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Secretary of Labor Thomas E. Perez
Grant of Individual Exemptions; General Electric [Notices] [05/10/1996]

EBSA (Formerly PWBA) Federal Register Notice

Grant of Individual Exemptions; General Electric [05/10/1996]

[PDF Version]

Volume 61, Number 92, Page 21501-21504

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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 96-34; Exemption Application No. D-
09880, et al.]

 
Grant of Individual Exemptions; General Electric

AGENCY: Pension and Welfare Benefits 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 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, D.C. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of the notification to interested 
persons. No public comments and no requests for a hearing, unless 
otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, effective December 
31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR 
47713, October 17, 1978) transferred the authority of the Secretary of 
the Treasury to issue exemptions of the type 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:
    (a) The exemptions are administratively feasible;
    (b) They are in the interests of the plans and their participants 
and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

General Electric Pension Trust (the Trust), Located in Fairfield, 
Connecticut

[Prohibited Transaction Exemption 96-34; Application No. D-09880]

Exemption

    The restrictions of sections 406(a), 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 effective August 3, 1994, to the past and continued 
lease (the Lease) by the Trust of office space in a commercial office 
building located at 201 Mission Street in San Francisco, California 
(the Property), to GE Capital Aviation Services, Inc. (GE Aviation), a 
party in interest with respect to employee benefit plans participating 
in the Trust, provided the following conditions are met:
    (a) All terms and conditions of the Lease are at least as favorable 
to the Trust as those which the Trust could have obtained in an arm's-
length transaction with an unrelated party at the time the Lease was 
executed;
    (b) The rent paid by GE Aviation to the Trust under the Lease is 
not less than the fair market rental value of the office space, as 
established by an independent qualified real estate appraiser;
    (c) David P. Rhoades (Mr. Rhoades), acting as a qualified, 
independent fiduciary for the Trust (the Independent Fiduciary), 
reviewed all terms and conditions of the Lease prior to the 
transaction, as well as any subsequent modifications to the Lease, and 
determined that such terms and conditions would be in the best 
interests of the Trust at the time of the transaction; and
    (d) The Independent Fiduciary represents the interests of the Trust 
for all purposes under the Lease as a qualified, independent fiduciary 
for the Trust, monitors the performance of the parties under the terms 
and conditions of the Lease and the exemption, and takes whatever 
action is necessary to safeguard the interests of the Trust throughout 
the duration of the Lease.

EFFECTIVE DATE: The exemption is effective for the period from August 
3, 1994, until the scheduled termination date of the Lease, as it may 
be renewed or extended by the parties subject to the review and 
approval of the Independent Fiduciary, or, if earlier, the date the 
Lease is actually terminated by the parties.
    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 published on June 15, 1995, at 60 FR 
31512.

NOTICE TO INTERESTED PERSONS: The applicant represents that it was 
unable to notify interested persons within the time period specified in 
the Federal Register notice published on June 15, 1995. However, 
pursuant to an agreement between the applicant and the Department, the 
Trust notified all interested persons (including active employees, 
former employees and retirees of General Electric Company (GE) and its 
affiliates) no later than March 11, 1996.\1\ Interested persons were 
advised that they had until April 10, 1996 to comment and/or request a 
hearing on the proposed exemption.
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    \1\ The applicant represents that notice of the proposed 
exemption was provided to the active employees of GE and its 
affiliates who are participants and beneficiaries of the plans 
participating in the Trust by posting a notice (along with a copy of 
the proposed exemption as published in the Federal Register) at GE 
locations, in areas that are customarily used for notices to 
employees with regard to employee benefits or labor relations 
matters, on or before March 11, 1996. Former employees and retirees, 
along with other employees, were notified by means of publication of 
a notice in the 1994 Summary Annual Reports which were distributed 
to such persons during September and October 1995 via first class 
mail.

WRITTEN COMMENTS AND MODIFICATIONS: By letter dated November 27, 1995, 
the applicant submitted the following comments and requests for 
modifications regarding the notice of proposed exemption (the 
Proposal).
    The Effective Date paragraph in the Proposal states that the 
exemption, if granted, will be effective until the scheduled 
termination date of the Lease (i.e. September 16, 1999) or, if earlier, 
the date the Lease is actually terminated by the parties.
    The applicant states that Paragraph 10 of the Summary of Facts and 
Representations in the Proposal (the Summary) contemplates that Mr. 
Rhoades, as the independent fiduciary acting for the Trust (i.e. the 
Independent Fiduciary), will oversee, review and approve any renewals 
or extensions of the Lease, if such renewals or extensions are in the 
best interests of the Trust. The applicant states further that 
Condition (c) of the Proposal indicates that the Independent Fiduciary 
will be responsible for reviewing any subsequent modifications to the 
Lease and determining that such

[[Page 21502]]

modifications would be in the best interests of the Trust.
    The applicant represents that it is likely that the parties will 
negotiate whether to renew or extend the Lease at its termination, and 
such a renewal or extension may be in the best interests of the Trust 
depending on the then-current real estate market. Therefore, the Trust 
requests that the exemption be effective until the termination of the 
Lease, as it may be renewed or extended by the parties subject to the 
review and approval of the Independent Fiduciary.
    The applicant represents further that if Mr. Rhoades, the current 
Independent Fiduciary, is no longer able to serve in that capacity, the 
Trust would retain a replacement Independent Fiduciary with the same 
qualifications as Mr. Rhoades and his firm. The replacement Independent 
Fiduciary would be required to make the same representations made by 
Mr. Rhoades regarding experience, independence from the GE and its 
affiliates, and understanding the duties, liabilities and 
responsibilities such person would have as a fiduciary under the Act. 
In addition, the replacement Independent Fiduciary would be required to 
enter into the same form of Independent Fiduciary Agreement used by Mr. 
Rhoades.
    In response to the applicant's comments, the Department has 
modified the Effective Date paragraph in the Proposal by inserting, 
after the reference to the scheduled termination date of the Lease, the 
phrase ``... as it may be renewed or extended by the parties subject to 
the review and approval of the Independent Fiduciary''. The Department 
has also modified Conditions (c) and (d) of the Proposal by inserting 
``Independent Fiduciary'' as a capitalized term in reference to Mr. 
Rhoades, which is meant to incorporate the applicant's concerns 
regarding the possibility of a replacement for Mr. Rhoades in the 
future.
    The Department received two comment letters and various telephone 
calls from employees of GE who did not fully understand the Proposal's 
effect on benefits provided to participants and beneficiaries of the GE 
Pension Plan and other plans in the GE Trust (the GE Plans). In this 
regard, the applicant states that a special telephone line was 
established by GE to respond to such inquiries by participants and 
beneficiaries of the GE Plans. The applicant represents that GE 
received over 150 telephone calls in response to the Proposal and that 
additional information was provided to interested persons when 
requested.
    The Department also received two comment letters from interested 
persons who oppose the granting of an exemption. One of the commenters 
objects to the transaction because the commenter believes that the 
Lease involves ``....the risking of GE Pension funds to be used in lieu 
of operating capital from the various GE businesses'' and exposes the 
GE Trust to ``high risks''. The other commenter does not approve of the 
Proposal but did not express any reasons for objecting to the 
transaction and could not be reached for further comments.
    The applicant has responded to these comments by letter dated April 
24, 1996. The applicant represents that the subject transaction does 
not involve the use of assets of the GE Pension Plan in lieu of 
operating capital of GE. Rather, the applicant states that the 
transaction involves the lease of space in an office building currently 
owned by the Trust to a GE subsidiary (i.e. GE Aviation) at terms 
equivalent to an arm's-length transaction, as reviewed and approved by 
a qualified independent fiduciary. The applicant notes that if the GE 
subsidiary had not entered into the Lease, the office space likely 
would have remained vacant for a longer period, resulting in loss of 
income to the Trust (including the GE Pension Plan). Therefore, the 
applicant maintains that the transaction is in the best interests of 
the Trust and does not in any way expose the Trust to higher risks than 
it would have been exposed to absent this transaction. The applicant 
concludes that there are sufficient safeguards in place to protect the 
interests of the Trust and its participants and beneficiaries.
    No other comments, and no requests for a hearing, were received by 
the Department from interested persons.
    Therefore, the Department has determined to grant the proposed 
exemption as modified herein.

FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of the Department, 
telephone (202) 219-8194. (This is not a toll-free number.)

NBD Bancorp, Located in Detroit, Michigan

[Prohibited Transaction Exemption 96-35 Exemption Application No. D-
09986]

Exemption

    The restrictions of sections 406(b)(2) of the Act shall not apply 
to the merger of the INB Principal Stability Fund (the PS Fund) into 
the NBD Stable Asset Income Fund (the SAI Fund); \2\ provided the 
following requirements are satisfied:
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    \2\ For purposes of this exemption, the PS Fund and the SAI Fund 
described herein are collectively referred to as the Funds.
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    (1) On the date the merger is executed, the assets in the PS Fund 
and the assets in the SAI Fund will be valued in the same manner, under 
identical guidelines, by the same individuals;
    (2) Upon completion of the merger of the PS Fund into the SAI Fund, 
the aggregate fair market value of the interests of the employee 
benefit plans (the Plans) participating in the SAI Fund immediately 
following the merger, together with any cash received in lieu of 
fractional units, equals the aggregate fair market value of each 
participating Plans' interest in such Funds immediately before the 
merger;
    (3) The assets of each of the participating Plans are invested in 
the same type of investments both before and after the proposed merger;
    (4) Neither NBD Bancorp nor any of its affiliates receives fees or 
commissions in connection with the merger;
    (5) The Plans will pay no sales commissions or fees, as a result of 
the transaction; and
    (6) A fiduciary who is acting on behalf of each affected Plan and 
who is independent of and unrelated to NBD Bancorp and any of its 
affiliates receives advance written notice of the merger of the PS Fund 
into the SAI Fund.
    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 published on March 5, 1996, at 61 FR 
8670.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Spreckels Industries, Inc. Employee Stock Ownership Plan (the ESOP); 
Spreckels Industries, Inc. Incentive Savings Plan for Union Hourly 
Employees (the Hourly Plan); and

Spreckels Industries, Inc. Employees' Incentive Savings Plan (the 
Incentive Plan; Collectively, the Plans), Located in Pleasanton, 
California

[Prohibited Transaction Exemption 96-36, Exemption Application Nos. D-
09999 through D-10001]

Exemption

    The restrictions of sections 406(a)(1)(A), 406(a)(1)(E), 406(a)(2), 
407(a), 406(b)(1), and 406(b)(2) of the Act and the sanctions resulting 
from the

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application of section 4975 of the Code, by reason of section 
4975(c)(1) (A) and (E) of the Code, shall not apply to the acquisition, 
holding or exercise by the Plans of certain warrants (the Warrants) for 
the purchase of Class A new common stock (the New Common Stock) of 
Spreckels Industries, Inc. (the Employer), a party in interest with 
respect to the Plans; provided that the following conditions are 
satisfied:
    (a) An independent fiduciary (the I/F) will manage the Warrants and 
monitor the value of the Warrants at all times and will be empowered to 
assign, transfer, sell, and exercise the Warrants in order to serve the 
best interest of the Plans and their participants and beneficiaries;
    (b) The fair market value of the Warrants will at no time exceed 
twenty-five percent (25%) of the value of the total assets of the 
Hourly Plan or the Incentive Plan;
    (c) The Warrants that the Plans will acquire resulted from a 
bankruptcy proceeding, in which all holders of the Class A old common 
stock in Spreckels Industries, Inc. were treated in a like manner, 
including the Plans;
    (d) The Plans will not incur any expenses or fees in connection 
with the proposed transactions;
    (e) Any assignment, sale, or other transfer of the Warrants will 
not involve a party in interest with respect to the Plans, as defined 
in section 3(14) of the Act, unless such transfer is to the Employer, 
pursuant to an exercise of the Warrants; and
    (f) The I/F will determine the fair market value of the Warrants 
upon acquisition by the Plans, and an independent qualified appraiser 
will determine the fair market value of the Warrants on a periodic 
basis (but not less frequently than annually).

Written Comments

    In the Notice of Proposed Exemption (the Notice), the Department of 
Labor (the Department) invited all interested persons to submit written 
comments and requests for a hearing on the proposed exemption within 
forty-five (45) days of the date of the publication of the Notice in 
the Federal Register on January 31, 1996. All comments and requests for 
hearing were due by March 18, 1996.
    During the comment period, the Department received no requests for 
hearing. However, the Department did receive a comment letter from the 
applicant, dated April 8, 1996, which informed the Department of 
changes in the facts as represented in the proposed exemption. In this 
regard, the Employer has engaged Consulting Fiduciaries, Inc. (CFI) to 
replace L. Scott Maclise (Mr. Maclise), a registered investment advisor 
with Linsco/Private Ledger Financial Services, who was appointed to 
serve as the I/F on behalf of the Plans for the purposes of the 
exemption. In the comment letter, the Employer requested concurrence 
from the Department that the exemption would be granted notwithstanding 
the replacement of Mr. Maclise as the I/F for the Plans.
    Attached to the comment letter, the applicant included: (1) A copy 
of a letter, dated April 2, 1996, which details the agreement between 
the Employer and CFI concerning the engagement of CFI to provide 
certain services as independent fiduciary on behalf of the Plans; and 
(2) a letter, dated April 2, 1996, from CFI to the Department in which 
CFI made certain representations. In this regard, CFI has accepted 
appointment as I/F on behalf of the Plans for the purposes of the 
transactions which are the subject of this exemption and, except in the 
event of discharge or resignation as described in the agreement with 
the Employer, will serve throughout the duration of the transactions.
    CFI represents that it is qualified to serve as I/F, in that it is 
a registered investment adviser under the Investment Advisers Act of 
1940 and provides professional, independent fiduciary decision making, 
consultation, and alternative dispute resolution services to plans, 
plan sponsors, trustees, and investment advisers. Further, CFI is 
experienced in representing clients as a fiduciary in stock 
transactions.
    CFI represents that it has the power to negotiate and act 
independently of the Employer and its officers, directors, 
shareholders, agents and representatives with respect to the 
transactions which are the subject of this exemption. In this regard, 
CFI is not affiliated with the Employer and the income CFI receives 
from the Employer is expected to represent less than one percent (1%) 
on an annualized basis of its income over the life of its engagement as 
I/F.
    CFI represents that it understands its duties as I/F under the Act 
and the Code and will assume all duties, responsibilities, and 
obligations imposed on it as I/F of the Plans in connection with the 
transactions which are the subject of this exemption. In this regard, 
CFI represents that it will take whatever acts are necessary to review, 
analyze, negotiate, monitor, and approve or disapprove the transactions 
and will be responsible for the Plans' acquisition and holding of the 
Warrants. Bearing in mind its fiduciary duties under the Act, CFI 
represents that it will determine whether the transactions: (a) Are 
prudent and for the exclusive purpose of providing benefits to 
participants; (b) are fair to the Plans from a financial point of view; 
and (c) are in accordance with the terms and conditions as set forth in 
the Notice.
    CFI will decide on behalf of the Plans (a) whether or not the Plans 
should acquire and hold the Warrants; and (b) when, if at all, the 
Warrants should be exercised to acquire New Common Stock or sold and 
the proceeds used to acquire such stock. With respect to the 
acquisition of the Warrants, CFI represents that it will conduct due 
diligence to evaluate whether the Plans should enter into the 
transactions which are the subject of this exemption. CFI represents 
that it bears full power to manage and monitor the value of the 
Warrants at all times. In this regard, CFI represents that it will 
determine the fair market value of the Warrants upon acquisition by the 
Plans.
    With respect to the holding of the Warrants by the Plans, CFI 
represents that such holding will not impair the diversification, 
prudence, or liquidity of the Plans. In this regard, CFI represents 
that it will be responsible, as appropriate, for insuring that the 
Warrants will be appraised on a periodic basis (but not less frequently 
than annually).
    CFI represents that it is empowered to assign, transfer, sell, and 
exercise the Warrants in order to serve the best interests of 
participants and beneficiaries of the Plan. In this regard, CFI 
represents that it will not in any way transfer, assign, or sell the 
Warrants to a ``party in interest'' within the meaning of section 3(14) 
of the Act or section 4975(e)(2) of the Code, unless such a transfer is 
to the Employer pursuant to an exercise of such Warrants.
    After giving full consideration to the entire record, including the 
written comment from the applicant, the Department has decided to grant 
the exemption, as described and concurred in above. In this regard, the 
comment letter submitted by the applicant to the Department has been 
included as part of the public record of the exemption application. The 
complete application file, including all supplemental submissions 
received by the Department, is made available for public inspection in 
the Public Documents Room of the Pension Welfare Benefits 
Administration, Room N-5638, U.S. Department of Labor, 200 Constitution 
Avenue, N.W., Washington, D.C. 20210.
    For a more complete statement of the facts and representations 
supporting the

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Department's decision to grant this exemption refer to the Notice 
published on January 31, 1996 at 61 FR 3470.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

Budge Clinic Profit Sharing Plan and Trust (the Plan), Located in 
Logan, Utah

[Prohibited Transaction Exemption 96-37; Exemption Application No. D-
10142]

Exemption

    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 sale of certain improved real property located 
in Logan, Utah (the Property) by the Plan to IHC Health Services, Inc., 
a party in interest with respect to the Plan; provided that the 
following conditions are satisfied:
    (A) All terms and conditions of the transaction are no less 
favorable to the Plan than those which the Plan could obtain in an 
arm's-length transaction with an unrelated party;
    (B) The Plan receives a cash purchase price for the Property which 
is no less than the fair market value of the Property as of the sale 
date; and
    (C) The Plan does not incur any expenses or suffer any loss with 
respect to the transaction.
    For a more complete statement of the facts and representations 
supporting this exemption, refer to the notice of proposed exemption 
published on March 12, 1996 at 61 FR 10015.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department, 
telephone (202) 219-8881. (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 exemptions 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) These exemptions are 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 these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, D.C., this 6th day of May, 1996.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 96-11744 Filed 5-9-96; 8:45 am]
BILLING CODE 4510-29-P