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Employee Benefits Security Administration

Proposed Exemption Involving; Wholesale Electronic Supply Employees Profit Sharing Plan and Trust

[PDF Version]

[Federal Register: March 13, 2008 (Volume 73, Number 50)]
[Notices]               
[Page 13587-13588]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr08-87]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. D-11416, et al.]

 
Proposed Exemption Involving; Wholesale Electronic Supply 
Employees Profit Sharing Plan and Trust

AGENCY: Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemption.

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SUMMARY: This document contains a notice 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 (ERISA or the Act) and/or the 
Internal Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
requests for a hearing on the pending exemption, unless otherwise 
stated in the Notice of Proposed Exemption, within 45 days from the 
date of publication of this Federal Register Notice. Comments and 
requests for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing.

ADDRESSES: All written comments and requests for a hearing (at least 
three copies) should be sent to the Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5649, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No.--------, stated in each Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via e-mail or Fax. Any such 
comments or requests should be sent either by e-mail to: 
moffitt.betty@dol.gov, or by fax to (202) 219-0204 by the end of the 
scheduled comment period. The application for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemption 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 exemption was requested in an 
application filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, this notice of proposed exemption is 
issued solely by the Department.
    The application contains representations with regard to the 
proposed exemption which is summarized below. Interested persons are 
referred to the application on file with the Department for a complete 
statement of the facts and representations.

Wholesale Electronic Supply Employees Profit Sharing Plan and Trust 
(the Plan) Located in Dallas, TX

[Application No. D-11416]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and 4975(c)(2) of the Code, and 
in accordance with the procedures set forth in 29 CFR Part 2570 Subpart 
B (55 FR 32836, 32847, August 10, 1990). If the proposed exemption is 
granted, the restrictions in sections 406(a)(1)(A), 406(a)(1)(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) and (c)(1)(D) through (E) of the Code, shall not apply to 
the sale of a note (the Note) by the Plan to Levco Enterprises, Inc., a 
party in interest with respect to the Plan, provided that the following 
conditions are satisfied:
    (a) The terms and conditions of the sale are at least as favorable 
to the Plan as those that the Plan could obtain in an arm's length 
transaction with an unrelated party;
    (b) The Plan receives $45,750.00, the outstanding principal balance 
of the Note;
    (c) The sale is a one-time transaction for cash; and
    (d) The Plan pays no commissions, costs, nor other expenses in 
connection with the sale.
Summary of Facts and Representations
    1. The Plan is a defined contribution, profit sharing plan. As of 
June 30, 2006, the Plan had 21 participants and beneficiaries. As of 
the same date, the Plan had total assets of $426,213, which are held by 
Merrill Lynch. Resolutions approving and authorizing the complete 
freeze and termination of the Plan, effective February 21, 2007, were 
adopted by the Board of Directors of Wholesale Electronic Supply, Inc., 
the Plan sponsor. In connection with the termination of the Plan, an 
application has been filed with the Internal Revenue Service (the 
Service) for a favorable determination regarding the Plan's status as a 
qualified plan under section 401(a) of the Code. Only after the Plan 
obtains such a determination from the Service and the requested 
exemption from the Department with respect to the Note is granted will 
the Plan's trust be liquidated and all account balances distributed.
    2. On February 24, 1987, the Plan sold a 6,315 sq. ft. tract of 
unimproved land

[[Page 13588]]

in Dallas (the Flora Street Property), Texas to Savoy Properties Co. 
(Savoy), an unrelated third party, in exchange for (i) a 5,400 sq. ft. 
tract of unimproved land in Dallas, Texas, and (ii) the Note, secured 
by the Deed of Trust for the sold property.\1\ The Note bears no 
interest and is due and payable upon the earlier of (a) the 
commencement of the development of the Flora Street Property, or (b) 
the sale of the Flora Street Property by Savoy. The full face amount of 
the Note remains outstanding and represents approximately 11 percent of 
the Plan's assets. The trustee of the Plan, John N. Leedom, proposes 
the sale of the Note to Levco Enterprises, Inc. (Levco); the Plan 
sponsor owns 86% of the total value of shares of all classes of stock 
of Levco, and both are located in Dallas, Texas. Mr. Leedom is also the 
CEO of both the Plan sponsor and of Levco.
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    \1\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Note by the Plan as part of the 
consideration in the 1987 exchange violated any of the provisions of 
Part 4 of Title I in the Act.
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    The applicant represents that, prior to the 1987 exchange, the 
Savoy 5,400 sq. ft. tract was between two other tracts already owned by 
the Plan, and the Plan owned a third separate 6,315 sq. ft. tract in 
the vicinity. In order to enhance the value of the first two tracts by 
joining them together as one contiguous property, the Plan trustee 
approached Savoy about acquiring its 5,400 sq. ft. tract. Because the 
transaction was sought by the Plan and because the Savoy tract had 
special value to the Plan, Savoy was not a motivated seller and was 
reluctant to pay an additional amount of cash in the exchange of its 
property for the larger tract owned by the Plan. The Plan trustee, 
however, determined that it was in the best interests of the Plan to 
acquire the Savoy tract and agreed to the exchange, plus the receipt of 
additional consideration in the form of the Note. According to the 
applicant, the adjacency premium commanded by the Savoy tract was due 
to the Plan's subsequent assemblage of a larger, contiguous piece of 
property whose increase in value exceeded any risk associated with 
holding the non-interest-bearing Note. According to the applicant, this 
consolidated property was the sole real estate asset held by the Plan 
and was sold in 2005 to an unrelated third party.
    3. The Note was appraised by a qualified, independent appraiser 
Stephen M. LaGrasta, MAI, with Yates-LaGrasta, Inc., located in 
Houston, Texas. It is represented that Yates-LaGrasta, Inc. regularly 
performs appraisals for institutional clients, including banks, 
regulatory agencies, insurance companies, trusts, and state and federal 
courts. Using a discounting process, Mr. LaGrasta opined that the fair 
market value for the real estate lien Note was $5,623, as of February 
20, 2007. The principal balance outstanding under the Note is 
$45,750.00.
    4. Levco will pay a purchase price of $45,750.00 for the Note. The 
sale of the Note to Levco will be a one-time transaction for cash and 
will provide the liquidity necessary to make final distributions to the 
Plan's participants and beneficiaries. Levco is bearing the costs of 
the exemption application and of notifying interested persons.
    5. In summary, the applicant represents that the proposed 
transaction satisfies the statutory criteria for an exemption under 
section 408(a) of the Act for the following reasons:
    (a) The terms and conditions of the sale will be at least as 
favorable to the Plan as those that the Plan could obtain in an arm's 
length transaction with an unrelated party;
    (b) The Plan will receive $45,750.00, the outstanding principal 
balance of the Note;
    (c) The sale will be a one-time transaction for cash; and
    (d) The Plan will pay no commissions, costs, nor other expenses in 
connection with the sale.
    Notice to Interested Persons: Notice of the proposed exemption 
shall be given to all interested persons by first-class mail within 10 
days of the publication of this notice in the Federal Register. Notice 
to interested persons shall include a copy of this published Federal 
Register notice and inform them of their right to comment. Comments 
with respect to the proposed exemption are due within 40 days of the 
publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department, 
telephone (202) 693-8557. (This is not a toll-free number.)
General Information
    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemption, 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 exemption, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 7th day of March, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
 [FR Doc. E8-4981 Filed 3-12-08; 8:45 am]

BILLING CODE 4510-29-P