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EBSA Notices

Proposed Exemptions; Pension Plan for Employees of Southco, Inc.(the Pension Plan); and Southco, Inc. Employee Stock Ownership Plan (the ESOP; Collectively, the Plans)   [6/26/2000]
[PDF]
[Federal Register: June 26, 2000 (Volume 65, Number 123)]
[Notices]               
[Page 39432-39442]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26jn00-104]                         


[[Page 39432]]

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10539, et al.]

 
Proposed Exemptions; Pension Plan for Employees of Southco, Inc. 
(the Pension Plan); and Southco, Inc. Employee Stock Ownership Plan 
(the ESOP; Collectively, the Plans)

AGENCY: Pension and Welfare Benefits Administration, Labor.

ACTION: Notice of proposed exemptions.

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

Written Comments and Hearing Requests

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

ADDRESSES: All written comments and 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 the Pension and Welfare Benefits Administration, U.S. 
Department of Labor, Room N-5638, 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 408(a) of the Act and/or section 
4975(c)(2) of the Code, and in accordance with procedures set forth in 
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990). 
Effective December 31, 1978, section 102 of Reorganization Plan No. 4 
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the 
Secretary of the Treasury to issue exemptions of the type requested to 
the Secretary of Labor. Therefore, these notices of proposed exemption 
are issued solely by the Department.
    The applications contain representations with regard to the 
proposed exemptions which are summarized below. Interested persons are 
referred to the applications on file with the Department for a complete 
statement of the facts and representations.

Pension Plan for Employees of Southco, Inc. (the Pension Plan); and 
Southco, Inc. Employee Stock Ownership Plan (the ESOP; 
collectively, the Plans) Located in Concordville, Pennsylvania

Exemption Application Nos. D-10539 and D-10540

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), 
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, shall not apply to (1) the proposed purchase and 
holding by the Pension Plan of common stock (the Company Stock) issued 
by South Chester Tube Company (the Company), an affiliate of Southco 
Inc. (the Employer), from the ESOP or the Employer; and (2) the 
acquisition, holding, and exercise of an irrevocable put option (the 
Put Option) permitting the Pension Plan to sell the Company Stock back 
to the Employer for cash in an amount that is the greater of either (i) 
the fair market value of the Company Stock at the time of the 
transaction (as established by a qualified, independent appraiser), or 
(ii) the Pension Plan's original acquisition cost for the Company 
Stock.
    This proposed exemption is subject to the following conditions:
    (a) Immediately after acquisition by the Pension Plan, the 
aggregate fair market value of the Company Stock does not exceed 7.5% 
of the total assets of the Pension Plan;
    (b) A qualified, independent fiduciary representing the Pension 
Plan expressly approves each acquisition of the Company Stock, based 
upon a determination that such acquisition is in the best interests of, 
and appropriate for, the Pension Plan;
    (c) The independent fiduciary monitors the Pension Plan's holding 
of the Company Stock and takes whatever action necessary to protect the 
Pension Plan's rights, including, but not limited to, the exercising of 
the Put Option, if appropriate;
    (d) The Pension Plan pays a price that is no greater than the fair 
market value of the Company Stock at the time of the transaction (as 
established by a qualified, independent appraiser);
    (e) In any sale of the Company Stock by the ESOP to the Pension 
Plan, the ESOP receives a price that is no less than the fair market 
value of the Company Stock at the time of the transaction (as 
established by a qualified, independent appraiser);
    (f) The Pension Plan pays no commissions nor other fees in 
connection with the purchase or sale of the Company Stock;
    (g) Each purchase or sale of the Company Stock by the Pension Plan 
is a one-time transaction for cash;
    (h) The Employer's obligations under the Put Option are secured by 
an escrow account at an independent financial institution and 
containing cash or U.S. government securities worth at least 25 percent 
of the fair market value of the Company Stock held by the Pension Plan;
    (i) The purchase of the Company Stock by the Pension Plan is not 
part of an arrangement to benefit the Employer pursuant to the 
Employer's obligation to redeem shares of the Company Stock from the 
participants of the ESOP; and
    (j) All sales of the Company Stock by the ESOP to the Employer meet 
the requirements of section 408(e) of the Act and the regulation 
thereunder (see 29 CFR Sec. 2550.408(e)).

Summary of Facts and Representations

    1. The Employer, a wholly owned subsidiary of the Company, has its

[[Page 39433]]

principal office and place of business in Concordville, Pennsylvania. 
The Employer is engaged in the business of designing and manufacturing 
industrial latches and access hardware. These products are sold and 
distributed nationally and internationally through the Employer's own 
sales organization, as well as through a network of authorized 
distributors.
    2. The Pension Plan is a defined benefit pension plan. As of 
December 31, 1998, the Pension Plan had 1324 participants. As of March 
31, 1999, the Pension Plan had total assets of $110,877,665. No 
contributions to the Pension Plan are currently due, nor have any been 
made since 1985 because of the full funding limitations of section 412 
of the Code.
    The ESOP, an employee stock ownership plan, had, as of December 31, 
1998, 1052 participants. As of that date, the ESOP had total assets of 
$55,192,942. No contributions to the ESOP are currently due.
    The trustee for both the Pension Plan and the ESOP is PNC Bank, 
N.A., located in Philadelphia, Pennsylvania.
    3. As of December 31, 1998, the Company had a consolidated net 
worth of $105,000,000. Equity interests in the Company and its 
subsidiaries, including the Employer, are not publicly traded. As of 
October 11, 1999, approximately 29% of the Company Stock was held by 
the ESOP; 56.9% was held by three trusts (the Family Trusts) 
established by the deceased founders of the Employer for the benefit of 
their family members, including children and grandchildren; 14.1% was 
held by various other individuals.
    Because the ESOP owns 29% and the Family Trusts own 56.9% of the 
outstanding Company Stock, more than 50% of the Company Stock is owned 
by persons who are not ``independent of the issuer'' (within the 
meaning of section 407(f)(1)(B) of the Act). Thus, the Company Stock is 
not a ``qualifying employer security'' (as defined in section 
407(d)(5)(A) of the Act) with respect to the Pension Plan. Accordingly, 
absent an individual exemption, the acquisition of the Company Stock by 
the Pension Plan would constitute a prohibited transaction.
    The Company Stock has been appraised by Coopers & Lybrand L.L.P. 
(Coopers), an independent public accounting firm that performs annual 
valuations of the Company Stock. In its appraisal report, dated 
December 31, 1999, Coopers notes the recognition that the Company has 
received as a quality producer of industrial fasteners. In arriving at 
a fair market value for the Company Stock, Cooper states that it gave 
consideration to the eight factors in the valuation of the stock of 
closely-held businesses that are set forth in the Internal Revenue 
Service's Revenue Ruling 59-60.\1\ Coopers also utilized the market 
approach and the income approach to valuation and concluded that a 
minority interest in the Company Stock had a fair market value of 
$16,096 per share, as of December 31, 1999.
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    \1\ 1 See Rev. Rul. 59-60, 1959-1 C.B. 237, as modified by Rev. 
Rul. 65-193, 1965-2 C.B. 370, and as modified and extended by Rev. 
Rul. 68-609, 1968-2 C.B. 327, and Rev. Rul 77-287, 1977-2 C.B. 319.
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    4. It is proposed that the Pension Plan purchase shares of the 
Company Stock from the ESOP, as the participants of the ESOP elect to 
diversify their investment under section 401(a)(2) of the Code, or from 
the Employer, as shares of the Company Stock are redeemed from 
participants of the ESOP upon distribution to them or otherwise become 
available.\2\ Each purchase of the Company Stock by the Pension Plan 
will be a one-time transaction for cash.
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    \2\ The applicant represents that all sales of the Company Stock 
by the ESOP to the Employer will meet the requirements of section 
408(e) of the Act and the regulation thereunder (see 29 CFR 
Sec. 2550.408(e)).
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    The applicant represents that the Company Stock represents an 
excellent long-term investment opportunity for the Pension Plan because 
the Pension Plan will acquire an equity interest in a strong, stable 
company. Purchase of the Company Stock would also allow further 
diversification of the Pension Plan's assets.
    As a condition of this proposed exemption, immediately after 
acquisition by the Pension Plan, the aggregate fair market value of the 
Company Stock may not exceed 7.5% of the total assets of the Pension 
Plan. The applicant notes that the 7.5% limitation is more stringent 
than the 10% limitation of section 407(a)(2) of the Act on the amount 
of ``qualifying employer securities'' that may be acquired by a defined 
benefit pension plan.
    The Pension Plan would pay a price that is no greater than the fair 
market value of the Company Stock at the time of the transaction, as 
established by a qualified, independent appraiser. Further, the Pension 
Plan would pay no commissions nor other fees in connection with the 
purchase of the Company Stock. Finally, the Pension Plan would have the 
protection of a Put Option, which will enable it to sell the Company 
Stock back to the Employer for cash in an amount that is the greater of 
either (i) the fair market value of the Company Stock at the time of 
the transaction (as established by a qualified, independent appraiser), 
or (ii) the Pension Plan's original acquisition cost for the Company 
Stock. The Employer will bear the cost of all appraisals necessary for 
purchases of the Company Stock by the Pension Plan pursuant to this 
proposed exemption, if granted. The Employer will also secure its 
obligations under the Put Option by an escrow account at an independent 
financial institution and containing cash or U.S. government securities 
worth at least 25 percent of the fair market value of the Company Stock 
held by the Pension Plan.
    5. The Employer has retained TrustCorp America (TrustCorp.) to 
serve as the independent fiduciary for the Pension Plan with respect to 
the Pension Plan's purchases of the Company Stock. TrustCorp, an 
affiliate of the regional brokerage firm Ferris Baker Watts (Ferris), 
is located in Washington, DC. In its letter dated September 29, 1998, 
TrustCorp states it directly administers 56 ERISA accounts, 
representing a wide variety of plans, with approximately $13.8 million 
in assets. TrustCorp represents that it is independent of the Employer 
and derives less than one (1) percent of its annual gross income from 
the Employer and its affiliates. TrustCorp also acknowledges its 
duties, responsibilities, and liabilities in acting as a fiduciary 
under the Act with respect to the investment of any assets of the 
Pension Plan in the Company Stock or the sale of the Company Stock.
    6. TrustCorp will expressly approve in writing each acquisition of 
the Company Stock, based upon a determination that such acquisition is 
in the best interests of, and appropriate for, the Pension Plan. Each 
purchase of the Company Stock made by the Pension Plan will be 
consistent with the investment guidelines, objectives, and liquidity 
needs of the Pension Plan at the time of the transaction. TrustCorp 
will review all pertinent information, including the most recent 
independent appraisal of the Company Stock, the current financial 
condition of the Pension Plan, the terms of the purchase, and the 
current financial condition of the Company. TrustCorp will analyze the 
valuation approach utilized by the appraiser of the Company Stock and 
determine, among other things, whether the appraiser's minority 
interest discount for establishing the fair market value of the Company 
Stock was appropriate.
    As the fiduciary responsible for any assets of the Pension Plan 
invested in the Company Stock, TrustCorp will direct the exercise of 
all voting and

[[Page 39434]]

other ownership rights associated with the Company Stock. TrustCorp 
will also monitor the Pension Plan's holding of the Company Stock and 
take whatever action necessary to protect the Pension Plan's rights, 
including, but not limited to, the exercising of the Put Option, if 
appropriate. If TrustCorp exercises the Put Option, no more purchases 
of the Company Stock will by made by the Pension Plan pursuant to this 
proposed exemption, if granted.
    7. In summary, the applicant represents that the proposed 
transactions will satisfy the statutory criteria for an exemption under 
section 408(a) of the Act and section 4975(c)(2) of the Code because 
(a) Immediately after acquisition by the Pension Plan, the aggregate 
fair market value of the Company Stock will not exceed 7.5% of the 
total assets of the Pension Plan; (b) TrustCorp, as the independent 
fiduciary for the Pension Plan, will expressly approve each acquisition 
of the Company Stock, based upon a determination that such acquisition 
is in the best interests of, and appropriate for, the Pension Plan; (c) 
TrustCorp will monitor the Pension Plan's holding of the Company Stock 
and take whatever action necessary to protect the Pension Plan's 
rights, including, but not limited to, the exercising of the Put 
Option, if appropriate; (d) the Pension Plan will pay a price that is 
no greater than the fair market value of the Company Stock at the time 
of the transaction (as established by a qualified, independent 
appraiser); (e) the Pension Plan will pay no commissions nor other fees 
in connection with the purchase or sale of the Company Stock; (f) each 
purchase or sale of the Company Stock by the Pension Plan will be a 
one-time transaction for cash; and (g) the Employer's obligations under 
the Put Option will be secured by an escrow account at an independent 
financial institution and containing cash or U.S. government securities 
worth at least 25 percent of the fair market value of the Company Stock 
held by the Pension Plan.
    For Further Information Contact: Ms. Karin Weng of the Department, 
telephone (202) 219-8881. (This is not a toll-free number.)

Robert P. Yoo MD, PC Profit Sharing Plan (the Plan) Located in 
Hyannis, Massachusetts

[Applicant No. D-10842]

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, will not apply to the proposed sale (the Sale) by the Plan of a 
parcel of unimproved real property (the Property) to Robert P. Yoo, 
M.D. (Dr. Yoo), a party in interest with respect to the Plan, provided 
that the following conditions are satisfied:
    (a) All terms and conditions of the Sale are at least as favorable 
to the Plan as those which the Plan could obtain in an arm's-length 
transaction with an unrelated party;
    (b) The Sales price is the greater of $113,263 or the fair market 
value of the Property as of the date of the Sale;
    (c) The fair market value of the Property has been determined by an 
independent, qualified appraiser;
    (d) The Sale is a one-time transaction for cash; and
    (e) The Plan does not pay any commissions, costs or other expenses 
in connection with the Sale.

Summary of Facts and Representations

    1. Robert P. Yoo MD, PC (the Employer) is the sponsor of the Plan. 
Dr. Yoo is the sole owner and shareholder of the Employer. The Employer 
is in the business of plastic surgery. The Employer was incorporated on 
October 1, 1979, in the State of Massachusetts and is located in 
Hyannis, Massachusetts.
    The Plan is a defined contribution profit sharing plan which was 
established on October 1, 1979. As of May 18, 2000, the Plan had four 
participants, who are as follows: Dr. Yoo, Marcia C. Fischer, Hilda S. 
Cohen, and Catherine M. Damon. Dr. Yoo and his wife, Jane E. Yoo, are 
the Trustees of the Plan. As of November 8, 1999, the Plan had total 
assets of $690,923.45.
    2. In 1984, the Plan purchased the Property from Robert W. Powers 
and Rita S. Powers, unrelated third parties, for a purchase price of 
$55,000.\3\ It is represented that Dr. Yoo and Jane E. Yoo, as Plan 
trustees, made the original decision to purchase the Property as a long 
term growth investment for the Plan. The Property is a 5.5 acre parcel 
of unimproved real property, located at 131 Ashley Drive, Centerville, 
Massachusetts. The Property is adjacent to property owned and resided 
on by Dr. Yoo and his wife. The applicant represents that the Property 
has not been leased to, or used by, any party in interest with respect 
to the Plan since the date of acquisition by the Plan. The value of the 
Property represents approximately 14.9% of the Plan's total assets as 
of May 18, 2000. The applicant represents that the only expenditure the 
Plan has paid since owning the Property was $16,500 in real estate 
taxes from 1984 (i.e., the year of original acquisition) until May 18, 
2000. Therefore, the total cost to the Plan for the Property was 
$71,500 as of May 18, 2000 ($16,500 + $55,000 = $71,500). From the time 
of the purchase through May 18, 2000, the Property has remained vacant 
and no income has been generated.
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    \3\ The Department expresses no opinion herein as to whether the 
acquisition and holding of the Property by the Plan violated any of 
the provisions of Part 4 of Title I of the Act.
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    3. The Property was appraised (the Appraisal) on September 27, 
1999, by Meredith A. McClane (Ms. McClane), a Certified Residential 
Real Estate Appraiser. Ms. McClane is independent of the Employer and 
is an appraiser with Davis Appraisals located in West Hyannisport, 
Massachusetts.
    Because of the lack of data on recent sales of unimproved property 
in the area in which the Property is located, Ms. McClane determined 
the best use and highest value of the Property was associated with 
valuing the Property consistent with the so-called Development 
Procedure, where undeveloped land is assumed to be subdivided, 
developed and sold. Development costs, incentive costs, and carrying 
charges are subtracted from the estimated proceeds of the sale, and the 
net income projection is discounted over the estimated period required 
for market absorption of the developed sites to derive an indication of 
value for the land being appraised. Ms. McClane determined that the 
fair market value of the Property was $102,966 as of September 27, 
1999.
    Additionally, the applicant will pay to the Plan a premium of 
$10,297 as recommended by Ms. McClane as a result of the applicant's 
ownership of improved real property which is adjacent to the Property. 
Ms. McClane states that this upward adjustment, commonly referred to as 
``assemblage'' value, reflects the willingness of a purchaser to pay 
above market value for a parcel of property in order to preserve such 
purchaser's interest in their present holdings of other parcels which 
are adjacent to such property. Therefore, based on the valuation 
procedure plus the premium, the total proposed purchase price for the 
Property was

[[Page 39435]]

$113,263 as of May 18, 2000 ($102,966 + $10,297 = $113,263).
    4. The applicant represents that the Property's rate of 
appreciation appears to have plateaued and believes that the continued 
ownership of this relatively illiquid asset is not in the best interest 
of the Plan and its participants and beneficiaries. The transaction 
will be a one-time cash sale, and will enable the Plan to diversify its 
investment portfolio.
    Furthermore, the applicant represents that the proposed transaction 
is in the best interest and protective of the Plan because the Sale 
will be for an amount equal to the greater of: (i) $113,263, which 
represents the sum of the fair market value of the Property as of 
September 27, 1999 (i.e., $102,966) and the premium based on the 
``assemblage'' value (i.e., $10,297), as determined by the Appraisal 
and Ms. McClane; or (ii) the current fair market value of the Property, 
as established by an independent, qualified appraiser at the time of 
the Sale. This amount exceeds the original acquisition cost of the 
Property, plus expenses and real estate taxes incurred by the Plan from 
the date of the acquisition until the date of the proposed Sale (i.e., 
a total cost of $71,5000 as of May 18, 2000). The Plan will not pay any 
commissions, costs or other expenses in connection with the Sale. The 
applicant states that the Appraisal will be updated at the time of the 
transaction.\4\
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    \4\ For this purpose, the Department assumes that the updated 
appraisal of the Property will take into account any new data on 
recent sales of similar property in the local real estate market 
which may affect the valuation conclusion at that time.
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    5. In summary, the applicant represents that the subject 
transaction satisfies the statutory criteria contained in section 
408(a) of the Act and section 4975(c)(2) of the Code for the following 
reasons:
    (a) All terms and conditions of the Sale will be at least as 
favorable to the Plan as those which the Plan could obtain in an arms-
length transaction with an unrelated party;
    (b) The fair market value for Property has been determined by an 
independent, qualified appraiser;
    (c) The Sale will be a one-time transaction for cash;
    (d) The Plan will not pay any commissions, costs or other expenses 
in connection with the Sale;
    (e) The Plan will receive an amount equal to the greater of:
    (i) $113,263; or
    (ii) the current fair market value of the Property, as established 
by an independent, qualified appraiser at the time of the Sale.

    Notice to Interested Persons:  Notice of the proposed exemption 
shall be given to all interested persons in the manner agreed upon 
by the applicant and Department within 15 days of the date of 
publication in the Federal Register. Comments and requests for a 
hearing are due forty-five (45) days after publication of the notice 
in the Federal Register.


FOR FURTHER INFORMATION CONTACT: Khalif Ford of the Department, 
telephone (202) 219-8883 (this is not a toll-free number).

Actuarial Sciences Associates, Inc. (ASA) and ASA Fiduciary 
Counselors Inc. (ASA Counselors) Located in Alexandria, VA

[Exemption Application No: D-10879]

Proposed Exemption

    The Department of Labor 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 29 C.F.R. Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990).\5\
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    \5\ For purposes of this proposed exemption, references to 
specific provisions of Title I of the Act, unless otherwise 
specified, refer to the corresponding provisions of the Code.
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I. General Transactions

    If the exemption is granted, the restrictions of section 
406(a)(1)(A) through (D) and the sanctions resulting from the 
application of section 4975 of the Code by reason of section 
4975(c)(1)(A) through (D), shall not apply to a transaction between a 
party in interest with respect to the Plumbers and Pipe Fitters 
National Pension Fund (the Fund) and an account (the Account) that 
holds certain assets of the Fund managed by ASA or ASA Counselors, 
while serving as independent named fiduciary (the Named Fiduciary) in 
connection with Prohibited Transaction Exemption 99-46 (PTE 99-46)(64 
FR 61944, November 15, 1999); provided that the following conditions 
are satisfied:
    (a) ASA or ASA Counselors, as Named Fiduciary of the Account, is an 
investment adviser registered under the Investment Advisers Act of 1940 
that has, as of the last day of its most recent fiscal year, total 
client assets under its management and control in excess of 
$50,000,000, and shareholders' equity or partners' equity, as defined 
in Section III(h), below, in excess of $750,000;
    (b) At the time of the transaction, as defined in Section III(i), 
below, the party in interest or its affiliate, as defined in Section 
III(a), below, does not have, and during the immediately preceding one 
(1) year has not exercised, the authority to--
    (1) appoint or terminate the Named Fiduciary as a manager of the 
Account, or
    (2) negotiate the terms of the management agreement with the Named 
Fiduciary (including renewals or modifications thereof) on behalf of 
the Fund;
    (c) The transaction is not described in--
    (1) Prohibited Transaction Class Exemption 81-6 (PTCE 81-6) \6\ 
(relating to securities lending arrangements);
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    \6\ 46 FR 7527, January 23, 1981.
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    (2) Prohibited Transaction Class Exemption 83-1 (PTCE 83-1) \7\ 
(relating to acquisitions by plans of interests in mortgage pools), or
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    \7\ 48 FR 895, January 7, 1983.
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    (3) Prohibited Transaction Class Exemption 82-87 (PTCE 82-87) \8\ 
(relating to certain mortgage financing arrangements);
---------------------------------------------------------------------------

    \8\ 47 FR 21331, May 18, 1982.
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    (d) The terms of the transaction are negotiated on behalf of the 
Account under the authority and general direction of the Named 
Fiduciary, and either the Named Fiduciary, or (so long as the Named 
Fiduciary retains full fiduciary responsibility with respect to the 
transaction) a property manager acting in accordance with written 
guidelines established and administered by the Named Fiduciary, makes 
the decision on behalf of the Account to enter into the transaction, 
provided that the transaction is not part of an agreement, arrangement, 
or understanding designed to benefit a party in interest;
    (e) The party in interest dealing with the Account is neither the 
Named Fiduciary nor a person related to the Named Fiduciary, as defined 
in Section III(f), below;
    (f) At the time the transaction is entered into, and at the time of 
any subsequent renewal or modification thereof that requires the 
consent of the Named Fiduciary, the terms of the transaction are at 
least as favorable to the Account as the terms generally available in 
arm's length transactions between unrelated parties;
    (g) Neither the Named Fiduciary nor any affiliate thereof, as 
defined in Section III(b), below, nor any owner, direct or indirect, of 
a 5 percent (5%) or more interest in the Named Fiduciary is a person 
who, within the ten (10) years immediately preceding the transaction, 
has been either convicted or released from imprisonment, whichever is 
later, as a result of:
    (1) Any felony involving abuse or misuse of such person's employee

[[Page 39436]]

benefit plan position or employment, or position or employment with a 
labor organization;
    (2) Any felony arising out of the conduct of the business of a 
broker, dealer, investment adviser, bank, insurance company, or 
fiduciary;
    (3) Income tax evasion;
    (4) Any felony involving the larceny, theft, robbery, extortion, 
forgery, counterfeiting, fraudulent concealment, embezzlement, 
fraudulent conversion, or misappropriation of funds or securities; 
conspiracy or attempt to commit any such crimes or a crime in which any 
of the foregoing crimes is an element; or
    (5) Any other crimes described in section 411 of the Act.
    For purposes of this Section I(g), a person shall be deemed to have 
been ``convicted'' from the date of the judgment of the trial court, 
regardless of whether the judgment remains under appeal.

II. Specific Exemption Involving Places of Public Accommodation

    If the exemption is granted, the restrictions of sections 
406(a)(1)(A) through (D) and 406(b)(1) and 406(b)(2) of the Act and the 
sanctions resulting from the application of section 4975 of the Code, 
by reason of section 4975(c)(1)(A) through (E) of the Code, shall not 
apply, effective November 8, 1999, to the furnishing of services, 
facilities, and any goods incidental thereto by a place of public 
accommodation owned by the Account managed by the Named Fiduciary to a 
party in interest with respect to the Fund, if the services, 
facilities, and incidental goods are furnished on a comparable basis to 
the general public.

III. Definitions

    (a) For purposes of Section I(b), above, of this proposed 
exemption, an ``affiliate'' of a person means--
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, 5 percent (5%) 
or more partner, or employee (but only if the employer of such employee 
is the plan sponsor), and
    (3) Any director of the person or any employee of the person who is 
a highly compensated employee, as described in section 4975(e)(2)(H) of 
the Code, or who has direct or indirect authority, responsibility, or 
control regarding the custody, management, or disposition of plan 
assets. A named fiduciary (within the meaning of section 402(a)(2) of 
the Act) of a plan, and an employer any of whose employees are covered 
by the plan will also be considered affiliates with respect to each 
other for purposes of Section I(b) if such employer or an affiliate of 
such employer has the authority, alone or shared with others, to 
appoint or terminate the named fiduciary or otherwise negotiate the 
terms of the named fiduciary's employment agreement.
    (b) For purposes of Section I(g), above, of this proposed 
exemption, an ``affiliate'' of a person means--
    (1) Any person directly or indirectly through one or more 
intermediaries, controlling, controlled by, or under common control 
with the person,
    (2) Any director of, relative of, or partner in, any such person,
    (3) Any corporation, partnership, trust, or unincorporated 
enterprise of which such person is an officer, director, or a 5 percent 
(5%) or more partner or owner, and
    (4) Any employee or officer of the person who--
    (A) Is a highly compensated employee (as described in section 
4975(e)(2)(H) of the Code) or officer (earning 10 percent (10%) or more 
of the yearly wages of such person) or
    (B) Has direct or indirect authority, responsibility or control 
regarding the custody, management, or disposition of Fund assets.
    (c) The term ``control'' means the power to exercise a controlling 
influence over the management or policies of a person other than an 
individual.
    (d) The term ``goods'' includes all things which are movable or 
which are fixtures used by the Account but does not include securities, 
commodities, commodities futures, money, documents, instruments, 
accounts, chattel paper, contract rights, and any other property, 
tangible or intangible, which, under the relevant facts and 
circumstances, is held primarily for investment.
    (e) The term ``party in interest'' means a person described in 
section 3(14) of the Act and includes a ``disqualified person,'' as 
defined in section 4975(e)(2) of the Code.
    (f) The Named Fiduciary is ``related'' to a party in interest for 
purposes of Section I(e), above, of this proposed exemption, if the 
party in interest (or a person controlling, or controlled by, the party 
in interest) owns a 5 percent (5%) or more interest in the Named 
Fiduciary, or if the Named Fiduciary (or a person controlling, or 
controlled by, the Named Fiduciary) owns a 5 percent (5%) or more 
interest in the party in interest. For purposes of this definition:
    (1) The term ``interest'' means with respect to ownership of an 
entity--
    (A) The combined voting power of all classes of stock entitled to 
vote or the total value of the shares of all classes of stock of the 
entity if the entity is a corporation,
    (B) The capital interest or the profits interest of the entity if 
the entity is a partnership; or
    (C) The beneficial interest of the entity if the entity is a trust 
or unincorporated enterprise; and
    (2) A person is considered to own an interest held in any capacity 
if the person has or shares the authority--
    (A) To exercise any voting rights, or to direct some other person 
to exercise the voting rights relating to such interest, or
    (B) To dispose or to direct the disposition of such interest.
    (g) The term ``relative'' means a relative as that term is defined 
in section 3(15) of the Act, or a brother, sister, or a spouse of a 
brother or sister.
    (h) For purposes of Section I(a) of this proposed exemption, the 
term ``shareholders'' equity'' or ``partners'' equity'' means the 
equity shown in the most recent balance sheet prepared within the two 
(2) years immediately preceding a transaction undertaken pursuant to 
this proposed exemption, in accordance with generally accepted 
accounting principles.
    (i) The ``time'' as of which any transaction occurs is the date 
upon which the transaction is entered into. In addition, in the case of 
a transaction that is continuing, the transaction shall be deemed to 
occur until it is terminated. If any transaction is entered into on or 
after the effective date of this exemption, if granted, or a renewal 
that requires the consent of the Named Fiduciary occurs on or after 
such effective date, and the requirements of this proposed exemption 
are satisfied at the time the transaction is entered into or renewed, 
respectively, the requirements will continue to be satisfied thereafter 
with respect to the transaction. Nothing in this subsection shall be 
construed as exempting a transaction which becomes a transaction 
described in section 406 of the Act or section 4975 of the Code while 
the transaction is continuing, unless the conditions of this proposed 
exemption were met either at the time the transaction was entered into 
or at the time the transaction would have become prohibited but for 
this proposed exemption.

[[Page 39437]]

Temporary Nature of Exemption

    The Department has determined that the relief provided to ASA and 
ASA Counselors by this proposed exemption will be temporary in nature. 
The exemption, if granted, will be effective, November 8, 1999, through 
December 20, 1999, for ASA and from December 20, 1999, and thereafter 
for ASA Counselors. The exemption, if granted, will expire on the day 
which is five (5) years from November 8, 1999. Accordingly, the relief 
provided by this proposed exemption will not be available upon 
expiration of such five-year period for any new or additional 
transactions described herein after such date. Should ASA or ASA 
Counselors wish to extend, beyond the five-year period, the relief 
provided by this proposed exemption, they may submit another 
application for exemption.

Preamble

    In October 1997, the Department received an exemption application 
(D-10514) from the Fund requesting relief from the prohibited 
transaction provisions of section 406(a) and (b) of the Act. The 
Department published a notice of proposed exemption (the Notice) in the 
Federal Register on May 29, 1998, at 63 FR 29453. The final exemption, 
Prohibited Transaction Exemption 99-46 (PTE 99-46), was published in 
the Federal Register on November 15, 1999, at 64 FR 61944. PTE 99-46 
provides an exemption, effective October 9, 1997, from the restrictions 
of sections 406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(D), 406(b)(1), and 
406(b)(2) of the Act, and the sanctions resulting from the application 
of section 4975 of the Code, by reason of section 4975(c)(1)(A) through 
(E) of the Code, for the transfer to the Fund from the United 
Association of Journeymen and Apprentices of the Plumbing and Pipe 
Fitting Industry of the United States and Canada, AFL-CIO (the Union), 
a party in interest with respect to the Fund, of the Union's limited 
partnership interests in the Diplomat Properties, Limited Partnership 
(the Partnership), the sole asset of which is the Diplomat Resort and 
Country Club (the Property), and the transfer to the Fund of the 
Union's stock in Diplomat Properties, Inc., the corporate general 
partner of the Partnership; provided certain conditions are satisfied. 
In response to issues raised by the commentators after the publication 
of the Notice, the applicants agreed to a number of additional 
requirements, including the retention by the Fund of an independent 
Named Fiduciary to oversee the Fund's investment in the Partnership. In 
connection with PTE 99-46, ASA was appointed, effective November 8, 
1999, by the trustees of the Fund (the Trustees) to serve as the Named 
Fiduciary of the Account which holds the Fund's interest in the 
Partnership.

Summary of Facts and Representations

    1. The Fund is a Taft-Hartley multi-employer defined benefit 
pension fund. The Fund has approximately 123,349 participants and 
beneficiaries, as of March 2, 2000. As of November 30, 1999, the Fund 
had approximately $4.3 billion in assets. The assets of the Fund 
include the interests in the Partnership and in the corporate general 
partner of the Partnership which the Fund acquired pursuant to PTE 99-
46. The sole asset of the Partnership consists of the Property located 
in Hollywood and Hallandale, Florida. The Property consists of several 
parcels, including an oceanfront hotel complex, a motel, a vacant 
parcel of oceanfront real estate approved for development as 
condominiums, a golf course, a country club, and a marina 
(collectively, the Project).
    The Fund currently owns 100 percent (100%) of the equity interests 
in the Partnership. Such interests in the Partnership are not publicly 
offered securities. Pursuant to regulations issued by the Department, 
29 CFR Sec. 2510.3-101 (the Plan Assets Regulation), when a plan 
acquires an equity interest in an entity, which interest is not a 
publicly offered security or a security issued by an investment company 
registered under the Investment Company Act of 1940, the underlying 
assets of the entity will be deemed to include plan assets, unless 
certain exceptions apply. However, when 100 percent (100%) of the 
outstanding equity interests in such entity are owned by a plan or a 
related group of plans, such exceptions do not apply (see 29 CFR 
Sec. 2510.3-101(h)(3) of the Plan Asset Regulation). Accordingly, in 
the situation described herein the applicants represent that the 
Property, which is the sole asset of the Partnership, would be deemed 
to be an asset of the Fund; and any transaction involving the Property 
is treated as a transaction involving Fund assets for purposes of the 
Act.
    2. The request for relief from the prohibited transaction 
provisions of the Act was filed on behalf of ASA and ASA Counselors. 
ASA is a Delaware corporation which provides a broad range of benefit 
consulting services. ASA became a registered investment adviser under 
the Investment Advisers Act of 1940, as amended, (the Advisers Act) on 
November 19, 1998, and ceased to be a registered investment adviser on 
January 29, 2000.\9\ ASA Counselors, a wholly owned subsidiary of ASA, 
was established to provide investment advisory services. ASA Counselors 
became a registered investment adviser under the Advisers Act, 
effective November 29, 1999. It is represented that ASA Counselors has 
a net worth in excess of $750,000. Ellen A. Hennessy, Esq. serves as 
President and CEO of ASA Counselors and is a Senior Vice President of 
ASA.
---------------------------------------------------------------------------

    \9\ The applicants represent that ASA was a registered 
investment adviser throughout the period it acted as Named 
Fiduciary, pursuant to PTE 96-46, from November 8, 1999, through 
December 20, 1999.
---------------------------------------------------------------------------

    In connection with PTE 99-46, ASA was appointed, effective November 
8, 1999, by the Trustees to serve as the Named Fiduciary of the 
Account, which holds the Fund's interest in the Partnership and the 
Property which is the sole asset of the Partnership. In this regard, it 
is represented that the Trustees chose ASA from a list of potential 
independent fiduciaries that were acceptable to the Department. The 
terms of the appointment of ASA are set forth in the Independent Named 
Fiduciary Agreement (the Agreement) between the Fund and ASA. It is 
represented that in the course of granting PTE 99-46, the terms and 
conditions under which ASA was to be engaged as the Named Fiduciary of 
the Account were reviewed by the Department of Labor. It is represented 
that those terms and conditions permitted the assignment of the 
Agreement to an affiliate of ASA, provided that such affiliate met 
certain conditions.
    Subsequently, it is represented that when ASA Counselors became a 
registered investment adviser, and began performing the investment 
advisory services previously performed by ASA, ASA assigned its 
responsibilities under the Agreement to ASA Counselors with the consent 
of the Trustees of the Fund and the Department, in accordance with the 
terms of the Agreement. For this reason, ASA and ASA Counselors have 
requested that the proposed exemption be applicable to both ASA and ASA 
Counselors.
    Furthermore, the applicants have requested retroactive relief for 
transactions described herein, effective as of November 8, 1999, the 
date of ASA's appointment, to cover the entire period that either ASA 
or ASA Counselors has acted as the Named Fiduciary. Specifically, it is 
represented that ASA served as Named Fiduciary with respect to the 
Account from

[[Page 39438]]

November 8, 1999, until December 20, 1999, and that ASA Counselors has 
served and will serve as Named Fiduciary thereafter. While it is 
represented that neither ASA nor ASA Counselors is aware of any 
transaction that would have been a prohibited transaction in the 
absence of the requested exemption, the size of the Fund and the scope 
of the Project would cause extreme administrative difficulties in 
attempting to identify whether any inadvertent party in interest 
transactions have occurred since November 8, 1999.
    3. ASA and ASA Counselors have requested a general exemption, 
rather than an exemption involving a specific transaction with a 
particular party in interest. Due to the size and complexity of the 
Fund, the identities of the parties in interest which may be involved 
in the subject transactions were not known at the time the application 
was filed. Because the Property is a complex real estate development, 
involving a variety of commercial spaces and public accommodation, 
relief from the prohibited transaction provisions of the Act has been 
requested for transactions with parties in interest that are expected 
to occur in the ordinary course of the operation of the Property.
    4. The requested exemption would permit ASA, effective from 
November 8, 1999, until December 20, 1999, and thereafter ASA 
Counselors, while serving as the Named Fiduciary of the Account, to 
engage on behalf of the Account in certain transactions with parties in 
interest with respect to the Fund, without violating section 
406(a)(1)(A) through (D) of the Act. Further, in the case of 
transactions involving places of public accommodation, the requested 
exemption would permit, effective November 8, 1999, the furnishing of 
services, facilities, and any goods incidental thereto by a place of 
public accommodation owned by the Account that is managed by the Named 
Fiduciary, to a party in interest with respect to the Fund, if the 
services, facilities, and incidental goods are furnished on a 
comparable basis to the general public.
    With respect to the furnishing of services, facilities, and any 
goods incidental thereto by places of public accommodation owned by the 
Account, the applicants maintain that, absent this exemption, it would 
not be feasible to monitor routine transactions in the operation of the 
hotel complex, the golf course, and the other components of the 
Property. In this regard, given the large number of participants and 
beneficiaries of the Fund, as well as the large number of contributing 
employers and service providers to the Fund, and their affiliates, it 
is not possible to prevent party in interest transactions from 
occurring. Accordingly, if granted, this exemption will permit the 
furnishing of services, facilities, and any goods incidental thereto by 
places of public accommodation owned by the Account, and managed by ASA 
or ASA Counselors, to parties in interest with respect to the Fund, if 
such services, facilities and incidental goods are furnished on a 
comparable basis to the general public.
    With respect to transactions with parties in interest, other than 
those involving places of public accommodation, the requested 
exemption, if granted, would provide relief to ASA or ASA Counselors, 
while serving as Named Fiduciary of the Account, which is similar to 
the relief provided to qualified professional asset managers (QPAMs or 
a QPAM) under Prohibited Transaction Class Exemption 84-14 (PTCE 84-
14).\10\ In general, PTCE 84-14 permits various parties in interest 
with respect to an employee benefit plan to engage, under certain 
conditions, in transactions involving plan assets, if the assets are 
managed by persons defined under the exemption as QPAMs. The applicants 
have represented that the Fund currently has engaged CS Capital 
Management Inc. (CSC), to manage the Project.\11\ In this regard, ASA 
Counselors has the authority to retain or remove CSC. Under the terms 
of the Agreement, ASA and, pursuant to the assignment, ASA Counselors 
have agreed to indemnify the Fund for any losses or damages incurred by 
the Fund as a result of a breach of fiduciary duty by any QPAM retained 
to manage the Project.
---------------------------------------------------------------------------

    \10\ 49 FR 9494 (March 13, 1984), as corrected, 50 FR 41430 
(October 10, 1985).
    \11\ The applicants represent that CSC meets the definition of a 
QPAM, as set forth in Part V(a) of PTCE 84-14, and that PTCE 84-14 
is available to provide relief from the prohibited transaction 
provisions of the Act for transactions between parties in interest 
with respect to Fund and the Project while under the management of 
CSC. The Department is offering no view, herein, as to whether CSC 
has satisfied all of the conditions, as set forth in PTCE 84-14, nor 
is the Department, herein, providing CSC any relief with respect to 
such transactions.
---------------------------------------------------------------------------

    Specifically, ASA and ASA Counselors have requested relief under 
conditions which are similar to those required in Part I of PTCE 84-
14.\12\ In this regard, Part I of PTCE 84-14 provides relief from the 
restrictions of section 406(a)(1)(A)-(D) of the Act and 4975(c)(1)(A)-
(D) of the Code for transactions between a party in interest with 
respect to an employee benefit plan and an investment fund in which 
such plan has an interest which is managed by a QPAM; provided certain 
conditions are met. One such condition (the Diverse Clientele Test), as 
set forth in Part I(e) of PTCE 84-14, requires that:

    \12\ It is represented that ASA and ASA Counselors are not 
requesting an exemption for the type of transactions which are 
described in Part II and Part III of PTCE 84-14, and would be 
covered by that exemption if the conditions stated therein were met.
---------------------------------------------------------------------------

    The transaction is not entered into with a party in interest 
with respect to any plan whose assets managed by the QPAM, when 
combined with the assets of other plans established or maintained by 
the same employer (or affiliate thereof * * * ) or by the same 
employee organization, and managed by the QPAM, represent more than 
20 percent of the total client assets managed by the QPAM at the 
time of the transaction.

In this regard, it is represented that due to the nature and scope of 
the responsibilities of the Named Fiduciary, the assets of the Fund 
held by the Account managed by ASA or ASA Counselors exceed 20 percent 
(20%) of the total assets that those entities have under management. 
The applicants represent that they are unable to satisfy the Diverse 
Clientele Test found in Part I(e) of PTCE 84-14 and accordingly, 
request the relief which would be provided by this proposed exemption.
    5. Notwithstanding their inability to satisfy the Diverse Clientele 
Test, the applicants maintain that the requested administrative 
exemption should be granted where it can be demonstrated that the 
applicants, like a QPAM, act in the best interest of plan participants, 
unencumbered by a relationship with parties in interest. With regard to 
independence, it is represented that neither ASA nor ASA Counselors had 
any relationship with the Fund or with the Trustees, prior to the 
execution of the Agreement and the appointment of ASA as Named 
Fiduciary. In the opinion of the applicants, the Department's 
involvement in the appointment process ensured that when selected to 
serve as the Named Fiduciary of the Account, ASA was independent and 
qualified to act in that capacity. Furthermore, restrictions on the 
removal (or assignment) of the Named Fiduciary by the Trustees without 
either the consent of the Department or a court order obtained for 
cause, in the opinion of the applicants, provide sufficient protection 
to ensure the continued independence of ASA and ASA Counselors. 
Furthermore, it is represented that the annual fee paid by the Fund 
represents less than one-fourth (\1/4\) of one percent (1%) of the more 
than $100 million in total annual

[[Page 39439]]

revenues received by ASA and its subsidiaries in 1998 and 1999.
    6. In the opinion of the applicants, the proposed exemption is in 
the best interest of the Fund. In this regard, if granted, the proposed 
exemption would facilitate the management of the Property in the manner 
most efficient and beneficial to the participants and beneficiaries 
that have interests in the Fund. As discussed above, the proposed 
exemption would facilitate routine operations of the Property. In the 
absence of the exemption, it would be burdensome to examine each 
transaction to determine whether such transaction might involve a party 
in interest. Furthermore, without the exemption, the Account could be 
prevented from entering into beneficial financial transactions with 
parties in interest that would enhance the return to the Fund.
    7. The applicants maintain that in granting PTCE 84-14, the 
Department has already determined that the type of exemption requested 
by ASA and ASA Counselors is administratively feasible. Accordingly, in 
the opinion of the applicants, the requested exemption would not impose 
any administrative burdens on the Department which are not already 
imposed by PTCE 84-14.
    8. It is represented that the conditions of the proposed exemption 
provide adequate safeguards for the protection of the rights of 
participants and beneficiaries of the Fund, in that ASA and ASA 
Counselors satisfy the requirements set forth in the definition of a 
QPAM, pursuant Part V(a) of PTCE 84-14. In this regard, with respect to 
the capitalization requirement, ASA and ASA Counselors represent that 
they each have shareholder's equity of more than $750,000. Further, in 
connection with the transfer of its responsibilities to ASA Counselors, 
ASA has agreed that it will cause ASA Counselors to maintain 
shareholders' equity of at least $750,000 while the Agreement is in 
effect. Furthermore, as of the last day of the most recent fiscal year, 
the total client assets under the management and control of ASA or ASA 
Counselors exceeds $50,000,000, as required for a QPAM under Part 
V(a)(4) of PTCE 84-14. In this regard, the total assets under the 
management and control of ASA, during the period from November 8, 1999, 
through December 20, 1999, and under the management and control of ASA 
Counselors thereafter, have exceeded $50,000,000 largely due to the 
assets in the Account which either ASA or ASA Counselors have managed 
while serving as the Named Fiduciary in connection with PTE 99-46.
    9. The applicants maintain that the proposed exemption would be 
protective of the rights of participants and beneficiaries of the Fund 
because of the on-going oversight of both the Trustees and the 
Department. In this regard, it is represented that under the terms of 
the Agreement, ASA Counselors periodically reports to both the Trustees 
and the Department. In the absence of the proposed exemption, ASA and 
ASA Counselors may be unable to exercise the degree of control over the 
financing and operations of the Project, as contemplated by the 
Department. The Fund has more than $4 billion in assets and has party 
in interest relationships with a variety of financial institutions and 
other service providers. In the opinion of the applicants, without the 
requested exemption, the pool of possible lenders and equity investors 
would be unduly restricted, because any financial institution that has 
pre-existing relations with the Fund would be excluded from dealing 
with the Account.
    10. The proposed exemption contains conditions which are designed 
to ensure the presence of adequate safeguards to protect the interests 
of the Fund regarding the subject transactions. Except for the Diverse 
Clientele Test, as set forth in Part I(e) of PTCE 84-14, the proposed 
exemption contains conditions substantially similar to those which are 
set forth in Part I of PTCE 84-14. In this regard, the transactions 
which are the subject of this proposed exemption cannot be part of an 
agreement, arrangement, or understanding designed to benefit a party in 
interest. Furthermore, neither the Named Fiduciary nor a person related 
to the Named Fiduciary may engage in transactions with the Account.
    11. In summary, the applicants (i.e., ASA and ASA Counselors) 
represent that the transactions satisfy the statutory criteria for an 
exemption under section 408(a) of the Act and section 4975(c)(2) of the 
Code because, among other things:
    (a) The Named Fiduciary for the Account is an investment adviser 
registered under the Advisers Act with assets in excess of $50,000,000 
under its management and control, and shareholders' equity in excess of 
$750,000;
    (b) At the time of the transaction, the party in interest or its 
affiliate does not have, and during the preceding one (1) year has not 
exercised, the authority to appoint or terminate the Named Fiduciary, 
as a manager of the Fund's assets in the Account, or to negotiate the 
terms on behalf of the Fund (including renewals or modifications) of 
the management agreement;
    (c) The subject transactions are not those which are described in 
PTCE 81-6; PTCE 83-1; or PTCE 82-87;
    (d) The terms of the transactions were negotiated on behalf of the 
Account by, or under the authority and general direction of ASA until 
December 20, 1999, and thereafter have been and will continue to be 
negotiated by ASA Counselors; and either ASA or ASA Counselors (or a 
property manager acting in accordance with written guidelines 
established and administered by ASA until December 20, 1999, and 
thereafter by ASA Counselors) has made or will make the decision on 
behalf of the Account to enter into each transaction;
    (e) The transactions are not part of an agreement, arrangement, or 
understanding designed to benefit a party in interest;
    (f) At the time each transaction is entered into, renewed, or 
modified, the terms of the transaction are at least as favorable to the 
Account as the terms generally available in arm's length transactions 
between unrelated parties;
    (g) Neither ASA nor ASA Counselors, nor any affiliate thereof, nor 
any owner, direct or indirect, of a 5 percent (5%) or more interest in 
ASA or ASA Counselors, is a person who, within the ten (10) years 
immediately preceding the transaction has been either convicted or 
released from imprisonment, whichever is later, as a result of any 
felony, as set forth in Section I(g) of this proposed exemption;
    (h) Neither ASA nor ASA Counselors, nor a person related thereto, 
engages in the transactions with the Account which are the subject of 
this proposed exemption; and
    (i) Services, facilities, and any goods incidental thereto, 
provided by a place of public accommodation which is owned by the 
Account managed by the Named Fiduciary will be furnished to any party 
in interest on a basis which is comparable to the furnishing of such 
services, facilities and incidental goods to the general public.

Notice to Interested Persons

    ASA will furnish a copy of the Notice of Proposed Exemption (the 
Notice) along with the supplemental statement (the Supplemental 
Statement), as described at 29 CFR Sec. 2570.43(b)(2), to the Trustees 
of the Fund and to interested persons who commented in writing to the 
Department in connection with PTE 99-46, to inform such persons of the 
pendency of this exemption. In this regard, the Trustees of the Fund 
include the President, Secretary, and

[[Page 39440]]

Treasurer of the Fund, who are the three most senior officials of the 
Union whose members are participants in the Fund. Given the technical 
nature of the proposed exemption and the fact that participants of the 
Fund were individually notified in connection with the Department's 
consideration of PTE 99-46, the applicants believe that it should be 
sufficient to meet the Department's notification requirements if Union 
officials receive a copy of the Notice and the Supplemental Statement 
on behalf of the Union membership and that individual notification be 
provided only to those participants in the Fund who have shown an 
interest in the investment made in the Property to which the proposed 
exemption relates. A copy of the Notice, as it appears in the Federal 
Register, and a copy of the Supplemental Statement, will be provided, 
by first class mailing, within fifteen (15) days of the publication of 
the Notice in the Federal Register. Comments and requests for a hearing 
are due on or before 45 days from the date of publication of the Notice 
in the Federal Register.
    For Further Information Contact: Ms. Angelena C. Le Blanc of the 
Department, telephone (202) 219-8883 (this is not a toll-free number).

United Food and Commercial Workers Union Local 789 and St. Paul 
Food Employers Health Care Plan (the Plan) Located in Bloomington, 
Minnesota

[Application No. L-10872]

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 section 406(a) of the Act shall not apply to the proposed purchase 
of prescription drugs, at discount prices, by Plan participants and 
beneficiaries, from Rainbow Pharmacies and Rainbow Foods Group, Inc. 
(RFG)(collectively, referred to as Rainbow), parties in interest with 
respect to the Plan, provided the following conditions are satisfied: 
(a) The terms of the transaction are at least as favorable to the Plan 
as those the Plan could obtain in a similar transaction with an 
unrelated party; (b) any decision by the Plan to enter into agreements 
governing the subject purchases will be made by Plan fiduciaries 
independent of Rainbow; (c) at least 50% of the preferred providers 
participating in the Preferred Pharmacy Network (PPN) which will be 
selling prescription drugs to the Plan's participants and beneficiaries 
will be unrelated to Rainbow; (d) Rainbow will provide prescription 
drugs to eligible persons under the identical conditions and for the 
identical amounts as under the Snyder Drug Stores, Inc. (Snyder) and 
SuperValue Pharmacies, Inc. (SPI) Agreements; and (e) the transaction 
is not part of an agreement, arrangement or understanding designed to 
benefit a party in interest.

Summary of Facts and Representations

    1. The Plan is a multi-employer employee welfare benefit plan which 
has been in existence since 1966. The Plan was established to provide 
health and welfare benefits including life, sickness, accident and 
other benefits for participants and their beneficiaries. The Plan is 
directed by a ten person joint board of trustees comprised of five 
individuals selected to represent the United Food and Commercial 
Workers Union Local 789 and five individuals selected to represent the 
retail food employers. The Plan currently has approximately 5,922 
participants and beneficiaries, and $11,500,000 in total assets.
    2. RFG is a large retail grocer in Minnesota, incorporated in 
Nevada. In 1999, RFG began operating pharmacies in some of its grocery 
stores under the name Rainbow Pharmacies. Rainbow Pharmacies is part of 
RFG. RFG has filed a ``doing business as'' for the name Rainbow 
Pharmacies. The applicant represents that Rainbow is a party in 
interest to the Plan because they make contributions to the Plan on 
behalf of their employees that are participants in the Plan.
    3. Under the Plan, participants have two alternative ways to 
receive the prescription drug benefit. One, a participant may have a 
prescription filled at an out-of-network pharmacy, pay the pharmacy's 
charge for the prescription at the time of dispensing, and submit a 
reimbursement claim to the Plan Administrator. The Plan would then 
reimburse the participant in full for the pharmacy's charge for the 
prescription, less the $5.00 participant co-payment. Two, a participant 
may have a prescription filled at a pharmacy within a preferred 
network, and pay only the $5.00 co-payment. The pharmacy then submits 
the claim for the remaining agreed-upon cost for the prescription 
directly to the Plan Administrator.
    4. Effective January 1, 1994, the trustees of the Plan implemented 
the Plan's first prescription drug PPN in order to manage prescription 
drug price and utilization, manage related costs, provide ready 
participant access to courteous and reliable pharmacy services and 
professional advice, and to minimize or eliminate eligibility policing 
problems. The first Preferred Provider Agreement (the Agreement), the 
result of arm's-length negotiations, is between the Plan and Snyder. 
Snyder is not a party in interest with respect to the Plan.
    5. Under the Agreement, Snyder agrees to provide prescription drugs 
to the Plan participants and their beneficiaries consistent with the 
Plan document and the Agreement at a specified reduced cost in exchange 
for the potential to realize an expanded customer base due to its 
status as a preferred pharmacy with respect to the Plan. The material 
elements of the Agreement are as follows:
    (1) Snyder agrees to dispense covered prescription drugs, using 
generic drugs when available, within prescribed dosage units for one 
dispensing fee;
    (2) The agreed upon dispensing fee is:
    (a) The lesser of:
    (i) The Usual and Customary charge for such prescription drug, or
    (ii) The sum of the Drug Acquisition Cost plus the Professional 
Dispensing Fee.
    The Drug Acquisition Cost for each prescription drug provided by 
the Pharmacy to an Eligible Person shall be defined to be the lesser of 
the following amounts:
    (a) 90% of the average wholesale price (AWP) for such prescription 
drug; or
    (b) The lowest stated maximum allowable cost (MAC) for such 
prescription drug on the most recently published pharmaceutical 
industry maximum allowable cost list, however, in no event will the MAC 
price exceed the Federal Upper Limits (as published by the Federal 
Government under the Federal Medical Entitlement Program).
    The Professional Dispensing Fee shall equal $2.45 for each 
dispensing of a prescription drug in accordance with the Plan and the 
Agreement.
    (3) Neither the Plan nor the participant is liable for the cost of 
any prescription drug dispensed contrary to the Agreement;
    (4) Snyder will provide eligibility identification cards, maintain 
a current computerized eligibility list, and verify eligibility prior 
to dispensation;
    (5) The Plan receives 67 \1/2\ percent of formulary rebates 
received by Snyder based on the dispensing of each manufacturer's 
formulary drugs under the Plan and the Agreement. The Plan also 
receives quarterly formulary reports of formulary drugs dispensed and 
rebates received;

[[Page 39441]]

    (6) The Plan has the right to inspect Snyder's records to audit 
claims and formulary rebates;
    (7) Snyder must provide monthly prescription drug utilization 
reports; and
    (8) The Plan has the right to terminate the Agreement upon a 
maximum of 60 days written notice.
    6. The Plan's trustees have also negotiated an identical Agreement 
with SPI, a large retail grocer in Minnesota. It expanded the PPN by 
including the pharmacies located in Cub Foods (Cub) stores, a wholly 
owned subsidiary of SPI. The terms of the SPI Agreement are identical 
to those of the Snyder Agreement. The fees are determined by a 
combination of amounts objectively established by reference to industry 
resources and beyond the control or manipulation of SPI.
    SPI and Cub are parties in interest with respect to the Plan 
because they make contributions to the Plan on behalf of their 
employees that are participants in the Plan. Accordingly, the applicant 
received an exemption, Prohibited Transaction Exemption (PTE) 95-61, 80 
FR 37,689 (July 21, 1995).
    Pursuant to PTE 95-61, the Plan entered into the Agreement with SPI 
to maximize the benefits that can be provided to participants and their 
beneficiaries. The reduction in costs paid by the Plan for prescription 
drugs enabled the Plan to maintain its current level of benefits to the 
participants and their beneficiaries. Expanding the PPN to include SPI, 
thereby increasing the utilization of the PPN, enabled the Plan to 
obtain additional discounts on prescriptions currently dispensed out-
of-network. The Plan receives even greater savings due to the 
negotiated fees rather than the usual and customary billing of out-of-
network pharmacies.
    Specifically, the applicant represents that since its agreement 
with Snyder in 1994, the Plan has saved $53,188 for ingredient costs 
alone. The savings over the usual and customary billing of out-of-
network pharmacies was estimated to be $90,000. Further, prescriptions 
dispensed by Snyder resulted in additional savings of $10,000. In 
reference to the SPI Agreement, during 1996, the applicant represents 
savings amounted to approximately $28,800 for ingredients alone. The 
savings over the usual and customary billing of out-of-network 
pharmacies is estimated to be approximately $36,000.
    7. The applicant represents that the Plan wishes to enter into a 
preferred pharmacy agreement with Rainbow which is similar to the 
Agreements entered into between the Plan and Synder and SPI. The 
applicant represents that the financial terms of all three Agreements 
are identical and will not deviate in the future from the terms of the 
Snyder Agreement, including any amendments which may be made in the 
future to the Snyder Agreement.
    The applicant further represents that pursuant to the Rainbow 
Agreement, Rainbow will provide prescription drugs to eligible persons 
under the identical conditions and for the identical amounts as under 
the Snyder and SPI Agreements.
    The applicant notes that the only remuneration that will be paid to 
Rainbow by the Plan will be the fees as determined under the Agreement. 
Further, the fees are determined by the combination of amounts 
objectively established by reference to industry resources and beyond 
the control and/or manipulation of Rainbow.
    8. The Plan seeks to maximize the benefits that can be provided to 
participants and their beneficiaries. Reducing the cost paid by the 
Plan for prescription drugs will enable the Plan to maintain its 
current level of benefits to the participants and their beneficiaries. 
Expanding the PPN to include Rainbow, thereby increasing the 
utilization of the PPN, will enable the Plan to obtain additional 
discounts on prescriptions currently dispensed out-of-network. The Plan 
will be able to receive even greater savings due to the negotiated fees 
rather than the usual and customary billing of out-of-network 
pharmacies. The applicant represents that it is projected that the Plan 
will realize an additional savings of $15,000 by the addition of 
Rainbow to the PPN. The requested exemption is also in the interest of 
the Plan because preferred pharmacies will be more conveniently located 
as a result of the expanded PPN.
    9. The applicant represents that the PPN will be at least 50% 
composed of preferred providers that are not affiliated with Rainbow. 
All Plan decisions with respect to the PPN, including any decision to 
enter into the Agreement with Rainbow, will be made by Plan fiduciaries 
unrelated to Rainbow. In this regard, any fiduciary affiliated with 
Rainbow will remove himself or herself from all consideration by the 
Plan as to whether or not to engage in the transaction. Lastly, the 
applicant represents that the proposed transaction is not part of an 
agreement, arrangement or understanding designed to benefit a party in 
interest.
    10. In summary, the applicant represents that the proposed 
transaction satisfies the criteria contained in section 408(a) of the 
Act for the following reasons: (a) The terms of the transaction are at 
least as favorable to the Plan as those the Plan could obtain in a 
similar transaction with an unrelated party; (b) any decision by the 
Plan to enter into agreements governing the subject purchases will be 
made by Plan fiduciaries independent of Rainbow; (c) at least 50% of 
the preferred providers participating in the Preferred Pharmacy Network 
(PPN) which will be selling prescription drugs to the Plan's 
participants and beneficiaries will be unrelated to Rainbow; (d) 
Rainbow will provide prescription drugs to eligible persons under the 
identical conditions and for the identical amounts as under the Snyder 
Drug Stores, Inc.(Snyder) and SuperValue Pharmacies, Inc. (SPI) 
Agreements; and (e) the transaction is not part of an agreement, 
arrangement or understanding designed to benefit a party in interest.
    For Further Information Contact: Mr. J. Martin Jara 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 or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or

[[Page 39442]]

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 20th day of June, 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-16019 Filed 6-23-00; 8:45 am]
BILLING CODE 4510-29-P