions of sections 406(a)
and 406(b)(1) and (b)(2) of the Act shall not apply to: (1) the S&E
Plan entering into an arrangement with the American Maritime Officers
(the Union), which is a party in interest with respect to the AMO
Plans, for the Union to pay the S&E Plan, where appropriate and at the
rate established by the independent fiduciary (the I/F), for the
portion of the Union trustees' food and lodging provided by the S&E
Plan that is attributable to attendance at certain Union meetings
(Union Transactions) at the Dania Beach, Florida (the Dania Beach
facility) and Toledo, Ohio (the Toledo facility) (collectively, the
Facilities); (2) the S&E Plan entering into an arrangement with the
Union and certain contributing employers, who are parties in interest
with respect to the AMO Plans, to pay the S&E Plan at a rate
established by the I/F, for food and lodging provided by the S&E Plan
at the Facilities for the representatives of the Union and the
respective contributing employers that is attributable to attendance at
various conferences (Conference Transactions); and (3) the S&E Plan
entering into an arrangement with the governing bodies of the American
Maritime Officers Joint Employment Committee (the JEC), and the
American Maritime Officers Service (AMOS), who are parties in interest
with respect to the AMO Plans, to pay the S&E Plan at a rate
established by the I/F, for food and lodging provided by the S&E Plan
at the Facilities (Non-Plan Transactions).
Section II
If the exemption is granted, the restrictions of sections 406(a)
and 406(b)(1) and 406(b)(2) of the Act and the sanctions resulting from
the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to: (1) The AMO
Plans sharing expenses based on an internal expense allocation model
(the Allocation Model) for the provision of food and lodging by the S&E
Plan at the Facilities to the AMO Plans' trustees (the Trustees)
(Collectively the Trustee Transactions); and (2) The AMO Plans, the JEC
and AMOS sharing expenses based on the Allocation Model for the
provision of food and lodging by the S&E Plan at the Facilities
(Professionals' Transactions).
Section III
If the exemption is granted, the restrictions of sections 406(a)
and 406(b)(1) and (b)(2) of the Act shall not apply to: (1)
Contributing employers contracting with the S&E Plan to provide one of
its regular courses at a special time (Specially Scheduled Training);
and (2) The S&E Plan designing training programs or undertaking special
research or modeling that is tailored to the needs of a particular
contributing employer or its vessels (Specially-Designed Training).
Conditions
This proposed exemption is subject to the following conditions:
(a) Each AMO Plan will pay its appropriate share of expenses based
on the Allocation Model;
(b) The I/F retained by the AMO Plans will:
(1) Make a determination of whether the proposed transactions (the
Transaction(s)) are prudent and in the best interest of the relevant
AMO Plan(s);
(2) Establish the terms for each of the Transactions, including:
(i) The price to be charged for the services provided pursuant to
the Transactions; and
(ii) The terms and conditions ensuring that the Transactions are
fair to the involved AMO Plans;
(3) Develop policies and guidelines for the implementation of the
Transactions;
(4) Monitor the Transactions on an on-going basis, including
periodic reviews of the Transactions, to ensure compliance with the I/F
policies and guidelines;
(5) On a periodic basis, review the terms of each of the
Transactions, including the fair market value of the services provided;
and
[[Page 41479]]
(6) Prepare an annual report, summarizing the Transactions for that
year;
(c) The costs associated with recordkeeping and all forms of
independent oversight will be included in the daily rate established by
the I/F for food and lodging provided by the S&E Plan at the
Facilities;
(d) An independent auditor will perform annual audits of all the
AMO Plans to identify and reconcile any discrepancies regarding the
recordkeeping involving the Transactions and provide an annual
evaluation of all allocation models and produce approval letters
explicitly affirming that the models are satisfactory;
(e) The Room Master Software System (RM Software) will create an
invoice for lodging and food service accounting functions and related
services at the Facilities;
(f) The AMO Plans' fiduciaries maintain or cause to be maintained,
for a period of six years from the date of the covered transactions,
such records as are necessary to enable the persons described in
paragraph (g) to determine whether the conditions of this exemption
were met, except that:
(1) If the records necessary to enable the persons described in
paragraph (g) to determine whether the conditions of the exemption have
been met are lost or destroyed, due to circumstances beyond the control
of the AMO Plans' fiduciaries, then no prohibited transaction will be
considered to have occurred solely on the basis of the unavailability
of those records; and
(2) No party in interest, other than the AMO Plans' fiduciaries
responsible for recordkeeping, shall be subject to the civil penalty
that may be assessed under section 502(i) of the Act or to the taxes
imposed by section 4975(a) and (b) of the Code if the records are not
maintained or are not available for examination as required by
paragraph (g) below;
(g)(1) Except as provided below in paragraph (g)(2) and
notwithstanding the provisions of section (a)(2) and (b) of section 504
of the Act, the records referred to above in paragraph (f) are
unconditionally available for examination during normal business hours
at their customary location by the following persons or an authorized
representative thereof:
(i) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(ii) any fiduciary of the AMO Plans or any duly authorized employee
or representative of such fiduciary; or
(iii) any contributing employer and any employee organization whose
members are covered by the AMO Plans, or any authorized employee or
representative of these entities; or
(iv) any participant or beneficiary of the AMO Plans or the duly
authorized employee or representative of such participant or
beneficiary.
(2) None of the persons described in paragraphs (ii), (iii) and
(iv) of paragraph (g)(1) shall be authorized to examine trade secrets
or commercial or financial information which is privileged or
confidential.
Summary of Facts and Representations
Description of the AMO Plans
The S&E Plan is a multiemployer training plan funded pursuant to a
collective bargaining agreement. The purposes of the S&E Plan are to
(a) develop and execute programs for the education, development and
improvement of licensed marine officers, (b) develop and execute
programs to increase safety in the operation of marine vessels, (c)
create and execute programs to develop and maintain a skilled pool of
licensed marine officers and (d) develop and execute a research program
on a variety of issues of interest to S&E Plan participants and their
employers. The S&E Plan conducts training at the Facilities and
accommodates the students attending training at the Facilities as well.
As of January 6, 2006, the S&E Plan has 3,495 participants and
beneficiaries and $43,563,887 in plan assets.
The Pension Plan is a multiemployer defined benefit pension plan
funded by contributions from contributing employers pursuant to
collective bargaining agreements. The purpose of the Pension Plan is to
provide pension and retirement benefits, including death benefits, to
eligible participants and their beneficiaries. The Pension Plan also
features a money purchase pension component. As of January 6, 2006, the
Pension Plan has 6,238 participants and beneficiaries and $515,160,000
in plan assets.
The Vacation Plan is a multiemployer welfare benefit plan funded by
contributions from contributing employers pursuant to collective
bargaining agreements. The purpose of the Vacation Plan is to provide
paid vacation time to eligible participants. As of January 6, 2006, the
Vacation Plan has 3,690 participants and beneficiaries and $29,464,387
in plan assets.
The Medical Plan is a multiemployer welfare benefit plan funded by
contributions from contributing employers pursuant to collective
bargaining agreements. The purpose of the Medical Plan is to provide
medical and hospitalization benefits for participants and their
families. As of January 6, 2006, the Medical Plan has 5,455
participants and beneficiaries and $32,363,519 in plan assets.
The 401(k) Plan is a multiemployer profit-sharing plan, with a cash
or deferred arrangement, funded by contributions from participants and
contributing employers pursuant to collective bargaining agreements.
The purpose of the 401(k) Plan is to provide retirement benefits,
including death benefits, to participants and their beneficiaries. As
of January 6, 2006, the 401(k) Plan has 4,471 participants and
beneficiaries and $157,636,687 in plan assets.
Section I Transactions
(1) Union Transactions: The Union often schedules its meetings at
the same time as the Trustees' meetings to minimize travel burdens and
ease scheduling. Scheduling Union meetings during this time facilitates
the attendance of Union-side Trustees who are already at the Facility
to attend Trustees' meetings. The Union Transactions will only occur
when the Union meeting at issue (a) takes place during the same days as
scheduled Trustees' meetings, (b) takes place on a day or days
immediately and continuously preceding the days of scheduled Trustees'
meetings, or (c) takes place on a day or days immediately and
continuously following the days of the scheduled Trustees' meetings.
The AMO Plans wish to have their Trustees stay at one of the
Facilities during the Trustees' meetings. Because the Union often
schedules its meetings to coincide with Trustees' meetings, it would be
unworkable or inefficient for affected Union-side Trustees to move to
different lodging for the Union meetings. Instead, it is requested that
the Union share in the costs of accommodating Union-side Trustees
during multi-day meetings that include Union meetings.
The Union Transactions will not occur with respect to Union
meetings scheduled entirely independent of and not attendant to
Trustees' meetings. When the Union schedules its meetings at the
Facilities to benefit from the presence of the Trustees, it would
only be equitable that the Union should share, where appropriate,
the food and lodging expenses incurred during the multi-day series
of meetings that are attributable to non-S&E Plan business.
(2) Conference Transactions: The Joint Training Advisory Committee
[[Page 41480]]
(JTAC) and the Deep Sea Employer Conference (DSEC) are groups, which
consist of representatives of Great Lakes contributing employers and
Deep Sea contributing employers, respectively, and representatives of
the Union.\11\ The Union and contributing employers, who will pay for
their respective representatives to attend JTAC and DSEC meetings, are
parties in interest with respect to the S&E Plan.
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\11\ The applicant represents that the JTAC and DSEC are not
incorporated or otherwise organized in any legal sense and
membership in the groups is not fixed. Rather, the JTAC and DSEC are
the names used to describe periodic gatherings of Union
representatives and representatives of contributing employers to
address issues of importance to the maritime industry.
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The S&E Plan would like to provide food and lodging for the
representatives of the Union and the respective contributing employers
attending the JTAC and the DSEC meetings at the Facilities.
The JTAC and DSEC were formed in response to the rapidly changing
regulatory environment in the maritime industry and in response to
chronic manpower shortages. The Union and contributing employers
thought it would be beneficial to have periodic meetings to address new
regulatory requirements and strategies to address the shortage of
trained officers, among other issues pertinent to the industry. The
JTAC and DSEC meetings primarily focus on training needs, although
matters relating to other AMO Plans are also discussed.
The contributing employers and the Union desire that the JTAC and
DSEC meetings be held at the Facilities. The meetings would involve not
only the use of meeting space, but also the use of overnight lodging
and catering Facilities. The attendees of the JTAC and the DSEC
meetings (or, more likely, the party on whose behalf they attend) would
pay the S&E Plan for its costs incurred in hosting the meetings at the
rates approved by the I/F.
Portions of JTAC and DSEC meetings pertain to the S&E Plan and S&E
Plan personnel generally make presentations at such meetings. Thus, it
would be convenient for the S&E Plan personnel to hold the meetings at
the Facilities. The S&E Plan believes it is better able to make its
presentations to the JTAC and DSEC meetings if they are held at the
Facilities because the S&E Plan personnel would then have access to the
technology and training capabilities at the Facilities.
The S&E Plan also believes that it benefits from the JTAC and DSEC
meetings being held at the Facilities because regular communication
with the Union and the employers on training needs and requirements
serves one of the overall purposes of the S&E Plan, i.e., to improve
the quality of licensed marine officers. This type of interaction
allows the S&E Plan to remain up-to-date on its participants' training
needs. The S&E Plan believes that hosting the JTAC and DSEC meetings is
particularly helpful because the representatives of the contributing
employers attending such meetings are those responsible for training,
and are not the Trustees or labor relations staff who are more likely
to visit the Facility on other occasions, e.g., Trustee meetings. Thus,
the JTAC/DSEC meetings facilitate interaction between the S&E Plan and
the representatives of the employers who are responsible for training.
The S&E Plan is requesting exemptive relief for the Conference
Transactions because such meetings may be beyond the scope of those
benefits provided in accordance with the S&E Plan through contributions
made pursuant to collective bargaining agreements, even though the
stated purposes of the S&E Plan are quite broad. As such, in the
interest of caution, the S&E Plan requests exemptive relief.
The primary reason for entering into the Conference Transactions is
that they serve the AMO Plan's primary purpose of providing training to
participants covered by the S&E Plan. Representatives to the JTAC and
DSEC meeting are not employer Trustees to the AMO Plans. The JTAC and
DSEC gather periodically to address a variety of issues important to
the maritime industry, including the training curriculum, course
design, scheduling and budget issues.
(3) Non-Plan Transactions: The JEC is a labor management committee
under section 302(c)(9) of the Labor Management Relations Act.
Employers make contributions to the JEC pursuant to the terms of
collective bargaining agreements and the JEC performs employment
placement services for licensed maritime officers through an
administrative services contract with the Union. Appropriately
qualified and licensed Union members are placed with contributing
employers who are seeking such personnel. The committee members of the
JEC are also Trustees of various AMO Plans. The applicant represents
that although the JEC is not a plan, it may nevertheless be classified
as a party in interest with respect to the S&E Plan because it may be
considered an employee organization whose members are covered by the
S&E Plan.
The AMOS was formed to serve as a business league for the maritime
industry. The JEC, and the AMOS will pay the S&E Plan for their
proportionate share of the costs for food and lodging at the Facilities
provided by the S&E Plan at the rates approved by the I/F. Because both
entities share administrative services with the AMO Plans, they would
pay the S&E Plan for their use of the Facilities based on the
Allocation Model.
The JEC, and the AMOS take advantage of the scheduling of the
Trustees' meetings to hold their meetings. Thus, these meetings become
part of the multi-day agenda associated with the Trustees' meetings.
Structuring the meeting schedule this way saves costs and minimizes the
travel burdens on Trustees. Because a portion of the multi-day agenda
will be devoted to the JEC, and the AMOS meetings, it would only be
equitable for these entities to pay the S&E Plan their proportionate
share of the costs.
The S&E Plan wishes to enter into the Transactions because of the
efficiencies offered by consolidating the meetings and because it
believes that holding such meetings at the Facilities benefits the S&E
Plan overall by improving communication and interaction with these
entities in ways that are helpful to the S&E Plan.
Section II Transactions
(1) Trustee Transactions: The Trustees of the AMO Plans may be
parties in interest with respect to the S&E Plan for a number of
different reasons. Those who are Trustees of the S&E Plan are parties
in interest by reason of being fiduciaries. Others may be employees or
officers of contributing employers or the Union.
The AMO Plans generally hold their respective Trustees' meetings at
the Facilities. The AMO Plans typically schedule their Trustees'
meetings over several consecutive days. Each AMO Plan's Trustees'
meeting has a separate agenda and separate minutes are maintained for
each meeting. The individual Trustees, however, are usually at the
Facilities to attend a number of different Trustees' meetings and other
meetings.
Each of the AMO Plans will pay the S&E Plan its share of the
Trustees' room and board expenses based on the Allocation Model.
Accommodating the Trustees at the Facilities during Trustees' meetings
makes sense in light of the fact that the Trustees are at the
Facilities for a number of days to attend a series of meetings.
Providing food and lodging services to the Trustees at the Facilities
maximizes the efficiency of such meetings by eliminating travel time to
and from the meetings and by
[[Page 41481]]
encouraging and facilitating interaction among the Trustees, AMO Plans'
participants and AMO Plans' personnel.
Another reason for entering into the Trustee Transactions is cost
savings. It is likely to cost the AMO Plans less to provide food and
lodging services to Trustees at the Facilities compared to providing
such services at nearby hotels and restaurants. The AMO Plans must
cover the reasonable expenses incurred by their Trustees while
attending Trustees' meetings in any event. Thus, minimizing these
expenses would be beneficial to the AMO Plans and their participants.
The AMO Plans believe that holding Trustees' meetings is necessary
for the administration and operation of the AMO Plans, and that
providing food and lodging for Trustees would appear to be a
concomitant part therefore. It is not clear, however, whether the
provision of lodging and food is the type of service that fits within
any statutory or class exemptions.
The I/F will decide whether it is appropriate for an AMO Plan to
enter into a Trustee Transaction with the S&E Plan for the Trustees'
food and lodging. The Allocation Model will ensure that each AMO Plan
pays its respective share of the expenses.
(2) Professionals' Transactions: Professionals providing services
to the AMO Plans, such as attorneys, and accountants often need to
visit the Facilities to attend to the business of one or more of the
AMO Plans. The Allocation Model will ensure that each AMO Plan shares
the appropriate expenses such professionals incur in visiting the
Facility as an administrative expense of the respective AMO Plans. The
respective AMO Plans, the JEC, and the AMOS would reimburse the S&E
Plan for their proportionate share of the costs incurred in
accommodating the visiting plan professionals at the rates approved by
the I/F. The reimbursement would be made through the Allocation Model.
The AMO Plans believe that there is an advantage to having plan
professionals stay and dine at the Facilities so that there are more
opportunities for interaction between the professionals and the
relevant Trustees, personnel and participants.
Section III Transactions
(1) Specially Scheduled Training: Contributing employers may need
to contract with the S&E Plan to provide one of its regular courses at
a special time. This need may arise when special circumstances, such as
a shipping schedule, prevent the employees of a particular employer
from attending one of the regularly scheduled training courses. The S&E
Plan requests exemptive relief to contract with contributing employers
to provide regular courses at special times to accommodate the
employers' scheduling demands.
(2) Specially-Designed Training: A contributing employer may wish
the S&E Plan to design training programs or undertake special research
or modeling that is tailored to the needs of that particular employer
or its vessels. In these circumstances, contributing employers will
need to contract with the S&E Plan to develop special training programs
or conduct specially designed research or modeling to meet their
particular needs. The S&E Plan requests exemptive relief to provide
such services tailored to the special needs of a particular
contributing employer or its vessels.
The S&E Plan wishes to enter into the special training transactions
to meet the needs of participants in a way that is fair to all
employers without requiring the renegotiation of the collective
bargaining agreements.
In addition, coordinating with employers to develop specially
designed training and research programs benefits the purposes of the
S&E Plan by developing and executing programs to improve the overall
quality of maritime officers. Once special courses are designed, the
materials from such courses are available to all participants in the
S&E Plan and to all S&E Plan instructors. The S&E Plan believes that
entering into these contracts with the contributing employers improves
the quality of the instruction provided by the S&E Plan by expanding
the knowledge and expertise of the S&E Plan instructors and expanding
the training curriculum.
For both Specially Scheduled Training and Specially-Designed
Training, the contributing employer would pay the S&E Plan directly for
(1) the specially scheduled training, and (2) the specially designed
training, research, and modeling. The individual employer would be
responsible for paying the S&E Plan for such services in order to avoid
the inequity of burdening all contributing employers with the
additional costs of the S&E Plan's efforts to meet the needs of an
individual contributing employer. Payment amounts would be at the rates
approved by the I/F.
The Allocation Model: The costs of the Trustee Transactions and the
Professionals' Transactions are allocated to the AMO Plans, the
Maritime Building Realty Holding Trust (the MBRHT), the AMOS, and the
JEC (the MBRHT, AMOS, and the JEC are collectively referred to as other
entities (Other Entities)) based on the number of AMO Plans and Other
Entities that each Trustee represents. For example, where a Trustee
represents four AMO Plans and one Other Entity, one fifth of the costs
attributed to that Trustee will be allocated to each AMO Plan or Other
Entity.
The direct attendance expenses attributable to the Trustee meetings
for each Trustee are allocated among the AMO Plans that the Trustee
represents. Direct attendance expenses include the cost of items like
travel, meals, and lodging. Those direct attendance expenses for meals
and lodging that are not attributable to the Trustee meetings are
deducted before the allocation. Non-attributable billable expenses are
billed directly to AMO Plan professionals, Trustees and the Union as
required by the AMO Plans Policy and Guidelines on Trustee Expense
Reimbursement and are not allocated among the AMO Plans and Other
Entities. Such costs arise when individuals arrive early or extend
their stays beyond the dates of the Trustee meetings in order to attend
a Union meeting.
The percentage of the total direct attendance expenses allocated to
each AMO Plan or Other Entity is used as the basis for allocating the
indirect attendance expenses. The indirect attendance expenses are the
costs incurred by the AMO Plans' staff, counsel, and accountants and
other expenses related to hosting the meeting. Again, non-attributable
billable expenses, as described above, are not allocated among the AMO
Plans and Other Entities.
Finally, the direct attendance expenses of AMO Plans' professionals
and AMOS employees who are only attending meetings of specific AMO
Plans are allocated among those AMO Plans based on the number of
meetings that each individual is attending. Then the direct and
indirect attendance expenses allocated to each AMO Plan are totaled.
Internal Plans Policy and Procedure: The AMO Plans have set up a
series of systems, policies and procedures to internally track and
audit use of the lodging and the Facilities and related services. These
include the STAR Center Registrar (the Registrar), RM Software and the
AMO Plans' Accounting Department (the Accounting Department). In order
to maximize the effectiveness, security and accuracy of these systems,
the Registrar is completely independent of RM Software. The Accounting
Department, nonetheless, receives the records of both
[[Page 41482]]
for internal auditing purposes and compares these records to its own
accounting records. In addition, the Accounting Department reviews
records for consistency with the purposes of the Facilities, the S&E
Plan and the STAR Center in mind.
More specifically, RM Software creates an invoice for lodging and
food service accounting functions and related services at the
Facilities, while the Registrar creates a record of curriculum,
attendance and certifications. Records from both systems are turned
over to Accounting for review, audit, billing, receiving, and
resolution of discrepancies. These records serve as the basis for the
allocation of expenses among the AMO Plans.
Records from all three sources are subject to audit by the external
auditor and review and analysis by the I/F. When the I/F begins full
operation the entire system will be subject to its review and, if
required, adjustments will be made in response to its recommendations.
The I/F and external auditor will also use these records to review and
verify the accuracy of the allocation of expenses to each AMO Plan.
The Registrar: All AMO Plan participants interested in
participating in training programs are required to contact the Star
Center to register for specific classes. The Registrar maintains
training records for all S&E Plan participants so that training history
and requirements are easily retrievable. AMO Plan participants are
registered for specific training programs on specific dates. The
Registrar enables the Star Center to identify particular training
requirements for individuals, ensure that the appropriate level of
training is provided, and prevents unnecessary repetition of training
programs. Course schedules, registration and attendance are also
maintained at this level. Thus, the Registrar documents class
attendance, exam results, training upgrades for the Coast Guard, and
the required ratings and certifications.
Room Master: RM Software, a hotel software system, is used for
lodging and food service accounting functions and related services.
Room Master provides the reservation system for guest rooms,
classrooms, and meeting rooms. It also tracks demand for housekeeping,
dining, and other related services. Currently, AMO Plan participants
attending training programs at the Star Center receive a room
reservation through Room Master once their registration by the STAR
Center Registrar is confirmed. Training participants also are given a
welcome package that provides classroom information for their assigned
course, and rules and regulations while on campus.
If this exemptive relief is provided, the use of RM Software will
be expanded to provide the same reservation, recordkeeping, and
reconciliation services for Trustees, Union representatives, AMO Plan
professionals, non-plan entities, contributing employers and others
whose use of the Facilities would serve the overall purposes of the AMO
Plan. For example, RM Software would provide room reservations to
Trustees, professionals or others attending meetings at the facility.
Meeting and training rooms and food services also would be reserved
through Room Master. In addition, Room Master would confirm the
appropriateness of all lodging and food services arrangements with
established meeting schedules and membership lists. Room Master records
also provide daily occupancy information that can be compared to galley
inventory and meal services to ensure consistency.
Upon arrival, the identification of each guest is verified and each
guest is issued a photo ID, which must be worn at all times while at
the Facilities. Guests are also provided with an electronic key to
access perimeter gates and their guest rooms. Keys are only activated
for the scheduled stay and automatically deactivate on the date of
scheduled departure.
The Room Master system combined with the use of photo IDs and
electronic keys helps to ensure that all guests are provided with only
the accommodations and services appropriate for the designated and
independently confirmed purpose of their visit.
Accounting Department: The Accounting Department is required to
audit the use of the Facilities' lodging, food and related services
against course registrations, contracts, billings and receipts, and the
purpose of services provided. Any discrepancies are resolved promptly.
For example, when the STAR Center finalizes an approved contract, the
contract is turned over to Accounting. This contract is reviewed
against Room Master for lodging information and against the Registrar
to verify attendance at classes. The Accounting Department receives the
lodging record of all guests on a daily basis and reviews these records
against the Registrar System to identify and record the purpose of each
guest's stay. The Accounting Department also reconciles lodging and
attendance records with meal services provided to identify and remedy
potential inconsistencies.
These systems will produce multiple and auditable records of the
Facilities use. For example, with such systems in place, a Trustee's
attendance at a Trustee meeting would generate a reviewable paper trail
that begins with the Trustee's response to the notice of a Trustee
meeting sent out by the Office of the Executive Director of the AMO
Plans, which maintains a calendar of all scheduled Trustee meetings.
The Trustees' response to the meeting notice would be entered into Room
Master, documenting the response and setting up a reservation for the
duration of the meeting.
When the Trustee arrives the Trustee would check in, receive an ID
and a key that is activated for only the duration of the meeting. The
Trustee's attendance at each meeting would be recorded. When the
meeting is over, the Room Master record, containing all accrued
expenses, and attendance records would be sent to the Accounting
Department. The Accounting Department would review individual records
for internal consistency and aggregated records for consistency with
food, housekeeping and other expenses. The Accounting Department would
also apply the allocation model so that business expenses could be
distributed appropriately among the AMO Plans that the attending
Trustee represents. The package of records, allocations, and analysis
compiled by the Accounting Department then can be audited.
The I/F: To ensure that the interests of the AMO Plans and their
participants are well protected, the AMO Plans have retained American
Realty Advisors as the I/F with respect to the Transactions.\12\ The I/
F has extensive experience advising ERISA plans on the management of
their real estate assets. The I/F will review each of the proposed uses
of the Facilities and make determinations whether such uses are
prudent, appropriate and in the best interest of the AMO Plans and
their participants. The I/F will also have responsibility for
monitoring the use of the Facilities to ensure that the Transactions
never displace S&E Plan participants who wish to attend training at the
Facilities.
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\12\ If it becomes necessary in the future to appoint a
successor independent fiduciary (the Successor) to replace American
Realty Advisors, the applicant will notify the Department sixty (60)
days in advance of the appointment of the Successor. Any Successor
will have the responsibilities, experience and independence similar
to those of American Realty Advisors.
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The I/F will establish or approve reasonable terms and conditions
for the Transactions, including the price to be charged and the
Facilities being
[[Page 41483]]
provided in the Transactions. The I/F will ensure that the Transactions
are fair to all of the AMO Plans involved. The I/F will also develop
guidelines pursuant to which the AMO Plans' personnel will carry out
the approved Transactions.
The I/F will also have an on-going monitoring role, including
periodic reviews of the Transactions to ensure compliance with the I/F
policies and the terms of any exemption issued by the Department. The
I/F will review all uses of the Facility on a periodic basis to
determine whether the use thereof remains in the interests of the AMO
Plans and their participants and whether the terms of the Transactions,
including the amount charged for the Facilities provided, continue to
be appropriate. The I/F will also prepare an annual report, summarizing
the Transactions for that year.
The duties of the I/F will include the verification and monitoring
of lodging and the Facilities use on a quarterly basis. It also will
include review and analysis of the system used to allocate expenses
among the AMO Plans as well as the actual allocations. American Realty
also will develop and implement recommended policies and procedures for
engaging in the transactions covered by the requested exemption. They
will define precise requirements for staying at the facility, class
attendance, use of the simulators, and other related activities.
In addition, American Realty will monitor the covered transactions
on an on-going basis to verify compliance with the policies and
procedures that they have developed and the terms of the prohibited
transaction exemption. As part of its duties as I/F, American Realty
also will develop policies and procedures to ensure that its
recommendations are carried out.
The I/F role will ensure that the Transactions proposed herein
remain in the AMO Plans' and participants' interest and are consistent
with the conditions of the proposed exemption.
In addition, the AMO Plans have retained Bond Beebe C.P.A. (Bond
Beebe) as outside auditors to perform the annual audit of all AMO
Plans. Bond Beebe currently audits the S&E Plan including the use of
lodging and the Facilities. They also identify and reconcile any
discrepancies between the Registrar, Room Master and Accounting
Department records. In addition, Bond Beebe will provide an annual
evaluation of all allocation models and produce approval letters
explicitly affirming that the models are satisfactory.
The responsibilities of the independent auditor will be expanded
based on input from and the policies and procedures developed by the I/
F. The costs associated with recordkeeping and all forms of independent
oversight including the I/F will be allocated equally among the parties
participating in each respective transaction.
In summary, the applicant represents that the proposed transactions
satisfy the statutory criteria for an exemption under section 408(a) of
the Act for the following reasons: (a) Each AMO Plan will pay its
appropriate share of expenses based on the Allocation Model; (b) The I/
F retained by the AMO Plans will: (1) Make a determination of whether
the proposed the Transaction(s) are prudent and in the best interest of
the relevant AMO Plan(s); (2) Establish the terms for each of the
Transactions, including: (i) The price to be charged for the services
provided pursuant to the Transactions; and (ii) Ensuring that the
Transactions are fair to the involved AMO Plans; (3) Develop policies
and guidelines for the implementation of the Transactions; (4) Monitor
the Transactions on an on-going basis, including periodic reviews of
the Transactions, to ensure compliance with the I/F policies and
guidelines; (5) On a periodic basis, review the terms of each of the
Transactions, including the fair market value of the services provided;
and (6) Prepare an annual report, summarizing the Transactions for that
year; (c) The costs associated with recordkeeping and all forms of
independent oversight will be included in the daily rate established by
the I/F for food and lodging provided by the S&E Plan at the
Facilities; (d) An independent auditor will perform annual audits of
all the AMO Plans to identify and reconcile any discrepancies regarding
the recordkeeping involving the Transactions and provide an annual
evaluation of all allocation models and produce approval letters
explicitly affirming that the models are satisfactory; and (e) RM
Software will create an invoice for lodging and food service accounting
functions and related services at the Facilities.
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) 693-8562. (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 14th day of July, 2006.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, Department Of Labor.
[FR Doc. E6-11548 Filed 7-20-06; 8:45 am]
BILLING CODE 4510-29-P
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