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EBSA
Notices
Notice of Proposed Individual Exemption Involving General Motors Corporation, Located in Detroit, MI
[ 9/18/2009]
[ PDF]
FR Doc E9-22485
[Federal Register: September 18, 2009 (Volume 74, Number 180)]
[Notices]
[Page 47963-47974]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr18se09-98]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. L-11568]
Notice of Proposed Individual Exemption Involving General Motors
Corporation, Located in Detroit, MI
AGENCY: Employee Benefits Security Administration, U.S. Department of
Labor.
ACTION: Notice of proposed individual exemption.
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This document contains a notice of pendency before the Department
of Labor (the Department) of a proposed individual exemption from
certain prohibited transaction restrictions of the Employee Retirement
Income Security Act of 1974 (the Act or ERISA). The transactions
involve the UAW General Motors Company Retiree Medical Benefits Plan
(the New GM VEBA Plan) and its associated UAW Retiree Medical Benefits
Trust (the VEBA Trust) (collectively the VEBA).\1\ The proposed
exemption, if granted, would affect the VEBA, its participants and
beneficiaries.
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\1\ Because the New GM VEBA Plan will not be qualified under
section 401 of the Internal Revenue Code of 1986, there is no
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code. However, there is jurisdiction under Title I of the Act.
DATES: Effective Date: If granted, this proposed exemption will be
effective as of July 10, 2009.
Written comments and requests for a public hearing on the proposed
exemption should be submitted to the Department within 45 days from the
date of publication of this Federal Register Notice.
ADDRESSES: All written comments and requests for a public hearing
concerning the proposed exemption should be sent to the Office of
Exemption Determinations, Employee Benefits Security Administration,
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW.,
Washington DC 20210, Attention: Application No. L-11568. 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: gm@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.
FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd, Office of Exemption
Determinations, Employee Benefits Security Administration, U.S.
Department of Labor, telephone (202) 693-8547. (This is not a toll-free
number.)
SUPPLEMENTARY INFORMATION: This document contains a notice of proposed
individual exemption from the restrictions of sections 406(a)(1)(A),
406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2), and 407(a) of ERISA. The proposed exemption has been
requested in an application filed by General Motors Corporation
pursuant to section 408(a) of ERISA and in accordance with the
procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836, 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. Accordingly, this proposed
exemption is being issued solely by the Department.
Summary of Facts and Representations \2\
The Applicant
Prior to its bankruptcy filing on June 1, 2009, General Motors
Corporation (Old GM) and its subsidiaries were engaged primarily in the
worldwide development, production, and marketing of cars, trucks, and
related parts. Old GM had its largest operating presence in North
America. As of March 31, 2009, Old GM had total assets on its
consolidated balance sheet of $82,290,000,000 and liabilities of
$172,810,000,000.
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\2\ The Summary of Facts and Representations is based on the
Applicant's representations and does not reflect the views of the
Department.
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By motion filed June 1, 2009, in In re General Motors Corporation,
\3\ Old GM sought approval for the sale of substantially all of its
assets to a purchaser sponsored by the United States Department of the
Treasury (U.S. Treasury). On July 10, 2009, following approval of the
U.S. Bankruptcy Court for the Southern District of New York, certain
assets and liabilities of Old GM were sold to General Motors Company
(New GM).\4\ New GM maintains its headquarters in Detroit, MI, and
employs 235,000 people throughout the world.
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\3\ No. 09-50026 (Bankr. S.D.N.Y.).
\4\ Following the asset sale, Old GM was renamed Motors
Liquidation Company. For the operations, assets and liabilities that
were not transferred to New GM, the chapter 11 bankruptcy proceeding
will continue in order to resolve creditors' claims and wind down
those operations in an orderly way.
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Background
Throughout much of 2005, Old GM and the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America
(UAW) engaged in extended discussions concerning the impact of rising
health care costs on Old GM's financial condition. During these
discussions, Old GM asserted that it had the right to unilaterally
modify the retiree health benefits under the General Motors Health Care
Program for Hourly Employees (``Old GM Plan'') and that, if no
agreement was reached to address the economic burden of its retiree
health obligation, Old GM would do so unilaterally. The UAW disagreed
with Old GM's position and asserted that retiree benefits were vested
and that Old GM did not have the right to modify them unilaterally. The
UAW and a class of retirees (``Class'') sued Old GM over this issue,
and after an extensive review by the UAW and class counsel (Class
Counsel) of Old GM's ability to continue providing retiree health care
benefits, the parties entered into a settlement
[[Page 47964]]
agreement, providing for, among other things, the institution of co-
pays and deductibles under the Old GM Plan. UAW et al. v. General
Motors Corp., No. 05-CV-73991, 2006 WL 891151 (E.D. Mich. Mar. 31,
2006), aff'd Int'l Union, UAW v. General Motors Corp., 497 F.3d 615
(6th Cir. 2006) (``Henry I'').
By its terms, however, the Henry I settlement agreement provided
only a temporary and limited solution. The settlement agreement imposed
new, cost-sharing requirements on UAW-hourly retirees, and required Old
GM to make certain payments to a voluntary employees' beneficiary
association trust (``Mitigation VEBA'') controlled by a committee
independent of Old GM, which would act as a funding source to mitigate
the impact of these cost-sharing provisions on retirees. The settlement
agreement was to remain in effect until at least September 14, 2011,
after which either Old GM or the UAW could terminate the agreement and
reassert its original position regarding Old GM's ability to
unilaterally modify and/or terminate retiree health care benefits. If
not terminated, the settlement agreement would remain in effect
indefinitely.
In 2007, during labor negotiations concerning a new national
collective bargaining agreement for UAW-represented employees, Old GM
advised the UAW that it planned to terminate the Henry I settlement
agreement in accordance with its terms in 2011, and exercise its right
to unilaterally terminate and/or modify the Old GM Plan's retiree
coverage for UAW retirees and their dependents, if Old GM's preference
for a mutual agreement could not be attained. In response, the UAW
reasserted its legal position that post-retirement medical coverage for
current UAW retirees under the Old GM Plan is vested and unalterable,
but agreed to enter into discussions to see if a solution acceptable to
all parties could be negotiated.
On September 26, 2007, the UAW and the Class sued Old GM in the
United States District Court for the Eastern District of Michigan,
again challenging Old GM's right to unilaterally modify and/or
terminate retiree health benefits. Int'l Union, UAW, et al. v. General
Motors Corp., No. 07-cv-14074 (E.D. Mich. Sept. 26, 2007) (``Henry
II''). Also, on that day, Old GM and the UAW agreed to a memorandum of
understanding regarding post-retirement medical benefits.
On February 21, 2008, the Henry II parties agreed on a detailed
settlement to effectuate the September 2007 memorandum of understanding
(``Henry II Settlement Agreement''). The Henry II Settlement Agreement
provided that on the later of January 1, 2010, or final court approval
of the Settlement Agreement, Old GM would terminate retiree coverage
under the Old GM Plan for the Class and an additional group of
employees and retirees known as the ``Covered Group,'' and would
transfer certain assets to the New GM VEBA Plan to provide the Class
and Covered Group with post-retirement medical benefits. The VEBA Trust
was to receive assets from a number of sources including: funds that
were then in the Mitigation VEBA and in the VEBA that supports the Old
GM Plan (``the Internal VEBA''), cash from Old GM and Old GM issued
notes.
After a fairness hearing, the Henry II Settlement Agreement was
approved by the District Court on July 31, 2008, as fair, reasonable,
and adequate. See Int'l Union, UAW, et al. v. General Motors Corp., No.
07-cv-14074, 2008 WL 2968408 (E.D. Mich. July 31, 2008). No appeal of
the court's order approving the settlement was taken.
The Henry II Settlement Agreement fully resolved the parties'
dispute regarding post-retirement health benefits and replaced the
Henry I settlement agreement. Under the new agreement, Old GM's
obligation to provide post-retirement medical benefits to the Class and
Covered Group would be terminated. The New GM VEBA Plan would be
established and maintained not by Old GM, but by an employees'
beneficiary association consisting of the population covered by the New
GM VEBA Plan and administered by an independent committee
(``Committee''). The New GM VEBA Plan, to be funded exclusively through
the VEBA Trust, would be solely responsible for the payment of post-
retirement medical benefits to members of the Class and Covered Group
on and after January 1, 2010.
Since final approval of the Henry II Settlement Agreement by the
court on July 31, 2008, Old GM's financial position deteriorated
significantly due to a steep and unanticipated decline in revenue
caused by a dramatic drop in the market for new motor vehicles. As a
consequence, Old GM petitioned the Federal government for emergency
financial assistance, which resulted in a Loan and Security Agreement
dated December 31, 2008, between Old GM and the U.S. Treasury (``2008
Loan Agreement''). The 2008 Loan Agreement required Old GM to present,
by March 31, 2009, a certification and report detailing, among other
things, the progress made by Old GM and its subsidiaries in
implementing a restructuring plan that included (a) modification of
labor contracts, (b) modification of Old GM's obligations to the New GM
VEBA Plan, and (c) a bond exchange offer with its creditors. Failure to
reach the preceding agreements, to the satisfaction of the President's
designee, would cause the 2008 Loan to become due and payable within 30
days.
On March 31, 2009, Old GM entered into amendments to the 2008 Loan
Agreement that extended the deadline to June 1, 2009. Between March 31,
2009, and June 1, 2009, Old GM drew additional government aid. On June
1, 2009, Old GM filed for bankruptcy protection.
Bankruptcy
Given Old GM's financial situation, the bankruptcy, and the need to
meet the requirements of the 2008 Loan Agreement, Old GM, the UAW,
Class Counsel, and the U.S. Treasury agreed that Old GM and the UAW
would enter into another agreement, known as the Modified Settlement
Agreement, and seek approval of the Modified Settlement Agreement from
the bankruptcy court. The Modified Settlement Agreement governed the
provision of post-retirement medical benefits to the Class and the
Covered Group by the new company (i.e., New GM) that was anticipated to
purchase certain assets of Old GM as part of the bankruptcy action.
On July 5, 2009, the bankruptcy court approved a sale under Section
363 of Title 11 of the U.S. Code by which New GM succeeded to certain
assets and liabilities of Old GM (``Section 363 Sale''). The bankruptcy
court also approved the Modified Settlement Agreement. The Section 363
Sale closed, and the Modified Settlement Agreement was executed, on
July 10, 2009.
Effective as of the Section 363 Sale, New GM has the following
capitalization:
Common Equity: The outstanding common stock of New GM (New GM
Common Stock) (without giving effect to the warrants described below)
is allocated as follows:
60.8% (304,131,356 shares) to the U.S. Treasury \5\
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\5\ The Applicant's position is that the U.S. Treasury's
ownership of more than 50% of New GM should not result in the U.S.
Treasury being considered a party in interest to the New GM VEBA
Plan under section 3(14)(E) of ERISA. Section 3(14)(E) states that a
party in interest means, as to an employee benefit plan, ``an owner,
direct or indirect, of 50 percent or more of * * * the combined
voting power of all classes of stock entitled to vote or the total
value of shares of all classes of stock of a corporation * * * which
is an employer,'' any of whose employees are covered by such plan.
In the Applicant's view, Congress did not intend the party in
interest definition to include the government of the United States
or a Cabinet Department of its Executive Branch. In the Department's
view, section 3(14) does not apply to the U.S. Treasury in
connection with its ownership interest in New GM because a contrary
interpretation would conflict with section 514(d) of ERISA. That
section provides, in part, that ``[n]othing in [title I] shall be
construed to alter, amend, modify, invalidate, impair, or supersede
any law of the United States * * *'' If the U.S. Treasury were to be
a party in interest with respect to a plan subject to ERISA, then
ERISA would prohibit almost any transaction between that plan and
the Federal government arising under a federal statutory framework
other than ERISA. Accordingly, the Department concurs with the
Applicant's conclusion that the U.S. Treasury is not a party in
interest under ERISA.
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[[Page 47965]]
11.7% (58,368,644 shares) to the Canadian and Ontario
governments (collectively)
17.5% (87,500,000 shares) to the New GM VEBA Plan
10% (50,000,000 shares) to Old GM
Perpetual Preferred Stock: Single issue of $9.0 billion cumulative
perpetual preferred stock with a 9% dividend per annum (``Series A''),
consisting of:
$2.1 billion issued to the U.S. Treasury
$0.4 billion issued to the Canadian and Ontario
governments (collectively)
$6.5 billion issued to the New GM VEBA Plan
Debt: Approximately $17.3 billion estimated total consolidated debt
(excluding debt related to Old GM's automotive supplier financing
program and warranty program), each in a separate issue, including
approximately:
$6.7 billion owed to the U.S. Treasury
$1.3 billion owed to the Canadian and Ontario governments
(collectively)
$2.5 billion owed to the New GM VEBA Plan
$6.8 billion of other, primarily international debt, but
excluding Europe
Warrants: Separate issues of warrants will be allocated as follows:
To Old GM: Warrants to acquire 45,454,545 newly issued
shares of New GM Common Stock, exercisable at any time prior to the
seventh anniversary of issuance, with an exercise price set at $30.00
per share.
To Old GM: Warrants to acquire 45,454,545 newly issued
shares of New GM Common Stock, exercisable at any time prior to the
tenth anniversary of issuance, with an exercise price set at $55.00 per
share.
To the New GM VEBA Plan: Warrants to acquire 15,151,515
newly issued shares of New GM Common Stock, exercisable at any time
prior to December 31, 2015, with an exercise price set at $126.92 per
share.
New GM VEBA Plan and VEBA Trust
The UAW General Motors Company Retirees Employees' Beneficiary
Association (``General Motors Company Retirees EBA''), acting through
the Committee, will establish and maintain the New GM VEBA Plan,
subject to ERISA, to provide retiree health benefits to the Class and
Covered Group after the Implementation Date, which will be December 31,
2009. Prior to the Section 363 Sale, the Old GM Plan provided retiree
health benefits to the Class and the Covered Group; following the
closing of the Section 363 Sale, the General Motors Company Plan (``New
GM Plan'') assumed provision of the benefits with respect to claims
incurred on or before the Implementation Date. The New GM VEBA Plan
will be responsible for benefit claims incurred after the
Implementation Date.\6\
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\6\ As of the date of the bankruptcy filing, approximately
751,700 hourly retirees and dependents in the U.S. received retiree
health benefits from Old GM. Of this total, approximately 699,000
are hourly retirees and spouses, surviving spouses and eligible
dependents represented by the UAW. Additionally, approximately
78,000 UAW-represented active employees had attained seniority as of
September 14, 2007, and will, upon retirement, be covered by the New
GM VEBA Plan.
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Beginning with claims incurred on and after the later of (i) July
1, 2009, or (ii) receipt of necessary bankruptcy court approval, the
Old GM Plan will be amended and/or implemented to reflect certain
benefit changes set forth in Exhibit F of the Modified Settlement
Agreement. After the Implementation Date, the Committee will have sole
responsibility to determine the scope and level of retiree health
benefits available to the Class and Covered Group under the New GM VEBA
Plan. The Committee may raise or lower the level of retiree health care
benefits available to the Class and Covered Group. In exercising its
authority over benefit design, the Committee shall be guided by the
principle that the New GM VEBA Plan should provide substantial health
benefits for the duration of the lives of all participants and
beneficiaries in the New GM VEBA Plan.
The General Motors Company Retirees EBA, along with the UAW
Chrysler Retirees Employees' Beneficiary Association and the UAW Ford
Retirees Employees' Beneficiary Association, each acting through the
Committee, established the VEBA Trust on October 16, 2008. The VEBA
Trust will be the funding source for the New GM VEBA Plan. The VEBA
Trust is the subject of a trust agreement between the trustee and the
Committee, acting on behalf of the respective EBAs. The VEBA Trust is
intended to be tax-exempt under section 501(c)(9) of the Internal
Revenue Code, as amended, and, as a trust holding assets of plans
subject to ERISA, will itself be subject to ERISA's fiduciary
responsibility standards.
The VEBA Trust will have three separate retiree accounts, designed
to segregate payments attributable to GM, Ford, and Chrysler, pursuant
to the terms of each company's settlement agreement with the UAW and
each respective class. Each retiree account will be a separate,
dedicated account, to be used for the sole purpose of funding benefits
provided under the separate plans providing health benefits to the
retirees of GM, Ford and Chrysler, and defraying the reasonable
expenses of each plan. Each retiree account will contain a separate
sub-account maintained to hold any employer security. Assets from one
retiree account may not offset the liabilities or defray the expenses
attributable to another retiree account. The VEBA Trust was structured
in this way to allow for the pooled investment of assets and to provide
economies of scale to the respective plans' investments, while
maintaining a separate plan for each of the three retiree classes.
Unless the Committee decides to establish segregated investment
vehicles for specific separate retiree accounts, the assets of the
separate retiree accounts, other than any employer security sub-
account, will be invested on a pooled basis within the VEBA Trust.
Under the terms of the Modified Settlement Agreement, the assets
New GM transfers or causes to be transferred to the New GM VEBA Plan
will be credited to the GM retiree account in the VEBA Trust (the
``General Motors Company Separate Retiree Account''). The transferred
assets and remittances of, or attributable to, the GM UAW retirees will
be professionally managed and reinvested and will pay benefits and New
GM VEBA Plan expenses under the New GM VEBA Plan. The transferred
securities issued by New GM will be held in a separate sub-account (the
``General Motors Company Employer Security Sub-Account'') of the
General Motors Company Separate Retiree Account and will be managed by
an independent fiduciary.
The Committee
The Committee acts as the plan administrator and named fiduciary
with respect to the New GM VEBA Plan, and appoints the trustee, the
independent fiduciary and all investment managers of the VEBA Trust's
assets. The Committee is comprised of eleven
[[Page 47966]]
individuals, consisting of two groups: Six Independent Members and five
UAW Members. The initial Independent Members were approved by the
district court in Henry II and the UAW Members were appointed by the
UAW. The Modified Settlement Agreement maintains these appointments.
Neither Old GM nor New GM has any appointment power, and the Committee
will function completely independently of both. No member of the
Committee may be a current or former officer, director or employee of
Old GM, New GM, Ford, Chrysler, or Chrysler Group, with the following
exceptions: (i) A retiree who was represented by the UAW in his or her
employment with either Old GM, New GM, Ford, Chrysler, or Chrysler
Group, may be a UAW Member of the Committee, and (ii) an employee of
Old GM, New GM, Ford, Chrysler, or Chrysler Group who is on leave from
the company and is represented by the UAW, may be a UAW Member of the
Committee. None of the Independent Members nor any of their family
members, employers or partners may have any financial or institutional
relationship with either Old GM, New GM, Ford, Chrysler, or Chrysler
Group if such relationship could reasonably be expected to impair such
Independent Member's exercise of independent judgment.
The UAW Members serve at the discretion of the UAW International
President and may be removed or replaced, and a successor designated,
at any time by written notice by the UAW International President to the
Committee. Independent Members serve for a term of three years, except
two of the initial Independent Members will have an initial term of two
years, and another two will have an initial term of one year.
Independent Members may serve more than one term. An Independent Member
will serve on the Committee until expiration of his or her term, or his
or her death, incapacity to serve, resignation or removal. An
Independent Member may be removed or replaced, and a successor
designated, at any time by an affirmative vote of nine of the other
members of the Committee. In the event of a vacancy in the group of
Independent Members, whether by expiration of a term, resignation,
removal, incapacity, or death, a successor Independent Member will be
elected by the affirmative vote of nine members. If a successor
Independent Member is not appointed within a reasonable time after a
vacancy, an arbitrator may be appointed, upon application of any
member, to appoint a successor Independent Member to the Committee.
A majority of the members of the Committee then in office shall
constitute a quorum for the purpose of transacting any business;
provided that at least one Independent Member and one UAW Member are
present. Each Member of the Committee present at the meeting shall have
one vote. Generally, actions of the Committee shall be by majority vote
of the entire Committee, provided that at least one Independent Member
and one Union Member must be a Member in the majority for any Committee
action to take effect.
The Committee will select a chair from among its members. The term
of the chair will continue until he or she ceases to be a member,
resigns as chair or is replaced as chair with another member by
majority vote among the remaining members.
Old GM and New GM Role
Neither Old GM nor New GM will have any role in the governance,
management and operations of the New GM VEBA Plan. Old GM and New GM
will not be fiduciaries or have any ability to appoint any member of
the Committee, and the Committee is not authorized to act for Old GM or
New GM and is not an agent or representative of Old GM or New GM for
any purpose.
Pursuant to the Modified Settlement Agreement, New GM will
cooperate with the UAW and the Committee and at the Committee's request
will undertake reasonable actions to assist the Committee in the
orderly transition of responsibility for administration of retiree
medical benefits from the Old GM Plan, or New GM Plan, as applicable,
to the New GM VEBA Plan. Such cooperation may include assisting the
Committee in educational efforts and other communications to the Class
and Covered Group so that they understand the terms of the New GM VEBA
Plan and the shift of coverage for the Class and Covered Group from the
Old GM Plan, or New GM Plan, as applicable, to the New GM VEBA Plan,
and understand the claims submission process and any other initial
administrative changes undertaken by the Committee. At the Committee's
request and as permitted by law, New GM will furnish to the Committee
such information and will provide such cooperation as may be reasonably
necessary to permit the Committee to effectively administer the New GM
VEBA Plan. At the request of the Committee, and subject to
reimbursement for reasonable costs, New GM will continue to perform the
necessary eligibility work for a reasonable period of time, not to
exceed 90 days after the Implementation Date, in order to allow the
Committee to establish and test the eligibility database. New GM will
also assist the Committee in transitioning benefit provider contracts
to the New GM VEBA Plan.
To the extent permitted by law, New GM will allow pension plan
participants to voluntarily authorize the withholding of required
contributions under the New GM VEBA Plan from pension benefits, and, to
the extent reasonably practical, crediting such amounts to the General
Motors Company Separate Retiree Account of the VEBA Trust on a monthly
basis (the Contribution Withholding). A pension plan participant may
elect or withdraw consent for the Contribution Withholding at any time
by providing 45 days written notice to the plan administrator of the
General Motors Hourly-Rate Employees Pension Plan or such shorter
period as may be required by law. New GM also will cooperate with the
Committee to make provision for the VEBA Trust payments of the covered
benefit related to Medicare Part B premiums to be incorporated into the
monthly New GM pension checks for eligible retirees and surviving
spouses participating in the New GM VEBA Plan (the Part B Payment).
The New GM VEBA Plan will be responsible for the payment of
reasonable costs associated with New GM's administration of payment of
the Contribution Withholdings and the Part B Payment. The Applicant
asserts that, to the extent these payments are prohibited transactions,
the statutory exemption for the provision of services provided by
section 408(b)(2) of ERISA provides relief from the prohibited
transaction restrictions of section 406(a) of ERISA.
ERISA section 408(b)(2) provides relief for the ``[c]ontracting or
making reasonable arrangements with a party in interest for office
space, or legal, accounting or other services necessary for the
establishment or operation of the plan, if no more than reasonable
compensation is paid therefor.'' Under the Department's regulations, a
service is necessary for the establishment or operation of a plan if
the service is ``appropriate and helpful to the plan obtaining the
service in carrying out the purposes for which the plan is established
or maintained.'' 29 CFR section 2550.408(b)(2).
According to the Applicant, the Contribution Withholding is helpful
to the New GM VEBA Plan as it reduces expenses associated with
processing of participant contributions and
[[Page 47967]]
investigating delinquent contributions. This service is also helpful to
participants as it assures that contributions are received on time, and
without the need to mail a check monthly to the New GM VEBA Plan.
Accordingly, the Contribution Withholding is appropriate and helpful to
the New GM VEBA Plan in carrying out its purpose because it reduces
expenses and aids in making sure participants receive benefits without
interruption.
With respect to the Part B Payment, the Applicant states that it is
appropriate and helpful to the New GM VEBA Plan as it allows the New GM
VEBA Plan to take advantage of an existing system in order to
incorporate a defined, monthly payment to participants into pension
checks that participants are already receiving. This obviates the need
for the New GM VEBA Plan to develop its own distribution system and
undertake the expense of mailing monthly checks to all participants.
Accordingly, the Part B Payment also reduces expenses of the New GM
VEBA Plan, which helps conserve the amount of resources available to
provide benefits.
The Applicant further represents that the costs of the Contribution
Withholding and the Part B Payment have not yet been determined.
However, the Committee will be subject to ERISA's fiduciary
responsibility rules when determining the cost structure, and the
Modified Settlement Agreement states that both services will only be
provided to the extent permitted by law, and a cost that is not
reasonable would not permitted by law.
In the Department's view, relief under section 408(b)(2) would be
available for these services provided the conditions of that exemption
are satisfied. Ultimately it is the responsibility of the Committee to
determine whether the services provided by New GM satisfy all of the
conditions set forth in the statutory exemption and pertinent
regulations.
Payments to the New GM VEBA Plan
As described more fully below, under the Modified Settlement
Agreement, New GM transferred to the New GM VEBA Plan (i) New GM Common
Stock representing 17.5% of New GM's common equity, (ii) New GM
preferred stock with a value of $6.5 billion, (iii) a note for $2.5
billion, (iv) warrants entitling the New GM VEBA Plan to acquire an
additional 2.5% of New GM Common Stock, and (v) all of the assets in
the ``UAW-Related Account'' of the Internal VEBA.\7\ Additionally, as
contemplated by section 12.C. of the Modified Settlement Agreement, the
approval order in the bankruptcy case directed that the assets in the
Mitigation VEBA be transferred to the New GM VEBA Plan.
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\7\ Pursuant to the Henry II Settlement Agreement, the Internal
VEBA was divided into two bookkeeping accounts effective January 1,
2008; one with assets equal to the value of the Internal VEBA as of
December 31, 2007, multiplied by the percentage of Old GM's hourly
OPEB liability as of December 31, 2007, attributable to UAW
represented employees, retirees, their eligible spouses, surviving
spouses and dependents (the ``UAW-Related Account''), and the other
account of the remaining assets, attributable to non-UAW represented
individuals.
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Common Stock
As of the closing of the Section 363 Sale, New GM issued 87,500,000
shares of New GM Common Stock, representing 17.5% of its common stock,
to the New GM VEBA Plan. The New GM Common Stock will be held in the
General Motors Company Employer Security Sub-Account in the General
Motors Company Separate Retiree Account of the VEBA Trust. Any exercise
of warrants after the Section 363 Sale will dilute all stock holders
ratably. The New GM Common Stock will be transferable, in whole or in
part, at any time subject to certain conditions that are contained in
the Stockholders Agreement by and among New GM, the U.S. Treasury, the
New GM VEBA Plan, and the governments of Canada and Ontario
(``Canada'') (``Stockholders Agreement''). Pursuant to the Stockholders
Agreement and the Equity Registration Rights Agreement by and among New
GM, the U.S. Treasury, Canada, the New GM VEBA Plan and Old GM (the
Registration Rights Agreement), the New GM VEBA Plan will have demand,
shelf, and piggyback registration rights with respect to the New GM
Common Stock that are substantially consistent with the registration
rights that are held by the U.S. Treasury, Canada and the Old GM
unsecured creditors.
Preferred Stock
As of the closing of the Section 363 Sale, New GM transferred to
the New GM VEBA Plan $6.5 billion of Series A cumulative perpetual
preferred stock (``Preferred Stock''). The Preferred Stock is from the
same series of preferred stock that was issued to the U.S. Treasury and
Canada. The Preferred Stock will be held in the General Motors Company
Employer Security Sub-Account in the General Motors Company Separate
Retiree Account of the VEBA Trust. The Preferred Stock will be
transferable, in whole or in part, at any time subject to certain
conditions that are contained in the Stockholders Agreement. The
Preferred Stock carries a 9% dividend rate per annum, and is payable
quarterly in cash if, as, and when declared by New GM's Board. Each
share of Preferred Stock will have a liquidation preference of $25. The
Preferred Stock is not callable prior to December 31, 2014. The
redemption price must be paid in cash.
The Preferred Stock will be senior to the New GM Common Stock and
future preferred equity but junior to all existing and future debt. The
New GM VEBA Plan will have demand, shelf, and piggyback registration
rights with respect to the Preferred Stock that are substantially
consistent with its registration rights with respect to the New GM
Common Stock. The Preferred Stock has no voting rights, except under
the following circumstances, in which case the independent fiduciary
will vote the shares. If dividends payable on the Series A preferred
stock have not been paid for an aggregate of six quarters, the holders
of the Series A preferred stock have the right, as a class, to elect
two newly created directorships of New GM. In addition, a two-thirds
majority vote of the Series A preferred stock is necessary to authorize
the issuance of shares senior or pari passu to Series A preferred
stock, amend the terms of Series A preferred stock, or approve a share
exchange or reclassification of the Series A preferred stock or merger
or consolidation involving New GM.
The Note
As of the closing of the Section 363 Sale, New GM issued to the New
GM VEBA Plan a note (``Note'') with a principal amount of $2.5 billion.
The Note will be payable in cash in three equal installments. Each
payment will be in the amount of $1.384 billion and will be made on
July 15 of the years 2013, 2015, and 2017. The Note is transferable at
any time in whole or in part, subject to certain limited exceptions.
The Note ranks pari passu with notes that were issued to the U.S.
Treasury and Canada in the aggregate principal amount of $8.0 billion.
The New GM VEBA Plan will not have registration rights regarding the
Note; however, if the notes issued to the U.S. Treasury and Canada are
registered or registration rights are extended with respect to such
notes, then the New GM VEBA Plan will have demand, shelf, and piggyback
registration rights pertaining to the Note that are no less favorable
than those pertaining to the U.S. Treasury or Canada notes. Other terms
of the Note
[[Page 47968]]
are no less favorable than the terms of the U.S. Treasury or Canada
notes. The Note will be subordinate to any exit financing, including
the U.S. Treasury delayed draw term loan, revolver or any other third
party exit financing entered into with the consent of the U.S.
Treasury.
Warrants
As of the closing of the Section 363 Sale, New GM transferred to
the New GM VEBA Plan warrants to acquire 15,151,515 shares of New GM
Common Stock representing 2.5% of its common equity on a fully diluted
basis (``Warrants''). The Warrants will be held by the General Motors
Company Employer Security Sub-Account in the General Motors Company
Separate Retiree Account of the VEBA Trust, as will any New GM Common
Stock acquired by exercise of the Warrants. The Warrants will be
transferable, in whole or in part, at any time subject to certain
conditions that are contained in the Stockholders Agreement. The strike
price will be set at $126.92 per share representing a $75 billion
equity value of New GM. The expiration date for the Warrants will be
December 31, 2015.
The Warrants will contain other terms which the Applicant
represents are typical for securities of this type, including anti-
dilution, and partial and cashless exercise provisions. The New GM VEBA
Plan has registration rights with respect to the Warrants (and the New
GM Common Stock underlying the Warrants) that are consistent with its
registration rights with respect to the New GM Common Stock and the
Preferred Stock.
Transfer of Assets From UAW-Related Account of the Internal VEBA
The Internal VEBA is the General Motors Welfare Benefit Trust that
is maintained by Old GM as a source of funding for various retiree
welfare benefit plans, including the Old GM Plan. Pursuant to the Henry
II Settlement Agreement, the Internal VEBA was divided into two
bookkeeping accounts effective January 1, 2008: the UAW-Related
Account, as described above in footnote 7, and the other account of the
remaining assets, attributable to non-UAW represented individuals. As
of March 31, 2009, the UAW-Related Account had an estimated asset value
of approximately $9.4 billion.
Until the UAW-Related Account is transferred to the VEBA Trust, the
assets of the Internal VEBA will continue to be invested under the
existing investment policy, with investment returns, net of expenses,
applied proportionally to the value of the UAW-Related Account. The
appropriate New GM Plan fiduciary will direct the trustee of the
Internal VEBA to transfer the UAW-Related Account to the VEBA Trust
within 10 days after the Implementation Date. At the time of transfer,
pursuant to the Modified Settlement Agreement, an amount equal to the
UAW-Related Account's share of expenses (to the extent permitted by
ERISA) will be retained within the Internal VEBA to pay such expenses.
After payment of these expenses is completed, a reconciliation of the
amount retained and the actual expenses will be performed. The Internal
VEBA will then pay the VEBA Trust for any amount over withheld, or the
VEBA Trust will pay the Internal VEBA for any amount under withheld (a
``true-up'').
Transfer of Assets, Via the Bankruptcy Approval Order, From the
Mitigation VEBA
The Mitigation VEBA was created in connection with the settlement
in Henry I, and was established through a trust agreement between State
Street Bank and Trust Company and Old GM. The Mitigation VEBA was
intended to be a source of ``mitigation'' payments to Old GM Plan
participants to lessen the impact of the new cost-sharing provisions
implemented under the Henry I settlement agreement.\8\ As of April 30,
2009, the Mitigation VEBA had an estimated asset value of $1.025
billion. Until the assets and liabilities of the Mitigation VEBA are
transferred to the VEBA Trust, its value will be affected by certain
additional contributions and by income (including investment returns)
offset by mitigation payments and expenses. Pursuant to the Modified
Settlement Agreement, the Mitigation VEBA assets will be transferred to
the New GM VEBA Plan within 15 days after the Implementation Date, and
the Mitigation VEBA will be terminated.
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\8\ The Mitigation VEBA is the subject of Prohibited Transaction
Exemption 2009-03, 74 FR 3645 (Jan. 21, 2009), which provided relief
for certain cash advances and ``true ups'' between GM and the
Mitigation VEBA related to administration of the Mitigation VEBA.
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Covered Transactions
The Applicant seeks exemptive relief for two sets of transactions.
The first set of transactions involves the transfer by New GM to the
New GM VEBA Plan of the securities described above, and the second set
of transactions involves asset transfers to and from the New GM VEBA
Plan necessitated by the transition of benefit payment responsibility
from one plan to another, or due to mistaken deposits into the New GM
VEBA Plan.
With respect to the transfer of New GM securities to the New GM
VEBA Plan, the Applicant states that, following months of negotiations
involving the UAW, Class Counsel, Old GM, the U.S. Treasury, and other
Old GM debt holders, the transaction embodies the only feasible
mechanism to ensure that assets are dedicated to, and held in the New
GM VEBA Plan solely for use as retiree health care benefits (and
related reasonable expenses). Class Counsel supported the Applicant's
request for exemptive relief described herein.
1. Transfer of New GM Securities
The Applicant requests relief from sections 406(a)(1)(E),
406(a)(2), and 407(a) of ERISA for the acquisition and holding by the
New GM VEBA Plan of the New GM Common Stock, the Preferred Stock, the
Note and the Warrants (the Securities). Additionally, the Department
has proposed relief from section 406(a)(1)(A) for the disposition of
the Securities, in the event that the Securities are sold in a
transaction involving a party in interest.
Section 406(a)(1)(E) prohibits a fiduciary from causing a plan to
engage in a transaction, if he knows or should know that such
transaction constitutes the direct or indirect acquisition, on behalf
of a plan, of any employer security in violation of section 407(a).
Section 406(a)(2) prohibits a fiduciary who has authority or discretion
to control or manage the assets of a plan from permitting the plan to
hold any employer security if he knows or should know that holding such
security violates section 407(a).
Section 407(a)(1) states that a plan may not acquire or hold any
``employer security'' that is not a ``qualifying employer security.''
Section 407(a)(2) states that a plan may not acquire any qualifying
employer security (or qualifying employer real property) if immediately
after such acquisition the aggregate fair market value of employer
securities (and employer real property) held by the plan exceeds 10
percent of the fair market value of the assets of the plan.
According to the Applicants, when the New GM VEBA Plan acquired the
New GM Common Stock, the Preferred Stock, the Note and the Warrants,
each asset might not have been a ``qualifying employer security''
within the meaning of section 407(d)(5) and therefore the acquisition
of each would not be permitted under section 406(a). Additionally, the
Applicants note that even if the New GM Common Stock, the
[[Page 47969]]
Preferred Stock, the Note and the Warrants were considered qualifying
employer securities, the aggregate fair market value of employer
securities held by the New GM VEBA Plan would exceed the 10 percent
limitation in section 407(a)(2). Finally, Applicants request relief
from the provisions of sections 406(a)(1)(E), 406(a)(2) and 407(a) for
the future exercise of the Warrants by the New GM VEBA Plan. When, and
if, the New GM VEBA Plan's Warrants are exercised, New GM Common Stock
will be acquired and may not constitute a qualifying employer security
within the meaning of section 407(d)(5), and, immediately after the
acquisition of the New GM Common Stock due to the exercise of the
Warrants, the aggregate fair market value of employer securities held
by the New GM VEBA Plan may exceed 10 percent of the fair market value
of its assets.
Section 406(a)(1)(A) prohibits the sale, exchange or leasing of any
property between a plan and a party in interest. The Department is
proposing relief from that provision in the event the Securities are
disposed of in a transaction with a party in interest.
2. Transition Payments
Benefit Payments and Reimbursements
The Applicant requests exemptive relief from the prohibitions of
sections 406(a)(1)(B) and 406(a)(1)(D) of ERISA for certain payments
and reimbursements between Old GM, New GM, the Old GM Plan, the New GM
Plan and the New GM VEBA Plan.
ERISA section 406(a)(1)(B) prohibits a fiduciary from causing a
plan to engage in a transaction if he knows or should know that such
transaction constitutes a direct or indirect lending of money or other
extension of credit between a plan and a party in interest. ERISA
section 406(a)(1)(D) prohibits a fiduciary from causing a plan to
engage in a transaction if he knows or should know that such
transaction constitutes a direct or indirect transfer to, or use by or
for the benefit of, a party in interest, of any assets of the plan.
Prior to the Section 363 Sale, the Old GM Plan provided benefits
to, among others, individuals who ultimately will be covered by the New
GM VEBA Plan. The New GM Plan currently provides benefits to most of
these same individuals from the date of the Section 363 Sale until the
Implementation Date of the New GM VEBA Plan. The New GM VEBA Plan will
have sole responsibility and be the exclusive source of funds for the
payment of retiree medical benefits to the Class and Covered Group,
with respect to benefit claims incurred after the Implementation Date.
Under certain circumstances connected to the transition, Old GM,
New GM, the Old GM Plan, the New GM Plan, and the New GM VEBA Plan may
arguably extend credit or transfer plan assets to one another in order
to pay benefit claims that are the legal responsibility of another one
of those five parties (the ``Responsible Party'').\9\ The Applicant
asserts that mispayments and reimbursements are likely to occur in the
normal course due to the administrative realities of health care
payments and the shifting of plan responsibilities between multiple
plans in a short period of time.
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\9\ Under section 5A of the Modified Settlement Agreement,
claims incurred on or before the Implementation Date will be paid by
Old GM or New GM, as applicable, in accordance with the New GM Plan.
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The Applicant provides the following examples of transactions that
would require relief under the requested exemption. A UAW retiree is
incorrectly classified as an IUE-CWA retiree and is receiving retiree
medical benefits in accordance with the New GM Plan, paid directly by
New GM. The misclassification is discovered on September 1, 2010, and
the New GM VEBA Plan reimburses New GM for the payments relating to
claims incurred on or after January 1, 2010. Or, a member of the
Covered Group receives medical care on December 28, 2009, thereby
incurring a claim under the New GM Plan. However, in April of 2010, the
claim is presented to and paid by the New GM VEBA Plan. The New GM VEBA
Plan would be reimbursed by the New GM Plan.
In such event, the Responsible Party will reimburse the payor for
such benefits, plus interest. According to the Applicant, payment by a
payor of benefits for claims incurred after benefit responsibility has
been transferred arguably is an extension of credit between the payor
and the Responsible Party that is prohibited under section
406(a)(1)(B). Payment by the Responsible Party to the payor as
reimbursement for these paid claims arguably is a transfer of plan
assets to a party in interest that is prohibited under 406(a)(1)(D).
Deposits by Mistake
The Applicant likewise seeks relief from section 406(a)(1)(D) of
ERISA for return of mistaken payments to the New GM VEBA Plan, with
interest.
Under the last paragraph of section 12 of the Modified Settlement
Agreement, any deposit made to the New GM VEBA Plan by mistake will be
returned (with earnings) within 30 days of notice to the Committee of
the mistake, to the extent permitted by law. The Applicant is concerned
that this could be viewed as involving a prohibited transfer of plan
assets to a party in interest. Accordingly the Applicant requests
exemptive relief for this transaction.
Conditions Related to the Transfer of New GM Securities to the New
GM VEBA Plan: The Independent Fiduciary
Pursuant to the trust agreement of the VEBA Trust, the Committee
will appoint an independent fiduciary to manage the General Motors
Company Employer Security Sub-Account (``Independent Fiduciary''). The
Independent Fiduciary will be a ``named fiduciary'' and ``investment
manager'' as both terms are defined in ERISA, with complete discretion
regarding the holding, ongoing management, and disposition of any New
GM security (i.e., the New GM Common Stock, Preferred Stock, Note and
Warrants) acquired and held by the New GM VEBA Plan.
The Independent Fiduciary does not have discretion with respect to
certain other aspects of the Securities. First, because the New GM VEBA
Plan acquired the Securities by virtue of the Section 363 Sale, the
Independent Fiduciary had no discretion regarding the acquisition of
the Securities. Additionally, under the Stockholders Agreement, the New
GM Common Stock held by the New GM VEBA Plan must be voted in the same
proportion as votes cast by other stockholders. Therefore, the
Independent Fiduciary will have no responsibility for the voting of the
New GM Common Stock.
The Independent Fiduciary must be independent of and unrelated to
Old GM, New GM, the UAW and the Committee. This will not be the case if
(1) such fiduciary directly or indirectly controls, is controlled by,
or is under common control with Old GM, New GM, the UAW, the Committee
or their affiliates, (2) such fiduciary directly or indirectly receives
any compensation or other consideration from Old GM, New GM, the UAW or
any Committee member in his or her individual capacity in connection
with any transaction described in this exemption (except that an
independent fiduciary may receive compensation from the Committee or
the New GM VEBA Plan for services provided to the New GM VEBA Plan in
connection with the transactions discussed herein if the amount or
payment of such compensation is not contingent upon or in any way
affected by the independent fiduciary's ultimate decision), and (3)
[[Page 47970]]
the annual gross revenue received by the fiduciary, in any fiscal year,
from Old GM, New GM, the UAW or a member of the Committee in his or her
individual capacity, exceeds 3% of the fiduciary's annual gross revenue
from all sources (for federal income tax purposes) for its prior tax
year.\10\
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\10\ The Department notes that candidates for the position of
Independent Fiduciary to the New GM VEBA Plan may be affiliated with
entities that provide services to Old GM, New GM, Ford, Chrysler or
Chrysler Group or their affiliates. It is the responsibility of the
Committee to determine whether such affiliations are likely to
affect the judgment of the candidate in performing its services as
Independent Fiduciary.
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The Independent Fiduciary may be removed by the Committee on 30
days written notice only for cause.\11\ The removal will be effective
as specified in the written notice, provided that the Independent
Fiduciary has been given notice of the appointment of a successor
independent fiduciary. No successor will be appointed in the event the
New GM VEBA Plan ceases to hold any employer security. In the event
that the New GM VEBA Plan subsequently acquires or holds an employer
security and no appointment of a successor independent fiduciary has
been made, any court of competent jurisdiction may, upon application by
the retiring independent fiduciary, appoint a successor after such
notice to the Committee and the retiring independent fiduciary.
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\11\ Cause is defined in the Independent Fiduciary Agreement as:
(i) Any disqualifying event described in ERISA section 411; (ii)
Determination by any court, arbitrator or government regulatory body
that the Independent Fiduciary has violated any civil or criminal
law (including, but not limited to, securities, antitrust or ERISA)
in connection with the performance of its responsibilities to the
VEBA Trust. For purposes of avoidance of doubt in connection with
this and the subsequent subparagraph, a ``determination'' shall mean
any written judgment, order or decree; court-approved settlement;
arbitration award; or enforcement action of a government regulatory
body or SRO, in the form of a written sanction, claim, demand or
opinion, whether or not appealable; (iii) Determination by any
court, arbitrator or government regulatory body that the Independent
Fiduciary has materially breached the terms of its engagement,
whether or not appealable; (iv) Any action by the Independent
Fiduciary that results in imposition of a civil or criminal
sanction, any prohibited transaction excise tax, or any civil
judgment or award of damages, on the VEBA Trust, the Committee, the
trustee, or their respective employees, officers directors or owners
(whether or not subject to indemnity by the Independent Fiduciary,
an insurer, or any other person); (v) Termination, resignation, or
death of the Independent Fiduciary principal or officer assigned to
serve as the relationship principal with respect to the VEBA Trust,
or the inability of such person to perform his or her duties for a
continuous period of more than 30 days; (vi) Any change of ownership
of the Independent Fiduciary that constitutes an ``assignment'' of
the Independent Fiduciary's contract with the VEBA Trust, within the
meaning of the Investment Advisers Act; (vii) Failure of the
Independent Fiduciary to qualify as an ``investment manager'' within
the meaning of ERISA section 3(38); (viii) Any change in the
clientele, business or ownership of the Independent Fiduciary that
results in an actual conflict of interest; (ix) Failure of the
Independent Fiduciary to take into account the legitimate needs of
the VEBA Trust for liquidity to pay benefits; (x) Violation of any
conditions imposed on the Independent Fiduciary under the terms of
the prohibited transaction exemption issued by the Department; (xi)
Any other action or inaction of the Independent Fiduciary that the
Committee determines to be a material breach of the Independent
Fiduciary's agreement or any law, or is likely to result in an
irreconcilable conflict; (xii) Any circumstance that leads the
Committee to reasonably conclude that the termination of the
Independent Fiduciary and replacement by a successor Independent
Fiduciary is in the financial interest of the VEBA Trust, provided
that the Committee documents the reasons for the termination.
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The Committee delegated to a subcommittee (i.e., three Committee
members) the responsibility to retain an Independent Fiduciary on
behalf of the New GM VEBA Plan. The subcommittee initially determined
to proceed with the assumption that the interests of each plan whose
assets are held by the VEBA Trust would be best served by seeking to
retain a single qualified Independent Fiduciary to represent all three
plans (providing health benefits, respectively, to retirees of
Chrysler, GM and Ford). However, the subcommittee recognizes the
possibility that engaging multiple Independent Fiduciaries may turn out
to be the better option.
The subcommittee intends, as part of the interview process for
potential candidates for the Independent Fiduciary appointment, to
question the candidates on the nature and likelihood of potential
conflicts of interest, the appropriate means of monitoring and
communicating actual or potential conflicts, including whether the
candidates currently have formal conflict monitoring procedures, and
mechanisms for dealing with actual or potential conflicts as they are
identified. After reviewing the candidates' qualifications, capacity to
represent all three plans, willingness to do so, and other relevant
factors, in consultation with counsel, the subcommittee anticipates
making a final determination as to whether to hire one Independent
Fiduciary or multiple Independent Fiduciaries.
The subcommittee will work with the Independent Fiduciary
candidate(s) to develop procedures to identify, minimize and address
conflicts of interest as they arise. Specifically, in the event that a
single Independent Fiduciary is appointed, the subcommittee will engage
a ``conflicts monitor'' to (i) develop a process for identifying
potential conflicts, (ii) to regularly review the Independent Fiduciary
reports, investment banker reports, and public information regarding
the companies, to identify the presence of factors that could lead to a
conflict, and (iii) further question the Independent Fiduciary when
appropriate.
Additionally, the subcommittee will be prepared to replace the
Independent Fiduciary in the event of an actual and irreconcilable
conflict of interest.
Finally, the subcommittee will require the Independent Fiduciary to
adopt a written policy regarding conflicts of interest. Such policy
will require that, as part of the Independent Fiduciary's periodic
reporting to the Committee, the Independent Fiduciary includes a
discussion of actual or potential conflicts identified by the
Independent Fiduciary and options for avoiding or resolving the
conflict.
A separate investment bank will be retained with respect to each of
the three plans comprising the VEBA Trust. The investment bank's
initial recommendations would be made solely with the goal of
maximizing the returns for the single plan that owns the securities for
which the investment bank is responsible. If the Independent Fiduciary
deviated from such initial recommendations, it would find it necessary
to explain why it deviated from a recommendation; additionally, such a
deviation would be a way for the Committee or its designee to flag
possible conflicts of interest in advance. Any contract between the
Independent Fiduciary and an investment banker will include an
acknowledgement by the investment banker that the investment banker's
ultimate client is an ERISA plan.
The Independent Fiduciary will comply with the following additional
conditions. The Independent Fiduciary will authorize the trustee of the
New GM VEBA Plan to dispose of the New GM Common Stock (including
shares of New GM Common Stock acquired pursuant to exercise of the
Warrants), the Preferred Stock, the Note, or exercise the Warrants,
only after the Independent Fiduciary determines, at the time of the
transaction, that the transaction is feasible, in the interest of the
New GM VEBA Plan, and protective of the participants and beneficiaries
of the New GM VEBA Plan.
The Independent Fiduciary will negotiate and approve on behalf of
the New GM VEBA Plan any transactions between the New GM VEBA Plan and
any party in interest involving the Securities that may be necessary in
connection with the subject transactions (including but not limited to
the registration of the securities contributed to the New GM VEBA
Plan).
[[Page 47971]]
The Independent Fiduciary will discharge its duties consistent with
the terms of the New GM VEBA Plan, the trust agreement, the Independent
Fiduciary's agreement, and any other documents governing the employer
securities, such as the Registration Rights Agreement.
The New GM VEBA Plan may not incur any fees, costs or other charges
(other than described in the trust agreement and the Modified
Settlement Agreement) as a result of the transactions exempted herein.
The terms of any transaction exempted herein must be no less
favorable to the New GM VEBA Plan than the terms negotiated at arms'
length under similar circumstances between unrelated parties.
Conditions Related to Transition Payments
The conditions for reimbursements of mispayments require the
following procedure for audit and reconciling payments. The Applicants
state that given the rapidity of the shifts in responsibility from the
Old GM Plan to the New GM Plan, and from the New GM Plan to the New GM
VEBA Plan, it is unlikely that any review will be undertaken until at
least three months following the Implementation Date.
The Committee and an independent third party administrator of the
New GM VEBA Plan will review benefit payments paid during the
transition period and determine the dollar amount of any mispayments
made, subject to the review and approval of the New GM VEBA Plan's
independent auditor. The results of this review will be made available
to Old GM and New GM.
Old GM and New GM will perform similar reviews with respect to the
Old GM Plan and the New GM Plan. Old GM and New GM will provide the
results of their reviews to the Committee.
Interest on any reimbursed mispayment will accrue from the date of
the mispayment to the date of the reimbursement. Interest will be
determined using the applicable OPEB discount rate. The OPEB discount
rate is a rate used to discount projected future OPEB benefits payment
cash flows to determine the present value of the OPEB obligation.\12\
The rate is developed by New GM's Treasurer's office, working in
conjunction with New GM's independent auditor, Deloitte & Touche. The
discount rate's validity is attested to by Deloitte & Touche, and is
disclosed in New GM's annual 10K filing with the Securities and
Exchange Commission.
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\12\ OPEB means Other Post-Employment Benefits, and typically
includes retiree healthcare benefits, life insurance, tuition
assistance, day care, legal services and the like.
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If there is a dispute as to the amount of the mispayment and/or
reimbursement, undisputed amounts will be paid and the parties will
enter into a dispute procedure set forth in section 26D of the Modified
Settlement Agreement. Specifically, the parties exchange written
notices concerning the dispute and, within 21 days, meet and attempt to
resolve the dispute. If the parties are unable to resolve the dispute
within 30 days of the meeting, either party can demand arbitration.
In the case of a mistaken deposit to the New GM VEBA Plan, New GM
would make a claim to the Committee regarding the specific deposit or
transfer made in error or made in an amount greater than that to which
the New GM VEBA Plan was entitled. The claim must be made within the
Verification Time Period, which is defined as follows in Section VI(r)
of the proposed exemption.
The term ``Verification Time Period'' means: (i) with respect to
all Securities other than the Note, the period beginning on the date
of publication of the final exemption in the Federal Register and
ending 60 calendar days thereafter; (ii) with respect to each
payment pursuant to the Note, the period beginning on the date of
the payment and ending 90 calendar days thereafter; (iii) with
respect to the UAW-Related Account of the Internal VEBA, the period
beginning on the date of publication of the final exemption in the
Federal Register (or, if later, the date of the transfer of the UAW-
Related Account to the New GM VEBA Plan) and ending 180 calendar
days thereafter; and (iv) with respect to the Mitigation VEBA, the
period beginning on the date of publication of the final exemption
in the Federal Register and ending 60 calendar days thereafter.
Accordingly, any claim regarding a mistake with respect to the New
GM Common Stock, the Preferred Stock, the Warrants or the transfer of
the assets from the Mitigation VEBA must be made within 60 days of the
date of publication of the final exemption in the Federal Register. A
claim regarding a mistake with respect to a payment made pursuant to
the Note must be made within 90 days of the date of the payment. A
claim regarding a mistake with respect to the transfer of assets of the
UAW-Related Account of the Internal VEBA must be made within 180 days
of the date of publication of the final exemption in the Federal
Register (or, if later, from the date of the transfer of the UAW-
Related Account to the New GM VEBA Plan). The Applicant requests a
longer period for the assets of the UAW-Related Account of the Internal
VEBA due to the difficulty in determining the value of some of the
assets held by the Internal VEBA.
Interest on any mistaken deposit will accrue from the date of the
mistaken deposit to the date of the repayment. Interest will be
determined using the applicable OPEB discount rate, described above. In
the event of a dispute, the procedure set forth in section 26D of the
Modified Settlement Agreement, described above, would apply.
Statutory Findings
The Applicant makes the following statements regarding the
Department's required findings under section 408(a) of ERISA that the
exemption is administratively feasible, in the interests of the New GM
VEBA Plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the New GM VEBA Plan.
The exemption transactions are administratively feasible because
they are relatively simple and straight-forward, easy to monitor, and
involve the management of the Securities by the Independent Fiduciary.
The exemption transactions are in the interest of the New GM VEBA
Plan's participants and beneficiaries and protective of their rights
because they embody the only feasible mechanism to ensure that assets
are dedicated to, and held in the New GM VEBA Plan solely for use as
retiree health care benefits (and reasonable related expenses). The
Independent Fiduciary will represent the interests of the participants
and beneficiaries of the New GM VEBA Plan by exercising the sole
discretion regarding the management and disposition of the New GM
securities.
Notification of 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).
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
[[Page 47972]]
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 the application are true and complete, and that the application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting the following
exemption under the authority of section 408(a) of the Act and in
accordance with the procedures set forth in 29 CFR part 2570, subpart B
(55 FR 32836, 32847, August 10, 1990), as follows:
Section I--Covered Transactions
(a) If the exemption is granted, the restrictions of sections
406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), 406(a)(2), 406(b)(1),
406(b)(2) and 407(a) of ERISA shall not apply, effective July 10, 2009,
to:
(1) The acquisition by the UAW General Motors Company Retiree
Medical Benefits Plan (the New GM VEBA Plan) and its associated UAW
Retiree Medical Benefits Trust (the VEBA Trust) of: (i) 87,500,000
shares of common stock of General Motors Company (New GM) (the New GM
Common Stock) representing 17.5% of New GM equity; (ii) $6.5 billion of
Series A Fixed Rate Cumulative Perpetual Preferred stock of New GM (the
Preferred Stock); (iii) a note issued by New GM with a principal amount
of $2.5 billion (the Note); and (iv) warrants to acquire New GM Common
Stock representing 2.5% of New GM equity (the Warrants) (collectively,
including any additional shares of New GM Common Stock acquired
pursuant to the exercise of the Warrants, the Securities), transferred
by New GM and deposited in the General Motors Company Employer Security
Sub-Account of the General Motors Company Separate Retiree Account of
the VEBA Trust.
(2) The acquisition by the New GM VEBA Plan of shares of New GM
Common Stock pursuant to the exercise of the Warrants;
(3) The holding by the New GM VEBA Plan of the Securities in the
General Motors Company Employer Security Sub-Account of the General
Motors Company Separate Retiree Account of the VEBA Trust; and
(4) The disposition of the Securities.
(b) If the exemption is granted, the restrictions of sections
406(a)(1)(B), 406(a)(1)(D), 406(b)(1) and 406(b)(2) of ERISA shall not
apply, effective July 10, 2009, to:
(1) The payment by Old GM, New GM, the Old GM Plan, the New GM Plan
or the New GM VEBA Plan of a benefit claim that was the responsibility
and legal obligation, under the terms of the applicable plan documents,
of one of the other parties listed in this paragraph; and
(2) The reimbursement by Old GM, New GM, the Old GM Plan, the New
GM Plan, or the New GM VEBA Plan, of a benefit claim that was paid by
another party listed in this paragraph, which was not legally
responsible for the payment of such claim, plus interest.
(c) If the exemption is granted, the restrictions of sections
406(a)(1)(B), 406(a)(1)(D), 406(b)(1) and 406(b)(2) of ERISA shall not
apply, effective July 10, 2009, to the return to New GM of assets
deposited or transferred to the New GM VEBA Plan by mistake, plus
interest.
Section II--Conditions Applicable to Section I(a)
(a) The Committee appoints a qualified Independent Fiduciary to act
on behalf of the New GM VEBA Plan for all purposes related to the
transfer of the Securities to the New GM VEBA Plan for the duration of
the New GM VEBA Plan's holding of the Securities. Such Independent
Fiduciary will have sole discretionary responsibility relating to the
holding, ongoing management and disposition of the Securities, except
for the voting of the New GM Common Stock. The Independent Fiduciary
has determined or will determine, before taking any actions regarding
the Securities, that each such action or transaction is in the interest
of the New GM VEBA Plan.
(b) In the event that the same Independent Fiduciary is appointed
to represent the interests of one or more of the other plans comprising
the VEBA Trust (i.e., the UAW Chrysler Retiree Medical Benefits Plan
and/or the UAW Ford Retiree Medical Benefits Plan) with respect to
employer securities deposited into the VEBA Trust, the Committee takes
the following steps to identify, monitor and address any conflict of
interest that may arise with respect to the Independent Fiduciary's
performance of its responsibilities:
(1) The Committee appoints a ``conflicts monitor'' to: (i) Develop
a process for identifying potential conflicts; (ii) regularly review
the Independent Fiduciary reports, investment banker reports, and
public information regarding the companies, to identify the presence of
factors that could lead to a conflict; and (iii) further question the
Independent Fiduciary when appropriate.
(2) The Committee adopts procedures to facilitate prompt
replacement of the Independent Fiduciary if the Committee in its sole
discretion determines such replacement is necessary due to a conflict
of interest.
(3) The Committee requires the Independent Fiduciary to adopt a
written policy regarding conflicts of interest. Such policy shall
require that, as part of the Independent Fiduciary's periodic reporting
to the Committee, the Independent Fiduciary includes a discussion of
actual or potential conflicts identified by the Independent Fiduciary
and options for avoiding or resolving the conflict.
(c) The Independent Fiduciary authorizes the trustee of the New GM
VEBA Plan to dispose of the New GM Common Stock (including additional
shares of New GM Common Stock acquired pursuant to exercise of the
Warrants), the Preferred Stock, and/or the Note, or exercise the
Warrants, only after the Independent Fiduciary determines, at the time
of the transaction, that the transaction is feasible, in the interest
of the New GM VEBA Plan, and protective of the participants and
beneficiaries of the New GM VEBA Plan.
[[Page 47973]]
(d) The Independent Fiduciary negotiates and approves on behalf of
the New GM VEBA Plan any transactions between the New GM VEBA Plan and
any party in interest involving the Securities that may be necessary in
connection with the subject transactions (including but not limited to
the registration of the securities contributed to the New GM VEBA
Plan).
(e) Any contract between the Independent Fiduciary and an
investment banker includes an acknowledgement by the investment banker
that the investment banker's ultimate client is an ERISA plan.
(f) The Independent Fiduciary discharges its duties consistent with
the terms of the New GM VEBA Plan, the trust agreement, the Independent
Fiduciary Agreement, and any other documents governing the employer
securities, such as the Registration Rights Agreement.
(g) The New GM VEBA Plan incurs no fees, costs or other charges
(other than described in the trust agreement and the Modified
Settlement Agreement) as a result of the transactions exempted herein.
(h) The terms of any transaction exempted herein are no less
favorable to the New GM VEBA Plan than the terms negotiated at arms'
length under similar circumstances between unrelated parties.
Section III--Conditions Applicable to Section I(b)
(a) The Committee and the New GM VEBA Plan's third party
administrator will review the benefits paid during the transition
period and determine the dollar amount of mispayments made, subject to
the review of the VEBA Trust's independent auditor. The results of this
review will be made available to Old GM and New GM.
(b) Old GM and New GM and their respective plans' third party
administrator(s) will review the benefits paid during the transition
period and determine the dollar amount of mispayments made, subject to
the review of the respective plans' independent auditor. The results of
this review will be made available to the Committee.
(c) Interest on any reimbursed mispayment will accrue from the date
of the mispayment to the date of the reimbursement.
(d) Interest will be determined using the applicable OPEB discount
rate.\13\
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\13\ OPEB means Other Post-Employment Benefits, and typically
includes retiree healthcare benefits, life insurance, tuition
assistance, day care, legal services and the like. The OPEB discount
rate is a rate used to discount projected future OPEB benefits
payment cash flows to determine the present value of the OPEB
obligation.
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(e) If there is a dispute as to the amount of a reimbursement
requested, the parties will enter into a dispute procedure set forth in
section 26D of the Modified Settlement Agreement.
Section IV--Conditions Applicable to Section I(c)
(a) New GM must make a claim to the Committee regarding the
specific deposit or transfer made in error or made in an amount greater
than that to which the New GM VEBA Plan was entitled.
(b) The claim is made within the Verification Time Period, as
defined in Section VI(r).
(c) Interest on any mistaken deposit or transfer will accrue from
the date of the mistaken payment to the date of the repayment.
(d) Interest will be determined using the applicable OPEB discount
rate.
(e) If there is a dispute as to the amount of a mistaken payment,
the parties will enter into a dispute procedure set forth in section
26D of the Modified Settlement Agreement.
Section V--Conditions Applicable to Section I(a), (b) and (c)
(a) The Committee and the Independent Fiduciary maintain for a
period of six years from the date the Securities are transferred to the
New GM VEBA Plan, and the shares of New GM Common Stock are acquired by
the New GM VEBA Plan through the exercise of the Warrants, the records
necessary to enable the persons described in paragraph (b) below to
determine whether the conditions of this exemption have been met,
except that (i) a separate prohibited transaction will not be
considered to have occurred if, due to circumstances beyond the control
of the Committee and/or the Independent Fiduciary, the records are lost
or destroyed prior to the end of the six-year period, and (ii) no party
in interest other than the Committee or the Independent Fiduciary shall
be subject to the civil penalty that may be assessed under ERISA
section 502(i) if the records are not maintained, or are not available
for examination as required by paragraph (b) below; and
(b)(1) Except as provided in section (2) of this paragraph and
notwithstanding any provisions of subsections (a)(2) and (b) of ERISA
section 504, the records referred to in paragraph (a) above shall be
unconditionally available at their customary location during normal
business hours to:
(A) Any duly authorized employee or representative of the
Department or the Internal Revenue Service;
(B) the UAW or any duly authorized representative of the UAW;
(C) New GM or any duly authorized representative of New GM;
(D) the Independent Fiduciary or any duly authorized representative
of the Independent Fiduciary;
(E) the Committee or any duly authorized representative of the
Committee; and
(F) any participant or beneficiary of the New GM VEBA Plan or any
duly authorized representative of such participant or beneficiary.
Section VI--Definitions
(a) The term ``affiliate'' means: (1) Any person directly or
indirectly, through one or more intermediaries, controlling, controlled
by, or under common control with such other person; (2) any officer,
director, partner, or employee in any such person, or relative (as
defined in section 3(15) of ERISA) of any such person; or (3) any
corporation, partnership or other entity of which such person is an
officer, director or partner. (For purposes of this definition, the
term ``control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.)
(b) The ``Committee'' means the eleven individuals consisting of
six independent members and five UAW appointed members who will serve
as the plan administrator and named fiduciary of the New GM VEBA Plan.
(c) The term ``New GM Common Stock'' means the shares of common
stock, par value $0.01 per share, issued by New GM.
(d) The term ``General Motors Company Employer Security Sub-Account
of the General Motors Company Separate Retiree Account of the VEBA
Trust'' means the sub-account established in the General Motors
Separate Retiree Account of the VEBA Trust to hold New GM securities on
behalf of the New GM VEBA Plan.
(e) The term ``Implementation Date'' means December 31, 2009.
(f) The term ``Independent Fiduciary'' means a fiduciary that is
(i) independent of and unrelated to Old GM, New GM, the UAW, the
Committee, and their affiliates, and (ii) appointed to act on behalf of
the New GM VEBA Plan with respect to the holding, management and
disposition of the Securities. In this regard, the fiduciary will not
be deemed to be independent of and unrelated to Old GM, New GM, the
UAW, the Committee, and their affiliates if (1)
[[Page 47974]]
such fiduciary directly or indirectly controls, is controlled by, or is
under common control with Old GM, New GM, the UAW, the Committee or
their affiliates, (2) such fiduciary directly or indirectly receives
any compensation or other consideration from Old GM, New GM, the UAW or
any Committee member in his or her individual capacity in connection
with any transaction contemplated in this exemption (except that an
independent fiduciary may receive compensation from the Committee or
the New GM VEBA Plan for services provided to the New GM VEBA Plan in
connection with the transactions discussed herein if the amount or
payment of such compensation is not contingent upon or in any way
affected by the independent fiduciary's ultimate decision), and (3) the
annual gross revenue received by the fiduciary, in any fiscal year,
from Old GM, New GM, the UAW or a member of the Committee in his or her
individual capacity, exceeds 3% of the fiduciary's annual gross revenue
from all sources (for federal income tax purposes) for its prior tax
year.
(g) The term ``Modified Settlement Agreement'' means The UAW
Retiree Settlement Agreement between New GM and the UAW dated July 10,
2009.
(h) The term ``New GM'' means the company that acquired certain
assets and liabilities of Old GM pursuant to the Section 363 Sale.
(i) The term ``Note'' means the note issued by New GM with a
principal amount of $2.5 billion.
(j) The term ``New GM Plan'' means the retiree medical benefits
plan maintained by New GM that provides benefits to most of the same
individuals as are covered by the Old GM Plan, from the date of the
Section 363 Sale until the Implementation Date of the New GM VEBA Plan.
(k) The term ``Old GM'' means the company that remains in
bankruptcy protection after the Section 363 Sale.
(l) The term ``Old GM Plan'' means the retiree medical benefits
plan maintained by Old GM that provided benefits to, among others,
those who will be covered by the New GM VEBA Plan.
(m) The term ``Preferred Stock'' means shares of Series A Fixed
Rate Cumulative Perpetual Preferred Stock, par value $0.01 per share,
issued by New GM.
(n) The term ``Section 363 Sale'' means a sale under section 363 of
Title 11 of the U.S. Code, by which on July 10, 2009, New GM succeeded
to certain assets and liabilities of Old GM.
(o) The term ``Securities'' means (i) the New GM Common Stock; (ii)
the Preferred Stock; (iii) the Note; (iv) the Warrants; and (v)
additional shares of New GM Common Stock acquired pursuant to exercise
of the Warrants.
(p) The term ``UAW'' means the International Union, United
Automobile, Aerospace and Agricultural Implement Workers of America.
(q) The term ``Warrants'' means warrants to acquire shares of New
GM Common Stock, par value $0.01 per share, issued by New GM.
(r) The term ``Verification Time Period'' means: (i) With respect
to all Securities other than the Note, the period beginning on the date
of publication of the final exemption in the Federal Register and
ending 60 calendar days thereafter; (ii) with respect to each payment
pursuant to the Note, the period beginning on the date of the payment
and ending 90 calendar days thereafter; (iii) with respect to the UAW-
Related Account of the Internal VEBA, the period beginning on the date
of publication of the final exemption in the Federal Register (or, if
later, the date of the transfer of the UAW-Related Account to the New
GM VEBA Plan) and ending 180 calendar days thereafter; and (iv) with
respect to the Mitigation VEBA, the period beginning on the date of
publication of the final exemption in the Federal Register and ending
60 calendar days thereafter.
(s) The term ``VEBA'' means the UAW General Motors Company Retiree
Medical Benefits Plan (the New GM VEBA Plan) and its associated UAW
Retiree Medical Benefits Trust (the VEBA Trust).
(t) The term ``Registration Rights Agreement'' means the Equity
Registration Rights Agreement by and among New GM, the U.S. Treasury,
Canada, the VEBA Trust and Old GM, entered into on July 10, 2009.
Signed at Washington, DC, this 15th day of September 2009.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E9-22485 Filed 9-17-09; 8:45 am]
BILLING CODE 4510-29-P
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