Proposed Exemptions; Erick M. Jansson, IRA (the IRA) et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09847, et al.]

Proposed Exemptions; Erick M. Jansson, IRA (the IRA) et al.

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 restriction 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

request 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

request 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. 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 request for a hearing (at least

three copies) should be sent to the Pension and Welfare Benefits

Administration, 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. The applications for exemption and the comments received

will be available for public inspection in the Public Documents Room of

Pension and Welfare Benefits Administration, U.S. Department of Labor,

room N-5507, 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 (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. 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.

Erick M. Jansson, IRA (the IRA) Located in Fayetteville, Arkansas;

Proposed Exemption

[Application No. D-09847]

The Department is considering granting an exemption under the

authority of 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 exemption is granted, 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 proposed sale of an overriding royalty interest in oil and gas (the

Interest) by the IRA to Mr. Erick M. Jansson (Mr. Jansson), a

disqualified person with respect to the IRA, for $95,000 in cash,

provided:

(a) the IRA pays no commissions or other expenses in connection

with the sale;

(b) the fair market value of the Interest is determined by a

qualified independent appraiser; and

(c) the IRA receives no less than the fair market value of the

Interest on the date of the sale.1

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\1\Pursuant to 29 CFR 2510.3-2(d), the IRA is not within the

jurisdiction of Title I of the Act. However, there is jurisdiction

under Title II of the Act pursuant to section 4975 of the Code.

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Summary of Facts and Representations

1. The IRA is a self-directed IRA described in section 408(a) of

the Code. Arkansas Trust Management, Inc. of Fayettevillle, Arkansas,

is the custodian of the IRA. As of September 6, 1994, the IRA had

approximately $169,150 in total assets.

2. On April 20, 1993, the IRA purchased the Interest, which

consists of an overriding royalty interest of one-quarter of one

percent of 8/8ths of all oil and gas produced from Block Q/13(a), a

proposed offshore oil and gas drilling operation to be located on

property near the Netherlands. The IRA purchased the Interest from the

Van Dyke Energy Company (VDE) for a consideration of $95,000. VDE is

unrelated to Mr. Jansson and the IRA. Mr. Jansson, who had worked for

over 25 years in the field of oil and gas drilling management, had

determined that the Interest was a suitable investment for his IRA.

3. At the time the Interest was purchased by the IRA, the parties

were unaware that the Dutch government would impose a 35% foreign

income tax on the oil and gas proceeds produced by the Interest (the

Foreign Tax). The parties learned of the Foreign Tax after the Interest

was acquired when VDE announced it had been advised by the Dutch

government that any proceeds from the asset were subject to Dutch

income tax and the Foreign Tax would be withheld from the proceeds

before payments to the IRA. In addition, Mr. Jansson has determined

that he wishes to invest the IRA's assets in a more liquid and less

speculative investment. Accordingly, he proposes to purchase the

Interest from the IRA for cash at its appraised fair market value. No

commissions or other expenses will be paid by the IRA in connection

with the sale.

4. Mr. John R. Gorman, financial consultant for VDE, has stated

that as of August 22, 1994, no development plan has been filed for

Block Q/13(a), nor has there been any oil or gas production on the

Block. Accordingly, Mr. Gorman has appraised the Interest as still

having a fair market value of $95,000 as of August 22, 1994.

5. In summary, the applicant represents that the proposed

transaction satisfies the criteria contained in section 4975(c)(2) of

the Code because: a) the sale is a one-time transaction for cash; b)

the IRA will pay no commissions or other expenses in connection with

the sale; c) the sales price has been determined by a qualified,

independent appraiser; and d) Mr. Jansson is the only participant in

the IRA, and he has determined that the transaction is appropriate for

and in the best interest of the IRA and desires that the transaction be

consummated.

notice to interested persons: Because Mr. Jansson is the only

participant in the IRA, it has been determined that there is no need to

distribute the notice of proposed exemption to interested persons.

Comments and requests for a hearing are due 30 days after publication

of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Stratus Computer, Inc. Employees' Capital Accumulation Plan (the Plan)

Located in Marlboro, Massachusetts; Proposed Exemption

[Application No. D-9823]

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 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 proposed extension of credit by

Stratus Computer, Inc. (Stratus) to the Plan in the form of a loan (the

Loan) with respect to Guaranteed Investment Contract, Number 62456 (the

GIC) issued by Confederated Life Insurance Company of Canada (CL); and

(2) the Plan's potential repayment of the Loan (the Repayments),

provided:

(a) all terms of such transactions are no less favorable to the

Plan than those which the Plan could obtain in arm's-length

transactions with an unrelated party;

(b) no interest and/or expenses are paid by the Plan;

(c) the amount of the Loan is no less than the accumulated book

value of the GIC as of August 12, 1994;

(d) the Repayments are restricted to the amounts, if any, paid to

the Plan after August 12, 1994, by CL or other responsible third

parties with respect to the GIC (the GIC Proceeds);

(e) the Repayments do not exceed the total amount of the Loan; and

(f) the Repayments are waived to the extent the Loan exceeds the

GIC Proceeds.

Summary of Facts and Representations

1. Stratus manufactures and sells fault-tolerant superminicomputer

hardware, develops and licenses computer software, and provides

computer consulting services. Stratus is a public company, traded on

the New York Stock Exchange, and had revenues of approximately $525

million for 1993. Stratus currently sponsors the Plan for the benefit

of all its United States employees and employees of its United States

subsidiaries. The Plan is a defined contribution plan with an employer

matching feature. The Plan has approximately 1,200 participants and

beneficiaries, and as of June 30, 1994, the approximate aggregate fair

market value of the Plan's assets was $68,679,205.

2. Under the Plan, participants are able to self-direct their

savings contributions as well as Stratus matching contributions into

seven diversified investment funds, which are a Money Market Fund, a

Fixed Income Fund, a Balanced Fund, a Growth and Income Fund, two

Growth Funds and an International Fund, all of which are managed by

Fidelity Investments (Fidelity) of Boston, Massachusetts. The

investment options under the Plan are all mutual funds. The Plan no

longer acquires individual guaranteed investment contracts, but rather

participates through Fidelity in a GIC ``Fund'', which is the Fixed

Income Fund. As of January 1, 1994, contributions and/or transfers into

the Fixed Income Fund are invested in Fidelity's GIC Fund.

3. The Fixed Income Fund contains five Investment Contracts which

are issued by various insurance companies. These five Investment

Contracts were purchased prior to the Plan's participation in and

offering of Fidelity's GIC Fund. One of these five Contracts is the

GIC, which was issued by CL. The GIC was issued on April 1, 1991 and is

due to mature on March 31, 1996. The stated interest rate on the GIC is

8.52%. The total contributions made to the GIC have been $5,031,214.

Withdrawals have been made in the amount of $2,001,214. As of August

11, 1994, the GIC had a balance of $3,119,540.

4. However, on August 12, 1994, CL was seized by Canadian

governmental authorities, and all CL assets were frozen. To ensure the

financial viability of CL commitments in the United States, the State

of Michigan froze all assets of CL in the U.S. until a Rehabilitation

Plan (the Rehab Plan) can be secured.\2\ At the time CL was seized, a

segregated fund (the Segregated Fund) was established within the Fixed

Income Fund of the Plan. Participants with assets in the Fixed Income

Fund had approximately 13.5% of that amount allocated to the Segregated

Fund, which represents the percentage of assets attributable to the GIC

in the Fixed Income Fund.

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\2\The Department notes that the decisions to acquire and hold

the GIC are governed by the fiduciary responsibility requirements of

Part 4, Subtitle B, Title I of the Act. In this proposed exemption,

the Department is not proposing relief for any violations of Part 4

which may have arisen as a result of the acquisition and holding of

the GIC.

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5. The applicant represents that the Segregated Fund component of

the Plan poses various administrative problems, including the fact that

investment transfers, loans and hardship withdrawals, as well as

distributions for terminated and retired participants are precluded.

Approximately 54% of the Plan participants are affected.

6. Stratus has accordingly requested an exemption to permit it to

make the Loan to the Plan. The Loan will be made pursuant to a written

agreement, in which all Loan terms will be stated. The Loan will be an

interest-free, unsecured loan in an amount equal to the Segregated Fund

balance (i.e., the accumulated book value of the GIC--deposits, plus

interest at the contract rate, minus withdrawals) as of August 12,

1994. Any future interest credited in accordance with the Rehab Plan

will be allocated to Plan participants. The purpose of the Loan is to

facilitate distributions, participant loans, hardship withdrawals and

investment transfers from the portion of the participants' account

balances that are allocated to the Segregated Fund. Such distributions

would otherwise be at best delayed due to the uncertainty of the terms

of the Rehab Plan. The applicant represents that the Plan's Repayments

of the Loan will be limited to the GIC Proceeds, will be waived to the

extent the Loan exceeds the GIC proceeds, and in no event will exceed

the amount of the Loan.

7. In summary, the applicant represents that the proposed

transactions will satisfy the criteria contained in section 408(a) of

the Act because:

(a) all terms of the transactions will be no less favorable to the

Plan than those which the Plan could obtain in an arm's-length

transaction with an unrelated party;

(b) no interest and/or expenses will be paid by the Plan;

(c) the Loan will be no less than the accumulated book value of the

GIC as of August 12, 1994;

(d) the Repayments are restricted to the GIC Proceeds;

(e) the Repayments will not exceed the total amount of the Loan;

and

(f) the Repayments are waived to the extent the Loan exceeds the

GIC Proceeds.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (This is not a toll-free number.)

Mid-Hudson Medical Group, P.C. Money Purchase Pension Trust (the Plan)

Located in Fishkill, New York; Proposed Exemption

[Application No. D-9721]

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 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 acquisition by the Plan of certain

improved real property (the Property) from unrelated parties for a

sales price of $562,500; and (2) the leasing (the Lease) of the

Property by the Plan to Mid-Hudson Medical Group, P.C. (the Employer),

a party in interest with respect to the Plan, provided the following

conditions are satisfied:

(a) the Plan pays no more than the fair market value of the

Property;

(b) the Property represents no more than 25% of the value of the

Plan's assets;

(c) the terms of the Lease are, and will remain, at least as

favorable to the Plan as those obtainable in an arm's-length

transaction with an unrelated party;

(d) the fair market rental value has been, and will continue to be

determined on an annual basis by a qualified, independent appraiser;

(e) the Plan's independent fiduciary has determined that the

transaction is appropriate for the Plan and in the best interests of

the Plan's participants and beneficiaries; and

(f) the Plan's independent fiduciary will continue to monitor the

transaction and the conditions of the exemption and take whatever

action is necessary to enforce the Plan's rights under the Lease.

Summary of Facts and Representations

1. The Employer is a professional corporation engaged in the

practice of medicine. The Plan is a defined contribution money purchase

plan with 108 participants. As of June 30, 1993, the Plan had total

assets with a value of $7,265,571.

2. The Plan proposes to purchase the Property from two unrelated

parties, Martin Koloski and Durgadevi Soma. The purchase price for the

Property will be $562,500. The Property consists of land and a building

located at 30 Columbia Street, Poughkeepsie, New York. The sellers

previously used the building for offices for a medical practice.

3. Following the acquisition of the Property by the Plan, it will

be leased by the Plan to the Employer for its medical practice. A

portion of the Property will be subleased by the Employer to other

unrelated tenants. The initial annual rental for the Property is to be

$62,458. The Lease is to be on a triple-net basis; thus, all expenses,

including real estate taxes, will be paid by the Employer. The Lease

will be for an initial term of ten years, and will be automatically

renewed at the end of the term for an additional five year period,

subject to the approval of the Plan's independent fiduciary (see rep.

5, below).

4. The annual rental for the Property has been established by an

independent appraisal performed by Messrs. Kenneth Golub, MAI, and

Harvey Cohen (the Appraisers) of American Property Counselors of

Armonk, New York, as of April 30, 1994. The Appraisers have also

determined that the Property had a fair market value of $565,000 as of

that date. The applicant represents that the Property will be

personally inspected every year by a qualified, independent appraiser

chosen by the Plan's independent fiduciary (see rep. 5, below) who will

provide the Plan with an annual fair market rental value update. The

applicant represents that the rental payment will be adjusted annually

in accordance with the fair market rental value stated by the

independent appraiser. The adjusted rent will either stay the same or

be adjusted upward, but will never be decreased from the prior year's

rent paid.

5. The applicant represents that Mr. Joseph J. Berger of Joseph J.

Berger Management Associates in White Plains, New York, has been

appointed to serve as the Plan's independent fiduciary with respect to

the subject transactions. Mr. Berger represents that he has been a CPA

for over 35 years, and that he is knowledgeable in the area of real

estate and experienced in working with qualified retirement plans. The

applicant represents that Mr. Berger has no relationship to the Plan or

the Employer other than serving as the independent fiduciary to the

Plan.3 Mr. Berger represents that he is aware of his duties,

liabilities and responsibilities as a fiduciary under the Act, and he

has accepted them.

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\3\Mr. Berger also serves as the independent fiduciary for the

profit sharing plan sponsored by the Employer with respect to the

transaction which was exempted by Prohibited Transaction Exemption

93-27, 58 FR 25673, April 27, 1993.

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6. Mr. Berger represents that he has undertaken the following

duties as independent fiduciary to the Plan with respect to the Lease:

(a) to review the Plan's proposed purchase of the Property, and in

that connection to determine whether the purchase will be at fair

market value as determined by an independent real estate appraiser and

based upon arm's-length negotiations, and whether the purchase will be

in the best interest of the Plan and its participants, taking into

account the diversity of Plan assets and the Plan's need for liquidity;

(b) to review the Lease (and any proposed renewals thereof)

covering the Property to confirm in each case that the Lease (or

renewal) is in the best interest of the Plan and its participants;

(c) to confirm that the Lease (or renewal thereof) reflects the

current fair market rental rate as determined by an independent real

estate appraiser;

(d) to review all financial statements and other documents to be

filed by the Plan in connection with the Lease (or the renewal

thereof);

(e) to monitor the Lease to ensure that all actions are taken that

are necessary or proper to safeguard the interests of the Plan; and

(f) to review the Plan's assets periodically to determine whether

the value of the Property remains less than 25% of the total value of

Plan assets.

7. Mr. Berger represents that he completed his analysis of the

transactions and, based upon his review and analysis, it is his opinion

that the Property is an appropriate investment for the Plan and the

acquisition and Lease thereof is in the best interests of the Plan's

participants and beneficiaries. Mr. Berger represents that he has

reviewed the Plan's investment portfolio and determined that while it

is prudently diversified among its various securities, less than 20% of

the total corpus is invested in intermediate and long-term securities.

Mr Berger believes that it would be appropriate to further diversify

the portfolio with a long-term investment such as the Property and the

subject Lease.

8. Mr. Berger represents that after having examined the purchase

contract, the proposed Lease, the appraisal report, the physical

Property and the Plan's assets, he considers the purchase of the

Property to be a sound and secure investment which will earn a fair

market return for the Plan and will enhance the diversification of the

Plan's assets and provide a more consistent and level flow of current

income. Mr. Berger represents that he will continue to monitor the

Lease throughout its duration and take whatever action is necessary to

protect the Plan's rights under the Lease.

9. In summary, the applicant represents that the proposed

transactions satisfy the criteria contained in section 408(a) of the

Act for the following reasons:

(a) the Property represents approximately 7.7% of the Plan's total

assets;

(b) the rental for the Property has been, and will continue to be,

established by a qualified, independent appraiser;

(c) the Plan's independent fiduciary, Mr. Berger, has determined

that the transactions are appropriate for the Plan and in the best

interests of the Plan's participants and beneficiaries; and

(d) Mr. Berger will continue to monitor the Lease and take whatever

action is necessary to protect the Plan's rights under the Lease.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

telephone (202) 219-8881. (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 of 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 30th day of November, 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-29833 Filed 12-2-94; 8:45 am]

BILLING CODE 4510-29-P