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

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## Record

- **Collection:** Federal Register
- **Document type:** Notice
- **Published:** January 18, 1995
- **Citation:** 60 FR 3658

## Text

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.
---------------------------------------------------------------------------

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

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A95-1200. Public record. Not legal advice.