Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices 28237

information about themselves, it would not

be proper administration of the UI program

to release such information without the

individual’s informed consent.

Confidentiality of UI records is, therefore, an

elementary factor necessary in the proper

administration of the UI program, since the

release of UI information without the

individual’s informed consent would bring

notoriety upon the UI program.

Certain types of disclosure have, however,

been permitted. Disclosure of claimant and

employer information to public officials in

the performance of their official duties has

been permitted if the cost of providing the

information is paid for by the requesting

public official. States have also been

permitted to disclose information relating to

an individual to such individual or the

individual’s agent. The Department has now

concluded that States may disclose

employment and wage information to a

private entity under a written agreement

which (1) requires informed consent from the

individual to whom the information pertains,

(2) continues to safeguard the information

once in the hands of the private entity, and

(3) requires the private entity to pay all costs

associated with disclosure.

b. Informed Consent. States choosing to

disclose employment and wage information

to credit companies must require the

individual to sign a release. The release must

contain the following: (1) a specific statement

indicating that the individual’s employment

history will be released, (2) a statement that

the release is only for that particular credit

transaction, (3) a clear statement informing

the individual that the credit company may

use information from State governmental

files, and (4) a statement indicating all the

parties who may receive the information

released. Consent is not informed if an

individual is not told that governmental

records may be released and to whom the

information may be provided. States must

assure that all statements or forms provided

under the terms of any agreements require

the informed consent of the individual to use

the State’s records.

c. Safeguards. States must safeguard the

confidentiality of the UI information once a

private entity has been granted access to it.

In cases where the private entity is acting as

a gateway and passes the information along

to a subscriber or client, States must obtain

written assurances from the private entity

that such subscribers will also safeguard the

confidentiality of the information and that

the information may be used only for the

specific credit transaction authorized by the

individual’s release.

States must periodically audit a sample of

transactions accessing the wage records to

assure that the private entity has on file a

written release authorizing each access and

that the information is not being misused or

stored in a database for resale or other

unauthorized purpose to assure that no

access is made to the wage records without

authorization. If the private entity acts as a

gateway and audits its subscribers, it will be

sufficient for the State to periodically audit

the gateway’s audit process. A State must

ensure that any agreement permits it to

exercise control over the UI records even

after they are shared with private entities.

The State must be able to terminate the

agreement if it determines that the

confidentiality provisions are not adhered to.

The Department also recommends that the

agreement contain a definite expiration date

so that the State is assured an opportunity to

periodically evaluate such disclosure.

While it is recognized that no system is

foolproof, system security through increased

audits and other means must be such that

any breach will be easily detected. All

employees of private entities must be subject

to the same confidentiality requirements—

and State criminal penalties for violation of

those requirements—as are employees of the

State UI agency.

d. Income and Costs. Under Section

303(a)(8), SSA, funds received for the

administration of a State’s UI program may

be used only as necessary for the ‘‘proper and

efficient’’ administration of the State’s UI

law. Departmental regulations at 29 CFR

97.22(b) provide that OMB Circular No. A–

87 is used to determine whether an

expenditure of granted funds is an allowable

cost. Under both the SSA and the Circular,

costs of disclosing information for non-UI

purposes are not allowable because such

costs items are not necessary or reasonable

for proper and efficient performance and

administration of the Federal award allocated

to carry out the State’s UI program. The OMB

Circular also provides at paragraph 20 of

Attachment B that certain costs are not

allowable under a grant. These include fines,

penalties, damages and other settlements

resulting from violations (or alleged

violations) or failure to comply with law. As

a result, the Department recommends that

any agreement with a private entity provide

protection to the State for claims that may

arise from any unauthorized use of UI

records obtained under the agreement.

It is the Department’s position that income

generated by a State UI agency from the sale

of its wage records must be used only as

necessary for the proper and efficient

administration of the UI program pursuant to

administrative requirements for grants to the

States. (See 29 CFR 97.25(g)(2) and ET

Handbook No. 336, the ‘‘Program and Budget

Plan.’’) Therefore, States may not use any

money generated by the disclosure

authorized under this UIPL for any non-UI

purposes. For example, income from sales

may not benefit a State’s general fund or

another program.

5. Action Required. State administrators

are requested to provide the above

information to appropriate staff.

6. Inquiries. Direct questions to the

appropriate Regional Office.

[FR Doc. 96–13869 Filed 6–3–96; 8:45 am]

BILLING CODE 4510–30–M

Pension and Welfare Benefits

Administration

[Application No. D–10171, et al.]

Proposed Exemptions; The Everett

Clinic Profit Sharing Plan

AGENCY: Pension and Welfare Benefits

Administration, Labor.

ACTION: Notice of proposed exemptions.

SUMMARY: This document contains

notices of pendency before the

Department of Labor (the Department) of

proposed exemptions from certain of the

prohibited transaction 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, N.W.,

Washington, D.C. 20210. Attention:

Application No. stated in each Notice of

Proposed Exemption. The applications

for exemption and the comments

received will be available for public

inspection in the Public Documents

Room of Pension and Welfare Benefits

Administration, U.S. Department of

Labor, Room N–5507, 200 Constitution

Avenue, N.W., Washington, D.C. 20210.

Notice to Interested Persons

Notice of the proposed exemptions

will be provided to all interested

persons in the manner agreed upon by

the applicant and the Department

within 15 days of the date of publication

in the Federal Register. Such notice

shall include a copy of the notice of

proposed exemption as published in the

Federal Register and shall inform

interested persons of their right to

comment and to request a hearing

(where appropriate).

SUPPLEMENTARY INFORMATION: The

proposed exemptions were requested in

applications filed pursuant to section
28238 Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices

1 The Department notes the Employer’s

representation that its contribution of Parcel D to

the Plan will not be a prohibited transaction under

the Department’s regulation at 29 CFR 2509.94–3

because the contribution will not be made pursuant

to any legal obligation of the Employer to

contribute. The Plan is a profit- sharing plan which

provides for a fully discretionary annual

contribution by the Employer. It is represented that

Parcel D will be contributed to the Plan on

December 31, 1996 for the 1996 Plan Year and that

no contribution has been declared for the 1996 Plan

Year; therefore, the Employer has no existing

obligation to contribute any amounts to the Plan.

However, the Department expresses no opinion

herein as to whether the Employer’s contribution of

Parcel D to the Plan is fully discretionary.

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.

The Everett Clinic Profit Sharing Plan

and 401(k) Employee Savings Plan and

Trust (the Plan) Located in Everett,

Washington

[Application No. D–10171]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

and section 4975(c)(2) of the Code and

in accordance with the procedures set

forth in 29 CFR Part 2570, Subpart B (55

FR 32836, 32847, August 10, 1990). If

the exemption is granted, the

restrictions of sections 406(a), 406 (b)(1)

and (b)(2) of the Act and the sanctions

resulting from the application of section

4975 of the Code, by reason of section

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

shall not apply to the following

proposed transactions between the Plan

and the Everett Clinic (the Employer), a

party in interest with respect to the

Plan: (1) The exchange of cash and real

property (Parcel B) owned by the Plan

for other real property (Parcel C) owned

by the Employer; (2) the grant by the

Employer to the Plan of a perpetual

easement to run with the land on the

Plan’s Parcel B to be exchanged and on

the Employer’s property (Parcel E); (3)

the modification and extension of an

existing lease (the New Lease) of

improved real property by the Plan to

the Employer, so as to include Parcel C

and, effective January 1, 1997, a parking

lot owned by the Employer (Parcel D) to

be contributed gratuitously 1 to the Plan;

and (4) the potential future purchase of

the leased premises by the Employer

pursuant to the terms of an option

agreement contained in the New Lease.

This proposed exemption is subject to

the following conditions:

(1) the Plan is represented in all the

transactions by a qualified, independent

fiduciary;

(2) the terms and conditions of the

transactions are at least as favorable to

the Plan as those the Plan could obtain

in comparable arm’s length transactions

with unrelated parties;

(3) under the purchase agreement (the

Purchase Agreement) with respect to the

exchange of Parcel B for Parcel C, the

Plan pays to the Employer an amount no

more than the difference between the

fair market values of Parcel B and Parcel

C as of the date of the exchange, as

established by a qualified, independent

appraiser, with the Plan receiving full

market value for Parcel B

(notwithstanding its being transferred

subject to an easement);

(4) the rent paid to the Plan under the

New Lease is and continues to be no

less than the fair market rental value of

the leased premises, as established by a

qualified, independent appraiser;

(5) the rent is adjusted every three

years, based upon an updated

independent appraisal, but never falls

below the fair market rental amount

initially established;

(6) the New Lease is a triple net lease

under which the Employer as the tenant

is obligated for all operating expenses,

including maintenance, repairs, taxes,

insurance, and utilities;

(7) the independent fiduciary

expressly approves any improvements

over $100,000 to the leased premises

and any renewal of the New Lease

beyond the initial term;

(8) the New Lease contains a two-way

option agreement enabling the Plan to

sell the leased premises to the Employer

(or the Employer to purchase the leased

premises from the Plan), in the event the

independent fiduciary determines that

such a sale is in the best interests of the

Plan, for cash in an amount which is the

greater of: (a) the original acquisition

cost of the premises to the Plan plus

expenses, or (b) the fair market value of

the premises as of the date of the sale,

as established by a qualified,

independent appraiser selected by the

independent fiduciary;

(9) at all times, the fair market value

of the leased premises represents no

more than 25% of the total assets of the

Plan;

(10) the independent fiduciary

determines that all of the transactions

are appropriate for and in the best

interests of the Plan and its participants

and beneficiaries at the time of the

transactions;

(11) at all times, the independent

fiduciary monitors and enforces

compliance with the terms and

conditions of the Purchase Agreement,

the New Lease, and the exemption; and

(12) the Plan incurs no commissions,

costs, fees, nor other expenses relating

to any of the transactions.

EFFECTIVE DATE: This exemption, if

granted, will be effective as of June 1,

1996.

Summary of Facts and Representations

1. The Plan is a defined contribution,

401(k)/profit sharing plan sponsored by

the Employer. The Employer, a

Washington corporation, is a multispecialty group medical practice with a

main campus at 3901 Hoyt Avenue,

Everett, Washington and five satellite

facilities in Snohomish County. As of

December 31, 1994, the Plan had 627

participants and beneficiaries and total

assets of $55,469,695. The trustees of

the Plan are Robert E. Andre, M.D.,

James R. Pinkham, M.D., John P. Nolan,

M.D., Patricia J. Slater, Andrea B.

Rodewald, Ann Wanner, M.D.,

Raymond S. Wilson, M.D., Rochelle

Crollard, and Frederick T. Goset.

2. Parcel A, which is owned by the

Plan, consists of an area of 74,846

square feet and includes the old clinic

building (Old Clinic Building). Parcel A

is being leased to the Employer (the

Current Lease) pursuant to an

individual administrative exemption

granted by the Department, Prohibited

Transaction Exemption 81– 46 (PTE

81–46, 46 FR 113, June 12, 1981). The

Plan and the Employer initiated a

leasing arrangement in 1962, prior to

passage of the Act. In 1974, the parties

entered into a revised lease agreement,

which was superseded by the Current

Lease. The 15-year term of the Current

Lease will expire on June 30, 1996. The

rights of the Plan with respect to the

Current Lease are represented for all

purposes by the First Interstate Bank of

Washington N.A. (First Interstate),

successor to the Olympic Bank of

Everett, Washington (the Olympic

Bank). First Interstate will also be acting

as an independent fiduciary for the Plan

with respect to all the proposed
Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices 28239

2 The Department expresses no opinion herein as

to whether the sale of Parcel C complied with the

requirements of section 414(c)(3) of the Act.

3 The appraisal states that the figure of $390,000

represents a ‘‘fee simple value’’ for Parcel B (i.e.,

a valuation that does not take into account the

anticipated transfer of Parcel B subject to an

easement).

4The Department notes the Employer’s

representation that the term ‘‘non-exclusive’’ refers

to an arrangement whereby the Employer and the

Plan are intended to have joint use, as opposed to

the Plan’s having exclusive use, of the easement

(i.e., the Employer will reserve the right of access

to the new parking garage for all purposes not

inconsistent nor in interference with the rights

granted to the Plan).

5 Due to the fact that the Employer’s decision to

contribute Parcel D (valued at $110,000) to the Plan

was made subsequent to preparation of the plan

assets projection report by Trautmann, Maher &

Associates, such report does not take into account

the Plan’s acquisition of Parcel D.

transactions which are the subject of the

instant exemption request.

3. Parcel B, which is owned by the

Plan, consists of a rectangular-shaped

parking lot with an area of 28,660

square feet and is located directly across

the street from the Old Clinic Building.

Parcel B adjoins property owned by the

Employer and is being leased to the

Employer, along with Parcel A, under

the Current Lease. Parcel B is paved,

marked, and curbed for automobile

parking, and has no building

improvements.

Parcel C, which is owned by the

Employer, consists of an area of 16,818

square feet and includes a fully

improved medical clinic facility (the

Addition). Parcel C adjoins the Old

Clinic Building and is otherwise

surrounded by property owned by the

Plan (primarily space used for parking).

In its unimproved state, Parcel C

originally belonged to the Plan. It is

represented that Parcel C was sold to a

partnership Colby Building Associates,

on June 14, 1984, in accordance with

the provisions of section 414(c)(3) of the

Act,2 for purposes of constructing the

Addition. That partnership was later

merged with the Employer and no

longer exists.

Parcel D, which is owned by the

Employer, consists of a parking lot with

an area of 4,361 square feet and is

adjacent to Parcel A, which, as

described above, is owned by the Plan.

4. Parcels A, B, and C were appraised

by James D. McCallum, M.A.I., and

Grant S. Gladow of McCallum &

Associates, both independent real estate

appraisers certified in the State of

Washington. Relying primarily on the

income approach to valuation, Messrs.

McCallum and Gladow determined that

as of July 1, 1996, Parcel A will have a

prospective fair market value of

$4,900,000 and Parcel C, $3,900,000.

Relying on the cost approach to

valuation, Messrs. McCallum and

Gladow determined that as of that same

date, Parcel B will have a prospective

fair market value of $390,000.3 The

appraisal states that the total value of

$9,190,000 for all three parcels

represents a simple summation of the

values of each of the individual parcels.

While the available market data does

not provide direct evidence that the

assemblage value of the parcels (under

single ownership) is greater than the

sum of its component parts, in the

opinion of the appraisers, consolidation

of ownership in one entity will enhance

the marketability of all the parcels.

Messrs. McCallum and Gladow

further determined that as of July 1,

1996, Parcel A will have a prospective

fair market rental value of $533,688 per

annum ($44,474 per month) and Parcel

C, $413,616 per annum ($34,468 per

month). The appraisal states that the

zoning status of Parcels A, B, and C is

R–4, allowing for a variety of uses,

including multi-family development,

commercial activities, and professional

office/medical facilities. The highest

and best use of the subject parcels, if

vacant, is as medical offices. The

highest and best use of the subject

parcels, as improved, is their continued

use as medical facilities.

Parcel D was appraised by Richard J.

DeFrancesco of Macaulay & Associates,

also an independent real estate

appraiser certified in the State of

Washington. Relying primarily on the

sales comparison approach to valuation,

Mr. DeFrancesco determined that the

fair market value of Parcel D as of July

21, 1995 was $110,000.

5. An administrative exemption is

requested from the Department for the

following proposed transactions. The

Plan trustees desire that the Plan

acquire Parcel C from the Employer in

order to consolidate ownership of

adjoining Parcels A and C, thus

enhancing the marketability of property

the Plan already owns. The Employer

desires to acquire Parcel B from the Plan

for purposes of constructing a threestory parking garage on Parcel B and on

other contiguous property owned by the

Employer, namely Parcel E. The parking

garage, which will be available free of

charge to customers of the Employer,

will provide parking as required under

municipal building codes to support the

new surgery center to be built by the

Employer on Parcel E, as well as the

existing clinic facilities on Parcels A

and C. Under the proposed Purchase

Agreement, the Plan will convey title to

Parcel B to the Employer, and the

Employer will convey title to Parcel C

to the Plan. The Plan will pay to the

Employer additional cash consideration

representing the difference between the

fair market values of Parcel B and Parcel

C ($3,510,000 as of July 1, 1996), based

upon an updated independent appraisal

as of the date of the exchange. The

Employer will grant to the Plan, as part

of the exchange, a perpetual, nonexclusive pedestrian and vehicle

parking easement 4 to run with the land

on Parcels B and E in favor of Parcels

A and C to guarantee adequate parking

for the Plan-owned property following

the exchange. The Plan will receive full

market value for Parcel B,

notwithstanding its being transferred

subject to an easement. Finally, an

exemption is requested for the New

Lease, which will modify the Current

Lease to reflect the transactions

described above, as well as the

gratuitous contribution by the Employer

to the Plan, effective December 31, 1996,

of Parcel D (to be included among the

premises being leased back to the

Employer).

An actuarial consulting firm

Trautmann, Maher & Associates, located

in Mill Creek, Washington, prepared an

asset projection report of the Plan’s

assets. The report, dated September 25,

1995, states that the fair market value of

all employer real property after the

Plan’s divestment of Parcel B and its

acquisition of Parcel C will comprise

12.58% of the Plan’s total assets, as of

December 31, 1996.5 This projected

percentage of all employer real property

was calculated to be the highest level of

Plan assets that will be reached for the

duration of the New Lease.

6. First Interstate, as noted above, will

act as an independent fiduciary to

represent the Plan’s interests with

respect to all the proposed transactions.

First Interstate and its predecessor the

Olympic Bank, have served as nondiscretionary custodian of a portion of

the Plan’s assets since approximately

December 1980. In addition, the

Olympic Bank was appointed the Plan’s

independent fiduciary at the time of the

filing of the exemption application with

respect to the Current Lease, whose term

began in 1981. First Interstate, whose

fees are paid by the Employer,

represents that it is independent of the

Employer and that the Bank has less

than one percent of its deposits and less

than one percent of its outstanding

loans attributable to deposits and loans

of the Employer. First Interstate

represents that it has extensive

experience as a fiduciary under the Act,

that it is knowledgeable as to the subject

transactions, and that it acknowledges

and accepts its duties and
28240 Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices

responsibilities in acting as a fiduciary

with respect to the Plan.

7. Regardless of whether the exchange

of Parcel B and Parcel C closes by July

1, 1996, the New Lease, which is to

extend and modify the Current Lease,

will begin as of that date. The New

Lease provides for an initial term of 10

years, which may be extended at the

option of the lessee in five-year

increments, upon the express approval

of the independent fiduciary. The

Employer will pay an initial rent to the

Plan at the annual rate of $533,688

($44,474 per month), which is the fair

market rental value of Parcel A. When

Parcel C is added (upon closing of the

exchange), the rent will increase by an

amount equal to the fair market rental

value of Parcel C as of the date of the

exchange (appraised at $413,616 per

year as of July 1, 1996) to an annual rate

of approximately $947,304

(approximately $78,942 per month).

When Parcel D is added, the rent will

increase by an amount to be determined

by the independent fiduciary by

reference to a qualified, independent

appraisal of the fair market rental value

of Parcel D as of January 1, 1997. The

total rent for the leased premises is to

be adjusted every three years, based

upon an updated independent

appraisal, and is not to fall below the

fair market rental amounts initially

established. The New Lease will be a

triple-net lease under which the

Employer as the tenant is obligated for

all operating expenses, including

maintenance, repairs, taxes, insurance,

and utilities. The Employer will

indemnify and hold the Plan harmless

for any loss or damages to the leased

premises.

The New Lease permits the Employer

to remodel and make structural changes

or additions to the leased premises at

the Employer’s expense, so long as such

improvements comply with all

applicable government regulations. Any

expense over $100,000 must be

expressly approved by the independent

fiduciary. The threshold of $100,000 is

intended to provide the Employer with

discretion to make routine renovations,

such as the installation of new

carpeting, without having to consult the

independent fiduciary. Any

improvements or renovations of the

property will belong to the Plan upon

termination of the New Lease.

The New Lease also contains a twoway option agreement enabling the Plan

to sell the leased premises to the

Employer (or the Employer to purchase

the leased premises from the Plan), in

the event the independent fiduciary

determines that such a sale is in the best

interests of the Plan, for an amount

which is the greater of: (a) the original

acquisition cost of the premises to the

Plan plus expenses, or (b) the fair

market value of the premises as of the

date of the sale, as established by a

qualified, independent appraiser

selected by the independent fiduciary.

Any such sale would be a one-time

transaction for cash, and the Plan would

incur no expenses relating to the sale.

8. The independent fiduciary

represents that it has negotiated the

terms and conditions of the Purchase

Agreement and of the New Lease and

has determined that such terms and

conditions are at least as favorable to the

Plan as those the Plan could obtain in

comparable arm’s length transactions

with unrelated parties. The properties

involved have been independently

appraised, as well as having been

subjected to an environmental audit.

The independent fiduciary recognized

that because of Parcel B’s importance to

the Employer’s plans to construct a

parking garage and a surgery center, the

Plan was entitled to a premium in the

exchange of Parcel B for Parcel C.

Accordingly, the Plan will receive from

the Employer the benefit of a perpetual

parking easement to run with the land

on Parcels B and E, in addition to the

full market value of Parcel B. Finally,

the independent fiduciary has

conducted an investigation of the

relevant rental market in order to

develop appropriate terms for the New

Lease.

9. The independent fiduciary

represents that it believes the proposed

transactions are in the best interests of

the Plan and its participants and

beneficiaries. The Plan’s acquisition of

Parcels C and D will combine adjoining

Parcels A, C, and D under single

ownership, providing the Plan with

ownership of almost an entire block (the

block between Hoyt and Colby

Avenues), and thus will enhance the

value and marketability of property that

the Plan already owns. Parcel B will be

transferred to the Employer at its full

market value, despite being subject to a

perpetual parking easement in favor of

Plan-owned Property. The New Lease

will generate income to the Plan in the

form of rent and thus provide the Plan

with a return on its investment in

addition to any appreciation of the

value of the leased property. The Plan

is bearing none of the expenses with

respect to any of the proposed

transactions.

The independent fiduciary has also

determined that the proposed

transactions are appropriate for the Plan

in light of the Plan’s overall investment

portfolio for the following reasons. The

projected percentage of all employer

real property (Parcels A, C, and D) will

not exceed approximately 13% of Plan

assets for the duration of the New Lease.

The Plan’s acquisition of Parcel C will

not create a liquidity problem, will

provide increased assurance that the

Plan will be able to sell the adjoining

property the Plan now owns, and will

return income to the Plan. The Plan’s

divestment of Parcel B will reduce the

concentration of Plan assets in real

estate and the amount that the Plan

must pay for Parcel C. The Current

Lease should be extended because of the

difficulties involved in finding another

tenant or a ready purchaser for the

leased property at its appraised fair

market value. The income from the

Current Lease has provided the Plan

with a stable and favorable rate of

investment return (over 9% per annum

for the period covering the 1980’s and

the first half of the 1990’s, ranking in

the top 5% of the Independent

Consultants Cooperative database). The

stable and predictable returns provided

by the Current Lease have enabled the

Plan trustees to invest the remainder of

the Plan’s assets in more volatile

investments offering the potential for

higher returns. The independent

fiduciary has also examined the

financial viability of the Employer

(including the potential impact of any

substantial malpractice claims),

determined that the Employer’s past

performance under the Current Lease

has been in accordance with its

contractual obligations, and concluded

that the Employer will continue to be a

good tenant.

The independent fiduciary will

recommend to the Plan trustees

execution of the Purchase Agreement

and the New Lease only if they remain

appropriate for and in the best interests

of the Plan and its participants and

beneficiaries at the time of the

transactions. Further, the independent

fiduciary will, at all times, monitor and

enforce the Employer’s compliance with

the terms and conditions of the

Purchase Agreement, the Proposed

Lease, and the exemption.

10. In summary, the applicant

represents that the proposed

transactions satisfy the statutory criteria

for an exemption under section 408(a) of

the Act for the following reasons: (1)

The Plan will be represented in all the

transactions by a qualified, independent

fiduciary; (2) the terms and conditions

of the transactions will be at least as

favorable to the Plan as those the Plan

could obtain in comparable arm’s length

transactions with unrelated parties; (3)

the Plan will pay to the Employer cash

in an amount no more than the

difference between the fair market
Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices 28241

values of Parcel B and Parcel C as of the

date of the exchange, as established by

a qualified, independent appraiser; (4)

the Plan will receive in the exchange

full market value for Parcel B, while

retaining a perpetual parking easement

granting the Plan access to the new

parking garage to be constructed; (5) the

Plan will have single ownership of both

portions of the clinic facilities, as well

as Parcel D, which will enhance the

value and marketability of the Planowned property; (6) the rent paid to the

Plan under the New Lease will be no

less than the fair market rental value of

the leased premises, as established by a

qualified, independent appraiser; (7) the

rent will be adjusted every three years,

based upon an updated independent

appraisal, but will never fall below the

fair market rental amount initially

established; (8) the New Lease will be a

triple net lease under which the

Employer as the tenant is obligated for

all operating expenses, including

maintenance, repairs, taxes, insurance,

and utilities; (9) the independent

fiduciary will expressly approve any

improvements over $100,000 to the

leased premises and any renewal of the

New Lease beyond the initial term; (10)

the New Lease will contain a two-way

option agreement enabling the Plan to

sell the leased premises to the Employer

(or the Employer to purchase the leased

premises from the Plan), in the event the

independent fiduciary determines that

such a sale is in the best interests of the

Plan, for cash in an amount which is the

greater of: (a) the original acquisition

cost of the premises to the Plan plus

expenses, or (b) the fair market value of

the premises as of the date of the sale,

as established by a qualified,

independent appraiser selected by the

independent fiduciary; (11) at all times,

the fair market value of the leased

premises will represent no more than

25% of the total assets of the Plan; (12)

the independent fiduciary will

determine that all of the transactions are

appropriate for and in the best interests

of the Plan and its participants and

beneficiaries at the time of the

transactions; (13) at all times, the

independent fiduciary will monitor and

enforce compliance with the terms and

conditions of the Purchase Agreement,

the New Lease, and the exemption; and

(14) the Plan will incur no commissions,

costs, fees, nor other expenses relating

to any of the transactions.

Notice to Interested Persons

Notice of the proposed exemption

shall be given to all interested persons

by first-class mail and by posting the

required information at the Employer’s

offices within 10 days of the date of

publication of the notice of pendency 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/

or to request a hearing with respect to

the proposed exemption. Comments and

requests for a hearing are due within 40

days of the date of publication of this

notice in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Ms.

Karin Weng of the Department,

telephone (202) 219–8881. (This is not

a toll-free number.)

The SUP Welfare Plan (the Plan)

Located in San Francisco, California

[Application No. L–10221]

Proposed Exemption

The Department is considering

granting an exemption under the

authority of section 408(a) of the Act

and in accordance with the procedures

set forth in 29 CFR Part 2570, Subpart

B (55 FR 32836, 32847, August 10,

1990). If the exemption is granted, the

restrictions of sections 406(a), 406(b)(1)

and (b)(2) of the Act shall not apply to

the proposed sale by the Plan of the

remaining term of a one-hundred year

pre-paid leasehold interest (the Interest)

to the Sailors’ Union of the Pacific

Building Corporation (SUPBC), a party

in interest with respect to the Plan,

provided the following conditions are

satisfied: a) the sale is a one-time

transaction for cash; b) the Plan pays no

commissions or other expenses in

connection with the sale; c) the Plan

receives the greater of $438,000 or the

fair market value of the Interest as of the

date of the sale; and d) the fair market

value of the Interest has been

determined by a qualified, independent

appraiser.

Summary of Facts and Representations

1. The Plan was created in 1952 to

provide welfare benefits to eligible

unlicensed seamen who work in the

West Coast maritime industry. The Plan

is sponsored by the Sailors’ Union of the

Pacific (the Union). The Plan has

approximately 2,500 participants and

beneficiaries, and as of July 31, 1994,

the fair market value of the net assets of

the Plan was $10,269,079.

2. During its early years, the Plan

acquired facilities in Los Angeles, San

Francisco, Portland and Seattle to

provide temporary shelter for

participants who were sometimes

impoverished and homeless between

periods of shipboard employment. In

1954, the SUPBC, an affiliate of the

Union, constructed a building (the

Building) at 2505 First Avenue, Seattle,

Washington, for use as the Union’s

headquarters in Seattle.

3. In exchange for $251,200, SUPBC

conveyed to the Plan a pre-paid one

hundred year lease of the third floor of

the Building. The lease term began on

June 1, 1954. Since 1954, the Plan has

used the space to provide housing

benefits to Plan participants.

4. The applicants represent that the

huge decline in the American flag

merchant marine has seriously eroded

the funding available to the Plan. The

Plan’s trustees desire to eliminate the

housing program and to concentrate

Plan resources for the purpose of

providing traditional medical benefits.

An opportunity currently exists to

dispose of the Interest because the

Union and SUPBC have decided that

they no longer need to retain their

interests in the property. Accordingly,

the applicants have requested the

exemption proposed herein to permit

the Plan to sell the Interest to SUPBC.

5. The Plan will receive cash in the

amount of the appraised fair market

value of the Interest. Mr. Allen N. Safer,

MAI, of Property Counselors, an

independent appraiser in Seattle,

Washington, appraised the Interest as

having a fair market value of $375,000

on July 1, 1994. In 1995, Mr. Safer

updated his appraisal of the Interest and

determined that the Interest had a fair

market value of $405,000 as of

December 14, 1995. However, Mr. Safer

represents that he did not take into

account any premium that the Plan

might receive based on its position of

being able to block the SUPBC’s sale of

the Building to a third party. Mr. James

B. Welle, a Senior Broker for the real

estate firm of Cushman & Wakefield of

Washington, located in Bellevue,

Washington, has determined that a

premium of $33,000 to the Plan is

appropriate under the circumstances.

Accordingly, the applicants represent

that the Plan will receive the greater of

$438,000 or the fair market value of the

Interest as of the date of the sale. The

Plan will pay no commissions or other

expenses in connection with the sale.

6. In summary, the applicants

represent that the proposed transaction

satisfies the criteria of section 408(a) of

the Act because: (a) the sale is a onetime transaction for cash; (b) the Plan

will pay no commissions or other

expenses in connection with the sale;

and (c) the Plan will receive the greater

of $438,000 or the fair market value of

the Interest as of the date of sale as

determined by a qualified, independent

appraiser.

FOR FURTHER INFORMATION CONTACT: Gary

H. Lefkowitz of the Department,
28242 Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices

6The Department notes that the decisions to

acquire and hold the GIC Interest are governed by

the fiduciary responsibility requirements of Part 4,

Subtitle B, Title I of the Act. In this proposed

exemption, the Department is not proposing relief

for any violations of Part 4 which may have arisen

as a result of the acquisition and holding of the GIC

Interest.

7 The accumulated book value of the GIC Interest

is the total principal deposited plus interest at the

Contract Rate less Withdrawals.

telephone (202) 219–8881. (This is not

a toll-free number.)

Cablevision Industries Corporation

Profit Sharing Plan (the Plan) Located

in New York, New York

[Application No. D–10233]

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 C.F.R. Part 2570, Subpart B

(55 F.R. 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

purchase from the Plan by Cablevision

Industries Corporation (the Employer),

the sponsor of the Plan, of the Plan’s

entire remaining interest (the Surviving

Claim) in guaranteed investment

contract number GCNG8690011A (the

GIC) issued by the Executive Life

Insurance Company (Executive Life);

provided that the following conditions

are satisfied:

(A) All terms and conditions of the

transaction are at least as favorable to

the Plan as those which the Plan could

obtain in an arm’s-length transaction

with an unrelated party;

(B) The Plan receives a cash purchase

price which is no less than the greater

of (1) the fair market value of the

Surviving Claim as of the sale date, or

(2) the Plan’s principal investment

attributable to the Surviving Claim plus

interest through the purchase date at the

Contract Rate (as defined below); and

(C) In the event the Employer

subsequently receives payments with

respect to the Surviving Claim from any

source in excess of the purchase price

paid to Plan, such excess will be paid

to the Plan.

EFFECTIVE DATE: This exemption, if

granted, will be effective as of June 17,

1996.

Summary of Facts and Representations

1. The Employer, an indirect

subsidiary of Time Warner, Inc., is a

New York corporation engaged in the

distribution of cable television services,

with its principal place of business in

New York, New York. The Plan is a

defined contribution profit sharing plan

with 1,598 participants and total assets

of approximately $16,810,297 as of

February 13, 1996. The Plan’s assets are

held by its trustee, Fleet Trust Company

in New York, New York (the Trustee),

subject to the direction of the Plan’s

investment committee (the Committee).

The Committee, comprised of officers of

Time Warner Inc. (TWI), the parent

corporation of the Employer, has

complete authority to manage and

control Plan assets and to determine the

investment policy of the Plan.

2. Assets of the Plan are invested by

the Trustee pursuant to the directions of

the Committee. Among the assets in the

Plan is an interest in a single-deposit

guaranteed investment contract (the

GIC) issued to the Trustee on August 8,

1986 by Executive Life Insurance

Company of California (Executive Life).

The Trustee purchased the GIC on

behalf of approximately 81 employee

benefit plans which were clients of the

Trustee, including the Plan. At the time

the GIC was purchased, the Trustee

served as investment manager of the

Plan. The Plan made an initial principal

deposit of $49,800, representing a 1.66

percent interest in the GIC (the GIC

Interest). Under the terms of the GIC,

which is designated as Executive Life

Contract Number GCNG8690011A, the

principal earns interest at the rate of

8.86 percent per annum (the Contract

Rate). The GIC terms permit the Plan to

make withdrawals (the Withdrawals)

solely for the purchase of individual

annuity contracts for retiring Plan

participants. Upon the GIC’s stated

maturity date of August 8, 1991 (the

Maturity Date), Executive Life was

obligated to make a lump-sum payment

(the Maturity Payment) in the amount of

the total principal plus interest at the

Contract Rate less Withdrawals.

3. On April 23, 1991 (the

Conservatorship Date), Executive Life

was placed into conservatorship and

rehabilitation by order of the Supreme

Court of New York (the Court), and a

rehabilitator (the Rehabilitator) was

appointed by the Court. Payments and

withdrawals with respect to all

Executive Life guaranteed investment

contracts, including the GIC, ceased at

that time.6

As of the Conservatorship Date, the

accumulated book value 7 of the GIC

Interest was $74,325. As of the Maturity

Date the amount of the Maturity

Payment which was due the Plan under

the GIC as determined by the Contract

Rates was $76,132. On December 16,

1992, the Court approved a plan of

rehabilitation (the Rehab Plan) of

Executive Life which provided for the

Rehabilitator to set new rates of interest

(the Rehab Rates) with respect to the

GIC. In accordance with the Rehab Plan,

the Rehabilitator established the

following Rehab Rates for the principal

amounts deposited under the GIC:

From 8/8/86 to 8/8/91: 8.86 percent

From 8/8/91 to 8/7/92: 6.00 percent

From 8/7/92 to 2/28/93: 3.50 percent

From 2/28/93 to 2/15/94: 3.25 percent

From 2/15/94 to Final Payment: 4.00

percent

Pursuant to the Rehab Plan and a

consequent agreement of January 4,

1994 (the Rehab Agreement) between

the Trustee and the Rehabilitator, the

value of the GIC Interest, determined by

the Rehab Rates, was disbursed in a 93.7

percent immediate payout with a

surviving claim (the Surviving Claim)

for the remaining 6.3 percent. The

Surviving Claim continues to earn a

Rehab Rate of four percent annual

interest until payment to the Trustee

with respect to the GIC Interest is

completed. Although the Plan received

$79,862.91 on February 15, 1994 as the

93.7 percent payout with respect to the

GIC Interest exclusive of the Surviving

Claim, the Employer represents that

under the Rehab Plan and the Rehab

Agreement the Plan will not be made

whole with respect to its investment in

the Surviving Claim in accordance with

the original terms of the GIC. The value

of the Plan’s interest in the Surviving

Claim, as determined by the Rehab

Rates, was $5,871.67 as of April 30,

1996.

4. Meanwhile, in January 1996 the

Employer was acquired by a subsidiary

of TWI, and became a member of its

controlled group of entities involved in

the cable television industry (the

Merger). As a result of the Merger, the

Employer has determined to merge the

Plan with the Time Warner

Entertainment Company, L.P.

Additional Account Plan (the New

Plan), of which the Fidelity

Management Trust Company (Fidelity)

is the trustee and investment manager.

However, the Employer represents that

Fidelity will be unable to administer the

GIC Interest as part of the merged trust

assets in the New Plan without

considerable additional cost.

The Employer desires to facilitate

completion of the merger of the Plan

with the New Plan by providing for total

and immediate liquidation of the GIC

Interest, and to prevent any loss on

amounts due the Plan under the terms

of the GIC. To accomplish these
Federal Register / Vol. 61, No. 108 / Tuesday, June 4, 1996 / Notices 28243

objectives, the Employer and the

Committee determined that the most

expeditious means would be the

Employer’s cash purchase of the Plan’s

remaining interest in the GIC. The

Employer requests an exemption for this

transaction under the terms and

conditions described herein.

5. The Employer proposes that the

Plan transfer to the Employer the Plan’s

entire remaining interest in the GIC in

exchange for a cash purchase price in

the amount of the Plan’s GIC Interest

principal investment attributable to the

Surviving Claim plus interest at the

Contract Rate effective August 8, 1986

through the date of the purchase. The

Plan will incur no expenses with

respect to the proposed transaction.

Subsequent to the purchase, the

Employer, as owner of the GIC Interest,

will receive the Rehab Payments with

respect to the Surviving Claim, which

includes interest at four percent. In the

event the Employer receives funds from

any source with respect to the Surviving

Claim in excess of the purchase price

paid to the Plan by the Employer, such

excess will be paid to the Plan.

6. The Employer is requesting that the

exemption, if granted, be effective as of

June 17, 1996. The Employer explains

that its reorganizational activities

commencing with its acquisition by

TWI subsidiaries in January 1996 have

led to a greater number of Plan

participant terminations than usual.

Whereas the Plan has permitted

distributions only annually, the New

Plan enables distributions on a monthly

basis. Because distributions to many

former participants of the Plan are

pending, the Employer desires to enable

distributions to be processed in the June

1996 processing cycle of the New Plan.

This will require the completed

liquidation of the GIC Interest by June

17, 1996. Accordingly, the Employer

intends to consummate the proposed

purchase transaction on that date under

the terms and conditions described

above.

7. In summary, the applicant

represents that the proposed

transactions satisfy the criteria of

section 408(a) of the Act for the

following reasons: (1) The transaction

will provide the Plan with an immediate

return on its investment in the

Surviving Claim at a rate of interest, the

Contract Rate, which is higher than the

Rehab Rates; (2) The proposed transfer

of the GIC Interest to the Employer for

a cash purchase price will be a onetime transaction in which the Plan

receives no less than the greater of the

fair market value of the GIC Interest or

the Plan’s principal investment

attributable to the Surviving Claim plus

interest through the purchase date at the

Contract Rate; (3) The Plan will incur no

expenses with respect to the proposed

transaction; and (4) In the event the

Employer receives payments with

respect to the GIC Interest in excess of

the purchase price paid the Plan, such

excess will be paid to the Plan.

FOR FURTHER INFORMATION CONTACT:

Ronald Willett of the Department,

telephone (202) 219–8881. (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 30th day of

May, 1996.

Ivan Strasfeld,

Director of Exemption Determinations,

Pension and Welfare Benefits Administration,

U.S. Department of Labor.

[FR Doc. 96–13916 Filed 6–3–96; 8:45 am]

BILLING CODE 4510–29–P

[Prohibited Transaction Exemption 96–14;

Exemption Application No. D–09940]

Morgan Stanley & Co. Incorporated

(MS&Co) and Morgan Stanley Trust

Company (MSTC)

AGENCY: Pension and Welfare Benefits

Administration, Labor (the Department).

ACTION: Notice of technical correction.

On March 12, 1996, the Department

published in the Federal Register (61

FR 10032) a notice granting an

individual exemption (the Exemption)

on behalf of MS&Co and MSTC

(collectively, the Applicants). The first

paragraph of the Exemption states, in

pertinent part, that ‘‘the restrictions of

sections 406(a)(1)(A) through (D) and

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 lending

of securities to Morgan Stanley & Co.,

Incorporated (MS&Co) and to any other

U.S. registered broker-dealers affiliated

with Morgan Stanley Trust Company

(the Affiliated Broker-Dealer,

collectively, the MS Broker-Dealers) by

employee benefit plans with respect to

which MS&Co is a party in

interest * * *’’

The Applicants believe that the

aforementioned language should have

referred to an MS Broker-Dealer, as a

party in interest rather than to MS&Co

because the exemption application

contemplated that an MS Broker-Dealer,

other than MS&Co, might be borrowing

securities from a plan with respect to

which such MS Broker-Dealer, but not

necessarily MS&Co, is a party in

interest. Therefore, the Department has

amended the first paragraph of the

Exemption to read as follows:

‘‘The restrictions of sections 406(a)(1)(A)

through (D) and 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 lending of

securities to Morgan Stanley & Co.

Incorporated (MS&Co) and to any other U.S.

registered broker-dealers affiliated with

Morgan Stanley Trust Company (the

Affiliated Broker-Dealer; collectively, the MS

Broker- Dealers) by employee benefit plans

with respect to which the MS Broker-Dealer

who is borrowing such securities is a party