Grant of Individual Exemptions; Boston Cement Masons Union Local No. 534 Deferred Income Plan, et al.

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Prohibited Transaction Exemption 95-24; Exemption Application No. D-

09787, et al.]

Grant of Individual Exemptions; Boston Cement Masons Union Local

No. 534 Deferred Income Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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SUMMARY: This document contains exemptions issued by the Department of

Labor (the Department) from certain of the prohibited transaction

restrictions of the Employee Retirement Income Security Act of 1974

(the Act) and/or the Internal Revenue Code of 1986 (the Code).

Notices were published in the Federal Register of the pendency

before the Department of proposals to grant such exemptions. The

notices set forth a summary of facts and representations contained in

each application for exemption and referred interested persons to the

respective applications for a complete statement of the facts and

representations. The applications have been available for public

inspection at the Department in Washington, DC. The notices also

invited interested persons to submit comments on the requested

exemptions to the Department. In addition the notices stated that any

interested person might submit a written request that a public hearing

be held (where appropriate). The applicants have represented that they

have complied with the requirements of [[Page 14006]] the notification

to interested persons. No public comments and no requests for a

hearing, unless otherwise stated, were received by the Department.

The notices of proposed exemption were issued and the exemptions

are being granted solely by the Department because, effective December

31, 1978, section 102 of Reorganization Plan No. 4 of 1978 (43 FR

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

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

of Labor.

Statutory Findings

In accordance with section 408(a) of the Act and/or section

4975(c)(2) of the Code and the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon

the entire record, the Department makes the following findings:

(a) The exemptions are administratively feasible;

(b) They are in the interests of the plans and their

participants and beneficiaries; and

(c) They are protective of the rights of the participants and

beneficiaries of the plans.

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

[Prohibited Transaction Exemption 95-24; Application Nos. D-9787, D-

9788, L-9789 and L-9790, respectively]

Exemption

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

Act and the sanctions resulting from the application of section 4975 of

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

shall not apply to 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, 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 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.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption, refer to

the notice of proposed exemption published on January 18, 1995 at 60 FR

3659.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department,

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

General Motors Hourly-Rate Employes Pension Plan (the Plan) Located

in Detroit, Michigan

[Prohibited Transaction Exemption No. 95-25; Application No. D-9734]

Exemption

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

407(a) of the Act and the sanctions resulting from the application of

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

(E) of the Code1 shall not apply to:

1For purposes of this exemption, references to specific

provisions of Title I of the Act, unless otherwise specified, refer

also to the corresponding provisions of the Code.

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(1) The transfer of shares of Class E common stock (the Class E

stock) of General Motors Corporation (GM) to the Plan through the in-

kind contribution of such shares by GM, a party in interest with

respect to such Plan;

(2) The holding of the Class E stock by the Plan;

(3) The sale for cash of shares of Class E stock by the Plan to GM

or its affiliates or to certain defined contribution plans sponsored by

GM or its affiliates;

(4) The exchange of shares of Class E stock for publicly-traded

securities between the Plan and GM or its affiliates under the same

terms and conditions as are made available to all shareholders of Class

E stock; and

(5) The acquisition, holding, and exercise by the Plan of a put

option granted by GM which permits the Plan to sell the Class E stock

or a successor security for which the Class E stock has been exchanged

to GM.

This exemption is conditioned upon the satisfaction of the

following requirements:

(a) GM contributes to the Plan at least 177 million shares of Class

E stock but no more than 186 million shares plus $4 billion in cash,

with at least $2 billion contributed in conjunction with or prior to

the contribution of the Class E stock, and the remaining $2 billion

contributed no later than September 30, 1995;

(b) If less than 177 million shares of Class E stock are

contributed, GM will contribute additional cash in an amount equal to

the difference between 177 million and the number of shares of Class E

stock contributed times the per-share value of such stock at the time

of contribution, or a weighted average price if such stock is not

contributed on a single date;

(c) United States Trust (UST), an independent qualified fiduciary,

or a successor independent fiduciary acceptable to the Pension Benefit

Guaranty Corporation (PBGC) represents the Plan's interests with

respect to the acquisition of Class E stock and also will serve as

trustee of the Plan with sole discretion respecting the management and

disposition of the Class E stock after the acquisition. UST must

determine, prior to entering into any of the transactions described

herein, that each such transaction, including the contribution of the

Class E stock, is in the interest of the Plan;

(d) UST negotiates and approves the terms of any of the

transactions between the Plan and GM or its affiliates or certain

defined contribution plans sponsored by GM or its affiliates;

(e) UST manages the holding and disposition of the Class E stock

and takes whatever action it deems necessary to protect the rights of

the Plan;

(f) The terms of any of the transactions between the Plan and

parties in interest are no less favorable to such Plan than terms

negotiated at arm's length under similar circumstances with unrelated

third parties;

(g) A credit balance reserve is maintained in the Plan consisting

of the cash credit balance or cash generated from stock that has been

sold in an amount equal to at least 25 percent [[Page 14007]] (25%) of

the contributed value2 of the Class E stock which remains unsold

in the Plan, for so long as such stock or any securities received in

exchange exceeds the percentage limitations described in sections

407(a) and 407(f) of the Act (the ERISA Limits);

2Contributed value means the value of the Class E stock

when contributed to the Plan, as determined by Duff & Phelps Capital

Markets Co. (formerly Duff & Phelps Financial Consulting Co.).

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(h) An independent qualified appraiser determines the fair market

value of the Class E stock contributed to the Plan as of the date of

such contribution, and determines the fair market value of the Class E

stock at various other times as required under the agreement between GM

and the PBGC (the Agreement);

(i) With respect to any sale or exchange of Class E stock by the

Plan to GM or its affiliates or to any defined contribution plans

sponsored by GM or its affiliates, no commission will be charged to or

paid by the Plan;

(j) Any sale or exchange of Class E stock between the Plan and GM

or its affiliates will be for no less than ``adequate consideration''

within the meaning set forth in section 3(18) of the Act, and any sale

of Class E stock by the Plan to a defined contribution plan sponsored

by GM or its affiliates will be at the prevailing price for such stock

on the New York Stock Exchange (NYSE); and

(k) The Plan incurs no fees, costs, or other charges or expenses as

a result of its participation in transaction (1), above and, with

regard to other transactions described herein, will not incur fees and

other costs payable by the issuer under the Registration Rights

Agreement (RRA).

EFFECTIVE DATE: This exemption will be effective on March 13, 1995.

Written Comments

In the Notice of Proposed Exemption (the Notice), the Department

invited all interested persons to submit written comments and requests

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

were due by December 29, 1994.

The Department received 157 letters from interested persons

commenting on the exemption. In addition, a number of interested

persons telephoned the Department. These individuals were assisted with

their questions by members of the staff of the Office of Exemption

Determinations of the Department. With respect to all the written

comments submitted by interested persons, the Department forwarded

copies to the applicant and requested that the applicant address the

concerns raised by the commentators in writing. A description of the

comments and the applicant's responses are summarized below.

Several of the written comments received by the Department

supported adoption of the exemption. In this regard, after review of

GM's application for exemption and the terms of the Agreement between

GM and PBGC, the International Union, United Automobile, Aerospace and

Agricultural Implement Workers of America (the UAW), the certified

collective bargaining representative for approximately 215,000

employees of GM who are participants in the Plan and approximately

255,000 retired former employees of GM who are participants in the

Plan, expressed support for the application and stated its belief that

the transactions which are the subject of this exemption are in the

best interest of the Plan's participants and beneficiaries.

Some commentators neither supported nor opposed the exemption but

either expressed a lack of understanding of the exemption or raised

other concerns that are beyond the scope of this exemption proceeding.

Other commentators opposed the exemption and raised questions and

concerns regarding the transactions described therein. The concerns

expressed by these commentators generally related to: (a) The impact on

pension or health benefits; (b) the holding by the Plan of more than 5%

of its assets in any company; (c) the preference for a cash

contribution over that of stock; (d) the potential loss of value of the

Class E stock; (e) the restrictions on the Plan's ability to sell the

Class E stock under the terms of the RRA; (f) the fact that the Class E

stock is not a qualifying employer security; (g) the control by the

Plan of more than 10% of the voting shares of a company; (h) the

presence of a financial flexibility exception in the Agreement given

GM's recent financial history; (i) the effect of an EDS sale on GM's

future contributions to the Plan; (j) the tax advantages to GM of the

contribution of Class E stock; and (k) the lack of a mandatory

requirement in the exemption to convert the Class E stock into cash.

The following summarizes the response to these concerns submitted

to the Department by GM. With respect to (a) above, GM states that the

exemption does not change or affect in any way the pension benefits

payable under the Plan or health benefits for active or retired

employees. As a result, the exemption will not affect a participant's

eligibility to receive a pension benefit, the amount of a pension

benefit check, or the terms of any health care plan.

With respect to (b), GM states that UST, the independent fiduciary,

has represented that the Plan's receipt of the Class E stock will not

violate the general diversification rule of the Act, which requires

that a plan's assets be sufficiently diversified in order to minimize

the risk of large losses.

With respect to (c), GM responded that while in the abstract the

contribution of cash may be superior to that of stock, the issue posed

by the exemption application was not whether the Plan could choose to

acquire Class E Stock where an equivalent value of cash is available.

In this regard, as the Plan is significantly underfunded, GM believes

it is offering a way to substantially improve the Plan's funding with a

combined contribution of Class E stock and cash.

With respect to (d), GM maintains that the Agreement, deferring

credit for the contribution of Class E stock and the $4 billion in

cash, provides considerable security because in all likelihood the Plan

will receive further cash contributions from GM in excess of minimum

funding rules of the Act in the years between 1995 and 2003. In

addition, GM states that the Agreement contains other protective

features that adequately address the potential for future losses in

value, if any, in the Class E stock. Finally, because the dividends on

Class E stock are based on the earnings of Electronic Data Systems

Corporation (EDS), GM believes the contribution provides more

diversification than a security whose dividends are based on the

performance of GM.

With respect to (e), GM states that UST, the independent fiduciary,

is required by law to act solely in the interest of the Plan and its

participants and beneficiaries. In this regard, UST is satisfied that,

given the size of the block and the likely means of disposition, that

the RRA affords ample opportunity for UST to sell or otherwise dispose

of the Plan's Class E stock while maximizing the value of such stock to

the Plan.

With respect to (f), GM states that although the Class E stock is

not a qualifying employer security because the Plan will acquire and

hold in excess of the limits imposed by the Act, there are sufficient

safeguards to protect the interest of the Plan and the participants and

beneficiaries. In addition, GM points out the Class E stock is widely

traded on the NYSE, and an independent fiduciary, UST, has negotiated a

RRA that will allow it, as trustee for the Class E stock, to dispose

[[Page 14008]] of the stock efficiently while maximizing its value to

the Plan.

With respect to (g), GM states that the Class E stock is widely

traded on the NYSE and generates dividends based on the earnings of EDS

rather than on the performance of GM. Further, an independent

fiduciary, UST, has negotiated a RRA that will allow UST, as trustee

for the Class E stock, to dispose of the stock efficiently while

maximizing its value to the Plan, and UST is satisfied that it can do

so given the size of the block of Class E stock.

With respect to (h), GM states that the commentator erroneously

alleges that GM's North American Operations (the NAO) has met the ``bad

year'' definition under the Agreement in each of the past five (5)

years and asserts that this pattern will continue in the future,

allowing GM to access more of the credit balance than ``what would

appear to the common layperson.'' In fact, the NAO did not meet the

``bad year'' definition in 1994. Moreover, GM notes that, although the

proposed exemption is complex, the Department's notice and comment

process is fair and comprehensive and the financial flexibility

provisions of the Agreement in principle were disclosed in the Notice

on the same basis and in the same fashion as all other parts of the

exemption transaction.

With respect to (i), GM states that the commentator erroneously

concludes that if GM sells EDS, GM's obligation to contribute to the

Plan will be nullified. In this regard, GM represents that the

Agreement provides that the credit balance rules generally apply to

stock for which the Plan's Class E stock has been exchanged. Further,

GM asserts that if the credit balance is unavailable, GM will still

make at least the minimum contributions required by the Act.

With respect to (j), GM states that the contribution of Class E

stock to the Plan does not defer or eliminate any income taxes that

otherwise would be payable on GM's disposition of Class E stock. With

respect to (k), GM states that the commentator erroneously assumes that

GM will have control of the Plan's portfolio after the Class E stock is

contributed. In this regard, GM represents that it will have no control

over the management of such stock. UST, the independent trustee, will

have complete discretion over the management and disposition of the

Class E stock, and, in its sole discretion, will determine how and when

the Class E stock will be liquidated.

In addition to the comments described above, the Department also

received comments from the applicant, GM. The comments from GM

requested certain modifications and clarifications to the exemption as

proposed and to the Summary of Facts and Representations (SFR). GM's

comments fall into three categories: (1) clarification regarding the

relationship of the exemption to the Agreement between the PBGC and GM

regarding the contribution of cash and Class E stock; (2) issues

relating to the conditions of the exemption; and (3) certain technical

corrections to the SFR.

With respect to the first category of the comment, GM informed the

Department that, since May 1994, GM and the PBGC have been negotiating

the terms of a definitive Agreement. In its application for exemption,

GM described the tentative terms of this Agreement, as reflected in an

agreement in principle (the AIP) executed on May 9, 1994, between the

PBGC and GM. The Department summarized certain terms of the AIP in the

SFR. The proposed exemption provided that any final exemption would be

conditioned upon adherence to the material facts and representations

described in the SFR. GM notes that the terms of the AIP have now been

superseded by the executed Agreement. Thus, GM believes that there is a

substantial risk that any change in or non-adherence to a material

provision will vitiate the exemption and, thereby, preclude the Plan

from continuing to hold contributed Class E stock above the limits set

forth in sections 407(a) and 407(f)(1) of the Act. This situation in

turn would place the independent fiduciary, UST, in the position of

potentially having to engage in a forced liquidation of a sufficient

quantity of Class E stock to bring the Plan within the limits of such

sections of the Act. As a result, GM requests clarification as to

whether any change in or non-adherence to either the terms of the AIP,

as described in the SFR, or the Agreement would render the exemption

unavailable.

GM states that the Agreement is a contract between GM and the PBGC.

It is lengthy and complicated, reflecting the nature, size, and

complexity of its subject. Assets likely to be valued in excess of $10

billion will be at issue, and the terms of the Agreement will require

numerous complex calculations to be performed. The Agreement will

continue in force until at least October 1, 2003, and, as with any such

complex document, it is possible that good faith differences may arise

between GM and the PBGC over the meaning and application of its terms.

GM notes in its comment that it believes that the Plan is fully

protected by the reporting and enforcement provisions set forth in the

Agreement, and the interests of the Plan and its participants and

beneficiaries are better served by application of such procedures than

by enforcement through the exemption. These reporting and enforcement

provisions are carefully crafted to facilitate the timely and effective

resolution of disputes, while permitting the Plan to continue the

orderly disposition of Class E stock. The Agreement provides for annual

reporting by GM to the PBGC, and contains a dispute resolution

mechanism through which the PBGC can enforce the terms and conditions

of such Agreement. GM represents that it will comply in all material

respects with the reporting provisions in the Agreement (including as

they may be changed from time to time by mutual agreement of GM and the

PBGC). In addition, the Agreement provides, among other things, for

access to the courts, and under certain circumstances, for the posting

of collateral by GM if a disputed amount exceeds a certain threshold.

Accordingly, GM suggests that the exemption, if granted, contain the

following language, ``Several aspects of the Agreement are of special

importance to the Department and were included as requirements (a),

(b), and (g) of the proposed exemption * * * . Accordingly, if GM

violates a term or condition of the Agreement, other than the specific

requirements noted above (emphasis added), the violation will be

addressed by PBGC under the Agreement and not by withdrawal or other

invalidation of the exemption itself.''

In this regard, the Department requested the views of the PBGC

concerning whether a breach of the Agreement by GM in the future should

void the exemption. The PBGC confirmed that the Agreement contains

adequate enforcement mechanisms in the event of a breach. GM is

required under the Agreement to provide information to the PBGC that

will enable the PBGC to monitor and confirm that the restrictions have

been properly applied. Also, the PBGC will monitor and enforce those

terms of the Agreement adopted by the Department as conditions of the

exemption, as summarized in sections (a), (b), and (g) therein. As a

result, the PBGC stated that it does not believe that voiding the

exemption is a necessary or appropriate enforcement mechanism to ensure

compliance with the Agreement, and that it would not recommend that the

exemption be voided for violation of a term of the Agreement after GM

has contributed the stock and cash required by the Agreement and by

sections (a) [[Page 14009]] and (b) of the proposed exemption. In

addition, the PBGC is of the opinion that voiding the exemption after

the stock is contributed could harm the Plan if the independent

fiduciary were forced to sell stock held by the Plan to bring the

Plan's employer securities within the ERISA Limits.

UAW in its comment letter also concurred with the views expressed

by GM on the question of whether the exemption should be voided in the

event of an alleged breach of the Agreement. UAW believes that the

enforcement mechanisms described in the Agreement are adequate and

appropriate and that termination of the exemption in the event of a

breach of that Agreement would only be harmful to participants and

beneficiaries, in that termination of the exemption would by necessity

force a massive and precipitous sale of the Class E stock. In the

opinion of the UAW, selling the Class E stock under such conditions is

not likely to result in the realization of optimum proceeds and would

therefore diminish the assets in the Plan.

However, the UAW noted that the language suggested by GM to address

this issue, as quoted above, would create the impression that these

requirements of the exemption are precisely co-extensive with the

analogous sections of the Agreement. The UAW further noted that the

language in (a), (b), and (g), as set forth in the Notice, summarized

but did not recite word for word such sections from the Agreement.

Accordingly, the UAW suggested that the word, ``included'' in the first

sentence of GM's language quoted above be replaced with the word,

``summarized,'' and the underlined portion of the second sentence of

GM's language quoted above be changed to read, ``without violating one

of the express conditions of the exemption.''

The Department concurs with GM, the PBGC, and the UAW that the

rights embodied in the reporting and dispute resolution provisions of

the Agreement provide protection to the Plan, and that enforcement by

the PBGC through the procedures negotiated in the Agreement will serve

the interest of the Plan and its participants and beneficiaries.

Further, the Department believes that any ``fire sale'' of Class E

stock which may result from the unavailability of the exemption through

a change in or non-adherence to the terms of the AIP described in the

SFR or the Agreement would not be in the interest of the Plan. However,

the Department has determined that compliance with certain provisions

of the Agreement, as summarized in paragraphs (a), (b), and (g) of the

proposed exemption, are important and necessary to the continued

availability of the exemption. Accordingly, it is the view of the

Department that, if GM violates a term or condition of the Agreement,

without violating one of the express conditions of the exemption, the

violation will be addressed by the PBGC in accordance with the

enforcement terms of such Agreement and will not result in the

unavailability of the exemption. The Department is of the further view

that the exemption will be available despite the fact that the terms of

the final Agreement differed in some respects from the terms of the AIP

which was summarized in the SFR.

With respect to the second category of the comment, GM requests

modifications to the language of certain conditions of the exemption,

as set forth in the Notice. In this regard, condition (c) on page 56541

and repeated in item 18(c) on page 56549 of the Notice as published in

the Federal Register, states: ``United States Trust (UST), an

independent qualified fiduciary, or a successor independent fiduciary

acceptable to the Pension Benefit Guaranty Corporation (PBGC)

represents the Plan's interests for all purposes with respect to the

Class E stock and determines (emphasis added), prior to entering into

any of the transactions described herein, that each such transaction,

including the contribution of the Class E stock, is in the interest of

the Plan.'' GM believes this to be an overly broad description of the

independent fiduciary's responsibilities. GM suggests striking the

underlined phrase above and substituting in lieu thereof, ``with

respect to the acquisition of Class E stock and also will serve as

trustee of the Plan with sole discretion respecting the management and

disposition of the Class E stock after the acquisition. UST must

determine * * *.'' The Department concurs with this comment and has

modified the final exemption accordingly.

Condition (k) on page 56541 and repeated in item 18(k) on page

56549 of the Notice, as published in the Federal Register, states:

``The Plan incurs no fees, costs, or other charges or expenses as a

result of its participation in any of the transactions (emphasis

added).'' GM is concerned that this condition would preclude the

payment by the Plan to UST or any other independent fiduciary of fees

for asset management services as independent fiduciary. In this regard,

the applicant notes that the application indicated that GM would bear

the costs of UST's fees in connection with the Plan's acquisition of

the Class E stock but that fees for UST's trustee services will be

payable by the Plan. It is intended that all fees associated with the

management and disposition of Class E stock, other than certain

underwriting and other fees and costs described in section 9 of the

RRA, will be borne by the Plan. GM suggests striking the underlined

phrase above and substituting the phrase, ``transaction (1), above and,

with regard to other transactions addressed herein, will not incur fees

and other costs payable by the issuer under the Registration Rights

Agreement.'' The Department concurs with this comment and has revised

the language of condition (k).

With respect to the third category of the comment, GM believes that

certain revisions to the SFR would more accurately describe the

transactions. As mentioned above, the AIP was summarized in the SFR.

Subsequently, the AIP was superseded by the terms of the Agreement.

Consequently, GM wishes to point out the following four (4) provisions

of the AIP which were summarized in the SFR but which have now been

modified by the Agreement.

The second sentence of item 6 of the SFR on page 56543, states that

GM's stock contribution will consist of, ``* * * all of the remaining,

222 million unissued shares of Class E stock less approximately 45

million shares reserved for conversion of GM's Series C Preference

Stock, or approximately 177 million shares.'' In accordance with the

terms of the Agreement, GM suggests that the phrase, ``and the number

of shares of GM Class E stock that, as of the last contribution of such

stock, are reserved or committed (as Treasury shares or otherwise) for

employee benefit plans, stock bonus plans, or employee stock

programs,'' should have been inserted after the words, ``Preference

Stock,'' in the above-quoted language.

Item 12 of the SFR, on page 56545 (center column, third full

paragraph), refers to GM's ``* * * access annually to an amount of up

to $1.5 billion of the stock credit balance generated by the stock

which has been sold.'' GM suggests that in accordance with the

Agreement the phrase, ``an average of approximately,'' should have been

inserted in the above-quoted language between the words, ``to'' and

``$1.5,'' because $1.5 assumes GM's access to the stock credit balance

at approximately the mid-point of a plan year and reflects interest

over the first portion of the plan year at the Plan's funding standard

account rate.

Item 12 of the SFR states on page 56545 (center column, sixth

sentence of the second full paragraph) that, the restriction relating

to the 25% credit [[Page 14010]] balance reserve ``* * * will expire on

October 1, 2003, if the Class E stock has been exchanged for non-

employer securities.'' GM notes that the Agreement provides that, the

restriction will expire when the contributed Class E stock or any

shares received in exchange therefor no longer exceed the ERISA Limits.

If the contributed Class E shares are exchanged for non-employer

securities, the restriction will expire on the later of October 1, 2003

or the date on which the Class E stock has been exchanged for non-

employer securities.

Item 12 of the SFR states on page 56546 (center column, top

carryover paragraph, last sentence) that, ``GM's independent auditor

will provide a statement to the PBGC once GM utilizes the financial

flexibility provisions described above.'' GM suggests that in

accordance with the Agreement, striking the quoted sentence and

substituting in lieu thereof, ``[f]or any plan year through the 2002

plan year for which GM utilizes the financial flexibility provisions of

the Agreement, GM will include in its submission to the PBGC a

statement from its independent auditor confirming the accuracy of the

schedule showing GM's cash. In addition, upon request by the PBGC, GM

also will furnish for such plan years a report from its independent

auditor describing agreed upon procedures it has performed in order to

assist the PBGC in evaluating the restructuring charges included in

GM's financial statements, if and to the extent those charges were used

to determine GM's adjusted net income.'' The Department concurs and

notes that the above four (4) clarifications to the SFR are consistent

with the terms of the Agreement.

Also, as part of the third category of the comments, GM has

suggested the following modifications to the language of the SFR.

In item 5 of the SFR on page 56543 (center column), the first and

second sentences in the first full paragraph stated: ``[g]enerally, in

order to correct the unfunded liability of its main U.S. plans, GM has

revised the mortality assumptions in such plans to more closely reflect

recent actual experience. Further, effective for 1993, GM has lowered

the asset earnings rate assumption for its main U.S. plans.'' GM points

out that the mortality and asset earnings rate assumptions were not

adopted in order to correct the unfunded liability of GM's main US

plans but rather to accurately reflect recent experience. Accordingly,

GM believes that the two sentences quoted above should have read,

``[d]uring 1992, GM revised the mortality assumptions for its main U.S.

plans to reflect recent experience and, effective 1993, lowered the

asset earnings rate assumption for those plans, to reflect GM's

reevaluation of the expected long-term rate of return on Plan assets.''

The Department concurs with this comment.

In item 5 of the SFR on page 56543 (center column) in the first

full paragraph, the fourth sentence stated that GM ``* * * will

continue to contribute additional amounts above those required in 1994

and future years.'' Although GM anticipates making such contributions,

GM suggests that substituting in the phrase quoted above, the words,

``intends to,'' in lieu of the word, ``will,'' and the words, ``1994-

1996,'' in lieu of the phrase, ``1994 and future years,'' would have

been more accurate. The Department concurs with this comment.

In the third sentence of item 8 of the SFR on page 56543 (right

column) GM suggests the underlined word, ``or,'' in the phrase,

``assets remaining after payments to creditors or (emphasis added) to

preferred or preference stockholders,'' should have been the word,

``and.'' The Department concurs.

In the first sentence of the first paragraph of item 10 of the SFR

on page 56544 (left column), GM suggests that the phrase, ``based

upon,'' should have been substituted for ``linked to'' in the sentence,

``[d]ividends on Class E stock are linked to the earnings performance

of EDS.'' The Department concurs.

In item 12 of the SFR on page 56545 (center column, first sentence,

first full paragraph), GM suggests that the phrase, ``* * * GM has

agreed to defer for two (2) years the use of the credit balance * *

*,'' should have read, ``GM will defer until 1997 use of the credit

balance arising from the contribution (except for interest on the cash

portion thereof and as otherwise noted below). * * *'' GM states that

because the cash portion of the contribution need not be completed

until September 30, 1995, the deferral period could be as short as one

(1) year. The Department concurs.

In item 12 of the SFR, in the last clause of the first full

sentence in the center column of page 56545, GM suggests that the

underlined portion of the phrase, ``* * * to phase in full access by GM

to the credit balance in the Plan's funding standard account,''

(emphasis added) should have read, ``such credit balance.'' The

Department concurs.

In item 16 of the SFR in the first sentence of the first full

paragraph in the right column of page 56548, GM suggests, and UST

agrees, that in the phrase, ``[b]ecause the marketability and dividends

of Class E stock are based on the earnings and financial performance of

EDS, UST has reviewed the business of EDS, as well as that of GM,'' the

words, ``under the current policy of the GM board,'' should have been

inserted before the word, ``dividends.'' The Department concurs.

In footnote 15 on page 56544 (left column), the fourth sentence

stated, ``[a]t the discretion of the Board, as appropriate, the number

in the denominator from time to time decreases as shares of Class E

stock are purchased and increases as shares are needed in order to meet

certain requirements of GM's employee benefit plans.'' GM suggests that

while the above-quoted statement is correct, in the interest of

accuracy and completeness, the following quoted sentence should have

been added to the footnote: ``[t]he denominator is subject to

adjustment from time to time (but never to a number greater than one)

by GM's Board, the discretion of which is limited in accordance with

criteria specified in GM's Certificate of Incorporation intended to

preserve fairness as between the interests of both the holders of Class

E stock and the holders of $1\2/3\ per value common stock.''

Accordingly, the Department does not object to the inclusion of GM's

additional clarifying language.

The following GM comments relate to the RRA and the Transfer Rights

Agreement (TRA), as described in the SFR.

GM has commented upon the need of UST to be able to amend the RRA

due to circumstances that may arise in the future. In GM's view, the

exemption, if granted, should permit UST to execute amendments to the

RRA that UST believes are in the interest of the Plan and its

participants and beneficiaries, without forcing GM or the Plan to

request another exemption. The Department concurs.

Footnote 20 on page 56546, states that the term, ``transfer''

includes an ``offer.'' GM suggests that, to more closely reflect the

RRA and TRA, the word, ``offer,'' should have been omitted from the

definition of the term, ``transfer.'' The Department concurs.

In the second full paragraph in the right column of page 56546, GM

suggests that, to more closely reflect the RRA, it would have been more

complete to insert the words ``in the aggregate,'' in the first

sentence of the paragraph such that the first sentence would have read

as follows: ``It is represented that there will be no limit, except for

market considerations on the amount of Class E stock that can be sold

in the aggregate (emphasis added) pursuant to a `demand' transfer by

the Plan.'' Further, [[Page 14011]] the word, ``[s]imilarly,'' should

have been substituted in lieu of the phrase, ``[i]n addition,'' at the

beginning of the third sentence of the paragraph, such that the third

sentence should have read as follows, ``[s]imilarly (emphasis added),

in a negotiated transaction, the Plan may not transfer more than 2

percent (2%) of the outstanding Class E stock to any person or related

group. * * *'' The Department concurs.

In the carryover paragraph at the top of the right column on page

56546, GM suggests that, to more closely reflect the RRA, the last

sentence should have read, ``[u]nder the RRA, as long as the Plan owns

2 percent (2%) or more of the outstanding Class E stock, the Plan may

transfer such stock only under certain terms and conditions summarized

in the paragraphs below.'' The Department concurs.

In the second full paragraph in the right column on page 56546, GM

suggests that, to more closely reflect the RRA, in the second sentence

the adjective, ``reasonable,'' should have been inserted before the

phrase, ``best efforts,'' in the sentence, ``However, in any public

offering the lead underwriters must agree to use their best efforts to

assure that no more than 2 percent (2%) of the outstanding Class E

stock is transferred to any person or related group.'' The Department

concurs.

In the last paragraph in the right column on page 56546, GM

suggests that, to more closely reflect the RRA, the underlined phrases

below should have been inserted so that the third sentence should have

read as follows, ``[i]f, at any time that the Plan owns at least 25

million shares of Class E stock (emphasis added), as a result of such

postponements or such market holdbacks, the Plan is not able to effect

a `demand' transfer for a period of thirteen (13) months, and during

such period the Plan has not otherwise transferred 25 million or more

shares of Class E stock or had the opportunity to include at least 25

million shares of Class E stock in a piggyback registration (emphasis

added), GM must terminate the postponement within sixty (60) days of

the Plan's notification to GM of such fact and take all reasonable

actions necessary to effect such transfer.'' The Department concurs.

In the first full paragraph in the left column on page 56547, in

the definition of Strategic Partner, GM suggests that to more closely

reflect the RRA, the second sentence of the paragraph should have read,

``[a] Strategic Partner is an investor or group of investors acting in

concert and designated as such by the Board of GM (or any successor

issuer) that acquires 10 percent (10%) or more of the outstanding Class

E stock (or securities convertible or exchangeable therefor) in a

transaction or series of related transactions intended to achieve a

strategic objective.'' The Department concurs.

In the second full paragraph in the left column on page 56547, GM

suggests that, to more closely reflect the RRA, the second sentence

should have read, ``[i]n a 'piggyback' registration, if GM, in its

reasonable judgment, expects that at least 25 percent (25%) of the

total number of shares of Class E stock to be included in the offering

are shares owned by the Plan, the Plan may select a co-manager

reasonably acceptable to GM.'' The Department concurs.

In its comment, GM states that the Plan and a Strategic Partner

will participate on an equal, not on a pro rata basis in piggyback

registrations. Accordingly, GM suggests that, to more closely reflect

the RRA, the phrase, ``an equal basis,'' should have been substituted

for the phrase, ``a pro rata basis,'' in the last sentence of the

carryover paragraph in the center column on the top of page 56547. The

Department concurs.

In the first full paragraph of the center column on page 56547, GM

suggests that, to more closely reflect the RRA, in the first sentence

the phrase, ``below 7.5 percent (7.5%) should have read ``7.5 percent

(7.5%) or less.'' Further, the fourth and fifth sentences in the same

paragraph should have read, ``In general, if a stockholders rights plan

is in effect when the third-party tender offer commences but, in

connection with such offer, the stockholders rights plan is revoked or

invalidated (or the rights issued thereunder are revoked or redeemed)

either by GM's Board of Directors or by a final and non-appealable

court order, the Plan may tender its shares of Class E stock into such

offer. If there is no stockholders rights plan in effect (other than as

described above), generally the Plan may tender its shares of Class E

stock into a tender offer so long as either the GM Board or at least

one-half of the independent directors on the Board have not recommended

to stockholders that such tender offer be rejected or there are fewer

than the two independent directors on the Board.'' The Department

concurs.

In the second full paragraph in the center column on page 56547, GM

suggests that, to more closely reflect the RRA, the first sentence

should have read, ``[i]n the event the Plan is prohibited as described

above from tendering into a third-party offer and GM does not otherwise

consent to the Plan tendering, in general, if the tender results in a

bidder in the tender offer owning more than 50 percent (50%) of the

total combined voting power of all outstanding securities of GM or

other issuer, the Plan will have the option to put to GM or other

issuer up to the same number of shares that would have been purchased

if tendered in the tender offer for a purchase price in cash equal to

the price per share offered in the tender.'' The Department concurs.

In item 14 of the SFR, GM suggests that, to more closely reflect

the TRA, the first sentence in the second full paragraph in the right

column of page 56547 should have read, ``[t]he Transfer Agreement is

intended to preserve GM's ability to consummate at a later date a tax-

free reorganization, including a split-off in which the Class E stock

is converted into or exchanged for shares of capital stock of EDS in a

transaction that results in GM no longer controlling EDS ('Split-Off').

In this regard, unless and until a Split-Off is consummated, the Plan

will not be permitted to transfer Class E stock if such transfer will

result in more than 5 percent (5%) of the total value of Class E stock

then outstanding being owned by any foreign person, as defined in the

Code.'' The Department concurs.

In the second full paragraph in the right column of page 56547, the

third sentence stated, ``[u]nder certain circumstances after the Split-

Off, the Plan may not transfer any Class E stock if, as a result, the

Plan would own less than 50 percent (50%) of the Class E stock that it

owned immediately after it received notice from GM of the Split-Off.''

GM suggests that, to more closely reflect the TRA, the words, ``after

the Split-Off'' should not have been included in that sentence and the

words, ``a proposed'' should have been inserted in lieu of the word,

``the,'' before the word, ``Split-Off'' the last time it appears.

GM suggests that, to more closely reflect the TRA, the following

quoted sentence should have been included as the next to the last

sentence in the second full paragraph in the right column of page 56547

of the Notice, ``[f]rom the date of the initial contribution until the

first anniversary of the Split-Off, if any, the Plan may not transfer

Class E stock to any person or group, if, as a result, such person or

group would own 5 percent (5%) or more of the Class E stock then

outstanding.'' In addition, GM in its comment provides further

clarification regarding the relationship of the above-quoted sentence

to the last sentence of the second full paragraph in the right column

of page 56547 of the Notice. [[Page 14012]] That sentence reads,

``[f]rom the date of the initial contribution until the second

anniversary of the Split-Off, unless EDS announces a merger with one or

more corporations, the Plan may not transfer Class E stock to any

person or related group, if, as a result, such person or group would

own 5 percent (5%) or more of the Class E stock then outstanding.'' GM

states that the two sentences quoted above, when read together, mean

that during the period that begins on the initial contribution date and

ends on the first anniversary of the Split-Off date, the Plan may not

transfer Class E stock to a person who is (or, as a result of the

transfer would be) a ``5 percent person.'' However, during the period

that begins on the day after the first anniversary of the Split-Off

date and ends on the second anniversary of the Split-Off date (or

later, in the case of a merger event occurring before the second

anniversary of the Split-Off date), the Plan may transfer Class E stock

to a person who would, as a result of the transfer, constitute a ``5

percent person,'' if that person agrees to be bound by the TRA. The

Department concurs.

In addition, to the comments from GM described above, GM informed

the Department of an event which transpired after the Notice was

published in the Federal Register. In this regard, in item 12 on page

56545 of the SFR, GM indicated that it anticipated contributing $750

million to the Plan before the end of 1994 which, at its option, along

with previous cash contributions, could be considered part of the $4

billion dollar contribution which is the subject of this exemption. In

this regard, GM, in a letter dated December 22, 1994, advised the

Department that this $750 million contribution in cash was made on

December 12, 1994.

GM also clarified certain representations regarding the

approximately 17 million shares of Class E stock held by the Plan prior

to the contribution. On page 56546 of the Notice, in the third full

paragraph of the center column, it is stated that the RRA and the TRA

``* * * will apply to all Class E stock held by the Plan whether

acquired pursuant to the proposed contribution in-kind or otherwise

held by the Plan at the time the exemption is granted. In this regard,

the 17 million shares of Class E stock held by the Plan prior to the

contribution will be surrendered to GM so that restrictions may be

placed on such shares.'' Subsequent to the publication of the Notice,

it came to the attention of GM that approximately 300,000 shares of the

17 million shares were acquired on the open market by several

independent investment managers in the course of implementing their

respective portfolio management strategies. These shares are registered

and tradable without restriction. Because these shares are registered,

not subject to any trading restrictions, and under management of

independent managers, GM believes that it would be inappropriate to

transfer management of these shares to UST pursuant to the exemption.

Rather, GM believes that these shares should remain under the control

of their respective managers to be held and disposed of in their

discretion, as they pursue their respective portfolio management

strategies. As a result, these shares will not be subject to the RRA

and the TRA and will continue under the control of their respective

managers, to be held or disposed of in their discretion, rather than

UST's.

A number of individual commentators requested a hearing with

respect to the exemption. Most of these commentators appear to have

requested a hearing because of their belief that the transaction would

reduce their retirement benefits. In addition, several commentators

requested a hearing but did not state a reason for such request. In

response to these requests for hearing, GM states that, given the

number of participants and beneficiaries receiving the Notice of

Proposed Exemption, the number of requests for a hearing is de minimis.

Moreover, none of the requests for a hearing presented a compelling

reason why such hearing should be held.

The Department has considered the concerns expressed by the

individuals who had requested a hearing and the applicant's written

response addressing such concerns. After consideration of the materials

provided, the Department does not believe that any issues have been

raised which would require the convening of a hearing. Further, after

giving full consideration to the record, including the comments by

commentators and the responses of the applicant, the Department has

determined to grant the exemption, as described herein. In this regard,

the comments submitted to the Department have been included as part of

the public record of the exemption application. The complete

application file, including all supplemental submissions received by

the Department, is made available for public inspection in the Public

Documents Room of the Pension Welfare Benefits Administration, room N-

5507, U.S. Department of Labor, 200 Constitution Avenue NW.,

Washington, DC 20210.

For a more complete statement of the facts and representations

supporting the Department's decision to grant this exemption refer to

the Notice published on Monday, November 14, 1994, 59 FR 56541.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the

Department, telephone (202) 219-8883 (This is not a toll-free number.)

General Information

The attention of interested persons is directed to the following:

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

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

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

person from certain other provisions to which the exemptions does not

apply and the general fiduciary responsibility provisions of section

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

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

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

accordance with section 404(a)(1)(B) of the Act; nor does it affect the

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

for the exclusive benefit of the employees of the employer maintaining

the plan and their beneficiaries;

(2) These exemptions are supplemental to and not in derogation of,

any other provisions of the Act and/or the Code, including statutory or

administrative exemptions and transactional rules. Furthermore, the

fact that a transaction is subject to an administrative or statutory

exemption is not dispositive of whether the transaction is in fact a

prohibited transaction; and

(3) The availability of these exemptions is subject to the express

condition that the material facts and representations contained in each

application accurately describes all material terms of the transaction

which is the subject of the exemption.

Signed at Washington, DC, this 10th day of March, 1995.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, Department of Labor.

[FR Doc. 95-6345 Filed 3-14-95; 8:45 am]

BILLING CODE 4510-29-P