Advisory Opinion 1975-111

Dear :

This is in reply to your letter of May 23, 1975, in which you inquire whether certain parcels of real property owned by the defined benefit plans sponsored by                                                                  Industries, Inc.                                                                    constitute "qualifying employer real property" under section 407(d)(4) of the Employee Retirement Income Security Act of 1974 (the Act).

In order for parcels of "employer real property" (as defined under section 407(d)(2) of the Act) to be considered to be "qualifying employer real property" within the meaning of section 407 (d)(4) of the Act, the following substantive requirements must be met: (1) a substantial number of the parcels must be dispersed geographically; (2) each parcel of real property and the improvements thereon must be suitable (or adaptable without excessive cost) for more than one use; and (3) the acquisition and retention of such property must comply with the provisions of Part 4 of Title I of the Act (other than section 404(a)(1)(B) to the extent it requires diversification, and sections 404(a)(1)(C), 406 and 407(a).

With respect to the geographical dispersion requirement of section 407(d)(4)(A) of the Act, your letter indicates that the six parcels of employer real property leased by the plans to                                                                              are located in California, Indiana, Kentucky and Pennsylvania and the closest parcels are approximately 80 miles apart. Accordingly, the parcels of employer real property owned by the plan are sufficiently dispersed geographically to satisfy the requirements of section 407(d)(4)(A) of the Act.

With respect to the requirements of section 407(d)(4)(B) of the Act that each parcel of employer real property and the improvements thereon must be suitable, or adaptable without excessive cost, for more than one use, your letter represents that five of the six parcels contain simple, one-story structures which, except for a limited amount of office space, are little more than heated, lighted, and ventilated shells; that machinery and manufacturing equipment could be removed from the plants at minimal cost without affecting the structures of the buildings; that the sixth parcel contains a building with offices and open space for laboratories and machines, and that while a relatively small amount of space has been devoted to special research facilities, such as dust-free rooms and test cells, that were constructed at substantial cost, the building on the sixth parcel could be used for scientific research, light industry, high technology work or as an office building. On the basis of these representations, each of the parcels, including the research and design facility, meets the requirements of section 407(d)(4)(B) of the Act.

Accordingly, if, as your letter indicates, the requirements of section 407(d)(4)(D) are met, the six parcels of employer real property which you have described would meet the definition of "qualifying employer real property" under section 407(d)(4) of the Act.

We express no opinion as to whether the plans may continue to hold such qualifying employer real property in compliance with the provisions of section 407(a) of the Act. In this connection, we note that section 407(a)(3)(A) prohibits the holding by a plan of qualifying employer real property and qualifying employer securities to the extent that the aggregate fair market value of such property and securities exceeds 10% of the fair market value of the assets of the plan (as determined on a given date or choice of dates, pursuant to sections 407(a)(3)(A) or 407 (c)).

It should also be noted that section 414 (c)(2) of the Act sets forth a transitional exemption from the prohibited transactions provisions which may be applicable to the lease of the six parcels of real property by the plan to                                                            .