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

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URL: https://www.frixlaw.com/law-library/documents/fr%3A94-5248

## Record

- **Collection:** Federal Register
- **Document type:** Uncategorized Document
- **Published:** March 8, 1994

## Text

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A94-5248. Public record. Not legal advice.