Proposed Exemptions; Boston Cement Masons Local No. 534 Deferred Income Plan, et al.

DEPARTMENT OF LABOR

[Application No. D-09787, et al.]

Proposed Exemptions; Boston Cement Masons Local No. 534 Deferred

Income Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the

Department of Labor (the Department) of proposed exemptions from

certain of the prohibited transaction restriction of the Employee

Retirement Income Security Act of 1974 (the Act) and/or the Internal

Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

All interested persons are invited to submit written comments or

request for a hearing on the pending exemptions, unless otherwise

stated in the Notice of Proposed Exemption, within 45 days from the

date of publication of this Federal Register Notice. Comments and

request for a hearing should state: (1) The name, address, and

telephone number of the person making the comment or request, and (2)

the nature of the person's interest in the exemption and the manner in

which the person would be adversely affected by the exemption. A

request for a hearing must also state the issues to be addressed and

include a general description of the evidence to be presented at the

hearing. A request for a hearing must also state the issues to be

addressed and include a general description of the evidence to be

presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least

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

Administration, Office of Exemption Determinations, Room N-5649, U.S.

Department of Labor, 200 Constitution Avenue, NW., Washington, DC

20210. Attention: Application No. stated in each Notice of Proposed

Exemption. The applications for exemption and the comments received

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

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

Room N-5507, 200 Constitution Avenue, NW., Washington, DC 20210.

[[Page 3659]]

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.

Boston Cement Masons Union Local No. 534 Deferred Income Plan (the

Deferred Income Plan), Boston Cement Masons Union Local No. 534 Pension

Plan (the Pension Plan), Boston Cement Masons Union Local No. 534

Health and Welfare Plan (the Welfare Plan) and Boston Cement Masons

Union Local No. 534 Apprenticeship Plan (the Apprenticeship Plan;

Collectively, the Plans) Located in Boston, Massachusetts

[Application Nos. D-9787, D-9788, L-9789 and L-9790, respectively]

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 in accordance and 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 the proposed leasing of office space in a

building (the Building) owned by the Deferred Income Plan to the Boston

Cement Masons Union Local No. 534 (the Union), a party in interest with

respect to the Deferred Income Plan.

In addition, the restrictions of section 406(b)(2) of the Act shall

not apply to the proposed leasing of office space in the Building by

the Deferred Income Plan to the Pension Plan, the Welfare Plan and the

Apprenticeship Plan.

This proposed exemption is conditioned upon the following

requirements: (1) The terms of all such leasing arrangements are at

least as favorable to the Plans as those obtainable in an arm's length

transaction with an unrelated party; (2) an independent, qualified

fiduciary, who has approved of the leasing arrangements, agrees to

monitor all leases on behalf of the Deferred Income Plan as well as the

terms and conditions of the exemption at all times; (3) the rental

charged by the Deferred Income Plan under each lease is based upon the

fair market rental value of the premises as determined by an

independent, qualified appraiser; (4) the Building is revalued annually

by the independent, qualified appraiser; (5) if appropriate, the

independent, qualified fiduciary adjusts the rentals charged for the

office space based upon the annual appraisals of the Building; and (6)

the trustees determine that the leasing arrangements are in the best

interests of the Pension Plan, the Welfare Plan and the Apprenticeship

Plan.

Summary of Facts and Representations

1. The Plans are multiemployer plans that have been established and

maintained in accordance with section 302(c)(5) of the Labor Management

Relations Act of 1947, as amended, and in accordance with the terms of

a collective bargaining agreement by and between the Union and various

contributing employers (the Employers). The Plans are jointly trusteed

by four trustees, (the Trustees), two of whom have been selected by the

Employers and two of whom have been designated by the Union. Eight

individuals comprise the Trustees for the Plans. With respect to

composition of the Trustees for the Deferred Income Plan, Thomas

Gunning, who was selected by the Employers, serves as Trustee for each

of the Plans; Harry Brousaides, who was selected by the Union, and an

individual yet to be named by the Employers, will serve as Trustees for

three out of the four Plans; and Jeremiah McGillicuddy, who was

selected by the Union, serves as Trustee for two out of the four Plans.

Add-Men Services, which is located in Boston, Massachusetts,

administers the Plans. Investment decisions for the Deferred Income

Plan, the Pension Plan and the Welfare Plan are made by Delta Financial

Management Corporation of Hingham, Massachusetts and Anchor Capital

Advisors of Boston, Massachusetts, entities which serve as investment

managers to these Plans. The Trustees of the Apprenticeship Plan have

the sole investment discretion with regard to the Apprenticeship Plan's

assets.

2. The Plans cover cement masons and other employees in the

geographical area of Boston and numerous cities and towns in

northeastern Massachusetts. The participant breakdown and asset

balances for the Plans as of March 31, 1994 are as follows:

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

No. of

Plan participants Total assets

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

Deferred Income Plan...................... 271 $3,940,457

Pension Plan.............................. 455 4,583,480

Welfare Plan.............................. 395 1,540,055

Apprenticeship Plan....................... ............ 178,966

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

Although the Plans have many common participants as well as common

trustees, they are not parties in interest with respect to each other

within the meaning of section 3(14) of the Act.

3. In 1994, the Deferred Income Plan purchased two parcels of

improved real property from John Rogan, Paul Rogan and Jane Rogan,

unrelated parties, primarily for investment purposes but also for

office space for its own use. The first parcel (Property #1), located

at 288 Minot Street in Dorchester, Massachusetts, consists of the

Building and a two-family, wood frame, residential building and the

underlying land of each building. The Building is the only part of

Property #1 which will be subject to the leasing arrangements described

herein. The Building is a 7,587 square foot, commercial garage and

warehouse with finished office space and two separate garages. The

second parcel (Property #2), located at 296 Minot Street, consists of a

single-family, wood frame, residential building and the underlying

land. Property #2 lies contiguous to Property #1. Property #2 will not

be subject to any of the leasing arrangements described herein.

For purposes of purchasing these two parcels, the Deferred Income

Plan obtained an appraisal from Eileen Partridge, an appraiser

affiliated with Real Estate Appraisal and Consulting Servicing, which

is located in Quincy, [[Page 3660]] Massachusetts. Ms. Partridge

represents that she is independent of, and unrelated to, the Union, the

Plans and the Rogans. Ms. Partridge has fifteen years of experience in

appraising, selling and marketing commercial and industrial real

estate. Ms. Partridge placed the fair market value of Property #1 and

Property #2 at $325,000 and $110,000, respectively, for a total fair

market value of $435,000 as of April 13, 1994. After negotiation

between the parties, a purchase and sale agreement was entered into for

both parcels at an agreed upon purchase price of $394,600.1 After

such purchase, the part of Property #1 which constitutes the

residential building and all of Property #2 remains leased to the

existing tenants who are unrelated parties to the Deferred Income Plan.

\1\The Department expresses no opinion in this proposed

exemption on whether the acquisition of the Building by the Deferred

Income Plan violates any of the provisions of part 4 of Title I of

the Act.

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4. The applicant represents that the Deferred Income Plan will

utilize less than fifty percent of the Building for its own activities

and intends to lease the remaining space in the Building to the Pension

Plan, the Welfare Plan, the Apprenticeship Plan, the Union and other

unrelated entities. With respect to the shared office space, the

Deferred Income Plan, as lessor, proposes to enter into a written lease

with the Pension Plan, the Welfare Plan and the Apprenticeship Plan for

a five-year term and with the Union for a ten-year term. The lease will

not contain an automatic renewal provision, and the rental will be

exclusive of utilities. The lease will allow the Deferred Income Plan,

as lessor, and the lessee Plans the right to terminate the lease upon

ninety days advance notice. The lease will also be subject to annual

fair market value adjustments to the rent as described herein in

Representation 7. The Trustees request an administrative exemption from

the Department to permit the leasing of the Building to the Union, the

Pension Plan, the Welfare Plan and the Apprenticeship Plan under the

terms and conditions described herein.

5. The Deferred Income Plan proposes to lease four separate areas

of space within the Building (Space #1 - #4, inclusively) to the

Pension Plan, the Welfare Plan, the Apprenticeship Plan and the Union.

Descriptions of the four spaces are set out below:

a. Space #1 consists of 1,426 square feet of finished office space

which will be used by the Plans and the Union. The Plans and the Union

intend to share such space in different proportions and will divide the

rental costs for such space based upon these proportions. The Pension

Plan, the Welfare Plan and the Deferred Income Plan will be using the

same space because they share a common administrator/executive director

who utilizes the same office and desk space. The allocation of the rent

for these three Plans is based upon the parties' usage of this space.

The percentage of the rent for Space #1 will be divided as follows:

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

Lessee Percentage

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

Pension Plan................................................ 12

Welfare Plan................................................ 12

Apprenticeship Plan......................................... 25

Union....................................................... 45

Deferred Income Plan........................................ 6

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Total................................................. 100

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

b. Space #2 consists of 1,910 square feet of unfinished garage-type

space which will be leased jointly to the Union and the Apprenticeship

Plan. The Union will use such space for meetings, training, seminars

and negotiations on a regular basis during the week, and the

Apprenticeship Plan will use the space on the weekends and occasionally

during the week. The rental will be shared, on the basis of usage, on a

seventy-five to twenty-five percent basis by the Union and the

Apprenticeship Plan, respectively.

c. Space #3 consists of 560 square feet of unfinished garage space

that will be leased exclusively by the Apprenticeship Plan for storage

of construction equipment and supplies necessary to and used in the

training program.

d. Space #4 consists of 285 square feet of unfinished garage space

that will be leased exclusively to the Union for file cabinets and

other office related storage.

6. The applicants represent that the rent to be paid by each lessee

will be based upon an independent appraisal. In this regard, on April

25, 1994, Ms. Partridge placed the annual fair market rental values of

the various spaces as follows:

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

Space Fair market rental value

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

Space #1........ $6.00 per square foot.

Space #2........ 4.00 per square foot.

Space #3........ 4.00 per square foot.

Space #4........ 4.00 per square foot.

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

7. The applicants represent that Ms. Partridge, who will also serve

on behalf of the Deferred Income Plan as the independent, qualified

fiduciary with respect to the lease transactions, will have the

Building reappraised annually by an independent, qualified appraiser.

The purposes of the annual appraisals are to ensure that: (1) The space

occupied by the Plans and the Union reflects the fair market rental

value; and (2) the allocation of rent for the shared office space is

appropriate for the Plans and is fair based on the Plans' usage. Based

upon these annual appraisals and an annual review of the Plans' usage

of the shared office space, Ms. Partridge will adjust the rental

amounts for such space, if necessary, based upon any changes in the

fair market rental values or the reallocation of space used by any of

the Plans or the Union. If, as the result of an annual appraisal, the

fair market rental value of the office space declines in value from the

prior rental year, the Union will be required to pay the Deferred

Income Plan the same rental that it paid the Deferred Income Plan

during the previous year. The lessee Plans, however, will not be

affected by this ``floor'' requirement.

8. In her capacity as the independent, qualified fiduciary, Ms.

Partridge states that she understands and acknowledges her duties,

responsibilities, and liabilities in acting as a fiduciary with respect

to the Deferred Income Plan based upon consultation with counsel

experienced with the fiduciary responsibility provisions of the Act.

Ms. Partridge derives less than one percent of her annual income from

the Union and the Plans.

Ms. Partridge represents that she has reviewed the terms of the

leasing arrangements between the Deferred Income Plan and the Pension

Plan, the Welfare Plan, the Apprenticeship Plan and the Union and has

concluded that these leasing arrangements are fair to the Deferred

Income Plan. In addition, Ms. Partridge states that the terms and

conditions of these leases are acceptable and compare favorable to

other leases in the Boston area. To support her opinion, Ms. Partridge

represents that she has considered the current economic climate,

comparable rents in the area, vacancy rates and property amenities. Ms.

Partridge also believes that the leasing arrangements are in the best

interests of the Deferred Income Plan and its participants and

beneficiaries. She states that the Deferred Income Plan will continue

receiving market rate rents on a regular and a timely basis and that it

would not be able to obtain more income from other independent tenants.

Ms. Partridge also represents that she has examined the current

financial statements and portfolio of the Deferred Income Plan. Based

upon such review, she states that the lease transactions are consistent

with the Deferred Income Plan's diversification, liquidity and

investment strategy. [[Page 3661]]

With regard to the creditworthiness of the lessees and their

ability to pay, Ms. Partridge represents that she has reviewed the most

recent financial statements for the Pension Plan, the Welfare Plan, the

Apprenticeship Plan and the Union along with the lessees' hourly

contribution rates set forth in the collective bargaining agreement.

Based upon their steady stream of annual income, she believes that the

lessees are creditworthy for the purposes of the lease transactions

contemplated herein.

Besides the duties described above, Ms. Partridge will: (a) Oversee

the collection of rent; (b) determine whether it is appropriate to

renew or continue a leasing arrangement; and (c) take all actions that

are necessary and property to enforce the rights of the Deferred Income

Plan and protect the participants and beneficiaries of such Plan.

9. In addition to Ms. Partridge's review of the transactions, the

Trustees represent that before the leases are consummated, they will

review the investment needs of each of the related Plans, the terms and

conditions of the leasing arrangements, including the initial rental

rate and the subsequent appraisals by the independent, qualified

appraiser. Based upon their consideration of such matters, the Trustees

will determine whether the leasing arrangements are in the best

interests of the Pension Plan, the Welfare Plan and the Apprenticeship

Plan. The Trustees will also determine whether the amount of space

leased by the Pension Plan, the Welfare Plan and the Apprenticeship

Plan is appropriate and necessary for the needs of these Plans.

10. In summary, it is represented that the proposed transactions

will satisfy the statutory criteria for an exemption under section

408(a) of the Act because: (a) the terms of all such leasing

arrangements will be at least as favorable to the Plans as those

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

Ms. Partridge, as the Deferred Income Plan's independent, qualified

fiduciary, will approve of the leasing arrangements, will agree to

monitor all leases on behalf of the Deferred Income Plan as well as the

terms and conditions of the exemption at all times; (c) the rental

charged by the Deferred Income Plan under each lease will be based upon

the fair market rental value of the premises as determined by an

independent, qualified appraiser; (d) the Building will be revalued

annually by the independent, qualified appraiser; and (e) if

appropriate, Ms. Partridge will adjust the rentals charged for the

office space based upon the annual appraisals of the Building; and (f)

the Trustees will determine that the leasing arrangements are and

continue to be in the best interests of the Pension Plan, the Welfare

Plan and the Apprenticeship Plan.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

Wadco, Inc. Profit Sharing Plan and Trust (the Plan) Located in Spring,

Texas

[Application No. D-9820]

Proposed Exemption

The Department is considering granting an exemption under the

authority of section 4975(c)(2) of the Code and in accordance with the

procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836,

32847, August 10, 1990). If the exemption is granted, the sanctions

resulting from the application of section 4975 of the Code, by reason

of section 4975(c)(1)(A) through (E) of the Code, shall not apply to

the proposed sale (the Sale) of certain shares of stock (the Stock) by

the Plan to Peter Aswad, a disqualified person with respect to the

Plan.2

\2\Since Peter Aswad and his wife, Judith Aswad, are the only

participants in the Plan, there is no jurisdiction under Title I of

the Act pursuant to 29 CFR 2510.3-3(b). However, there is

jurisdiction under Title II of the Act pursuant to section 4975 of

the Code.

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This proposed exemption is conditioned upon the following

requirements: (1) All terms and conditions of the Sale are at least as

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

transaction between unrelated parties; (2) the Sale is a one-time cash

transaction; (3) the Plan is not required to pay any commissions, costs

or other expenses in connection with the Sale; (4) the Plan receives a

sales price equal to the fair market value of the Stock as determined

by an independent, qualified appraiser; (5) the trustees of the Plan

determine that the Sale is appropriate for the Plan and is in the best

interests of the Plan and their participants and beneficiaries; and (6)

within ninety days of the grant of this proposed exemption, Wadco files

Forms 5330 with the Internal Revenue Service and pays all applicable

excise taxes due with respect to past prohibited transactions.

Summary of Facts and Representations

1. The Plan, established on December 4, 1990, is a profit sharing

plan sponsored by Wadco, Inc. (Wadco). Wadco is an Illinois corporation

previously engaged in the purchase and resale of molecular sieves used

in the manufacturing of thermal-pane glass. Presently, Wadco is not

actively involved in any type of business. As of December 31, 1993, the

Plan had total assets of $275,727 and two participants, Peter and

Judith Aswad, who are also the trustees of the Plan (the Trustees). The

Trustees have the sole investment discretion with regard to the Plan.

2. Among the assets of the Plan is the Stock. The Stock consists of

300 shares of stock in Titan Industries, Inc. (Titan), a closely-held

Oklahoma corporation which engages in the manufacture of additive

injection equipment. The Stock represents approximately fifty percent

of the issued and outstanding stock of Titan. The remaining fifty

percent of the issued and outstanding stock of Titan is owned by Gary

Williams, the President of Titan. Mr. Aswad is the Chairman of the

Board of Directors of Titan and is the acting sales manager for the

western half of the United States and the Far East.

In 1987, Wadco acquired the Stock for approximately $15,000 and

contributed it to the Wadco, Inc. Defined Benefit Plan (the DB Plan), a

qualified plan maintained by Wadco in the 1980's. The trustees of the

DB Plan terminated the DB Plan, effective December 31, 1989, and

distributed all of its assets on December 10, 1990, to the DB Plan's

only participants, Mr. and Mrs. Aswad, in 1990. At this time, Mr. and

Mrs. Aswad rolled over the Stock, worth approximately $118,904, into

the Plan. Wadco is aware of the fact that the contribution of the Stock

constituted a prohibited transaction in violation of the Code.

Accordingly, Wadco represents that within ninety days of the grant of

this proposed exemption, it will file Forms 5330 with the Internal

Revenue Service and will pay all applicable excise taxes due with

respect to past prohibited transactions.

As of November 14, 1994, neither the Plan nor the DB Plan had

received any dividends from the Stock. However, the Stock has

appreciated approximately 50.5 percent per year since its acquisition

in 1987. As of December 31, 1993, the Stock amounted to approximately

eighty-six percent of the total assets of the Plan.

3. Because the Stock accounts for such a large percentage of the

Plan's assets and cannot readily be liquidated due to the lack of a

public market, the Trustees desire to sell the Stock out of the Plan.

The Trustees anticipate that any efforts to sell the Stock to unrelated

parties would result in a sale at a less than its fair market value

(see Representation #4) due to the Stock's [[Page 3662]] lack of

marketability. Because Mr. Aswad is willing to purchase the Stock from

the Plan, the Trustees propose to sell the Stock to Mr. Aswad for the

fair market value of the Stock on the date of the Sale as determined by

an independent, qualified appraiser. The Sale will be one-time cash

transaction, and the Plan will not be required to pay any fees,

commissions or expenses in connection with the sale of the Stock. The

Trustees have determined that the Sale is appropriate for the Plan and

is in the best interests of the Plan and their participants and

beneficiaries. Accordingly, the Trustees request an administrative

exemption from the Department to permit the sale of the Stock to Mr.

Aswad.

4. Richard P. Bernstein, the President of Richard P. Bernstein,

Inc., a business evaluation and appraisal firm which is located in

Dallas, Texas, appraised the Stock. Mr. Bernstein represents that he

has performed approximately 2,000 valuations of closely-held companies

since 1975. Mr. Bernstein represents that both he and his firm are

independent of, and unrelated to, Wadco, Titan and the Trustees.

Mr. Bernstein placed the fair market value of the Stock at $218,000

or $726 per share as of May 24, 1994. Mr. Bernstein's valuation

includes a thirty-five percent discount based upon the Stock's limited

marketability.

5. In summary, it is represented that the transaction will satisfy

the statutory criteria of section 408(a) of the Act because: (a) All

terms and conditions of the Sale will be at least as favorable to the

Plan as those obtainable in an arm's length transaction between

unrelated parties; (b) the Sale will be a one-time cash transaction;

(c) the Plan will not be required to pay any commissions, costs or

other expenses in connection with the Sale; (d) the Plan will receive a

sales price equal to the fair market value of the Stock as determined

by an independent, qualified appraiser; (e) the Trustees of the Plan

will determine that the Sale is appropriate for the Plan and is in the

best interests of the Plan and their participants and beneficiaries;

and (f) within ninety days of the grant of this proposed exemption,

Wadco will file a Forms 5330 with the Internal Revenue Service and pay

all applicable excise taxes due with respect to past prohibited

transactions

Notice to Interested Persons

Since Mr. and Mrs. Aswad are the only participants in the Plan, it

has been determined that there is no need to distribute the notice of

proposed exemption to interested persons. Comments are due within

thirty days after publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

The Travelers Separate Account ``R'' (SAR) Located in Hartford,

Connecticut

[Application No. D-9827]

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

406(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 past lease (the Lease)

of space in an office building located in Cedar Knolls, New Jersey (the

Building) from December 22, 1993 until June 24, 1994 by SAR to The

Travelers Insurance Company (Travelers), a party in interest with

respect to employee benefit plans invested in SAR, provided that the

following conditions were satisfied:

(a) All terms and conditions of the Lease were at least as

favorable to SAR as those which SAR could have obtained in an arm's-

length transaction with an unrelated party at the time the Lease was

executed;

(b) The rent paid by Travelers to SAR under the Lease was not less

than the fair market rental value of the office space;

(c) LaSalle Partners (LaSalle), acting as a qualified, independent

fiduciary for SAR during the time that the Building was owned by SAR,

reviewed all terms and conditions of the Lease prior to the

transaction, as well as any subsequent modifications to the Lease, and

determined that such terms and conditions would be in the best

interests of SAR at the time of the transaction;

(d) LaSalle represented the interests of SAR for all purposes under

the Lease as a qualified, independent fiduciary for SAR, monitored the

performance of the parties under the terms and conditions of the Lease,

and took whatever action was necessary to safeguard the interests of

SAR with respect to the Lease during the time that the Building was

part of SAR's portfolio; and

(e) Travelers pays to all of SAR's contractholders, upon final

liquidation of the properties held by SAR, amounts necessary to

reimburse SAR for expenses incurred in connection with the tenant

improvements made to the office space leased to Travelers prior to the

sale of the Building (i.e. $1,363,581), as well as all other amounts

required to be paid to SAR's contractholders, pursuant to the terms of

the Settlement Agreement arising from The Travelers Insurance Company

v. Allied-Signal Inc. Master Pension Trust, et al. (Civil No. H-90-870-

AHN, USDC D Conn).

EFFECTIVE DATE: This proposed exemption, if granted, will be effective

for the period from December 22, 1993 until June 24, 1994.

Summary of Facts and Representations

1. Travelers, a wholly-owned subsidiary of The Travelers

Corporation (Travelers Corp.), is a Connecticut corporation and one of

the largest stock insurance companies in the United States. At the end

of 1992, Travelers Corp. held more than $53 billion in total assets.

2. Travelers serves as the asset manager for SAR, which is

maintained by Travelers for the investment of qualified pension plan

assets in real estate related investments. SAR is a pooled separate

account which consists of two components, an equity component and a

mortgage component. The equity component accounts for 95% of the assets

held in SAR. Total assets held in SAR were valued at $63,902,857 as of

September 30, 1993.

Participation in SAR is limited to qualified private retirement

plans and governmental plans. As of December 31, 1992, approximately

150 plans participated in SAR. The interest of no single plan

represents more than 20% of SAR's total assets, except for The Pension

Plan for Salaried Employees of The Travelers Corporation and Certain

Subsidiaries (The Travelers Plan) which represented approximately 44%

of SAR's total assets as of September 30, 1993. In this regard, the

Travelers Plan had 38,383 participants and total net assets of

approximately $1,624,547,217 as of December 31, 1992. The Finance

Committee of the Board of Directors of Travelers Corp. is the fiduciary

responsible for the original investment of the Travelers Plan in SAR.

3. In December 1989, Travelers decided to terminate SAR and proceed

with an accelerated liquidation of SAR's properties for distribution of

the proceeds on a pro rata basis. In June 1990, a SAR contractholder

initiated litigation related to the proposed distribution of proceeds.

The plaintiffs initially sued Travelers Corp. and Travelers in the U.S.

District Court for the Northern District of Texas, The Police and Fire

Pension Fund of the City [[Page 3663]] of Dallas, Texas v. The

Travelers Corp. and The Travelers Insurance Co., (Civil No. CA-3-90-

1558-C, USDC ND Tex.) (referred to below as ``the Texas Litigation'').

Subsequently, Travelers Corp., Travelers, and two affiliates filed a

defendant class action seeking to resolve issues connected to SAR's

liquidation in The Travelers Insurance Company v. Allied-Signal Inc.

Master Pension Trust, et al. (Civil No. H-90-870-AHN, USDC D Conn)

(referred to below as the ``Allied-Signal Litigation''). The Texas

Litigation was dismissed and the plaintiffs reasserted their claims as

counterclaims in the Allied-Signal Litigation. In 1993, the court

granted final approval of settlements in the Allied-Signal Litigation

which set forth procedures to distribute amounts held in the equity and

mortgage components of SAR. The settlement agreements require Travelers

to use its best efforts to liquidate all of SAR's equity investments,

including the Building, by April 1995.

4. The Building is a four story, 116,919 square foot office

building located at 240 Cedar Knolls, Cedar Knolls, New Jersey.

Travelers entered into an agreement with SAR on December 22, 1993, to

lease office space in the Building pursuant to the terms of the Lease.

The Lease allowed Travelers to occupy approximately 52,400 rentable

square feet (RSF) in the Building.\3\ Prior to the Lease, the Building

had approximately 55% of its office space occupied, all by parties

unrelated to Travelers and its affiliates. As a result of the Lease,

the Building was over 98% occupied once Travelers moved into all of the

office space it planned to use. Thus, the applicant states that the

Lease made the Building more marketable for sale to a third party and

was in the best interests of the plans that were contractholders in SAR

at the time of the transaction.

\3\The Lease contains three units with different rentable areas

and commencement dates. Unit A includes 9464 RSF on the first and

second floors which was occupied by Travelers as of January 1, 1994.

Unit B includes 34,400 RSF on the first, second and fourth floors

which was occupied by Travelers as of July 1, 1994. Unit C includes

8536 RSF on the second floor which was occupied by Travelers as of

May 1, 1994. The Lease allowed Travelers to adjust the area of Unit

B, subject to the Travelers' design plan for various improvements.

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5. Under the terms of the Lease, Travelers agreed to lease the

office space for five years, six months. Travelers pays $15.00 per

square foot per annum, adjusted up to $16.86 per square foot per annum

to account for additional tenant improvements, under the base rent

schedule specified in the Lease.\4\ All rents under the Lease are

payable monthly upon the first business day of the month. The Lease

also provides 205 parking spaces for use by Travelers at no additional

cost.

\4\From the commencement date applicable to Unit A through June

30, 1994, the base rent was $147,705 per annum (i.e. approximately

$12,308 per month). Commencing July 1, 1994 and continuing until the

expiration date of the Lease, the base rent for Unit A will be

$166,020 per annum (i.e. approximately $13,835 per month). From the

commencement date applicable to Unit C through June 30, 1994, the

base rent was $128,040 per annum (i.e. approximately $10,670 per

month). Commencing July 1, 1994 and continuing until the expiration

date of the Lease, the base rent for Unit C will be $143,916 per

annum (i.e. approximately $11,993 per month). The annual base rent

for Unit B will be based upon the final RSF of Unit B, as determined

in accordance with the terms of the Lease multiplied by $16.86 per

square foot based on tenant specified improvements.

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The Lease allocates a number of non-rent expenses to Travelers.

Tenant-electric is submetered and paid for by Travelers. In addition,

Travelers agreed to pay a proportionate share of increases in actual

operating expenses incurred by the landlord under the Lease. However,

the annual increase in operating expenses for which Travelers is liable

as tenant, other than energy, taxes and insurance, may not exceed the

annual percentage increase in the consumer price index (CPI). Travelers

also agreed to pay its proportionate share of increases in real estate

taxes.

With respect to tenant improvements, the Lease provided Travelers

with new building installations in accordance with Travelers' plans and

specifications at a one-time cost not to exceed $27.00 per square foot,

which will be paid for by Travelers through the base rents described

above. SAR spent $1,363,581 under the tenant improvement allowance for

the office space leased to Travelers.

6. On June 24, 1994, SAR sold the Building to Koll Investment

Management, Inc. (Koll), for $4,000,000. The applicant states that Koll

is a California corporation, d/b/a KB Realty Advisors, which is

unrelated to Travelers and its affiliates. The proceeds from the sale

were distributed in July 1994 to the contractholders of SAR in

accordance with the settlement agreement arising from the Allied-Signal

Litigation (the Settlement Agreement). In this regard, the applicant

states that the Settlement Agreement requires Travelers to distribute

to all of SAR's equity contractholders, over the course of liquidating

the remaining assets, returns that are at least equal to the value of

the equity components of SAR as of December 31, 1992 (the Target

Amount). Under the Settlement Agreement, Travelers must make

``differential compensation'' payments over and above distributions

from SAR if the amounts distributed to the contractholders fail to meet

the Target Amount. Specifically, the ``differential compensation''

payments will constitute the difference between the Target Amount (i.e.

$75,160,003) and the total amount of cash distributions to

contractholders from that date forward. The applicant states that a

``differential compensation'' payment of approximately $7,375,997 would

be due to SAR's contractholders to meet the Target Amount, based on the

distributions made to the contractholders (i.e. $48,226,355) and the

value of the assets remaining in SAR as of September 30, 1994 (i.e.

$19,557,651). As a result, the existing assets would have to be sold

for in excess of $26,933,648, to extinguish Travelers' obligation to

make a differential compensation payment. SAR is in the final phases of

its liquidation process and expects to complete liquidation of its

equity portfolio within the next few months.

Travelers represents that the deficiency of $7,375,997 as of

September 30, 1994, was comprised of shortfall amounts from the sale of

assets at less than their appraised value as of December 31, 1992, and

unrecovered expenditures of SAR assets. With respect to the Building,

the applicant indicates that this asset had a fair market value of

$4,150,000 as of December 31, 1992. Had the Building been sold for more

than that amount, the differential compensation amount would have been

reduced. However, the sale of the Building to Koll for $4,000,000

increased the amount of differential compensation owed by Travelers by

$150,000. Similarly, the tenant improvements made to the Building prior

to the sale totalling $1,363,581 were paid from SAR funds. As such, the

total amount of tenant improvement expenditures was unavailable for

distribution to SAR investors. Each dollar spent on the improvements

therefore has increased the magnitude of the differential compensation

payment owed by Travelers under the Settlement Agreement. Since the

sale of the remaining assets will not be sufficient to reduce already

incurred deficiencies, Travelers will be responsible for these amounts

out of its general assets. Thus, the size of the differential

compensation payment will reflect all amounts spent by SAR for tenant

improvements to the space in the Building leased to Travelers (i.e.

$1,363,581) prior to the sale of the Building. Travelers must pay such

amounts to SAR's contractholders after [[Page 3664]] all of the equity

components of SAR are liquidated.

The applicant represents that the sale of the Building was in the

best interests of the plans that were contractholders of SAR at the

time of the transaction. In addition, the sale of the Building by SAR

ended the prohibited transaction that resulted from Travelers leasing

the subject office space in the Building. Therefore, the applicant

requests that the proposed exemption be effective from December 22,

1993, the date that Travelers signed the original Lease documents,

until June 24, 1994, the date the Building was sold.

7. LaSalle served as an independent fiduciary for SAR in connection

with the Lease during the time that the Building was part of SAR's

portfolio. LaSalle is a real estate investment manager, located in Pine

Brook, New Jersey, which has extensive experience in advising various

clients, including benefit plan investors, regarding the sale, leasing

and management of office space. During the 1992 calendar year, LaSalle

received less than one percent of its total client fees from Travelers.

LaSalle acknowledges that it understood its duties, responsibilities

and liabilities in acting as a fiduciary under the Act for SAR.

LaSalle possessed full authority as the independent fiduciary to

act on behalf of SAR with respect to the Lease. In this role, LaSalle

completed an extensive analysis of the Lease prior to the execution of

the transaction. Specifically, LaSalle compared the proposed terms of

the Lease to leases of other similar office space to unrelated parties

in Northern New Jersey at the time of the transaction. This market

research was conducted through real estate brokers, landlords and

attorneys. LaSalle also reviewed the latest appraisals of the Building.

8. LaSalle states that it required a number of changes to the terms

for the Lease in order to protect the interests of SAR. These changes

were necessary mainly because Travelers had suggested using a standard

lease document for a newly-constructed building, whereas the Lease

actually involves office space in an existing facility. LaSalle

reviewed the terms of the Lease to assure that the required

modifications were incorporated into the relevant documents. Based on

Traveler's agreement to include the modifications in the Lease, LaSalle

concluded that the terms of the Lease would be at least as favorable to

SAR as the terms which would exist in an arm's-length transaction and

that entering into the transaction would be in the best interests of

SAR. LaSalle states that an important factor in its conclusion was the

fact that the Lease's average gross rents and equivalent net rents were

well within the acceptable ranges for comparable market transactions in

the Northern New Jersey area.

With respect to the $27.00 per square foot tenant improvement

allowance granted to Travelers under the Lease, LaSalle states that

this provision involved a one-time cost, amortized over the entire term

of the Lease, which was designed to assure the suitability of the

leased space to the tenant's needs. LaSalle represents that similar

tenant improvement allowances and other concessions were typical of

arm's-length leases in the Northern New Jersey area at the time of the

transaction and are a common practice in highly competitive markets.

LaSalle states that the rents which would have been payable to SAR

under the Lease, and the costs associated with the Lease, would have

yielded a total net rate of return to SAR for the entire term of the

Lease that would have been above other arm's-length leases in the

Northern New Jersey area. With respect to the sale of the Building to

Koll for $4,000,000, LaSalle states that the improvements made to the

office space under the Lease increased the marketability of the

Building and helped SAR to obtain a better sale price for the Building

on June 24, 1994.

9. LaSalle represents that it monitored compliance by the parties

with the terms of the Lease during the period that the Building was

part of SAR's portfolio. In this regard, LaSalle was responsible for

periodically auditing the parties performance under the Lease to assure

compliance with such terms. This audit would include a review of the

financial statements relating to the property and a physical inspection

of the premises occupied by Travelers. The audit would examine whether

rent payments were paid in an accurate and timely fashion as specified

by the Lease and whether tenant improvements were made in accordance

with the terms of the Lease. In addition, LaSalle states that it took

whatever action was necessary to safeguard the interests of SAR in

connection with the Lease. Finally, LaSalle acknowledges that: (i) The

effectiveness of any exemption for the Lease will be dependent on

compliance by the parties with the terms as set forth in the Lease

during the period covered by the proposed exemption, including any

limitations, restrictions or other conditions imposed at that time;

(ii) if any circumstances resulted in a violation of the terms and

conditions of the Lease or the proposed exemption during such period,

the relief provided by the exemption will not be available; and (iii)

LaSalle, as the independent fiduciary for SAR, was responsible at all

times for monitoring compliance by the parties with the terms and

conditions of the Lease during the period covered by the proposed

exemption.

10. In summary, the applicant represents that the Lease met the

statutory criteria of section 408(a) of the Act and section 4975(c)(2)

of the Code because: (a) LaSalle, a qualified, independent fiduciary

for SAR, determined that the Lease was in the best interests of SAR

prior to the transaction; (b) LaSalle determined that the terms and

conditions of the Lease were at least as favorable to SAR as those

which could have been obtained from an unrelated party at the time of

the transaction; (c) LaSalle monitored the Lease and enforced the

obligations of Travelers on behalf of SAR while the Building was part

of SAR's portfolio; and (d) Travelers will pay SAR's contractholders,

as part of any other payments due to SAR under the terms of the

Settlement Agreement, an amount necessary to reimburse SAR for expenses

incurred in connection with the tenant improvements made to the office

space leased to Travelers prior to the sale of the Building.

Notice to Interested Persons

The applicant states that because of the large number of

potentially interested parties, it is not possible to provide a

separate copy of the notice of the proposed exemption to each

participant of all plans that were invested in SAR during the period

covered by the requested exemption. Therefore, the only practical form

of notice for such interested persons is publication of the proposed

exemption in the Federal Register. However, the applicant states that

it will provide notice to each of the plans that were contractholders

in SAR during the period covered by the requested exemption. Such

notice shall be made by first class mail within fifteen (15) days

following the publication of the proposed exemption in the Federal

Register. This notice shall include a copy of the notice of proposed

exemption as published in the Federal Register and a supplemental

statement (see 29 CFR 2570.43(b)(2)) which informs interested persons

of their right to comment on and/or request a hearing with respect to

the proposed exemption. Comments and requests for a public hearing are

due within forty-five (45) days following the publication of the

proposed exemption in the Federal Register.

[[Page 3665]] FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of

the Department, telephone (202) 219-8194. (This is not a toll-free

number.)

General Information

The attention of interested persons is directed to the following:

(1) The fact that a transaction is the subject of an exemption

under section 408(a) of the Act and/or section 4975(c)(2) of the Code

does not relieve a fiduciary or other party in interest of disqualified

person from certain other provisions of the Act and/or the Code,

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

section 404 of the Act, which among other things require a fiduciary to

discharge his duties respecting the plan solely in the interest of the

participants and beneficiaries of the plan and in a prudent fashion in

accordance with section 404(a)(1)(b) of the act; nor does it affect the

requirement of section 401(a) of the Code that the plan must operate

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) Before an exemption may be granted under section 408(a) of the

Act and/or section 4975(c)(2) of the Code, the Department must find

that the exemption is administratively feasible, in the interests of

the plan and of its participants and beneficiaries and protective of

the rights of participants and beneficiaries of the plan;

(3) The proposed exemptions, if granted, will be supplemental to,

and not in derogation of, any other provisions of the Act and/or the

Code, including statutory or administrative exemptions and transitional

rules. Furthermore, the fact that a transaction is subject to an

administrative or statutory exemption is not dispositive of whether the

transaction is in fact a prohibited transaction; and

(4) The proposed exemptions, if granted, will be subject to the

express condition that the material facts and representations contained

in each application are true and complete, and that each application

accurately describes all material terms of the transaction which is the

subject of the exemption.

Signed at Washington, DC, this 12th day of January, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 95-1200 Filed 1-17-95; 8:45 am]

BILLING CODE 4510-29-P