Proposed Exemptions; Toyota Motor Sales, U.S.A., Inc.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-09875, et al.]

Proposed Exemptions; Toyota Motor Sales, U.S.A., Inc.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

-----------------------------------------------------------------------

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, N.W., Washington, D.C.

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, N.W., Washington, D.C. 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.

Toyota Motor Sales, U.S.A., Inc. Money Purchase Pension Plan for

Bargaining Unit Employees (the Plan), located in Torrance, CA

[Application No. D-09875]

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 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 of the Code, by reason of section 4975(c)(1) (A) through

(E) of the Code shall not apply to the proposed cash sale by the Plan

(the Sale), of group annuity contract No. GA-4564 (the GAC) issued by

Mutual Benefit Life Insurance Company (Mutual Benefit), located in

Newark, New Jersey, to Toyota Motor Sales, U.S.A., Inc., a California

corporation, (the Employer), a party in interest with respect to the

Plan; provided that (1) the Sale is a one-time transaction for cash;

(2) the Plan experiences no loss nor incurs any expense from the Sale;

and (3) the Plan receives as consideration from the Sale the greater of

either the fair market value of the GAC as determined by the trustee of

the Plan on the date of the Sale, or an amount that is equal to the

total funds expended by the Plan in acquiring and holding the GAC, plus

the amount of interest earned and accrued by the Plan on the GAC to the

date of the Sale,1 less all withdrawals from the Plan to the date

of the Sale, and less all advances made to the Plan by the Employer to

the date of the Sale.

1This takes into account the rate of interest guaranteed

after December 31, 1991, to the Plan by the Employer.

---------------------------------------------------------------------------

Summary of Facts and Representations

1. The Employer is a California corporation with its corporate

headquarters in Torrance, California and other facilities located

throughout the United States, including port facilities, regional sales

offices, and parts distribution centers. The Employer is primarily

engaged in the wholesale distribution of automobiles, light trucks,

industrial equipment and accessories throughout the United States

(excluding Hawaii). In addition, the Employer exports automobiles and

related replacement parts and accessories to Europe, Asia, and the U.S.

Territories. Also the Employer manufactures certain automobiles and

trucks though its subsidiaries in the United States.

2. The Plan is a defined contribution plan that is intended to

qualify under the provisions of section 401(a) of the Code as a money

purchase pension plan with individual accounts for its participants.

The sponsor of the Plan and its principal funding source is the

Employer; however, eligible employees who are participants of the plan

may elect to make additional, voluntary funding contributions. The Plan

is maintained pursuant to various collective bargaining agreements

between the Employer and the unions representing the employees. As of

September 30, 1994, the Plan had 548 active participants and total

assets of $4,468,556.

From April 4, 1986, to October 1, 1987, the named fiduciary of the

Plan was Toyota Body, Inc., and from October 1, 1987, to August 19,

1994, the named fiduciary was the Employer. Since August 19, 1994, the

named fiduciary for the Plan is the Toyota Employee Benefit Committee

(the Benefit Committee), which consists of 4 or more individuals who

are appointed [[Page 20767]] by the president of the Employer. The

Benefit Committee has full authority to control and manage the assets

and administration of the Plan. The powers of the Benefit Committee

includes, among other things, the authority to appoint legal counsel

and other agents for the Plan.

On September 15, 1994, the Eagle Trust Company (the Trustee), a

trust company incorporated under the Pennsylvania Bankruptcy Code, was

selected by the Benefit Committee to serve as the trustee of the assets

of the Plan. The applicant represents the Trustee to be independent and

not affiliated with the Employer in any other capacity.

From July 16, 1984, when the Plan acquired the GAC from Mutual

Benefit until July 16, 1991, the GAC served as the exclusive investment

vehicle for the Plan.2 Until July 16, 1991, Mutual Benefit would

periodically make a determination of the interest rate used to compute

the earnings paid to the Plan by the GAC. This involved the

establishment of a separate subfund by Mutual Benefit for each annual

deposit period of contributions during the life of the GAC, and the

applicable interest rate for such subfund thereafter was reset on an

annual basis. From the issuance of the GAC through December 31, 1991,

the GAC was earning various interest rates, ranging from 8.35 percent

to 14.05 percent. The applicant represents that the GAC had no stated

maturity date. The GAC can be discontinued unilaterally by either the

Employer or Mutual Benefit, or if certain stipulated conditions arise.

2The Department notes that the investment in the GAC is

governed by the provisions of Part 4, Subtitle B, of Title I of the

Act. In this regard, the Department is not proposing herein relief

for any violations of Part 4 which may have arisen as a result of

not diversifying the investments of the Plan.

---------------------------------------------------------------------------

3. On July 16, 1991, Mutual Benefit was placed into rehabilitation

proceedings by the New Jersey Commissioner of Insurance.3 As a

result of these proceedings the assets of the Plan invested in the GAC

were frozen. Following cessation of payments by Mutual Benefit with

respect to the GAC, the Employer decided to make periodic advances of

funds (the Advances) to the Plan to enable the payment of distributions

to terminating and retiring participants and the payment of certain in-

service withdrawals to current participants.4 The applicant

represents that at the same time the Advances commenced, the Employer

committed itself to enhance the rate of return the individual accounts

of the participants would earn and accrue after December 31, 1991, by

guaranteeing a 6 percent per annum return for the calendar year 1992

and a 5 percent per annum return for the subsequent calendar years. The

applicant further represents that the periodic Advances made by the

Employer to the Plan, as of September 30, 1994, totaled $460,668.

3The Department notes that the decision to acquire and

hold the GAC are governed by the fiduciary responsibility provisions

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

the Department is not herein proposing relief for any violations of

Part 4 which may have arisen as a result of the acquisition and

holding of the GAC by the Plan.

4The applicant represents that the terms of the periodic

advances to the Plan satisfied the conditions of the class exemption

PTE 80-26 (45 FR 28545, April 29, 1980). The Department express no

opinion herein as to whether the periodic advances to the plan

satisfied the terms and conditions of PTE 80-26.

---------------------------------------------------------------------------

The applicant represents that it desires to enter into the proposed

transaction in order to protect the participants of the Plan from the

risks of investment loss associated with the GAC. Further, the

applicant represents that the Plan needs to sell its interest in the

GAC in order to give the participants of the Plan more investment

flexibility to direct the investments of their respective account

balances to other investments. The applicant also represents that the

Plan will not incur any expense with respect to the proposed

transaction.

4. In order to protect the interests of the participants and

beneficiaries of the Plan, the Employer proposes to purchase the GAC

from the Plan for cash. The proposed purchase price for the GAC is to

be the greater of the fair market value of the GAC as determined by the

Trustee on the date of the Sale or an amount that is equal to the total

funds expended by the Plan in acquiring and holding the GAC, plus the

amount of interest earned and accrued by the Plan on the GAC to the

date of the Sale,5 less all withdrawals from the Plan to the date

of the Sale, and less all advances to the Plan made by the Employer to

the date of the Sale. As of September 30, 1994, the GAC had a fair

market value of $2,349,840.

5This takes into account the rate of interest guaranteed

after December 31, 1991, to the Plan by the Employer.

---------------------------------------------------------------------------

The Trustee has reviewed the proposed transaction as an independent

fiduciary on behalf of the Plan and its participants and beneficiaries.

The Trustee represents that the proposed transaction is in the best

interests of the Plan and its participants and beneficiaries.

5. In summary, the applicant represents that the proposed

transaction will satisfy the criteria for an exemption under section

408(a) of the Act because (a) the Plan will receive, from the Employer

in a one-time transaction, cash in an amount that is the greater of

either (1) the fair market value of the GAC; or (2) the total funds

expended by the Plan in acquiring and holding the GAC plus the amount

of interest earned or accrued by the Plan to the date of the Sale, less

withdrawals and less prior advances of funds to the Plan made by the

Employer; (b) the proposed transaction will enable the Plan and its

participants and beneficiaries to avoid any risk associated with

continued holding of the GAC; (c) the Plan will not incur any loss or

expense from the proposed transaction; and (d) the Trustee of the Plan

has determined that the proposed transaction is in the best interests

of the Plan and its participants and beneficiaries, and that the

proposed price for the GAC is not less than its fair market value.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver of the Department,

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

Masik Tool and Die Corporation Profit Sharing Plan (the Plan), located

in Cudahy, WI

[Exemption Application No. D-09899]

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 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 past leasing (the Lease) of a lathe

(the Lathe) owned by the Plan and certain individually-directed

accounts in the Plan (the Accounts) to Masik Tool and Die Corporation

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

proposed cash sale (the Sale) of the Lathe by the Accounts to Masik.

This proposed exemption is conditioned on the following

requirements:

(1) With respect to the past Lease--

(a) the terms and conditions of the Lease have been at least as

favorable to the Plan and the Accounts as those obtainable in an arm's

length transaction with an unrelated party; (b) the value of the Lathe

did not exceed [[Page 20768]] twenty-five percent of the assets of the

Plan or of any of the Accounts at any time during the duration of the

Lease; (c) an independent, qualified fiduciary approved of the Lease on

behalf of the Plan and the Accounts and has monitored the Lease

throughout its entirety; (d) the rental amount received by the Plan and

the Accounts was based upon the fair market rental value of the Lathe;

and (e) within ninety days of the publication in the Federal Register

of the grant of this exemption, Masik files Forms 5330 with the

Internal Revenue Service and pay all applicable excise taxes that are

due by reason of the past prohibited transactions, which are not

subject to this exemption.

(2) With respect to the prospective Sale--

(a) the terms and conditions of the Sale are at least as favorable

to the Accounts as those obtainable in an arm's length transaction with

an unrelated party; (b) the Sale is a one-time cash transaction; (c)

the Accounts are not required to pay any commissions, costs or other

expenses in connection with the Sale; (d) the Sale price for the Lathe

is based upon its fair market value on the date of the Sale as

determined by an independent, qualified appraiser; and (e) within

ninety days of the publication in the Federal Register of the grant of

this exemption, Masik files Forms 5330 with the Internal Revenue

Service and pay all applicable excise taxes that are due by reason of

the past prohibited transactions, which are not subject to this

exemption.

EFFECTIVE DATE: This exemption, if granted, will be effective as of

June 1, 1988 with respect to the Lease. The proposed exemption will be

effective as of the date of the grant of the exemption with respect to

the Sale.

Summary of Facts and Representations

1. The Plan is a profit sharing plan sponsored by Masik, a closely-

held Wisconsin corporation engaged in the business of manufacturing,

rebuilding, and repairing tools and dies for industrial manufacturers

in Southeastern Wisconsin. Joseph Masik, Jr. and his wife, Patricia

Masik, hold 100 percent of Masik's stock and are its only directors.

Mr. Masik, Mrs. Masik and David Zirkelbach serve, respectively, as

President, Secretary/Treasurer and Vice President of Masik. In addition

to being officers of Masik, Mr. Masik, Mrs. Masik and Mr. Zirkelbach

have been the trustees for the Plan (the Trustees) from the inception

of the Lease until the present time.

On May 31, 1990, the Trustees amended the Plan to provide for

participant directed investment. As of May 30, 1992, the Plan had

twenty-one participants and $322,693 in assets. Such assets are

primarily invested in life insurance annuity contracts and certificates

of deposit.

2. Among the assets of the Plan is the Lathe, which is a seventy-

six inch, used Bullard-Dynatrol Vertical Turret Lathe, serial number

31820. The Lathe weighs 130,000 pounds and measures twenty feet in

height. Within six months of the Plan's purchase of the Lathe, Masik

mounted the Lathe in the concrete floor of Masik's plant and attached a

$20,000 ``tracer unit'' to the Lathe at no cost to the Plan. As of

August 15, 1994, the Lathe remained mounted in the concrete floor.

3. The Trustees acquired the Lathe, on behalf of the Plan, in

January of 1987 from the George Meyer Manufacturing Company, an

unrelated party, for a purchase price of $33,250.6 The Trustees

represent that they purchased the Lathe because, based upon their

experience in the industry, they believed that the purchase price of

the Lathe was less than one-half of its fair market value.7

6The Department is expressing no opinion in this proposed

exemption on whether the acquisition and holding of the Lathe by the

Plan violated any of the fiduciary responsibility provisions of Part

4 of Title I of the Act.

7Subsequently, Russ Bottoni (Mr. Bottoni), the owner of

Russco Sales, Inc., a company specializing in used equipment,

appraised the Lathe. Based upon comparable sales, Mr. Bottoni placed

the fair market value of the Lathe as of February 22, 1989 at

$79,500.

---------------------------------------------------------------------------

4. The Trustees represent that the exact date that the Lathe was

first placed into the service of Masik is unknown. However upon a

review of the Plan's records, partial installation of the Lathe

occurred sometime prior to February 4, 1987. Masik formally commenced

leasing the Lathe from the Plan under a written lease (the Lease)

executed June 2, 1988 with an initial five-year term expiring May 31,

1993. Masik represents that it compensated the Plan for its use of the

Lathe which occurred prior to June 2, 1988. As of June 1, 1987, the

Plan had in excess of $200,000 in assets thereby involving sixteen

percent of the Plan's assets in the Lathe. Masik represents that from

June 2, 1988 until the termination of the Lease on May 31, 1993, the

Plan and the Accounts received $105,540, which represents an annualized

rate of return of sixty-three percent.

5. In March of 1989, Masik applied to the Department for exemptive

relief with respect to the Lease but withdrew that application in June

of 1989. The Trustees represent that the reason for the withdrawal was

the mistaken belief that amending the Plan to allow for participant

directed investments (see Representation #1) would result in correction

of the past prohibited transaction and would ensure that no future

prohibited transactions would occur. Masik represents that in response

to this Plan amendment, all of the eligible participants chose to

direct their account balances (the Accounts) on September 20, 1990

towards the purchase of the Lathe and the leasing arrangements. Masik

and the Trustees amended the Lease to reflect these participant

investment elections. The Trustees represent that no participant

directed more than twenty-five percent of his or her account balance to

the Lease.

6. Roger McManus represents that he served as an independent,

qualified fiduciary on behalf of the Plan and the Accounts with respect

to the Lease beginning in June of 1988. Mr. McManus' qualifications

include twenty-five years of experience practicing law, primarily in

the area of small business. Mr. McManus represents that he was

unrelated to, and independent of, Masik. Mr. McManus states that he

understood and acknowledged his duties, responsibilities, and

liabilities in acting as a fiduciary with respect to the Plan based

upon his familiarity with the fiduciary responsibility provisions of

the Act.

Mr. McManus states that, in 1988, he reviewed the investment

portfolio of the Plan and considered the diversification of the Plan's

assets as well as its liquidity needs. Mr. McManus represents that the

Lease did not represent more than twenty-five percent of the assets of

any of the Accounts. Mr. McManus believed that the Lease would be in

the best interests of the Plan and its participants and beneficiaries

as an investment for the Plan's portfolio based on the Lease's rate of

return, the stability of the lessee, the character and diversification

of the Plan's other assets, and the projected liquidity needs of the

Plan.

Mr. McManus states that, based upon his previous representation of

other businesses and involvement in numerous leasing transactions, he

believed that the Lease provisions were quite favorable to the Plan

participants and were at least comparable to an arm's length

transaction. In addition, Mr. McManus represents that he evaluated the

term of the Lease to assure that the Lease satisfied the established

standards for commercial reasonableness. Mr. McManus represents that

the monthly [[Page 20769]] Lease payments were established at $1,759

based upon calculations which utilized mortgage-type amortization

schedules and the fair market and salvage values of the Lathe, which

were determined by the Plan's accountant, Tom Harmann.

Mr. McManus represents that he monitored the Lease from its

inception through April 10, 1992. Mr. McManus further represents that

from the inception of the Lease in 1988 until April 10, 1992, Masik has

abided by all of the terms of the Lease, the Lathe has been kept in

good working order and all rental due the Plan has been timely paid.

Jeffrey R. Brodek represents that, as of April 10, 1992, he assumed

Mr. McManus' role as the independent, qualified fiduciary on behalf of

the Plan and the Accounts with respect to the Lease. Mr. Brodek's

qualifications include ten years of experience practicing employee

benefits law. Mr. Brodek represents that he is unrelated to, and

independent of, Masik. Mr. Brodek states that he understood and

acknowledged his duties, responsibilities, and liabilities in acting as

a fiduciary with respect to the Plan based upon his familiarity with

the fiduciary responsibility provisions of the Act.

Mr. Brodek represents he assumed the same duties that Mr. McManus

had previously undertaken which included enforcing the terms of the

Lease, making sure that the Lathe was kept in good working order and

making sure that payments due under the Lease were timely paid to the

Plan. Mr. Brodek represents Masik has abided by all of the terms of the

Lease, the Lathe has been kept in good working order and all rentals

due the Plan were timely paid through May 31, 1993, the expiration of

the original five-year term of the Lease. At this time, the Trustees

suspended any future Lease payments pending resolution of the

prohibited transaction issues. However, Masik represents that it

utilized the Lathe in the course of its operations after the cessation

of the Lease payments. Masik represents that it will make payments

pursuant to the rental rate specified by the Lease to the Plan for

every month between June of 1993 through the present time, plus a

reasonable rate of interest.

7. Because of the party in interest relationship and the past

leasing arrangement between the Plan and Masik, the Trustees along with

Masik (the Applicants) are aware of the fact that prohibited

transactions have occurred in violation of the Act as of the date of

Masik's first use of the Lathe. The Applicants have requested

retroactive exemptive relief with respect to the Lease as well as

prospective exemptive relief for the Sale. In this regard, the

Department is not proposing exemptive relief for the prohibited

transactions described in this proposed exemption for the periods: (1)

Prior to June 1, 1988, the date that Masik began leasing the Lathe from

the Plan pursuant to a written lease; and (2) after May 31, 1993, the

cessation of the Lease payments. Accordingly, Masik represents that

within ninety days of the publication in the Federal Register of the

grant of this exemption, it 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, which are not subject to

this exemption.

8. Masik represents that the participants whose accounts are

invested in the Lathe desire to sell the Lathe so that an alternative

investment can be made by the Accounts. The Trustees represent that

because the Lathe is presently mounted in the concrete floor of Masik's

plant, sale to an unrelated party at fair market value is unlikely due

to the cost of removing the Lathe. Therefore, Masik proposes to

purchase the Lathe for its fair market value on the date of the Sale.

The Plan will not be required to pay any commissions, costs or other

expenses in connection with these transactions.

9. The Trustees retained Richard Levo, a sales engineer for L.L.

Richards Machinery Co, Inc. to appraise the Lathe. Mr. Levo has dealt

in new and used chipmaking and fabricating machine tools for forty-

three years. His appraisal, dated June 6, 1994, places the fair market

value of the Lathe at $29,500 based on its age, condition and location.

Mr. Levo states that the Lathe has declined in value since its

acquisition in 1987 due to recent innovations in technology which have

left the Lathe obsolete. The appraisal for the Lathe will be reviewed

and updated prior to the Sale pursuant to this exemption. Mr. Levo

represents that both he and L.L. Richards Machinery Co, Inc. are

independent of and unrelated to Masik.

10. In summary, the Applicants represent that the Lease and the

Sale will satisfy the statutory criteria for an exemption under 408(a)

of the Act because:

(a) With respect to the past Lease--

(1) the terms and conditions of the Lease have been at least as

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

transaction with an unrelated party; (2) the Lathe did not exceed

twenty-five percent of the assets of the Plan or of any individually-

directed accounts within the Plan at any time during the duration of

the leasing arrangements; (3) Roger McManus, acting as the Plan's

independent, qualified fiduciary, approved of the Lease; (4) Mr.

McManus and subsequently, Jeffrey Brodek, acting as the Plan's

independent, qualified fiduciary during different periods, monitored

the Lease; (5) the rental charged by the Plan was based upon the fair

market rental value of the Lathe; and (6) within ninety days of the

publication in the Federal Register of the grant of this exemption,

Masik 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, which are not subject to this exemption.

(b) With respect to the prospective Sale--

(1) the Sale will be a one-time cash transaction; (2) the Plan will

not be required to pay any commissions, costs or other expenses in

connection with this transaction; (3) the Lathe will be appraised by

Richard Levo, an independent, qualified appraiser; (4) the sales price

for the Lathe will reflect 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, Masik 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, which are

not subject to this exemption.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

Simplex Time Recorder Co., Employee Savings Plan (the Plan), located in

Gardner, Massachusetts

[Application No. D-09935]

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 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 (the Loan)

to the Plan by Simplex Time Recorder Co. (the Employer), a party in

interest with respect to the Plan, with regard to a

[[Page 20770]] group annuity contract (the GAC) issued by Executive

Life Insurance Company of California (ELIC), and (2) the Plan's

potential repayment of the Loan (the Repayment); provided the following

conditions are satisfied:

(A) No interest or expenses are paid by the Plan in connection with

the proposed transaction;

(B) The Loan will be repaid only out of amounts paid to the Plan by

ELIC, its successors, or any other responsible third party making

payment with respect to ELIC's obligations under the GAC (the GAC

Proceeds); and

(C) Repayment of the Loan is waived with respect to the amount by

which the Loan exceed GAC proceeds.

Summary of Facts and Representations

1. The Employer is a Massachusetts corporation with its principal

place of business located in Gardner, Massachusetts. The Plan is a

defined contribution plan with approximately 3,500 participants and

total assets of approximately $82.3 million as of December 31, 1994.

The Plan provides for individual participant accounts (the Accounts)

and participant-directed investment of the Accounts.

2. The terms of the Plan provide that its participants may invest

the Accounts among any of several investment funds (the Funds) managed

by the Plan's trustee, State Street Bank and Trust Company (the

Trustee), including a fixed income fund (the F.I. Fund). The F.I. Fund

invests in part in insurance company group annuity contracts under

which the issuer guarantees repayment of principal and payment of

interest at a fixed annual rate through the date of maturity specified

in the contract. Among the contracts held by the Plan in the F.I. Fund

is the GAC, identified as follows: Contract number CG0124803A, issued

to the Trustee on January 13, 1988 for an initial principal deposit of

$678,987.69, with a principal deposit limit of $4,440,000. The GAC

provides for compound annual interest at the rate of 10 percent (the

Contract Rate), and its terms enable withdrawals to fund distributions,

participant loans, in-service withdrawals, and participant-directed

transfers of Account balances from the F.I. Fund to the other Funds

(the Withdrawal Events). The GAC features a maturity date of June 30,

1993, at which time the Plan was due a payment (the Maturity Payment)

in the amount of the total principal deposits during the term of the

GAC plus interest thereon at the Contract Rate through maturity less

previous withdrawals.

3. On April 11, 1991, ELIC was placed into conservatorship (the

Conservatorship) by the Insurance Commissioner of the State of

California. The Employer represents that ELIC ceased to honor requests

for withdrawals from the GAC upon commencement of the Conservatorship.

The effect of the Conservatorship has been to freeze all assets

invested in the GAC. This freeze has prevented the Plan from making

withdrawals from the GAC to fund Withdrawal Events with respect to

Accounts invested in the GAC.8

\8\The Department notes that the decisions to acquire and hold

the GAC are governed by the fiduciary responsibility requirements of

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

Department is not herein proposing relief for any violations of Part

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

of the GAC issued by Executive Life.

---------------------------------------------------------------------------

In response to the Conservatorship, the Employer and the Trustee

provided for the GAC to be segregated from the other assets in the F.I.

Fund and placed in a special fund (the Segregated Fund) on April 30,

1991, in order to confine the risks associated with the GAC to those

Accounts which were invested in the F.I. Fund as of the commencement of

the Conservatorship. Each Account with an interest in the F.I. Fund as

of the date of the Conservatorship obtained a pro-rata interest in the

Segregated Fund, from which withdrawals are prohibited for all

purposes. As of April 30, 1991, the accumulated book value of the GAC

was $4,173,231, representing total principal deposits plus interest at

the Contract Rate less previous withdrawals. This value constituted

approximately 10 percent of the assets in the F.I. Fund and

approximately 7.6 percent of the Plan's total assets. Upon the maturity

of the GAC on June 30, 1993, the Maturity Payment then due was not

made. Approximately 2,100 Plan participants have portions of their

Accounts invested in the Segregated Fund.

4. A rehabilitation plan for ELIC (the Rehab Plan) was approved in

late 1993, which offered to the Plan, as a holder of an ELIC GAC, two

options: The Plan could ``opt in'' to the Rehab Plan by continuing to

hold the GAC with modified terms, or the Plan could ``opt out'' by

agreeing to a cancellation of the GAC in exchange for payments (Rehab

Payments) over a period of approximately five years. In 1994, the

Trustee made the opt-out election on behalf of the Plan. The Trustee

represents that under the opt-out election, the exact amount of the

Rehab Payments is not determinable. However, the Trustee and the

Employer expect a total opt-out recovery of approximately $3.7 million

in Rehab Payments with respect to the GAC. Approximately 65 percent of

this total, i.e., $2.4 million, was received by the Plan shortly after

the opt-out election was processed. An additional $485,000 was received

by the Plan in March 1995. The Trustee and the Employer expect

approximately $815,000 more in Rehab Payments over a remaining three-

year period.

5. Shortly after the Conservatorship commenced, in order to provide

some immediate relief to the Plan with respect to the funding of

Withdrawal Events, the Employer structured a loan arrangement (the

Initial Agreement) which was intended to utilize Prohibited Transaction

Class Exemption 80-26 (PTCE 80-26, 45 FR 35040, May 23, 1980), relating

to interest-free loans for, among other things, the funding of plan

benefits. In accordance with the terms of the Initial Agreement, the

Employer commenced the making of interest-free loans (the Initial

Loans) to the Plan solely to fund the cash payment of benefits by the

Plan to participants with Account balances in the Segregated Fund, in

lieu of the amounts which otherwise would have been withdrawn from the

GAC for such payments. The Employer represents that the Initial Loans

are exempt from the prohibited transaction provisions of the Act

because they satisfy the requirements of PTCE 80-26.9 As of

December 31, 1994, a total of $639,967 had been loaned to the Plan by

the Employer pursuant to the Initial Agreement.

\9\The Department expresses no opinion as to whether the loans

made pursuant to the Initial Agreement satisfy the requirements of

PTCE 80-26, or whether such loans were exempt from the prohibitions

of section 406 of the Act.

---------------------------------------------------------------------------

6. Although the Initial Agreement has enabled former employees to

receive full distribution of their Account balances, including portions

invested in the Segregated Fund, the Employer represents that the

Initial Arrangement is not satisfactory with respect to the

participants of the Plan who remain current employees of the Employer.

Participants who are current employees remain unable to effect

participant loans, in-service withdrawals and transfers with respect to

Account balances in the Segregated Fund. Accordingly, the Employer

seeks to provide the Plan with the ability to effect the full range of

Withdrawal Events with respect to Accounts invested in the Segregated

Fund, by lending the Plan an amount of cash equal to the remaining

balance of the Segregated Fund. The Employer requests an exemption for

such a loan (the Loan), as well as its potential repayment, under the

terms and conditions described herein. [[Page 20771]]

7. The terms of the Loan and its repayment (the Repayments) will be

set forth in a written agreement between the Trustee and the Employer

(the New Agreement). Under the New Agreement, the Employer proposes to

make the Loan in the amount remaining in the Segregated Fund as of the

date of the Loan. The amount remaining in the Segregated Fund as of the

date of the Loan will represent the GAC's accumulated book value as of

the date of the Conservatorship, i.e., $4,173,231, reduced by the sum

of the total Rehab Payments and Initial Loans made as of the Loan date.

Accordingly, the Employer estimates that the Loan will be in the amount

of approximately $600,000. The Employer represents that after the

exemption proposed herein is final, if granted, and the New Agreement

has been approved by the Internal Revenue Service10, the Employer

will make the Loan to the Plan and will then exercise its powers under

the Plan to close the Segregated Fund. Upon closing the Segregated

Fund, all Accounts which remained invested in that Fund will be

transferred back to the F.I. Fund, and the Employer will announce to

Plan participants the availability of the Loan funds to effect all

Withdrawal Events with respect to amounts previously frozen in the

Segregated Fund. The Employer and the Trustee represent that the Plan's

participants will benefit from the proposed Loan because it will ensure

that the participants receive 100% of the Conservatorship-date value of

their Accounts invested in the GAC and such amounts will be available

as soon as approval is received from the Internal Revenue Service and

the Department.11

\10\Internal Revenue Procedure 92-16 provides for a temporary

closing agreement program to settle certain tax liabilities that

arise out of transactions between an employee-sponsor and the trust

of a qualified defined contribution plan.

\11\The Department notes that the exemption, if granted, will

not affect the rights of any participant or beneficiary with respect

to any civil action against Plan fiduciaries for breaches of section

404 of ERISA in connection with any aspect of the GAC transactions.

---------------------------------------------------------------------------

8. The New Agreement provides for repayment of the Loan (the

Repayment), but no interest will be paid on the principal amount of the

Loan. Under the New Agreement, Repayment is limited to amounts, if any,

paid to the Plan by or on behalf of ELIC, or its successor, or any

other responsible third parties making payment with respect to ELIC's

obligations under the GAC (the GAC Proceeds). No other assets of the

Plan will be available for repayment of the Loan. If the GAC Proceeds

are not sufficient to fully repay the Loan, the New Agreement provides

that the Employer will have no recourse against the Plan, or against

any participants or beneficiaries of the Plan, for the unpaid amount.

To the extent the Plan receives GAC proceeds in excess of the total

amount of the Loan, such additional amounts will be retained by the

Trust and allocated among the accounts of the Plans' participants.

9. In summary, the applicant represents that the proposed

transaction satisfies the criteria of section 408(a) of the Act

because: (1) The transaction will restore the Plan's ability to fund

Withdrawal Events with respect to Accounts invested in the GAC; (2) The

Plan will not incur any expenses or pay any interest with respect to

the transaction; (3) Repayment of the Loan will be made only from GAC

Proceeds paid to the Plan; (4) If the GAC Proceeds are not sufficient

to fully repay the Loan, the Employer will have no recourse against the

Plan, or against any participants or beneficiaries of the Plan, for the

unpaid amount; and (5) Repayment of the Loan will be waived with

respect to the amount by which the Loan exceeds the GAC Proceeds.

FOR FURTHER INFORMATION CONTACT: Ronald Willett of the Department,

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

Employees' Thrift Plan of Columbia Gas System (the Plan), Located in

Wilmington, DE

[Application No. D-09959]

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, August 10, 1990). If the 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 of the Code, by reason of section 4975(c)(1)(A) through (E) of the

Code shall not apply to (1) the proposed loan of funds (the Loan) to

the Plan by The Columbia Gas System, Inc. (the Employer), the sponsor

of the Plan, and its wholly-owned subsidiary, Columbia Gas Transmission

Corporation (the Subsidiary), with respect to the Guaranteed Investment

Contract No. 61969 (the GIC) issued by Confederation Life Insurance

Company of Canada (Confederation); and (2) the potential repayment by

the Plan of the Loan upon the receipt by the Plan of payments under the

GIC; provided the following conditions are satisfied: (a) No interest

and/or expenses are paid by the Plan in connection with the Loan; (b)

all the terms and conditions of the proposed Loan are no less favorable

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

transaction with an unrelated party; (c) the Loan will be no less than

the accumulated book value of the GIC as of August 12, 1994; (d) the

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

the repayment of the Loan by the Plan will be restricted to funds paid

to the Plan under the GIC by Confederation, or State Guaranty Funds, or

other third-party sources; (f) the repayment of the Loan is waived to

the extent the Loan exceeds the proceeds the Plan receives from the

GIC; and (g) any proceeds or future interest credited under the GIC

after August 12, 1994, in accordance with the Rehabilitation Plan by

the State of Michigan, will be allocated and disbursed to the affected

participants of the Plan.

Summary of Facts and Representations

1. The Employer is a Delaware corporation with its principal

offices located in Wilmington, Delaware. It is a public utility holding

company with 15 subsidiaries primarily engaged in the distribution,

transmission, and production of natural gas in the Midwest, Southeast,

and Mid-Atlantic sections of the country and with production facilities

in Texas and West Virginia.

The Employer is also a publicly held corporation with its

securities traded on the New York Stock Exchange. For the fiscal year

ending September 30, 1994, it had revenues of approximately $3.1

billion.

The Employer and all its subsidiaries are participating employers

in the Plan.

2. The Plan is a defined contribution plan with an employer-

matching funding feature. There are provisions in the Plan for

individual accounts and participant-directed investments of assets. The

Plan has been qualified pursuant to the requirements of sections 401(a)

and 401(k) of the Code. There are approximately 9,200 participants in

the Plan and $341.9 million in total assets, as of December 31, 1994.

On October 1, 1989, Bankers Trust Company of New York, New York

became trustee of all of the assets of the Plan. On October 17, 1991,

the Fidelity Bank, N.A., located in Philadelphia, Pennsylvania became

trustee of Plan assets that are invested in common stock issued by the

Employer and held in the Columbia Gas System Stock Fund (the Stock

Fund) of the Plan. As of December 31, 1994, the Stock Fund had an

aggregate fair market value of $155.4 million and represented

approximately [[Page 20772]] 45.5 percent of the total assets of the

Plan.

On April 1, 1992, the Fidelity Management Trust Company, a

Massachusetts trust company, located in Boston, Massachusetts (the

Trustee) became trustee of all the other assets in the Plan and Bankers

Trust Company ceased to be a trustee of any Plan assets.

3. The Board of Directors of the Employer establishes the general

investment policy for the Plan and has sole authority to appoint and

remove any Trustee and any member of the Thrift Plan Committee (the

Committee).

The Committee is the named fiduciary of the Plan and consists of

officers and directors of the Employer and its subsidiaries. The duties

of the Committee include, inter alia, the selection of the various

investment options offered to the participants by the Plan; and the

appointment and removal of investment managers, agents, assistants,

legal counsel, and clericals. The Committee also has the duty to

interpret the terms and conditions provided in the Plan and to adopt

rules and restrictions to implement and administer the Plan and its

general investment policy.

The Trustee is the custodian of the assets of the Plan and is

responsible for the establishment and maintenance of the investment and

disbursement accounts of the Plan. In addition, the Trustee invests

Plan assets as directed by the participants into 14 various investment

options offered by the Plan. These investment options include 13

diversified mutual funds offered by the Trustee. Initially, all the

matching contributions to the Plan by the Employer are invested in the

Stock Fund for the respective participants until the participants

attain the age of 55 years; and then, the participants may direct the

matching contributions by the Employer into any of the 14 investment

options offered by the Plan.

4. The Plan acquired the GIC on January 2, 1990, for the

consideration of $6,500,000. The GIC provides for annual guaranteed

interest payments of 8.8 percent with a maturity date of January 1,

1995. Since the GIC was acquired by the Plan, there have been

withdrawals totalling $2,272,377, which represents annual interest

payments received through January 2, 1994. Interest payments are due

January 2 each year. All interest payments through January 2, 1994 have

been made. As of August 11, 1994, the GIC had a balance of

$6,838,983.56, including $338,983.56 in accrued interest.

When the Plan requested payment of the value of the GIC on its

maturity date, Confederation was unable to grant the request because,

on August 12, 1994, the Ingham County Circuit Court in Lansing,

Michigan had placed Confederation in Conservatorship and

Rehabilitation, causing Confederation to suspend payments on all of its

contracts including the GIC.12 At this time, August 12, 1994, a

segregated subaccount (the Segregated Account) was established within

the Money Market/Investment Contract Fund (MMIC) offered by the Trustee

to hold the assets of the Plan represented by the GIC. The Segregated

Account represents approximately 17 percent of the funds in the MMIC.

\ 12\The Department notes that the decisions to acquire and hold

the GIC are governed by the fiduciary responsibility provisions of

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

Department is not herein proposing relief for any violations of Part

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

of the GIC by the Plan.

---------------------------------------------------------------------------

The applicant represents that the Segregated Account, which holds

the GIC that is subject to suspension of payments, has prevented

participants of the Plan from exercising their rights under the Plan to

receive distributions of benefits, withdrawals, and investment

transfers with respect to the funds invested in the GIC. The applicant

further represents that it is not known whether, when, or under what

circumstances Confederation will resume payments on its contracts,

including the interest and principal amount of the GIC. Approximately

26 percent of the Plan participants (2,423 individuals) are affected by

these restrictions.

5. The Employer proposes to make the Loan to the Plan in order to

permit the participants to exercise their rights under the Plan and

avoid the administrative problems arising from the restrictions on

investment transfers and distributions for terminated, retired, and

disabled participants as imposed by the rehabilitation of

Confederation. The Loan will be made pursuant to two written agreements

by the Employer and the Subsidiary, respectively, with the Plan. The

notes issued pursuant to the agreements will be interest-free and

unsecured. The amount of the Loan will be no less than the accumulated

book value of the GIC (the principal amount, plus interest at the

contract rate, and minus withdrawals) as of August 12, 1994.13 Any

future interest received in accordance with the rehabilitation plan of

the Circuit Court will be allocated and disbursed by the Trustee to the

accounts of the participants of the Plan that are affected by the GIC.

The purpose of the Loan, as represented by the applicant, is to

facilitate distributions and investment transfers from the Plan by the

participants and their beneficiaries. The applicant represents that

repayments of the Loan by the Plan will be limited to proceeds received

from Confederation, or from State Guaranty Funds, or other third-party

sources. The repayment of the Loan will be waived to the extent the

Loan exceeds the proceeds from the GIC and in no event will the

repayment exceed the Loan.

\ 13\The Department notes that this exemption, if granted, will

not affect the rights of any participant or beneficiary with respect

to claims under section 404 of the Act in connection with any aspect

of the GIC transactions.

---------------------------------------------------------------------------

The Trustee in its independent capacity under the Trust Agreement

with the Employer of April 1, 1992, represents that it has determined

that the proposed transaction is in the best interests of the Plan and

its participants and beneficiaries. Furthermore, the Trustee represents

that it will determine that the Loan when consummated will be as

described herein.

6. In summary, the applicant represents that the proposed

transaction will satisfy the criteria for an exemption under section

408(a) of the Act because (a) the proposed transaction will permit

investment transfers as well as distributions for terminated, retired,

and disabled participants in the Plan; (b) the Plan will not incur

interest charges or other expenses with respect to the proposed

transaction; (c) the Loan will be no less than the accumulated book

value of the GIC as of August 12, 1994; (d) the source of the repayment

of the Loan is restricted to the proceeds under the GIC from

Confederation, or a State Guaranty Fund, or other third-party sources;

(e) the repayment will not exceed the total amount of the Loan; and (f)

the repayment of the Loan will be waived to the extent the Loan exceeds

the proceeds from the GIC.

FOR FURTHER INFORMATION CONTACT: Mr. C. E. Beaver 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 [[Page 20773]] 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 24th day of April, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-10404 Filed 4-26-95; 8:45 am]

BILLING CODE 4510-29-P