Proposed Exemptions; John Taylor Fertilizers Company Profit Sharing Plan (the Plan)

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10379, et al.]

Proposed Exemptions; John Taylor Fertilizers Company Profit

Sharing 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 restrictions 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 requests 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.

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, 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.

John Taylor Fertilizers Company Profit Sharing Plan (The Plan)

Sacramento, California

[Application No. D-10379]

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

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

the Act and the sanctions resulting from the application of section

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

Code, shall not apply to the proposed sale by the Plan of an undivided

16.28% interest (Leasehold Interest) in a certain leasehold (Leasehold)

of a professional office complex (Office Complex) located in

Sacramento, California, to John Taylor Fertilizers Company (the

Company), a party in interest with respect to the Plan, provided that

the following conditions are satisfied:

(A) All terms of the transaction are at least as favorable to the

Plan as those which the Plan could obtain in an arm's-length

transaction with an unrelated party;

(B) The sale is a one-time transaction for cash;

(C) The Plan pays no commissions or other expenses relating to the

sale;

(D) The purchase price is the greater of: (1) the fair market value

of the Leasehold Interest as determined by a qualified, independent

appraiser, or (2) the original acquisition cost, plus all costs

attributable to holding the Leasehold Interest through the date of the

sale;

(E) The Plan receives rental income due and owing to the Plan

through the date of the sale.

[[Page 49613]]

Summary of Facts and Representations

1. The Plan is a profit sharing plan with 187 participants and

total assets of $12,997,980 as of October 31, 1995. The Plan is

sponsored by John Taylor Fertilizers Company, a California Corporation,

with its principal offices in Sacramento, California, which is engaged

in the business of manufacturing and selling fertilizers. Mr. John

Taylor is the trustee of the Plan. It is represented that Mr. Taylor

makes investment decisions for the Plan.

2. The Leasehold Interest which is owned by the Plan represents an

undivided 16.28% interest in the Leasehold. The other owners of the

remaining 83.72% of the Leasehold are: Amelia Richter, Mary Richter,

and Richter Brothers, Inc., Profit Sharing Plan and Trust

(Collectively, the Co-Owners). The underlying land on which the Office

Complex is located is owned by Constance N. Elkus. It is represented

that neither the Co-Owners nor Constance N. Elkus is related to the

John Taylor Fertilizers Company.

3. The Leasehold consists of the Office Complex which is comprised

of two one-story buildings, with a garden style layout, located at the

northeast corner of Northrop Avenue and Fulton Avenue, in Sacramento,

California. The combined floor area of the Office Complex which

comprises the Leasehold is approximately 85,378 square feet. The Office

Complex is located on a rectangular parcel, with 344 feet of frontage

on Northrop Avenue and 249 feet on Fulton Avenue and is zoned for

Business and Professional Use. The Leasehold has a remaining primary

term of approximately 16 years with an option to renew for two periods

of ten years each.

4. The Plan acquired its Leasehold Interest as a result of a

successful judicial foreclosure action brought by the Plan and the Co-

Owners in 1991, as follows. In 1984, the Plan invested $141,000 in a

loan to a partnership, which was secured by a second deed of trust in

the Leasehold. In 1987, the partnership defaulted on the Loan and the

Plan, along with the Co-Owners, foreclosed on the Leasehold. Pursuant

to the judicial foreclosure, which was approved by the Superior Court

of California, Sacramento County, the Plan acquired its Leasehold

Interest.

Subsequent to acquiring the ownership of the Leasehold Interest,

the Plan, along with the Co-Owners of the Leasehold, paid off the first

deed of trust. In this regard, the Plan paid an additional $195,603 to

Aetna, the holder of the first deed of trust. In addition, after

acquiring the Leasehold Interest, the Plan paid expenses, net of

income, relating to the holding of the Leasehold Interest totaling

$153,747. These Plan expenses of $153,747, plus the payments in

satisfaction of the first deed of trust of $195,603, plus the original

Loan amount of $141,000, equals the Plan's original acquisition plus

holding costs of the Leasehold Interest. Accordingly, the Plan's total

investment in the Leasehold Interest is $490,350.1

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\1\ This figure represents the Plan's original acquisition plus

holding costs through July 8, 1997. Since this date, the Plan's

total investment in the Property has continued to increase due to

the continuing expenses related to holding the Leasehold Interest.

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5. After the Plan acquired the Leasehold Interest, the space in the

Office Complex was rented to various business and professional tenants.

Accordingly, the Plan received rental income of approximately $91,000

between January 1, 1984 and August 3, 1990. Between August 30, 1990 and

November 1992, the Plan's expenses equaled the Plan's rental income

from the Leasehold Interest. However, since November of 1992, the

Plan's expenses related to holding the Leasehold Interest exceeded the

rental income by $1,490 per month.

6. As of August 2, 1996, the Office Complex had a 44.2% vacancy

rate. It is represented that the Plan continues to lose money on the

Leasehold Interest because of the high vacancy rate and the continuing

expenses related to the Plan's holding of the Leasehold Interest.

Accordingly, it is represented that the Plan's continued ownership of

the Leasehold Interest is not in the best interests of Plan

participants and beneficiaries.

In addition, it is represented that fair market value of the

Leasehold Interest has declined in value during recent years, and for

this reason, the Company proposes to purchase the Leasehold from the

Plan and is requesting an exemption for its sale under the terms and

conditions described herein.

7. The Company proposes to purchase the Leasehold Interest from the

Plan in a one-time transaction for cash. It is represented that the

Company will pay the greater of: (a) the fair market value of the

Leasehold Interest on the date of the sale, or (b) the Plan's original

acquisition cost, plus all costs attributable to the Plan's holding of

the Property, through the date of the sale. For purposes of the sale,

the original acquisition cost plus holding costs is determined as

follows: (original purchase price + aggregate real estate taxes through

the date of the sale + all other expenses and fees through the date of

the sale) = original acquisition cost plus holding costs. As stated

above, through July 8, 1997, the original acquisition cost plus holding

costs for the Leasehold Interest was $490,350. Because the Company is

required to pay the original acquisition plus all holding costs through

the date of the sale and holding costs have continued to accrue since

July 8, 1997, the Company will pay the Plan an amount in excess of

$490,350 for its Leasehold Interest.

8. The Property was appraised by Stephen A. Rosenthal (Rosenthal),

MAI, an independent real estate appraiser certified by the state of

California, on August 2, 1996.2 Rosenthal is a principal in

the Sacramento, California, appraisal firm of Ramirez Rosenthal

Company.

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\2\ On August 24, 1998, Rosenthal opined that since the date of

the appraisal, there has not been a dramatic change in the quality

or character of the locality surrounding the Property and based on a

study of recent comparable sales, that the Property has not

significantly increased in value.

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Rosenthal initially appraised the combined value of the fee simple

interest of the Office Complex and underlying land. Applying both the

comparable sales and income capitalization methods of appraisal,

Rosenthal determined that the fair market value of the fee simple

interest of the Office Complex and underlying land was $1,650,000.

In determining the fair market value of the Leasehold, Rosenthal

considered the remaining primary term of the Leasehold as well as the

two ten year renewal periods. In addition, Rosenthal considered income

and expenses related to the ownership of the Leasehold. Based on this

analysis and the value of the fee simple interest in the Office Complex

and underlying land, Rosenthal determined that the fair market value of

the Leasehold was $1,010,000.

Based on Rosenthal's appraisal, the Company represents that the

fair market value of the Plan's 16.28% Leasehold Interest is 16.28% of

$1,010,000, which equals $164,428.

9. Because the Plan's original acquisition cost plus holding costs

exceeds $164,428, which is the fair market value of the Plan's

Leasehold Interest, the Company represents that it will purchase the

Leasehold Interest from the Plan at a price equal to the Plan's

original acquisition cost plus holding costs. Since through July 8,

1997, this amount totaled $490,353, the Company will purchase the

Leasehold Interest for $490,353 plus an amount which represents all

additional holding costs that have accrued since the July 8, 1997.

Payment of such amount is a

[[Page 49614]]

condition of the exemption proposed herein.

10. The Company represents that the sale transaction will occur as

soon as possible after the publication in the Federal Register of a

notice granting the exemption proposed herein, if granted. The Company

represents that the proposed transaction is favorable to the Plan

because the sale will be a one-time cash transaction and the Plan will

incur no expenses as a result of the sale. In addition, it is

represented that the sale is in the best interest of the participants

and beneficiaries because the ownership of the Leasehold Interest has

resulted in an operating loss to the Plan since 1992 and the Office

Complex has had a 44% vacancy rate since 1996.

11. In summary, the Company represents that the proposed

transaction satisfies the 408(a) of the Act for the following reasons:

(a) the Plan will receive cash for the Leasehold Interest which is the

greater of (1) the fair market value of the Leasehold Interest, and (2)

the original acquisition cost, plus all attributable holding costs

through the date of the sale; (b) the sale will be a one-time cash

transaction and the Plan will incur no expenses or commissions related

to the sale; and (c) the Plan will divest itself of an investment which

has resulted in a loss to the Plan for every year since 1992.

For Further Information Contact: Ms. Janet L. Schmidt 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 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 10th day of September, 1998.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 98-24799 Filed 9-15-98; 8:45 am]

BILLING CODE 4510-29-P