Grant of Individual Exemptions; Ashley Construction, Inc. Retirement Plan, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 94-21; Exemption Application No. D-

9464, et al.]

Grant of Individual Exemptions; Ashley Construction, Inc.

Retirement Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: 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 (43 FR

47713, October 17, 1978) transferred the authority of the Secretary of

the Treasury to issue exemptions of the type proposed to the Secretary

of Labor.

Statutory Findings

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.

Ashley Construction, Inc. Retirement Plan (the Plan) Located in Hidden

Hills, CA

[Prohibited Transaction Exemption 94-21; Exemption Application No. D-

9464]

Exemption

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 loan (the Loan) by the Plan of an amount

that will not exceed $350,000 to Ashley Construction, Inc. (the

Employer), a party in interest with respect to the Plan; and (2) the

personal guarantee of the Employer's obligations under the Loan by

Michael F. Ashley (Mr. Ashley), a party in interest with respect to the

Plan.

This exemption is conditioned upon the following requirements: (a)

The terms of the Loan are at least as favorable to the Plan as those

obtainable in an arm's-length transaction with an unrelated party; (b)

the Loan will not exceed twenty-five percent of the assets of the Plan

at any time during the duration of the Loan; (c) the Loan is secured by

a first deed of trust on certain real property (the Property), which

has been appraised by a qualified, independent appraiser to ensure that

the fair market value of the Property is at least 150 percent of the

amount of the Loan; (d) the Employer's obligations under the Loan are

personally guaranteed by Mr. Ashley; (e) the fair market value of the

Property remains at least equal to 150 percent of the outstanding

balance of the Loan throughout the duration of the Loan; (f) an

independent, qualified fiduciary determines on behalf of the Plan that

the Loan is in the best interests of the Plan and protective of the

Plan's participants and beneficiaries; and (g) the independent,

qualified fiduciary monitors compliance with the terms and conditions

of the exemption and the Loan throughout the duration of the

transaction, taking any action necessary to safeguard the Plan's

interest, including foreclosure on the Property in the event of

default.

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 December 17, 1993 at 58

FR 66034.

For Further Information Contact: Kathryn Parr of the Department,

telephone (202) 219-8971. (This is not a toll-free number.)

The Avram A. Jacobson, M.D. Employee Profit Sharing Plan (the Profit

Sharing Plan) and the Avram A. Jacobson, M.D. Employee Money Purchase

Pension Plan (the Money Purchase Plan; Collectively, the Plans) Located

in Beverly Hills, CA

[Prohibited Transaction Exemption 94-22; Application Nos. D-9470

through D-9473]

Exemption

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 cash sale (the Sale) of certain works of art (the Art

Work) by the Plans to Avram A. Jacobson, M.D., a sole proprietor and

disqualified person with respect to the Plans.

This exemption is conditioned upon the following requirements: (1)

The Sale is a one-time cash transaction; (2) the Plans are not required

to pay any commissions, costs or other expenses in connection with this

transaction; (3) the Art Work is appraised by qualified, independent

appraisers; (4) the sale price for the Art Work reflects the greater of

either: (a) The original amount paid by the Plans at the time of

acquisition; or (b) its fair market value on the date of the Sale; and

(5) within ninety days of the publication in the Federal Register of

the grant of this exemption, Dr. Jacobson will file Forms 5330 with the

Internal Revenue Service and pay all applicable excise taxes that are

due by reason of the past prohibited transactions.

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 January 5, 1994 at 59 FR

599.

For Further Information Contact: Kathryn Parr of the Department,

telephone (202) 219-8971. (This is not a toll-free number.)

Cargill, Incorporated and Associated Companies Salaried Employees'

Pension Plan, et al. (the Plans) Located in Minneapolis, MN

[Prohibited Transaction Exemption 94-23; Application Nos. D-9424

through D-9430]

Exemption

The restrictions of sections 406(a), 406 (b)(1) and (b)(2) and

407(a) 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) a series of purchases by the

Cargill, Incorporated and Associated Companies Master Pension Trust

(the Master Trust) of shares of common stock (the Common Stock) of

Cargill, Incorporated (Cargill), a party in interest with respect to

the Plans and the Master Trust; (2) the Master Trust's holding of the

Common Stock; and (3) the acquisition, holding, and exercise by the

Master Trust of an irrevocable put option (the Put Option) with respect

to the Common Stock; provided that the following conditions are

satisfied:

(A) The Master Trust pays no more than the fair market value of the

Common Stock on the date of each acquisition;

(B) The Master Trust's interests for all purposes with respect to

the Common Stock are represented by a qualified, independent fiduciary

for the duration of the Master Trust's holding of any of the Common

Stock;

(C) Prior to each acquisition of Common Stock by the Master Trust,

the independent, qualified fiduciary must determine on behalf of the

Plans and the Master Trust that the proposed acquisition is appropriate

for and in the best interests of the Plans and the Master Trust;

(D) The independent fiduciary will take whatever action is

necessary to protect the Master Trust's rights, including, but not

limited to the exercise of the Put Option, if the independent

fiduciary, in its sole discretion, determines that such exercise is

appropriate;

(E) The independent fiduciary retains the right under the Put

Option to require Cargill, at any time, to purchase some or all of the

Common Stock from the Master Trust for the greater of: (1) the price of

the Common Stock on the date of the Master Trust's acquisition of the

Common Stock, or (2) the fair market value of the Common Stock as of

the date the Put Option is exercised;

(F) Cargill's obligations under the Put Option remain secured by an

escrow account containing cash or U.S. government securities worth at

least 25 percent of the fair market value of the Common Stock; and

(G) Subsequent to each acquisition, none of the Plans in the Master

Trust will have more than 10 percent of the fair market value of its

assets invested in the Common Stock.

Temporary Nature of Exemption

The exemption is temporary and will expire five years from the date

this Final Grant is published in the Federal Register with respect to

the Master Trust's acquisition of the Common Stock. The Master Trust

may hold the Common Stock pursuant to the terms of the exemption

subsequent to the end of the five year period.

Comments

In the Notice of Proposed Exemption, the Department invited

interested persons to submit written comments and requests for a

hearing on the exemption. All comments and requests for hearing were

due by December 13, 1993. The Department received over 50 telephone

inquiries from interested persons who expressed concern over the

effect, if any, of the transaction on their pension benefits. These

inquiries were responded to by a Department representative who informed

the callers that the transaction does not affect the calculation of

pension benefits or the Plans' obligation to make benefit payments.

The Department received a total of 31 written comments with 7 of

those comments containing a request for a hearing.\1\ Three

commentators stated that they did not understand the proposed exemption

or how it would affect their pensions. One commentator expressed

concern about the impact of the exemption on his retirement benefits

but did not specifically object to the exemption. Three interested

persons encouraged the Department to grant the exemption. The remaining

commentators were opposed to the granting of the exemption.

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\1\Because the exemption provides relief from section 406(b) of

the Act, 29 CFR 2570.46 of the Department's regulations provides

that the Department in its discretion may convene a hearing if

requested by interested persons.

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The interested persons who were opposed to the granting of the

exemption expressed concerns about the following subjects: (1) The

security of their retirement benefits under the Plans and the current

funding status of the Plans; (2) the possibility that the acquisition

of the Common Stock would be detrimental to the Plans because it would

decrease the liquidity and diversification of the Plans' investment

portfolio; (3) the perceived lack of independence on the part of the

qualified appraiser, independent fiduciary and Plan trustees; (4) the

alleged payment of fees to the independent fiduciary and the

independent appraiser by the Master Trust; (5) the prudence of allowing

the Plans to invest in the Common Stock, including questions concerning

the past investment performance and the current value of the Common

Stock; and (6) the belief that the Plans' interests were not adequately

protected by the escrow account (the Escrow) established by Cargill to

safeguard the Plans' investment in the Common Stock.

State Street (the Plans' independent fiduciary), D&P (the qualified

appraiser) and the applicant all submitted separate responses to the

relevant portions of these comments.

With regard to the security of retirement benefits under the Plans,

the applicant and State Street explain that all of the Plans invested

in the Master Trust are defined benefit plans, the benefits of which

are pre-determined by a formula. It is represented, therefore, that any

decreases in the value of an asset held in the Master Trust should not

adversely affect the amount or timely payment of benefits under any of

the Plans. The applicant responds to the concerns over the funding

status of the Plans by pointing out that the Plans, in the aggregate,

have been overfunded since 1988. The applicant represents that as of

December 31, 1992, the Plans, in the aggregate, were overfunded by

approximately $46 million.

With respect to concerns that investment in the Common Stock may

jeopardize the diversification or liquidity of the Plans' investments,

the applicant represents that Cargill has established mechanisms to

assure that the Plans' investment portfolio will remain diversified in

compliance with section 404 of the Act and that the investment in the

Common Stock is prudent and does not jeopardize the Plans' liquidity.

In this regard, the applicant states that the Plans' Investment

Committee determines the types of investments that are appropriate to

assure that the Master Trust investments are diversified and

sufficiently liquid. Furthermore, State Street represents that in

reaching its conclusion that the Common Stock would be a prudent

investment for the Plans, it relied upon the determination of the

Investment Committee that such an investment would be consistent with

the overall investment policy of the Plans. State Street represents

that, prior to each proposed acquisition of Common Stock, State Street

will review the Master Trust's asset allocation schedule and the

Investment Committee's determinations regarding the diversification and

liquidity requirements of the Plans. If, following such review, State

Street believes that the Investment Committee's conclusions are not

reasonable, State Street will not allow the Master Trust to consummate

the proposed acquisition of the Common Stock.

State Street also represents that the Put Option provides the

Master Trust with a substantial degree of liquidity because it enables

the independent fiduciary to require Cargill to purchase up to 100% of

the Common Stock held by the Master Trust at any time. In addition,

State Street notes that the valuation method used by D&P takes into

account the fact that the Common Stock is not publicly traded. Finally,

the conditions of the exemption prohibit the Plans from investing more

than 10% of the fair market value of their assets in the Common Stock

and provide that the exemption will expire 5 years from the date it is

granted. After the expiration of the exemption, the applicant would

have to apply for another exemption in order to allow the Master Trust

to acquire additional shares of the Common Stock.

The applicant has responded to each of the comments questioning the

independence of the parties selected to represent the interests of the

Plans. The applicant explains that, contrary to the commentator's

assertion, the trustees of the plan are not employees or former

employees of Cargill. As stated in the Proposed Exemption, the Trustee

is the Boston Safe Deposit and Trust Company. The applicant also

explains, that, contrary to the commentator's assertion, D&P was

selected as the qualified appraiser by State Street, not by Cargill.

D&P represents that, other than serving as a financial advisor to State

Street in matters relating to Cargill qualified plans, D&P has no

ongoing business relationship with Cargill. Finally, in response to a

comment questioning State Street's independence from Cargill, State

Street represents that its existing business relationships with Cargill

are clearly de minimis and will in no way undermine its ability to

serve as the independent fiduciary. Cargill represents that it selected

State Street to represent the interests of the Plans and the Master

Trust because of State Street's expertise and extensive experience in

serving as an independent fiduciary for ERISA retirement plans,

including plans with investments in employer securities.

The applicant counters the allegation by one of the commentators

that the holders of Common Stock would retain indirect control over the

shares they sold to the Master Trust, by explaining that State Street

will have complete management authority and control over any and all

rights relating to the Common Stock.

In response to the commentator who objects to having the Master

Trust pay the fees of State Street and D&P, the applicant states that

Cargill, not the Master Trust, has agreed to pay those fees in order to

avoid depleting the Masters Trust's assets.

In its response to the comments concerning the past investment

performance and the current value of the Common Stock, D&P has

explained why neither of the methods mentioned in the comments is an

appropriate method for measuring the value of the Common Stock.

According to D&P, comparing the performance of the Common Stock with

the S&P 500 index is inappropriate because the Common Stock is not

publicly traded and because such a comparison fails to recognize the

value of the Put Option to the Plans. D&P explains that, unlike the

securities making up the S&P 500, the Common Stock is an asset which

has both upside investment potential and downside protection. D&P also

asserts that a comparison of the dividend yield of the Common Stock

versus other investments is inappropriate. D&P explains that dividend

yield is typically calculated as dividends as a percentage of stock

price. Although Cargill has paid dividends on its Common Stock,

Cargill's historical dividend yield is not know because its Common

Stock is not publicly traded and has not been regularly valued. State

Street represents that, in making its investment decision, not just the

current dividend, but also the expected total return of the Common

Stock is considered. In this regard, D&P has determined that that

Cargill's expected total long term compound annual return on

investments (dividends plus capital appreciation) is in the range of 11

to 13 percent per annum.

As noted in the Proposed Exemption, since there is no public market

for the Common Stock, D&P has relied primarily on an analysis of

comparable, publicly traded companies in assessing the fair market

value of the Common Stock. D&P represents that the comparable company

method of valuation is generally accepted in the financial and

investment community and is regularly used by bankers, investment

bankers and other financial advisors in negotiating a transaction

between a buyer and seller of a closely held company.

After consultation with D&P, State Street represents that it is

satisfied that the Common Stock will be priced in a manner which is

competitive with the public market prices of comparable public equity

securities and that the expected total annual rate of return reflected

in such pricing is in line with that of comparable public equity

securities and the S&P 500 generally. In addition, State Street is

satisfied that, when the incremental downside protection, and the

resultant reduction in risk provided by the Put Option is taken into

account, the Common Stock becomes favorably priced as compared to

alternative investments. Significantly, State Steet notes that, because

D&P will value the Common Stock without taking into consideration the

Put Option granted to the Master Trust, the incremental value added by

the Put Option will not be reflected in the purchase price paid by the

Master Trust for the Common Stock.

With regard to complaints that the Escrow covers only 25% of the

amount payable to the Master Trust upon exercise of the Put Option,

State Street represents that, under the circumstances of this

transaction, the Escrow provides adequate protection to the Master

Trust. State Street asserts that the Escrow is adequate in view of (1)

the size, financial strength and creditworthiness of Cargill relative

to the amount of its potential obligations under the Put Option and (2)

the independent fiduciary's right to exercise the Put Option at any

time that it determines that such an exercise is necessary to protect

the interests of the Plans.

Finally, the applicant represents that comments referring to an

alleged offer by Cargill to sell stock to salaried employees in June,

1992 are incorrect. Cargill represents that no such offer ever took

place. Cargill does note, however, that shares of the ESOP common stock

are automatically allocated to eligible members of the Cargill,

Incorporated Partnership Plan pursuant to the terms of that plan.

Seven of the interested persons who commented on the proposed

exemption requested a public hearing. The Department has considered the

concerns expressed by the commentators and the applicant's written

responses addressing such concerns, and, on the basis of the materials

provided, has determined not to hold a public hearing. Furthermore,

after giving full consideration to the entire record, including the

written comments and the responses thereto, the Department has decided

to grant the exemption.

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 October 29, 1993, at 58

FR 58194.

For Further Information Contact: Ms. Virginia J. Miller of the

Department, telephone (202) 219-8971. (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 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 are true and complete and accurately describe all material

terms of the transaction which is the subject of the exemption. In the

case of continuing exemption transactions, if any of the material facts

or representations described in the application change after the

exemption is granted, the exemption will cease to apply as of the date

of such change. In the event of any such change, application for a new

exemption may be made to the Department.

Signed at Washington, DC this 3rd day of March 1994.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 94-5248 Filed 3-7-94; 8:45 am]

BILLING CODE 4510-29-P