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Secretary of Labor Hilda L. Solis
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EBSA Notices

Proposed Exemptions; Care Services Employees' 401(k) Profit Sharing Plan and Trust   [10/31/2000]
[PDF]
[Federal Register: October 31, 2000 (Volume 65, Number 211)]
[Notices]               
[Page 65011-65016]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr31oc00-96]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-10771, et al.]

 
Proposed Exemptions; Care Services Employees' 401(k) Profit 
Sharing Plan and Trust

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, NW, Washington, DC 20210. 
Attention: Application No. ______, stated in each Notice of Proposed 
Exemption. The applications for exemption and the comments received 
will be available for public inspection in the Public Documents Room of 
the Pension and Welfare Benefits Administration, U.S. Department of 
Labor, Room N-5638, 200 Constitution Avenue, NW, Washington, DC 20210.

Notice to Interested Persons

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

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

[[Page 65012]]

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.

Care Services Employees' 401(k) Profit Sharing Plan and Trust (the 
Plan) Located in Beachwood, OH; Proposed Exemption

[Application No. D-10771]

    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) 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 (1) cash sale by the Plan, 
occurring on December 30, 1997, of certain assets (the Assets), to Mr. 
Warren L. Wolfson, a party in interest with respect to the Plan; and 
(2) the prospective cash resale of the Assets by the Plan to Mr. 
Wolfson.
    The proposed exemption is subject to the following conditions:
    (a) Each sale of the Assets was or will be a one-time transaction 
for cash.
    (b) The Plan received or will receive no less than the fair market 
value of the Assets at the time of each sale.
    (c) The sales price for each Asset was determined or will be 
determined by a qualified, independent appraiser at the time of each 
sale transaction.
    (d) The terms of the past and prospective sales transactions were 
or will be no less favorable to the Plan than those obtainable in 
similar transactions negotiated at arm's length with unrelated parties.
    (e) The Plan did not incur any fees or commissions in connection 
with the past sale of the Assets nor will it incur any fees or 
commissions expenses with respect to the prospective sale of such 
Assets.
    (f) Within 60 days of the publication, in the Federal Register, of 
the notice granting this proposed exemption, Mr. Wolfson will file a 
Form 5330 with the Internal Revenue Service (the Service) and pay all 
appropriate excise taxes that may be due and owing with respect to 
prohibited transactions arising in connection with certain of the 
Assets.
    Effective Date: If granted, this proposed exemption will be 
effective as of December 30, 1997 with respect to the initial sale of 
the Assets by the Plan to Mr. Wolfson. In addition, this proposed 
exemption will be effective as of the date of the grant with respect to 
the resale of the Assets by the Plan to Mr. Wolfson.

Summary of Facts and Representations

    1. The Plan, which was established on December 16, 1983, is a 
defined contribution plan covering all eligible employees of W.W. 
Extended Care, Inc.; Richfield Nursing Center, Inc.; Villa Nursing 
Corporation; Cleveland Golden Age Hospital, Inc.; Pebble Creek 
Convalescent Center of Ohio, Inc.; Belcare, Inc.; LTC Remedies, Inc.; 
Richmond Nursing, Inc.; Wyatt Woods, L.L.C., and WLW, Inc., companies 
which have common ownership. As of December 31, 1999, the Plan had 710 
participants and aggregate assets of approximately $3,306,853.
    The Plan provides for participant-directed investments for its 
401(k) portion. Investment discretion over the profit sharing portion 
of the Plan is exercised by Warren L. Wolfson, who serves as the Plan 
trustee. Mr. Wolfson is also a principal of W.L.W., Inc. (the 
Employer), which operates a chain of six long-term care facilities and 
an associated management company in northeast Ohio. The Employer does 
business under trade name ``Care Services Associates.''
    2. To provide a more cohesive investment policy and reduce overall 
administrative costs to the Plan, the Employer and Mr. Wolfson wished 
to consolidate the Plan's investments with one investment adviser. The 
new investment adviser, The Heitner Corporation (Heitner), advised the 
Employer and Mr. Wolfson to dispose of certain of the Plan's 
investments inasmuch as Heitner did not desire to hold and manage these 
Assets.\1\ The specific Assets targeted by Heitner included the Plan's 
investments in six bonds issued by the Government of Israel (the Israel 
Bonds), 50 shares of common stock in River Glen REIT, Inc. (the REIT 
Interests) and a \1/4\ limited partnership interest (the \1/4\ LP Unit) 
in the Apartment Opportunity Fund II, L.P., (the AOF II Partnership 
).\2\
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    \1\ In a letter dated May 17, 2000, Mr. Larry Flynn, Vice 
President and Financial Consultant of Huntleigh Financial Services, 
Inc. of St. Louis, Missouri, and a former employee of Heitner, 
stated that he advised Mr. Wolfson regarding the reallocation of the 
Plan's assets during 1997. Mr. Flynn explained that both he and Mr. 
Wolfson considered many third party administrators for the Plan. 
However, none of the prospective candidates expressed an interest in 
holding the Assets on behalf of the Plan because the investments 
could not be priced on a daily basis. Therefore, Mr. Flynn said he 
advised Mr. Wolfson to sell the subject Assets and reallocate the 
Plan's assets into mutual funds.
    \2\ It is represented that Mr. Wolfson did not invest in any of 
the aforementioned Assets in his personal capacity.
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    3. The six Israel Bonds, which are set forth below in the table, 
were purchased by the Plan for cash from an unrelated party between 
November 1986 and July 1997.

----------------------------------------------------------------------------------------------------------------
              Bond                   Issuance date         Face value        Interest rate       Maturity date
----------------------------------------------------------------------------------------------------------------
One.............................  11/1/86............            $25,000  Variable..........  11/1/98
Two.............................  11/1/88............             25,000  Variable..........  11/1/00
Three...........................  11/1/90............             25,000  Variable..........  3/31/02
Four............................  11/1/93............             25,000  6.0%, Fixed.......  9/30/03
Five............................  10/1/95............             25,000  Variable..........  1/31/03
Six.............................  7/1/97.............             25,000  7.5%, Fixed.......  5/31/07
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    The Israel Bonds were acquired by the Plan for their $25,000 face 
value and have (or had) terms ranging from 8 to 12 years. With the 
exception of Bond One, which matured on November 1, 1998, the other 
Israel Bonds are still in existence. Bonds One, Two, Three and Five 
carry (or carried) variable interest rates, based on the average of the 
prime rates quoted by Bank of America National Trust & Savings 
Association, Continental Bank, N.A. and Citibank, N.A. Bonds Four and 
Six bear fixed interest rates of 6 percent and 7.5 percent per annum. 
Interest has been paid on the Israel Bonds twice per year. During 1997, 
the Plan received interest payments on the Israel Bonds of $11,109.41.
    4. On July 25, 1997, the Plan acquired 25 shares of common stock 
comprising

[[Page 65013]]

the REIT Interests from River Glen REIT, Inc. (River Glen REIT), an 
unrelated party, for $25,000. On September 11, 1997, the Plan acquired 
an additional 25 shares comprising the REIT Interests from River Glen 
REIT for $25,000. The Plan paid the consideration in cash. The REIT 
Interests are assignable only with the consent of River Glen REIT.
    The seller, River Glen REIT, is a Virginia corporation that 
qualifies as a real estate investment trust for federal income tax 
purposes. River Glen REIT owns a 99 percent limited partnership 
interest in River Glen of Orlando Partners, Ltd. (the River Glen 
Partnership), which, in turn, owns a 396 residential unit located in 
Orlando, Florida. In addition, River Glen REIT has 5,800 shares of 
common stock authorized and outstanding with a par value of $1,000 per 
share.
    During 1997, the Plan received no distributions with respect to the 
REIT Interests.
    5. On February 24, 1997, the Plan purchased the \1/4\ LP Unit in 
the AOF II Partnership, from General Capital Corporation, an unrelated 
party, for a cash purchase price of $25,000. The AOF II Partnership is 
a Tennessee limited partnership which was organized on January 10, 1996 
for the purpose of owning and operating apartment complexes located in 
Florida and Tennessee. The general partner (the General Partner) of the 
AOF II Partnership is General Capital Associates II, L.P., an affiliate 
of General Capital Corporation. The AOF II Partnership makes quarterly 
distributions to investors at an annual rate of 8 percent and 
anticipates selling or refinancing its underlying investments within 4 
to 7 years after acquisition. Sales of AOF II Partnership interests, 
such as the \1/4\ LP Unit, require the approval of the General Partner.
    During 1997, the Plan received a distribution of $1,086 from the 
AOF II Partnership with respect to the \1/4\ LP Unit.
    6. Because the subject Assets are not publicly-traded, Mr. Wolfson, 
as Plan trustee, attempted to locate prospective purchasers. In this 
regard, Mr. Wolfson contacted the sellers from whom the Assets were 
purchased to determine whether there was a secondary market. \3\ Upon 
learning that there was no secondary market for these Assets, Mr. 
Wolfson sought the advice of his accountant, who purportedly advised 
him to purchase the Assets, in his individual capacity, at their fair 
market value.
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    \3\ Specifically, Mr. Wolfson attempted to sell. the Israel 
Bonds to several business acquaintances. However, these persons did 
not wish to purchase the Israel Bonds at that time due to their 
cost. With respect to the REIT Interests and the \1/4\ LP Unit, Mr. 
Wolfson was informed by officials at River Glen REIT and General 
Capital Corporation, respectively, that there was no buyers 
available to acquire these Assets.
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    The fair market value of each of the Assets was determined by the 
entities from which they had been acquired. With respect to the Israel 
Bonds, the fair market value of such instruments was deemed to be equal 
to their face value by Ms. Evelyn Epstein of the State of Israel Bond 
Office in Cleveland, Ohio. In a verbal consultation with Mr. Wolfson, 
Ms. Epstein placed the aggregate fair market value of the Israel Bonds 
at $150,000 as of December 30, 1997.
    In addition, by letter dated December 16, 1997, William J. Gordon, 
President of River Glen REIT, advised Mr. Wolfson that the fair market 
value of River Glen REIT common stock was $1,000 per share as of that 
date. Therefore, Mr. Gordon placed the total value of the Plan's River 
Glen REIT Interests at $50,000.
    Further, on December 22, 1997, Maclin Davis, III, Controller/
Secretary of the General Partner, informed Mr. Wolfson, in writing, 
that because there were no secondary market transactions in the AOF II 
Partnership interests, the best measure of the fair market value of the 
\1/4\ LP Unit was its original cost of $22,500.
    Based upon the aforementioned valuations of the Assets, Mr. Wolfson 
obtained the requisite consents from the issuers and individually 
purchased all of the Israel Bonds, the REIT Interests and the \1/4\ LP 
Unit from the Plan at their respective fair market values on December 
30, 1997 for a total cash purchase price of $222,500. The Plan paid no 
fees or commissions in connection with the sale. In January 1998, all 
of the remaining assets were transferred to Heitner for investment 
management.
    7. In December 1998, the Plan's auditors discovered a $2,500 
shortfall in the purchase price Mr. Wolfson had paid for the Assets. 
The discrepancy was attributed solely to the \1/4\ LP Unit for which 
Mr. Wolfson had erroneously paid $2,500 less than its fair market value 
through no fault of his own. The problem stemmed from Mr. Davis's 
December 22, 1997 letter to Mr. Wolfson in which Mr. Davis had 
mistakenly noted that the \1/4\ LP Unit's original cost was $22,500. 
This amount actually reflected the adjusted income tax basis for the 
\1/4\ LP Unit rather than its true original cost of $25,000.
    Therefore, in an effort to resolve the pricing error, the Plan's 
auditors established a $2,500 account receivable, which was to be owed 
to the Plan by Mr. Wolfson. The auditors also recommended that the 
receivable carry an interest rate of 10 percent per annum from the time 
of the December 30, 1997 sale transaction. No other loan terms were 
negotiated by the Plan and Mr. Wolfson. No promissory note was ever 
executed and the loan amount was unsecured.
    8. Also in December 1998, the Plan's auditors were advised by their 
legal counsel that the December 1997 sale had resulted in a prohibited 
transaction in violation of the Act. In order to ``correct'' the 
prohibited transaction, counsel advised the auditors to resell the 
Assets to the Plan for their fair market value. Accordingly, on 
December 31, 1998, Mr. Wolfson sold all of the previously purchased 
Assets back to the Plan at what was believed to be no more than the 
fair market value of such Assets.\4\ The receivable owed to the Plan 
was also canceled. Further, Mr. Wolfson made a total restoration 
payment to the Plan of $18,290.56. Of this amount, $2,000.00 
represented a distribution from the AOF II Partnership, $4,269.00 
represented a dividend on the REIT Interests, $819.00 represented a 
non-taxable distribution attributed to the REIT Interests, $9,312.50 
represented interest derived from the Israel Bonds, for a subtotal of 
$16,400.50. Of the subtotal, Mr. Wolfson made a 10 percent interest 
payment to the Plan in the amount of $1,640.06. In addition, Mr. 
Wolfson made a cash payment to the Plan of $250, reflecting a 10 
percent interest factor on the receivable for its one year duration.\5\
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    \4\ The Department has no jurisdiction with respect to section 
53.491(e)-(c)(1) of the Foundation Excise Tax Regulations (the 
FETR). This provision applies to prohibited transactions under 
section 4975 of the Code by reason of Temporary Pension Excise Tax 
Regulation 141.4975-13. Under section 53.4941(e)-1(c)(1) of the 
FETR, any correction pursuant to Code section 4941 is not an act of 
self-dealing. Similarly, the Department has determined that the 
correction of a prior prohibited transaction is not a prohibited 
transaction under section 406 of the Act. Therefore, the Department 
expresses no opinion herein on whether the return of the Assets by 
Mr. Wolfson to the Plan was a proper correction.
    \5\ Specifically, the Plan repurchased the Israel Bonds for 
$150,000, the REIT Interests for $50,000 and the \1/4\ LP Unit for 
$22,500, for a total reacquisition price of $222,500. Along with the 
$18,290.56 total restoration payment made by Mr. Wolfson, the Plan 
received a total payback of $240,790.56 with respect to the subject 
Assets.
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    Between January 1999 and August 2000, the Plan has received 
additional income with respect to the subject Assets. In regard to the 
Israel Bonds and the REIT Interests, the Plan has received total 
interest payments and distributions of $23,953 and $7,176, 
respectively. In

[[Page 65014]]

regard to the \1/4\ LP Unit, the Plan has received a total distribution 
of $11,457.
    9. Mr. Wolfson believes that the safeguards necessary for the 
granting of a prospective exemption were present at the time the 
original sale transaction was consummated. It is represented that Mr. 
Wolfson acted in good faith and took reasonable and appropriate steps 
to protect the Plan from abuse and unnecessary risks by restoring the 
Assets to the Plan, returning all income and distributions he had 
received and making interest payments upon discovery that the 
transaction was prohibited. In addition, Mr. Wolfson represents that at 
no time was he aware that he was engaging in a prohibited transaction.
    In this regard, the Department notes that there was no 
contemporaneous, written valuation for the Plan's sale of the Israel 
Bonds to Mr. Wolfson. Instead, Mr. Wolfson relied upon the oral 
valuation of Ms. Epstein to establish the fair market value of the 
Israel Bonds. In addition, with respect to the Plan's acquisition and 
holding of the $2,500 account receivable, the terms of this arrangement 
did not appear to reflect arm's length dealings between the parties 
since the loan was never collateralized, and there was no independent 
fiduciary to protect the interests of the Plan and its participants and 
beneficiaries.
    Due to the absence of adequate independent safeguards necessary for 
the granting of an administrative exemption in both instances, the 
Department has decided not to provide exemptive relief for these 
transactions. Therefore, Mr. Wolfson represents that within sixty days 
of the publication, in the Federal Register, of the notice granting 
this proposed exemption, he will file a Form 5330 with the Service and 
pay all appropriate excise taxes that are due and owing with respect to 
the Plan's sale of the Israel Bonds and the extension of credit 
transaction.
    10. Aside from the retroactive exemption request involving the sale 
by the Plan to Mr. Wolfson of the REIT Interests and the \1/4\ LP Unit, 
Mr. Wolfson is also seeking a prospective exemption from the Department 
which, if granted, will allow the Plan to resell the Assets to him, in 
his personal capacity. It is represented that the prospective exemption 
will simplify Plan administration, reduce recordkeeping costs, and 
ensure that the Plan receives a return on the Assets in excess of its 
original investment, and allow the Plan to dispose of illiquid assets. 
The proposed resale of the Assets will be a one-time transaction for 
cash and the Plan will receive fair market value for the Assets as 
determined by a qualified, independent appraiser. The Plan will not be 
required to pay any fees or commissions in connection with the resale 
of the Assets.
    11. Donald C. May, CPA/ABV, CVA, a qualified, independent appraiser 
affiliated with the accounting firm of Howard Wershable & Co. of 
Cleveland, Ohio has valued the Assets for purposes of their potential 
resale. Following is a discussion of Mr. May's valuations of each of 
the subject Assets.
    (a) Israel Bonds. In an appraisal report dated June 5, 2000, Mr. 
May valued the Israel Bonds as of April 15, 2000. With respect to Bonds 
Two, Three and Five, Mr. May concluded that the $25,000 face value of 
these Israel Bonds would be indicative of their fair market value as of 
April 15, 2000. He also noted that Bond One, which matured on November 
1, 1998, was redeemed for its $25,000 face value.
    With respect to Bond Four, Mr. May noted that as of April 15, 2000, 
rates on U.S. Treasury Notes having terms that were similar to the 
remaining term on Bond Four increased to 6.21 percent. Therefore, he 
placed the fair market value of Bond Four at $23,028 as of April 15, 
2000.
    With respect to Bond Six, Mr. May observed that as of April 15, 
2000, the rate on U.S. Treasury Notes having terms similar to the 
remaining term of Bond Six was 6.16 percent. Because overall market 
interest rates had fallen since Bond Six's acquisition on July 1, 1997, 
he projected the fair market value of Bond Six, which carries a 7.5 
percent fixed rate, to be $26,178 as of April 15, 2000.
    In summary, the fair market values of each of the Israel Bonds, as 
determined by Mr. May, are reflected in the following table:

------------------------------------------------------------------------
                                                             Fair market
                     Bond                        Face value  value as of
                                                               4/15/00
------------------------------------------------------------------------
One...........................................      $25,000      Matured
Two...........................................       25,000      $25,000
Three.........................................       25,000       25,000
Four..........................................       25,000       23,028
Five..........................................       25,000       25,000
Six...........................................       25,000       26,178
                                                            ------------
  Total.......................................  ...........      124,206
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    (b) REIT Interests. In an appraisal report dated May 17, 2000, Mr. 
May stated that the fair market value of a REIT unit should be 
determined by the value of the properties underlying the REIT. Because 
River Glen REIT owns a 99 percent interest in a parcel of property 
known as the ``Heather Glen,'' Mr. May believed that the book value of 
River Glen REIT, adjusted for the accumulated depreciation of Heather 
Glen, would reflect the fair market value of River Glen REIT as of 
April 15, 2000.
    Based on the fact that management had been able to raise rents and 
occupancy for the property and the local economy had remained strong, 
Mr. May stated that the fair market value of the underlying property 
would at least be equal to its original cost. Although financial 
information was only available through December 31, 1999, Mr. May 
observed that there were no events which would significantly affect the 
value of the underlying property and require adjustments to other 
assets or liabilities. Therefore, Mr. May placed the fair market value 
of the REIT Interests at $57,500 (or $1,150 per share) as of April 15, 
2000.
    (c) The \1/4\ LP Unit. In an appraisal report dated May 15, 2000, 
Mr. May also noted that the fair market value of a real estate 
partnership unit should be determined by the value of the underlying 
properties in the partnership. Because the AOF II Partnership 
properties had been acquired in recent years, Mr. May asserted that the 
book value of such properties, with an adjustment for accumulated 
depreciation, would reasonably reflect the value of such properties as 
of April 15, 2000.
    Based on the fact that management had been able to raise rents and 
occupancy for most of the properties and the local economies had 
remained stable or increased, Mr. May stated that the fair market value 
of the underlying properties was at least equal to their original 
acquisition costs. Although at the time of his appraisal, Mr. May 
stated that financial information was available through December 31, 
1999, he noted that no events had taken place that would significantly 
affect the value of the \1/4\ LP Unit and require adjustments to other 
assets or liabilities. Therefore, as of April 15, 2000, Mr. May placed 
the fair market value of the \1/4\ LP Unit at $25,000. He also noted 
that there had been no recent sales of AOF II Partnership units.
    12. Thus, based upon Mr. May's valuations of the Assets as of April 
15, 2000, Mr. Wolfson proposes to purchase the five remaining Israel 
Bonds from the Plan for $124,206, the REIT Interests for $57,500 and 
the \1/4\ LP Unit for $25,000, which reflects the fair market value of 
such Assets. The aggregate purchase price of $206,706 \6\ will be paid 
by Mr.

[[Page 65015]]

Wolfson to the Plan in cash. Mr. May will update his valuations of the 
Assets on the date of the sale.
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    \6\ To recap, during 1997 and between January 1999 and August 
2000, the Plan has received--
     $44,374.91 in interest payments with respect to the 
Israel Bonds for which it had paid an aggregate purchase price of 
$150,000. Thus, the Plan's total net cost with respect to the Israel 
Bonds (excluding Bond One which matured on November 1, 1998 and was 
subsequently redeemed by the Plan for its $25,000 face value) is 
$80,625.09.
     $12,624 in distributions with respect to the REIT 
Interests. Because the Plan paid $50,000 for the REIT Interests, its 
net cost with respect to this investment is $37,376.
     $13,457 in distributions from the AOF II Partnership. 
Because the Plan had acquired the \1/4\ LP Unit for $22,500, its net 
cost with respect to the \1/4\ LP Unit is $9,043.
    Thus, the Plan's overall net cost with respect to the Assets is 
$127,044.09.
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    13. In summary, it is represented that the transactions have 
satisfied or will satisfy the statutory exemptive relief that is 
available under section 408(a) of the Act because:
    (a) Each sale of the Assets was or will be a one-time transaction 
for cash.
    (b) The Plan received or will receive no less than the fair market 
value of the Assets at the time of each sale.
    (c) The sales price for each Asset was determined or will be 
determined by a qualified, independent appraiser at the time of each 
sale transaction.
    (d) The terms of the past and prospective sales transactions were 
or will be no less favorable to the Plan than those obtainable in 
similar transactions negotiated at arm's length with unrelated parties.
    (e) The Plan did not incur any fees or commissions in connection 
with the past sale of the Assets nor will it incur any fees or 
commissions expenses with respect to the prospective sale of such 
Assets.
    (f) Within 60 days of the publication, in the Federal Register, of 
the notice granting this proposed exemption, Mr. Wolfson will file a 
Form 5330 with the Service and pay all appropriate excise taxes that 
may be due and owing with respect to the sale of the Israel Bonds and 
the extension of credit transaction.

FOR FURTHER INFORMATION CONTACT: Ms. Jan D. Broady, Department of 
Labor, telephone (202) 219-8881. (This is not a toll-free number.)

Gillespie Real Estate Professional Corporation Defined Benefit Plan 
(the Plan) Located in Phoenix, Arizona; Proposed Exemption

[Applicant No. D-10880]

    The Department is considering granting an exemption under the 
authority of section 4975(c)(2) of the Code and in accordance with the 
procedures set forth in 29 CFR Part 2570, subpart B (55 FR 32836, 
August 10, 1990). If the exemption is granted, the sanctions resulting 
from the application of section 4975 of the Code, by reason of section 
4975 (c)(1)(A) through (E) of the Code, shall not apply to the proposed 
cash sale (the Sale) of a certain residential lot (the Property) by the 
Plan\7\ to Bruce and Ann Gillespie (the Applicants), disqualified 
persons with respect to the Plan, provided that the following 
conditions are met:
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    \7\ Because Bruce Gillespie is the sole shareholder of the 
Employer and he and his wife, Ann Gillespie, are the only 
participants in the Plan, there is no jurisdiction under Title I of 
the Act pursuant to 29 CFR 2510.3-3(b). However, there is 
jurisdiction under Title II of the Act under section 4975 of the 
Code.
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    (a) The Sale is a one-time transaction for cash;
    (b) The terms and conditions of the Sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated party;
    (c) The Plan receives the greater of $450,000 or the fair market 
value of the Property at the time of the Sale; and
    (d) The Plan is not required to pay any commissions, costs or other 
expenses in connection with the Sale.

Summary of Facts and Representations

    1. The Plan is a defined benefit plan which was established by the 
Applicants, the sole participants and beneficiaries. As of March 6, 
2000, the Plan held assets valued at approximately $1.9 million. The 
trustees of the Plan are Bruce and Ann Gillespie.
    2. The Property is a 34,372 square foot residential lot located at 
Forest Highlands, Lot 781, Coconino County, Arizona.
    According to the Applicants, the Plan originally acquired the 
Property as a real estate investment. The Plan purchased the Property 
in June 24, 1998, from an unrelated third party, the Homeowners 
Association of the Forest Highlands.\8\ First of American Mortgage 
served as the lender for the Plan's mortgage. The purchase price of the 
Property including settlement charges was $343,350.57. The Plan paid a 
cash deposit of $168,133.07 and financed the balance of the purchase 
price.
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    \8\ The Department is expressing no opinion as to whether the 
acquisition and holding of the Land by the Plan was a prohibited 
transaction under section 4975(c)(1)(D) and (E) of the Code, and no 
relief is provided herein.
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    The Applicants represent that the only expenditures the Plan has 
paid since owning the Property are $2,397.46 in property taxes, 
$5,729.08 in association fees, and $13,977.81 in loan interest payments 
from 1998 (i.e., the year of original acquisition) until August 18, 
2000. Therefore, the total cost to the Plan for the Property is 
$365,454.92 as of August 18, 2000 ($343,350.57 + $2,397.46 + $13,977.81 
+ $5,729.08 = $365,454.92). From the time of the purchase through 
August 18, 2000, the Property has remained vacant and no income has 
been generated.
    The Applicants represent that the Property has not been leased to, 
or used by, any disqualified persons.
    3. The Applicants request an exemption for the Sale. The Applicants 
represent that the proposed transaction would be feasible because it 
would be a one-time transaction for cash. Furthermore, the Applicants 
state that the transaction would be in the best interest of the Plan 
because the Sale would enable the Plan to invest the proceeds from the 
Sale in assets with a higher rate or return. The Applicants desire to 
sell the Property because they wish to build a personal residence on 
the lot. Finally, the Applicants assert that the transaction will be 
protective of the rights of the Plan's participants and beneficiaries 
as indicated by the fact that the Plan will receive the fair market 
value of the Property, as determined by a qualified, independent 
appraiser on the date of the Sale, and will incur no commissions, 
costs, or other expenses as a result of the Sale.
    4. Stephen G. Leach (Mr. Leach), an accredited appraiser with 
Cushman & Wakefield of Arizona, Inc., located in Phoenix, Arizona, 
appraised the Property on September 5, 2000. Mr. Leach states that he 
is a full time qualified, independent appraiser, as demonstrated by his 
status as a Certified Residential Real Estate Appraiser licensed by the 
State of Arizona. In addition, Mr. Leach represents that both he and 
his firm are independent of the Applicants.
    In his appraisal, Mr. Leach relied primarily on the sales 
comparison approach. According to Mr. Leach, this method best 
represents the actions of buyers and sellers in the market place. This 
method of appraisal involves an analysis of similar recently sold 
properties in the area in question so as to derive the most probable 
sales price of the Property. Mr. Leach's appraisal indicates that he 
compared the Property to nine recently sold lots in the Forest 
Highland's complex before reaching a conclusion as to the value of the 
Property. After inspecting the Property and analyzing all relevant 
data, Mr. Leach determined that a fee simple interest in the Property 
had a fair market value of approximately $450,000, as of September 5, 
2000.
    5. In summary, the Applicants represent that the proposed 
transaction satisfies the statutory criteria of section 4975(c)(2) of 
the Code because: (a) The terms and conditions of the Sale would

[[Page 65016]]

be at least as favorable to the Plan as those obtainable in an arm's 
length transaction with an unrelated third party; (b) the Sale would be 
a one-time cash transaction allowing the Plan to divest itself of the 
Property and reinvest the proceeds of the Sale in assets that will 
yield a higher rate of return; (c) the Plan would receive an amount 
equal to the greater of $450,000, which represents the appraised fair 
market value of the Property, as appraised by Mr. Leach in September 
2000, or the fair market value of the Property at the time of the Sale, 
based on an updated appraisal of the Property by Mr. Leach or another 
independent, qualified appraisal; and (d) the Plan would not be 
required to pay any commissions, costs or other expenses in connection 
with the Plan.
    Notice to Interested Parties: Because Mr. Gillespie is the sole 
shareholder of the Employer and he and his wife, Ann Gillespie, are the 
only participants in the Plan, it has been determined that there is no 
need to distribute the notice of proposed exemption (the Notice) to 
interested persons. Comments and requests for a hearing are due thirty 
(30) 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).

General Information

    The attention of interested persons is directed to the following:
    (1) The fact that a transaction is the subject of an exemption 
under section 408(a) of the Act and/or section 4975(c)(2) of the Code 
does not relieve a fiduciary or other party in interest or disqualified 
person from certain other provisions of the Act and/or the Code, 
including any prohibited transaction provisions to which the exemption 
does not apply and the general fiduciary responsibility provisions of 
section 404 of the Act, which, among other things, require a fiduciary 
to discharge his duties respecting the plan solely in the interest of 
the participants and beneficiaries of the plan and in a prudent fashion 
in accordance with section 404(a)(1)(b) of the Act; nor does it affect 
the requirement of section 401(a) of the Code that the plan must 
operate for the exclusive benefit of the employees of the employer 
maintaining the plan and their beneficiaries;
    (2) Before an exemption may be granted under section 408(a) of the 
Act and/or section 4975(c)(2) of the Code, the Department must find 
that the exemption is administratively feasible, in the interests of 
the plan and of its participants and beneficiaries, and protective of 
the rights of participants and beneficiaries of the plan;
    (3) The proposed exemptions, if granted, will be supplemental to, 
and not in derogation of, any other provisions of the Act and/or the 
Code, including statutory or administrative exemptions and transitional 
rules. Furthermore, the fact that a transaction is subject to an 
administrative or statutory exemption is not dispositive of whether the 
transaction is in fact a prohibited transaction; and
    (4) The proposed exemptions, if granted, will be subject to the 
express condition that the material facts and representations contained 
in each application are true and complete, and that each application 
accurately describes all material terms of the transaction which is the 
subject of the exemption.

    Signed at Washington, DC, this 25th day of October 2000.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 00-27915 Filed 10-30-00; 8:45 am]
BILLING CODE 4510-29-P