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Employee Benefits Security Administration

EBSA Federal Register Notice

Prohibited Transaction Exemption 2007-01; Grant of Individual Exemptions Involving; The Plumbers and Pipefitters National Pension Fund (the Fund) [01/24/2007]

[PDF Version]

Volume 72, Number 15, Page 3159-3165

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Exemption Application No. D-11183]

 
Prohibited Transaction Exemption 2007-01; Grant of Individual 
Exemptions Involving; The Plumbers and Pipefitters National Pension 
Fund (the Fund)

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Grant of Individual Exemptions.

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SUMMARY: This document contains exemptions issued by the Department of 
Labor (the Department) from certain of the prohibited transaction 
restrictions of the Employee Retirement Income Security Act of 1974 
(ERISA or the Act) and/or the Internal Revenue Code of 1986 (the Code).
    A notice was published in the Federal Register of the pendency 
before the Department of a proposal to grant such exemption. The notice 
set forth a summary of facts and representations contained in the 
application for exemption and referred interested persons to the 
application for a complete statement of the facts and representations. 
The application has been available for public inspection at the 
Department in Washington, DC. The notice also invited interested 
persons to submit comments on the requested exemption to the 
Department. In addition the notice stated that any interested person 
might submit a written request that a public hearing be held (where 
appropriate). The applicant has represented that it has complied with 
the requirements of the notification to interested persons. No requests 
for a hearing were received by the Department. Public comments were 
received by the Department as described in the granted exemption.
    The notice of proposed exemption was issued and the exemption is 
being granted solely by the Department because, 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 proposed to the Secretary of Labor.

Statutory Findings

    In accordance with section 408(a) of the Act and/or section 
4975(c)(2) of the Code and the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990) and based upon 
the entire record, the Department makes the following findings:

[[Page 3160]]

    (a) The exemption is administratively feasible;
    (b) The exemption is in the interests of the plan and its 
participants and beneficiaries; and
    (c) The exemption is protective of the rights of the participants 
and beneficiaries of the plan.

The Plumbers & Pipefitters National Pension Fund (the Fund) Located in 
Alexandria, VA

[Prohibited Transaction Exemption (PTE) 2007-01; Exemption Application 
No. D-11183]

Exemption

    The restrictions of sections 406(a)(1)(A) through (D) and 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, effective June 5, 2001, to the 
transactions described below involving the receipt by Diplomat 
Properties, Limited Partnership (DPLP or the Partnership) of certain 
services and products from the hotel management company, Westin 
Management Company East (after January 12, 2006, Westin Hotel 
Management, L.P.) (referred to collectively with its parent company, 
Starwood Hotels & Resorts Worldwide, Inc., as Starwood) and certain 
related entities (Related Companies), retained to operate the 
Partnership's principal asset, the Westin Diplomat Resort & Spa and the 
Diplomat Country Club and Spa (collectively, the Resort), provided that 
there is adherence to the material facts and representations contained 
in the Application and satisfaction of the applicable requirements 
described in Parts II and III below.
I. Exemption Transactions
    (a) The provision of Centralized Services or Additional Services 
(collectively, the Proposed Services) to the Resort by Starwood or a 
Related Company;
    (b) The purchase of goods from Starwood or a Related Company in 
connection with the provision of Centralized Services or Additional 
Services (Purchase of Goods); and
    (c) The participation of the Resort in the Associate Room Discount 
Program (ARD Program),
II. General Conditions
    (a) LaSalle Investment Management, Inc., Capital Hotel Management, 
LLC or a successor independent qualified professional asset manager 
(QPAM) for the Partnership, will represent the interests of the 
Partnership for all purposes with respect to the Proposed Services and 
the Purchase of Goods for the duration of the arrangement. The QPAM, on 
behalf of the Partnership, through negotiation and execution of the 
Operating Agreements and periodic monitoring of the Proposed Services 
and the Purchase of Goods, determines that:
    (1) Starwood's provision of Centralized Services and Additional 
Services to the Resort is in the best interests and protective of the 
participants and beneficiaries of the Plumbers & Pipefitters National 
Pension Fund (the Fund).
    (2) The terms under which the provision of Centralized Services and 
Additional Services are provided by Starwood to the Resort are at least 
as favorable to the Resort as those which the Partnership could obtain 
in arm's length transactions with unrelated parties in the relevant 
market;
    (3) The overall cost of services and products charged by Starwood 
to the Resort on a centralized basis is consistent with the amounts 
charged by other potential branded operators; and
    (4) The Centralized Services and Additional Services made available 
by Starwood and its affiliates are provided at prices and on terms at 
least as favorable to the Partnership as are available in the relevant 
market from unrelated parties and reflect the same prices and terms as 
are offered by Starwood and its affiliates to other properties managed 
by Starwood and its affiliates in the ordinary course of business.
    (b) Under the Operating Agreements, at all times that the 
Partnership is using Centralized Services and Additional Services, 
Starwood has acknowledged in writing:
    (1) Starwood's fiduciary status under section 3(21) (A) of the Act, 
with respect to the Resort; and
    (2) Starwood's indemnification of the Partnership with respect to 
any claims, demands, actions, penalties, suits and liabilities arising 
from Starwood's breach of fiduciary duty or violation of the Act.
    (c) On an annual basis, the QPAM, on behalf of the Partnership, 
approves the participation of the Resort in Centralized Services and 
Additional Services as part of its approval of the Resort's Annual 
Operating Plan.
    (d) During any year, subject to exceptions for certain Variable 
Expenses or Uncontrollable Expenses, Starwood does not, without the 
approval of the QPAM, incur any cost or expense or make any expenditure 
with respect to Centralized Services or Additional Services that would: 
(i) Cause the total expenditures for any line item in the Annual 
Operating Plan that includes payment of fees for Centralized Service or 
Additional Services to exceed the budgeted expense for that line item 
by more than 10%; (ii) cause total expenditures for any department of 
the Resort that pays fees for Centralized Service or Additional 
Services to exceed the budgeted expenses for that department by more 
than 5%; or (iii) cause the actual aggregate expenditures for operating 
expenses or capital expenditures to exceed the budget by more than 2%.
    (e) All purchases of products and services by Starwood from (i) 
itself, (ii) any person or entity directly or indirectly controlling, 
or controlled by, or under common control with Starwood, or (iii) any 
entity in which Starwood or its affiliates have any ownership, 
investment or management interest or responsibility are first approved 
by the QPAM (as part of the approval of the Annual Operating Plan or 
otherwise), except in cases of purchases of not more than $50,000 per 
annum where the price paid or charged for each such purchase and the 
terms thereof are lower than those that could be obtained from 
unrelated third parties in the applicable location.
    (f) The QPAM approves (as part of the approval of the Annual 
Operating Plan or otherwise) all contracts for Additional Services 
(and, to the extent applicable, Centralized Services) that provide for 
aggregate annual expenditure or revenue of more than $50,000 or have a 
term of more than one year.
    (g) The fees charged to the Resort for Centralized Services can be 
increased only on a system-wide basis (i.e., not just for the Resort).
    (h) The fees for Centralized Services are not greater than the 
lowest of: (i) The fees initially agreed upon by the parties in the 
Operating Agreement; (ii) Starwood's prevailing fee for the services or 
products as generally charged by Starwood or its affiliates to other 
properties managed by it; (iii) Starwood's cost, with no profit or 
mark-up (although it may include overhead); or (iv) 5% of gross 
revenues (exclusive of certain occupancy-related charges, such as 
third-party reservations fees and frequent guest program charges) of 
the hotel or country club, as applicable.
    (i) Starwood does not, with respect to any Centralized Service or 
Additional Service, solicit bids for the product or service in a manner 
that could result in a ``right of first refusal'' or other bidding 
advantage for the benefit of Starwood or its affiliates.
    (j) The QPAM, on behalf of the Partnership, has the right to opt 
out of

[[Page 3161]]

any Centralized Services and to elect not to receive any Additional 
Services.
    (k) The QPAM, on behalf of the Partnership, retains the right to 
conduct audits of transactions entered into by Starwood with respect to 
Centralized Services and Additional Services, and, in the event that an 
audit uncovers a discrepancy related to any payment to Starwood or its 
affiliates, it must be corrected within ten days of notice being 
provided.
    (l) As part of its monitoring responsibilities, the QPAM, on behalf 
of the Partnership, has the right to meet with representatives of 
Starwood no less frequently than monthly (and otherwise at the request 
of the Partnership) for the purposes of reviewing each Annual Operating 
Plan, preparing, reviewing and updating rolling three-month forecasts 
for the Resort, and analyzing Starwood's actual performance against the 
Annual Operating Plan and the performance of the Resort relative to an 
applicable competitive set of resorts.
    (m) The QPAM, on behalf of the Partnership, retains the right to 
receive monthly interim and annual accounting reports that include a 
comparison of actual to budgeted expenses, and to have such reports 
audited by an independent accounting firm not more than once in any 
fiscal year.
III. ARD Program Conditions
    (a)(1) Rooms are not made available to employees or associates of 
Starwood or a Related Company pursuant to the Associate Room Discount 
Program if the rooms could otherwise be sold to the public at a higher 
rate; and
    (2) In each case, the discounted rates fully cover the variable 
cost to the Resort for the use of the room and the cost to the Resort 
of the food, beverage and amenities.
    (b) Participation in the Associate Room Discount Program is offered 
by Starwood at all of its owned properties and properties that it 
manages.
    (c) The QPAM, acting on behalf of the Partnership, monitors the 
Resort's participation in the Associate Room Discount Program and 
retains the right to opt out of the Associate Room Discount Program.
IV. Definitions
    (a) The term ``Partnership'' means Diplomat Properties, Limited 
Partnership whose principle asset is the Resort. The Plumbers & 
Pipefitters National Pension Fund (the Fund) is the sole member of 
Diplomat Properties, LLC, the General Partner of the Partnership. The 
QPAM is a non-member manager of the General Partner.
    (b) The term ``QPAM'' means LaSalle Investment Management, Inc. 
(LaSalle), Capital Hotel Management, LLC (CHM) or a successor qualified 
professional asset manager (as defined in section V(a) of Prohibited 
Transaction Class Exemption 84-14 at 49 FR 9494, March 13, 1984), as 
amended at 71 FR 5887 (February 3, 2006) or such other entity that is 
permitted by a U.S. Department of Labor individual exemption to 
function with powers similar to that of a qualified professional asset 
manager, that is exercising discretionary authority on behalf of the 
Fund with respect the activities of the Partnership and the Resort.
    (c) The term ``affiliate'' means:
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person;
    (2) Any officer, director, employee, relative, or partner of any 
such person; and
    (3) Any corporation or partnership of which such person is an 
officer, director, partner, or employee.
    (d) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (e) The term ``Related Company'' means wholly or partially owned 
affiliates of Starwood (including, without limitation, affiliates of 
Starwood that are parties in interest by virtue of section 3(14)(G), 
(H) or (I) of the Act or disqualified persons by virtue of sections 
4975(e)(2)(G), (H), or (I) of the Code) or affiliates or other entities 
in which Starwood has an ownership or other contractual interest.
    (f) The term ``Additional Services'' means any service or product 
other than Centralized Services: (1) Which is provided to the Resort by 
Starwood or a Related Company and is typically provided by Starwood or 
a Related Company on a property by property basis to properties 
operated by Starwood or an affiliate; and (2) for which Starwood or a 
Related Company receives a fee for providing such service or product 
that is based on the level of usage by the Resort.
    (g) The term ``Annual Operating Plan'' means the annual written 
operating plan submitted by Starwood to the Partnership no later than 
90 days before the commencement of each fiscal year, which plan shall 
include monthly estimates and cover the operating budget (including 
departmental revenue and expenses, taxes, insurance and reserves), the 
capital budget, the marketing plan, the advertising program, working 
capital requirements, litigation and any other matter reasonably deemed 
appropriate by the QPAM, on behalf of the Partnership.
    (h) The term ``Associate Room Discount Program'' means the program 
maintained by Starwood with the approval of the QPAM pursuant to which 
discounted room rates and discounted food, beverage and other amenities 
at participating hotels are provided for Starwood associates or 
associates of participating Starwood franchise hotels worldwide and 
their immediate family.
    (i) The term ``Centralized Services'' means any service or product, 
including (without limitation) certain advertising, marketing and 
promotional activities (including frequent guest programs), 
reservations and distribution systems and networks, training and 
similar items, provided that: (i) The service or product is provided to 
the Resort by Starwood or a Related Company and is typically provided 
by Starwood or a Related Company on a central, regional, chain or brand 
basis, rather than specifically at an individual property; and (ii) 
Starwood or a Related Company receives a fee for providing the service 
or product that is based on the level of usage by the Resort.
    (j) The term ``Operating Agreements'' means, collectively, the 
parallel operating agreements, executed on June 5, 2001, between 
LaSalle and Starwood, as amended, and executed on May 1, 2006, between 
CHM and Starwood, as amended, to brand and operate the Resort's 
convention hotel as the ``Westin Diplomat Resort and Spa,'' and to 
brand and operate the country club as ``The Diplomat Country Club and 
Spa,'' as part of Starwood's Luxury Collection, and any successor 
operating agreements that may be in effect between the parties or 
successor parties from time to time.
    (k) The term ``Variable Expense,'' as set forth in the Operating 
Agreements, means operating expenses covered by the then-current Annual 
Operating Plan that reasonably fluctuate as a direct result of business 
volumes, including food and beverage expenses, other merchandise 
expenses, operating supply expenses, and energy costs.
    (l) The term ``Uncontrollable Expenses,'' as set forth in the 
Operating Agreements, means certain expenses the amount of which cannot 
be controlled by Starwood, which expenses include, without limitation, 
real estate taxes, utilities, insurance premiums, license and permit 
fees and charges provided in contracts entered into pursuant to the 
Operating Agreement, provided, that Starwood agrees to use commercially 
reasonable efforts to mitigate the expenses under such contracts; and 
the

[[Page 3162]]

QPAM, on behalf of the Partnership, agrees that Starwood shall have the 
right to pay all Uncontrollable Expenses without reference to the 
amounts provided for in respect thereof in the approved Annual 
Operating Plan.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption.

SUPPLEMENTARY INFORMATION: On August 21, 2006, the Department published 
a notice in the Federal Register (71 FR 48768) of a proposed individual 
exemption (the Proposed Exemption). The application for this Proposed 
Exemption (Application) was submitted by LaSalle Investment Management, 
Inc. (LaSalle), as qualified professional asset manager (QPAM) for, and 
on behalf of, the Fund (Applicant). By letter dated April 25, 2006, 
LaSalle informed the Department that as of April 30, 2006, LaSalle was 
replaced by Capital Hotel Management, LLC (CHM) as the QPAM for the 
Fund. Independent Fiduciary Services, Inc. (IFS) is the independent 
named fiduciary of the Fund's account that holds the interests in the 
Partnership, the General Partner and other assets of the Fund invested 
in, or awaiting investment in, the Resort (the Diplomat Account). The 
Fund is funded solely by employer contributions negotiated under 
collective bargaining agreements with the United Association of 
Journeymen and Apprentices of the Plumbing and Pipe Fitting Industry of 
the United States and Canada, AFL-CIO (the Union). The Fund is 
administered by the Board of Trustees of the Fund, which has six 
individual members, three of whom are appointed by the Union and three 
of whom are appointed by contributing employers. The Applicant 
requested that the restrictions of sections 406(a)(1)(A) through (D) 
and 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, not apply, effective June 5, 
2001, to certain transactions involving the receipt by Diplomat 
Properties, Limited Partnership (DPLP or the Partnership) of certain 
services and products from the hotel management company, Westin 
Management Company East (after January 12, 2006, Westin Hotel 
Management, L.P.) (referred to collectively with its parent company, 
Starwood Hotels & Resorts Worldwide, Inc., as Starwood) and certain 
related entities (Related Companies), retained to operate the 
Partnership's principal asset, the Westin Diplomat Resort & Spa and the 
Diplomat Country Club and Spa (collectively, the Resort).

Discussion and Comments Received

    Four comment letters from interested persons and one comment from 
Capital Hotel Management, LLC (CHM) as the QPAM for the Fund were 
received by the Department. The CHM comment provided further 
information on the proposed exemption and is discussed below. By letter 
dated November 20, 2006, CHM responded to the questions raised in the 
four comments received from interested persons. CHM noted that several 
commenters raised issues or asked questions regarding the propriety of 
the initial purchase of the Resort and the Applicant's development of 
it. The comments included statements alleging that members of the Board 
of Trustees of the Fund and contractors engaged in the Resort's 
development and operation received improper benefits. CHM stated that 
the Proposed Exemption in no way relates to the initial purchase of the 
Resort or the subsequent investment of the Fund's assets to develop and 
stabilize it. CHM explained that the exemption was requested because 
the QPAM concluded that Starwood's provision of Centralized Services, 
Additional Services and the Associate Room Discount Program will result 
in improved operating performance beyond that which can be provided by 
an operator of a single hotel or smaller group of hotels that does not 
provide those services and products. In addition, the QPAM concluded 
that (a) by centralizing the sourcing function, Starwood is also able 
to capture economies of scale designed to reduce the cost of the 
procurement function in the Resort and (b) the Resort's participation 
in these programs should result in increased efficiencies and lower 
operating costs. CHM asserts that none of the commenters has disputed 
any of these conclusions.
    CHM noted that one commenter stated that ``not one of the UA 
Members of the UA PPNPF receive a discount on anything pertaining to 
the Diplomat Propertys [sic], why should someone else who are not 
owners of the Deplomat [sic] receive a discount''. CHM responded that, 
while the precise meaning of this comment is unclear, to the extent 
that the commenter is questioning the purpose of the Associate Room 
Discount Program, the QPAM concluded that it constitutes a relatively 
cheap employee benefit for employees of the Resort. CHM stated that, 
because this arrangement is typically offered by Starwood and all other 
international branded hotel and resort operators, denying this benefit 
to Resort employees would place the Resort at a distinct disadvantage 
vis-[agrave]-vis other competing hotels in its area with respect to 
hiring and retaining employees.
    Another comment questioned whether the Resort can make a profit and 
stated that the Partnership should sell the Resort immediately to the 
highest bidder. CHM responded that the purpose of this Application is 
not to determine whether a sale of the Resort is in the best interest 
of the Partnership or the Applicant, but to allow the Partnership to 
enter into arrangements with Starwood, the Resort's operator (through 
Westin Hotel Management, L.P.), to enhance the operation of the Resort 
while the Applicant (through the Partnership) owns it.
    Another comment stated that the Partnership does not need 
``additional managers to manage the `Westin Group' '' and that the 
``Westin Group'' should be replaced by managers that can manage the 
Resort properly and with a profit, such as the ``Sheraton Group'' or 
the ``Hilton Group.'' CHM responds that, as an initial matter, Sheraton 
hotels and Westin hotels are sister brands within the Starwood group of 
brand hotels. The Applicant submits that this comment is not relevant 
to the Proposed Exemption because the Application does not seek an 
exemption to permit the retention of CHM, the current investment 
manager and qualified professional asset manager for the Applicant's 
investment in the Resort. The retention of CHM as an investment manager 
is specifically contemplated by ERISA and does not constitute a 
prohibited transaction. Rather, it is CHM's involvement in the budget 
process and general oversight of Starwood as the Resort operator, which 
limits Starwood's discretion and will prevent abuse of the arrangement 
for Centralized Services, Additional Services and the Associate Room 
Discount Program. CHM notes that, in correspondence supplementing the 
Application, CHM confirmed to the Department that it is responsible for 
performing the actions ascribed to the QPAM as they relate to both the 
specific and general limitations on Starwood's activities described in 
Section II.F of the Application. In addition, CHM confirmed that, as 
described in Section III.A of the Application, changes to services and 
products or fees (as limited by the Operating Agreements) must be 
presented to and approved, if applicable, by CHM in connection with the 
annual budget process.
    CHM states that another commenter asked various questions regarding 
the retention of Starwood. The commenter asked the additional costs of 
another management company being involved,

[[Page 3163]]

who owns Starwood, whether any pension officials or board members are 
associated in any way with Starwood or its affiliates, how the Proposed 
Exemption is going to help pension plan and union members and retirees, 
and who is the Starwood affiliate presently managing the Resort. CHM 
responded that, as described in the Application and subsequent 
correspondence from the QPAM, the hotel is currently managed by Westin 
Hotel Management, L.P.; a Delaware limited partnership and a wholly-
owned subsidiary of Starwood Hotels & Resorts Worldwide, Inc., which is 
a public company. CHM asserts that no member of the Board of Trustees 
of the Fund is a director, officer or employee of Starwood or any 
Starwood ERISA Affiliate. CHM also states that the determination to 
retain Starwood was made not by the Board of Trustees but by LaSalle, 
CHM's predecessor as qualified professional asset manager. In addition, 
La Salle was, and CHM is, overseen by IFS, the Applicant's independent 
named fiduciary for the Diplomat Account. Starwood was selected after 
LaSalle, monitored by IFS, engaged in a comprehensive review of all 
relevant issues that included extensive due diligence, a competitive 
bidding process (which attracted many of the larger international hotel 
operating companies, including several well-known brands) and several 
interviews and on-site visits. The Applicant notes that the purpose of 
this Application is not to determine whether the retention of Starwood 
was appropriate or whether the overall fee arrangement with Starwood is 
reasonable, but rather whether Starwood, as operator of the Resort, 
will be permitted to engage in certain transactions that the QPAM has 
determined will inure to the financial benefit of the Partnership (and, 
therefore, the Fund). Accordingly, the Applicant believes that the 
overall cost of a management company being involved is immaterial to 
this Proposed Exemption. CHM states that of more significance is that 
the QPAM has, after careful consideration, concluded that Centralized 
Services and Additional Services are likely to result in benefits to 
the Resort that are both financial (i.e., utilizing these services and 
products will result in cost savings through aggregation of Starwood's 
purchasing and organizational power, and there are specific provisions 
in the Operator Agreements to assure that the Resort will benefit 
financially from such arrangements) and operational (i.e., value will 
be achieved through enhancements in quality and service resulting from 
the economies of scale and joint participation in these arrangements). 
Thus, the QPAM expects that Starwood's services and purchasing program, 
as well as its Associate Room Discount Program, will enhance the value 
of the Resort, resulting in a benefit to participants and beneficiaries 
of the Fund.
    Another comment inquired as to why certain individuals did not 
receive notice of the Proposed Exemption. CHM explains that the notice 
to interested persons, along with the supplemental statement required 
by Department Regulation 2570.43(b)(2) was sent to each member of the 
Board of Trustees of the Applicant and to anyone who commented with 
respect to PTE 99-46, PTE Application D-10960 or D-10971. CHM notes 
that, with respect to Applications D-10960 and 10971, the Department 
concluded that, in part due to the burden and expense of a wider 
distribution, it was reasonable and adequate under the circumstances to 
provide the notice to interested persons and supplemental statement 
only to persons who commented on PTE 99-46, the first exemption issued 
with respect to the Fund and the Diplomat Account. CHM believes that 
the Proposed Exemption is more technical and less sweeping than either 
of the prior exemptions the Department has granted regarding the 
Diplomat Account. It is unlikely that individuals, other than the Board 
of Trustees and those who commented on PTE 99-46, D-10960 or D-10971 
would be concerned with the technical issues regarding the provision of 
the Centralized Services, Additional Services and Associate Room 
Discount Program to the Partnership by Starwood (or a Related Company). 
CHM concludes that the reasonableness of this assumption is reflected 
in the absence of comments from those who did receive notice that go to 
the substance of any of those issues.
    One commenter requested information concerning any ``current or 
future hearings'' before the Department on the Proposed Exemption. 
Regarding a public hearing, the Department does not believe that there 
are material factual issues relating to this exemption that were raised 
by the commenters which would require the convening of a hearing on the 
Proposed Exemption. Thus, the Department has determined not to hold a 
hearing.
    As previously noted in the Proposed Exemption, in considering 
exemptive relief for the transactions described herein, the Department 
placed a great deal of emphasis on the significant involvement of IFS, 
as named fiduciary, and LaSalle and CHM, as investment managers (the 
Independent Fiduciaries) and their considered and objective evaluation 
of the subject transactions. These Independent Fiduciaries have 
represented for the record that the retention of Starwood was in the 
interests of the Partnership and that the written agreement and the 
limitations contained therein permit the Independent Fiduciaries to 
effectively monitor and scrutinize the actions undertaken by Starwood. 
The initial and continued involvement of the Independent Fiduciaries on 
behalf of the Fund with respect to the transactions that are the 
subject of this exemption is a critical factor in the Department's 
determination to grant exemptive relief. In addition, as the Department 
has previously stated in PTE 2001-39, the fact that a transaction is 
the subject of an exemption under section 408(a) of the Act does not 
relieve a fiduciary from the general fiduciary responsibility 
provisions of section 404 of the Act. IFS' appointment of an investment 
manager and QPAM to manage the Diplomat Account and its ongoing 
determination to continue to retain LaSalle and CHM with respect to the 
management of the Diplomat Account are subject to section 404 of the 
Act. Both LaSalle and CHM, as investment managers for the Diplomat 
Account, retain fiduciary responsibility for the activities undertaken 
by Starwood on behalf of the Resort. In this regard, section 
404(a)(1)(A) and (B) of ERISA requires that a fiduciary discharge his 
duties to a plan solely in the interests of the participants and 
beneficiaries, for the exclusive purpose of providing benefits to 
participants and beneficiaries and defraying reasonable administrative 
expenses, and in a prudent manner. Accordingly, it is the 
responsibility of the Fund's fiduciaries to operate the Resort in a 
manner designed to maximize the Fund's rate of return, consistent with 
their fiduciary duties under section 404 of the Act. The fiduciary 
obligation to act prudently requires, at a minimum, that the 
Independent fiduciaries conduct an ongoing objective, thorough and 
analytical critique of the management of the Diplomat Account. If the 
transactions that are the subject of this exemption result in activity 
that is not ``prudent,'' and not ``solely in the interest'' of the 
participants and beneficiaries of the Fund, the responsible fiduciaries 
of the Fund would be liable for any losses resulting from such a breach 
of fiduciary responsibility, even if the transactions involved do not 
constitute prohibited

[[Page 3164]]

transactions under section 406 of ERISA.

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

American Maritime Officers Safety & Education Plan (S&E Plan); American 
Maritime Officers Pension Plan; American Maritime Officers Vacation 
Plan; American Maritime Officers Medical Plan; and American Maritime 
Officers 401(k) Plan; (Collectively the AMO Plan(s)) Located in Dania 
Beach, Florida and Toledo, Ohio

[Prohibited Transaction Exemption No. 2007-02; Application Nos. L-
11148; D11149; L-11150; L-11151; D-11152; and D-11153]

Exemption

Section I
    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 at the Dania Beach, Florida and Toledo, Ohio 
facilities (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; and (3) the S&E Plan 
entering into an arrangement with the governing bodies of the American 
Maritime Officers Joint Employment Committee, and the American Maritime 
Officers Service, 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.
Section II
    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); 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.
Section III
    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; 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.
Conditions
    This 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
    (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 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

[[Page 3165]]

financial information which is privileged or confidential.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the Notice of Proposed Exemption (the Notice) published on July 21, 
2006 at 71 FR 41478.

Written Comments

    The Department received three written comments from interested 
persons in response to the Notice. The Department forwarded copies of 
the comments to the applicant and requested that the applicant and the 
I/F address, in writing the various concerns raised by the 
commentators. The principal concern expressed by all three commentators 
is that the exemption would allow pension assets to be used for 
purposes other than retirement benefits for plan participants. Two of 
the commentators link this concern to the investigation of the AMO 
Plans by the U.S. Department of Justice.
    The applicant represents that one of the commentators' concerns 
that the exemption would allow pension plan assets to be used for a 
variety of inappropriate uses reflects a misunderstanding of the 
purpose of the exemption and the conditions under which it has been 
proposed. The applicant represents that the proposed exemption would 
allow the Plans' trustee meetings, union meetings, and other meetings 
or conferences involving the Union, employers who contribute to the 
Plans, the Joint Employment Committee, the American Maritime Officers 
Service, and professionals servicing the Plans to be held at the 
training and meeting facilities in Dania Beach, Florida, which is 
leased by the S&E Plan, and another facility owned by the S&E Plan in 
Toledo, Ohio. Under the proposed exemption, meeting participants or the 
groups they represent are required to pay their proportional share of 
lodging, catering and meeting costs--the costs would not fall on the 
facilities or the S&E Plan. Notably, the costs associated with these 
meetings are substantially less when lodging, food and meeting space 
are provided at the facilities than if provided by hotels or other 
conference facilities. Without the requested exemption, there would be 
legal constraints on the ability of the S&E Plan to contract with the 
other Plans to provide the necessary services and functions that would 
have to be scheduled at independent meeting facilities at a higher 
cost.
    In addition, the applicant represents that, as a condition 
contained in the Notice, the Plans have retained an independent 
fiduciary to ensure that the interests of the Plans and their 
participants are protected. Among other things, the independent 
fiduciary will monitor all transactions and activities permitted under 
the proposed exemption to ensure compliance with the conditions set out 
by the Department. The duties of the I/F will also include ensuring 
that the parties using the facilities pursuant to the proposed 
exemption pay a fair price for the services they receive.
    Two of the commentators suggest that the exemption should not be 
granted because of a Department of Justice investigation of the Plans. 
One of the two requested a hearing on this basis. The applicant 
represents that contrary to the concern expressed, the application is 
part of an effort to ensure ERISA compliance and the protection of plan 
assets. In response to the investigation, the AMO Plans formed a 
Special Committee, which retained Special Counsel to undertake an 
independent investigation and to make reports and recommendations for 
remedial action to the Special Committee. The Special Committee 
authorized Special Counsel to apply for the exemption on behalf of the 
AMO Plans as part of an ERISA compliance process.
    The I/F has reviewed the comments and represents that proper 
implementation and compliance with the conditions of the proposed 
exemption will be protective of the beneficiaries of the AMO Plans 
because (i) the use of the facilities by parties in interest will be 
monitored and linked to specific meeting schedules; (ii) costs 
associated with the use of the facilities by the parties in interest 
will be properly charged, with the AMO Plans being appropriately 
compensated for services provided; (iii) costs savings can inure to the 
beneficiaries as a result of the efficiency of having the multiple 
meetings associated with the Plans in a single lower cost environment; 
and (iv) the parties in interest will only be allowed to use the 
facilities if there is excess capacity so that beneficiaries who 
require training cannot be displaced. Furthermore, the I/F represents 
that the I/F's research and analysis results in the belief that usage 
of the facilities by parties in interest can be effectively monitored, 
costs can be properly allocated and efficiencies in the scheduling of 
the meetings can be attained which will result in cost savings to the 
beneficiaries.
    The Department has considered the entire record and has determined 
to grant the exemption as proposed. Further, the Department does not 
believe that there are material factual issues relating to the 
exemption that were raised by commentators which would require the 
convening of a hearing. Thus, the Department has determined not to hold 
a hearing on these matters.

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

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions 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) This exemption is supplemental to and not in derogation of, any 
other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of this exemption is subject to the express 
condition that the material facts and representations contained in the 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 17th day of January, 2007.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. E7-970 Filed 1-23-07; 8:45 am]

BILLING CODE 4510-29-P