Proposed Exemptions; Hassan Zekavat, M.D., P.A. Money Purchase Pension Plan (the Plan)

DEPARTMENT OF LABOR

[Application No. D-09627, et al.]

Proposed Exemptions; Hassan Zekavat, M.D., P.A. Money Purchase

Pension Plan (the Plan)

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

Unless otherwise stated in the Notice of Proposed Exemption, all

interested persons are invited to submit written comments, and with

respect to exemptions involving the fiduciary prohibitions of section

406(b) of the Act, requests for hearing within 45 days from the date of

publication of this Federal Register Notice. Comments and request for a

hearing should state: (1) The name,

[[Page 3484]]

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.

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.

Hassan Zekavat, M.D., P.A. Money Purchase Pension Plan (the Plan)

Located in Moorestown, New Jersey

[Application No. D-09627]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

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

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

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

Code, shall not apply to: (1) The purchase by the individual accounts

(the Accounts) in the Plan of Hassan Zekavat and Pouran Zekavat (the

Zekavats) from a certain limited partnership (the Partnership), a party

in interest with respect to the Plan, of interests (the Interests) in

the Partnership; and (2) the sale back to the Partnership of the

Interests, provided that the following conditions are met:

1. The fair market value of the real property (the Property) which

is the sole asset of the Partnership upon which is based the value of

the Interests is established by an appraiser independent of the Plan,

the Zekavats and Hassan Zekavat M.D., P.A. (the Employer);

2. The Accounts pay no more than current fair market value for the

Interests in the Partnership as of the time of purchase;

3. The Interests account for no more than 25 percent of the assets

of each Account as of the time of purchase;

4. The purchase of the Interests is a one-time transaction for

cash;

5. An independent fiduciary approves on behalf of the Accounts the

proposed purchase of the Interests from the Partnership;

6. No additional capital contributions or other contributions will

be made by the Accounts to the Partnership;

7. The Partnership will only sell the Property, in any future sale

of the Property, to an unrelated third party and the independent

fiduciary must approve such sale;

8. Each Account receives no less than fair market value for its

Interest in the Property as a result of any sale of the Property to a

third party.

9. If an independent fiduciary so determines, the Partnership must

repurchase the Interests for cash at a price set forth by an

independent appraiser chosen by the independent fiduciary acting on

behalf of the Accounts;

10. The Partnership cannot sell the Property, admit additional

partners or allow the general partners to sell their Partnership

interests to a third party without the consent of the independent

fiduciary;

11. The independent fiduciary receives disclosure of the annual

financial report of the Partnership containing a balance sheet and a

statement of changes in financial position within 90 days after the end

of Partnership's taxable year; and

12. All above transactions are determined by an independent

fiduciary to be in the best interests of the Accounts and the Plan.

13. The Independent Fiduciary shall approve and monitor the lease

between the Partnership and the Employer; and the lease between Zekavat

& Associates (``Related Party Leases'').

Summary of Facts and Representations

1. The Employer is engaged in the business of a medical practice in

Moorestown, New Jersey. Hassan Zekavat is the sole shareholder and the

president of the Employer. He and his wife, Pouran Zekavat, are the

trustees of the Plan and participants in the Plan. The Plan is a money

purchase plan which had six participants. Only the Accounts in the Plan

of Hassan Zekavat and Pouran Zekavat will invest in the Partnership. As

of October 31, 1994, the Account balance of Hassan Zekavat was

$1,304,000 and the Account balance of Pouran Zekavat was $297,000.

2. The Partnership is the York House East Ltd. limited partnership,

a New Jersey partnership of which Hassan Zekavat is a general partner

with a 63 percent capital and profits interest and Pouran Zekavat is a

general partner with a 37 percent capital and profits interest.1

In February, 1979 the Partnership purchased the Property, located in

Moorestown, for $400,000 from an unrelated party. A mortgage on the

Property is held by Commerce Bank of Cherry Hill, New Jersey, a party

unrelated to the Plan or the Employer. The balance remaining on the

mortgage was $289,203 as of May 1, 1994.

\1\ Section 3(14)(G) of the Act defines the term ``party in

interest'' with respect to a plan to include a partnership which is

50 percent or more owned by a 50 percent or more owner of an

employer of employees covered by the plan.

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The Property consists of a two-story office building constructed in

1970, with 24 separate office suites. In 1994 the Property had a 91.6%

occupancy rate with a yearly rental income of $190,682. The Employer

and a business

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operated by the Zekevat's son, Zekevat & Associate, lease office suites

in the building under a lease agreement with yearly rent of $22,000 and

$6,000 per year respectively, with options extending until 1998.

3. Colin L. Necky (Necky), a real estate appraiser located in

Cherry Hill, prepared an appraisal (the Appraisal) on the Property

dated April 18, 1994. The applicant represents that Necky is

independent of the Employer and the Plan. Utilizing the cost, income

and comparable sales approaches to value, Necky estimated that the

Property had a fair market value of $980,000 as of the date of the

appraisal.

4. The Accounts now propose to purchase Interests in the

Partnership from the Partnership and to become limited partners with a

combined 37 percent capital and profits interest.2 The Accounts

will pay no more than current fair market value for their Interests in

the Partnership as of the date of acquisition. The purchase of the

Interests will be entirely for cash. The Accounts will pay no fees or

commissions in regard to the proposed transaction. As limited partner,

the Accounts will receive a cumulative priority return of eight percent

on its initial capital contribution. That is, net cash from operations

will be distributed first to the Accounts as a limited partner in

payment of the priority return.

2 The applicant represents that, subsequent to the Plan's

investment in the Partnership, the ongoing lease between the

Partnership and the Employer will not be a prohibited transaction

because the Partnership is a ``real estate operating company'' under

29 CFR 2510.3-101(e) and, therefore, the real estate held by the

Partnership does not constitute plan assets. The Department

expresses no opinion herein in that regard. The applicant states

that the Partnership is a real estate operating company pursuant to

the regulation, because at least 50 percent of its assets are

invested in real estate, the Partnership has the right to

substantially participate directly in the management or development

activities, and in the ordinary course of business the Partnership

engages in real estate management or development.

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The applicant represents that the investment in the Partnership

will represent less than 25 percent of the assets of each of the

Accounts. The proceeds of the investment will be used to pay the

existing mortgage and to fund planned capital improvements on the

Property. The initial Account purchase of Interests in the Partnership,

the possible sale of the Property to a third party and the sale back of

Interests to the Partnership will be approved in advance by an

independent fiduciary on behalf of the Accounts and the Plan.

5. The Employer has selected Michael J. Winter (Winter), an

employee of the Chase Manhattan Bank, to serve as independent fiduciary

for the Accounts in regard to the acquisition, and ownership or

disposition by the Accounts of the Interests in the Partnership.

According to the applicant, Winter has no other relationship to the

Plan or the Employer. Winter is currently employed in the real estate

resources department of the Chase Manhattan Bank and represents that he

has had many years of experience involving the acquisition, management

and disposition of industrial, commercial and residential real estate.

Winter acknowledges that he understands the duties of a fiduciary under

the Act. Winter reviewed the Appraisal which discloses existing leases,

vacancies and the Property's net income. In view of the potential

appreciation in the value of the Property and the priority return of

eight percent on the Plan's initial contribution, Winter believes that

the proposed investment is in the best interests of the Plan and its

participants. Winter will make certain that the Plan does not pay more

than fair market value for the 37 percent Interest in the Partnership.

Winter states that he will exercise the rights of the Plan in the

Partnership in the best interests of the Plan. Also, Winter will: (a)

Approve the Related Party Leases and monitor them on an on going basis

for the Plan; (b) approve changes to the Related Party Leases; and (c)

take any and all required actions to protect the Plan in the event of

default under the Related Party Leases.

6. Further, the Partnership Agreement has been amended to provide

that the independent fiduciary's approval is necessary before the

Partnership makes any sale of the Property to a third party. The

applicant represents that this third party will be unrelated to the

Plan, Zekavats or the Employer and that such sale will be at fair

market value. Also, the Partnership Agreement has been amended to

require the Partnership to repurchase the Accounts Interests, if, in

the opinion of the independent fiduciary disposing of the Interests to

the Partnership is in the best interests of the Accounts. Such ``put

option'' will be for cash at a price set forth by an independent

appraiser chosen by the independent fiduciary acting of behalf of the

Plan.

The Plan will not make a decision to acquire or sell an Interest in

the Partnership without the approval of the independent fiduciary.

Furthermore, the Plan will not be permitted to invest additional money

in the Partnership or make any additional capital contributions to the

Partnership. In the event of the need of cash with respect to the

Property, such cash will come from the general partner. However, under

the Partnership Agreement the Plan's percentage interest in the

Partnership cannot be changed and will not be changed by virtue of the

contribution by the general partner.

6. In summary, the applicant represents that the proposed

transaction will satisfy the statutory criteria of section 408(a) of

the Act because: (1) An independent fiduciary has determined that the

proposed purchase of the Interests is in the best interests of the

Plan; (2) the fair market value of the Property will be established by

a real estate appraiser independent of the Plan and the Employer; (3)

the Plan will pay no more than current fair market value for the

Interests; (4) the Accounts may require the Partnership to repurchase

the Interests at a price set forth by an independent appraiser chosen

by the independent fiduciary; (5) the sale of the Property by the

Partnership or interest in the Partnership to an unrelated third party

will require the consent of the independent fiduciary; and (6) the

Independent Fiduciary shall approve and monitor the Related Party

Leases and take all required action to protect the Plan in the event of

default.

FOR FURTHER INFORMATION CONTACT: Janet L. Schmidt of the Department,

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

Rose's Stores, Inc. Retirement Savings 401(k) Plan (the Retirement

Savings Plan) Located in Henderson, NC

[Application No. D-10062]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 CFR part

2570, subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption

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

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

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

(E) of the Code, shall not apply to (1) the past acquisition and

holding by the Rose's Stores, Inc. Variable Investment Plan (the

Variable Investment Plan) of subscription rights (the Subscription

Rights) offered by Rose's Stores, Inc. (the Employer) to purchase

shares of new common stock (the New Stock) upon the emergence of the

Employer from bankruptcy; (2) the past acquisition and continued

holding by the Variable Investment Plan and subsequently, the

Retirement Savings Plan, of warrants (the Warrants) to purchase shares

of the Employer's New

[[Page 3486]]

Stock; and (3) the proposed acquisition of shares of the New Stock by

the Retirement Savings Plan upon the exercise of the Warrants.

This proposed exemption is subject to the following conditions:

(a) The acquisition and holding of the Subscription Rights and the

Warrants by the Variable Investment Plan occurred in connection with

the Employer's bankruptcy proceeding pursuant to which all holders of

the old common stock (the Old Stock) of the Employer were treated in

the same manner.

(b) The Variable Investment Plan had little, if any, ability to

affect the negotiation of the Employer's plan of reorganization with

respect to the bankruptcy proceeding.

(c) The Subscription Rights and the Warrants were acquired

automatically and without any action on the part of the Variable

Investment Plan.

(d) The Variable Investment Plan did not pay any fees or

commissions in connection with the receipt and holding of the

Subscription Rights and the Warrants, nor will the Retirement Savings

Plan pay any fees or commissions in connection with the holding and

exercise of the Warrants.

(e) Any decision to exercise the Warrants now held by the

Retirement Plan will be made by participants in accordance with the

terms of such Plan.

EFFECTIVE DATE: If granted, this proposed exemption will be effective

February 7, 1995 with respect to the acquisition and holding by the

Variable Investment Plan of the Subscription Rights and April 28, 1995

with respect to the acquisition and holding by the Variable Investment

Plan (and subsequently the Retirement Savings Plan) of the Warrants.

Summary of Facts and Representations

1. The Retirement Savings Plan is a defined contribution plan that

provides for participant-directed investments. As of September 30,

1995, the Retirement Savings Plan had total assets of approximately

$59,025,284 and 9,155 participants. First Union National Bank of North

Carolina serves as the trustee (the Trustee) of the Retirement Savings

Plan but it exercises no investment discretion over the assets involved

in the transactions that are described herein.

The Retirement Savings Plan was formed, effective July 1, 1995, as

the result of the merger of the Variable Investment Plan and the Rose's

Stores, Inc. Profit Sharing Plan (the Profit Sharing Plan). The terms

of the merged plan are consistent with those of the Variable Investment

Plan, which was amended to reflect the merger. The name of the merged

plan was changed to ``Rose's Stores, Inc. Retirement Savings 401(k)

Plan.''

Both the Variable Investment Plan and the Profit Sharing Plan had

common participants and shared the same bank trustee. The Subscription

Rights and the Warrants that are described herein were assets of the

Variable Investment Plan but they were never assets of the Profit

Sharing Plan.

2. The Employer is a Delaware corporation maintaining its principal

place of business in Henderson, North Carolina. The Employer operates a

chain of retail stores called ``Roses'' in 11 southeastern states of

the United States.

3. The Employer recently emerged from a reorganization proceeding

under Chapter 11 of Title 11 of the United States Code. Under the

bankruptcy proceeding, the First Amended Joint Plan of Reorganization

of Rose's Stores, Inc. (the POR) was approved and confirmed by the U.S.

Bankruptcy Court for the Eastern District of North Carolina, Raleigh

Division (the Court) on December 14, 1994. A modified and Restated

First Amended Joint Plan of Reorganization (the Modified POR) was

confirmed by the Court on April 24, 1995 and became effective on April

28, 1995 (the Effective Date). It is represented that the Variable

Investment Plan had little, if any, bargaining power in the structuring

of the POR or the Modified POR.

4. Under the terms of the POR, the holders of record of the Old

Stock, as of February 7, 1995, were entitled to purchase shares of New

Stock at a subscription price of $6.50 per share. Each holder received

one Subscription Right for each 1.8758 shares of Old Stock owned as of

February 7, 1995, provided that the aggregate amount of subscription

proceeds received in connection with the Subscription Rights on or

before March 31, 1995 totaled at least $25 million.3

\3\ Because the Variable Investment Plan provided for

participant-directed investments, one investment option offered to

participants was the Company Stock Fund which was invested in shares

of Old Stock. As of September 1, 1993, the Variable Investment Plan

held 255,290 shares of Old Stock. At the time of the bankruptcy

filing described herein, the Variable Investment Plan's Advisory

Committee determined that the investment by such plan in the Old

Stock would be discontinued as of September 1, 1993. However, the

Advisory Committee also determined that it would permit each

participant to direct, in writing, that the portion of his or her

Variable Investment Plan account balance that was invested in the

Company Stock Fund on September 1, 1993 remain so invested until

such time as the participant directed otherwise. Participants were

advised that there were risks associated with the continued

investment in the Old Stock due to the Employer's reorganization

proceeding. Because some participants elected to have their accounts

remain invested in the Old Stock, the Variable Investment Plan

continued to hold shares of the Old Stock until April 28, 1995 which

is the Effective Date of the Modified POR (see Representation 6).

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5. To effect Subscription Rights, each holder, including

participants in the Variable Investment Plan, was notified of the

Subscription Rights. Approximately 300 participants elected to exercise

Subscription Rights. A check in the amount of the total subscription

price that was attributable to the Subscription Rights was issued by

the Variable Investment Plan's former trustee and held in escrow by

State Street Bank and Trust Company (State Street), as distribution

agent, pending a determination of whether a $25 million threshold

amount had been achieved. In the event that the threshold was achieved

and the exercise of the Subscription Rights became effective, an amount

equal to the total price attributable to the Subscription Rights would

have been deducted pro rata from other assets in a participant's

account. Because the $25 million threshold amount was not achieved,

State Street returned the check to the trustee. No adjustments were

ever made to participants' accounts due to Subscription Rights nor did

any affected participants pay any fees or commissions in connection

with the receipt and holding of the Subscription Rights.

6. By its terms, the Modified POR entitled holders of record of the

Employer's Voting Common Stock and Non-Voting Class B Stock (i.e., the

Old Stock) to receive their pro rata share of 4,285,714 Warrants that

were issued by the Employer within 30 days after the Effective Date of

the Modified POR. The Employer's Old Stock was also cancelled and

extinguished.

7. Each Warrant 4 entitles the holder to purchase one share of

New Stock during the period commencing on the date the Warrants were

issued and ending on the seventh anniversary of the Effective Date.

Under the Modified POR, the initial exercise price of the Warrants per

share of New Stock is $14.45. This price has been determined by

dividing the amount of the Employer's unsecured creditors' allowed

claims (and reserve disputed claims) (collectively, the Recovery

Amount) as of the Effective Date by 10 million (the total number of

shares of New Stock to be issued under the

[[Page 3487]]

Modified POR).5 As reported in the Wall Street Journal on December

11, 1995, the trading prices for the Warrants on the NASDAQ were as

follows: (High) \3/16\, (Low) \1/8\, (Close) \3/16\, (Net Change) 0.

4 The Warrants are treated as separate securities under

the Federal securities laws. Although the Warrants were originally

quoted on the NASDAQ system, they were subsequently delisted due to

the absence of two market makers making a market for such

securities. According to the applicant, the Warrants were relisted

by the NASDAQ on October 13, 1995.

5 The applicant represents that the Old Stock and the New

Stock constitute ``qualifying employer securities'' within the

meaning of section 407(d)(5) of the Act and therefore, the ownership

of such stock by either the Variable Investment Plan or the

Retirement Savings Plan would satisfy the requirements of section

407(a) of the Act. However, in this proposed exemption, the

Department expresses no opinion on whether the requirements of

section 407 have been met.

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8. The exercise price will be adjusted on each of the first three

anniversaries of the Effective Date to reflect changes in the Recovery

Amount on each of these three dates. The exercise price will be

adjusted on the fourth, fifth and sixth anniversaries of the Effective

Date to equal 105 percent, 110 percent and 115 percent, respectively,

of the Recovery Amount divided by 10 million shares. The exercise price

is also subject to further adjustment.

9. No participant in the Variable Investment Plan has paid any fees

or commissions in connection with the holding of the Warrants and no

participant in the Retirement Savings Plan will pay any fees or

commissions in connection with the continued holding or exercise of the

Warrants. With respect to the exercise of the Warrants, the Trustee

will follow the participant's directions. Under such circumstances, a

participant will exercise Warrants pursuant to procedures and forms

that will be established by the Retirement Savings Plan's Advisory

Committee. Such procedures may provide that the exercise price under

the Warrants will be paid from that portion of the participant's

account that is invested in assets other than in the Employer's

securities. In the event that the fair market value of the New Stock is

less than the exercise price under the Warrants, it is represented that

a participant will not exercise Warrants to acquire shares of New

Stock.

10. The Employer represents that it has analyzed the impact of the

POR and the Modified POR on the Variable Investment Plan and the

Retirement Savings Plan. In particular, the Employer has analyzed the

prohibited transaction implications of the automatic exchange of the

Old Stock previously held by the Variable Investment Plan for the

Warrants under the Modified POR and the acquisition and holding of the

Subscription Rights by the Plan under the POR. For these reasons, the

Employer has concluded that these transactions have resulted in

prohibited transactions in violation of the Act. Therefore, the

Employer has requested retroactive exemptive relief from the

Department.6

\6\ As noted above, the POR was confirmed by the Court on

December 14, 1994. However, the applicant explains that there could

be no assurance that the POR would become effective. The applicant

also explains that it was required to meet several financial hurdles

in order for the Modified POR to become effective. One of these

hurdles, according to the applicant, culminated in the negotiation

of a revolving credit agreement, the closing of which occurred on

April 27 and 28, 1995 with unrelated lenders.

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11. In summary, it is represented that the transactions satisfy the

statutory criteria for an exemption under section 408(a) of the Act

because: (a) The acquisition and holding of the Subscription Rights and

the Warrants by the Variable Investment Plan occurred in connection

with the Employer's bankruptcy proceeding pursuant to which all holders

of the Old Stock of the Employer were treated in the same manner; (b)

the Variable Investment Plan had little, if any, ability to affect the

negotiation of the Employer's plans of reorganization with respect to

the bankruptcy proceeding; (c) the Subscription Rights and the Warrants

were acquired automatically and without any action on the part of the

Variable Investment Plan; (d) the Variable Investment Plan did not pay

any fees or commissions in connection with the receipt and holding of

the Subscription Rights and the Warrants nor will the Retirement

Savings Plan pay any fees or commissions in connection with the

continued holding and exercise of the Warrants; and (e) any decision to

exercise the Warrants now held by the Retirement Savings Plan will be

made by participants in accordance with the terms of such plan.

Notice to Interested Persons

Notice of the proposed exemption will be given to all interested

persons within 10 days of the publication of the notice of proposed

exemption in the Federal Register. The notice will be provided to

interested persons by posting and by first class mail. Such notice will

inform interested persons of their right to comment on and/or to

request a hearing with respect to the proposed exemption. Comments are

due within 40 days of the publication of the proposed exemption in the

Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Department of

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

W.W. Taylor, Jr., M.D., P.C. Money Purchase Pension Plan (the Plan)

Located in Memphis, Tennessee

[Application No. D-10118]

Proposed Exemption

The Department is considering granting an exemption under the

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

Code and in accordance with the procedures set forth in 29 CFR Part

2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption

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

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

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

the Code, shall not apply to the past contribution by W.W. Taylor,

M.D., P.C. (the Employer) to the Plan of certain publicly traded

securities (the Securities), provided: (a) The contribution was a one-

time transaction; (b) the Securities were valued at their fair market

value as of the date of the contribution as determined by an

independent broker; (c) no commissions were paid in connection with the

transaction; and (d) the Securities represented less than 25% of the

assets of the Plan at the time of the contribution.

EFFECTIVE DATE: If the proposed exemption is granted, the exemption

will be effective October 7, 1994.

Summary of Facts and Representations

1. The Plan is a defined contribution money purchase pension plan

that currently has 7 participants and had assets of $721,597 as of June

30, 1995. W.W. Taylor, M.D. (Dr. Taylor) is the trustee of the Plan.

2. On October 7, 1994, and November 2, 10, 17 and 22, 1994, the

Securities were transferred from a corporate account of the Employer to

an account of the Plan in order to satisfy the minimum funding

requirements of the Plan for the year ending June 30, 1994. The

Securities consisted of 100 shares of Sofamor/Danek Group, Inc. (S/D),

valued at $18 per share, for a total value of $1,800; 100 shares of GTE

Corporation (GTE), valued at $30.25 per share, for a total value of

$3,025; and 470.108 shares of Putnam Corporate Asset Trust, valued at

$40.01 per share, for a total value of $18,809.02. Thus, the total

contribution of the Securities was valued at $23,634.02. The values of

the Securities were obtained from the New York Stock Exchange firm of

Morgan Keegan & Company (MK).

3. The applicant represents that the contribution in kind of the

Securities

[[Page 3488]]

instead of cash was made in error. Ms. Nancy Cochran of Burleigh-

Dunger-Cochran (BDC) in Memphis, Tennessee, an independent firm which

provides pension consulting and administrative services to the Plan,

has represented that the Plan and the Employer each maintain a separate

brokerage account with MK. Ms. Cochran represents that prior to the

contribution of the Securities, Dr. Taylor called BDC to inquire

whether the contribution could be made by the transfer of funds from

the Employer's brokerage account at MK to the Plan's brokerage account.

BDC informed Dr. Taylor that this could be done, but since BDC did not

specify that it meant that only a cash disbursement was permissible,

Dr. Taylor understood the response to mean that the contribution could

be paid by the transfer of either cash or marketable securities. As a

result of this misunderstanding, Dr. Taylor instructed the broker at MK

to transfer the Securities directly from the Employer's account to the

Plan's account to satisfy a portion of the required contribution to the

Plan.

4. Michael D. Uiberall, C.P.A., an independent certified public

accountant with Uiberall, Lieb, Blockman, Perry, P.C. (ULBP) in

Memphis, Tennessee, represents that ULBP is the certified public

accounting firm for the Employer. He further represents that in the

process of preparing the Employer's 1994 U. S. Corporate Income Tax

Return in late January or early February, 1995, it came to ULBP's

attention that the Employer had contributed the Securities to the Plan.

ULBP contacted Dr. Taylor, who did not realize that this was a

prohibited transaction. On the contrary, Dr. Taylor was of the opinion

that this had been a permissible transaction. ULBP then contacted BDC,

which followed up with Dr. Taylor in resolving this issue by filing a

request for the exemption proposed herein. The applicant represents

that neither the Plan nor the Employer is the subject of an

investigation or enforcement action by the Department or the Internal

Revenue Service.

5. The applicant represents that the transaction was in the best

interest of the Plan. The Plan had already purchased shares in two of

the three investments involved in the subject transaction before the

erroneous transfers occurred. The Plan held 100 shares of GTE and 150

shares of S/D prior to the subject transaction. The applicant

represents that had cash been contributed to the Plan, the same

Securities would have been purchased by the Plan on the open market.

The Securities represented approximately 3.5% of the Plan's assets as

of the time of the contribution. Further, since the time of the

contribution, the Securities have appreciated in value by 11.45%. The

applicant also states that since no brokerage commissions were paid

with respect to the transfers as they would have been had the

Securities been purchased on the open market, the Plan has saved

additional money by virtue of the contribution in kind.

6. In summary, the applicant represents that the subject

transaction satisfies the criteria contained in section 408(a) of the

Act because: (a) The contribution was a one-time transaction; (b) no

commissions were paid by the Plan in connection with the transfer of

the Securities; (c) the Securities were valued by MK, an independent

brokerage firm, as of the dates of each transfer; (d) the transaction

occurred as a result of a misunderstanding between Dr. Taylor and the

pension consulting firm of BDC; and (e) when the prohibited transaction

was discovered by the Employer's independent C.P.A. firm, the Employer

requested the exemption proposed herein.

FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,

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

General Information

The attention of interested persons is directed to the following:

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

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

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

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

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

discharge his 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 accurately describe all

material terms of the transaction which is the subject of the

exemption. In the case of continuing exemption transactions, if any of

the material facts or representations described in the application

change after the exemption is granted, the exemption will cease to

apply as of the date of such change. In the event of any such change,

application for a new exemption may be made to the Department.

Signed at Washington, DC, this 25th day of January, 1996.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration.

Department of Labor.

[FR Doc. 96-1775 Filed 1-30-96; 8:45 am]

BILLING CODE 4510-29-P