[Federal Register Volume 67, Number 195 (Tuesday, October 8, 2002)]
[Notices]
[Pages 62818-62826]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 02-25598]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10958, et al.]
Proposed Exemptions; Fidelity Management Trust Company and Its
Affiliates (Collectively Fidelity)
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of proposed exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
requests for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration (PWBA), Office of Exemption Determinations, Room N-5649,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. ----, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to PWBA via e-mail or FAX. Any such
comments or requests should be sent either by e-mail to:
``[email protected]'', or by FAX to (202) 219-0204 by the end of
the scheduled comment period. The applications for exemption and the
comments received will be available for public inspection in the Public
Documents Room of the Pension and Welfare Benefits Administration, U.S.
Department of Labor, Room N-1513, 200 Constitution Avenue, NW.,
Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Fidelity Management Trust Company and Its Affiliates (Collectively
Fidelity), Located in Boston, Massachusetts
[Application No. D-10958]
Proposed Exemption
I. Covered Transactions
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) through (D) of ERISA and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) through (D) of the Code,
[[Page 62819]]
shall not apply, to certain lines of credit (the Line of Credit or
Lines of Credit), and the Loan and repayment of funds, including
accrued interest, thereunder (the Loan or Loans), involving certain
employee benefit plans (the Plan or Plans) with respect to which
Fidelity acts as directed trustee, investment manager or other
administrative service provider.
II. General Conditions
(a) Each Loan is made to the Plan in connection with the
administration of a unitized fund (Unitized Fund) as defined in section
III (e) in order to facilitate redemptions from the Unitized Fund.
(b) Each Line of Credit will be negotiated by Fidelity on behalf of
the Plan with a bank, as defined under the Investment Advisers Act of
1940, as amended, having total assets of at least $5 billion (the
Lender or Lenders);
(c) Each Loan is initiated, accounted for and administered by
Fidelity, which will monitor the transactions on behalf of the Plans to
ensure that the terms and conditions of the exemption are met at all
times;
(d) The Line of Credit provides that each Loan thereunder,
including accrued interest thereon, will be repaid by the Unitized Fund
promptly in the ordinary course of business upon settlement of the
transaction that triggered the need for the Loan;
(e) The maximum amount loaned with respect to a Unitized Fund on
any business day that a Loan is initiated does not, after the Loan is
made, exceed 25% of the total fair market value of the Unitized Fund
(such value determined as of the most recent close of the New York
Stock Exchange or as otherwise provided in the applicable Line of
Credit, provided such determination is substantially contemporaneous
with the Loan);
(f) The fair market value of the assets in the Unitized Fund is
determined by an objective method specified in the Line of Credit;
(g) The Lender's recourse with respect to any Loan from a Unitized
Fund is limited to the assets of such Unitized Fund. No commitment
fees, or commissions are paid by the Plan and no compensating balance
is required by the Lenders in connection with these loans. Any set-off
will be limited to the assets of the Unitized Fund borrowing the funds;
(h) Interest payable by the Plan on each Loan is based on rates
quoted to Fidelity by the Lenders under the Lines of Credit and
accepted by Fidelity on behalf of the Plan in accordance with the Lines
of Credit;
(i) The Plan enters into a written agreement with Fidelity pursuant
to which Fidelity is authorized to borrow on behalf of the Plan. Prior
to borrowing on behalf of a Plan pursuant to this exemption, Fidelity
provides the Plan with written notice explaining the Line of Credit
program. The notice shall state that Fidelity agrees to act as a
fiduciary on behalf of the Plan in connection with the following
activities involving the Line of Credit agreements with the Lenders:
the negotiation of the Plan's participation in the Line of Credit
agreements; the negotiation of interest rates; the terms of the Loans,
and the terms of repayment under the Lines of Credit agreements. The
notice shall set forth Fidelity's objective methodology for allocating
favorable interest rates or credit availability equitably among those
Unitized Funds seeking to borrow under the Line of Credit agreements on
any given day, i.e., ``the applicable ordering rules and limitations.''
Each notice shall also address under what circumstances Fidelity may
exclude the Plan from participation in the program, either temporarily
or permanently;
(j) Fidelity, on behalf of the Plan, enters into a written
agreement with each of the Lenders offering these Line of Credit
Agreements to the Plan. The agreement shall address, among other
things, the maximum Line of Credit available, the terms for the Loan
and repayment, the formula or method for determining the interest rate
payable with respect to each Loan, and the conditions for terminating
the agreement;
(k) The Plan may elect to terminate participation in the Lines of
Credit at any time, without penalty and subject to the Plan's repayment
of any outstanding Loan;
(l) No later than 15 business days after month end, Fidelity shall
provide the Plan Sponsor of each Plan that has any outstanding Loan
during a calendar month with a written report showing the Plan's
outstanding Loans on each day during such month, the amount repaid on
each such day, the interest rate and the amount of interest paid on
each such day, the aggregate balance of all Loans outstanding on the
last business day of such month and the aggregate amount of interest
paid during such month;
(m) The Loans are made on terms at least as favorable to the Plan
as those the Plan could obtain in an arm's-length transaction with an
unrelated party;
(n) Each Lender is not related to Fidelity and is a party in
interest (including a fiduciary), solely by reason of providing
services to the Plan, or solely by reason of a relationship to a
service provider to the Plan described in section 3(14)(F), (G), (H) or
(I) of the Act;
(o) The agreements and the any loans contemplated thereunder are
not a part of an agreement, arrangement, or understanding designed to
benefit any party in interest with respect to any plan;
(p) No fees, or other compensation are paid to Fidelity in
connection with the Loans by either the Plan or the Lenders;
(q) Where a Unitized Fund covered by this exemption invests in
employer securities, such securities constitute ``qualifying employer
securities'' as defined in section 407(d)(5) of the Act (QES) for which
market quotations are readily available from independent sources within
the meaning of Rule 17a-7, of the Investment Advisers Act of 1940, 17
CFR 270.17a-7. The exemption shall also apply to convertible preferred
stock that qualifies as QES and is convertible, under an objective
formulation, into securities for which market quotations are readily
available as described above.
(r) Where a Unitized Fund, other than an employer securities fund
or a stable value fund, invests directly or indirectly in securities,
no less than 75 percent of such securities are securities for which
market quotations are readily available from independent sources,
within the meaning of Rule 17a-7, of the Investment Advisers Act of
1940, 17 CFR 270.17a-7;
(s) Fidelity maintains for a period of six years, in a manner that
is accessible for audit and examination, the records necessary to
enable the persons described in paragraph (t) to determine whether the
conditions of this exemption have been met, except that--
(1) A prohibited transaction will not be considered to have
occurred if, due to circumstances beyond the control of Fidelity, such
records are lost or destroyed prior to the end of such six year period;
and
(2) No party in interest, other than Fidelity, shall be subject to
the civil penalty that may be assessed under section 502(i) of the Act,
or the taxes imposed by sections 4975(a) and (b) of the Code, if the
records are not maintained, or are not available for examination as
required by paragraph (t);
(t)(1) Except as provided in paragraph (t)(2) and notwithstanding
anything to the contrary in sections 504(a)(2) and (b) of the Act, the
records referred to in paragraph (s) are unconditionally available for
examination during normal business hours by--
(A) Any duly authorized employees or representatives of the
Department or the Internal Revenue Service;
[[Page 62820]]
(B) Any fiduciary of the Plan or any duly authorized employee or
representative of such fiduciary;
(C) Any employer of participants and beneficiaries in the Plan and
any employee organization whose members are covered by the Plan, or any
authorized employee or representative of these entities; and
(D) Any participant or beneficiary of the Plan or any duly
authorized employee or representative of such participant or
beneficiary;
(2) None of the persons described above in paragraph (t)(1)(B), (C)
or (D) shall be authorized to examine the trade secrets of Fidelity or
commercial or financial information that is privileged or confidential;
(3) Should Fidelity refuse to disclose information on the basis
that such information is exempt from disclosure pursuant to paragraph
(t)(2) above, Fidelity shall, by the close of the thirtieth (30th) day
following the request, provide a written or electronic notice advising
that person (i) of the reasons for the refusal and (ii) that the
Department may request such information.
III. Definitions
(a) ``Fidelity'' refers to Fidelity Management Trust Company and
its affiliates.
(b) ``Affiliate'' means (i) any person, directly or indirectly,
through one or more intermediaries, controlling, controlled by, or
under common control with such other person; (ii) any officer,
director, or partner, employee or relative (as defined in section 3(15)
of the Act) of such other person; and (iii) any corporation or
partnership of which such other person is an officer, director or
partner.
(c) ``Control'' means the power to exercise a controlling influence
over the management or policies of a person other than an individual.
(d) Fidelity is ``related'' to a Lender if the Lender (or a person
controlling, or controlled by, the Lender) owns a five percent or more
interest in Fidelity or if Fidelity (or a person controlling, or
controlled by, Fidelity) owns a five percent or more interest in the
Lender. For purposes of this definition:
(1) The term ``interest'' means with respect to ownership of an
entity (A) the combined voting power of all classes of stock entitled
to vote or the total value of the shares of all classes of stock of the
entity if the entity is a corporation, (B) the capital interest or the
profits interest of the entity if the entity is a partnership, or (C)
the beneficial interest of the entity if the entity is a trust or
unincorporated enterprise; and
(2) A person is considered to own an interest held in any capacity
if the person has or shares the authority (A) to exercise any voting
rights or to direct some other person to exercise the voting rights
relating to such interest, or (B) to dispose or to direct the
disposition of such interest.
(e) A ``Unitized Fund'' is a fund that, to facilitate trading and/
or accounting, has established ``units'' representing undivided
interests in all of the assets of such fund.
EFFECTIVE DATE: If the proposed exemption is granted, the exemption
shall be effective as of the date the final exemption is published in
the Federal Register.
Summary of Facts and Representations
1. Fidelity Management Trust Company, a Massachusetts trust
company, is a subsidiary of FMR Corp., the parent of a group of
companies known as Fidelity Investments[reg]. Fidelity Investments is
one of the nation's largest mutual fund companies and a leading
provider of financial services. It provides a wide range of investment
management, brokerage, administrative and other financial services and
products to both retail and institutional customers. Fidelity
Investments manages in the United States and Canada approximately 322
mutual funds with aggregate assets, as of December 31, 2001, in excess
of $815 billion. In addition, it manages more than $68 billion of
assets other than mutual funds, including separate accounts and
collective investment funds. Fidelity provides trustee, custodial,
investment management, participant recordkeeping and/or other related
services to employee benefit plans, including the Plans.
2. The Plans are qualified plans under section 401(a) of the Code
and are employee benefit plans within the meaning of section 3(3) of
ERISA. Substantially all of the Plans are defined contribution plans
that permit each Plan participant to allocate his or her account
balance among a number of investment options available under the Plan.
These options may include mutual funds, separately-managed accounts,
bank-maintained collective investment funds (including so-called stable
value funds) and/or company stock funds. Moreover, many of the Plans
operate in a so-called ``daily environment''; i.e., each Plan
participant can elect to make investment transfers on any business day
and the transfer will generally be effected at the close of business on
that day.
3. The Applicant represents that from time to time, the Plans find
themselves in the position where, incidental to their ordinary
operation, there is a cash shortfall that creates a short-term
liquidity problem. Most frequently this occurs when amounts are to be
withdrawn from a unitized investment option (e.g., to facilitate
benefit distributions, participant loans and/or participant-directed
transfers to other investment options) at a time when such investment
option does not hold sufficient cash to meet the withdrawal need (each
such investment option, a ``Unitized Fund'' and collectively, the
``Unitized Funds''). In such circumstances, the Plan must either borrow
the requisite cash on a short-term basis until securities can be
liquidated and cash proceeds obtained (this will typically take three
business days) or delay the withdrawal from the particular Unitized
Fund until the needed cash is available. The Applicant represents that,
since this latter alternative is at odds with the participants'
expectation that the Plan will operate in a ``daily environment,'' the
former alternative (i.e., short-term Loan) is the preferred choice for
dealing with this type of situation.
4. It would be possible for a Unitized Fund to hold a larger
percentage of its assets in ``cash'' in order to minimize the
likelihood that there will be such a cash shortfall; however, such an
approach will undermine the achievement of the investment objective of
the investment option, especially those that are equity based.
Moreover, according to the Applicant, it is simply not feasible, as a
practical matter, to maintain enough ``cash'' in a Unitized Fund at all
times to be certain that the Unitized Fund will always be in a position
to meet the maximum potential need, especially during volatile market
situations. Hence, it is inevitable that at least some liquidity
shortfalls will occur from time to time.
5. Fidelity has negotiated the Lines of Credit with several banks
that are not related to Fidelity, and anticipates that it may from time
to time negotiate additional Lines of Credit. These Lines of Credit
allow Fidelity to borrow, on the Plans' behalf, cash in order to meet
the Unitized Funds' short-term cash shortfalls. Fidelity anticipates
that there will be approximately three or four Lenders at any given
time. It is also anticipated that the Lenders will be very large
financial institutions with many affiliated companies and worldwide
operations. In view of the size of such institutions and the number of
Plans involved, Fidelity represents that it is very difficult for such
institutions to determine whether they are parties in interest with
respect to any of the Plans. Moreover, even if it were to be
[[Page 62821]]
established that the Lenders are not parties in interest with respect
to the Plans, that could change over time while a Loan is outstanding
or as new Loans are affected.
6. Since Fidelity may not be able to determine in the ordinary
course of business, whether a Lender is a party in interest with
respect to each Plan, the Lines of Credit raise potential concerns
under section 406(a) of the Act, absent an exemption. In this regard,
given the size of the Lenders, the large number of Plans involved and
the various conditions of the potentially available class exemptions
(e.g., the qualified professional asset manager exemption, (QPAM), PTE
84-14, 49 FR 9494(3/13/84), as corrected, 50 FR 41430 (10/10/85), it
may be difficult to determine if any of such class exemptions are
available. Consequently, the implementation of the Lines of Credit, and
the Loans thereunder, even where such Line of Credit is in the best
interests of the Plan, may result in a prohibited transaction.
7. The Applicant represents that each Line of Credit provides that
(i) each Loan thereunder will be unsecured, (ii) recourse with respect
to each Loan thereunder will be limited to the assets of the Unitized
Fund that borrowed the funds, (iii) each Loan thereunder, including
accrued interest thereon, will be repaid promptly in the ordinary
course of business, generally in less than ten days and (iv) with
respect to any Unitized Fund, the aggregate amount of Loans outstanding
on any business day that a Loan is initiated will not, after such Loan
is made, exceed 25% of the total fair market value of the Unitized
Fund.\1\ The total fair market value of a Unitized Fund (including
Employer Stock, cash or cash equivalents and accrued dividends and
earnings) will be determined as of the most recent close of the New
York Stock Exchange or as otherwise provided in the applicable Line of
Credit, provided such determination is substantially contemporaneous
with the Loan.
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\1\ The Applicant originally requested a limit of 33\1/3\
percent, explaining that registered investment companies (mutual
funds) can potentially face the same types of liquidity concerns as
the Unitized Funds. According to the Applicant, pursuant to section
18(f)(1) of the Investment Company Act of 1940, such mutual funds
would be limited to borrowing no more than 33\1/3\ percent of fund
assets. The Department believed that a 25 percent limit was more
appropriate and the Applicant agreed.
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8. Interest rates will be quoted to Fidelity each business day by
each Lender in accordance with the terms of the Line of Credit. The
quoted interest rate will be based on a Federal funds rate (or other
market rate) plus a spread, and will apply to any Loans from the Lender
that are outstanding on such day. Because the quoted interest rate may
fluctuate daily, the rate of interest being charged on any outstanding
loan may also fluctuate daily.
9. In regard to these Lines of Credit, Fidelity will act as a
fiduciary pursuant to a written agreement with the Plan. The agreement
will provide that Fidelity will act as a fiduciary on behalf of the
Plan in connection with the negotiation of the Plan's participation in
the Line of Credit agreements, the negotiation of interest rates under
the Line of Credit agreements, the Loans under the Line of Credit
agreements, the ordering rules and limitations described below, and the
terms of repayment of the Line of Credit agreements.
10. Fidelity will establish generally applicable ordering rules and
limitations with respect to the use of the Lines of Credit. The need
for such rules arises from several factors. For example, although not
anticipated to be very likely, it is possible that the aggregate
liquidity needs of all eligible Unitized Funds on any given day may
exceed the total credit available under all of the credit lines then in
place. In addition, and more relevant, the three or four Lenders that
will be making advances available under the lines may, and likely will,
quote different rates on a given day. If the aggregate demand for
liquidity on a particular day exceeds the amount of credit available at
the most favorable rate on that day, then it is necessary to allocate
the opportunity to borrow at the most favorable rate(s) among the
various Unitized Funds requiring liquidity on that day. Accordingly, on
those days when the aggregate liquidity demand of the eligible Unitized
Funds exceeds the amount available at the most favorable rate, Fidelity
will implement a policy pursuant to which it will allocate the
available credit among the Unitized Funds pursuant to a pre-established
objective allocation methodology.
11. Fidelity will initiate, account for and administer each Loan
and will monitor such transactions on behalf of the Plans to ensure
that the terms and conditions of the exemption are met at all times.
12. Fidelity will provide the Plan Sponsor of each Plan that has
any outstanding Loans during a calendar month with a written report
showing the Plan's outstanding Loans on each day during such month, the
amount repaid on each such day, the amount of interest paid on each
such day, the interest rate and the aggregate balance of all Loans
outstanding on the last business day of such month and the aggregate
amount of interest paid during such month.
13. The Plan Sponsor of each Plan will be notified of the Lines of
Credit that may be available to such Plan in advance of any Loan made
pursuant to the exemption. Such notice will include a general
description of the Lines of Credit and how they operate. Each Plan
Sponsor may elect to ``opt-out'' of the program, in which event the
Plan of such Plan Sponsor will not effect any Loans under the Lines of
Credit. Moreover, a Plan Sponsor who has initially determined not to
opt-out of the program may at any time thereafter elect to opt-out of
the program without penalty, by written notice to Fidelity. Subsequent
to its receipt of such a notice, Fidelity will not effect any further
Loans on behalf of such Plan under the Lines of Credit. Any Loans
outstanding at the time such notice is received will be repaid in
accordance with the Lines of Credit.
14. Fidelity will not receive any fees or other compensation from
the Plans in connection with the Lines of Credit. In addition, Fidelity
will not receive any payment or other consideration from the Lenders in
connection with the Loans. Fidelity represents that it will pay the
Lender's cost of establishing the Lines of Credit. The Applicant
represents that such up-front expenses are required to be paid by the
borrower (the Plans on behalf of their Unitized Funds) under virtually
all credit agreements. In this case, in order to induce the Lenders to
enter into the proposed arrangements, and given the practical
difficulty of allocating the up-front cost of establishing the
arrangements among the many Unitized Funds that may ultimately
participate in the credit arrangement, Fidelity has determined that it
will pay these expenses on behalf of the Unitized Funds. Any out-of-
pocket expenses incurred by a Lender in enforcing the agreement,
however, will generally be paid by the applicable Unitized Fund, unless
otherwise paid by the Plan Sponsor or Fidelity. The Applicant
represents that lender expenses relating to enforcing the terms of the
loan are required to be paid by the borrower (here the Plans on behalf
of the Unitized Funds) under virtually all credit agreements.
15. As a general matter, Fidelity explains that its intent is that
the credit program will be administered such that advances under the
program will be used primarily in the context of settlement risk (i.e.,
the risk of broker default prior to settlement) as opposed to being
used in the context of market risk. ``Settlement risk'' is present when
a Unitized Fund has entered into the
[[Page 62822]]
sale transaction whose settlement (i.e., receipt of cash proceeds) is
pending (thereby triggering the liquidity shortfall to be satisfied by
a Loan) prior to the close of business on the day on which the
withdrawal that is being funded by such advance occurs. In this
situation, the price of the ``related'' sale transaction is known and
will be factored into the Unitized Fund unit value that is utilized for
purposes of the withdrawal. By contrast, according to Fidelity, market
risk will be present (in addition to settlement risk) in situations
where the ``related'' sale transaction is not able to be effected prior
to the determination of the relevant Unitized Fund unit value, with the
result that the Unitized Fund (and the remaining participants in the
Unitized Fund) bear the risk that the actual sale transaction price
will turn out to be lower than the value on which the unit value was
based.\2\
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\2\ According to Fidelity, the Unitized Fund (and the remaining
participants) will also benefit on the upside in the event that the
actual sale transaction price turns out to be higher than the value
on which the unit value was based.
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16. In addition, in order to maintain the integrity of the overall
credit arrangement, Fidelity reserves the ability, in its sole
discretion, to exclude a particular Plan or Plans from access to the
Lines of Credit on a given day or days. Fidelity represents that it
does not anticipate that it will exercise its exclusion power very
often. The Applicant explains that, if there were circumstances giving
rise to a material concern regarding the potential for default by a
particular Plan, (such as, for example, an unanticipated bankruptcy of
the Plan sponsor that triggers a suspension of trading in the Plan
sponsor's stock or some other cause of extreme volatility in the Plan
sponsor's stock value) Fidelity believes it is important that it have
the power to avoid the risk of such default by excluding the Plan from
borrowing under the Line of Credit program during the period of
concern.
17. In summary, the applicant represents that the proposed Lines of
Credit satisfy the criteria contained in section 408(a) of the Act for
the following reasons:
(a) the Loan terms must be at least as favorable to the Plan as a
similar third-party arm's-length transaction;
(b) each Loan will be initiated, accounted for and administered by
Fidelity which will maintain written records of each Loan and monitor
the terms and conditions of the exemption, on behalf of the affected
Plan, at all times.
(c) the same Lines of Credit will generally be available pursuant
to their terms for use by all of the Unitized Funds;
(d) the Lenders will not be ``related'' to Fidelity or ``parties in
interest'' to the Plans other than by reason of being a service
provider to the Plans or related to a service provider;
(e) the Plans will benefit from not having to maintain a larger
cash buffer that undermines the achievement of the investment objective
of the Unitized Funds;
(f) the Plans will further benefit from not having to delay
withdrawals from the Unitized Funds in most situations until such time
as there is sufficient cash to satisfy the cash shortfall and therefore
will be able to better achieve the participants' expectation of a
``daily environment;'' and
(g) the sponsor of each Plan will be notified of the existence of
the Lines of Credit that may be available to such Plan in advance of
any Loan made pursuant to the exemption and will make an independent
decision whether the Plan should participate in the program. In
addition, the Plan Sponsor of a Plan that is participating in the
program may elect to opt out at any time, without penalty.
Notice to Interested Persons
Notice of the proposed exemption will be provided by first-class
mail to each known Plan Sponsor within 25 days after the publication of
the notice of proposed exemption in the Federal Register. Such notice
will include a copy of the notice of proposed exemption, as published
in the Federal Register, as well as a supplemental statement, as
required pursuant to 29 CFR 2570.43(b)(2), which shall inform
interested persons of their right to comment on and/or to request a
hearing. Comments and hearing requests with respect to the proposed
exemption are due 45 days after the date of publication of the proposed
exemption in the Federal Register.
For Further Information Contact: Ms. Andrea W. Selvaggio of the
Department, telephone (202) 693-8540. (This is not a toll-free number.)
Brightpoint, Inc. (Brightpoint) Located in Indianapolis, Indiana
[Exemption Application No. D-10999]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the proposed
exemption is granted, the restrictions of sections 406(a) and 406(b)(1)
and (b)(2) of the Act and the sanctions resulting from the application
of section 4975(a) and (b) of the Code, by reason of section
4975(c)(1)(A) through (E) of the Code shall not apply to: (1) The June
5, 2001 payment (the Payment) by Brightpoint of $108,738.85 (the
Assessment Amount) to the Millennium Trust Company LLC (Millennium) on
behalf of the Brightpoint, Inc. 401(k) Plan (the Plan) for the purpose
of satisfying a court-ordered assessment against the assets of the Plan
(the Assessment) that arose in connection with the $68,100,000.00
deficiency (the Deficiency) incurred by the Independent Trust
Corporation (Intrust); and (2) the transfer by the Plan to Brightpoint
(the Repayment) of certain assets recovered by PricewaterhouseCoopers
LLP (the Receiver) in connection with the Deficiency, if the following
conditions are met:
(A) In the event the Plan receives an amount of assets from the
Receiver (a Recovery Amount) that is greater than the Assessment
Amount, the Plan will not be required to pay Brightpoint that portion
of the Recovery Amount that is in excess of the Assessment Amount;
(B) In the event the Plan receives a Recovery Amount that is less
than the Assessment Amount, the Plan will not be required to pay
Brightpoint the difference between the Assessment Amount and the
Recovery Amount;
(C) The Plan will not pay any of the costs and/or fees associated
with the Payment and the Repayment;
(D) The Deficiency did not arise in connection with any improper
act undertaken by a Plan fiduciary (other than Intrust or its
principals); and
(E) Upon notification of the Intrust losses, the Brightpoint Plan
fiduciaries undertook, and will continue to undertake, any actions
necessary to ensure that the assets of the Plan were, and are,
adequately protected.
EFFECTIVE DATE: June 5, 2001.
Summary of Facts and Representations
1. Brightpoint is a Delaware corporation with its principal offices
located in Indianapolis, Indiana. Brightpoint supports the global
wireless telecommunications industry through the provision of, among
other things, distribution, management, and business solution services.
2. Brightpoint is the sponsor of the Plan. The Plan is a defined
contribution 401(k) plan having 480 participants and $2,648,775.39 in
total assets as of March 31, 2001. The applicant represents that
[[Page 62823]]
the assets of the Plan are comprised solely of shares of certain mutual
funds and shares of Brightpoint stock (collectively, the Plan Shares).
The applicant states that from April 1, 1997 until April 13, 2001,
Intrust acted as the trustee of the Plan.\3\ As such, Intrust forwarded
Plan contributions to either American Funds, the custodian for the
mutual funds, or McDonald & Company, the custodian for the Brightpoint
stock. In addition, Intrust processed Plan distributions by forwarding
to Plan participants the cash proceeds it received from various sales
of the Plan Shares.
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\3\ The Department is expressing no opinion herein as to whether
the requirements of section 404 of the Act have been met with
respect to the hiring and retention of Intrust by Brightpoint.
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3. On April 14, 2000, the Illinois Office of Banks and Real Estate
(the State Regulator) discovered the Deficiency. In this regard, on
that date, the State Regulator determined that a substantial cash
shortage existed with respect to the amount of assets held in trust by
Intrust. According to the applicant, it is presently believed that the
Deficiency, the resolution of which is currently under litigation,
resulted from the misappropriation by certain Intrust principals of
assets held by Intrust. Specifically, the Deficiency involved cash
taken from certain Intrust accounts. The applicant states, however,
that cash was not misappropriated from the Plan's trust account with
Intrust (the Intrust Plan Account). As a result, the applicant states
that the amount of assets held in the Intrust Plan Account, being
comprised primarily of the Plan Shares, was not affected or reduced by
the misappropriation of Intrust assets (the Misappropriation).
The State Regulator initiated receivership proceedings under the
jurisdiction of the Circuit Court of Cook County, Illinois (the Court).
The Court appointed PricewaterhouseCoopers LLP as the receiver of
Intrust and, with limited exceptions, the Court froze all of the trust
assets held by Intrust, including those of the Plan.\4\ On November 29,
2000, the Court approved the purchase of Intrust's assets by Millennium
and, thereafter, Millennium became the trustee of the Plan. The
applicant represents that currently the Plan Shares are held in trust
in a certain Millennium trust account (the Millennium Plan Account).
---------------------------------------------------------------------------
\4\ By order of the Court, the assets held in the Plan
Millennium Account, and almost all other former Intrust accounts,
were to remain frozen until Millennium had completed its efforts to
collect the allocated shortage amounts from each affected account.
The applicant represents that for the period in time in which the
assets remained frozen, Plan distributions were made using assets
that came into the Plan after the starting date of the freeze.
Subsequently, the assets in the Plan Millennium Account were
unfrozen and, thereafter, Plan distributions were made from the
unfrozen assets.
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4. On March 1, 2001, upon determining that the Deficiency totaled
$68,100,000.00, the Court issued an order (the First Court Order) that
apportioned the Deficiency among certain Intrust accounts (the
Allocation). In this regard, after taking judicial notice of, among
other things, various hearings, proceedings, testimony, arguments, and
pleadings, the Court determined that it was not feasible to trace the
Deficiency Amount to specific Intrust accounts. Rather, with certain
exceptions not applicable to the Plan, the Court allocated the
Deficiency among essentially all of the frozen former Intrust accounts
on mostly a pro rata basis.
In this way, the Court allocated the Assessment Amount to the
Millennium Plan Account. The applicant represents that such assessment
had the effect of a $108,738.85 charge against the assets held in the
Millennium Plan Account.\5\
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\5\ To determine this amount, the Court first determined the
types of Intrust account assets that would be subject to the
Allocation. Next, the Court determined that an amount equal to 8.69%
of the total amount of such assets would need to be paid to
Millennium to offset the shortage. Since the Account held
$1,251,310.16 in assets subject to the Allocation, the Plan, or a
party on behalf of the Plan, was required to pay $108,738.85 (0.0869
x $1,251,310.16) to Millennium.
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5. Each trust account affected by the Allocation, or a party on
behalf of such account, was required to pay its allocated portion to
Millennium by June 5, 2001.\6\ Pursuant to the terms of the First Court
Order, upon Millennium's receipt of this payment, the Receiver was
required to issue the respective payor a certificate. Such certificate
entitled its holder to receive a pro rata portion of the total net
amount recovered from certain Intrust principals, insurers, and/or
elsewhere. A certificate, however, did not guarantee its holder would
receive a recovery amount equal to the amount such holder paid pursuant
to the Court's allocation of the Deficiency.
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\6\ The applicant states that if Millennium did not receive the
assessed amount with respect to a particular account by June 5,
2001, Millennium was authorized by the Court to reduce the amount of
assets held in that account by such assessed amount.
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6. Upon monitoring the legal actions associated with the
Deficiency, the applicant states, Brightpoint determined that the
Recovery Amount would likely be less than the Assessment Amount.\7\ To
protect the Plan from a potential shortfall, on June 5, 2001,
Brightpoint paid the Assessment Amount on behalf of the Plan. The
applicant represents that, consistent with the terms of the First Court
Order, Brightpoint thereafter anticipated that it would receive a
certificate from the Receiver.
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\7\ According to the applicant, Brightpoint retains the belief
that the Recovery Amount will be less than the Allocation Amount.
---------------------------------------------------------------------------
7. On September 8, 2001, the Receiver petitioned the court to amend
the First Court Order. In this regard, the applicant states that for
reasons unrelated to the Plan and the transactions described herein,
the Receiver sought a procedural change with respect to the issuance of
the certificates. As applied to the payment by Brightpoint of the
Assessment Amount on behalf of the Plan, and contrary to the terms of
the First Court Order, the requested amendment had the effect of
requiring the Receiver to issue a certificate to the Plan, and not
Brightpoint. The Court granted the motion on October 12, 2001 and,
accordingly, the First Court Order was amended (the Amended Court
Order).
Accordingly, the Plan received, and currently continues to hold, a
certificate that was issued by the Receiver (the Certificate). The
applicant states that, to date, the Plan has not received any amounts
pursuant to its holding of the Certificate.
8. The applicant seeks relief for the Payment and the Repayment. In
this regard, the applicant represents that as stated above, Brightpoint
undertook the Payment in the belief that the Recovery Amount will
likely be less than the Assessment Amount. The applicant notes that, in
the event that the Recovery Amount does in fact turn out to be less
than the Assessment Amount, the Plan will not be required to pay
Brightpoint the amount representing the difference between the
Assessment Amount and the Recovery Amount. In this way, the Plan will
not incur a loss due to the court-ordered allocation of the Deficiency.
The applicant states further that the terms of the Repayment are
also protective of the Plan. In this regard, the entitlement of
Brightpoint to any recovery of the Deficiency pursuant to the holding
of the Certificate by the Plan is limited to an amount not in excess of
the Assessment Amount. Pursuant to the terms of the Repayment, in the
event that the Recovery Amount turns out to be greater than the
Assessment Amount, the portion of the Recovery Amount that exceeds the
Assessment Amount will be retained by the Plan. In this way,
Brightpoint may only receive up to $108,738.85, the amount Brightpoint
paid to Millennium on behalf of the Plan, as a result of the Plan's
holding of the Certificate.
[[Page 62824]]
9. The applicant states that Brightpoint acted in good faith in
paying the Assessment Amount on behalf of the Plan. In this regard, the
applicant represents that the fiduciaries of the Plan had no reason or
opportunity to know in advance of the Deficiency since the Intrust
shortage consisted solely of non-Plan assets. In addition, the
applicant represents that Plan distributions processed through Intrust
were done so properly and in a timely manner. According to the
applicant, Brightpoint paid the Assessment Amount solely as a means of
responding to an event that was potentially harmful to the Plan and its
participants and beneficiaries.
10. In summary, the applicant represents that the Payment and
Repayment satisfy the statutory criteria for an exemption under section
408(a) of the Act since:
(A) In the event the Plan receives a Recovery Amount that is
greater than the Assessment Amount, the Plan will not be required to
pay Brightpoint that portion of the Recovery Amount that is in excess
of the Assessment Amount;
(B) In the event the Plan receives a Recovery Amount that is less
than the Assessment Amount, the Plan will not be required to pay
Brightpoint the difference between the Assessment Amount and the
Recovery Amount;
(C) The Plan will not pay any of the costs and/or fees associated
with the Payment and the Repayment;
(D) The Deficiency did not arise in connection with any improper
act undertaken by a Plan fiduciary (other than Intrust or its
principals); and
(E) Upon notification of the Intrust losses, the Brightpoint Plan
fiduciaries undertook, and will continue to undertake, the actions
necessary to ensure that the assets of the Plan were, and are,
adequately protected.
Notice to Interested Persons: The applicant represents that notice
to interested persons will be made within thirty (30) business days
following publication of this notice in the Federal Register. Comments
and requests for a hearing must be received by the Department not later
than sixty (60) days from the date of publication of this notice of
proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Christopher Motta of the Department,
telephone (202) 693-8544. (This is not a toll-free number.)
J. Penner Corporation Profit Sharing Plan (the Plan), Located in
Doylestown, PA
[Application No. D-11099]
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is considering granting an exemption under
the authority of section 408(a) of the Act and section 4975(c)(2) of
the Code and in accordance with the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\8\ If the
exemption is granted, the restrictions of sections 406(a), 406(b)(1)
and (b)(2) of the Act and the sanctions resulting from the application
of section 4975 of the Code, by reason of section 4975(c)(1) (A)
through (E) of the Code, shall not apply to (1) the sale (the Sale) of
certain improved real property (the Property) by Thomas G. Frazier and
Carol G. Frazier (the Fraziers) to their respective participant
directed individual investment accounts in the Plan (the Thomas Frazier
Account and the Carol Frazier Account; together, the Frazier Accounts
or the Accounts); and (2) the simultaneous lease (the Lease) of the
Property by the Frazier Accounts to J. Penner Corporation (the
Corporation), the Plan sponsor and a party in interest with respect to
the Plan, provided that the following conditions are met:
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\8\ For purposes of this proposed exemption, references to
provisions of Title I of the Act, unless otherwise specified, refer
also to corresponding provisions of the Code.
---------------------------------------------------------------------------
(a) The terms and conditions of the transactions are not less
favorable to the Frazier Accounts than those which the Frazier Accounts
would receive in an arm's length transaction with an unrelated party.
(b) The Sale is a one-time transaction for cash.
(c) The acquisition price that is paid by the Frazier Accounts for
proportionate interests in the Property is not more than the fair
market value of the Property as determined by a qualified, independent
appraiser on the date of the Sale.
(d) The value of the proportionate interests in the Property that
are acquired by each of the Frazier Accounts does not exceed 25% of
each of the Frazier Accounts' assets at the time of the Sale nor
throughout the duration of the Lease.
(e) The Frazier Accounts do not pay any real estate fees,
commissions or other expenses with respect to the transactions.
(f) The rental amount under the Lease is no less than the fair
market rental value of the Property, as determined by a qualified,
independent appraiser on the date the Lease is entered into by the
parties.
(g) The Lease is a triple net lease under which the Corporation, as
lessee, pays, in addition to the base rent, all normal operating
expenses of the Property, including taxes, insurance, maintenance,
repairs and utilities.
(h) The Fraziers indemnify and hold the Plan and the Frazier
Accounts harmless from any liability arising from the Sale, including,
but not limited to, hazardous material found on the Property, violation
of zoning, land use regulations or restrictions, and violations of
federal, state or local environmental regulations or laws.
(i) The Sale is effected and the Lease commences only upon
completion of the following transactions, which shall occur no later
than sixty days after the granting of the final exemption: (1) The
Fraziers and the Bucks County Industrial Development Corporation
(BCIDC) fulfill all of their obligations to the Pennsylvania Industrial
Development Authority (PIDA); (2) the Fraziers pay off their debt
obligation to BCIDC in accordance with the terms of an installment sale
agreement (the Installment Sale Agreement) and reacquire legal title to
the Property; and (3) the lease agreement (the Original Lease) between
the Fraziers and the Corporation is terminated.
Summary of Facts and Representations
1. The Plan is a defined contribution profit sharing plan, as
described in section 401(a) of the Code, and is exempt from taxation
under section 501 of the Code. The Plan was established by the
Corporation on July 1, 1986. As of December 31, 2001, the Plan had 18
participants, including the Fraziers. The Plan provides for
individually-directed accounts and each of the Fraziers maintains a
directed investment account in such Plan. The Fraziers are trustees and
fiduciaries of the Plan.
As of December 31, 2001, the Plan had total assets of approximately
$1,945,224. As of the same date, the Thomas Frazier Account in the Plan
had a fair market value of $919,472 and the Carol Frazier Account in
the Plan had a fair market value of $537,520, for a combined total fair
market value of $1,456,992.
2. The Corporation is an S corporation that is incorporated in the
Commonwealth of Pennsylvania and maintains its principal place of
business in Doylestown, Pennsylvania. The Corporation manufactures
products for the automotive replacement glass market and sells its
products to the
[[Page 62825]]
original equipment manufacturers. The Fraziers own 100 percent of the
outstanding capital stock of the Corporation and they are directors and
officers of the Corporation.
3. At present, BCIDC, a Pennsylvania non-profit corporation, holds
legal title to certain improved, real property that is located at 17
Weldon Drive, Doylestown Township, Doylestown, Pennsylvania, of which
the Fraziers are the equitable owners, as set forth in the Installment
Sale Agreement. The Property consists of a 3.47 acre parcel of light
industrially zoned land with an existing one story industrial building
totaling approximately 10,000 square feet of space and adjoining
parking facilities. The Fraziers originally acquired the Property,
which was vacant land at the time, in 1988 for $212,000 in cash from
Horsham Valley Development Corporation, an unrelated party. The
Property is currently subject to an original lease (the Original Lease)
between the Fraziers as the lessors, and the Corporation as the lessee.
The Original Lease is a 15 year, triple net lease which commenced on
April 5, 1990 and expires on April 1, 2005. The annual rental under the
Original Lease is $80,000, payable in monthly installments of
approximately $6,666.67. The Corporation does not own any other real
estate contiguous to the Property, which is used solely by the
Corporation in its business.
4. On April 5, 1990, legal title to the Property was transferred by
the Fraziers to BCIDC by deed for consideration in the amount of $1.00.
This enabled BCIDC to obtain a first mortgage loan (the Mortgage Loan)
from PIDA, a Pennsylvania non-profit entity created under the
Pennsylvania Industrial Development Authority Act (the PIDAA) \9\ to
provide financing in the form of low interest loans for industrial
development projects throughout Pennsylvania. The Mortgage Loan is in
the principal amount of $314,822. It has a term that commenced on June
1, 1990 and ends on May 1, 2005, and it carries an interest rate of
three percent per annum. The parties intended that the interest rate
would be passed through to the Fraziers under the terms of the
Installment Sale Agreement. The applicants represent that this interest
rate could only be obtained by having BCIDC acquire legal title to the
Property so that the Property could qualify as an ``industrial
development project.''\10\ In addition, the applicants represent that
BCIDC agreed to enter into this financing arrangement with the Fraziers
in order to establish an industrial development project and to create
jobs in the area.
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\9\ The purpose of the PIDAA is to promote the welfare of the
people of Pennsylvania by reducing unemployment in certain critical
economic areas and to provide for the establishment of industrial
development projects in such areas.
\10\ Under Section 303(i) of the PIDAA, as amended, an
``industrial development project'' is described as any land, site,
structure, facility or undertaking comprising or being connected
with or being a part of (i) an industrial enterprise, (ii) a
manufacturing enterprise, (iii) a research and development
enterprise, or (iv) an agricultural enterprise, established or to be
established by an industrial development agency in a critical
economic area.
---------------------------------------------------------------------------
The Fraziers received the Mortgage Loan proceeds and simultaneously
entered into the Installment Sale Agreement on April 5, 1990 with BCIDC
to repurchase the Property for $314,822 and pay for it over a period of
15 years, which coincides with the term of the Mortgage Loan. Pursuant
to the amortization schedule, such payments would be in monthly
installments of $2,174.11, with interest at three percent per annum
included in each payment.
The Fraziers used the Mortgage Loan proceeds exclusively for the
industrial development project. Of the $314,822 received, $5,626.96
were used for settlement costs including counsel fees, title insurance,
recording fees and real estate taxes. The balance of the Mortgage Loan
proceeds was used to construct the industrial building. As of August
31, 2002, the Mortgage Loan and the Installment Sale Agreement had an
outstanding principal balance of approximately $66,779.79.
As collateral for the Mortgage Loan, the Fraziers assigned the
Original Lease to PIDA and BCIDC and the Installment Sale Agreement to
PIDA. As additional security for the Mortgage Loan, the Fraziers gave
their personal guarantee.
5. The Property has been appraised by Stuart S. Kingsbury, Jr.,
CCRA, CREA, CRB, GRI of Kingsbury Real Estate Appraisers, located in
Doylestown, Pennsylvania. Mr. Kingsbury is an independent, certified
general appraiser in the State of Pennsylvania. In an independent
appraisal report dated April 6, 2002 (the 2002 Appraisal), Mr.
Kingsbury updated a June 27, 2001 independent appraisal (the 2001
Appraisal) that was prepared by his firm, in which the Property's fair
market value and annual fair market rental value were placed at
$330,000 and $80,000, respectively, as of June 1, 2001. Utilizing the
Market Data Approach to valuation in the 2002 Appraisal, Mr. Kingsbury
determined that the fair market value of the Property as of March 19,
2002 was $350,000. As of the same date, Mr. Kingsbury also determined
that the annual fair market rental value of the Property was $85,000 or
$7,0883.33 per month on a triple net basis. Mr. Kingsbury will again
update the appraisal on the date of the Sale and Lease transactions.
6. To enable the Frazier Accounts to diversify their assets by
obtaining income-producing real estate, the applicants propose that the
Frazier Accounts purchase the Property from the Fraziers for $350,000
or an amount that is not more than the fair market value of the
Property on the date of the Sale. The Property will be allocated
between the Frazier Accounts so that the Thomas Frazier Account
acquires a 64 percent interest in the Property, representing
approximately 24 percent of the fair market value of such Account's
assets, and the Carol Frazier Account acquires a 36 percent interest in
the Property, representing approximately 23 percent of the fair market
value of that Account's assets.
Contemporaneously with their purchase of the Property, the Frazier
Accounts will enter into the Lease with the Corporation. The Frazier
Accounts will not be required to pay any real estate fees, commissions
or other expenses in connection with their acquisition of the Property
or with the administration of the Lease. Further, the Fraziers, who had
a combined net worth of approximately $3 million as of September 21,
2002, will indemnify and hold the Plan and the Frazier Accounts
harmless from any liability arising from the Sale, including, but not
limited to, hazardous material found on the Property, violation of
zoning, land use regulations or restrictions, and violations of
federal, state or local environmental regulations or laws.\11\ Finally,
the Sale and the Lease will commence only upon the completion of the
following transactions, which will occur no later than sixty days after
the granting of the final exemption: (a) The Fraziers and BCIDC have
fulfilled all of their obligations to PIDA; (b) the Fraziers have paid
off their debt obligation to BCIDC in accordance with the Installment
Sale Agreement and have reacquired legal title to the
[[Page 62826]]
Property; and (c) the Original Lease between the Fraziers and the
Corporation has been terminated.
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\11\ It should be noted that in his 2001 Appraisal of the
Property, Mr. Kingsbury states that his routine inspection of, and
inquiries about, the Property did not reveal any information to
indicate any apparent environmental conditions which would affect
the Property's value negatively. However, he explains that it is
possible that tests and inspections made by a qualified hazardous
substance and environmental expert would reveal the existence of
hazardous materials and environmental conditions on or around the
Property that would negatively affect its value. Mr. Kingsbury did
not comment on the Property's environmental conditions in his 2002
Appraisal.
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Accordingly, the applicants request an administrative exemption
from the Department under the terms and conditions described herein.
7. The proposed Lease will be for a term of ten years and it will
have no renewal options. The Lease provides that the Corporation will
pay the Frazier Accounts an initial monthly rent of $7,083.33 per
month, based upon Mr. Kingsbury's 2002 Appraisal of the fair market
rental value of the Property, which will be updated at the time the
Lease is entered into by the parties. Said rent will be allocated in
proportion to each Account's ownership interest in the Property. The
Lease will be a triple net lease under which the Corporation will pay
all normal operating expenses of the Property, including taxes,
insurance, maintenance, repairs and utilities. The applicant represents
that on the third, sixth and ninth anniversaries of the date of
commencement of the Lease (the Tri-Annual Adjustment Dates), the fair
market rental value of the Property will be determined as of the Tri-
Annual Adjustment Date, by a qualified, independent appraiser selected
by the Fraziers in their capacity as trustees of their respective
Accounts in the Plan. However, in no event will the rent be adjusted
below the rental amount paid for the preceding year. In addition,
during each year of the term of the Lease, the rental rate will be
increased by an amount equal to the most recent percentage increase in
the Consumer Price Index or three percent, whichever is greater.
8. In summary, it is represented that the proposed transactions
will satisfy the statutory criteria for an exemption under section
408(a) of the Act because:
(a) The terms and conditions of the transactions will not be less
favorable to the Frazier Accounts than those which the Frazier Accounts
would receive in an arm's length transaction with an unrelated party.
(b) The Sale will be a one-time transaction for cash.
(c) The acquisition price that is paid by the Frazier Accounts for
proportionate interests in the Property will be no more than the fair
market value of the Property as determined by a qualified, independent
appraiser on the date of the Sale.
(d) The value of the proportionate interests in the Property that
are acquired by each of the Frazier Accounts will not exceed 25 percent
of each of the Frazier Accounts' assets at the time of the transaction
and throughout the duration of the Lease.
(e) The Frazier Accounts will not pay any real estate commissions,
fees or other expenses with respect to the transactions.
(f) The rental amount of the Lease will be no less than the fair
market rental value of the Property, as determined by a qualified,
independent appraiser on the date the Lease is entered into by the
parties.
(g) The Lease will be a triple net lease under which the
Corporation, as lessee, will pay, in addition to the base rent, all
normal operating expenses of the Property, including taxes, insurance,
maintenance, repairs and utilities.
(h) The Fraziers will indemnify and hold the Plan and the Frazier
Accounts harmless from any liability arising from the Sale, including,
but not limited to, hazardous material found on the Property, violation
of zoning, land use regulations or restrictions, and violations of
federal, state or local environmental regulations or laws.
(i) The Sale will be effected and the Lease will commence only upon
completion of the following transactions, which shall occur no later
than sixty days following the granting of the exemption: (1) The
Fraziers and BCIDC have fulfilled all of their obligations to PIDA; (2)
the Fraziers have paid off their debt obligation to BCIDC in accordance
with the Installment Sale Agreement and have reacquired legal title to
the Property; and (3) the Original Lease between the Fraziers and the
Corporation has been terminated.
Notice to Interested Persons
The Fraziers will provide notice of the proposed exemption to all
interested persons by personal delivery within ten days of the date of
publication of the notice of proposed exemption in the Federal
Register. The notice will include a copy of the proposed exemption, as
published in the Federal Register, and a supplemental statement, as
required pursuant to 29 CFR 2570.43(b)(2), which will inform interested
persons of their right to comment on and/or to request a hearing with
respect to the proposed exemption. Comments regarding the proposed
exemption and requests for a public hearing are due within 40 days of
the date of publication of the notice of pendency in the Federal
Register.
FOR FURTHER INFORMATION CONTACT: Ms. Anna M.N. Mpras of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption
under section 408(a) of the Act and/or section 4975(c)(2) of the Code
does not relieve a fiduciary or other party in interest or disqualified
person from certain other provisions of the Act and/or the Code,
including any prohibited transaction provisions to which the exemption
does not apply and the general fiduciary responsibility provisions of
section 404 of the Act, which, among other things, require a fiduciary
to discharge his duties respecting the plan solely in the interest of
the participants and beneficiaries of the plan and in a prudent fashion
in accordance with section 404(a)(1)(b) of the Act; nor does it affect
the requirement of section 401(a) of the Code that the plan must
operate for the exclusive benefit of the employees of the employer
maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the
Act and/or section 4975(c)(2) of the Code, the Department must find
that the exemption is administratively feasible, in the interests of
the plan and of its participants and beneficiaries, and protective of
the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to,
and not in derogation of, any other provisions of the Act and/or the
Code, including statutory or administrative exemptions and transitional
rules. Furthermore, the fact that a transaction is subject to an
administrative or statutory exemption is not dispositive of whether the
transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the
express condition that the material facts and representations contained
in each application are true and complete, and that each application
accurately describes all material terms of the transaction which is the
subject of the exemption.
Signed at Washington, DC, this 3rd day of October, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits,
Administration, Department of Labor.
[FR Doc. 02-25598 Filed 10-7-02; 8:45 am]
BILLING CODE 4510-29-P