Proposed Exemptions; Pacific Coast Roofers Pension Plan

DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10671, et al.]

Proposed Exemptions; Pacific Coast Roofers Pension 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 requests 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

[[Page 46725]]

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.

Pacific Coast Roofers Pension Plan (the Plan); Located in San Jose,

California

[Application No. D-10671]

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 section 406(a)(1)(D) of the Act and the

sanctions resulting from the application of section 4975 of the Code,

by reason of section 4975(c)(1)(D) of the Code, shall not apply to the

making of loans by certain banks (the Banks), under a loan program (the

Program) providing for loans to Bank customers for residential and

commercial re-roofing jobs that are performed by contributing employers

to the Plan, pursuant to an arrangement in which the Plan will purchase

certificates of deposit (the CDs) issued by the Banks, provided the

following conditions are met:

(a) Alan D. Biller and Associates, Inc. (Biller), an independent

investment manager with respect to the Plan's equities and fixed-income

investments, determines on an on-going basis the appropriateness of the

Plan's investment of up to 5% of the Plan's total assets in CDs,

including CDs issued under the Program, with respect to the Plan's

overall investment objectives and policy guidelines;

(b) Turner Dale Associates, Inc. (TDA), an independent investment

manager with respect to the Plan's assets involved in the Program,

which is also independent of the Banks, acts on the Plan's behalf

pursuant to a written Investment Management Agreement to determine on

an on-going basis whether the Plan should make each particular

investment in the CDs under the Program, and should continue or

terminate participation in the Program;

(c) TDA determines at least annually that the Banks participating

in the Program are solvent institutions, based on analysis of all

relevant information involving the Banks' financial status;

(d) The requirements of section 408(b)(4) of the Act are satisfied

if any Bank participating in the Program is a fiduciary or other party

in interest with respect to the Plan (see 29 CFR 2550.408b-4);

(e) The Plan's CDs will have a maturity date of at least one year

from the date of issuance and will pay the maximum rates of interest

provided by the Banks for CDs of the same size and maturity being

purchased at the time of the transaction by customers of the Bank not

participating in the Program;

(f) The Banks offer CDs provided under the Program to other,

unrelated customers in the ordinary course of business;

(g) Interest rates on CDs under the Program, and the total net

rates of return to the Plan, taking into consideration all expenses

associated with the transaction, are at least comparable to or better

than those rates which the Plan could obtain on similar fixed-income

investments of similar risk and term at the time of each CD purchase;

(h) No person who is a party in interest with respect to the Plan,

including contributing employers, trustees and other plan fiduciaries,

receives a loan under the Program;

(i) The total outstanding amount of CDs purchased by the Plan from

the Banks will not exceed 5% of the Plan's total assets at the time of

any transaction;

(j) No Plan trustee currently engages in any personal or business

transactions with a Bank which will be involved in the Program, and if

a trustee engages in such transactions in the future, the trustee shall

recuse himself or herself with respect to any decision regarding the

Program on behalf of the Plan;

(k) The Plan's investment in CDs is not part of an agreement,

arrangement or understanding designed to benefit any investment

manager, other Plan fiduciary, or contributing employer, other than to

the extent that residential or commercial re-roofing jobs will be

performed by contributing employers to the Plan; and

(l) If a customer defaults on a loan, the Bank has no claim

against, or recourse to, the CDs or other assets of the Plan.

Summary of Facts and Representations

1. The Plan, which covers workers in the roofing industry, is a

multiemployer defined benefit plan established in accordance with

section 302(c)(5) of the Labor Management Relations Act of 1947, as

amended. The Plan currently has approximately 5400 participants and

approximately $300 million in net assets. The Plan is administered by a

board of trustees (the Trustees) with an equal number of Trustees

representing labor and management, who are the named fiduciaries of the

Plan. The Trustees are authorized to appoint one or more investment

managers to handle investment decisions for portions of the assets of

the Plan. These Plan assets include fixed-income investments made

pursuant to the Plan's investment guidelines established by the

Trustees. The Trustees have appointed Biller to act as investment

manager with respect to the decision to include the Program among the

Plan investments.

Biller is an independent investment manager with respect to the

Plan. Biller has no interest in, or affiliation with, the Bank. Biller

will also not have any interest in, affiliation with, or any business

dealings with any bank selected in the future to participate in the

Program. Biller has determined that up to 5% of the Plan's assets may

be invested in certificates of deposit (CDs) in accordance with the

Plan's investment guidelines.

2. With respect to the Program, the Trustees have selected TDA as

investment manager, within the meaning of Act section 3(38), with full

authority and responsibility regarding the investment by the Plan in

each particular CD under the Program. TDA, as investment manager, is an

independent fiduciary with respect to the Plan, and is an investment

adviser registered with the Securities and Exchange Commission under

the Investment Advisers Act of 1940. TDA has experience handling

investments for collectively bargained, jointly-trusteed employee

benefit plans subject to the Act. TDA, which is located in Burlingame,

California, currently has approximately $130 million in employee

benefit plan assets under management.

3. The Plan proposes to invest up to 5% of its assets in CDs to be

issued by various banks selected by TDA. The bank currently selected by

TDA to issue CDs under the Program is United Labor Bank (hereinafter

referred to as ``the Bank''), although the Plan may invest in CDs

issued by other Banks meeting the Program's standards and requirements.

The Bank had assets in excess of $67 million as of September, 1997. The

Bank was incorporated in 1990 and operates branches in Oakland and Los

Angeles, California. The Bank is a member of the Federal Home Loan Bank

System, and is federally regulated. The Bank is subject to certain

regulatory requirements

[[Page 46726]]

administered by the board of Governors of the Federal Reserve System,

the Office of Thrift Supervision and the Federal Financial Institution

Examination Council.

TDA is independent of the Bank, and will be independent of any

Banks selected in the future to provide CDs under the Program. There

will be no transactions between TDA and the Bank (or future Banks) that

will interfere with the independence of TDA to serve as the Plan's

investment manager for CD investment purposes. TDA will review, at

least annually, the financial condition and creditworthiness of the

Bank to ensure that it continues to be a solvent financial institution.

Moreover, TDA would base its selection of any other Banks to

participate in the Program on the Banks' capitalization,

creditworthiness, and ability to provide the Plan maximum rates of

returns on CDs.

The Bank is not currently a fiduciary for the Plan's assets and

will not be a fiduciary for any assets of the Plan involved in the

proposed CD investment.1 In addition, with the exception of

one Trustee who previously served on the Bank's board of directors, no

member of the Plan's Board of Trustees has any ownership interest in

the Bank, or maintains an account with the Bank. That Trustee owns 100

out of approximately 200,000 shares of stock in the Bank. The

applicants represent that the Trustee will not participate in any

decisions with respect to the Program. If, in the future, any member of

the Board of Trustees acquires an interest in the Bank, that member

will be precluded from participating in any decisions with respect to

the Program on behalf of either the Plan or the Bank.

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\1\ Section 408(b)(4) of the Act states, in pertinent part, that

the prohibitions of section 406(a) of the Act shall not apply to the

investment of a plan's assets in deposits which bear a reasonable

interest rate in a bank supervised by the United States or a State,

if such bank is a fiduciary of such plan and if such investment is

expressly authorized by a provision of the plan or by a fiduciary

(other than such bank or an affiliate thereof) who is expressly

empowered by the plan to so instruct the trustee with respect to

such investment. Thus, the Plan's proposed purchase of the CDs from

a Bank that is a fiduciary or other party in interest with respect

to the Plan would be exempt from the restrictions of section 406 by

section 408(b)(4) of the Act if the conditions of the exemption, and

the regulations thereunder (see 29 CFR 2550.408b-4), were met.

However, the exemptive relief proposed herein would permit the Banks

to make certain loans to customers for re-roofing jobs performed by

contributing employers of the Plan pursuant to an arrangement

involving the Plan's purchase of CDs from the Banks. The Department

notes that such an arrangement is a separate transaction which would

not be exempted by section 408(b)(4) of the Act. The Department also

notes that the proposed exemption is limited only to relief from the

prohibitions of section 406(a)(1)(D) of the Act which may result

from the making of such loans pursuant to the described arrangement.

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Further, no Trustee currently engages in any personal or business

transactions with the Bank. Should a Trustee wish to engage in personal

or business relations with the Bank or other Banks that may become

involved in the Program in the future, that Trustee must make his

intention known to the Board and must remove himself from any

considerations or decisions regarding the Plan's participation in the

Program while such Banks are involved in the Program. As a result, the

Trustees will not derive any financial benefit, such as banking

services at a reduced cost, or business or personal loans under more

favorable terms than those provided to other customers, as a result of

the Plan's participation in the Program.2

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\2\ Section 406(b) of the Act states, in pertinent part, that a

fiduciary with respect to a plan shall not deal with the assets of a

plan in his own interest or for his own account and shall not

receive any consideration for his personal account from any party

dealing with such plan in connection with a transaction involving

the assets of the plan.

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4. The terms and conditions of the proposed agreement with the Bank

are embodied in a written agreement (the Deposit Agreement). The Plan's

initial $1 million deposit will be invested in a master certificate of

deposit (Master CD) at the Bank's regular 30-day rate for large CDs,

subject to adjustment higher or lower each month. The Master CD is

essentially the total pool of available assets for investment in the

CDs at any given time.

5. Under the Program, after the Plan's initial investment in the

CDs, and as subsequent investments in CDs are made, the Bank will make

loans (the Loans) from its own funds to customers who meet the Bank's

normal lending standard for similar loans, to finance re-roofing jobs

(whether residential or commercial), provided the work is done by

employers who are required under collective bargaining agreements to

contribute to the Plan on behalf of the employees who would be doing

the re-roofing work. As the Program proceeds, and new Loans are made,

the Plan will have the opportunity each month to make additional CD

investments. The Loans will be for at least $1,500 and will have terms

ranging from 2 to 5 years. The applicant represents that if the Bank

makes Loans in a greater dollar amount than the dollar amount of CDs

purchased by the Plan, the Plan will be under no obligation to make an

additional CD purchase. Further, the applicant represents that there is

no intention, express or implicit, to link the dollar amount of Loans

made to Bank customers with the Plan's CD investments under the

Program.

The Loans under the Program will not be made directly to Plan

participants or parties in interest with respect to the

Plan.3 More specifically, no Loans would be made to

contributing employers under the Program. Further, the Trustees and

other Plan fiduciaries involved in any decision regarding the Plan's

participation in the Program will be prohibited from receiving Loans

under the Program.

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\3\ Thus, the Department is providing no relief in this proposed

exemption for any prohibited transactions that may occur as a result

of a Bank making a Loan to a party in interest with respect to the

Plan under an arrangement designed to benefit that party in

interest.

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6. Each month TDA will consider whether, and to what amount, to

invest in a specific CD under the Program. TDA will use its discretion

to determine whether it is prudent to invest the principal amount of

the Loans then outstanding, or some larger amount, in CDs. The amount

determined by TDA to be prudent would then be transferred from the

Master CD to a CD. The CD in which the Plan invests will have terms

identical to those of CDs of the same size and maturity offered and

sold by the Bank to unrelated customers not participating in the

Program. The applicants represent that the CDs will have a maturity

term of at least one year from the date of issuance. Further, the

interest rates on the CDs will pay the maximum rates of interest for

CDs of the same size and maturity offered by the Bank or Banks at the

time of the CD investment.

All decisions concerning the Plan's CD investments will be made by

TDA. TDA will determine whether the Plan should make CD purchases based

upon a variety of factors, including: (1) The financial condition and

creditworthiness of the Bank, or Banks, issuing the CDs; (2) the

presence and extent of Federal Deposit Insurance Corporation (FDIC)

protection for the Plan's CD investments; (3) the yield and liquidity

of the CD in comparison to other CDs of similar risk and term; and (4)

the expenses that the Plan will incur in connection with the purchase.

In this manner, TDA will ensure that the total net rate of return to

the Plan from the CD investments will be at least comparable to, or

better than, the rate of return available on other fixed-income

investments of similar risk and term at the time of the CD purchase.

TDA will also be responsible for decisions to suspend purchases of CDs

by the Plan based on these criteria. The Trustees will monitor TDA's

investments to ensure that the CD purchases are

[[Page 46727]]

consistent with the Plan's asset allocation guidelines. TDA has

reviewed the Bank's financial condition and has determined that it is

prudent for the Plan to invest in CDs of the Bank.

7. To ensure that the interest rate on Loans under the Program is

at a fair market rate, the Bank will set the interest rate for the

borrower at 4% more than the interest rate for the CD as set by TDA. As

noted, CDs will pay the maximum rate of interest for CDs issued by the

Bank. The 4% difference represents the Bank's compensation for its

origination, servicing, marketing and assumption of the risk of loss

with respect to the Loans. By setting the Loan rates in this manner,

the Bank will ensure that interest rates and fees are reasonable, so

that potential borrowers are not discouraged from seeking Loans. The

Loan interest rate will in no way impact the return to the Plan on the

CDs.

8. Counsel for the Bank has prepared an opinion that all CDs issued

by the Bank are eligible for FDIC pass-through deposit insurance up to

the maximum limit under current regulations of the FDIC (see 12 CFR

Part 330). Pursuant to FDIC regulation section 330.14(a), deposits of

an employee benefit plan, such as the Plan, are insured on a pass-

through basis in an amount of up to $100,000 per plan participant where

certain recordkeeping requirements are met.4 Should any

funds on deposit with the Bank or other Banks participating in the

Program cease to be eligible for such insurance, the Plan will be

entitled to withdraw such funds from such Bank(s) immediately.

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\4\ The applicant represents that in order for FDIC insurance to

be provided on a pass-through basis, FDIC regulation section 330.5

requires that a pension plan deposit be identified as such, and that

records evidencing the ownership interests of each beneficiary under

the plan be maintained by either the bank or the plan. The applicant

represents that these requirements will be met with respect to the

Program, and, accordingly, the CDs under the Program will be

eligible for FDIC pass-through insurance.

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9. If TDA reasonably believes that interest rates on CDs will

decline during an upcoming period, TDA may establish a minimum rate at

which the Plan will invest in a CD for that upcoming period that is not

to exceed 25 basis points below the effective annual yield at the end

of the preceding period on U.S. Treasury Notes with the same term. TDA

will not invest in a CD that does not meet this threshold. TDA

represents that this measure of flexibility will allow it to exercise

its expertise as an investment manager to obtain for the Plan the

maximum CD rate set by the Bank or Banks for a given period based on

the anticipated change.

10. Biller has the ongoing responsibility to determine whether up

to 5% of the Plan's assets can prudently be invested in CDs in

connection with the Program, and will make this determination based on,

among other factors, the asset allocations for the Plan and the Plan's

investment guidelines. TDA has the responsibility to monitor whether

the Bank is financially secure, whether the CDs are at maximum rates,

and whether it is in the best interest of the Plan to continue or

suspend its participation in the Program with the Bank. Under the terms

of the Deposit Agreement, the Plan has the right: (a) To inform the

Bank prior to the beginning of a month of the minimum acceptable CD

interest rate it will accept with respect to Loans made that month; (b)

to suspend the transfer of assets from the Master CD to a CD in any

month by giving notice to the Bank prior to the beginning of the month;

and (c) to terminate its participation in the Program on 15 days'

written notice to the Bank (upon termination, the Master CD would be

paid to the Plan at the end of the month, and any outstanding CD would

continue for a period of one year, at which time it would be paid to

the Plan). Biller represents that based on its review of the Plan's

projections of contributions, benefits and actuarial liabilities, it

has determined that it is prudent for the Plan to invest up to 5% of

its assets in federally-insured CDs issued at competitive market rates.

11. When, in the judgment of TDA, the expected rate of return on a

CD issued by a Bank through the Program will not equal or exceed the

rates available to the Plan from comparable, insured fixed-income

investments, TDA will suspend or terminate the Plan's participation in

the Program with respect to that Bank. TDA will make this determination

by ensuring, based on relevant available information and its own

expertise, that the interest rates on the CDs made available by the

Bank remain comparable to other fixed-income investments of similar

risk and duration and do not fall below the rates available for CDs

offered by other banks.

12. The Plan's assets have been invested in a broadly diversified

portfolio of fixed-income securities, common stocks and real estate

investments. Biller has evaluated the Plan's portfolio of fixed-income

investments and determined that the investment of up to 5% of net

assets in insured CDs having rates of return which would be equal to,

or greater than, those available in comparable, insured fixed-income

investments would be an appropriate investment for the Plan. TDA has

also determined that the purchase of Master CDs and CDs through

participation in the Program, under conditions which it can monitor,

would be a prudent investment strategy for the Plan. These

determinations are supported by TDA's assessment of the economic merits

of the investments apart from any benefits that may accrue to the

Plan's participants as a result of increased employment opportunities

and employer contributions to the Plan that may be generated by the

Program.5

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\5\ In this regard, the Department notes that the Act's

standards of fiduciary conduct will apply to the decision to include

the Program among the Plan's investments, and to invest in

particular CDs under the Program. Section 404(a)(1) of the Act

requires, among other things, that a fiduciary of a plan must act

prudently, solely in the interest of the plan's participants and

beneficiaries, and for the exclusive purpose of providing benefits

to participants and beneficiaries. Accordingly, the fiduciaries of

the Plan must act ``prudently'' with respect to the decision to

include the Program, as well as to the actual decision to commit

Plan assets to the Program (including, where relevant, the

determination of how much, if any, to invest in CDs under the

Program, which banks to purchase the CDs from, and the maturity

dates of the CDs). In order to act prudently in making investment

decisions, a plan fiduciary must consider, among other factors, the

availability, risks and potential return of alternative investments

for the plan. Investing assets in CDs would not be prudent if such

CDs would provide the plan with less return, in comparison to risk,

than comparable investments available to the plan or if such CDs

would involve a greater risk to the security of plan assets than

other investments offering a similar return. The Department has

construed the requirements that a fiduciary act solely in the

interest of, and for the exclusive purpose of providing benefits to,

participants and beneficiaries as prohibiting a fiduciary from

subordinating the interests of participants and beneficiaries in

their retirement income to unrelated objectives. Thus, in deciding

whether and to what extent to invest in CDs, a plan fiduciary must

consider only factors relating to the interests of the plan

participants and beneficiaries in their retirement income. A

decision to make an investment in CDs of a particular bank may not

be influenced by non-economic factors, such as a desire to encourage

the bank to make loans to finance re-roofing jobs where the work is

being performed by contributing employers, unless the CD investment,

when judged solely on the basis of its economic value, would be

equal to or superior to alternative investments available to the

Plan. Finally, we note that the granting of the exemption proposed

herein should not be viewed as an endorsement by the Department of

the Plan's participation in the Program or any CD purchases

thereunder.

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13. In summary, the applicant represents that the proposed

transactions satisfy the criteria of section 408(a) of the Act because:

(a) Biller, an independent equities and fixed-income investment manager

for the Plan, has reviewed the proposed investment Program and has

determined that an investment of up to 5% of the Plan's assets in CDs,

including CDs issued under the Program, is appropriate and consistent

with the Plan's investment guidelines; (b) TDA, the independent

investment manager with respect to the assets of the Plan

[[Page 46728]]

involved in the Program, has reviewed the Program and determined that

it is in the Plan's interest based solely on the economic and financial

merits of the Plan's involvement in the Program; (c) TDA will act on

the Plan's behalf regarding the Plan's investment in Master CDs and CDs

and will monitor all transactions relating to such investments; (d) the

requirements of Act section 408(b)(4) will be satisfied if any bank

participating in the Program is a fiduciary or party in interest with

respect to the Plan; (e) the Plan's CDs will have a maturity of at

least one year from the date of issuance and will pay the maximum rates

of interest provided by the Bank for CDs of the same size and maturity;

(f) the Bank will offer CDs provided under the Program to other,

unrelated customers in the ordinary course of its business; (g)

interest rates on CDs under the Program, and the total net rates of

return to the Plan, taking into consideration all expenses associated

with the transaction, will be at least comparable to or better than

those rates which the Plan could obtain on similar fixed-income

investments of similar risk and term at the time of each CD purchase;

(h) TDA will determine at least annually that the Bank, or any other

Bank participating in the Program in the future, is a solvent

institution, based on an analysis of all relevant information involving

the Bank's (or other Banks') financial status; (i) no person who is a

party in interest with respect to the Plan, including contributing

employers, Trustees and other plan fiduciaries, will receive a loan

under the Program; (j) the total outstanding amount of CDs purchased by

the Plan from the Banks will not exceed 5% of the fair market value of

the Plan's total assets at the time of any transaction; (k) no Plan

Trustee currently engages in any personal or business transactions with

the Bank, and if a Trustee engages in such transactions in the future,

the Trustee will recuse himself with respect to any decision regarding

the Program on behalf of the Plan; (l) the Plan's investment in CDs is

not part of an arrangement designed to benefit any investment manager,

other Plan fiduciary, or contributing employer, other than to the

extent that residential or commercial re-roofing jobs will be performed

by contributing employers to the Plan; and (m) if a customer defaults

on a Loan, the Bank has no claim against, or recourse to, the CDs or

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other assets of the Plan.

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

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

General Electric Pension Trust (the Trust); Located in Fairfield,

Connecticut

[Application Nos. D-10679 through D-10682]

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, as of October 1, 1998, to the lease (the Lease)

by the Trust of office space in a certain commercial office building

(the Property) to Transport International Pool, Inc. (TIP), a party in

interest with respect to employee benefit plans of General Electric

Company (GE) and/or an affiliate whose assets are held in the Trust,

provided that the following conditions are satisfied:

(1) The Trust was and is represented for all purposes under the

Lease by a qualified, independent fiduciary;

(2) The terms and conditions of the Lease are at least as favorable

to the Trust as those the Trust could have obtained in a comparable

arm's length transaction with an unrelated party;

(3) The rent paid to the Trust under the Lease is no less than the

fair market rental value of the office space occupied by TIP, as

established by a qualified, independent appraiser;

(4) The independent fiduciary for the Trust reviewed the terms and

conditions of the Lease on behalf of the Trust and determined that the

Lease was in the best interests of the Trust;

(5) The independent fiduciary monitors and enforces compliance with

all of the terms and conditions of the Lease, and of the exemption (if

granted), throughout the duration of the Lease; and

(6) The independent fiduciary expressly approves any renewal of the

Lease, and the rental rate under such renewal is based upon an updated

independent appraisal of the office space being leased to TIP (but in

no event shall the rental rate be less than that for the preceding

period).

EFFECTIVE DATE: The proposed exemption, if granted, will be effective

as of October 1, 1998.

Summary of Facts and Representations

1. The Trust holds assets of the GE Pension Plan, which constitutes

approximately 99% of Trust assets, and also of the Knolls Atomic

Laboratories Pension Plan, ERC Retirement Plan, and Components Pension

Plan for Puerto Rico (collectively, the Plans). The Plans are all

defined benefit plans that cover employees of GE and various GE

subsidiaries. As of October 5, 1998, the Plans had, in the aggregate,

over 400,000 participants and beneficiaries. As of December 31, 1997,

the Trust had total assets of approximately $38.9 billion.

The trustees of the Trust are five individuals (the Trustees), who

are officers of GE and/or its subsidiaries. The Trustees are appointed

by the Benefit Plans Investment Committee of GE, an oversight committee

that determines the investment policies of the Trust. The Trustees

maintain overall responsibility for investment of the Trust assets. The

specific responsibility for investment of the Trust assets that are

relevant to the application rests with the General Electric Investment

Corporation (GEIC), subject to the approval of one or more of the

Trustees.

GEIC, a Delaware corporation and a wholly owned subsidiary of GE,

is a registered investment adviser under the Investment Advisers Act of

1940. GEIC provides investment management and advisory services to a

variety of GE-affiliated entities. As of January 1, 1998, GEIC had

approximately $53.25 billion of assets under management.

2. TIP, a Pennsylvania corporation, is a wholly owned subsidiary of

Transport Pool Corporation, which is a wholly owned subsidiary of

General Electric Capital Corporation. General Electrical Capital

Corporation is a wholly owned subsidiary of General Electric Financial

Services, Inc., which, in turn, is a wholly owned subsidiary of GE. TIP

is primarily engaged in the business of semi-trailer sales and leasing.

TIP sponsors its own pension plan, and its employees do not participate

in the GE Pension Plan. Accordingly, TIP is not an employer (within the

meaning of section 3(5) of the Act) with respect to the Plans whose

assets are held in the Trust, but is a party in interest with respect

to the Plans under section 3(14)(G) of the Act by virtue of its

relationship to GE and other GE affiliates.

3. The transaction for which an exemption is requested involves the

leasing, by the Trust to TIP, of office space in an 18-story office

tower located at 18101 Von Karman Avenue, Irvine, California (i.e., the

Property). The value of the Property, as of October 5, 1998, was

approximately $75 million.

[[Page 46729]]

The Property is within the Lakeshore Towers Project. Lakeshore

Towers Limited Partnership Phase I (the Partnership) is a California

limited partnership through which the Trust owns the Lakeshore Towers

Project.6 The Lakeshore Towers Project consists of the

Property, a 1,700 space parking garage, a restaurant, and a sporting

club on approximately 15 acres of land. The Lakeshore Towers Project is

located on land that is ground leased from unrelated parties. The land

consists of seven separately parceled leasehold estates. It is located

in the John Wayne Airport Area of Orange County, California.

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\6\ For convenience, this notice will refer to the Trust as the

``landlord'' under the Lease rather than to the Partnership through

which the Trust owns Lakeshore Towers Project, in which the Property

is contained.

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Dorn-Platz & Company (the Property Manager), a realty company which

is independent of GE and its affiliates, serves as a manager of the

Property and is located in Glendale, California. In this capacity, the

Property Manager oversees any new construction or developments,

supervises and negotiates the leasing of space, and manages any

financing and re-financing arrangements involving the Property.

4. TIP formerly had its local office in the Los Angeles business

district. In late 1997, it began looking to relocate its office to

Orange County, largely for the increased convenience of its employees

and the need for a larger space. In the course of its search for space,

it independently located the Property, unaware of the Partnership's

affiliation with the Trust. TIP decided that it was interested in

leasing space in the Property and entered into negotiations with the

Property Manager. Only during negotiations with the Property Manager

did TIP discover the relationship of the parties and the need to obtain

an exemption from the prohibited transaction rules of the Act. Once

this discovery was made, negotiations ceased, and the Trustees sought

independent legal counsel regarding the possibility of obtaining an

administrative exemption.

5. In accordance with the advice of counsel, the Trustees at that

point retained John S. Adams, M.A.I., of John S. Adams & Associates,

Inc., as an independent fiduciary to represent the Trust with respect

to the Lease. Mr. Adams is a real estate appraiser who is licensed in

the State of California. Mr. Adams represents that he and his firm are

independent of the Trust, GE, and GE's affiliates (including TIP) and

derive less than 1% of annual gross income therefrom. Mr. Adams states

that he is knowledgeable as to the subject transaction, for he has 26

years experience in the valuation and analysis of all types of real

estate, including urban office buildings similar to the Property. Mr.

Adams also acknowledges his duties, responsibilities, and liabilities

in acting as a fiduciary under the Act to the Trust for purposes of the

Lease.7

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\7\ In this regard, Mr. Adams will confer with legal counsel

having expertise with respect to the requirements of the Act, as

needed.

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Mr. Adams prepared a report, dated September 9, 1998, which

provides an appraisal of the Property, as well as an evaluation of the

Lease. In the report, Mr. Adams states that he inspected and analyzed

the Property, which has a net rentable area of 378,781 sq. ft. On the

basis of a review of a number of comparable leases in the same general

market area, Mr. Adams concluded that the space in the Property covered

by the Lease had a fair market rental value, as of August 31, 1998, in

the range of $2.21 to $2.48 per sq. ft. Mr. Adams' analysis of the

Lease terms is described in Paragraph 7, below.

6. The Lease, which commenced on October 1, 1998, has a term of

five years. The urgency to execute the Lease was due to TIP's immediate

need for additional space to house its divisional sales and operations

office. As of that date, the Trust had substantially completed the

agreed upon tenant improvements: construction of a wall to separate the

TIP office space from other rentable areas on the 10th floor of the

Property, painting interior walls, etc. The cost to the Trust came to

$1.95 per sq. ft.

Under the Lease, TIP has leased approximately 2,532 rentable sq.

ft. of space on the 10th floor of the Property, which constitutes

approximately 0.67 percent of the rentable square footage in the

Property. The space may be used for general office use only. In

addition, TIP leases eight parking spaces allocated to TIP on an in-

common, non-exclusive and unreserved basis in the parking facility for

the Property at the monthly charge of $60.00 per stall.

The Lease provides for a rental rate of $2.40 per sq. ft. of

rentable area, or $6,076.80 per month. TIP is to pay its proportionate

share of the Trust's real estate taxes and other expenses relating to

the Property for years after 1998, to the extent that these taxes and

expenses exceed those for the 1998 year (the ``base'' year). In

addition, TIP is responsible for any additional taxes levied or

assessed that are attributable to TIP's improvements to personal

property within the leased space, its activities with the leased space,

or any transactions involving the leased space.

Late payments are subject to (1) an interest charge on amounts

unpaid from the time due until paid to compensate the Trust for the

loss of the use of amounts owed and (2) an additional 10% late payment

charge to compensate for administrative expenses incurred by the Trust

in handling delinquent payments.

TIP does not have any options or rights to expand or extend the

Lease, nor has it received any period of free rent. Any assignments or

subleases by TIP are void unless the Trust has provided prior written

consent, and, if consented to, may be subject to additional charges. In

such instances, TIP is not released from any of its Lease obligations.

Any alterations to be made by TIP to the leased space during the term

of the Lease are also subject to the Trust's written consent.

7. Prior to the execution of the Lease, Mr. Adams, the independent

fiduciary, reviewed and approved the terms and conditions of the Lease

on behalf of the Trust. In his report, dated September 9, 1998, Mr.

Adams stated that such terms and conditions were at least as favorable

to the Trust as those the Trust could obtain in a comparable arm's

length transaction with an unrelated party. Mr. Adams noted that the

effective rental rate was $2.40 per sq. ft., which was at the upper end

of the appraised range of $2.21 to $2.48 per sq. ft. for the Property.

Mr. Adams took into account the fact that the Lease does not provide

for periodic rental adjustments. He explained that if the Lease had

been negotiated to include an escalation clause, the Trust would have

been required to accept a lower rental rate than $2.40 per sq. ft. for

the initial years of the Lease. Mr. Adams stated that he considered the

flat rental rate favorable to the Trust, as landlord, because it allows

the Trust to obtain a higher starting rent upfront. In all other

respects, Mr. Adams noted that the Lease provides TIP, as tenant, with

no unusual market advantages.

Mr. Adams also determined that the Lease was in the best interests

of the Trust. In this regard, Mr. Adams stated that the execution of

the Lease would reduce building vacancy and enhance cash flow for the

Trust with respect to the Property.

Finally, Mr. Adams has agreed to monitor and enforce compliance

with the terms and conditions of the Lease, and of the exemption (if

granted), throughout the duration of the Lease, and will take whatever

actions necessary to safeguard the interests of the Trust with respect

to the Lease. Mr.

[[Page 46730]]

Adams will also expressly approve any renewal of the Lease.8

The rental rate under such renewal will be based upon an updated

independent appraisal of the office space being leased to TIP (but in

no event shall the rental rate be less than that for the preceding

period).

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\8\ It is represented that in the event it becomes necessary to

appoint a successor independent fiduciary (the Successor) to replace

Mr. Adams, the applicant will notify the Department 60 days in

advance of such appointment. Any Successor shall be independent and

possess comparable experience and responsibilities as Mr. Adams.

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8. In summary, the applicant represents that the subject

transaction satisfies the statutory criteria for an exemption under

section 408(a) of the Act for the following reasons: (a) The Trust was

and is represented for all purposes under the Lease by a qualified,

independent fiduciary (i.e., Mr. Adams); (b) the terms and conditions

of the Lease are at least as favorable to the Trust as those the Trust

could have obtained in a comparable arm's length transaction with an

unrelated party; (c) the rent paid to the Trust under the Lease is no

less than the fair market rental value of the office space occupied by

TIP, as established by a qualified, independent appraiser; (d) Mr.

Adams, the independent fiduciary for the Trust, reviewed the terms and

conditions of the Lease on behalf of the Trust and determined that the

Lease was in the best interests of the Trust; (e) Mr. Adams will

monitor and enforce compliance with all of the terms and conditions of

the Lease, and of the exemption (if granted), throughout the duration

of the Lease; and (f) Mr. Adams will expressly approve any renewal of

the Lease, and the rental rate upon such renewal will be based upon an

updated independent appraisal of the office space being leased to TIP

(but in no event shall the rental rate be less than that for the

preceding period).

Notice to Interested Persons

Notice of the proposed exemption will be given to all active

employees of GE and its affiliates who are participants and

beneficiaries in the plans whose assets are held in the Trust by

posting a notice (along with a copy of the proposed exemption as

published in the Federal Register) at GE locations, in areas that are

customarily used for notices to employees with regard to employee

benefits or labor relations matters. Notice of the proposed exemption

will be given to former employees and retirees, and all others eligible

to receive the Summary Annual Reports for the affected plans, by

publication of a notice in the 1998 Summary Annual Reports, which are

to be mailed no later than December 15, 1999. In both instances, the

notice shall inform interested persons of their right to comment and/or

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

requests for a hearing from all interested persons are due within 30

days following distribution of the 1998 Summary Annual Reports.

FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,

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

Jonas Builders, Inc. Restated Profit Sharing Plan (the Plan);

Located in Milwaukee, Wisconsin

[Application No. D-10764]

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 proposed sale of a certain building, which

contains a warehouse and a single-family residence (collectively; the

Building), by the Plan to Mr. Gerald Jonas, a party in interest with

respect to the Plan, provided that the following conditions are

satisfied:

(a) All terms and conditions of the sale 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 fair market value of the Building has been determined by an

independent qualified appraiser;

(c) The sale of the Building is a one-time transaction for cash;

(d) The Plan does not pay any commissions, costs or other expenses

in connection with the sale of the Building; and

(e) The Plan receives an amount equal to the greater of either: (i)

The original acquisition cost of the Building plus any improvement

costs and real estate taxes that were incurred by the Plan from the

date the Building was acquired by the Plan until the date of the

proposed sale (i.e., the total cost of $1,929,422.73, as of December

31, 1998); or (ii) the current fair market value of the Building, as

established by an independent qualified appraiser at the time of the

sale.

Summary of Facts and Representations

1. The Plan is a profit sharing plan which was established on

December 28, 1970. As of April 27, 1998, the Plan had two participants,

Mr. Gerald Jonas (Gerald Jonas) and his son Mr. Mark Jonas. Gerald

Jonas is also the Plan's trustee. As of December 31, 1998, the Plan had

total assets of $8,649,839.

Jonas Builders, Inc. (the Employer) is the sponsor of the Plan.

Gerald Jonas is the sole owner and shareholder of the Employer. The

Employer is in the business of commercial and industrial real estate.

The Employer was incorporated on November 25, 1981 in the State of

Wisconsin and is located in Milwaukee, Wisconsin.

2. On April 22, 1991, the Plan purchased the Building from Scott

Paper Company, an independent third party, for a purchase price of

$1,530,108. The original acquisition of the Building was financed

through Catholic Family Insurance,9 which lent the Plan

$1,000,000 of the purchase price. The Plan paid the remaining $530,108

in cash. As of May 28, 1999, the outstanding principal balance of the

loan was $276,984.98.10 The Plan paid the remaining $530,108

in cash. At the time it was originally acquired, the value of the

Building represented approximately 36.65% of the Plan's total

assets.11 The applicant represents that the Plan has

incurred $7,422 in improvement costs to install a loading dock.

Furthermore, the Plan has paid $391,892.73 in real estate taxes from

1991 (i.e., year of original acquisition) until December 31, 1998.

Therefore, the total cost to the Plan for the Building was $1,530.108 +

$7,422+ $391,892.73 = $1,929,422.73, as of December 31, 1998.

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\9\ The applicant represents that Gerald Jonas has a personal

mortgage for another piece of property with Catholic Family

Insurance, but that no other relationship exists between the

parties.

\10\ The applicant states that this loan will not be paid off as

a result of the proposed transaction. Gerald Jonas will assume the

Plan's obligation under the loan and the Plan will be released from

further liability with respect to the loan.

\11\ The Department is not providing any opinion in this

proposed exemption as to whether the acquisition and holding of the

Building by the Plan violated any of the provisions of Part 4 of

Title I of the Act.

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It is represented that Gerald Jonas, as the Plan's trustee, made

the original decision to purchase the Building as an investment for the

Plan.

3. The Building consists of a warehouse of approximately 217,000

square feet (the Warehouse) and a single family home (the Home). The

Warehouse part of the Building is located at 4425 N. Washington Road,

and the Home is located at 4513 N. Port Washington Road, in Glendale,

[[Page 46731]]

Wisconsin. The Building is located in an area of other warehouse,

office and manufacturing buildings which is approximately 4 miles north

of downtown Milwaukee, Wisconsin. The applicant represents that the

Building is not adjacent to any property owned by the Employer, Gerald

Jonas, or any other parties in interest with respect to the Plan.

For the last several years, only a fraction of the Building has

been leased. The Plan has attempted to find additional tenants for the

Building. Recent tenants have been willing to enter into only short

term leases. The applicant states that leasing the entire Building on a

long-term basis would be very beneficial to the Plan.12

However, the Plan has been unable to find a tenant or tenants willing

to lease the entire Building in its current condition (as noted in

paragraph 4 below) or to enter into any longer term leases.

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\12\ In this regard, the applicant represents that during the

years 1991 through (and including) July, 1999, the aggregate rental

income earned by the Plan from the Building was $2,054,958.

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The applicant represents that the Plan has attempted to sell the

Building to unrelated parties and that the Building has been listed on

the market for several years. However, the Plan has not received any

acceptable offers for the Building. Polacheck Realty was the listing

company.

4. The Building was appraised (the Appraisal) on January 18, 1999,

by Paul A. Vandeveld (Mr. Vandeveld), MAI, an independent and qualified

appraiser with Vandeveld and Associates Real Estate Appraisals located

in Brookfield, Wisconsin. Mr. Vandeveld states that in appraising the

Building, he valued both the Warehouse and the Home.

The Appraisal states that the Building consists of a four building

complex that is partially occupied by two separate commercial tenants

(Wilson Services and Jefferson Smurfit), which are using the Warehouse.

Mr. Vandeveld notes that only 91,380 square feet of the Building is

leased (which is only approximately 41% of the total square feet in the

Building).

Mr. Vandeveld states that the Home is a modest frame structure

which the assessment records indicate was built in 1890. The Home has a

full basement, two upper level bedrooms, living room, dining room,

kitchen and full bath. However, the exterior appearance of the Home is

poor. Mr. Vandeveld concludes that because of the age of the Home, its

small size and its poor appearance and condition, the value of the Home

is minimal compared to the Warehouse.

In preparing the Appraisal, Mr. Vandeveld used the Cost Approach,

the Direct Sales Comparison Approach, and the Income Approach. However,

because the Warehouse is mostly vacant, more reliance was placed on the

direct sales comparison approach to value the Building. Mr. Vandeveld

determined that the fair market value of the Warehouse and the Home was

$2,250,000 and $40,000, respectively, for a total value of $2,290,000,

as of January 18, 1999 .

5. The applicant represents that the proposed transaction is in the

best interest and protective of the Plan because the sale of the

Building will be for an amount equal to the greater of: (i) The

original acquisition cost of the Building, plus any improvement costs

and real estate taxes that were incurred by the Plan from the date of

acquisition until date of the proposed sale (i.e., a total cost of

$1,929,422.73, as of December 31, 1998); or (ii) the current fair

market value of the Building, as established by an independent

qualified appraiser at the time of the sale. The Plan will not pay any

commissions, costs or other expenses in connection with the sale of the

Building.

The transaction will be a one-time cash sale, and will enable the

Plan to diversify its investment portfolio. In this regard, the Plan

has tried unsuccessfully over the last few years to sell the Building

to an unrelated party. The applicant maintains that the Plan will

sustain economic hardship if the Plan is forced to keep the Building

and undertake costly renovations to the Building in order to make it

attractive to either prospective tenants or a third party buyer.

6. In summary, the applicant represents that the proposed

transaction satisfies the statutory criteria of section 408(a) of the

Act and section 4975(c)(2) of the Code because:

(a) All terms and conditions of the sale 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 fair market value for the Building has been determined by

an independent qualified appraiser;

(c) The sale of the Building will be a one-time transaction for

cash;

(d) The Plan will not pay any commissions, costs or other expenses

in connection with the sale of the Building; and

(e) The Plan will receive an amount equal to the greater of:

(i) The original acquisition cost of the Building, plus any

improvement costs and real estate taxes that were incurred by the Plan

since the date of the acquisition of the Building until the date of the

proposed sale; or (ii) the current fair market value of the Building,

as established by an independent qualified appraiser at the time of the

sale.

FOR FURTHER INFORMATION CONTACT: Ekaterina A. Uzlyan 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

[[Page 46732]]

such change, application for a new exemption may be made to the

Department.

Signed at Washington, DC, this 20th day of August, 1999.

Ivan Strasfeld,

Director of Exemption Determinations, Pension and Welfare Benefits

Administration, U.S. Department of Labor.

[FR Doc. 99-22024 Filed 8-25-99; 8:45 am]

BILLING CODE 4510-29-P