[Federal Register Volume 60, Number 11 (Wednesday, January 18, 1995)]
[Notices]
[Pages 3658-3665]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-1200]



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DEPARTMENT OF LABOR
[Application No. D-09787, et al.]


Proposed Exemptions; Boston Cement Masons Local No. 534 Deferred 
Income Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of Proposed Exemptions.

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SUMMARY: This document contains notices of pendency before the 
Department of Labor (the Department) of proposed exemptions from 
certain of the prohibited transaction restriction of the Employee 
Retirement Income Security Act of 1974 (the Act) and/or the Internal 
Revenue Code of 1986 (the Code).

Written Comments and Hearing Requests

    All interested persons are invited to submit written comments or 
request 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 
request for a hearing should state: (1) The name, address, and 
telephone number of the person making the comment or request, and (2) 
the nature of the person's interest in the exemption and the manner in 
which the person would be adversely affected by the exemption. A 
request for a hearing must also state the issues to be addressed and 
include a general description of the evidence to be presented at the 
hearing. A request for a hearing must also state the issues to be 
addressed and include a general description of the evidence to be 
presented at the hearing.

ADDRESSES: All written comments and request for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration, Office of Exemption Determinations, Room N-5649, U.S. 
Department of Labor, 200 Constitution Avenue, 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. 
[[Page 3659]] 

Notice to Interested Persons

    Notice of the proposed exemptions will be provided to all 
interested persons in the manner agreed upon by the applicant and the 
Department within 15 days of the date of publication in the Federal 
Register. Such notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and shall inform 
interested persons of their right to comment and to request a hearing 
(where appropriate).

SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in 
applications filed pursuant to section 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978 (43 FR 47713, October 17, 1978) transferred the authority of 
the Secretary of the Treasury to issue exemptions of the type requested 
to the Secretary of Labor. Therefore, these notices of proposed 
exemption are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Boston Cement Masons Union Local No. 534 Deferred Income Plan (the 
Deferred Income Plan), Boston Cement Masons Union Local No. 534 Pension 
Plan (the Pension Plan), Boston Cement Masons Union Local No. 534 
Health and Welfare Plan (the Welfare Plan) and Boston Cement Masons 
Union Local No. 534 Apprenticeship Plan (the Apprenticeship Plan; 
Collectively, the Plans) Located in Boston, Massachusetts

[Application Nos. D-9787, D-9788, L-9789 and L-9790, respectively]

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 in accordance and 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 leasing of office space in a 
building (the Building) owned by the Deferred Income Plan to the Boston 
Cement Masons Union Local No. 534 (the Union), a party in interest with 
respect to the Deferred Income Plan.
    In addition, the restrictions of section 406(b)(2) of the Act shall 
not apply to the proposed leasing of office space in the Building by 
the Deferred Income Plan to the Pension Plan, the Welfare Plan and the 
Apprenticeship Plan.
    This proposed exemption is conditioned upon the following 
requirements: (1) The terms of all such leasing arrangements are at 
least as favorable to the Plans as those obtainable in an arm's length 
transaction with an unrelated party; (2) an independent, qualified 
fiduciary, who has approved of the leasing arrangements, agrees to 
monitor all leases on behalf of the Deferred Income Plan as well as the 
terms and conditions of the exemption at all times; (3) the rental 
charged by the Deferred Income Plan under each lease is based upon the 
fair market rental value of the premises as determined by an 
independent, qualified appraiser; (4) the Building is revalued annually 
by the independent, qualified appraiser; (5) if appropriate, the 
independent, qualified fiduciary adjusts the rentals charged for the 
office space based upon the annual appraisals of the Building; and (6) 
the trustees determine that the leasing arrangements are in the best 
interests of the Pension Plan, the Welfare Plan and the Apprenticeship 
Plan.

Summary of Facts and Representations

    1. The Plans are multiemployer plans that have been established and 
maintained in accordance with section 302(c)(5) of the Labor Management 
Relations Act of 1947, as amended, and in accordance with the terms of 
a collective bargaining agreement by and between the Union and various 
contributing employers (the Employers). The Plans are jointly trusteed 
by four trustees, (the Trustees), two of whom have been selected by the 
Employers and two of whom have been designated by the Union. Eight 
individuals comprise the Trustees for the Plans. With respect to 
composition of the Trustees for the Deferred Income Plan, Thomas 
Gunning, who was selected by the Employers, serves as Trustee for each 
of the Plans; Harry Brousaides, who was selected by the Union, and an 
individual yet to be named by the Employers, will serve as Trustees for 
three out of the four Plans; and Jeremiah McGillicuddy, who was 
selected by the Union, serves as Trustee for two out of the four Plans. 
Add-Men Services, which is located in Boston, Massachusetts, 
administers the Plans. Investment decisions for the Deferred Income 
Plan, the Pension Plan and the Welfare Plan are made by Delta Financial 
Management Corporation of Hingham, Massachusetts and Anchor Capital 
Advisors of Boston, Massachusetts, entities which serve as investment 
managers to these Plans. The Trustees of the Apprenticeship Plan have 
the sole investment discretion with regard to the Apprenticeship Plan's 
assets.
    2. The Plans cover cement masons and other employees in the 
geographical area of Boston and numerous cities and towns in 
northeastern Massachusetts. The participant breakdown and asset 
balances for the Plans as of March 31, 1994 are as follows:

------------------------------------------------------------------------
                                               No. of                   
                   Plan                     participants   Total assets 
------------------------------------------------------------------------
Deferred Income Plan......................         271        $3,940,457
Pension Plan..............................         455         4,583,480
Welfare Plan..............................         395         1,540,055
Apprenticeship Plan.......................  ............         178,966
------------------------------------------------------------------------

Although the Plans have many common participants as well as common 
trustees, they are not parties in interest with respect to each other 
within the meaning of section 3(14) of the Act.
    3. In 1994, the Deferred Income Plan purchased two parcels of 
improved real property from John Rogan, Paul Rogan and Jane Rogan, 
unrelated parties, primarily for investment purposes but also for 
office space for its own use. The first parcel (Property #1), located 
at 288 Minot Street in Dorchester, Massachusetts, consists of the 
Building and a two-family, wood frame, residential building and the 
underlying land of each building. The Building is the only part of 
Property #1 which will be subject to the leasing arrangements described 
herein. The Building is a 7,587 square foot, commercial garage and 
warehouse with finished office space and two separate garages. The 
second parcel (Property #2), located at 296 Minot Street, consists of a 
single-family, wood frame, residential building and the underlying 
land. Property #2 lies contiguous to Property #1. Property #2 will not 
be subject to any of the leasing arrangements described herein.
    For purposes of purchasing these two parcels, the Deferred Income 
Plan obtained an appraisal from Eileen Partridge, an appraiser 
affiliated with Real Estate Appraisal and Consulting Servicing, which 
is located in Quincy, [[Page 3660]] Massachusetts. Ms. Partridge 
represents that she is independent of, and unrelated to, the Union, the 
Plans and the Rogans. Ms. Partridge has fifteen years of experience in 
appraising, selling and marketing commercial and industrial real 
estate. Ms. Partridge placed the fair market value of Property #1 and 
Property #2 at $325,000 and $110,000, respectively, for a total fair 
market value of $435,000 as of April 13, 1994. After negotiation 
between the parties, a purchase and sale agreement was entered into for 
both parcels at an agreed upon purchase price of $394,600.<SUP>1 After 
such purchase, the part of Property #1 which constitutes the 
residential building and all of Property #2 remains leased to the 
existing tenants who are unrelated parties to the Deferred Income Plan.

    \1\The Department expresses no opinion in this proposed 
exemption on whether the acquisition of the Building by the Deferred 
Income Plan violates any of the provisions of part 4 of Title I of 
the Act.
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    4. The applicant represents that the Deferred Income Plan will 
utilize less than fifty percent of the Building for its own activities 
and intends to lease the remaining space in the Building to the Pension 
Plan, the Welfare Plan, the Apprenticeship Plan, the Union and other 
unrelated entities. With respect to the shared office space, the 
Deferred Income Plan, as lessor, proposes to enter into a written lease 
with the Pension Plan, the Welfare Plan and the Apprenticeship Plan for 
a five-year term and with the Union for a ten-year term. The lease will 
not contain an automatic renewal provision, and the rental will be 
exclusive of utilities. The lease will allow the Deferred Income Plan, 
as lessor, and the lessee Plans the right to terminate the lease upon 
ninety days advance notice. The lease will also be subject to annual 
fair market value adjustments to the rent as described herein in 
Representation 7. The Trustees request an administrative exemption from 
the Department to permit the leasing of the Building to the Union, the 
Pension Plan, the Welfare Plan and the Apprenticeship Plan under the 
terms and conditions described herein.
    5. The Deferred Income Plan proposes to lease four separate areas 
of space within the Building (Space #1 - #4, inclusively) to the 
Pension Plan, the Welfare Plan, the Apprenticeship Plan and the Union. 
Descriptions of the four spaces are set out below:
    a. Space #1 consists of 1,426 square feet of finished office space 
which will be used by the Plans and the Union. The Plans and the Union 
intend to share such space in different proportions and will divide the 
rental costs for such space based upon these proportions. The Pension 
Plan, the Welfare Plan and the Deferred Income Plan will be using the 
same space because they share a common administrator/executive director 
who utilizes the same office and desk space. The allocation of the rent 
for these three Plans is based upon the parties' usage of this space. 
The percentage of the rent for Space #1 will be divided as follows:

------------------------------------------------------------------------
                           Lessee                             Percentage
------------------------------------------------------------------------
Pension Plan................................................         12 
Welfare Plan................................................         12 
Apprenticeship Plan.........................................         25 
Union.......................................................         45 
Deferred Income Plan........................................          6 
                                                             -----------
      Total.................................................        100 
------------------------------------------------------------------------

    b. Space #2 consists of 1,910 square feet of unfinished garage-type 
space which will be leased jointly to the Union and the Apprenticeship 
Plan. The Union will use such space for meetings, training, seminars 
and negotiations on a regular basis during the week, and the 
Apprenticeship Plan will use the space on the weekends and occasionally 
during the week. The rental will be shared, on the basis of usage, on a 
seventy-five to twenty-five percent basis by the Union and the 
Apprenticeship Plan, respectively.
    c. Space #3 consists of 560 square feet of unfinished garage space 
that will be leased exclusively by the Apprenticeship Plan for storage 
of construction equipment and supplies necessary to and used in the 
training program.
    d. Space #4 consists of 285 square feet of unfinished garage space 
that will be leased exclusively to the Union for file cabinets and 
other office related storage.
    6. The applicants represent that the rent to be paid by each lessee 
will be based upon an independent appraisal. In this regard, on April 
25, 1994, Ms. Partridge placed the annual fair market rental values of 
the various spaces as follows:

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      Space                      Fair market rental value               
------------------------------------------------------------------------
Space #1........  $6.00 per square foot.                                
Space #2........  4.00 per square foot.                                 
Space #3........  4.00 per square foot.                                 
Space #4........  4.00 per square foot.                                 
------------------------------------------------------------------------

    7. The applicants represent that Ms. Partridge, who will also serve 
on behalf of the Deferred Income Plan as the independent, qualified 
fiduciary with respect to the lease transactions, will have the 
Building reappraised annually by an independent, qualified appraiser. 
The purposes of the annual appraisals are to ensure that: (1) The space 
occupied by the Plans and the Union reflects the fair market rental 
value; and (2) the allocation of rent for the shared office space is 
appropriate for the Plans and is fair based on the Plans' usage. Based 
upon these annual appraisals and an annual review of the Plans' usage 
of the shared office space, Ms. Partridge will adjust the rental 
amounts for such space, if necessary, based upon any changes in the 
fair market rental values or the reallocation of space used by any of 
the Plans or the Union. If, as the result of an annual appraisal, the 
fair market rental value of the office space declines in value from the 
prior rental year, the Union will be required to pay the Deferred 
Income Plan the same rental that it paid the Deferred Income Plan 
during the previous year. The lessee Plans, however, will not be 
affected by this ``floor'' requirement.
    8. In her capacity as the independent, qualified fiduciary, Ms. 
Partridge states that she understands and acknowledges her duties, 
responsibilities, and liabilities in acting as a fiduciary with respect 
to the Deferred Income Plan based upon consultation with counsel 
experienced with the fiduciary responsibility provisions of the Act. 
Ms. Partridge derives less than one percent of her annual income from 
the Union and the Plans.
    Ms. Partridge represents that she has reviewed the terms of the 
leasing arrangements between the Deferred Income Plan and the Pension 
Plan, the Welfare Plan, the Apprenticeship Plan and the Union and has 
concluded that these leasing arrangements are fair to the Deferred 
Income Plan. In addition, Ms. Partridge states that the terms and 
conditions of these leases are acceptable and compare favorable to 
other leases in the Boston area. To support her opinion, Ms. Partridge 
represents that she has considered the current economic climate, 
comparable rents in the area, vacancy rates and property amenities. Ms. 
Partridge also believes that the leasing arrangements are in the best 
interests of the Deferred Income Plan and its participants and 
beneficiaries. She states that the Deferred Income Plan will continue 
receiving market rate rents on a regular and a timely basis and that it 
would not be able to obtain more income from other independent tenants.
    Ms. Partridge also represents that she has examined the current 
financial statements and portfolio of the Deferred Income Plan. Based 
upon such review, she states that the lease transactions are consistent 
with the Deferred Income Plan's diversification, liquidity and 
investment strategy. [[Page 3661]] 
    With regard to the creditworthiness of the lessees and their 
ability to pay, Ms. Partridge represents that she has reviewed the most 
recent financial statements for the Pension Plan, the Welfare Plan, the 
Apprenticeship Plan and the Union along with the lessees' hourly 
contribution rates set forth in the collective bargaining agreement. 
Based upon their steady stream of annual income, she believes that the 
lessees are creditworthy for the purposes of the lease transactions 
contemplated herein.
    Besides the duties described above, Ms. Partridge will: (a) Oversee 
the collection of rent; (b) determine whether it is appropriate to 
renew or continue a leasing arrangement; and (c) take all actions that 
are necessary and property to enforce the rights of the Deferred Income 
Plan and protect the participants and beneficiaries of such Plan.
    9. In addition to Ms. Partridge's review of the transactions, the 
Trustees represent that before the leases are consummated, they will 
review the investment needs of each of the related Plans, the terms and 
conditions of the leasing arrangements, including the initial rental 
rate and the subsequent appraisals by the independent, qualified 
appraiser. Based upon their consideration of such matters, the Trustees 
will determine whether the leasing arrangements are in the best 
interests of the Pension Plan, the Welfare Plan and the Apprenticeship 
Plan. The Trustees will also determine whether the amount of space 
leased by the Pension Plan, the Welfare Plan and the Apprenticeship 
Plan is appropriate and necessary for the needs of these Plans.
    10. 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 of all such leasing 
arrangements will be at least as favorable to the Plans as those 
obtainable in an arm's length transaction with an unrelated party; (b) 
Ms. Partridge, as the Deferred Income Plan's independent, qualified 
fiduciary, will approve of the leasing arrangements, will agree to 
monitor all leases on behalf of the Deferred Income Plan as well as the 
terms and conditions of the exemption at all times; (c) the rental 
charged by the Deferred Income Plan under each lease will be based upon 
the fair market rental value of the premises as determined by an 
independent, qualified appraiser; (d) the Building will be revalued 
annually by the independent, qualified appraiser; and (e) if 
appropriate, Ms. Partridge will adjust the rentals charged for the 
office space based upon the annual appraisals of the Building; and (f) 
the Trustees will determine that the leasing arrangements are and 
continue to be in the best interests of the Pension Plan, the Welfare 
Plan and the Apprenticeship Plan.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

Wadco, Inc. Profit Sharing Plan and Trust (the Plan) Located in Spring, 
Texas

[Application No. D-9820]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of 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 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 (the Sale) of certain shares of stock (the Stock) by 
the Plan to Peter Aswad, a disqualified person with respect to the 
Plan.<SUP>2

    \2\Since Peter Aswad and his wife, Judith Aswad, are the only 
participants in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code.
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    This proposed exemption is conditioned upon the following 
requirements: (1) All terms and conditions of the Sale are at least as 
favorable to the Plan as those obtainable in an arm's length 
transaction between unrelated parties; (2) the Sale is a one-time cash 
transaction; (3) the Plan is not required to pay any commissions, costs 
or other expenses in connection with the Sale; (4) the Plan receives a 
sales price equal to the fair market value of the Stock as determined 
by an independent, qualified appraiser; (5) the trustees of the Plan 
determine that the Sale is appropriate for the Plan and is in the best 
interests of the Plan and their participants and beneficiaries; and (6) 
within ninety days of the grant of this proposed exemption, Wadco files 
Forms 5330 with the Internal Revenue Service and pays all applicable 
excise taxes due with respect to past prohibited transactions.

Summary of Facts and Representations

    1. The Plan, established on December 4, 1990, is a profit sharing 
plan sponsored by Wadco, Inc. (Wadco). Wadco is an Illinois corporation 
previously engaged in the purchase and resale of molecular sieves used 
in the manufacturing of thermal-pane glass. Presently, Wadco is not 
actively involved in any type of business. As of December 31, 1993, the 
Plan had total assets of $275,727 and two participants, Peter and 
Judith Aswad, who are also the trustees of the Plan (the Trustees). The 
Trustees have the sole investment discretion with regard to the Plan.
    2. Among the assets of the Plan is the Stock. The Stock consists of 
300 shares of stock in Titan Industries, Inc. (Titan), a closely-held 
Oklahoma corporation which engages in the manufacture of additive 
injection equipment. The Stock represents approximately fifty percent 
of the issued and outstanding stock of Titan. The remaining fifty 
percent of the issued and outstanding stock of Titan is owned by Gary 
Williams, the President of Titan. Mr. Aswad is the Chairman of the 
Board of Directors of Titan and is the acting sales manager for the 
western half of the United States and the Far East.
    In 1987, Wadco acquired the Stock for approximately $15,000 and 
contributed it to the Wadco, Inc. Defined Benefit Plan (the DB Plan), a 
qualified plan maintained by Wadco in the 1980's. The trustees of the 
DB Plan terminated the DB Plan, effective December 31, 1989, and 
distributed all of its assets on December 10, 1990, to the DB Plan's 
only participants, Mr. and Mrs. Aswad, in 1990. At this time, Mr. and 
Mrs. Aswad rolled over the Stock, worth approximately $118,904, into 
the Plan. Wadco is aware of the fact that the contribution of the Stock 
constituted a prohibited transaction in violation of the Code. 
Accordingly, Wadco represents that within ninety days of the grant of 
this proposed exemption, it will file Forms 5330 with the Internal 
Revenue Service and will pay all applicable excise taxes due with 
respect to past prohibited transactions.
    As of November 14, 1994, neither the Plan nor the DB Plan had 
received any dividends from the Stock. However, the Stock has 
appreciated approximately 50.5 percent per year since its acquisition 
in 1987. As of December 31, 1993, the Stock amounted to approximately 
eighty-six percent of the total assets of the Plan.
    3. Because the Stock accounts for such a large percentage of the 
Plan's assets and cannot readily be liquidated due to the lack of a 
public market, the Trustees desire to sell the Stock out of the Plan. 
The Trustees anticipate that any efforts to sell the Stock to unrelated 
parties would result in a sale at a less than its fair market value 
(see Representation #4) due to the Stock's [[Page 3662]] lack of 
marketability. Because Mr. Aswad is willing to purchase the Stock from 
the Plan, the Trustees propose to sell the Stock to Mr. Aswad for the 
fair market value of the Stock on the date of the Sale as determined by 
an independent, qualified appraiser. The Sale will be one-time cash 
transaction, and the Plan will not be required to pay any fees, 
commissions or expenses in connection with the sale of the Stock. The 
Trustees have determined that the Sale is appropriate for the Plan and 
is in the best interests of the Plan and their participants and 
beneficiaries. Accordingly, the Trustees request an administrative 
exemption from the Department to permit the sale of the Stock to Mr. 
Aswad.
    4. Richard P. Bernstein, the President of Richard P. Bernstein, 
Inc., a business evaluation and appraisal firm which is located in 
Dallas, Texas, appraised the Stock. Mr. Bernstein represents that he 
has performed approximately 2,000 valuations of closely-held companies 
since 1975. Mr. Bernstein represents that both he and his firm are 
independent of, and unrelated to, Wadco, Titan and the Trustees.
    Mr. Bernstein placed the fair market value of the Stock at $218,000 
or $726 per share as of May 24, 1994. Mr. Bernstein's valuation 
includes a thirty-five percent discount based upon the Stock's limited 
marketability.
    5. In summary, it is represented that the transaction will satisfy 
the statutory criteria of section 408(a) of the Act because: (a) All 
terms and conditions of the Sale will be at least as favorable to the 
Plan as those obtainable in an arm's length transaction between 
unrelated parties; (b) the Sale will be a one-time cash transaction; 
(c) the Plan will not be required to pay any commissions, costs or 
other expenses in connection with the Sale; (d) the Plan will receive a 
sales price equal to the fair market value of the Stock as determined 
by an independent, qualified appraiser; (e) the Trustees of the Plan 
will determine that the Sale is appropriate for the Plan and is in the 
best interests of the Plan and their participants and beneficiaries; 
and (f) within ninety days of the grant of this proposed exemption, 
Wadco will file a Forms 5330 with the Internal Revenue Service and pay 
all applicable excise taxes due with respect to past prohibited 
transactions

Notice to Interested Persons

    Since Mr. and Mrs. Aswad are the only participants in the Plan, it 
has been determined that there is no need to distribute the notice of 
proposed exemption to interested persons. Comments are due within 
thirty days after publication of this notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)

The Travelers Separate Account ``R'' (SAR) Located in Hartford, 
Connecticut

[Application No. D-9827]

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 
406(b)(2) of the Act and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1) (A) 
through (E) of the Code, shall not apply to the past lease (the Lease) 
of space in an office building located in Cedar Knolls, New Jersey (the 
Building) from December 22, 1993 until June 24, 1994 by SAR to The 
Travelers Insurance Company (Travelers), a party in interest with 
respect to employee benefit plans invested in SAR, provided that the 
following conditions were satisfied:
    (a) All terms and conditions of the Lease were at least as 
favorable to SAR as those which SAR could have obtained in an arm's-
length transaction with an unrelated party at the time the Lease was 
executed;
    (b) The rent paid by Travelers to SAR under the Lease was not less 
than the fair market rental value of the office space;
    (c) LaSalle Partners (LaSalle), acting as a qualified, independent 
fiduciary for SAR during the time that the Building was owned by SAR, 
reviewed all terms and conditions of the Lease prior to the 
transaction, as well as any subsequent modifications to the Lease, and 
determined that such terms and conditions would be in the best 
interests of SAR at the time of the transaction;
    (d) LaSalle represented the interests of SAR for all purposes under 
the Lease as a qualified, independent fiduciary for SAR, monitored the 
performance of the parties under the terms and conditions of the Lease, 
and took whatever action was necessary to safeguard the interests of 
SAR with respect to the Lease during the time that the Building was 
part of SAR's portfolio; and
    (e) Travelers pays to all of SAR's contractholders, upon final 
liquidation of the properties held by SAR, amounts necessary to 
reimburse SAR for expenses incurred in connection with the tenant 
improvements made to the office space leased to Travelers prior to the 
sale of the Building (i.e. $1,363,581), as well as all other amounts 
required to be paid to SAR's contractholders, pursuant to the terms of 
the Settlement Agreement arising from The Travelers Insurance Company 
v. Allied-Signal Inc. Master Pension Trust, et al. (Civil No. H-90-870-
AHN, USDC D Conn).

EFFECTIVE DATE: This proposed exemption, if granted, will be effective 
for the period from December 22, 1993 until June 24, 1994.

Summary of Facts and Representations

    1. Travelers, a wholly-owned subsidiary of The Travelers 
Corporation (Travelers Corp.), is a Connecticut corporation and one of 
the largest stock insurance companies in the United States. At the end 
of 1992, Travelers Corp. held more than $53 billion in total assets.
    2. Travelers serves as the asset manager for SAR, which is 
maintained by Travelers for the investment of qualified pension plan 
assets in real estate related investments. SAR is a pooled separate 
account which consists of two components, an equity component and a 
mortgage component. The equity component accounts for 95% of the assets 
held in SAR. Total assets held in SAR were valued at $63,902,857 as of 
September 30, 1993.
    Participation in SAR is limited to qualified private retirement 
plans and governmental plans. As of December 31, 1992, approximately 
150 plans participated in SAR. The interest of no single plan 
represents more than 20% of SAR's total assets, except for The Pension 
Plan for Salaried Employees of The Travelers Corporation and Certain 
Subsidiaries (The Travelers Plan) which represented approximately 44% 
of SAR's total assets as of September 30, 1993. In this regard, the 
Travelers Plan had 38,383 participants and total net assets of 
approximately $1,624,547,217 as of December 31, 1992. The Finance 
Committee of the Board of Directors of Travelers Corp. is the fiduciary 
responsible for the original investment of the Travelers Plan in SAR.
    3. In December 1989, Travelers decided to terminate SAR and proceed 
with an accelerated liquidation of SAR's properties for distribution of 
the proceeds on a pro rata basis. In June 1990, a SAR contractholder 
initiated litigation related to the proposed distribution of proceeds. 
The plaintiffs initially sued Travelers Corp. and Travelers in the U.S. 
District Court for the Northern District of Texas, The Police and Fire 
Pension Fund of the City [[Page 3663]] of Dallas, Texas v. The 
Travelers Corp. and The Travelers Insurance Co., (Civil No. CA-3-90-
1558-C, USDC ND Tex.) (referred to below as ``the Texas Litigation''). 
Subsequently, Travelers Corp., Travelers, and two affiliates filed a 
defendant class action seeking to resolve issues connected to SAR's 
liquidation in The Travelers Insurance Company v. Allied-Signal Inc. 
Master Pension Trust, et al. (Civil No. H-90-870-AHN, USDC D Conn) 
(referred to below as the ``Allied-Signal Litigation''). The Texas 
Litigation was dismissed and the plaintiffs reasserted their claims as 
counterclaims in the Allied-Signal Litigation. In 1993, the court 
granted final approval of settlements in the Allied-Signal Litigation 
which set forth procedures to distribute amounts held in the equity and 
mortgage components of SAR. The settlement agreements require Travelers 
to use its best efforts to liquidate all of SAR's equity investments, 
including the Building, by April 1995.
    4. The Building is a four story, 116,919 square foot office 
building located at 240 Cedar Knolls, Cedar Knolls, New Jersey. 
Travelers entered into an agreement with SAR on December 22, 1993, to 
lease office space in the Building pursuant to the terms of the Lease. 
The Lease allowed Travelers to occupy approximately 52,400 rentable 
square feet (RSF) in the Building.\3\ Prior to the Lease, the Building 
had approximately 55% of its office space occupied, all by parties 
unrelated to Travelers and its affiliates. As a result of the Lease, 
the Building was over 98% occupied once Travelers moved into all of the 
office space it planned to use. Thus, the applicant states that the 
Lease made the Building more marketable for sale to a third party and 
was in the best interests of the plans that were contractholders in SAR 
at the time of the transaction.

    \3\The Lease contains three units with different rentable areas 
and commencement dates. Unit A includes 9464 RSF on the first and 
second floors which was occupied by Travelers as of January 1, 1994. 
Unit B includes 34,400 RSF on the first, second and fourth floors 
which was occupied by Travelers as of July 1, 1994. Unit C includes 
8536 RSF on the second floor which was occupied by Travelers as of 
May 1, 1994. The Lease allowed Travelers to adjust the area of Unit 
B, subject to the Travelers' design plan for various improvements.
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    5. Under the terms of the Lease, Travelers agreed to lease the 
office space for five years, six months. Travelers pays $15.00 per 
square foot per annum, adjusted up to $16.86 per square foot per annum 
to account for additional tenant improvements, under the base rent 
schedule specified in the Lease.\4\ All rents under the Lease are 
payable monthly upon the first business day of the month. The Lease 
also provides 205 parking spaces for use by Travelers at no additional 
cost.

    \4\From the commencement date applicable to Unit A through June 
30, 1994, the base rent was $147,705 per annum (i.e. approximately 
$12,308 per month). Commencing July 1, 1994 and continuing until the 
expiration date of the Lease, the base rent for Unit A will be 
$166,020 per annum (i.e. approximately $13,835 per month). From the 
commencement date applicable to Unit C through June 30, 1994, the 
base rent was $128,040 per annum (i.e. approximately $10,670 per 
month). Commencing July 1, 1994 and continuing until the expiration 
date of the Lease, the base rent for Unit C will be $143,916 per 
annum (i.e. approximately $11,993 per month). The annual base rent 
for Unit B will be based upon the final RSF of Unit B, as determined 
in accordance with the terms of the Lease multiplied by $16.86 per 
square foot based on tenant specified improvements.
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    The Lease allocates a number of non-rent expenses to Travelers. 
Tenant-electric is submetered and paid for by Travelers. In addition, 
Travelers agreed to pay a proportionate share of increases in actual 
operating expenses incurred by the landlord under the Lease. However, 
the annual increase in operating expenses for which Travelers is liable 
as tenant, other than energy, taxes and insurance, may not exceed the 
annual percentage increase in the consumer price index (CPI). Travelers 
also agreed to pay its proportionate share of increases in real estate 
taxes.
    With respect to tenant improvements, the Lease provided Travelers 
with new building installations in accordance with Travelers' plans and 
specifications at a one-time cost not to exceed $27.00 per square foot, 
which will be paid for by Travelers through the base rents described 
above. SAR spent $1,363,581 under the tenant improvement allowance for 
the office space leased to Travelers.
    6. On June 24, 1994, SAR sold the Building to Koll Investment 
Management, Inc. (Koll), for $4,000,000. The applicant states that Koll 
is a California corporation, d/b/a KB Realty Advisors, which is 
unrelated to Travelers and its affiliates. The proceeds from the sale 
were distributed in July 1994 to the contractholders of SAR in 
accordance with the settlement agreement arising from the Allied-Signal 
Litigation (the Settlement Agreement). In this regard, the applicant 
states that the Settlement Agreement requires Travelers to distribute 
to all of SAR's equity contractholders, over the course of liquidating 
the remaining assets, returns that are at least equal to the value of 
the equity components of SAR as of December 31, 1992 (the Target 
Amount). Under the Settlement Agreement, Travelers must make 
``differential compensation'' payments over and above distributions 
from SAR if the amounts distributed to the contractholders fail to meet 
the Target Amount. Specifically, the ``differential compensation'' 
payments will constitute the difference between the Target Amount (i.e. 
$75,160,003) and the total amount of cash distributions to 
contractholders from that date forward. The applicant states that a 
``differential compensation'' payment of approximately $7,375,997 would 
be due to SAR's contractholders to meet the Target Amount, based on the 
distributions made to the contractholders (i.e. $48,226,355) and the 
value of the assets remaining in SAR as of September 30, 1994 (i.e. 
$19,557,651). As a result, the existing assets would have to be sold 
for in excess of $26,933,648, to extinguish Travelers' obligation to 
make a differential compensation payment. SAR is in the final phases of 
its liquidation process and expects to complete liquidation of its 
equity portfolio within the next few months.
    Travelers represents that the deficiency of $7,375,997 as of 
September 30, 1994, was comprised of shortfall amounts from the sale of 
assets at less than their appraised value as of December 31, 1992, and 
unrecovered expenditures of SAR assets. With respect to the Building, 
the applicant indicates that this asset had a fair market value of 
$4,150,000 as of December 31, 1992. Had the Building been sold for more 
than that amount, the differential compensation amount would have been 
reduced. However, the sale of the Building to Koll for $4,000,000 
increased the amount of differential compensation owed by Travelers by 
$150,000. Similarly, the tenant improvements made to the Building prior 
to the sale totalling $1,363,581 were paid from SAR funds. As such, the 
total amount of tenant improvement expenditures was unavailable for 
distribution to SAR investors. Each dollar spent on the improvements 
therefore has increased the magnitude of the differential compensation 
payment owed by Travelers under the Settlement Agreement. Since the 
sale of the remaining assets will not be sufficient to reduce already 
incurred deficiencies, Travelers will be responsible for these amounts 
out of its general assets. Thus, the size of the differential 
compensation payment will reflect all amounts spent by SAR for tenant 
improvements to the space in the Building leased to Travelers (i.e. 
$1,363,581) prior to the sale of the Building. Travelers must pay such 
amounts to SAR's contractholders after [[Page 3664]] all of the equity 
components of SAR are liquidated.
    The applicant represents that the sale of the Building was in the 
best interests of the plans that were contractholders of SAR at the 
time of the transaction. In addition, the sale of the Building by SAR 
ended the prohibited transaction that resulted from Travelers leasing 
the subject office space in the Building. Therefore, the applicant 
requests that the proposed exemption be effective from December 22, 
1993, the date that Travelers signed the original Lease documents, 
until June 24, 1994, the date the Building was sold.
    7. LaSalle served as an independent fiduciary for SAR in connection 
with the Lease during the time that the Building was part of SAR's 
portfolio. LaSalle is a real estate investment manager, located in Pine 
Brook, New Jersey, which has extensive experience in advising various 
clients, including benefit plan investors, regarding the sale, leasing 
and management of office space. During the 1992 calendar year, LaSalle 
received less than one percent of its total client fees from Travelers. 
LaSalle acknowledges that it understood its duties, responsibilities 
and liabilities in acting as a fiduciary under the Act for SAR.
    LaSalle possessed full authority as the independent fiduciary to 
act on behalf of SAR with respect to the Lease. In this role, LaSalle 
completed an extensive analysis of the Lease prior to the execution of 
the transaction. Specifically, LaSalle compared the proposed terms of 
the Lease to leases of other similar office space to unrelated parties 
in Northern New Jersey at the time of the transaction. This market 
research was conducted through real estate brokers, landlords and 
attorneys. LaSalle also reviewed the latest appraisals of the Building.
    8. LaSalle states that it required a number of changes to the terms 
for the Lease in order to protect the interests of SAR. These changes 
were necessary mainly because Travelers had suggested using a standard 
lease document for a newly-constructed building, whereas the Lease 
actually involves office space in an existing facility. LaSalle 
reviewed the terms of the Lease to assure that the required 
modifications were incorporated into the relevant documents. Based on 
Traveler's agreement to include the modifications in the Lease, LaSalle 
concluded that the terms of the Lease would be at least as favorable to 
SAR as the terms which would exist in an arm's-length transaction and 
that entering into the transaction would be in the best interests of 
SAR. LaSalle states that an important factor in its conclusion was the 
fact that the Lease's average gross rents and equivalent net rents were 
well within the acceptable ranges for comparable market transactions in 
the Northern New Jersey area.
    With respect to the $27.00 per square foot tenant improvement 
allowance granted to Travelers under the Lease, LaSalle states that 
this provision involved a one-time cost, amortized over the entire term 
of the Lease, which was designed to assure the suitability of the 
leased space to the tenant's needs. LaSalle represents that similar 
tenant improvement allowances and other concessions were typical of 
arm's-length leases in the Northern New Jersey area at the time of the 
transaction and are a common practice in highly competitive markets. 
LaSalle states that the rents which would have been payable to SAR 
under the Lease, and the costs associated with the Lease, would have 
yielded a total net rate of return to SAR for the entire term of the 
Lease that would have been above other arm's-length leases in the 
Northern New Jersey area. With respect to the sale of the Building to 
Koll for $4,000,000, LaSalle states that the improvements made to the 
office space under the Lease increased the marketability of the 
Building and helped SAR to obtain a better sale price for the Building 
on June 24, 1994.
    9. LaSalle represents that it monitored compliance by the parties 
with the terms of the Lease during the period that the Building was 
part of SAR's portfolio. In this regard, LaSalle was responsible for 
periodically auditing the parties performance under the Lease to assure 
compliance with such terms. This audit would include a review of the 
financial statements relating to the property and a physical inspection 
of the premises occupied by Travelers. The audit would examine whether 
rent payments were paid in an accurate and timely fashion as specified 
by the Lease and whether tenant improvements were made in accordance 
with the terms of the Lease. In addition, LaSalle states that it took 
whatever action was necessary to safeguard the interests of SAR in 
connection with the Lease. Finally, LaSalle acknowledges that: (i) The 
effectiveness of any exemption for the Lease will be dependent on 
compliance by the parties with the terms as set forth in the Lease 
during the period covered by the proposed exemption, including any 
limitations, restrictions or other conditions imposed at that time; 
(ii) if any circumstances resulted in a violation of the terms and 
conditions of the Lease or the proposed exemption during such period, 
the relief provided by the exemption will not be available; and (iii) 
LaSalle, as the independent fiduciary for SAR, was responsible at all 
times for monitoring compliance by the parties with the terms and 
conditions of the Lease during the period covered by the proposed 
exemption.
    10. In summary, the applicant represents that the Lease met the 
statutory criteria of section 408(a) of the Act and section 4975(c)(2) 
of the Code because: (a) LaSalle, a qualified, independent fiduciary 
for SAR, determined that the Lease was in the best interests of SAR 
prior to the transaction; (b) LaSalle determined that the terms and 
conditions of the Lease were at least as favorable to SAR as those 
which could have been obtained from an unrelated party at the time of 
the transaction; (c) LaSalle monitored the Lease and enforced the 
obligations of Travelers on behalf of SAR while the Building was part 
of SAR's portfolio; and (d) Travelers will pay SAR's contractholders, 
as part of any other payments due to SAR under the terms of the 
Settlement Agreement, an amount necessary to reimburse SAR for expenses 
incurred in connection with the tenant improvements made to the office 
space leased to Travelers prior to the sale of the Building.

Notice to Interested Persons

    The applicant states that because of the large number of 
potentially interested parties, it is not possible to provide a 
separate copy of the notice of the proposed exemption to each 
participant of all plans that were invested in SAR during the period 
covered by the requested exemption. Therefore, the only practical form 
of notice for such interested persons is publication of the proposed 
exemption in the Federal Register. However, the applicant states that 
it will provide notice to each of the plans that were contractholders 
in SAR during the period covered by the requested exemption. Such 
notice shall be made by first class mail within fifteen (15) days 
following the publication of the proposed exemption in the Federal 
Register. This notice shall include a copy of the notice of proposed 
exemption as published in the Federal Register and a supplemental 
statement (see 29 CFR 2570.43(b)(2)) which informs interested persons 
of their right to comment on and/or request a hearing with respect to 
the proposed exemption. Comments and requests for a public hearing are 
due within forty-five (45) days following the publication of the 
proposed exemption in the Federal Register.

 [[Page 3665]] FOR FURTHER INFORMATION CONTACT: Mr. E.F. Williams of 
the Department, telephone (202) 219-8194. (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 that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 12th day of January, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 95-1200 Filed 1-17-95; 8:45 am]
BILLING CODE 4510-29-P