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Secretary of Labor Thomas E. Perez
Proposed Exemptions; John Taylor Fertilizers Company Profit Sharing Plan (the Plan) [Notices] [09/16/1998]

EBSA (Formerly PWBA) Federal Register Notice

Proposed Exemptions; John Taylor Fertilizers Company Profit Sharing Plan (the Plan) [09/16/1998]

[PDF Version]

Volume 63, Number 179, Page 49612-49614

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Application No. D-10379, et al.]

 
Proposed Exemptions; John Taylor Fertilizers Company Profit 
Sharing Plan (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.

ADDRESSES: 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, NW., Washington, DC 
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.

John Taylor Fertilizers Company Profit Sharing Plan (The Plan) 
Sacramento, California

[Application No. D-10379]

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 proposed sale by the Plan of an undivided 
16.28% interest (Leasehold Interest) in a certain leasehold (Leasehold) 
of a professional office complex (Office Complex) located in 
Sacramento, California, to John Taylor Fertilizers Company (the 
Company), a party in interest with respect to the Plan, provided that 
the following conditions are satisfied:
    (A) All terms of the transaction are 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 is a one-time transaction for cash;
    (C) The Plan pays no commissions or other expenses relating to the 
sale;
    (D) The purchase price is the greater of: (1) the fair market value 
of the Leasehold Interest as determined by a qualified, independent 
appraiser, or (2) the original acquisition cost, plus all costs 
attributable to holding the Leasehold Interest through the date of the 
sale;
    (E) The Plan receives rental income due and owing to the Plan 
through the date of the sale.

[[Page 49613]]

Summary of Facts and Representations

    1. The Plan is a profit sharing plan with 187 participants and 
total assets of $12,997,980 as of October 31, 1995. The Plan is 
sponsored by John Taylor Fertilizers Company, a California Corporation, 
with its principal offices in Sacramento, California, which is engaged 
in the business of manufacturing and selling fertilizers. Mr. John 
Taylor is the trustee of the Plan. It is represented that Mr. Taylor 
makes investment decisions for the Plan.
    2. The Leasehold Interest which is owned by the Plan represents an 
undivided 16.28% interest in the Leasehold. The other owners of the 
remaining 83.72% of the Leasehold are: Amelia Richter, Mary Richter, 
and Richter Brothers, Inc., Profit Sharing Plan and Trust 
(Collectively, the Co-Owners). The underlying land on which the Office 
Complex is located is owned by Constance N. Elkus. It is represented 
that neither the Co-Owners nor Constance N. Elkus is related to the 
John Taylor Fertilizers Company.
    3. The Leasehold consists of the Office Complex which is comprised 
of two one-story buildings, with a garden style layout, located at the 
northeast corner of Northrop Avenue and Fulton Avenue, in Sacramento, 
California. The combined floor area of the Office Complex which 
comprises the Leasehold is approximately 85,378 square feet. The Office 
Complex is located on a rectangular parcel, with 344 feet of frontage 
on Northrop Avenue and 249 feet on Fulton Avenue and is zoned for 
Business and Professional Use. The Leasehold has a remaining primary 
term of approximately 16 years with an option to renew for two periods 
of ten years each.
    4. The Plan acquired its Leasehold Interest as a result of a 
successful judicial foreclosure action brought by the Plan and the Co-
Owners in 1991, as follows. In 1984, the Plan invested $141,000 in a 
loan to a partnership, which was secured by a second deed of trust in 
the Leasehold. In 1987, the partnership defaulted on the Loan and the 
Plan, along with the Co-Owners, foreclosed on the Leasehold. Pursuant 
to the judicial foreclosure, which was approved by the Superior Court 
of California, Sacramento County, the Plan acquired its Leasehold 
Interest.
    Subsequent to acquiring the ownership of the Leasehold Interest, 
the Plan, along with the Co-Owners of the Leasehold, paid off the first 
deed of trust. In this regard, the Plan paid an additional $195,603 to 
Aetna, the holder of the first deed of trust. In addition, after 
acquiring the Leasehold Interest, the Plan paid expenses, net of 
income, relating to the holding of the Leasehold Interest totaling 
$153,747. These Plan expenses of $153,747, plus the payments in 
satisfaction of the first deed of trust of $195,603, plus the original 
Loan amount of $141,000, equals the Plan's original acquisition plus 
holding costs of the Leasehold Interest. Accordingly, the Plan's total 
investment in the Leasehold Interest is $490,350.<SUP>1</SUP>
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    \1\ This figure represents the Plan's original acquisition plus 
holding costs through July 8, 1997. Since this date, the Plan's 
total investment in the Property has continued to increase due to 
the continuing expenses related to holding the Leasehold Interest.
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    5. After the Plan acquired the Leasehold Interest, the space in the 
Office Complex was rented to various business and professional tenants. 
Accordingly, the Plan received rental income of approximately $91,000 
between January 1, 1984 and August 3, 1990. Between August 30, 1990 and 
November 1992, the Plan's expenses equaled the Plan's rental income 
from the Leasehold Interest. However, since November of 1992, the 
Plan's expenses related to holding the Leasehold Interest exceeded the 
rental income by $1,490 per month.
    6. As of August 2, 1996, the Office Complex had a 44.2% vacancy 
rate. It is represented that the Plan continues to lose money on the 
Leasehold Interest because of the high vacancy rate and the continuing 
expenses related to the Plan's holding of the Leasehold Interest. 
Accordingly, it is represented that the Plan's continued ownership of 
the Leasehold Interest is not in the best interests of Plan 
participants and beneficiaries.
    In addition, it is represented that fair market value of the 
Leasehold Interest has declined in value during recent years, and for 
this reason, the Company proposes to purchase the Leasehold from the 
Plan and is requesting an exemption for its sale under the terms and 
conditions described herein.
    7. The Company proposes to purchase the Leasehold Interest from the 
Plan in a one-time transaction for cash. It is represented that the 
Company will pay the greater of: (a) the fair market value of the 
Leasehold Interest on the date of the sale, or (b) the Plan's original 
acquisition cost, plus all costs attributable to the Plan's holding of 
the Property, through the date of the sale. For purposes of the sale, 
the original acquisition cost plus holding costs is determined as 
follows: (original purchase price + aggregate real estate taxes through 
the date of the sale + all other expenses and fees through the date of 
the sale) = original acquisition cost plus holding costs. As stated 
above, through July 8, 1997, the original acquisition cost plus holding 
costs for the Leasehold Interest was $490,350. Because the Company is 
required to pay the original acquisition plus all holding costs through 
the date of the sale and holding costs have continued to accrue since 
July 8, 1997, the Company will pay the Plan an amount in excess of 
$490,350 for its Leasehold Interest.
    8. The Property was appraised by Stephen A. Rosenthal (Rosenthal), 
MAI, an independent real estate appraiser certified by the state of 
California, on August 2, 1996.<SUP>2</SUP> Rosenthal is a principal in 
the Sacramento, California, appraisal firm of Ramirez Rosenthal 
Company.
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    \2\ On August 24, 1998, Rosenthal opined that since the date of 
the appraisal, there has not been a dramatic change in the quality 
or character of the locality surrounding the Property and based on a 
study of recent comparable sales, that the Property has not 
significantly increased in value.
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    Rosenthal initially appraised the combined value of the fee simple 
interest of the Office Complex and underlying land. Applying both the 
comparable sales and income capitalization methods of appraisal, 
Rosenthal determined that the fair market value of the fee simple 
interest of the Office Complex and underlying land was $1,650,000.
    In determining the fair market value of the Leasehold, Rosenthal 
considered the remaining primary term of the Leasehold as well as the 
two ten year renewal periods. In addition, Rosenthal considered income 
and expenses related to the ownership of the Leasehold. Based on this 
analysis and the value of the fee simple interest in the Office Complex 
and underlying land, Rosenthal determined that the fair market value of 
the Leasehold was $1,010,000.
    Based on Rosenthal's appraisal, the Company represents that the 
fair market value of the Plan's 16.28% Leasehold Interest is 16.28% of 
$1,010,000, which equals $164,428.
    9. Because the Plan's original acquisition cost plus holding costs 
exceeds $164,428, which is the fair market value of the Plan's 
Leasehold Interest, the Company represents that it will purchase the 
Leasehold Interest from the Plan at a price equal to the Plan's 
original acquisition cost plus holding costs. Since through July 8, 
1997, this amount totaled $490,353, the Company will purchase the 
Leasehold Interest for $490,353 plus an amount which represents all 
additional holding costs that have accrued since the July 8, 1997. 
Payment of such amount is a

[[Page 49614]]

condition of the exemption proposed herein.
    10. The Company represents that the sale transaction will occur as 
soon as possible after the publication in the Federal Register of a 
notice granting the exemption proposed herein, if granted. The Company 
represents that the proposed transaction is favorable to the Plan 
because the sale will be a one-time cash transaction and the Plan will 
incur no expenses as a result of the sale. In addition, it is 
represented that the sale is in the best interest of the participants 
and beneficiaries because the ownership of the Leasehold Interest has 
resulted in an operating loss to the Plan since 1992 and the Office 
Complex has had a 44% vacancy rate since 1996.
    11. In summary, the Company represents that the proposed 
transaction satisfies the 408(a) of the Act for the following reasons: 
(a) the Plan will receive cash for the Leasehold Interest which is the 
greater of (1) the fair market value of the Leasehold Interest, and (2) 
the original acquisition cost, plus all attributable holding costs 
through the date of the sale; (b) the sale will be a one-time cash 
transaction and the Plan will incur no expenses or commissions related 
to the sale; and (c) the Plan will divest itself of an investment which 
has resulted in a loss to the Plan for every year since 1992.

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 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 10th day of September, 1998.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 98-24799 Filed 9-15-98; 8:45 am]
BILLING CODE 4510-29-P