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Secretary of Labor Thomas E. Perez
Proposed Exemptions; Tyson Foods, Incorporated Employee Profit Sharing Plan and Trust (the Plan) [Notices] [03/20/1998]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; Tyson Foods, Incorporated Employee Profit Sharing Plan and Trust (the Plan) [03/20/1998]

[PDF Version]

Volume 63, Number 54, Page 13693-13696

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10421, et al.]

 
Proposed Exemptions; Tyson Foods, Incorporated Employee Profit 
Sharing Plan and Trust (the Plan)

AGENCY: Pension and Welfare Benefits 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

    Unless otherwise stated in the Notice of Proposed Exemption, all 
interested persons are invited to submit written comments, and with 
respect to exemptions involving the fiduciary prohibitions of section 
406(b) of the Act, requests for hearing 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.

ADDRESS: All written comments and request for a hearing (at least three 
copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C. 
20210. Attention: Application No. stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
Pension and Welfare Benefits Administration, U.S. Department of Labor, 
Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 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 (43 FR 47713, October 17, 1978) 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.

[[Page 13694]]

Tyson Foods, Incorporated, Employee Profit Sharing Plan and Trust 
(the Plan), Located in Springdale, Arkansas

[Application No. D-10421]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act 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 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 past sale by the Plan of certain 
hatcheries, a freezer facility and an office complex (collectively, the 
Properties), all located in Arkansas, to Tyson Foods, Incorporated (the 
Company), a party in interest with respect to the Plan, provided that 
the following conditions were satisfied:
    (A) All terms of the transactions were at least as favorable to the 
Plan as those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (B) The sale was a one-time transaction for cash;
    (C) The Plan paid no commissions nor other expenses relating to the 
sale;
    (D) The purchase price was the greater of: (1) the fair market 
value of each of the Properties as determined by a qualified, 
independent appraiser, or (2) the Plan's original acquisition cost; and
    (E) Prior to the sale, an independent fiduciary reviewed the 
transactions and determined that the transactions described herein, 
were appropriate and in the best interests of the Plan and its 
participants and beneficiaries.

EFFECTIVE DATE: If granted, this exemption will be effective May 23, 
1997.

Summary of Facts and Representations

    1. The Plan is a defined contribution plan with 4,934 participants 
and beneficiaries and total assets of $80,648,308 as of March 31, 1996. 
The Plan is sponsored by Tyson Foods, Incorporated (the Company), a 
Delaware corporation, with its principal operations in Arkansas. The 
Company is primarily engaged in the business of producing and selling 
chicken-based food products. The Company is in the process of 
terminating the Plan. The trustees of the Plan are: John Tyson, Gerard 
Dowd, Lois S. Brottomley, William W. Lovette, and Dennis Leatherby 
(together, the Trustees). The Company represents that the Trustees are 
all currently employees of the Company and that they make investment 
decisions for the Plan.
    2. Among the assets of the Plan, prior to May 23, 1997, were the 
Properties, consisting of four chicken hatcheries, a corporate office 
complex and a freezer facility. The Properties were all acquired by the 
Plan, from the Company in various transactions between 1966 and 1992. 
After each of the Properties was acquired by the Plan, the Plan leased 
the Properties to the Company.<SUP>1</SUP> On May 23, 1997, the 
Properties were sold by the Plan back to the Company. The percentage of 
the Plan's total assets invested in the Properties was 32%, based on 
fair market values of the Properties reported on the 1995 Form 5500.
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    \1\ The Department is not providing relief herein with respect 
to any transactions involving the Properties other than the sale of 
the Properties by the Plan to the Company. In this regard, the 
Department is referring the other transactions involving the 
Properties to the Internal Revenue Service for the imposition of any 
applicable excise taxes arising under section 4975 of the Code which 
may be due.
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    3. The Trustees determined it was necessary to sell the Properties 
in order to convert illiquid real estate investments into liquid assets 
so that the Plan can make final terminating distributions to 
participants and beneficiaries under the terms of the Plan. The Board 
of Directors of the Company approved resolutions terminating the Plan. 
The Company represents that the Board of Directors also authorized the 
Company to purchase the Properties <SUP>2</SUP>, if an independent 
fiduciary for the Plan, determined that the sale of the Properties to 
the Company was in the best interest of the Plan and its participants 
and beneficiaries.
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    \2\ Pursuant to the Company's offer to purchase the Properties, 
the Company agreed to pay all costs and expenses associated with its 
purchase of the Properties, including but not limited to, 
appraisals, commissions and taxes, and the costs of seeking the 
prohibited transaction exemption, proposed herein.
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    4. On February 17, 1997, the Company engaged Arthur Andersen LLP 
(Arthur Andersen), of Atlanta, Georgia, to act as independent fiduciary 
on behalf of the Plan. Arthur Andersen is a major accounting and 
consulting firm which has extensive experience in the business of 
commercial real estate consulting and appraisal. Arthur Andersen 
represents that the scope of its engagement was to determine whether: 
(1) The Plan would receive adequate consideration for the Properties as 
determined by a qualified independent appraiser approved by Arthur 
Andersen; and (2) the sale of the Properties was appropriate and in the 
best interests of the Plan and its participants and beneficiaries. In 
addition, Arthur Andersen's duties included making a determination as 
to whether the Plan should sell the Properties to the Company.
    5. Arthur Andersen represents, in its written report prepared for 
the Trustees and for review by the Department, that in its opinion, the 
sale of the Properties to the Company for $33,032,000 in cash was in 
the best interest of the Plan and its participants and beneficiaries. 
Arthur Andersen further states that the $33,032,000 aggregate sales 
price for the Properties represents the greater of (1) the fair market 
value of the Properties, or (2) the Plan's original acquisition cost 
for each of the Properties, on a property by property basis.
    6. In order to determine that the sale of the Properties by the 
Plan to the Company, was in the best interests of the Plan and its 
participants and beneficiaries, Arthur Andersen sought current real 
estate appraisals for the Properties. The Trustees selected Reed & 
Associates, Inc. (Reed & Associates), a real estate appraisal firm in 
Springdale, Arkansas. After interviewing Reed & Associates, Arthur 
Andersen approved of the Trustees selection. Tom Reed, an MAI 
appraiser, along with another licenced appraiser employed by Reed & 
Associates, appraised the Properties between March 25 and May 16, 1997.
    Reed & Associates opined that the fair market value of each of the 
four chicken hatcheries had declined, and that the corporate office 
complex and freezer facilities had both appreciated in value since they 
were acquired by the Plan. Reed & Associates assigned specific values 
for each of the Properties, as discussed below.
    7. Arthur Andersen, in its capacity as independent fiduciary for 
the Plan, reviewed and evaluated the appraisals of the Properties 
performed by Reed & Associates. Arthur Andersen determined that (1) the 
appraisals were accurate, (2) the appraisals established the fair 
market value of each of the Properties, and (3) it was appropriate to 
rely upon such appraisals for the purpose of determining the sales 
price of the Properties.
    8. Among the Properties are four chicken hatcheries. Three of the 
four hatcheries are located in Washington County, Arkansas. These 
hatcheries are known as: the Lincoln Hatchery, Johnson Road Hatchery 
and Randall Road Hatchery. The fourth hatchery is the Nashville 
Hatchery which is located in Howard County, Arkansas.
    9. The Lincoln Hatchery is located on a 12.89 acre parcel of land 
and was

[[Page 13695]]

acquired by the Plan in 1973 for $1,173,000. The Plan received net 
rentals of $2,567,331 from April 1, 1986 to the date of sale. Reed & 
Associates determined that the fair market value of the Lincoln 
Hatchery was $710,000 as of March 31, 1997. The Company purchased the 
Lincoln Hatchery for $1,173,000.
    The Johnson Road Hatchery is located on a four acre parcel of land 
and was acquired by the Plan in 1966 for $546,000. The Plan received 
net rentals of $747,663 from April 1, 1986 to the date of sale. Reed & 
Associates determined that the fair market value of the Johnson Road 
Hatchery was $485,000 as of April 2, 1997. The Company purchased the 
Johnson Road Hatchery for $546,000.
    The Randall Road Hatchery is located on a 15.3 acre parcel of land 
and was acquired by the Plan in 1960 for $813,000. The Plan received 
net rentals of $1,178,070 from April 1, 1986 to the date of sale. Reed 
& Associates determined that the fair market value of Randall Road 
Hatchery was $725,000 on March 25, 1997. The Company purchased the 
Randall Road Hatchery for $813,000.
    The Nashville Hatchery is located on a 2.76 acre parcel of land and 
it was acquired by the Plan in 1973 for $460,000. The Plan received net 
rentals of $666,543 from April 1, 1986 to the date of sale. Reed & 
Associates determined that the fair market value of the Nashville 
Hatchery was $290,000 as of April 4, 1997. The Company purchased the 
Nashville Hatchery for $460,000.
    11. The corporate office complex (Corporate Office Complex), 
located in Washington County, Arkansas, is comprised of four buildings 
that were purchased in four separate transactions occurring, 
respectively, in 1969, 1987, 1991, and 1992. The Plan's original 
acquisition cost of the four buildings, in the aggregate, was 
$15,549,946. Between April 1, 1986 and the date of sale, the Corporate 
Office Complex produced net rental income for the Plan totaling 
$21,969,230. Reed & Associates determined that the fair market value of 
the Corporate Office Complex on May 9, 1997, was $18,850,000. The 
Company purchased the Corporate Office Complex for $18,850,000.
    12. The freezer facility (Tyson Valley Freezer Facility) was 
acquired by the Plan in 1989, at an original acquisition cost of 
$6,023,457. The Tyson Valley Freezer Facility consisted of a ground 
lease in property and the freezer facility located thereon. From the 
date of acquisition, through the date sale, the Plan collected net 
rental income totaling $5,922,906. The Company, at its own expense, 
made improvements to the Tyson Valley Freezer Facility while it was 
owned by the Plan.
    Arthur Andersen represents, that after reviewing the appraisal 
provided by Reed & Associates and considering the advice of legal 
counsel regarding the ownership of the improvements, it, in its 
capacity as independent fiduciary for the Plan, determined that the 
fair market value of the Tyson Valley Freezer Facility was $11,190,000. 
The Company purchased the Tyson Valley Freezer Facility for 
$11,190,000.
    13. As to all the sales, Arthur Andersen concluded that the sale of 
each of the Properties to the Company was in the best interests of the 
Plan and its participants and beneficiaries. In addition, Arthur 
Andersen represents that the Company paid the greater of (1) the fair 
market value, or (2) and the original acquisition cost to the Plan, for 
each of the Properties, on a property by property basis. As a result of 
the sale of the Properties to the Company, the Plan received a total of 
$33,032,000 in cash, at closing.
    14. Mr. Reed, of Reed & Associates, represents that in his capacity 
as appraiser, he reviewed the past rental rates paid on each of the 
Properties, from April 1, 1991, to the date of sale, and that the 
rental rates paid by the Company to the Plan for each of the Properties 
constituted fair market rental value.
    The Company prepared an analysis of the rents received for each of 
the Properties from 1986 to the date of sale. The analysis shows that 
the annualized rates of return ranged from 12% to 24.27%, with most 
annualized returns in the 12% to 13% range.
    15. Arthur Andersen represents, that in its opinion, the sale of 
the Properties to the Company was appropriate and in the best interests 
of the Plan and its participants and beneficiaries. Further, Arthur 
Andersen states that its review of the Plan's records confirm that the 
Plan has been terminated and that the Properties needed to be sold to 
permit the assets of the Plan to be distributed to the participants and 
beneficiaries in accordance with the terms of the Plan.
    16. In summary, the applicant represents that the proposed 
transaction satisfies the 408(a) of the Act for the following reasons: 
(a) Prior to the sale, an independent fiduciary determined that the 
transaction was in the best interest of the Plan and its participants 
and beneficiaries; (b) the sale will enable the Plan to make 
distributions to participants and beneficiaries; (c) as of the date of 
sale, the Plan received cash for each of the Properties which was the 
greater of (1) the fair market value of the Properties, or (2) the 
Plan's original acquisition cost for each of the Properties, on a 
property by property basis; and (d) the sale was a one-time cash 
transaction and the Plan did not incur any expenses related to the 
sale.

For Further Information Contact: Ms. Janet L. Schmidt of the 
Department, telephone (202) 219-8883. (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 of 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 accurately describe all 
material terms of the transaction which is the subject of the 
exemption. In the case of continuing exemption transactions, if any of 
the material facts or representations described in the application 
change

[[Page 13696]]

after the exemption is granted, the exemption will cease to apply as of 
the date of such change. In the event of any such change, application 
for a new exemption may be made to the Department.

    Signed at Washington, DC, this 17th day of March, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-7272 Filed 3-19-98; 8:45 am]
BILLING CODE 4510-29-P