Proposed Exemptions ILGWU National Retirement Fund, et al. (Collectively the Plans)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application Nos. D-10192, L-10193 through L-10196, et al.]

Proposed Exemptions ILGWU National Retirement Fund, et al.

(Collectively the Plans)

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, address, and telephone number of

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

person's interest in the exemption and the manner in which the person

would be adversely affected by the exemption. A request for a hearing

must also state the issues to be addressed and include a general

description of the evidence to be presented at the hearing. A request

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

general description of the evidence to be presented at the hearing.

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

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

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

Department of Labor, 200 Constitution Avenue, N.W., Washington, D.C.

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

Exemption. The applications for exemption and the comments received

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

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

Room N-5507, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions will be provided to all

interested persons in the manner agreed upon by the applicant and the

Department within 15 days of the date of publication in the Federal

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

exemption as published in the Federal Register and shall inform

interested persons of their right to comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in

applications filed pursuant to section 408(a) of the Act and/or section

4975(c)(2) of the Code, and in accordance with procedures set forth in

29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).

Effective December 31, 1978, section 102 of Reorganization Plan No. 4

of 1978 (43 FR 47713, October 17, 1978) transferred the authority of

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

to the Secretary of Labor. Therefore, these notices of proposed

exemption are issued solely by the Department.

The applications contain representations with regard to the

proposed exemptions which are summarized below. Interested persons are

referred to the applications on file with the Department for a complete

statement of the facts and representations.

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ILGWU National Retirement Fund, et al. (collectively, the Plans),

Located in New York, New York

[Application Nos. D-10192, L-10193 through L-10196]

Proposed Exemption

Section I--Transactions

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, effective July 1, 1995, to--

(A) The provision of banking services (Banking Services, as defined

in section IV(C)) by the Amalgamated Bank of New York (the Bank) to

certain employee benefit plans (the Plans, as defined in section

IV(E)), which are maintained on behalf of members of the International

Ladies Garment Workers Union;

(B) The purchase by the Plans of certificates of deposit (CDs)

issued by the Bank; and

(C) The deposit of Plans' assets in money market or other deposit

accounts established by the Bank; provided that the applicable

conditions of Section II and Section III are met:

Section II--Conditions

(A) The terms under which the Banking Services are provided by the

Bank to the Plans, and those under which the Plans purchase CDs from

the Bank or maintain deposit accounts with the Bank, are at least as

favorable to the Plans as those which the Plans could obtain in arm's-

length transactions with unrelated parties.

(B) The interests of each of the Plans with respect to the Bank's

provision of Banking Services to the Plans, the purchase of CDs from

the Bank by any of the Plans, and the deposit of Plan assets in deposit

accounts established by the Bank, are represented by an Independent

Fiduciary (as defined in section IV(D)).

(C) With respect to each Plan, the representation of the Plan's

interests by the Independent Fiduciary is authorized, and confirmed at

least annually, by the Authorizing Plan Fiduciary (as defined below in

section IV(A));

(D) With respect to the purchase by any of the Plans of

certificates of deposit (CDs) issued by the Bank or the deposit of Plan

assets in a money market account or other deposit account established

at the Bank: (1) Such transaction complies with the conditions of

section 408(b)(4) of the Act; (2) Any CD offered to the Plans by the

Bank is also offered by the Bank in the ordinary course of its business

with unrelated customers; and (3) Each CD purchased from the Bank by a

Plan pays the maximum rate of interest for CDs of the same size and

maturity being offered by the Bank to unrelated customers at the time

of the transaction;

(E) The compensation received by the Bank for the provision of

Banking Services to the Plan is not in excess of reasonable

compensation within the meaning of section 408(b)(2) of the Act.

(F) Following the merger of the International Ladies Garment

Workers Union with UNITE, the Independent Fiduciary made an initial

written determination that (1) the Bank's provision of Banking Services

to the Plans, (2) the deposit of Plan assets in depository accounts

maintained by the Bank, and (3) the purchase by the Plans of CDs from

the Bank, are in the best interests and protective of the participants

and beneficiaries of each of the Plans.

(G) On a periodic basis, not less frequently than quarterly, the

Bank provides the Independent Fiduciary with a written report (the

Periodic Report) which includes the following items with respect to the

period since the previous Periodic Report: (1) A listing of Banking

Services provided to, all outstanding CDs purchased by, and deposit

accounts maintained for each Plan; (2) a listing of all fees paid by

the Plans to the Bank for the Banking Services, (3) the performance of

the Bank with respect to all investment management services, (4) a

description of any changes in the Banking Services, (5) an explanation

of any problems experienced by the Bank in providing the Banking

Services, (6) a description of any material adverse events affecting

the Bank, and (7) any additional information requested by the

Independent Fiduciary in the discharge of its obligations under this

exemption.

(H) On a periodic basis, not less frequently than annually, the

Independent Fiduciary reviews the Banking Services provided to each

Plan by the Bank, the compensation received by the Bank for such

services, any purchases by the Plan of CDs from the Bank, and any

deposits of assets in deposit accounts maintained by the Bank, and

makes the following written determinations:

(1) The services, CDs and depository accounts are necessary or

appropriate for the establishment or operation of the Plan;

(2) The Bank is a solvent financial institution and has the

capability to perform the services;

(3) The fees charged by the Bank are reasonable and appropriate;

(4) The services, the depository accounts, and the CDs are offered

to the Plan on the same terms under which the Bank offers the services

to unrelated Bank customers in the ordinary course of business;

(5) Where the Banking Services include an investment management

service, that the rate of return is not less favorable to the Plan than

the rates on comparable investments involving unrelated parties; and

(6) The continuation of the Bank's provision of Banking Services to

the Plan for compensation is in the best interests and protective of

the participants and beneficiaries of the Plan.

(I) Copies of the Bank's periodic reports to the Independent

Fiduciary are furnished to the Authorizing Plan Fiduciaries on a

periodic basis, not less frequently than annually and not later than 90

days after the period to which they apply.

(J) The Independent Fiduciary is authorized to continue, amend, or

terminate, without any penalty to any Plan (other than the payment of

penalties required under federal or state banking regulations upon

premature redemption of a CD), any arrangement involving: (1) The

provision of Banking Services by the Bank to any of the Plans, (2) the

deposit of Plan assets in a deposit account maintained by the Bank, or

(3) any purchases by a Plan of CDs from the Bank;

(K) The Authorizing Plan Fiduciary may terminate, without penalty

to the Plan (other than the payment of penalties required under federal

or state banking regulations upon premature redemption of a CD), the

Plan's participation in any arrangement involving: (1) The

representation of the Plan's interests by the Independent Fiduciary,

(2) the provision of Banking Services by the Bank to the Plan, (3) the

deposit of Plan assets in a deposit account maintained by the Bank, or

(4) the purchase by the Plan of CDs from the Bank.

Section III--Recordkeeping

(A) For a period of six years, the Bank and the Independent

Fiduciary will maintain or cause to be maintained all written reports

and other memoranda evidencing analyses and determinations made in

satisfaction of conditions of this exemption, except that: (a) A

prohibited transaction will not be considered to have occurred if, due

to circumstances beyond the control of the Independent Fiduciary and

the Bank the records are lost or destroyed before the end of the six-

year period; and (b) no party in interest other than the Bank and

[[Page 7270]]

the Independent Fiduciary shall be subject to the civil penalty that

may be assessed under section 502(i) of the Act, or to the taxes

imposed by section 4975 (a) and (b) of the Code, if the records are not

maintained, or are not available for examination as required by

paragraph (2) below;

(B)(1) Except as provided in section (2) of this paragraph (B) and

notwithstanding any provisions of subsections (a)(2) and (b) of section

504 of the Act, the records referred to in paragraph (A) of this

section III shall be unconditionally available at their customary

location during normal business hours for inspection by: (a) Any duly

authorized employee or representative of the U.S. Department of Labor

or the Internal Revenue Service, (b) any employer participating in the

Plans or any duly authorized employee or representative of such

employer, and (c) any participant or beneficiary of the Plans or any

duly authorized representative of such participant or beneficiary.

(2) None of the persons described in subsections (b) and (c) of

subsection (1) above shall be authorized to examine trade secrets of

the Independent Fiduciary or the Bank, or any of their affiliates, or

any commercial, financial, or other information that is privileged or

confidential.

Section IV--Definitions

(A) ``Authorizing Plan Fiduciary'' means, with respect to each

Plan, the board of trustees of the Plan or other appropriate plan

fiduciary with discretionary authority to make decisions with respect

to the investment of Plan assets;

(B) ``Bank'' means the Amalgamated Bank of New York;

(C) ``Banking Services'' means custodial, safekeeping, checking

account, trustee services, and investment management services involving

fixed income securities (either directly or through a collective

investment fund maintained by the Bank).

(D) ``Independent Fiduciary'' means a person, within the meaning of

section 3(9) of the Act, who (1) Is not an affiliate of the Union of

Needletrades, Industrial & Textile Employees (UNITE) and any successor

organization thereto by merger, consolidation or otherwise, (2) is not

an officer, director, employee or partner of UNITE, (3) is not an

entity in which UNITE has an ownership interest, (4) has no

relationship with the Bank other than as Independent Fiduciary under

this exemption, and (5) has acknowledged in writing that it is acting

as a fiduciary under the Act. No person may serve as an Independent

Fiduciary for the Plans for any fiscal year in which the gross income

(other than fixed, non-discretionary retirement income) received by

such person (or any partnership or corporation of which such person is

an officer, director, or ten percent or more partner or shareholder)

from UNITE and the Plans for that fiscal year exceed five percent of

such person's annual gross income from all sources for the prior fiscal

year. An affiliate of a person is any person directly or indirectly,

through one or more intermediaries, controlling, controlled by, or

under common control with the person. The term ``control'' means the

power to exercise a controlling influence over the management or

policies of a person other than an individual. Initially, the

Independent Fiduciary is U.S. Trust Company of California, N.A.

(E) ``Plans'' means any of the following employee benefit plans,

and their successors by reason of merger, spin-off or otherwise:

International Ladies Garment Workers Union Nation Retirement Fund;

International Ladies Garment Workers Union Death Benefit Fund;

Health Fund of New York Coat, Suit, Dress, Rainwear & Allied Workers

Union, ILGWU;

Health & Vacation Fund, Amalgamated Ladies Garment Cutters Union, Local

10;

ILGWU Eastern States Health & Welfare Fund;

ILGWU Office, Clerical & Misc. Employee Retirement Fund;

ILGWU Retirement Fund, Local 102;

Union Health Center Staff Retirement Fund;

Unity House 134 HREBIU Plan Fund;

Puerto Rican Health & Welfare Fund;

Health & Welfare Fund of Local 99, ILGWU;

Local 99 Exquisite Form Industries, Inc. Severance Fund;

Local 99 K-Mart Severance Fund;

Local 99 Kenwin Severance Fund;

Local 99 Lechters Severance Fund;

Local 99 Eleanor Shops Severance Fund;

Local 99 Monette Severance Fund;

Local 99 Moray, Inc. Severance Fund;

Local 99 Petri Stores, Inc. Severance Fund;

Local 99 Netco, Inc. Severance Fund;

Local 99 Misty Valley, Inc. Severance Fund; and

Local 99 Norstan Apparel Shops, Inc. Severance Fund

(F) ``UNITE'' means the Union of Needletrades, Industrial & Textile

Employees and any successor organization thereto by merger,

consolidation or otherwise.

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

July 1, 1995.

Summary of Facts and Representations

1. The Plans are pension and welfare benefit plans established

pursuant to collective bargaining agreements to provide benefits to

active members, retired members and staff of the International Ladies

Garment Workers Union (ILGWU) and its local unions. At various times

prior to July 1, 1995, each of the Plans had retained and commenced to

utilize the banking services of the Amalgamated Bank of New York (the

Bank), a New York state-chartered commercial bank located in New York,

New York. The services for which the Plans contracted with the Bank

have included custodial, safekeeping, checking account, trustee, and

fixed-income investment management services. The Plans have also

purchased certificates of deposit issued by the Bank and utilized the

Bank's money market and other deposit accounts. The Plans have used

varying combinations of the services offered by the Bank. For example,

as of July 1, 1995, six of the Plans were using the Banks's investment

management services of a fixed-income nature; six Plans were using the

Bank's custodial services, some in conjunction with the investment

management services; seven Plans were using the Bank's safekeeping

services; and one Plan held certificates of deposit issued by the Bank.

When these service-provision relationships between the Bank and the

Plans were established, prior to July 1, 1995, all of the common stock

of the Bank was held by or on behalf of the General Office of the

Amalgamated Clothing and Textile Workers Union (ACTWU), local unions

and joint boards of ACTWU, and individuals related to ACTWU. Prior to

July 1, 1995, ACTWU and ILGWU were not related. Thus, the Bank

represents that prior to July 1, 1995, the Bank was a party in interest

with respect to the Plans solely by reason of the provision of services

to the Plans and not by reason of any ownership of interests in the

Bank by ILGWU or the Plans.

2. Effective July 1, 1995 (the Consolidation Date), ACTWU and the

ILGWU merged and formed a consolidated organization, the Union of

Needletrades, Industrial and Textile Employees (UNITE). Under the

agreement governing the merger (the Agreement), UNITE is deemed to be a

consolidation and continuation of ILGWU and ACTWU and their respective

affiliates. Neither ACTWU nor ILGWU is deemed to have been

[[Page 7271]]

dissolved or terminated by the consolidation, and each is treated under

the Agreement as a ``constituent member'' of UNITE. As part of the

consolidation, new Bank stock was issued to UNITE and Bank stock

previously held in the name of ACTWU was transferred to and registered

in the name of UNITE. Pursuant to the Agreement, the president of UNITE

appointed ten new members of the Bank's board of directors to reflect

the participation of ILGWU in the ownership of the Bank, and all of the

newly-appointed Bank directors are trustees of one or more of the

Plans. The Bank represents that as a result of the consolidation

pursuant to the Agreement, the Bank became more than fifty percent

(50%) owned by an employee organization whose members are covered by

the Plans, and therefore the Bank became a party in interest with

respect to the Plans by reason of the ownership of the Bank by UNITE.

3. The Bank is requesting an exemption to permit the continuation,

after the Consolidation Date, of the Bank's provision to the Plans of

the banking services which had been provided to the Plans prior to the

Consolidation Date, under the terms and conditions described herein.

The services which the Bank will be authorized to continue to provide

to the Plans are defined in the exemption as (1) services identified in

the exemption as Banking Services, consisting of custodial,

safekeeping, checking account, trustee services, and investment

management services involving fixed income securities (either directly

or through a collective investment fund maintained by the Bank); (2)

the purchase by the Plans of certificates of deposit (CDs) issued by

the Bank; and (3) the deposit of Plans' assets in money market or other

deposit accounts established by the Plan. Hereafter, references to

Banking Services will include all three types of services provided to

the Plans by the Bank.

4. Under the exemption, with respect to the proposed continuation

of the Bank's provision of Banking Services to the Plan, the interests

of the Plans and their participants and beneficiaries must be

represented by a fiduciary which is independent of and unrelated to the

Bank (the Independent Fiduciary). The exemption defines the Independent

Fiduciary as a person (within the meaning of section 3(9) of the Act)

who has acknowledged in writing its fiduciary capacity under the Act

and who is unrelated to the Bank and UNITE other than as Independent

Fiduciary under this exemption. Under the terms of the exemption, the

Independent Fiduciary is required to conduct an initial evaluation of

the Banking Services to determine whether their continued provision to

the Plans after the Consolidation Date is in the best interests and

protective of the participants and beneficiaries of the Plans, and

thereafter to monitor and oversee the relationships between the Plans

and the Bank, representing the Plans' interests therein and conducting

ongoing periodic evaluations and determinations as to whether the

Bank's provision of Banking Services to the Plans continues to be in

the best interests and protective of the Plans. The Independent

Fiduciary's authority includes the ability to continue, amend or

terminate, without penalty to a Plan (other than a penalty required for

early redemption of a CD) any arrangement under which the Bank provides

the Banking Services to any of the Plans. On a periodic basis no less

frequent than annually, the Independent Fiduciary is required to review

the Banking Services provided to each Plan by the Bank, the

compensation received by the Bank for such services, any purchases by

the Plan of certificates of deposit (CDs) from the Bank, and any

deposits of assets in deposit accounts maintained by the Bank, and to

make a number of written determinations, more fully described in

section II(H) of the proposed exemption, constituting an analysis of

whether the Bank's provision of Banking Services to the Plans continues

to be in the best interests and protective of the participants and

beneficiaries of the Plans. To enable the Independent Fiduciary to

fulfill its obligations under the exemption, the Bank is required to

provide information (listed in section II(G) of the proposed exemption)

in writing to the Independent Fiduciary no less frequently than

quarterly, relating to identification and description of the Banking

Services and the circumstances under which they are rendered. The

exemption requires that the compensation received by the Bank for the

provision of services to the Plans is not in excess of reasonable

compensation within the meaning of section 408(b)(2) of the Act.

5. With respect to each Plan, the exemption requires that the

representation of the Plan's interests by the Independent Fiduciary

regarding the Bank's provision of Banking Services to the Plan is

authorized and confirmed at least annually by the Plan's board of

trustees or other appropriate Plan fiduciary with authority to make

decisions with respect to the investment of Plan assets (the

Authorizing Plan Fiduciary). The Authorizing Plan Fiduciary of each

Plan must be furnished copies of the Bank reports to the Independent

Fiduciary no less frequently than annually and no later than 90 days

after the period to which they apply. The exemption provides that the

Authorizing Plan Fiduciary may terminate, without penalty to the Plan

(other than a penalty required for early redemption of a CD), the

Plan's participation in any arrangement involving the representation of

the Plan's interests by the Independent Fiduciary or the provision of

Banking Services by the Bank.

6. The exemption requires the Bank and the Independent Fiduciary to

maintain all written reports and other memoranda evidencing analyses

and determinations made in satisfaction of the conditions of the

exemption. The Plans which are covered by the exemption are identified

in section IV(E) of the exemption. The effective date of the exemption

will be July 1, 1995, the Consolidation Date.

7. The U.S. Trust Company of California, N.A. (U.S. Trust) was

appointed by the Plans (the Appointment) effective July 28, 1995 to

serve in the capacity of Independent Fiduciary on behalf of the Plans

with respect to the Bank's provision of the Banking Services to the

Plans in accordance with the exemption, pursuant to an agreement signed

and formalized on September 21, 1995 between the Plans, the Bank and

U.S. Trust. With assets under management totalling approximately $53

billion, U.S. Trust represents that it has extensive trust and

management capabilities, including discretionary asset management,

asset allocation and diversification, investment advice, securities

trading and independent fiduciary assignments under the Act. U.S. Trust

represents that immediately upon the Appointment, it undertook a review

and assessment of the Banking Services and made a preliminary

determination that the Banking Services were appropriate and adequate

to satisfy the Plans' banking needs, until a more thorough review and

assessment could be completed. U.S. Trust represents that it has

completed this thorough review and assessment with the professional

assistance of the consulting firm of Towers Perrin (Towers Perrin).

Towers Perrin, an international firm of consultants and consulting

actuaries, represents that it is a registered investment advisor under

the Investment Advisors Act of 1940, providing a broad range of

services for investment management evaluation and performance

measurement. U.S. Trust

[[Page 7272]]

represents that in its review and assessment of the Bank and the

Banking Services provided to the Plans, U.S. Trust gathered information

from various sources, including various operations of the Bank, the

Bank's legal counsel, the Plans, and Towers Perrin. U.S. Trust

represents that its representatives and those of Towers Perrin met with

various officers of the Bank including the Bank's Chief Executive

Officer and Chief Investment Officer. U.S. Trust represents that it

also utilized a written report by Towers Perrin, prepared at the

request of U.S. Trust, specifically analyzing the investment management

services which the Bank has provided the Plans.

8. U.S. Trust has made various findings and determinations with

respect to the Bank and the provision of Banking Services to the Plans

which are summarized as follows:

Financial condition of the Bank: U.S. Trust represents that it

examined the Bank as a whole, from a financial point view. U.S. Trust

states that it found the Bank's assets to be liquid and secure, with 82

percent of assets invested in AAA-rated securities and only 7.4 percent

invested in loans. U.S. Trust represents that the duration positioning

of the Bank's assets and liabilities is managed such that, when

considered in conjunction with the liquidity of the Bank's assets,

interest rate changes will have a minimal effect on the Bank's income.

U.S. Trust concludes that the Bank is operated very conservatively and

is very well capitalized and solvent.

Custodial and safekeeping services: U.S. Trust represents that it

determined that the Bank possesses adequate capability to perform all

custodial and safekeeping services needed by the Plans, utilizing both

the Bank's own personnel and facilities as well as the contract

services of qualified third parties for certain data processing and

sub-custodial services. U.S. Trust determined that these services as

provided to the Plans are offered by the Bank to the public in the

ordinary course of business. U.S. Trust states that the fee schedules

of the Bank for these services are reasonable, based on industry

standards, and that the actual fees charged the Plans for custodial

services are lower than the scheduled fees. U.S. Trust concludes that

the Bank's provision of custodial and safekeeping services to the Plan

is reasonable and appropriate.

Certificates of deposit (CDs), money market accounts and checking

accounts: U.S. Trust determined that the Bank has the capability to

offer CDs and money market and other deposit account services as needed

by any of the Plans, and that the Bank offers these same services to

the general public in the ordinary course of its business. U.S. Trust

states that the fees are reasonable, because no fees are charged with

respect to CDs and money market accounts and the Bank customarily does

not charge the Plans fees for checking accounts. U.S. Trust represents

that at the time of its review, the rates of return on CDs, as

published in the Wall Street Journal, were lower than the rates paid by

the Bank on CDs with the same or shorter maturities. U.S. Trust states

that the rate paid by the Bank on its money market account also appears

to be reasonable, based on U.S. Trust's experience and investigation,

although there are no indices or published rates to use in comparison.

Considering all the information obtained, U.S. Trust concludes that the

Plans' utilization of the Bank for CDs and money market and other

deposit account services is reasonable and appropriate.

Investment Management Services: U.S. Trust represents that it

reviewed and evaluated the fixed-income investment products offered by

the Bank to the Plans, which are of three categories:

(1) A short-term bond fund (the Short-Term Product) with an average

duration of 1.7 years in 1995, investing primarily in U.S. Treasury and

government agency securities, in which four Plans have invested a total

of $111.6 million;

(2) A bond fund with an average duration of 3.4 years in 1995 (the

Intermediate-Duration Product) investing primarily in U.S. Treasury and

government agency securities and corporate bonds, in which one Plan has

invested a total of $2.5 million; and

(3) A bond fund designed for longer term investors (the Core

Duration Product) with an average duration of 4.6 years in 1995,

investing primarily in U.S. Treasury and government securities,

corporate bonds, and mortgage-backed securities, in which one Plan has

invested a total of $24.1 million.

U.S. Trust represents that in its review and evaluation of these

investment products, it utilized an extensive report prepared by Towers

Perrin regarding the products, and attended due diligence meetings with

various officers of the Bank. U.S. Trust states that it analyzed the

Bank's investment process, personnel, performance results, fees,

product and personnel growth, representative clients, historical

portfolio characteristics and a current portfolio contents summary.

U.S. Trust represents that in the course of its review it determined

that the Bank maintains the capability to provide these investment

management services competently, that the services are offered by the

Bank to the public in the ordinary course of business, and that the

fees for the services are reasonable based on industry norms taking

into account the experience and reputation of the Bank. U.S. Trust

states that it determined that additional costs to the Plans,

approximating $80,000, would likely result from a decision to replace

the Bank as the provider of these investment management services. With

respect to each of these three categories of investment products, U.S.

Trust made specific determinations regarding the rates of return

provided and arrived at specific conclusions as to whether the

investment products were appropriate for the Plans, summarized as

follows:

(1) The Short-Duration Product has consistently outperformed its

benchmark index, the Merrill Lynch 1-3 Year Treasury Index, earning 8.4

percent per year over the past seven years on an annualized basis,

while being conservatively managed and maintaining a high quality of

investment assets. U.S. Trust notes that the Bank has represented that

the investment strategy of this product will remain unchanged. U.S.

Trust has determined that the investment of assets of the Plans in the

Short-Duration Product is reasonable and appropriate.

(2) The Intermediate-Duration Product's cumulative performance over

the past seven years is very close to its benchmark, the Lehman

Intermediate Government/Corporate Index, and U.S. Trust determined that

this product is capable of generating returns above its benchmark. U.S.

Trust notes that the investment parameters of this product have

recently changed to include investments in corporate bonds and that it

has since demonstrated an ability to enhance returns. Because this

product has been managed under its current guidelines for a relatively

short period of time, U.S. Trust has concluded that the selection of

this product by certain of the Plans is reasonable and appropriate for

one more year, after which time another year's investment results will

be available for consideration and U.S. Trust will undertake a

reassessment of whether this product remains reasonable and appropriate

for investments by the Plans.

(3) U.S. Trust found that the Core Duration Product outperformed

its benchmark, the Lehman Aggregate Index, for 1995 and that its

investment parameters were recently changed to expand duration and

maturity restrictions and include corporate bonds

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and asset-backed securities among its investment assets. U.S. Trust

concludes that the selection of this product by certain of the Plans is

reasonable and appropriate for one more year, after which time another

year's investment results will be available for consideration and U.S.

Trust will undertake a reassessment of whether this product remains

reasonable and appropriate for investments by the Plans.

Conclusion: As a conclusion to its review and analysis, U.S. Trust

states that in view of the information discussed above and U.S. Trust's

judgment with respect thereto, subject to the limitations discussed

regarding the Intermediate and Core Duration Products, U.S. Trust

believes it is in the best interests of the Plans to use the investment

management and other banking services provided by the Bank.

9. In summary, the applicant represents that the proposed exemption

satisfies the criteria of section 408(a) of the Act for the following

reasons: (a) The interests of the Plans with respect to the Bank and

its provision of services to the Plans are represented by an

Independent Fiduciary, U.S. Trust; (b) The representation of each

Plan's interests by the Independent Fiduciary with respect to the Bank

and its provision of services is authorized annually by the Plan's

Authorizing Plan Fiduciary; (c) U.S. Trust has reviewed and evaluated

the entire range of services provided by the Bank to the Plans and has

determined that it is in the best interests of the Plans to utilize

such services; (d) The Independent Fiduciary will oversee and monitor

the Bank's provision of services to the Plans and will make written

determinations at least annually regarding the continuation of such

provision of services; (e) At least quarterly, the Bank is required to

submit a Periodic Report to the Independent Fiduciary which relates

relevant details of the services provided by the Bank to any of the

Plans; (f) The Authorizing Plan Fiduciary will be provided copies of

the Bank's Periodic Reports to the Independent Fiduciary; (g) With

respect to each Plan, the Authorizing Plan Fiduciary is authorized to

terminate the representation of the Plan's interests by the Independent

Fiduciary or the provision of any services to the Plan by the Bank; and

(h) With respect to each Plan, the Independent Fiduciary is authorized

to continue, amend or terminate the Bank's provision of any services to

the Plan by the Bank.

FOR FURTHER INFORMATION CONTACT: Ron Willett of the Department,

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

Hawaiian Airlines, Inc. Pilots' 401(k) Plan (the Pilots' Plan),

Hawaiian Airlines, Inc. 401(k) Plan for Flight Attendants (the

Attendants' Plan), and Hawaiian Airlines, Inc. 401(k) Savings Plan (the

Savings Plan; collectively the Plans) Located in Honolulu, Hawaii

[Application Nos. D-10380, D-10381, and D-10382]

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 by

the Plans of certain transferable stock rights (the Rights) pursuant to

a stock rights offering (the Offering) to the Plans by Hawaiian

Airlines, Inc. (the Employer), the sponsor of the Plans; (2) the past

holding of the Rights by the Plans during the subscription period of

the Offering; and (3) the disposition or exercise of the Rights by the

Plans provided the following conditions are satisfied:

(A) The acquisitions and holding of the Rights by the Plans

occurred in connection with the Offering made available to all

shareholders of the common stock of the Employer; (B) The acquisition

and holding of Rights by the Plans resulted from an independent act of

the Employer as a corporate entity and all holders of the common stock

of the Employer, including the Plans, were treated in the same manner

with respect to the Offering; and (C) All decisions regarding the

holding and disposition of the Rights by the Plans were made in

accordance with provisions of the Plans for individually-directed

investment of participant accounts by the individual participants of

the Plans whose accounts in the Plans received Rights in connection

with the Offering, including all determinations regarding the exercise

or sale of the Rights received through the Offering, and if no timely

instructions concerning the Rights were given by participants of the

Plans, the Rights were sold.

Effective Date: This exemption if granted, will be effective as of

August 7, 1996.

Summary of Facts and Representations

1. The Employer, a Hawaii corporation since 1929, is located in

Honolulu, Hawaii. It is primarily in the scheduled transportation of

passengers, cargo, and mail over a route system that services the six

major islands of Hawaii and Las Vegas and four cities on the west

coast: Los Angeles, San Francisco, Seattle, and Portland. In addition,

the Employer provides the only direct service from Hawaii to PagoPago,

American Samoa and Papeete, Tahiti. Also, the Employer provides charter

service from Honolulu to Las Vegas. The Employer operates a fleet of

thirteen DC-9 aircraft and eight DC-10 aircraft.

The common stock of the Employer is listed and traded on both the

American Stock Exchange and the Pacific Stock Exchange.

2. The Plans are defined contribution plans intended to satisfy the

requirements of section 401(a) of the Code. The Pilots' Plan and the

Attendants' Plan are collectively bargained profit sharing plans with

cash or deferred arrangements under section 401(k) of the Code.

Both the Air Line Pilots Association, International (the ALPA) and

the Association of Flight Attendants (the AFA) separately bargain with

the Employer for their own members over the terms of the Pilots' Plan

and the Attendants' Plan, respectively. The Employer appoints two

members to each Retirement Board for both the Pilots' Plan and the

Attendants' Plan, respectively, and the ALPA and the AFA each appoints

two members to the respective Plans of which their members are

participants. The four members of each of the Retirement Boards select

investment options for their respective participants, and resolves

disputes concerning the application, interpretation, or administration

of each of the Plans. As of August 2, 1996, the Pilots' Plan had total

assets of $8,960,644 and 333 participants and the Attendants' Plan had

total assets of $26,305,738 and 602 participants. The Savings Plan

covers mostly non-collectively and some collectively bargained

employees, represented by the International Association of Machinists,

and is a profit sharing plan with a cash or deferred arrangement under

section 401(k) of the Code. Since September 1, 1993, the Savings Plan

requires Employer contributions and provides that contributions from

participants are optional. The Employer solely appoints the three

members to the Retirement Board for the Savings Plan. The Retirement

Board for the Savings Plan selects investment options for

[[Page 7274]]

participants and resolves disputes concerning the application,

interpretation, or administration of the Savings Plan. As of August 2,

1996, the Savings Plan had total assets of $11,171,947 and 1,408

participants.

Pursuant to a trust agreement with the Employer, Vanguard Fiduciary

Trust Company (Vanguard), a Pennsylvania corporation located in

Malvern, Pennsylvania, is the trustee for the Plans. Vanguard acts for

the Plans upon investment instructions from participants of the Plans

and upon directions from the respective Retirement Boards of the Plans.

In addition, Vanguard provides the Plans with different investment

options or combinations thereof that have been selected by the

different Retirement Boards for the participants of the Plans to direct

investments for their respective accounts in the Plans. 1

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1 The Department expresses no opinion as to whether or not the

provisions of the Plans satisfy the requirements of section 404(c)

of the Act and regulations thereunder with respect to the various

investment options offered the participants of the Plans.

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3. On December 8, 1995, in order to increase its working capital,

the Employer, with approval of its shareholders, entered into an

investment agreement with Airline Investors Partnership, L.P. (AIP),

whereby the Employer during January 1996 issued and sold to AIP

18,181,818 shares of its common stock at $1.10 per share for a total

purchase price of $20 million. At the same time, the Employer also

issued and sold four shares of its Class B Special Preferred Stock to

AIP for a total purchase price of $4.40.

AIP, formed in November 1995 to invest in the Employer, is a

Delaware limited partnership whose general partner is AIP General

Partner, Inc., a Delaware corporation with its principal office in New

York City. By its investment in four shares of the Class B Special

Preferred Stock of the Employer, AIP has the right to nominate six of

the eleven individuals elected to the board of directors of the

Employer. Currently the president and a vice president of the general

partner of AIP and four other nominees of AIP have six of the seats on

the board of directors of the Employer.

The price AIP agreed to pay for its common stock investment in the

Employer in January 1996 was substantially discounted from the common

stock's closing market price of 2\11/16\ on December 8, 1995. In

recognition of the dilutive effect of the AIP acquisition, the

investment agreement with AIP contained a provision for an offering of

subscription rights to all shareholders of the Employer, including the

Plans but excluding AIP, to purchase an aggregate of up to 8,151,000

shares of common stock during the 30-day offering. The applicant

represents that the objective of the Offering was to permit non-AIP

shareholders an opportunity to purchase the stock of the Employer at a

discount price. Also, it was represented by the applicant that an

additional motivation for the Offering was to raise additional working

capital above the investment by AIP in order to meet the goal of the

Employer of improving its financial liquidity.2

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\2\ Rights were distributed in the Offering to two different

groups: (i) all shareholders as of August 7, 1996, including the

Plans but excluding AIP, and (ii) all employees of the Employer,

other than members of senior management, who were employed at any

time during 1995 and on the record date, August 7, 1996, without

regard to their indirect shareholder status as participants in the

Plans. Also, participants of the 1994 Stock Option Plan of the

Employer were granted options to purchase common stock from the

Employer for $3.25 per share. The Employer also entered into stock

purchase agreements with certain institutional investors, high net

worth individuals, and non-employee directors which the investors

agreed to purchase common stock from the Employer at $3.25 per

share. The applicant represents that a total of 12,085,000 shares of

common stock were issued during the Rights Offering to the above

persons.

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4. Pursuant to the terms of the Offering, each shareholder,

excluding AIP, received one Right for each share of common stock held

as of the record date at the close of business on August 7, 1996 (the

Record Date).3 As of the Record Date, the Plans held a total of

1,488,703 shares and received the same number of Rights pursuant to the

Offering. Each Right entitled a holder to purchase one share of the

common stock issued by the Employer for the exercise price of $3.25.

The exercise price was determined by the Employer after consultation

with its independent financial advisor prior to the Offering. The

Rights were traded on the American and Pacific Stock Exchanges until

the expiration date of the Offering. The Rights held by the Plans

required participants to communicate their directions to Vanguard, the

trustee for the Plans, by September 5, 1996, in order that the

directions from the participants of the Plans could be properly and

correctly processed by Vanguard. The applicant represents that prior to

the effective date of the Offering, the trustee, Vanguard, sent each

participant in the Plans written information regarding the Offering and

the Rights. During the effective period of the Offering Vanguard

provided each participant in the Plans the opportunity to independently

decide whether to exercise the Rights or to sell them. Also, the

participants were informed that if Vanguard did not receive timely

instructions, or received no instructions, Vanguard would sell the

Rights. The applicant represents that all Rights received by the Plans

were either exercised or sold.

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\3\ The Department notes that the Rights do not constitute

``qualifying employer securities'' within the meaning of section

407(d)(5) of the Act.

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Approximately 153,929 Rights issued to the Plans were exercised for

the total sum of $500,269, and the Plans netted approximately

$118,345.52 from the sale of the remaining Rights. As of the day

preceding the Record Date, the price of the common stock of the

Employer at the closing of the American Stock Exchange was $3.75.

5. The applicant represents that the terms of the offering can be

verified by the documents filed with the Securities and Exchange

Commission and with the American and Pacific Stock Exchanges. Also,

prices of the common stock and the Rights can be verified by examining

the trading activity as published in the various newspapers. In

addition, the applicant represents that participants and beneficiaries

of the Plans had the opportunity to exercise independent decision-

making authority with respect to the Rights in their accounts.

Furthermore, the applicant represents that the Plans were given the

Rights at no cost to the Plans, thus enabling the participants to

enhance their respective account balances that were holding Employer

common stock by either exercising the Rights at prices below the market

price or by selling the Rights.

The applicant represents that the Employer has borne all costs

associated with the Rights Offering to the Plans and the costs

associated with the exemption application.

6. In summary the applicants represent that the transactions

satisfied the statutory criteria of section 408(a) of the Act for the

following reasons: (a) the acquisition of the Rights by the Plans

resulted from an independent act by the Employer as a corporate entity

and all holders of the common stock of the Employer were treated in a

like manner, including the Plans; (b) all decisions with respect to the

rights were controlled by involved participants in accordance with

provisions of the Plans for individually-directed investments of such

accounts; (c) the Rights and the common stock of the Employer were both

traded on the American and Pacific Stock Exchanges with current price

information readily ascertainable as were the terms of the offering

from the public documents distributed to the holders of the common

stock and filed with the Securities and Exchange Commission and the

Exchanges; (d)

[[Page 7275]]

there were no expenses incurred by the Plans or its participants or

beneficiaries from the Offering and the resulting transactions; and (e)

if no instructions were received by the Plans trustee, the Rights were

sold.

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

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

General Information

The attention of interested persons is directed to the following:

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

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

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

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

including any prohibited transaction provisions to which the exemption

does not apply and the general fiduciary responsibility provisions of

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

discharge his 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 12th day of February, 1997.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 97-3837 Filed 2-14-97; 8:45 am]

BILLING CODE 4510-29-P