Pension and Welfare Benefits Administration, Labor.
Grant of individual exemptions.
This document contains exemptions issued by the Department of Labor (the Department) from certain of the prohibited transaction restrictions of the Employee Retirement Income Security Act of 1974 (the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency before the Department of proposals to grant such exemptions. The notices set forth a summary of facts and representations contained in each application for exemption and referred interested persons to the respective applications for a complete statement of the facts and representations. The applications have been available for public inspection at the Department in Washington, DC. The notices also invited interested persons to submit comments on the requested exemptions to the Department. In addition the notices stated that any interested person might submit a written request that a public hearing be held (where appropriate). The applicants have represented that they have complied with the requirements of the notification to interested persons. No public comments and no requests for a hearing, unless otherwise stated, were received by the Department.
The notices of proposed exemption were issued and the exemptions are being granted solely by the Department because, 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 proposed to the Secretary of Labor.
In accordance with section 408(a) of the Act and/or section 4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants and beneficiaries; and
(c) They are protective of the rights of the participants and beneficiaries of the plans.
Texas Instruments Employees Pension Plan (the Plan) Located in Dallas, Texas
The restrictions of sections 406(a), 406(b)(1), 406(b)(2), and 406(b)(2) of the Act and the sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1) (A) through (E) of the Code, shall not apply to the Sale (the Sale) by the Plan to Texas Instruments, Inc. (the Employer) of a parcel of improved real property (the Property) located in Dallas, Texas. This exemption is conditioned upon the adherence to the material facts and representations described herein and upon the satisfaction of the following requirements:
(a) All terms and conditions of the Sale are at least as favorable to the Plan as those which the Plan could obtain in Start Printed Page 30022an arm's-length transaction with an unrelated party;
(b) The Sales price is the greater of $9,400,000 or the fair market value of the Property as of the date of the Sale;
(c) The fair market value of the Property has been determined by an independent, qualified appraiser;
(d) The Sale is a one-time transaction for cash; and
(e) The Plan does not pay any commissions, costs or other expenses in connection with the Sale.
For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the Notice of Proposed Exemption published on February 15, 2001 at 66 FR 10527.
The Department received three comments from interested persons on the proposed exemption. The Department forwarded copies of the comments to the applicant and requested that the subtrustee (Bank of America) respond in writing to the various concerns raised by the commentators. A description of the comments and the Bank of America's responses are summarized below.
One commentator urged that the exemption not be granted because he believed that the Property had a better chance of appreciation than the cash equivalent and that the increase in value was not a fair appraisal.
Bank of America, in response represents the following: It has determined that the Sale of the Property to the Employer is prudent under ERISA and is in the best interest of the Plan participants and beneficiaries based, in part, on its determination that market values for comparable properties in the Dallas, Texas area continue to be at a record high and that the current real estate market presents a favorable selling opportunity to the Plan. Although currently selling at record highs, real estate values can decline for a number of reasons, such as downturns in the economy, environmental contamination, functional obsolescence, and changes in use and/or the growth patterns surrounding a property's location. The improvements, constructed in 1981, are now approximately 20 years old and have a remaining economic life of 27 years. The building is well maintained; however, the structure is aging and at some point it may be less attractive in the market place from the standpoint of physical plant and functionality. The commentator's objection to only a 50% increase in value over the 22 years of the lease does not recognize the actual yield that has been produced by the annual rental income in addition to the sales price proceeds.
Two commentators took issue with the selection of the appraiser for the Property, and the subsequent evaluation, specifically requesting multiple appraisals and questioning whether the appraiser specialized in commercial real estate. Bank of America notes that as the subtrustee of the Plan, Bank of America has the responsibility to make the good faith fiduciary determination that the amount received by the Plan upon the Sale is no less than adequate consideration, as defined in ERISA § 3(18). In making the good faith determination that the Plan will receive adequate consideration, Bank of America, as a fiduciary, has relied on the appraisal report of the independent appraiser, which will be updated at the closing date, to insure that the amount received is no less than the then fair market value. Furthermore, Bank of America represents the Property has been appraised by an independent appraiser, the Pyles Whatley Corporation, a respected commercial real estate appraisal firm. It has a national appraisal practice and has appraised properties of large industrial sites in more than 25 states in 1999 and 2000. The appointment of the appraiser was made properly by Bank of America rather than other Plan fiduciaries since the appraisal report will be used by Bank of America in complying with its fiduciary responsibility with respect to the Sale.
The appraisal follows standard methodologies including the use of values of comparable properties. Bank of America has carefully reviewed the appraisal and other information that it has available to it and believes that the appraisal correctly determines the fair market value of the Property. In making this good faith fiduciary determination to sell the Property at this value, after having made a prudent review of the valuation report and the relevant circumstances at the time of the valuation report, Bank of America does not believe that there is any reason to require multiple appraisals to reach a valuation for the Property.
Accordingly, after giving full consideration to the entire record, including the comments by the commentators, and the responses of the applicant, the Department has determined to grant the exemption as proposed. In this regard, the comments submitted to the Department have been included as part of the public record of the exemption application. The complete application file, including all supplemental submissions received by the Department, is made available for public inspection in the Public Documents Room of the Pension and Welfare Benefits Administration, Room N-1513, U.S. Department of Labor, 200 Constitution Ave. NW, Washington DC 20210.Start Further Info
FOR FURTHER INFORMATION CONTACT:
Khalif Ford of the Department, telephone (202) 219-8883 (this is not a toll-free number).
THS Profit Sharing Plan (the Plan) Located in Bedford Hills, New York
The sanctions resulting from the application of section 4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the Code, shall not apply to the sale (the Sale) by the Plan of two life insurance policies (the Policies) which insure Tim H. Shoecraft, the sole participant (the Participant), to the Shoecraft Family Trust dated October 9, 1991 (the Trust), which is a disqualified party with respect to the Plan under section 4975(e)(2) of the Code, provided that the following conditions are met:
(a) The Participant is the insured under the contract;
(b) Prior to the Sale, the Plan will afford the insured notice of the Sale and the opportunity to purchase the Policies;
(c) The Sale will be for full and adequate consideration, based upon the cash surrender value of the Policies at the time of the transaction;
(d) The Plan is authorized to purchase and own life insurance;
(e) The amount received by the Plan as consideration for the Sale is at least equal to the amount necessary to put the Plan in the same cash position as it would have been in had it retained the contract, surrendered it, and made any distribution owing to the Participant of his vested interest under the Plan; and
(f) The Plan is not required to pay any commissions, costs or other expenses in connection with the Sale.
For a more complete statement of the facts and representations supporting the Department's decision to grant this exemption, refer to the Notice of Proposed Exemption published on April 16, 2001 at 66 FR 19533.End Further Info Start Further Info
FOR FURTHER INFORMATION CONTACT:
Khalif Ford of the Department, Start Printed Page 30023telephone (202) 219-8883 (this is not a toll-free number).
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 to which the exemptions 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) These exemptions are supplemental to and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transactional 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
(3) The availability of these exemptions is subject to the express condition that the material facts and representations contained in each application accurately describes all material terms of the transaction which is the subject of the exemption.Start Signature
Signed at Washington, DC, this 30th day of May, 2001.
Director of Exemption Determinations, Pension and Welfare Benefits Administration, U.S. Department of Labor.
1. Because Tim H. Shoecraft is the sole shareholder of Shoecraft and Associates and he is the only participant in the Plan, there is no jurisdiction under Title I of the Employee Retirement Income Security Act of 1974 (the Act) pursuant to 29 CFR 2510.3-3(b). However, there is jurisdiction under Title II of the Act pursuant to section 4975 of the Code.Back to Citation
[FR Doc. 01-13906 Filed 6-1-01; 8:45am]
BILLING CODE 4510-29-P