Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 49025 

coverage to participants and dependents 

who are or were covered under the 

group health plan upon the occurrence 

of specified events. A copy of the 

information collection request (ICR) can 

be obtained by contacting the office 

shown in the ADDRESSES section of this 

notice. 

DATES: Written comments must be 

submitted to the office shown in the 

ADDRESSES section of this notice on or 

before November 24, 2009. 

ADDRESSES: Interested parties are 

invited to submit written comments 

regarding the information collection 

request and burden estimates to G. 

Christopher Cosby, Office of Policy and 

Research, Employee Benefits Security 

Administration, U.S. Department of 

Labor, 200 Constitution Avenue, NW., 

Room N–5718, Washington, DC 20210, 

(202) 693–8410, FAX (202) 219–4745 

(these are not toll-free numbers). 

Comments may also be submitted 

electronically to the following Internet 

e-mail address: ebsa.opr@dol.gov. 

SUPPLEMENTARY INFORMATION: 

I. Background 

Subsection (a) of 29 CFR 2590.701–5 

requires a group health plan and each 

health insurance issuer offering group 

health insurance coverage under a group 

health plan to furnish certificates of 

creditable coverage to specified 

individuals under specified 

circumstances. EBSA previously 

submitted an ICR concerning the 

requirement to provide certificates of 

creditable coverage to the Office of 

Management and Budget (OMB) for 

review under the PRA and received 

approval under OMB Control No. 1210– 

0103. The ICR approval is currently 

scheduled to expire on December 31, 

2009. 

II. Desired Focus of Comments 

The Department is particularly 

interested in comments that: 

• Evaluate whether the collection of 

information is necessary for the proper 

performance of the functions of the 

agency, including whether the 

information will have practical utility; 

• Evaluate the accuracy of the 

agency’s estimate of the burden of the 

collection of information, including the 

validity of the methodology and 

assumptions used; 

• Enhance the quality, utility, and 

clarity of the information to be 

collected; and 

• Minimize the burden of the 

collection of information on those who 

are to respond, including through the 

use of appropriate automated, 

electronic, mechanical, or other 

technological collection techniques or 

other forms of information technology, 

e.g., by permitting electronic submission 

of responses. 

III. Current Action 

This notice requests comments on an 

extension of information collections 

arising from the requirement under 29 

CFR 2590.701–5 to provide certificates 

of creditable coverage. The Department 

is not proposing or implementing 

changes to the existing information 

collections at this time. A summary of 

the ICR and the current burden 

estimates follows: 

Agency: Department of Labor, 

Employee Benefits Security 

Administration. 

Title: Establishing Prior Creditable 

Coverage. 

Type of Review: Extension of a 

currently approved collection of 

information. 

OMB Number: 1210–0103. 

Affected Public: Business or other forprofit; Not-for-profit institutions. 

Frequency of Response: On occasion. 

Respondents: 2,493,046. 

Responses: 16,250,284. 

Total Estimated Burden Hours: 

75,306. 

Total Burden Cost (Operating and 

Maintenance): $11,456,011. 

Comments submitted in response to 

this notice will be summarized and/or 

included in the request for OMB 

approval of the extension of this ICR; 

they will also become a matter of public 

record. 

Dated: September 21, 2009. 

Joseph S. Piacentini, 

Director, Office of Policy and Research, 

Employee Benefits Security Administration. 

[FR Doc. E9–23139 Filed 9–24–09; 8:45 am] 

BILLING CODE 4510–20–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

[Application Nos. and Proposed 

Exemptions; D–11423, Cotter Merchandise 

Storage Company Defined Benefit Pension 

Plan (the Plan); D–11445, Unaka Company, 

Incorporated Employees Profit Sharing Plan 

(the Plan); and D–11522, State Street Bank 

and Trust Company, et al.] 

Notice of Proposed Exemptions 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Notice of proposed exemptions. 

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 (ERISA or the Act) and/or 

the Internal Revenue Code of 1986 (the 

Code). 

Written Comments and Hearing 

Requests 

All interested persons are invited to 

submit written comments or requests for 

a hearing on the pending exemptions, 

unless otherwise stated in the Notice of 

Proposed Exemption, 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 Employee 

Benefits Security Administration 

(EBSA), Office of Exemption 

Determinations, Room N–5700, U.S. 

Department of Labor, 200 Constitution 

Avenue, NW., Washington, DC 20210. 

Attention: Application No., stated in 

each Notice of Proposed Exemption. 

Interested persons are also invited to 

submit comments and/or hearing 

requests to EBSA via e-mail or FAX. 

Any such comments or requests should 

be sent either by e-mail to: 

moffitt.betty@dol.gov, or by FAX to 

(202) 219–0204 by the end of the 

scheduled comment period. The 

applications for exemption and the 

comments received will be available for 

public inspection in the Public 

Documents Room of the Employee 

Benefits Security Administration, U.S. 

Department of Labor, Room N–1513, 

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). 


jlentini on DSKJ8SOYB1PROD with NOTICES
49026 Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 

1 (According to T.C. Memo. 2000–391, 2000 WL 

1899306 (U.S. Tax Ct.), the Plan allowed loans to 

participants subject to certain requirements. In this 

regard, the Plan limited loan amounts, required a 

Qualified Waiver of Spouse from the participant 

taking the loan, and stipulated that the loan be 

secured by the participant’s entire interest in the 

Plan’s trust. Mr. Geib’s loans were made in excess 

of the Plan’s loan limitations and without a 

Qualified Waiver of Spouse. Further, the loans were 

not adequately secured and they did not meet the 

requirements of the Plan document. Therefore, the 

loans would not satisfy the statutory exemption for 

participant loans under section 408(b)(1) of the Act. 

2According to the Applicant, the March 1, 1988 

Note notation was erroneously duplicated in the 

Plan’s judgment. The correct amount of the 

judgment should have been $210,500. 

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, 5 U.S.C. App. 1 (1996), 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. 

Cotter Merchandise Storage Company, 

Defined Benefit Pension Plan (the 

Plan), Located in Akron, OH. 

[Application No. D–11423.] 

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 (1) the proposed sale 

by the Plan to the Cotter Merchandise 

Storage Company (Cotter or the 

Applicant), the Plan sponsor and a party 

in interest with respect to the Plan, of 

certain promissory notes (the Notes) 

which are currently held by the Plan; 

and (2) the assignment, by the Plan to 

Cotter, of a civil judgment (the 

Judgment) against the Plan’s former 

trustee, Robert Geib (Mr. Geib). 

This exemption is subject to the 

following conditions: 

(a) The terms and conditions of the 

proposed sale transaction are at least as 

favorable to the Plan as those that the 

Plan could obtain in an arm’s length 

transaction with an unrelated party; 

(b) As consideration for the Notes, the 

Plan receives either (1) the greater of 

$372,197 or (2) the fair market of the 

Notes (based upon the value of the 

Plan’s proportionate share of Mr. Geib’s 

ownership interest in Cotter common 

stock), as determined by a qualified, 

independent appraiser on the date of the 

sale transaction; 

(c) The proposed sale is a one-time 

transaction for cash; 

(d) The Plan pays no fees, 

commissions, costs or other expenses in 

connection with the proposed sale; 

(e) Cotter pays the Plan all recoveries 

resulting from the Judgment; and 

(f) An independent fiduciary (1) 

determines that the sale is an 

appropriate transaction for the Plan and 

is in the best interests of the Plan and 

its participants and beneficiaries; (2) 

monitors the sale on behalf of the Plan; 

and (3) ensures that the Plan receives all 

future recoveries resulting from the 

Judgment. 

Summary of Facts and Representations 

1. The Plan is a defined benefit plan 

that was established in August 1964 by 

Cotter, an Ohio corporation that is 

located in Akron, Ohio. Cotter is a real 

estate holding company that owns a 

warehousing subsidiary, Cotter 

Merchandise Storage Company of Ohio, 

Inc. (CMSCO). Cotter’s current directors 

and officers are Messrs. Chris Geib, John 

Seikel, and Ms. Tonya Bridgeland. Chris 

Geib also serves as the Plan trustee and 

he makes investment decisions on 

behalf of the Plan. As of December 4, 

2008, the Plan had 21 participants of 

which 11 are retired or separated. As of 

June 30, 2008, the Plan had total assets 

of $566,444. 

2. Mr. Geib, the father of Chris Geib, 

was formerly an officer and an owner of 

Cotter, as well as a Plan trustee. 

Between 1988 and 1990, Mr. Geib made 

a series of unauthorized withdrawals 

from the Plan, which he characterized 

as ‘‘loans.’’ 1 The loans were unsecured 

at the time of their execution and were 

evidenced by promissory notes. The 

Notes carried interest at the rate of 12% 

per annum and ranged from $6,000 to 

$100,000 in principal amounts. These 

Notes are set forth as follows: 

Date Loan 

amount 

March 1, 1988 .......................... $62,000 

March 7, 1988 .......................... 20,000 

April 16, 1990 ........................... 10,000 

Date Loan 

amount 

April 19, 1990 ........................... 100,000 

April 20, 1990 ........................... 6,000 

April 30, 1990 ........................... 6,000 

May 19, 1990 ............................ 6,500 

The total principal amount of the loans 

was $210,500 and they each had a 

maturity date of January 1, 1992. 

In 1988, the outstanding loan balance 

represented 25.3% of the Plan’s assets. 

In 1990, the outstanding loan balance 

represented 37.35% of the Plan’s assets. 

The Applicant has no record that Mr. 

Geib made any repayments. Moreover, 

all of the loans remained unpaid at their 

maturity and have since remained 

unpaid. 

3. On November 2, 1990, due to 

mismanagement, Cotter filed a 

voluntary petition for reorganization 

under Chapter 11 of the U.S. 

Bankruptcy Code. On August 29, 1991, 

the Bankruptcy Court appointed Mr. 

Seikel as the Chapter 11 Bankruptcy 

Trustee. Mr. Seikel subsequently 

discovered the Notes and reported Mr. 

Geib to the U.S. Department of Justice 

(the Justice Department). 

4. On January 18, 1994, Mr. Seikel, 

who had also been appointed Plan 

trustee by the Bankruptcy Court, 

obtained a judgment against Mr. Geib in 

the amount of $272,500,2 plus interest at 

the rate of 10% per annum (which had 

been reduced by the Bankruptcy Court 

from 12% per annum), as the result of 

the outstanding Notes. Pursuant to the 

Plan of Reorganization, the then existing 

Cotter stock was canceled and Mr. Geib 

was issued 1,642.2 new shares of Cotter 

common stock. The Plan’s Judgment, 

along with other judgments held by 

Cotter and CMSCO against Mr. Geib 

were (and are still) secured by these 

1,642.2 shares. 

5. Also in 1994, the Justice 

Department indicted and charged Mr. 

Geib in the U.S. District Court for the 

Northern District of Ohio, Eastern 

Division with seven counts of 

bankruptcy fraud for unauthorized 

transfers of company funds and one 

count of embezzling approximately 

$100,000 from the Plan. On August 22, 

1995, Mr. Geib entered into a plea 

agreement with the Justice Department 

(the Plea Agreement) in which he pled 

guilty to three counts of bankruptcy 

fraud and one count of embezzlement. 

Mr. Geib admitted in the Plea 

Agreement that he took $100,000 from 

the Plan in order to run Cotter. 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 49027 

According to the Plea Agreement, Mr. 

Geib could be incarcerated for up to 18 

months. Ultimately, Mr. Geib was 

incarcerated. 

6. In a letter dated January 22, 1996, 

the Tax Division of the Justice 

Department accepted an offer from 

Cotter’s counsel to settle claims made by 

the Internal Revenue Service (the 

Service) against Cotter and CMSCO. The 

Justice Department found that as of June 

30, 1995, the Plan had accumulated a 

funding deficiency equal to 

$368,185.00. In order to pay excise taxes 

under section 4971(a) of the Code 

triggered by the funding deficiency, the 

United States Treasury received a 

$100,000 unsecured priority claim 

against Cotter in the bankruptcy. 

Among other things, the settlement 

offer was contingent upon the Service’s 

determination that Cotter, CMSCO, and 

Mr. Seikel were not liable for any excise 

taxes due under section 4975 of the 

Code with respect to the prohibited loan 

transactions involving the Plan and Mr. 

Geib. Another letter, also dated January 

22, 1996 but from the Service, affirmed 

that Cotter, CMSCO and Mr. Seikel were 

not liable under section 4975 of the 

Code with respect to the prohibited loan 

transactions. The Service did not 

provide any relief to Mr. Geib and in 

2000 sued him in the U.S. Tax Court 

(the Tax Court). 

7. On May 1, 1997, Cotter emerged 

from bankruptcy. In addition, Cotter 

asserted that it had paid off its 

accumulated funding deficiency with a 

$337,609.00 payment to the Plan. The 

settlement of the funding deficiency 

also resolved the $100,000 unsecured 

tax claim against Cotter. 

8. On June 13, 1997, the Bankruptcy 

Court ordered the offset of the vested 

Plan benefit owed to Mr. Geib in partial 

satisfaction of the amounts owed to the 

Plan under the Notes. Mr. Geib’s entire 

benefit under the Plan was valued at 

$252,890. Of this amount, Mr. Seikel 

applied $242,084.26 to accrued interest 

and $10,805.74 to principal on the 

Notes leaving a balance remaining of 

$199,194.26. 

9. At each stage of the legal 

proceedings described above, it is the 

Applicant’s understanding that the 

Service was kept apprised of and 

approved those actions. According to 

the Applicant, the Plan still holds the 

Notes as a plan asset and all expenses 

incurred in connection with the 

servicing or administration of such 

Notes have been borne by Cotter. As of 

March 31, 2009, Mr. Geib owed the Plan 

$625,282. This amount is based upon 

the face amount of the Notes plus all 

accrued but unpaid interest (for which 

the rate had been reduced from 12 to 10 

percent interest by the Bankruptcy 

Court). In addition, Mr. Geib owed 

Cotter $447,910 and $307,866 to 

CMSCO as of March 31, 2009 from 

previous misappropriations of their 

funds. 

10. In 2000, the Tax Court found Mr. 

Geib liable for excise taxes under 

section 4975 of the Code for the 

prohibited transaction arising from the 

Notes. Additionally, the Tax Court 

found Mr. Geib in violation of section 

6651(a)(1) of the Code for the failure to 

file Forms 5330 for the prohibited 

transactions. These liabilities totaled 

$174,761.00 in 1998 and it is not 

evident that any payments have been 

made by Mr. Geib. 

In a March 1, 2009 personal financial 

statement, Mr. Geib claimed that various 

creditors and other parties, including 

Cotter and the Plan, had obtained a total 

of $1,830,620.00 in judgments against 

him. He also claimed an annual income 

of $22,200, of which $16,200 was 

derived from Social Security. In a May 

14, 2009 affidavit, Mr. Geib claimed that 

there had been no substantial changes to 

his financial position since November 1, 

2008. In addition, the Applicant 

represents that it has no knowledge of 

Mr. Geib’s current personal 

circumstances. 

Based on these representations, Mr. 

Geib is essentially insolvent and the 

Plan has little expectation of ever 

collecting the debt. The amounts owed 

by Mr. Geib to the Plan cannot be retired 

because the Notes are secured by the 

Cotter stock owned by Mr. Geib. The 

stock, which is held in escrow, is also 

subject to the Judgment obtained by the 

Plan, Cotter and CMSCO against Mr. 

Geib. 

11. The Applicant represents that the 

Plan cannot foreclose on the Notes and 

take legal custody of the stock 

collateralizing the Notes without 

violating the provisions of section 

406(a) of the Act. In this regard, section 

406(a)(1)(E) of the Act provides that a 

fiduciary with respect to a plan shall not 

cause the plan to engage in a transaction 

if he or she knows or should know that 

such transaction constitutes a direct or 

indirect ‘‘acquisition, on behalf of the 

plan, of any employer security * * * in 

violation of section 407(a).’’ 

Section 406(a)(2) of the Act prohibits 

a fiduciary who has authority or 

discretionary control of plan assets to 

permit the plan to hold any employer 

security if he or she knows or should 

know that holding such security violates 

section 407(a). 

Section 407(a)(1) of the Act states that 

a plan may not acquire or hold any 

employer security which is not a 

qualifying employer security. Section 

407(a)(2) of the Act states further that a 

plan, such as a defined benefit plan, 

may not acquire any qualifying 

employer security, if immediately after 

such acquisition the aggregate fair 

market value of the employer securities 

held by the plan exceeds 10% of the fair 

market value of the assets of the plan. 

Section 407(d)(5) of the Act defines 

the term ‘‘qualifying employer security’’ 

to mean an employer security which is 

a stock, a marketable obligation, or an 

interest in certain publicly traded 

partnerships. However, after December 

17, 1987, in the case of a plan, other 

than an eligible individual account 

plan, an employer security will be 

considered a qualifying employer 

security only if such employer security 

satisfies the requirements of section 

407(f)(1) of the Act. 

Section 407(f)(1) of the Act states that 

stock satisfies the requirements of this 

provision if, immediately following the 

acquisition of such stock no more than 

25% of the aggregate amount of the 

same class issued and outstanding at the 

time of acquisition is held by the plan, 

and at least 50% of the aggregate 

amount of such stock is held by persons 

independent of the issuer. 

The Cotter stock does not comply 

with the requirements of section 

407(f)(1) of the Act, because at least 

50% of the stock is not held by persons 

‘‘independent of Cotter.’’ In this regard, 

Mr. Chris Geib, who is not 

‘‘independent of the issuer,’’ owns over 

half of the issued and outstanding 

3,619.7 shares of Cotter stock. 

In addition, even if the Cotter stock 

constituted qualifying employer 

securities, as provided in section 

407(d)(5) of the Act, the Applicant states 

that the acquisition by the Plan of the 

Cotter stock would cause the Plan to 

exceed the 10% assets limitation under 

section 407(a)(2) of the Act. Thus, the 

fiduciaries of the Plan cannot permit the 

Plan to acquire Cotter stock without 

violating the Act. 

12. Currently, the Plan is fully 

funded. In its Statement of Financial 

Accounting Standards (SFAS) No. 158 

Statement for Fiscal Year Ended June 

30, 2008 (SFAS Statement), Summit 

Retirement Plan Services (Summit), an 

actuarial consulting company located in 

Cleveland, Ohio, determined that as of 

June 30, 2008, the Plan was funded with 

an excess of $214,691.00 (including the 

Notes). The SFAS Statement applied a 

$448,700.00 value to the Notes based 

upon a 2007 independent appraisal 

performed by Raymond H. Dunkle, CPA, 

ABV, CVA, CFE, of Brockman, Coats, 

Gedelian & Co. (BCG) of Akron, Ohio. 

Accordingly, the Plan’s funded status 

would depend on the enforceable value 


jlentini on DSKJ8SOYB1PROD with NOTICES
49028 Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 

3According to the Applicant, the Service had 

suggested that the Plan sell the Notes to Cotter in 

previous audits. However, the Applicant explains 

that the Plan has held the Notes for so long because 

the Bankruptcy Court required that Cotter meet a 

certain level of performance that would take Cotter 

at least six years to meet following its emergence 

from bankruptcy. 

of the Notes. The sale of the Notes 

would afford the Plan more liquidity 

and further ensure its funded status. 

13. Cotter requests an administrative 

exemption from the Department in order 

to purchase the Notes from the Plan and 

to receive the Judgment from the Plan.3

The proposed sale price for the Notes 

will reflect their fair market value, as 

determined by a qualified, independent 

appraiser on the date of the sale 

transaction. Cotter will pay the 

consideration to the Plan in cash and 

the Plan will not be required to pay any 

fees, commissions or incur any expenses 

in connection therewith in connection 

with the proposed sale. As a result of 

the sale, the Plan will surrender the 

Notes, while retaining the right to 

receive future recoveries from Cotter 

based on the Judgment. 

14. In 2009, the Notes were 

reappraised by Mr. Dunkle, a qualified, 

independent appraiser, who is the 

Senior Manager of the Forensic & 

Valuation Services Group at BCG. Mr. 

Dunkle has experience in providing 

business advisory services, including 

business valuations of stock and 

intangible assets, economic damage 

calculations, forensic accounting, 

internal control studies, fraud 

investigations, fraud prevention 

services, financial projections and 

forecasts, business planning, and merger 

and acquisition assistance. Mr. Dunkle 

also has experience in providing audit, 

review and compilation services to 

clients in a variety of industries. He has 

certified that he has no present or 

prospective interest in the Notes or in 

the parties involved in the proposed 

transaction. Mr. Dunkle represents that 

BCG received less than 1% of its 2008 

gross income from Cotter and its 

affiliates. 

In his Valuation Report of Cotter 

dated May 13, 2009 (the 2009 

Valuation), Mr. Dunkle placed the fair 

market value of Cotter common stock on 

a minority, non-marketable basis at 

$500.59 per share as of March 31, 2009, 

relying primarily on the Asset Approach 

to valuation. Based upon the 2009 

Valuation, Mr. Dunkle determined that 

the 1,642.2 shares of Cotter common 

stock owned by Mr. Geib had a fair 

market value of $822,069 as of March 

31, 2009. 

Because of Mr. Geib’s insolvency and 

the existence of combined equal priority 

debt of $1,381,058, Mr. Dunkle 

explained that the value of the Notes as 

of March 31, 2009 would be equal to the 

pro rata portion of Mr. Geib’s interest in 

Cotter that served as collateral for such 

debt. The $1,381,058 total debt, which 

included principal and interest due to 

the Plan as of March 31, 2009, consists 

of amounts owed to the Plan ($625,282), 

Cotter ($447,910) and CMSCO 

($307,866). According to Mr. Dunkle, 

the Plan’s pro rata interest in this debt 

was 45.2756% or ($625,282/$1,381,058). 

Applying this percentage to the value of 

Mr. Geib’s ownership interest in Cotter 

common stock ($822,069), Mr. Dunkle 

concluded that the Notes had a fair 

market value equivalent to the prorated 

collateral value of $372,197 ($822,069 × 

45.2756%) as of March 31, 2009. 

Mr. Dunkle also noted that he had not 

become aware of any changes to the 

values reported between March 31, 2009 

and the May 13, 2009 date of the 2009 

Valuation. He will again update the 

2009 Valuation on the date of the 

proposed sale. 

15. Pursuant to an engagement letter 

dated August 6, 2009, Cotter retained 

Summit to serve as the independent 

fiduciary for the Plan with respect to the 

proposed transactions. Summit has 

served as the Plan’s actuary since June 

1, 2001. In this capacity, Summit states 

that it tests and determines that the Plan 

has been adequately funded and that 

annual testing and reporting is 

compliant with Federal laws and 

regulations, such as the Act and the 

Code. In this regard, Summit likens its 

responsibilities to those of an 

independent third party that has had no 

conflicting interests with either the Plan 

or Cotter. As the Plan’s actuary, Summit 

represents that it received $4,970 from 

Cotter and its affiliates in 2008. This 

amount represents less than 0.1% of 

Summit’s gross annual revenues. 

Although Summit states that it has 

never acted as an independent fiduciary 

on this type of issue, its professionals 

have significant experience with the 

Act. In this regard, Summit explains 

that it has three enrolled actuaries and 

it states that the majority of its staff have 

professional designations, such as CPC, 

CPA, CBP, QPA and QKA. In addition, 

Summit represents that its CEO and 

Chief Actuary Michael M. Spickard, EA, 

MAAA, MSPA, CPC, QPA was 

appointed by the Department of the 

Treasury to the Advisory Committee on 

Taxation—Employee Benefits Group. 

Further, since its inception in 1996, 

Summit indicates that it has serviced 

over 1,000 plans. 

Summit states that it has reviewed the 

duties, responsibilities and liabilities 

imposed by the Act on plan fiduciaries 

and it has worked with outside 

attorneys on such matters and will 

retain the services of such attorneys 

should the need arise regarding the 

proposed transactions. Summit also 

acknowledges and accepts the duties, 

responsibilities and liabilities imposed 

by the Act on plan fiduciaries. 

Summit represents that it has had 

knowledge of the Notes since 2001 

when it began performing actuarial 

valuations and consulting services for 

the Plan. Summit represents that the 

proposed transactions are 

administratively feasible and in the best 

interest of the Plan, its participants and 

beneficiaries. Summit explains that it 

has had knowledge of the impact of the 

Notes on the Plan’s investment portfolio 

and its liquidity requirements. Because 

the Notes represent approximately 67% 

of the Plan’s assets (based upon the 

2009 Valuation), Summit states that the 

Plan is not very diversified. Therefore, 

the proposed sale of the Notes by the 

Plan to Cotter would allow the Plan to 

diversify its assets. 

Further, Summit explains that the 

proposed sale complies with the Plan’s 

investment policies and objectives. This 

is because the principle behind the sale 

is to free the Plan of illiquid, limited 

marketability assets and to allow the 

Plan to invest in other assets having an 

easily ascertainable market value that 

can be liquidated. According to Summit, 

the proposed sale of the Notes will give 

the Plan an infusion of cash that can be 

used to purchase investments that are in 

alignment with the Plan’s investment 

policy and objectives. 

As the independent fiduciary Summit 

has agreed to monitor the proposed sale 

and ensure that any future recoveries 

from the Judgment that are received by 

Cotter will be paid to the Plan. 

16. In summary, it is represented that 

the proposed transactions will satisfy 

the statutory criteria for an exemption 

under section 408(a) of the Act because: 

(a) The terms and conditions of the 

proposed sale transaction will be at least 

as favorable to the Plan as those that the 

Plan could obtain in an arm’s length 

transaction with an unrelated party; 

(b) As consideration for the Notes, the 

Plan will receive either (1) the greater of 

$372,197 or (2) the fair market value of 

the Notes (based upon the Plan’s 

proportionate share of Mr. Geib’s 

ownership of Cotter common stock), as 

determined by a qualified, independent 

appraiser on the date of the sale 

transaction; 

(c) The proposed sale will be a onetime transaction for cash; 

(d) The Plan will pay no fees, 

commissions, costs or other expenses in 

connection with the proposed sale; 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 49029 

4Unless otherwise noted herein, reference to 

specific provisions of the Act refer also to the 

corresponding provisions of the Code. 

5The Department is expressing no opinion on 

whether the holding of the Notes by the Plan has 

violated section 403 of the Act. In pertinent part, 

section 403 requires that all assets of an employee 

benefit plan shall be held in trust by one or more 

trustee. 

6 It is believed that the decision to cause the Plan 

to make the loans and execute the Notes with the 

Carters and Weemes was made by two former 

officers of Unaka. The Department is expressing no 

opinion herein on whether the decision by the 

former Unaka officers to cause the Plan to originate 

the Carter and Weemes Notes or the Plan’s 

continued holding of the Notes has violated section 

404(a) of the Act. In pertinent part, section 404(a) 

of the Act requires, among other things, that a 

fiduciary of a plan 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 when making 

investment decisions on behalf of a plan. 

(e) Cotter will pay the Plan all 

recoveries resulting from the Judgment; 

and 

(f) An independent fiduciary will (1) 

determine that the sale is an appropriate 

transaction for the Plan and is in the 

best interests of the Plan and its 

participants and beneficiaries; (2) 

monitor the sale on behalf of the Plan; 

and 

(3) ensure that the Plan receives all 

future recoveries resulting from the 

Judgment. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to interested persons 

within 5 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail or personal delivery. Such notice 

will contain a copy of the notice of 

proposed exemption, as published in 

the Federal Register, and a 

supplemental statement, as required 

pursuant to 29 CFR 2570.43(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 35 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: Mr. 

Anh-Viet Ly of the Department at (202) 

693–8648. (This is not a toll-free 

number.) 

Unaka Company, Incorporated 

Employees, Profit Sharing Plan (the 

Plan), Located in Greeneville, 

Tennessee. 

[Application No. D–11445.] 

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,4 by reason of section 

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

shall not apply to the proposed sale by 

the Plan (the Sale) to Unaka Company 

Incorporated (Unaka), a party in interest 

with respect to the Plan, of two 

promissory notes (the Notes) that are 

secured by deeds of trust on certain 

parcels of real property; provided that 

the following conditions are satisfied: 

(a) The Sale is a one-time transaction 

for cash; 

(b) As consideration, the Plan receives 

the greater of the current outstanding 

balance of the Notes, plus all accrued 

but unpaid interest to the date of the 

Sale (Sale Date), or the fair market value 

of the Notes as determined by qualified, 

independent appraisers in updated 

appraisals on the Sale Date. 

(c) The Plan pays no commissions, 

costs, fees, or other expenses with 

respect to the Sale; and 

(d) As soon as it is feasible following 

the Sale, the Plan releases the deeds of 

trust securing the Notes. 

Summary of Facts and Representations 

1. Unaka, the sponsor of the Plan and 

the Unaka Company, Inc. 401(k) Plan 

(the 401(k) Plan), are located at 1550 

Industrial Road, Greenville, Tennessee. 

Unaka is the parent company of 

SOPACO, MECO and the Round Table 

Office Complex subsidiaries. These 

subsidiaries make ‘‘Meals Ready to Eat,’’ 

folding chairs and other items. 

2. The Plan is a qualified retirement 

plan that was established by Unaka 

effective March 1, 1967. As of July 1, 

2006, the Plan’s Form 5500 indicated 

that the Plan had 903 participants and 

net assets of $12,865,825. Included 

among these assets were certain thirdparty notes that are described herein. 

Bisys Retirement Services (Bisys) serves 

as the Plan’s third party administrator. 

Until January 2009, Paul Rodeford 

served as the Plan trustee and he 

exercised investment discretion over the 

Plan’s assets. Currently, Unaka serves as 

the Plan trustee. 

3. On March 26, 2007, Unaka merged 

the Plan with the 401(k) Plan. Bisys 

serves as the plan administrator for the 

401(k) Plan. However, for unspecified 

reasons, Bisys did not wish to 

administer the subject Notes, which 

remain in the Plan.5 The other assets of 

the Plan were transferred to the 401(k) 

Plan at the time of the merger. 

According to its Form 5500 for the plan 

year ending June 30, 2008, the 401(k) 

Plan had net assets of $15,525,162. As 

of the plan year ending June 30, 2008, 

the 401(k) Plan had 857 participants, 

which included all of the participants 

from the Plan. The trustee of the 401(k) 

Plan is MG Trust Company and the 

investment manager is Rather & Kittrell. 

4. The Plan originated the first Note 

to Billy Joe and Kathyrn Carter for 

$38,000 (the Carter Note) for the 

purchase of residential property located 

at 80 Debusk Road, Greenville, TN (the 

Carter Property) on September 6, 1984. 

The Plan originated the second Note to 

Lloyd and Mary Weemes for $21,000 

(the Weemes Note) for the purchase of 

residential property located at 55 Lick 

Hollow Road, Greenville, TN (the 

Weemes Property) on February 10, 

1986.6 At no time have the Carters or the 

Weemes been parties in interest with 

respect to the Plan. The Plan also did 

not require the Carters or the Weemes to 

purchase private mortgage insurance or 

to obtain property insurance. 

5. The interest rate on the Carter Note 

is set annually to the prime rate as 

determined by the Commerce Union 

Bank plus 2%, with a maximum rate of 

15% and a minimum floor rate of 10%. 

Principal and interest under the Carter 

Note are payable in monthly 

installments for a twenty five (25) year 

period, with interest and monthly 

principal payments to be adjusted on 

March 31 of each year. At the time of 

execution, the interest rate for the Carter 

Note was 15% per annum. The initial 

monthly payment was $486.72. The first 

payment was due on October 6, 1984 

and similar monthly payments were due 

until March 31, 1985, at which time 

interest and monthly payments were 

recalculated. In the event of default, the 

Carter Note provides that the Carters 

would pay all collection costs, the 

unpaid amounts would accrue at 15% 

or the then current rate and the Plan 

could proceed at once to foreclosure. 

The failure to exercise the foreclosure 

option does not constitute a waiver of 

the Plan’s right to foreclose on the 

Carter Note. The Carter Note is also nonassumable, and in the event the Carter 

Property is sold, the entire balance of 

the Carter Note becomes due and 

payable. The Carter Note is secured by 

a first deed of trust on the Carter 

Property and Unaka has no knowledge 

of any other liens against the Carter 

Property. 

6. According to records running from 

June 2002 to October 2008, Mrs. Carter 


jlentini on DSKJ8SOYB1PROD with NOTICES
49030 Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 

began to miss payments beginning with 

the November 2002 payment following 

the death of Mr. Carter. Although Mrs. 

Carter has missed payments for periods 

of up to six months, the Carter Note 

does not provide for any late penalties. 

7. The Weemes Note, which was in 

the original principal amount of 

$21,000, carries similar interest rate 

terms, default terms and nonassumption provisions to the Carter 

Note. However, the Weemes Note has a 

twenty (20) year duration and the initial 

interest rate was set at 11c% per annum, 

with a monthly payment of $223.96 that 

commenced on March 10, 1986. In the 

event of default, the unpaid amounts 

would accrue at 15% per annum or the 

then current rate. The Weemes Note is 

secured by a first deed of trust on the 

Weemes Property and Unaka has no 

knowledge of any other liens against the 

Weemes Property. 

8. According to records running from 

January 2002 to October 2008, the 

Weemes began to miss payments 

beginning with their January 2002 

payment after Mr. Weemes became 

unemployed. Since that time, the 

Weemes have missed several payments 

for periods of up to two months before 

resuming payments. The Weemes Note 

also does not provide for any late fees. 

9. Unaka has paid all costs and 

expenses associated with the Plan’s 

holding of the Notes (except for real 

property taxes, which have been paid by 

the borrowers). As of March 31, 2009, 

the Carter Note had an outstanding 

balance of $30,772.10 and the Weemes 

Note had an outstanding balance of 

$9,667.01. Although the borrowers’ 

payments on the Notes have been 

sporadic, Unaka represents that if it 

foreclosed on the Notes it is very 

unlikely it would recover the remaining 

balances. Unaka represents also that 

under Tennessee law, if the Plan finds 

the Carter and Weemes Notes in default, 

the Plan would have to foreclose on the 

Carter and Weemes Properties. Further, 

Unaka states that if a third party were 

to purchase the Weemes or the Carter 

properties in foreclosure, it would be for 

a discounted price. 

10. Accordingly, Unaka proposes to 

purchase the Notes from the Plan and 

requests an administrative exemption 

from the Department in order to engage 

in the Sale. The proposed Sale will be 

a one-time transaction for cash. As 

consideration, the Plan will receive the 

greater of the current outstanding 

balance of the Notes, plus all accrued 

but unpaid interest to the Sale Date, or 

the fair market value of the Notes as 

determined by qualified, independent 

appraisers in updated appraisals on the 

Sale Date. The Plan will pay no 

commissions, costs, fees, or other 

expenses with respect to the Sale. 

Finally, as soon as it is feasible 

following the Sale, the Plan will release 

the deeds of trust securing the Notes. 

11. Unaka retained Braun & 

Associates, Inc. of Maryville, Tennessee, 

to perform an independent appraisal of 

both properties. Specifically, Woody 

Fincham and his supervisor, David A. 

Braun, performed appraisals of the 

subject properties and they prepared 

separate appraisal reports for such 

properties that are dated March 5, 2009. 

Both Mr. Braun and Mr. Fincham are 

licensed as appraisers in the State of 

Tennessee. Mr. Braun is a certified 

general appraiser having both ‘‘MAI’’ 

and ‘‘SRA’’ designations. Both Mr. 

Fincham and Mr. Braun are qualified 

independent appraisers. 

Messrs. Fincham and Braun 

acknowledge that their appraisal reports 

are being used by Unaka in connection 

with this exemption request. Messrs. 

Fincham and Braun represent that 

neither they nor anyone involved in the 

preparation of the appraisal has any 

present or prospective interest in the 

properties involved and no personal 

interest with respect to the parties 

involved. After using the Sales 

Comparison Approach to value the 

Carter and Weemes Properties, Messrs. 

Fincham and Mr. Braun placed the fair 

market value of the Weemes Property at 

$5,850 and the Carter Property at 

$37,500 as of March 5, 2009. 

12. Unaka also retained Robin 

Carmichael, a real estate consultant who 

is employed by Rocky Top Realty of 

Knoxville Tennessee, to appraise the 

Notes. Ms. Carmichael states that she 

has 13 years of experience in the East 

Tennessee real estate market including 

knowledge in the mortgage resale 

business and recent foreclosures in the 

East Tennessee area. Ms. Carmichael 

also indicates that she has 11 years of 

experience in the mortgage lending 

industry. Ms. Carmichael explains that 

she has assessed the value of roughly 

400 different properties regarding their 

valuation and that her valuation of the 

Notes combines her experience in the 

real estate industry with buying and 

selling of commercial and residential 

properties and her knowledge of 

mortgage lending. Ms. Carmichael 

acknowledges her appraisal will be used 

by Unaka in connection with this 

exemption request and she states that 

her combined income from Unaka, its 

principals or any parties in interest with 

respect to the Plan represent no more 

than 1% of her gross 2008 income. 

In her appraisal of March 18, 2009 

and addenda dated April 25, 2009 and 

May 13, 2009, Ms. Carmichael states 

that the fair market value of the Carter 

Note and Weemes Note should be 

discounted 50 to 60% against their 

respective MAI appraised value. She has 

applied a discount that takes into 

account such factors as a declining real 

estate market, the condition of the 

Weemes and Carter Properties, the nontransferability of the Notes, the payment 

histories of the borrowers, the loan to 

value ratio of the Notes, their interest 

rates and the employment status of the 

borrowers. Ms. Carmichael also states 

that the Notes do not appear to have any 

existing liens or encumbrances. 

Accordingly, Ms. Carmichael concludes 

that as of April 28, 2009, the midpoint 

value of both Notes, after taking into 

account, among other things, the 

applicable discount, is 45% of the MAI 

appraised value ascertained by Messrs. 

Fincham and Braun. 

13. The outstanding balance of the 

Weemes Note as of March 31, 2009 was 

$9,677.01. This amount exceeds the fair 

market value of the Weemes Note as of 

March 5, 2009, which was $2,632.50 

($5,850 × 45%). The current outstanding 

principal balance of the Carter Note as 

of March 31, 2009 was $30,772.10. This 

amount exceeds the fair market value of 

the Carter Note, which was $16,875.00 

($37,500 × 45%) as of March 5, 2009. 

Unaka represents that it will pay the 

greater of the current outstanding 

balance of the Notes plus accrued but 

unpaid interest to the Sale Date or the 

fair market value of the Notes as 

determined by qualified, independent 

appraiser on the Sale Date. Thus, if the 

Sale had occurred on March 31, 2009, 

Unaka would have paid the Plan the 

principal balance outstanding, plus 

accrued but unpaid interest for both the 

Weemes and Carter Notes. 

14. In summary, Unaka represents 

that the proposed transaction will 

satisfy the statutory criteria for an 

exemption under section 408(a) of the 

Act because: 

(a) The Sale will be a one-time 

transaction for cash. 

(b) The Plan will receive the greater 

of the current outstanding balance of the 

Notes, plus all accrued but unpaid 

interest to the Sale Date, or the fair 

market value of the Notes as determined 

by qualified, independent appraisers in 

updated appraisals on the Sale Date; 

(c) The Plan will pay no commissions, 

costs, or other expenses with respect to 

the Sale; and 

(d) As soon as it is feasible following 

the Sale, the Plan will release the deeds 

of trust. 

Notice to Interested Persons 

Notice of the proposed exemption 

will be given to interested persons 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 49031 

within 5 days of the publication of the 

notice of proposed exemption in the 

Federal Register. The notice will be 

given to interested persons by first class 

mail or personal delivery. Such notice 

will contain a copy of the notice of 

proposed exemption, as published in 

the Federal Register, and a 

supplemental statement, as required 

pursuant to 29 CFR 2570.43(b)(2). The 

supplemental statement will inform 

interested persons of their right to 

comment on and/or to request a hearing 

with respect to the pending exemption. 

Written comments and hearing requests 

are due within 35 days of the 

publication of the notice of proposed 

exemption in the Federal Register. 

For Further Information Contact: Mr. 

Anh-Viet Ly of the Department at (202) 

693–8648. (This is not a toll-free 

number.) 

State Street Bank and Trust Company, 

Located in Massachusetts. 

[Application No. D–11522.] 

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)(1)(A) and 

(D) and 406(b) of the Act and the 

sanctions resulting from the application 

of section 4975 of the Code, by reason 

of section 4975(c)(1)(A), (D), (E), and (F) 

of the Code, shall not apply as of 

October 24, 2008, to the cash sale of 

certain mortgage, mortgage-related, and 

other asset-backed securities for 

$2,447,381,010 (the Sale) by stable value 

commingled funds and separate 

accounts both holding assets of 

employee benefit plans (the Accounts) 

to State Street Bank and Trust Company 

(State Street), the investment manager 

and/or trustee for the Accounts, 

provided that the conditions set forth 

below are met. 

(a) The Sale was a one-time 

transaction for cash payment made on a 

delivery versus payment basis. 

(b) The Accounts did not bear any 

commissions or transaction costs in 

connection with the Sale. 

(c) The Accounts received as a 

purchase price for the securities an 

amount which, as of the effective date 

of the Sale, was equal to the fair market 

value of the securities, determined by 

reference to prices provided by 

independent third-party pricing sources 

consulted in accordance with pricing 

procedures used by the Accounts prior 

to the transaction. 

(d) In connection with the Sale, State 

Street transferred to and allocated 

among the Accounts cash in the amount 

of $450,000,000. 

(e) At the time of the transaction, 

State Street, as trustee of the Accounts, 

determined (except with respect to the 

State Street Salary Savings Program, an 

employee benefit plan maintained for 

employees of State Street and certain 

affiliates (the State Street Plan)) that the 

Sale was appropriate for and in the best 

interests of the Accounts and the 

employee benefit plans invested in the 

Accounts. An independent fiduciary 

determined at the time of the 

transaction that the Sale was 

appropriate for and in the best interest 

of the State Street Plan and its 

participants and beneficiaries. 

(f) An independent consultant 

reviewed, after the Sale, the 

reasonableness of the prices used to 

purchase the securities, and concluded 

that the pricing methodology used by 

State Street provided a reasonable basis 

for determining the fair market value of 

the securities and that the methodology 

was reasonably applied with only 

immaterial deviations. 

(g) In carrying out the Sale, State 

Street took all appropriate actions 

necessary to safeguard the interests of 

each Account and each employee 

benefit plan with a direct or indirect 

interest in an Account. 

(h) State Street and its affiliates, as 

applicable, will maintain, or cause to be 

maintained, for a period of six (6) years 

from the date of the Sale such records 

as are necessary to enable the persons 

described below in paragraph (i)(i) to 

determine whether the conditions of 

this exemption have been met, except 

that— 

(i) No party in interest with respect to 

a plan which engaged in the covered 

transaction, other than State Street and 

its affiliates, as applicable, shall be 

subject to a civil penalty under section 

502(i) of the Act or the taxes imposed 

by section 4975(a) and (b) of the Code, 

if such records are not maintained or are 

not available for examination as 

required by paragraph (i) below; and 

(ii) A separate prohibited transaction 

shall not be considered to have occurred 

solely because due to circumstances 

beyond the control of State Street or its 

affiliate, as applicable, such records are 

lost or destroyed prior to the end of the 

six-year period. 

(i)(i) Except as provided below, in 

paragraph (ii), and notwithstanding any 

provisions of subsections (a)(2) and (b) 

of sections 504 of the Act, the records 

referred to in paragraph (h) above, are 

unconditionally available at their 

customary location for examination 

during normal business hours by— 

(A) Any duly authorized employee or 

representative of the Department, the 

Internal Revenue Service, the Securities 

and Exchange Commission or the 

Federal Reserve Board; 

(B) Any fiduciary of any plan that 

engaged in the covered transaction, or 

any duly authorized employee or 

representative of such fiduciary; 

(C) Any employer of participants and 

beneficiaries and any employee 

organization whose members are 

covered by a plan that engages in the 

covered transactions, or any authorized 

employee or representative of these 

entities; or 

(D) Any participant or beneficiary of 

a plan that engages in the covered 

transactions, or duly authorized 

employee or representative of such 

participant or beneficiary; 

(ii) None of the persons described 

above in subparagraphs (B)–(D) of 

paragraph (i)(i) are authorized to 

examine the trade secrets of State Street 

or commercial or financial information 

that is privileged or confidential. 

(iii) Should State Street refuse to 

disclose information on the basis that 

such information is exempt from 

disclosure, State Street shall, by the 

close of the thirtieth (30th) day 

following the request, provide written 

notice advising that person of the reason 

for the refusal and that the Department 

may request such information. 

Summary of Facts and Representations 

1. State Street Bank and Trust 

Company (State Street), a Massachusetts 

trust company and a member bank of 

the Federal Reserve System, is a whollyowned subsidiary of State Street 

Corporation, a bank holding company 

organized under the laws of the 

Commonwealth of Massachusetts. State 

Street is a global financial services 

company that provides a wide range of 

banking, fiduciary, and investment 

management services to institutional 

investors, including employee benefit 

plans subject to the Act. 

2. State Street is the investment 

manager and/or trustee for a variety of 

commingled investment funds and 

separate accounts, including certain 

stable value commingled funds and 

separate accounts holding plan assets 

(the Accounts). The Accounts comprise 

employee benefit plans invested 

through one of several structures 

including: direct investment in 

commingled funds for which State 

Street acts as investment manager and/ 

or trustee; investment in separate 

portfolios under the Stable Fixed 

Income Fund for Employee Benefit 


jlentini on DSKJ8SOYB1PROD with NOTICES
49032 Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 

Trusts for which State Street is the 

investment manager and trustee; 

separately managed accounts appointing 

State Street as investment manager and 

directing State Street to invest plan 

assets in bonds and other debt securities 

as well as in other State Street 

commingled funds (where State Street 

acts as trustee for some of the accounts 

and for assets held in the accounts that 

are invested in State Street commingled 

funds); and investment in funds set up 

specifically for a particular plan, for 

which State Street acts as investment 

manager and trustee. 

3. Certain third party financial 

institutions are contractually obligated 

to provide financial support to the 

Accounts under certain circumstances 

(the Wrap Providers). The contractual 

arrangements with the Wrap Providers 

(the Wrap Contracts) permit the 

Accounts to use benefit responsive 

accounting and to issue and redeem 

units at book value despite fluctuations 

in the market value of the Account’s 

underlying assets. 

4. The Wrap Providers are 

contractually committed to covering any 

shortfall between market and book 

values upon the complete redemption of 

the Account. However, the Wrap 

Providers are also contractually entitled 

to limit their exposure to a decline in 

the market value of an Account’s assets 

either by making an immunization 

election (i.e., an election to force the 

securities to be sold and replaced by a 

pool of Treasury, AAA-rated or similar 

securities with a duration managed to 

zero over an agreed period and being 

excused from providing book value 

protection to additional contributions to 

the Account) or by electing to terminate 

the Wrap Contract, thereby causing 

State Street to make an immunization 

election. 

5. The Accounts are managed in 

accordance with investment guidelines 

approved by both the plans and the 

Wrap Providers that permit, subject to 

diversification and credit limitations, 

investment in a broad range of fixed 

income securities. Prior to October 

2008, the assets in the Accounts 

included certain mortgage, mortgagerelated and other asset-backed debt 

securities. As a result of disruptions in 

the market for fixed income securities 

that began in 2007 and became more 

pronounced in 2008, the assets 

experienced significant liquidity and 

pricing issues, contributing to a decline 

in the market-to-book value ratio of the 

Accounts and creating a continuing risk 

of further decline. 

6. Throughout 2008, State Street 

engaged in active dialogue with the 

Wrap Providers regarding market 

conditions and the potential impact of 

the fixed income markets and the 

composition of the Accounts’ portfolios 

on the potential risk exposure of the 

Wrap Providers. State Street also was 

engaged in negotiations relating to the 

decision by one Wrap Provider to exit 

the business of providing benefit 

responsive contracts, and, as a result, to 

terminate its Wrap Contracts with the 

Accounts. 

7. State Street believed that 

immunization would be harmful to 

Plans and their participants both in the 

short term, as assets are sold to comply 

with the immunization investment 

guidelines, and over the longer term, as 

crediting rates are adjusted to reflect 

reinvestment in lower yielding assets 

and to amortize the market-to-book 

differential over the duration of the 

immunization period. In State Street’s 

judgment, a forced sale of all of the 

assets in the portfolios at distressed 

prices attributable to illiquidity in the 

markets would likely result in greater 

losses to plans and their participants 

than if the markets were given a chance 

to recover. 

8. In May 2008, State Street retained 

an independent consulting firm, Oliver 

Wyman, a management consulting 

subsidiary of Marsh & McLennan 

Companies, to evaluate the economic 

performance of the Accounts. Oliver 

Wyman’s initial analysis focused both 

on credit performance and projections 

for both market-to-book and crediting 

rates at the individual fund level. 

9. Oliver Wyman’s initial credit 

analysis identified three distressed asset 

classes that had a negative impact on 

stable value fund performance and 

recommended that State Street consider 

removing these securities from the 

portfolios. The securities identified 

consisted of all of the sub prime and 

Alt-A mortgage securities, and all nonagency prime adjustable rate mortgage 

(ARM) securities in the portfolio. In the 

aggregate, the total book value of these 

securities was approximately $1.96 

billion. 

10. State Street shared Oliver 

Wyman’s analysis of the portfolio and 

the potential impact of an immunization 

election with the Wrap Providers as part 

of its ongoing dialogue. While, in the 

Applicant’s view, the analysis 

supported State Street’s favorable credit 

view of the assets, it did not eliminate 

the Wrap Providers’ concerns about the 

risk characteristics of the Accounts. As 

part of its portfolio review, State Street 

also evaluated measures that it could 

take to provide financial support to the 

Accounts; however, banking, ERISA and 

accounting issues, among others, 

resulted in there being no clearly 

executable means of supporting the 

Accounts. 

11. State Street then entered into 

discussions with two potential 

purchasers of its stable value business. 

Both purchasers concurred in the need 

to remove the securities identified from 

the stable value portfolios in order to 

mitigate potential downside price risk to 

the portfolios. In addition, they 

proposed removing $1.1 billion of 

additional securities, consisting of all 

non-ARM securities in the non-agency 

prime category, all auto loan assetbacked securities and certain other nonmortgage asset-backed securities, and all 

securities held through the passively 

managed Asset Backed Index Fund. The 

expanded list of securities (the Selected 

Assets) had a total book value of 

approximately $3.1 billion. 

12. State Street explored a variety of 

measures to address the risk to the 

Accounts presented by the Selected 

Assets. It determined to address the risk 

to the Accounts presented by the 

Selected Assets outside the context of 

the transfer of its stable value business, 

having concluded that a transaction 

could not be arranged in a timeframe 

that would prevent immunization by 

one or more of the Wrap Providers. In 

addition, after exploring a variety of 

possible sale transactions with respect 

to all or a portion of the Selected Assets, 

it concluded that there was no 

likelihood of finding a third party to 

purchase the Selected Assets at prices 

State Street believed to represent fair 

value to the Accounts. Therefore, State 

Street determined, based on a variety of 

factors including discussions with the 

Department, that it would be prudent 

and in the best interests of the investing 

plans for State Street to purchase the 

Selected Assets from the Accounts, as 

described below. 

13. State Street purchased the 

Selected Assets from the Accounts 

before the opening of the U.S. financial 

markets on Monday, October 27, 2008 

(the Sale). The aggregate consideration 

paid for the Selected Assets was 

$2,447,381,010, which was the market 

price of the securities on the previous 

trading day, Friday, October 24, 2008. 

14. The Sale was a one-time 

transaction for cash payment made on a 

delivery versus payment basis. The 

Accounts did not bear any commissions 

or transaction costs in connection with 

the Sale. 

15. The consideration paid for each 

security was the market price for such 

security determined by reference to 

prices provided by an independent 

third-party pricing service, Interactive 

Data Corporation (IDC), consulted in 

accordance with pre-established pricing 


jlentini on DSKJ8SOYB1PROD with NOTICES
Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 49033 

7State Street conducts a separate business as a 

wrap provider to the accounts of third party 

investment managers. Its estimates of industry 

averages for market-to-book value ratios were based 

upon an evaluation of the accounts to which it 

provides benefit responsive contracts, discussions 

with the Wrap Providers, and the limited amount 

of market data available from third party consulting 

sources. 

8As the participating plans did not give anything 

of value in connection with or in exchange for the 

Cash Infusion, in the Department’s view, no 

question of a prohibited transaction would arise in 

connection with the Cash Infusion or its allocation 

because the plan has not engaged in a transaction 

with a party in interest prohibited under section 

406 of the Act. See e.g., preamble to the Proposed 

Class Exemption for the Release of Claims and 

Extensions of Credit in Connection with Litigation 

(68 FR 6953, February 11, 2003) (granted as PTE 

2003–39 (68 FR 75632, December 31, 2003)). 

9To create this sample, CMRA focused on the 

largest bond positions for which there were 

significant variations in price between and among 

the different pricing sources, and on position size. 

The Independently Valued Securities were all nonagency residential mortgage-backed securities 

backed by sub prime, Alt-A and prime mortgage 

loans. CMRA’s independent valuation was 

performed seven months after the Sale; however, 

CMRA made every effort to limit its inputs to 

information actually known at the time of the Sale. 

10According to CMRA, the valuation 

methodology used by State Street for the managed 

accounts was completely consistent with the 

applicable hierarchy. For the commingled funds, it 

varied to a minor extent. 

procedures. For a small number of 

securities for which no IDC price was 

available, a hierarchy of alternative 

third-party pricing sources was used, 

also in accordance with pre-existing 

pricing procedures. The existing 

hierarchy was: (1) IDC; (2) Bear Stearns 

(now part of JPMorgan); and (3) other 

broker quotations provided through 

State Street’s Data Management & 

Pricing Group. 

16. Securities held through certain 

commingled funds were purchased at 

prices determined by independent 

third-party pricing sources in 

accordance with the same hierarchies as 

were used for such commingled funds 

prior to the transaction. That hierarchy 

was different for assets of different 

types. For mortgage-backed and assetbacked securities the hierarchy was: (1) 

Lehman Brothers (now owned by 

Barclays Global); (2) Bear Stearns (now 

part of JPMorgan); (3) IDC; and (4) other 

broker quotations. For other fixed 

income securities (such as U.S. 

corporate bonds) the hierarchy was: (1) 

Lehman Brothers (now owned by 

Barclays Global); (2) IDC; (3) Bear 

Stearns (now part of JPMorgan); and (4) 

other broker quotations. 

17. In connection with the Sale, State 

Street deposited and allocated among 

the Accounts cash equal to 

$450,000,000 (the Cash Infusion). As of 

the date of the transaction, the Cash 

Infusion improved the average marketto-book ratio across all Accounts to 

96.6% on a total account basis. 

Although market data on stable value 

accounts is limited, State Street believes 

that the market-to-book value ratios of 

the Accounts immediately after the Cash 

Infusion were generally consistent with 

industry averages.7 The Cash Infusion 

was allocated among the Accounts 

systematically, according to a 

predetermined mathematical formula. 

Oliver Wyman verified that the 

allocation method had been properly 

applied.8

18. In connection with the Sale and 

the Cash Infusion, State Street also 

entered into agreements with the Wrap 

Providers that provided the Accounts 

certain assurances with respect to the 

exercise of immunization and 

termination rights by the Wrap 

Providers and included a release by the 

Wrap Providers with respect to State 

Street. 

19. At the time of the transaction, 

State Street, as trustee of the Accounts, 

determined (except with respect to the 

State Street Salary Savings Program, an 

employee benefit plan maintained for 

employees of State Street and certain 

affiliates (the State Street Plan)) that the 

Sale was appropriate for and in the best 

interests of the Accounts. 

20. An independent fiduciary, 

Fiduciary Counselors, Inc. (Fiduciary 

Counselors), reviewed the terms of the 

participation in the Sale by the State 

Street Plan and determined that the 

transaction was in the best interests of 

the State Street Plan and its participants 

and beneficiaries. In making this 

determination, Fiduciary Counselors 

reviewed the IDC prices as of October 

24, 2008, interviewed personnel from 

State Street and Oliver Wyman, 

examined the agreements with the Wrap 

Providers, and reviewed State Street’s 

calculations of the amount due to the 

State Street Plan. Fiduciary Counselors 

determined that the transaction would, 

among other things: Eliminate most of 

the difference between book and market 

values in the State Street Plan’s stable 

value fund; significantly improve the 

average quality of the underlying 

investments; and reassure all Wrap 

Providers that continuing coverage for 

the State Street stable value funds does 

not provide unacceptable risks. 

21. Following the Sale, State Street 

engaged Capital Market Risk Advisors 

(CMRA), a risk management advisory 

firm, to independently review the 

reasonableness of prices used to 

purchase the Securities. CMRA was 

engaged to assess whether the pricing 

methodology used by State Street 

provided a reasonable basis for 

determining the market value of the 

assets acquired in the Sale and whether 

the methodology was appropriately 

implemented. 

22. To determine the reasonableness 

of the market values used by State 

Street, CMRA reviewed a listing of 

bonds sold for each Account, the prices 

at which they were sold and the source 

of such prices, as well as additional 

pricing sources and quotes. CMRA also 

reviewed copies of State Street’s 

applicable valuation hierarchies and 

documents submitted to the Department 

in connection with the exemption 

request. CMRA then undertook a threepronged review consisting of (A) a 

portfolio level analysis of the 

reasonableness of prices obtained from 

the pricing sources utilized by State 

Street in the aggregate as compared to 

prices obtained by utilizing alternative 

pricing sources in the aggregate; (B) a 

more detailed assessment of the 

reasonableness of prices utilized by 

State Street compared to prices obtained 

through CMRA’s independent valuation 

of a selected sample of twenty-one 

securities (the Independently Valued 

Securities); 9 and (C) a review of 

methodologies utilized by State Street 

for each Account to determine whether 

such methodologies were consistent 

with applicable hierarchies. 

23. CMRA concluded that: (1) The 

pricing methodology used by State 

Street was reasonable; (2) the prices 

used by State Street were reasonable in 

the aggregate; (3) the prices used by 

State Street with respect to the 

Independently Valued Securities were 

within a reasonable range in all but 

three instances; two of which were, in 

CMRA’s opinion, unreasonably high 

and one of which was unreasonably 

low. Had all of the Independently 

Valued Securities been priced within 

CMRA’s reasonable range, there would 

have been a net decrease of $7.1 million 

or approximately 1% of the amount 

paid by State Street for the 

Independently Valued Securities or 

0.29% of the total amount paid by State 

Street in connection with the Sale; and 

(4) the methodologies used by State 

Street varied to a minor extent from 

State Street’s stated methodologies in 

that the applicable hierarchy of pricing 

sources was not always followed, but 

the overall effect of this deviation was 

immaterial.10 Had the prescribed 

hierarchy been followed in every 

instance, there would have been a net 

decrease of $12.1 million or 

approximately 0.5% of the amount paid 

by State Street in connection with the 

Sale. Accordingly, CMRA determined 

that the pricing methodology used by 

State Street provided a reasonable basis 

for determining the market value of the 


jlentini on DSKJ8SOYB1PROD with NOTICES
49034 Federal Register / Vol. 74, No. 185 / Friday, September 25, 2009 / Notices 

securities and that the methodology was 

reasonably applied. 

24. According to the Applicant, the 

Sale and Cash Infusion were intended to 

protect the plans and their participants 

by increasing the assets available to 

meet benefit payment obligations and 

redemption requests and by reducing 

certain risks inherent in each Account’s 

portfolio resulting from market 

conditions, thereby eliminating or 

reducing the Wrap Providers’ incentives 

to exercise their contractual termination 

or immunization rights. State Street 

represents that it took all appropriate 

actions necessary to safeguard the 

interests of each Account and each 

employee benefit plan with a direct or 

indirect interest in an Account. 

25. In summary, the Applicant 

represents that the statutory criteria of 

section 408(a) of the Act and section 

4975 of the Code are satisfied because: 

(a) The exemption is administratively 

feasible, as the transaction is already 

completed and all relevant details have 

been fully disclosed; 

(b) The transaction, if covered by an 

exemption, is in the interest of the 

participating plans and their 

participants and beneficiaries because 

the transaction will reduce the 

likelihood that the Wrap Providers will 

exercise their immunization and 

termination rights, which would 

adversely affect the plans and their 

participants; 

(c) The exemption is protective of the 

rights of participants and beneficiaries 

of the plans, because: (i) The assets sold 

were identified for disposition in arm’s 

length negotiations between State Street 

and two bidders for the acquisition of 

State Street’s stable value business, (ii) 

independent pricing services were used 

to value and price the assets sold to 

State Street, and (iii) no commissions or 

transaction costs were charged in 

connection with the sale of the assets. 

FOR FURTHER INFORMATION CONTACT: 

Karen E. Lloyd of the Department, at 

(202) 693–8554. This is not a toll-free 

number. 

General Information 

The attention of interested persons is 

directed to the following: 

(1) The fact that a transaction is the 

subject of an exemption under section 

408(a) of the Act and/or section 

4975(c)(2) of the Code does not relieve 

a fiduciary or other party in interest or 

disqualified person from certain other 

provisions 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 

that each application accurately 

describes all material terms of the 

transaction which is the subject of the 

exemption. 

Signed at Washington, DC, this 21st day of 

September, 2009. 

Ivan Strasfeld, 

Director of Exemption Determinations, 

Employee Benefits Security Administration, 

U.S. Department of Labor. 

[FR Doc. E9–23168 Filed 9–24–09; 8:45 am] 

BILLING CODE 4510–29–P 

DEPARTMENT OF LABOR 

Employee Benefits Security 

Administration 

Grant of Individual Exemptions and 

Prohibited Transaction Exemptions 

Involving: M&T Bank Corporation 

Pension Plan, PTE 2009–26; Bank of 

New York Mellon Corporation, PTE 

2009–27; and Ford Motor Company 

and Its Affiliates (Collectively, Ford), 

PTE 2009–28 

AGENCY: Employee Benefits Security 

Administration, Labor. 

ACTION: Grant of individual exemptions. 

SUMMARY: This document contains 

exemptions issued by the Department of 

Labor (the Department) from certain of 

the prohibited transaction restrictions of 

the Employee Retirement Income 

Security Act of 1974 (ERISA or the Act) 

and/or the Internal Revenue Code of 

1986 (the Code). 

A notice was published in the Federal 

Register of the pendency before the 

Department of a proposal to grant such 

exemption. The notice set forth a 

summary of facts and representations 

contained in the application for 

exemption and referred interested 

persons to the application for a 

complete statement of the facts and 

representations. The application has 

been available for public inspection at 

the Department in Washington, DC. The 

notice also invited interested persons to 

submit comments on the requested 

exemption to the Department. In 

addition the notice stated that any 

interested person might submit a 

written request that a public hearing be 

held (where appropriate). The applicant 

has represented that it has complied 

with the requirements of the notification 

to interested persons. No requests for a 

hearing were received by the 

Department. Public comments were 

received by the Department as described 

in the granted exemption. 

The notice of proposed exemption 

was issued and the exemption is being 

granted solely by the Department 

because, effective December 31, 1978, 

section 102 of Reorganization Plan No. 

4 of 1978, 5 U.S.C. App. 1 (1996), 

transferred the authority of the Secretary 

of the Treasury to issue exemptions of 

the type proposed to the Secretary of 

Labor. 

Statutory Findings 

In accordance with section 408(a) of 

the Act and/or section 4975(c)(2) of the 

Code and the procedures set forth in 29 

CFR Part 2570, Subpart B (55 FR 32836, 

32847, August 10, 1990) and based upon 

the entire record, the Department makes 

the following findings: 

(a) The exemption is administratively 

feasible; 

(b) The exemption is in the interests 

of the plan and its participants and 

beneficiaries; and 

(c) The exemption is protective of the 

rights of the participants and 

beneficiaries of the plan. 

M&T Bank Corporation Pension Plan, 

Located in Buffalo, NY. 

[Prohibited Transaction Exemption 

2009–26 

Exemption Application No. D–11470] 


jlentini on DSKJ8SOYB1PROD with NOTICES