[Federal Register Volume 60, Number 50 (Wednesday, March 15, 1995)]
[Notices]
[Pages 14005-14012]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-6345]



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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 95-24; Exemption Application No. D-
09787, et al.]


Grant of Individual Exemptions; Boston Cement Masons Union Local 
No. 534 Deferred Income Plan, et al.

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Grant of individual exemptions.

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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 
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
    Notices were published in the Federal Register of the pendency 
before the Department of proposals to grant such exemptions. The 
notices set forth a summary of facts and representations contained in 
each application for exemption and referred interested persons to the 
respective applications for a complete statement of the facts and 
representations. The applications have been available for public 
inspection at the Department in Washington, DC. The notices also 
invited interested persons to submit comments on the requested 
exemptions to the Department. In addition the notices stated that any 
interested person might submit a written request that a public hearing 
be held (where appropriate). The applicants have represented that they 
have complied with the requirements of [[Page 14006]] the notification 
to interested persons. No public comments and no requests for a 
hearing, unless otherwise stated, were received by the Department.
    The notices of proposed exemption were issued and the exemptions 
are being granted solely by the Department because, 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 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 exemptions are administratively feasible;
    (b) They are in the interests of the plans and their 
participants and beneficiaries; and
    (c) They are protective of the rights of the participants and 
beneficiaries of the plans.

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

[Prohibited Transaction Exemption 95-24; Application Nos. D-9787, D-
9788, L-9789 and L-9790, respectively]

Exemption

    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, 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 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.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption, refer to 
the notice of proposed exemption published on January 18, 1995 at 60 FR 
3659.

FOR FURTHER INFORMATION CONTACT: Kathryn Parr of the Department, 
telephone (202) 219-8971. (This is not a toll-free number.)
General Motors Hourly-Rate Employes Pension Plan (the Plan) Located 
in Detroit, Michigan

[Prohibited Transaction Exemption No. 95-25; Application No. D-9734]

Exemption

    The restrictions of sections 406(a), 406(b)(1) and (b)(2), and 
407(a) of the Act and the sanctions resulting from the application of 
section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code<SUP>1 shall not apply to:

     <SUP>1For purposes of this exemption, references to specific 
provisions of Title I of the Act, unless otherwise specified, refer 
also to the corresponding provisions of the Code.
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    (1) The transfer of shares of Class E common stock (the Class E 
stock) of General Motors Corporation (GM) to the Plan through the in-
kind contribution of such shares by GM, a party in interest with 
respect to such Plan;
    (2) The holding of the Class E stock by the Plan;
    (3) The sale for cash of shares of Class E stock by the Plan to GM 
or its affiliates or to certain defined contribution plans sponsored by 
GM or its affiliates;
    (4) The exchange of shares of Class E stock for publicly-traded 
securities between the Plan and GM or its affiliates under the same 
terms and conditions as are made available to all shareholders of Class 
E stock; and
    (5) The acquisition, holding, and exercise by the Plan of a put 
option granted by GM which permits the Plan to sell the Class E stock 
or a successor security for which the Class E stock has been exchanged 
to GM.
    This exemption is conditioned upon the satisfaction of the 
following requirements:
    (a) GM contributes to the Plan at least 177 million shares of Class 
E stock but no more than 186 million shares plus $4 billion in cash, 
with at least $2 billion contributed in conjunction with or prior to 
the contribution of the Class E stock, and the remaining $2 billion 
contributed no later than September 30, 1995;
    (b) If less than 177 million shares of Class E stock are 
contributed, GM will contribute additional cash in an amount equal to 
the difference between 177 million and the number of shares of Class E 
stock contributed times the per-share value of such stock at the time 
of contribution, or a weighted average price if such stock is not 
contributed on a single date;
    (c) United States Trust (UST), an independent qualified fiduciary, 
or a successor independent fiduciary acceptable to the Pension Benefit 
Guaranty Corporation (PBGC) represents the Plan's interests with 
respect to the acquisition of Class E stock and also will serve as 
trustee of the Plan with sole discretion respecting the management and 
disposition of the Class E stock after the acquisition. UST must 
determine, prior to entering into any of the transactions described 
herein, that each such transaction, including the contribution of the 
Class E stock, is in the interest of the Plan;
    (d) UST negotiates and approves the terms of any of the 
transactions between the Plan and GM or its affiliates or certain 
defined contribution plans sponsored by GM or its affiliates;
    (e) UST manages the holding and disposition of the Class E stock 
and takes whatever action it deems necessary to protect the rights of 
the Plan;
    (f) The terms of any of the transactions between the Plan and 
parties in interest are no less favorable to such Plan than terms 
negotiated at arm's length under similar circumstances with unrelated 
third parties;
    (g) A credit balance reserve is maintained in the Plan consisting 
of the cash credit balance or cash generated from stock that has been 
sold in an amount equal to at least 25 percent [[Page 14007]] (25%) of 
the contributed value<SUP>2 of the Class E stock which remains unsold 
in the Plan, for so long as such stock or any securities received in 
exchange exceeds the percentage limitations described in sections 
407(a) and 407(f) of the Act (the ERISA Limits);

     <SUP>2Contributed value means the value of the Class E stock 
when contributed to the Plan, as determined by Duff & Phelps Capital 
Markets Co. (formerly Duff & Phelps Financial Consulting Co.).
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    (h) An independent qualified appraiser determines the fair market 
value of the Class E stock contributed to the Plan as of the date of 
such contribution, and determines the fair market value of the Class E 
stock at various other times as required under the agreement between GM 
and the PBGC (the Agreement);
    (i) With respect to any sale or exchange of Class E stock by the 
Plan to GM or its affiliates or to any defined contribution plans 
sponsored by GM or its affiliates, no commission will be charged to or 
paid by the Plan;
    (j) Any sale or exchange of Class E stock between the Plan and GM 
or its affiliates will be for no less than ``adequate consideration'' 
within the meaning set forth in section 3(18) of the Act, and any sale 
of Class E stock by the Plan to a defined contribution plan sponsored 
by GM or its affiliates will be at the prevailing price for such stock 
on the New York Stock Exchange (NYSE); and
    (k) The Plan incurs no fees, costs, or other charges or expenses as 
a result of its participation in transaction (1), above and, with 
regard to other transactions described herein, will not incur fees and 
other costs payable by the issuer under the Registration Rights 
Agreement (RRA).

EFFECTIVE DATE: This exemption will be effective on March 13, 1995.

Written Comments
    In the Notice of Proposed Exemption (the Notice), the Department 
invited all interested persons to submit written comments and requests 
for a hearing on the exemption. All comments and requests for hearing 
were due by December 29, 1994.
    The Department received 157 letters from interested persons 
commenting on the exemption. In addition, a number of interested 
persons telephoned the Department. These individuals were assisted with 
their questions by members of the staff of the Office of Exemption 
Determinations of the Department. With respect to all the written 
comments submitted by interested persons, the Department forwarded 
copies to the applicant and requested that the applicant address the 
concerns raised by the commentators in writing. A description of the 
comments and the applicant's responses are summarized below.
    Several of the written comments received by the Department 
supported adoption of the exemption. In this regard, after review of 
GM's application for exemption and the terms of the Agreement between 
GM and PBGC, the International Union, United Automobile, Aerospace and 
Agricultural Implement Workers of America (the UAW), the certified 
collective bargaining representative for approximately 215,000 
employees of GM who are participants in the Plan and approximately 
255,000 retired former employees of GM who are participants in the 
Plan, expressed support for the application and stated its belief that 
the transactions which are the subject of this exemption are in the 
best interest of the Plan's participants and beneficiaries.
    Some commentators neither supported nor opposed the exemption but 
either expressed a lack of understanding of the exemption or raised 
other concerns that are beyond the scope of this exemption proceeding. 
Other commentators opposed the exemption and raised questions and 
concerns regarding the transactions described therein. The concerns 
expressed by these commentators generally related to: (a) The impact on 
pension or health benefits; (b) the holding by the Plan of more than 5% 
of its assets in any company; (c) the preference for a cash 
contribution over that of stock; (d) the potential loss of value of the 
Class E stock; (e) the restrictions on the Plan's ability to sell the 
Class E stock under the terms of the RRA; (f) the fact that the Class E 
stock is not a qualifying employer security; (g) the control by the 
Plan of more than 10% of the voting shares of a company; (h) the 
presence of a financial flexibility exception in the Agreement given 
GM's recent financial history; (i) the effect of an EDS sale on GM's 
future contributions to the Plan; (j) the tax advantages to GM of the 
contribution of Class E stock; and (k) the lack of a mandatory 
requirement in the exemption to convert the Class E stock into cash.
    The following summarizes the response to these concerns submitted 
to the Department by GM. With respect to (a) above, GM states that the 
exemption does not change or affect in any way the pension benefits 
payable under the Plan or health benefits for active or retired 
employees. As a result, the exemption will not affect a participant's 
eligibility to receive a pension benefit, the amount of a pension 
benefit check, or the terms of any health care plan.
    With respect to (b), GM states that UST, the independent fiduciary, 
has represented that the Plan's receipt of the Class E stock will not 
violate the general diversification rule of the Act, which requires 
that a plan's assets be sufficiently diversified in order to minimize 
the risk of large losses.
    With respect to (c), GM responded that while in the abstract the 
contribution of cash may be superior to that of stock, the issue posed 
by the exemption application was not whether the Plan could choose to 
acquire Class E Stock where an equivalent value of cash is available. 
In this regard, as the Plan is significantly underfunded, GM believes 
it is offering a way to substantially improve the Plan's funding with a 
combined contribution of Class E stock and cash.
    With respect to (d), GM maintains that the Agreement, deferring 
credit for the contribution of Class E stock and the $4 billion in 
cash, provides considerable security because in all likelihood the Plan 
will receive further cash contributions from GM in excess of minimum 
funding rules of the Act in the years between 1995 and 2003. In 
addition, GM states that the Agreement contains other protective 
features that adequately address the potential for future losses in 
value, if any, in the Class E stock. Finally, because the dividends on 
Class E stock are based on the earnings of Electronic Data Systems 
Corporation (EDS), GM believes the contribution provides more 
diversification than a security whose dividends are based on the 
performance of GM.
    With respect to (e), GM states that UST, the independent fiduciary, 
is required by law to act solely in the interest of the Plan and its 
participants and beneficiaries. In this regard, UST is satisfied that, 
given the size of the block and the likely means of disposition, that 
the RRA affords ample opportunity for UST to sell or otherwise dispose 
of the Plan's Class E stock while maximizing the value of such stock to 
the Plan.
    With respect to (f), GM states that although the Class E stock is 
not a qualifying employer security because the Plan will acquire and 
hold in excess of the limits imposed by the Act, there are sufficient 
safeguards to protect the interest of the Plan and the participants and 
beneficiaries. In addition, GM points out the Class E stock is widely 
traded on the NYSE, and an independent fiduciary, UST, has negotiated a 
RRA that will allow it, as trustee for the Class E stock, to dispose 
[[Page 14008]] of the stock efficiently while maximizing its value to 
the Plan.
    With respect to (g), GM states that the Class E stock is widely 
traded on the NYSE and generates dividends based on the earnings of EDS 
rather than on the performance of GM. Further, an independent 
fiduciary, UST, has negotiated a RRA that will allow UST, as trustee 
for the Class E stock, to dispose of the stock efficiently while 
maximizing its value to the Plan, and UST is satisfied that it can do 
so given the size of the block of Class E stock.
    With respect to (h), GM states that the commentator erroneously 
alleges that GM's North American Operations (the NAO) has met the ``bad 
year'' definition under the Agreement in each of the past five (5) 
years and asserts that this pattern will continue in the future, 
allowing GM to access more of the credit balance than ``what would 
appear to the common layperson.'' In fact, the NAO did not meet the 
``bad year'' definition in 1994. Moreover, GM notes that, although the 
proposed exemption is complex, the Department's notice and comment 
process is fair and comprehensive and the financial flexibility 
provisions of the Agreement in principle were disclosed in the Notice 
on the same basis and in the same fashion as all other parts of the 
exemption transaction.
    With respect to (i), GM states that the commentator erroneously 
concludes that if GM sells EDS, GM's obligation to contribute to the 
Plan will be nullified. In this regard, GM represents that the 
Agreement provides that the credit balance rules generally apply to 
stock for which the Plan's Class E stock has been exchanged. Further, 
GM asserts that if the credit balance is unavailable, GM will still 
make at least the minimum contributions required by the Act.
    With respect to (j), GM states that the contribution of Class E 
stock to the Plan does not defer or eliminate any income taxes that 
otherwise would be payable on GM's disposition of Class E stock. With 
respect to (k), GM states that the commentator erroneously assumes that 
GM will have control of the Plan's portfolio after the Class E stock is 
contributed. In this regard, GM represents that it will have no control 
over the management of such stock. UST, the independent trustee, will 
have complete discretion over the management and disposition of the 
Class E stock, and, in its sole discretion, will determine how and when 
the Class E stock will be liquidated.
    In addition to the comments described above, the Department also 
received comments from the applicant, GM. The comments from GM 
requested certain modifications and clarifications to the exemption as 
proposed and to the Summary of Facts and Representations (SFR). GM's 
comments fall into three categories: (1) clarification regarding the 
relationship of the exemption to the Agreement between the PBGC and GM 
regarding the contribution of cash and Class E stock; (2) issues 
relating to the conditions of the exemption; and (3) certain technical 
corrections to the SFR.
    With respect to the first category of the comment, GM informed the 
Department that, since May 1994, GM and the PBGC have been negotiating 
the terms of a definitive Agreement. In its application for exemption, 
GM described the tentative terms of this Agreement, as reflected in an 
agreement in principle (the AIP) executed on May 9, 1994, between the 
PBGC and GM. The Department summarized certain terms of the AIP in the 
SFR. The proposed exemption provided that any final exemption would be 
conditioned upon adherence to the material facts and representations 
described in the SFR. GM notes that the terms of the AIP have now been 
superseded by the executed Agreement. Thus, GM believes that there is a 
substantial risk that any change in or non-adherence to a material 
provision will vitiate the exemption and, thereby, preclude the Plan 
from continuing to hold contributed Class E stock above the limits set 
forth in sections 407(a) and 407(f)(1) of the Act. This situation in 
turn would place the independent fiduciary, UST, in the position of 
potentially having to engage in a forced liquidation of a sufficient 
quantity of Class E stock to bring the Plan within the limits of such 
sections of the Act. As a result, GM requests clarification as to 
whether any change in or non-adherence to either the terms of the AIP, 
as described in the SFR, or the Agreement would render the exemption 
unavailable.
    GM states that the Agreement is a contract between GM and the PBGC. 
It is lengthy and complicated, reflecting the nature, size, and 
complexity of its subject. Assets likely to be valued in excess of $10 
billion will be at issue, and the terms of the Agreement will require 
numerous complex calculations to be performed. The Agreement will 
continue in force until at least October 1, 2003, and, as with any such 
complex document, it is possible that good faith differences may arise 
between GM and the PBGC over the meaning and application of its terms.
    GM notes in its comment that it believes that the Plan is fully 
protected by the reporting and enforcement provisions set forth in the 
Agreement, and the interests of the Plan and its participants and 
beneficiaries are better served by application of such procedures than 
by enforcement through the exemption. These reporting and enforcement 
provisions are carefully crafted to facilitate the timely and effective 
resolution of disputes, while permitting the Plan to continue the 
orderly disposition of Class E stock. The Agreement provides for annual 
reporting by GM to the PBGC, and contains a dispute resolution 
mechanism through which the PBGC can enforce the terms and conditions 
of such Agreement. GM represents that it will comply in all material 
respects with the reporting provisions in the Agreement (including as 
they may be changed from time to time by mutual agreement of GM and the 
PBGC). In addition, the Agreement provides, among other things, for 
access to the courts, and under certain circumstances, for the posting 
of collateral by GM if a disputed amount exceeds a certain threshold. 
Accordingly, GM suggests that the exemption, if granted, contain the 
following language, ``Several aspects of the Agreement are of special 
importance to the Department and were included as requirements (a), 
(b), and (g) of the proposed exemption * * * . Accordingly, if GM 
violates a term or condition of the Agreement, other than the specific 
requirements noted above (emphasis added), the violation will be 
addressed by PBGC under the Agreement and not by withdrawal or other 
invalidation of the exemption itself.''
    In this regard, the Department requested the views of the PBGC 
concerning whether a breach of the Agreement by GM in the future should 
void the exemption. The PBGC confirmed that the Agreement contains 
adequate enforcement mechanisms in the event of a breach. GM is 
required under the Agreement to provide information to the PBGC that 
will enable the PBGC to monitor and confirm that the restrictions have 
been properly applied. Also, the PBGC will monitor and enforce those 
terms of the Agreement adopted by the Department as conditions of the 
exemption, as summarized in sections (a), (b), and (g) therein. As a 
result, the PBGC stated that it does not believe that voiding the 
exemption is a necessary or appropriate enforcement mechanism to ensure 
compliance with the Agreement, and that it would not recommend that the 
exemption be voided for violation of a term of the Agreement after GM 
has contributed the stock and cash required by the Agreement and by 
sections (a) [[Page 14009]] and (b) of the proposed exemption. In 
addition, the PBGC is of the opinion that voiding the exemption after 
the stock is contributed could harm the Plan if the independent 
fiduciary were forced to sell stock held by the Plan to bring the 
Plan's employer securities within the ERISA Limits.
    UAW in its comment letter also concurred with the views expressed 
by GM on the question of whether the exemption should be voided in the 
event of an alleged breach of the Agreement. UAW believes that the 
enforcement mechanisms described in the Agreement are adequate and 
appropriate and that termination of the exemption in the event of a 
breach of that Agreement would only be harmful to participants and 
beneficiaries, in that termination of the exemption would by necessity 
force a massive and precipitous sale of the Class E stock. In the 
opinion of the UAW, selling the Class E stock under such conditions is 
not likely to result in the realization of optimum proceeds and would 
therefore diminish the assets in the Plan.
    However, the UAW noted that the language suggested by GM to address 
this issue, as quoted above, would create the impression that these 
requirements of the exemption are precisely co-extensive with the 
analogous sections of the Agreement. The UAW further noted that the 
language in (a), (b), and (g), as set forth in the Notice, summarized 
but did not recite word for word such sections from the Agreement. 
Accordingly, the UAW suggested that the word, ``included'' in the first 
sentence of GM's language quoted above be replaced with the word, 
``summarized,'' and the underlined portion of the second sentence of 
GM's language quoted above be changed to read, ``without violating one 
of the express conditions of the exemption.''
    The Department concurs with GM, the PBGC, and the UAW that the 
rights embodied in the reporting and dispute resolution provisions of 
the Agreement provide protection to the Plan, and that enforcement by 
the PBGC through the procedures negotiated in the Agreement will serve 
the interest of the Plan and its participants and beneficiaries. 
Further, the Department believes that any ``fire sale'' of Class E 
stock which may result from the unavailability of the exemption through 
a change in or non-adherence to the terms of the AIP described in the 
SFR or the Agreement would not be in the interest of the Plan. However, 
the Department has determined that compliance with certain provisions 
of the Agreement, as summarized in paragraphs (a), (b), and (g) of the 
proposed exemption, are important and necessary to the continued 
availability of the exemption. Accordingly, it is the view of the 
Department that, if GM violates a term or condition of the Agreement, 
without violating one of the express conditions of the exemption, the 
violation will be addressed by the PBGC in accordance with the 
enforcement terms of such Agreement and will not result in the 
unavailability of the exemption. The Department is of the further view 
that the exemption will be available despite the fact that the terms of 
the final Agreement differed in some respects from the terms of the AIP 
which was summarized in the SFR.
    With respect to the second category of the comment, GM requests 
modifications to the language of certain conditions of the exemption, 
as set forth in the Notice. In this regard, condition (c) on page 56541 
and repeated in item 18(c) on page 56549 of the Notice as published in 
the Federal Register, states: ``United States Trust (UST), an 
independent qualified fiduciary, or a successor independent fiduciary 
acceptable to the Pension Benefit Guaranty Corporation (PBGC) 
represents the Plan's interests for all purposes with respect to the 
Class E stock and determines (emphasis added), prior to entering into 
any of the transactions described herein, that each such transaction, 
including the contribution of the Class E stock, is in the interest of 
the Plan.'' GM believes this to be an overly broad description of the 
independent fiduciary's responsibilities. GM suggests striking the 
underlined phrase above and substituting in lieu thereof, ``with 
respect to the acquisition of Class E stock and also will serve as 
trustee of the Plan with sole discretion respecting the management and 
disposition of the Class E stock after the acquisition. UST must 
determine * * *.'' The Department concurs with this comment and has 
modified the final exemption accordingly.
    Condition (k) on page 56541 and repeated in item 18(k) on page 
56549 of the Notice, as published in the Federal Register, states: 
``The Plan incurs no fees, costs, or other charges or expenses as a 
result of its participation in any of the transactions (emphasis 
added).'' GM is concerned that this condition would preclude the 
payment by the Plan to UST or any other independent fiduciary of fees 
for asset management services as independent fiduciary. In this regard, 
the applicant notes that the application indicated that GM would bear 
the costs of UST's fees in connection with the Plan's acquisition of 
the Class E stock but that fees for UST's trustee services will be 
payable by the Plan. It is intended that all fees associated with the 
management and disposition of Class E stock, other than certain 
underwriting and other fees and costs described in section 9 of the 
RRA, will be borne by the Plan. GM suggests striking the underlined 
phrase above and substituting the phrase, ``transaction (1), above and, 
with regard to other transactions addressed herein, will not incur fees 
and other costs payable by the issuer under the Registration Rights 
Agreement.'' The Department concurs with this comment and has revised 
the language of condition (k).
    With respect to the third category of the comment, GM believes that 
certain revisions to the SFR would more accurately describe the 
transactions. As mentioned above, the AIP was summarized in the SFR. 
Subsequently, the AIP was superseded by the terms of the Agreement. 
Consequently, GM wishes to point out the following four (4) provisions 
of the AIP which were summarized in the SFR but which have now been 
modified by the Agreement.
    The second sentence of item 6 of the SFR on page 56543, states that 
GM's stock contribution will consist of, ``* * * all of the remaining, 
222 million unissued shares of Class E stock less approximately 45 
million shares reserved for conversion of GM's Series C Preference 
Stock, or approximately 177 million shares.'' In accordance with the 
terms of the Agreement, GM suggests that the phrase, ``and the number 
of shares of GM Class E stock that, as of the last contribution of such 
stock, are reserved or committed (as Treasury shares or otherwise) for 
employee benefit plans, stock bonus plans, or employee stock 
programs,'' should have been inserted after the words, ``Preference 
Stock,'' in the above-quoted language.
    Item 12 of the SFR, on page 56545 (center column, third full 
paragraph), refers to GM's ``* * * access annually to an amount of up 
to $1.5 billion of the stock credit balance generated by the stock 
which has been sold.'' GM suggests that in accordance with the 
Agreement the phrase, ``an average of approximately,'' should have been 
inserted in the above-quoted language between the words, ``to'' and 
``$1.5,'' because $1.5 assumes GM's access to the stock credit balance 
at approximately the mid-point of a plan year and reflects interest 
over the first portion of the plan year at the Plan's funding standard 
account rate.
    Item 12 of the SFR states on page 56545 (center column, sixth 
sentence of the second full paragraph) that, the restriction relating 
to the 25% credit [[Page 14010]] balance reserve ``* * * will expire on 
October 1, 2003, if the Class E stock has been exchanged for non-
employer securities.'' GM notes that the Agreement provides that, the 
restriction will expire when the contributed Class E stock or any 
shares received in exchange therefor no longer exceed the ERISA Limits. 
If the contributed Class E shares are exchanged for non-employer 
securities, the restriction will expire on the later of October 1, 2003 
or the date on which the Class E stock has been exchanged for non-
employer securities.
    Item 12 of the SFR states on page 56546 (center column, top 
carryover paragraph, last sentence) that, ``GM's independent auditor 
will provide a statement to the PBGC once GM utilizes the financial 
flexibility provisions described above.'' GM suggests that in 
accordance with the Agreement, striking the quoted sentence and 
substituting in lieu thereof, ``[f]or any plan year through the 2002 
plan year for which GM utilizes the financial flexibility provisions of 
the Agreement, GM will include in its submission to the PBGC a 
statement from its independent auditor confirming the accuracy of the 
schedule showing GM's cash. In addition, upon request by the PBGC, GM 
also will furnish for such plan years a report from its independent 
auditor describing agreed upon procedures it has performed in order to 
assist the PBGC in evaluating the restructuring charges included in 
GM's financial statements, if and to the extent those charges were used 
to determine GM's adjusted net income.'' The Department concurs and 
notes that the above four (4) clarifications to the SFR are consistent 
with the terms of the Agreement.
    Also, as part of the third category of the comments, GM has 
suggested the following modifications to the language of the SFR.
    In item 5 of the SFR on page 56543 (center column), the first and 
second sentences in the first full paragraph stated: ``[g]enerally, in 
order to correct the unfunded liability of its main U.S. plans, GM has 
revised the mortality assumptions in such plans to more closely reflect 
recent actual experience. Further, effective for 1993, GM has lowered 
the asset earnings rate assumption for its main U.S. plans.'' GM points 
out that the mortality and asset earnings rate assumptions were not 
adopted in order to correct the unfunded liability of GM's main US 
plans but rather to accurately reflect recent experience. Accordingly, 
GM believes that the two sentences quoted above should have read, 
``[d]uring 1992, GM revised the mortality assumptions for its main U.S. 
plans to reflect recent experience and, effective 1993, lowered the 
asset earnings rate assumption for those plans, to reflect GM's 
reevaluation of the expected long-term rate of return on Plan assets.'' 
The Department concurs with this comment.
    In item 5 of the SFR on page 56543 (center column) in the first 
full paragraph, the fourth sentence stated that GM ``* * * will 
continue to contribute additional amounts above those required in 1994 
and future years.'' Although GM anticipates making such contributions, 
GM suggests that substituting in the phrase quoted above, the words, 
``intends to,'' in lieu of the word, ``will,'' and the words, ``1994-
1996,'' in lieu of the phrase, ``1994 and future years,'' would have 
been more accurate. The Department concurs with this comment.
    In the third sentence of item 8 of the SFR on page 56543 (right 
column) GM suggests the underlined word, ``or,'' in the phrase, 
``assets remaining after payments to creditors or (emphasis added) to 
preferred or preference stockholders,'' should have been the word, 
``and.'' The Department concurs.
    In the first sentence of the first paragraph of item 10 of the SFR 
on page 56544 (left column), GM suggests that the phrase, ``based 
upon,'' should have been substituted for ``linked to'' in the sentence, 
``[d]ividends on Class E stock are linked to the earnings performance 
of EDS.'' The Department concurs.
    In item 12 of the SFR on page 56545 (center column, first sentence, 
first full paragraph), GM suggests that the phrase, ``* * * GM has 
agreed to defer for two (2) years the use of the credit balance * * 
*,'' should have read, ``GM will defer until 1997 use of the credit 
balance arising from the contribution (except for interest on the cash 
portion thereof and as otherwise noted below). * * *'' GM states that 
because the cash portion of the contribution need not be completed 
until September 30, 1995, the deferral period could be as short as one 
(1) year. The Department concurs.
    In item 12 of the SFR, in the last clause of the first full 
sentence in the center column of page 56545, GM suggests that the 
underlined portion of the phrase, ``* * * to phase in full access by GM 
to the credit balance in the Plan's funding standard account,'' 
(emphasis added) should have read, ``such credit balance.'' The 
Department concurs.
    In item 16 of the SFR in the first sentence of the first full 
paragraph in the right column of page 56548, GM suggests, and UST 
agrees, that in the phrase, ``[b]ecause the marketability and dividends 
of Class E stock are based on the earnings and financial performance of 
EDS, UST has reviewed the business of EDS, as well as that of GM,'' the 
words, ``under the current policy of the GM board,'' should have been 
inserted before the word, ``dividends.'' The Department concurs.
    In footnote 15 on page 56544 (left column), the fourth sentence 
stated, ``[a]t the discretion of the Board, as appropriate, the number 
in the denominator from time to time decreases as shares of Class E 
stock are purchased and increases as shares are needed in order to meet 
certain requirements of GM's employee benefit plans.'' GM suggests that 
while the above-quoted statement is correct, in the interest of 
accuracy and completeness, the following quoted sentence should have 
been added to the footnote: ``[t]he denominator is subject to 
adjustment from time to time (but never to a number greater than one) 
by GM's Board, the discretion of which is limited in accordance with 
criteria specified in GM's Certificate of Incorporation intended to 
preserve fairness as between the interests of both the holders of Class 
E stock and the holders of $1\2/3\ per value common stock.'' 
Accordingly, the Department does not object to the inclusion of GM's 
additional clarifying language.
    The following GM comments relate to the RRA and the Transfer Rights 
Agreement (TRA), as described in the SFR.
    GM has commented upon the need of UST to be able to amend the RRA 
due to circumstances that may arise in the future. In GM's view, the 
exemption, if granted, should permit UST to execute amendments to the 
RRA that UST believes are in the interest of the Plan and its 
participants and beneficiaries, without forcing GM or the Plan to 
request another exemption. The Department concurs.
    Footnote 20 on page 56546, states that the term, ``transfer'' 
includes an ``offer.'' GM suggests that, to more closely reflect the 
RRA and TRA, the word, ``offer,'' should have been omitted from the 
definition of the term, ``transfer.'' The Department concurs.
    In the second full paragraph in the right column of page 56546, GM 
suggests that, to more closely reflect the RRA, it would have been more 
complete to insert the words ``in the aggregate,'' in the first 
sentence of the paragraph such that the first sentence would have read 
as follows: ``It is represented that there will be no limit, except for 
market considerations on the amount of Class E stock that can be sold 
in the aggregate (emphasis added) pursuant to a `demand' transfer by 
the Plan.'' Further, [[Page 14011]] the word, ``[s]imilarly,'' should 
have been substituted in lieu of the phrase, ``[i]n addition,'' at the 
beginning of the third sentence of the paragraph, such that the third 
sentence should have read as follows, ``[s]imilarly (emphasis added), 
in a negotiated transaction, the Plan may not transfer more than 2 
percent (2%) of the outstanding Class E stock to any person or related 
group. * * *'' The Department concurs.
    In the carryover paragraph at the top of the right column on page 
56546, GM suggests that, to more closely reflect the RRA, the last 
sentence should have read, ``[u]nder the RRA, as long as the Plan owns 
2 percent (2%) or more of the outstanding Class E stock, the Plan may 
transfer such stock only under certain terms and conditions summarized 
in the paragraphs below.'' The Department concurs.
    In the second full paragraph in the right column on page 56546, GM 
suggests that, to more closely reflect the RRA, in the second sentence 
the adjective, ``reasonable,'' should have been inserted before the 
phrase, ``best efforts,'' in the sentence, ``However, in any public 
offering the lead underwriters must agree to use their best efforts to 
assure that no more than 2 percent (2%) of the outstanding Class E 
stock is transferred to any person or related group.'' The Department 
concurs.
    In the last paragraph in the right column on page 56546, GM 
suggests that, to more closely reflect the RRA, the underlined phrases 
below should have been inserted so that the third sentence should have 
read as follows, ``[i]f, at any time that the Plan owns at least 25 
million shares of Class E stock (emphasis added), as a result of such 
postponements or such market holdbacks, the Plan is not able to effect 
a `demand' transfer for a period of thirteen (13) months, and during 
such period the Plan has not otherwise transferred 25 million or more 
shares of Class E stock or had the opportunity to include at least 25 
million shares of Class E stock in a piggyback registration (emphasis 
added), GM must terminate the postponement within sixty (60) days of 
the Plan's notification to GM of such fact and take all reasonable 
actions necessary to effect such transfer.'' The Department concurs.
    In the first full paragraph in the left column on page 56547, in 
the definition of Strategic Partner, GM suggests that to more closely 
reflect the RRA, the second sentence of the paragraph should have read, 
``[a] Strategic Partner is an investor or group of investors acting in 
concert and designated as such by the Board of GM (or any successor 
issuer) that acquires 10 percent (10%) or more of the outstanding Class 
E stock (or securities convertible or exchangeable therefor) in a 
transaction or series of related transactions intended to achieve a 
strategic objective.'' The Department concurs.
    In the second full paragraph in the left column on page 56547, GM 
suggests that, to more closely reflect the RRA, the second sentence 
should have read, ``[i]n a 'piggyback' registration, if GM, in its 
reasonable judgment, expects that at least 25 percent (25%) of the 
total number of shares of Class E stock to be included in the offering 
are shares owned by the Plan, the Plan may select a co-manager 
reasonably acceptable to GM.'' The Department concurs.
    In its comment, GM states that the Plan and a Strategic Partner 
will participate on an equal, not on a pro rata basis in piggyback 
registrations. Accordingly, GM suggests that, to more closely reflect 
the RRA, the phrase, ``an equal basis,'' should have been substituted 
for the phrase, ``a pro rata basis,'' in the last sentence of the 
carryover paragraph in the center column on the top of page 56547. The 
Department concurs.
    In the first full paragraph of the center column on page 56547, GM 
suggests that, to more closely reflect the RRA, in the first sentence 
the phrase, ``below 7.5 percent (7.5%) should have read ``7.5 percent 
(7.5%) or less.'' Further, the fourth and fifth sentences in the same 
paragraph should have read, ``In general, if a stockholders rights plan 
is in effect when the third-party tender offer commences but, in 
connection with such offer, the stockholders rights plan is revoked or 
invalidated (or the rights issued thereunder are revoked or redeemed) 
either by GM's Board of Directors or by a final and non-appealable 
court order, the Plan may tender its shares of Class E stock into such 
offer. If there is no stockholders rights plan in effect (other than as 
described above), generally the Plan may tender its shares of Class E 
stock into a tender offer so long as either the GM Board or at least 
one-half of the independent directors on the Board have not recommended 
to stockholders that such tender offer be rejected or there are fewer 
than the two independent directors on the Board.'' The Department 
concurs.
    In the second full paragraph in the center column on page 56547, GM 
suggests that, to more closely reflect the RRA, the first sentence 
should have read, ``[i]n the event the Plan is prohibited as described 
above from tendering into a third-party offer and GM does not otherwise 
consent to the Plan tendering, in general, if the tender results in a 
bidder in the tender offer owning more than 50 percent (50%) of the 
total combined voting power of all outstanding securities of GM or 
other issuer, the Plan will have the option to put to GM or other 
issuer up to the same number of shares that would have been purchased 
if tendered in the tender offer for a purchase price in cash equal to 
the price per share offered in the tender.'' The Department concurs.
    In item 14 of the SFR, GM suggests that, to more closely reflect 
the TRA, the first sentence in the second full paragraph in the right 
column of page 56547 should have read, ``[t]he Transfer Agreement is 
intended to preserve GM's ability to consummate at a later date a tax-
free reorganization, including a split-off in which the Class E stock 
is converted into or exchanged for shares of capital stock of EDS in a 
transaction that results in GM no longer controlling EDS ('Split-Off'). 
In this regard, unless and until a Split-Off is consummated, the Plan 
will not be permitted to transfer Class E stock if such transfer will 
result in more than 5 percent (5%) of the total value of Class E stock 
then outstanding being owned by any foreign person, as defined in the 
Code.'' The Department concurs.
    In the second full paragraph in the right column of page 56547, the 
third sentence stated, ``[u]nder certain circumstances after the Split-
Off, the Plan may not transfer any Class E stock if, as a result, the 
Plan would own less than 50 percent (50%) of the Class E stock that it 
owned immediately after it received notice from GM of the Split-Off.'' 
GM suggests that, to more closely reflect the TRA, the words, ``after 
the Split-Off'' should not have been included in that sentence and the 
words, ``a proposed'' should have been inserted in lieu of the word, 
``the,'' before the word, ``Split-Off'' the last time it appears.
    GM suggests that, to more closely reflect the TRA, the following 
quoted sentence should have been included as the next to the last 
sentence in the second full paragraph in the right column of page 56547 
of the Notice, ``[f]rom the date of the initial contribution until the 
first anniversary of the Split-Off, if any, the Plan may not transfer 
Class E stock to any person or group, if, as a result, such person or 
group would own 5 percent (5%) or more of the Class E stock then 
outstanding.'' In addition, GM in its comment provides further 
clarification regarding the relationship of the above-quoted sentence 
to the last sentence of the second full paragraph in the right column 
of page 56547 of the Notice. [[Page 14012]] That sentence reads, 
``[f]rom the date of the initial contribution until the second 
anniversary of the Split-Off, unless EDS announces a merger with one or 
more corporations, the Plan may not transfer Class E stock to any 
person or related group, if, as a result, such person or group would 
own 5 percent (5%) or more of the Class E stock then outstanding.'' GM 
states that the two sentences quoted above, when read together, mean 
that during the period that begins on the initial contribution date and 
ends on the first anniversary of the Split-Off date, the Plan may not 
transfer Class E stock to a person who is (or, as a result of the 
transfer would be) a ``5 percent person.'' However, during the period 
that begins on the day after the first anniversary of the Split-Off 
date and ends on the second anniversary of the Split-Off date (or 
later, in the case of a merger event occurring before the second 
anniversary of the Split-Off date), the Plan may transfer Class E stock 
to a person who would, as a result of the transfer, constitute a ``5 
percent person,'' if that person agrees to be bound by the TRA. The 
Department concurs.
    In addition, to the comments from GM described above, GM informed 
the Department of an event which transpired after the Notice was 
published in the Federal Register. In this regard, in item 12 on page 
56545 of the SFR, GM indicated that it anticipated contributing $750 
million to the Plan before the end of 1994 which, at its option, along 
with previous cash contributions, could be considered part of the $4 
billion dollar contribution which is the subject of this exemption. In 
this regard, GM, in a letter dated December 22, 1994, advised the 
Department that this $750 million contribution in cash was made on 
December 12, 1994.
    GM also clarified certain representations regarding the 
approximately 17 million shares of Class E stock held by the Plan prior 
to the contribution. On page 56546 of the Notice, in the third full 
paragraph of the center column, it is stated that the RRA and the TRA 
``* * * will apply to all Class E stock held by the Plan whether 
acquired pursuant to the proposed contribution in-kind or otherwise 
held by the Plan at the time the exemption is granted. In this regard, 
the 17 million shares of Class E stock held by the Plan prior to the 
contribution will be surrendered to GM so that restrictions may be 
placed on such shares.'' Subsequent to the publication of the Notice, 
it came to the attention of GM that approximately 300,000 shares of the 
17 million shares were acquired on the open market by several 
independent investment managers in the course of implementing their 
respective portfolio management strategies. These shares are registered 
and tradable without restriction. Because these shares are registered, 
not subject to any trading restrictions, and under management of 
independent managers, GM believes that it would be inappropriate to 
transfer management of these shares to UST pursuant to the exemption. 
Rather, GM believes that these shares should remain under the control 
of their respective managers to be held and disposed of in their 
discretion, as they pursue their respective portfolio management 
strategies. As a result, these shares will not be subject to the RRA 
and the TRA and will continue under the control of their respective 
managers, to be held or disposed of in their discretion, rather than 
UST's.
    A number of individual commentators requested a hearing with 
respect to the exemption. Most of these commentators appear to have 
requested a hearing because of their belief that the transaction would 
reduce their retirement benefits. In addition, several commentators 
requested a hearing but did not state a reason for such request. In 
response to these requests for hearing, GM states that, given the 
number of participants and beneficiaries receiving the Notice of 
Proposed Exemption, the number of requests for a hearing is de minimis. 
Moreover, none of the requests for a hearing presented a compelling 
reason why such hearing should be held.
    The Department has considered the concerns expressed by the 
individuals who had requested a hearing and the applicant's written 
response addressing such concerns. After consideration of the materials 
provided, the Department does not believe that any issues have been 
raised which would require the convening of a hearing. Further, after 
giving full consideration to the record, including the comments by 
commentators and the responses of the applicant, the Department has 
determined to grant the exemption, as described herein. In this regard, 
the comments submitted to the Department have been included as part of 
the public record of the exemption application. The complete 
application file, including all supplemental submissions received by 
the Department, is made available for public inspection in the Public 
Documents Room of the Pension Welfare Benefits Administration, room N-
5507, U.S. Department of Labor, 200 Constitution Avenue NW., 
Washington, DC 20210.
    For a more complete statement of the facts and representations 
supporting the Department's decision to grant this exemption refer to 
the Notice published on Monday, November 14, 1994, 59 FR 56541.

FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (This is not a toll-free number.)

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions to which the exemptions 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) These exemptions are supplemental to and not in derogation of, 
any other provisions of the Act and/or the Code, including statutory or 
administrative exemptions and transactional 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
    (3) The availability of these exemptions is subject to the express 
condition that the material facts and representations contained in each 
application accurately describes all material terms of the transaction 
which is the subject of the exemption.

    Signed at Washington, DC, this 10th day of March, 1995.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, Department of Labor.
[FR Doc. 95-6345 Filed 3-14-95; 8:45 am]
BILLING CODE 4510-29-P