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Secretary of Labor Hilda L. Solis
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EBSA Notices

[Application No. D-11031, et al.] Proposed Exemptions; Northwoods Bank of Minnesota Employee Stock Ownership Plan (the Plan)   [4/26/2002]
[PDF]
[Federal Register: April 26, 2002 (Volume 67, Number 81)]
[Notices]               
[Page 20837-20845]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr26ap02-120]                         

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application No. D-11031, et al.]

 
Proposed Exemptions; Northwoods Bank of Minnesota Employee Stock 
Ownership Plan (the Plan)

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 
requests 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 requests for a hearing (at least 
three copies) should be sent to the Pension and Welfare Benefits 
Administration (PWBA), 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. Interested persons are also invited to submit 
comments and/or hearing requests to PWBA via e-mail or FAX. Any such 
comments or requests should be sent either by e-mail to: 
``moffittb@pwba.dol.gov'', or by FAX to (202) 219-0204 by the end of 
the scheduled comment period. 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-1513, 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 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.

[[Page 20838]]

Northwoods Bank of Minnesota Employee Stock Ownership Plan (the 
Plan) Located in Park Rapids, Minnesota

[Application No. D-11031]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and section 4975(c)(2) of the 
Code and in accordance with the procedures set forth in 29 CFR part 
2570, subpart B (55 FR 32836, 32847, August 10, 1990.) If the exemption 
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2) 
of the Act and the sanctions resulting from the application of section 
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the 
Code, shall not apply to the proposed sale by individual accounts (the 
Stock Accounts) within the Plan of certain shares of common stock (the 
Shares) of Dorset Bancshares, Incorporated (the Holding Company) to the 
Holding Company, a party in interest with respect to the Plan; provided 
that the following conditions are satisfied:
    (a) The proposed sale is a one-time cash transaction;
    (b) The Stock Accounts receive the greater of: (i) $32,000 per 
Share, as currently apppraised by an independent, qualified appraiser; 
or (ii) the current fair market value for the Shares established at the 
time of the sale by an independent qualified appraiser; and
    (c) The Stock Accounts pay no commissions or other expenses 
associated with the sale.

Summary of Facts and Representations

    1. Northwoods Bank of Minnesota (the Bank) is a community bank 
located in Park Rapids, Minnesota. The bank is a wholly-owned 
subsidiary of the Holding Company. Both the Bank and the Holding 
Company are closely-held corporations under Minnesota state law. 
Effective November 1, 1967, the Bank established the Plan as a profit 
sharing plan (the Original Plan) for the benefit of its employees.
    In 1986, the Original Plan was converted to an employee stock 
ownership plan (i.e., the Plan). Effective February 15, 1995, the Plan 
also added a 401(k) salary deferral feature. Effective January 1, 1999, 
the Bank and the Holding Company each elected to be treated as a 
subchapter ``S'' corporation.
    As of December 31, 2001, the Plan had 30 active participants and 6 
inactive participants. Only the participants (both active and inactive) 
that have a Stock Account in the Plan will be affected by the proposed 
transaction.
    Mark Hewitt (Mr. Hewitt) is the Chairman/CEO of the Bank, the 
president of the Holding Company, and a co-trustee of the Plan. Mr. 
Hewitt currently owns 194 Shares, which represents an approximately 
91.5% ownership interest in the Holding Company. Brian Grave (Mr. 
Grave) is also a co-trustee of the Plan, and the Chief Financial 
Officer of the Bank. Mr. Grave does not own any interest in the Bank or 
the Holding Company.
    2. On December 31, 1986, the Plan purchased 20 Shares of the 
Holding Company from Mr. Hewitt at a price of $4,489.15 per Share, for 
a total purchase price of $89,783. On April 18, 1996, the Plan sold 3 
Shares to the Holding Company at a price of $15,500 per Share, for a 
total purchase price of $46,500.\1\ The Stock Accounts have received 
distributions, as shareholders of an ``S'' corporation, in the 
following amounts:
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    \1\ The applicant represents that the original purchase of the 
Shares by the Plan and the subsequent sale of certain Shares to the 
Holding Company occurred before the Bank and the Holding Company 
elected subchapter ``S'' status. Therefore, the applicant states 
that such transactions were permitted by the statutory exemption 
under ERISA section 408(e) and the Internal Revenue Code section 
4975(d)(13).
    The Department expresses no opinion in this proposed exemption 
as to whether the Plan's purchase, holding or sale of the Shares met 
the requirements necessary for relief under section 408(e) of the 
Act or section 4975(d)(13) of the Code.

------------------------------------------------------------------------
                                                             Amount of
                          Year                             distribution
------------------------------------------------------------------------
1999....................................................      $15,476.12
2000....................................................       19,419.61
2001....................................................  \1\ 35,957.52
------------------------------------------------------------------------
\1\Through 9/30/01.

    Since 1996, the Plan has continued to hold the remaining 17 Shares 
(which represents approximately 8.02% of the outstanding Shares), but 
no additional Shares have been purchased or contributed to the Plan. 
These 17 Shares are held in thirty (30) Stock Accounts within the Plan. 
The applicant states that the certificates for the Shares are held at 
the Bank, while other contributions are invested in mutual funds 
unrelated to the Bank. The Plan's ownership of the 17 Shares 
represented 47.8% of total Plan assets, as of December 31, 2000. The 
Plan had approximately $941,738 in total assets as of December 31, 
2000.
    3. The Plan was originally established to invest primarily in 
``qualifying employer securities'' (QES), as defined under section 
407(d)(5) of the Act. However, since 1995 the Plan's participants have 
made deferral contributions (pursuant to section 401(k) of the Code) to 
the Plan which have been invested in mutual funds. The Bank's matching 
contributions to the Plan have been made in cash, rather than in 
Shares. Consequently, the percentage of the Plan's assets invested in 
QES has declined over time and is expected to continue declining as 
additional cash contributions are made.\2\
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    \2\ Section 407(d)(6) of the Act defines the term ``employee 
stock ownership plan'' as an individual account plan (A) which is a 
stock bonus plan which is qualified, or a stock bonus plan and money 
purchase plan both of which are qualified, under section 401 of the 
Code, and which is designed to invest primarily in qualifying 
employer securities, and (B) which meets such other requirements as 
the Secretary of the Treasury may prescribe by regulation.
    The Department is providing no opinion herein as to whether such 
requirements have been met.
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    Therefore, the applicant believes that the employee stock ownership 
portion of the Plan should be discontinued and proposes that the Plan 
sell the Shares to the Holding Company for cash at their fair market 
value. In this regard, the applicant states that section 408(d) of the 
Act excludes owner-employees (including shareholder-employees), and any 
corporation which is 50% or more owned by such persons (subchapter 
``S'' corporations), from using the statutory exemption provided under 
section 408(e) of the Act for purchases or sales of QES. The applicant 
notes that section 408(d)(2)(B) of the Act provides an exception to 
this exclusion for a sale of QES to an employee stock ownership plan 
(ESOP) by a shareholder-employee or related subchapter ``S'' 
corporation. However, the applicant notes further that because the 
exception described in section 408(d)(2)(B) applies only to sales of 
QES to an ESOP, the applicant is requesting an individual exemption to 
permit the cash sale of the Shares by the Plan to the Holding Company.
    4. The Shares were appraised on December 31, 2000 (the Appraisal). 
The Appraisal was prepared by the Bank Advisory Group, Inc. (BAGI), an 
independent consulting firm in Austin, Texas. BAGI provides appraisal 
services for closely-held banks and other financial institutions.
    The Appraisal states that the Holding Company is a ``shell'' 
holding company for the Bank, a federally-chartered savings bank 
located in Minnesota. The Appraisal considered three valuation 
methodologies (i.e., the net asset value, the market value, and the 
investment value) of the Holding Company to determine the fair market 
value of the Shares.
    The Appraisal relied primarily on the market value and the 
investment value in determining fair market value of the

[[Page 20839]]

Shares. Specifically, the Appraisal considered the following factors:
    (i) The Holding Company's restricted market presence and relatively 
low future growth prospects when compared to that of larger, publicly-
traded thrift organizations;
    (ii) the Holding Company's small asset base;
    (iii) the Holding Company's high level of ownership;
    (iv) ongoing branch divestitures by larger financial institutions 
in outlying markets; and
    (v) larger financial institutions' competitive advantage with 
regard to technology and customer diversification.
    Based on these factors, BAGI determined that the Shares had a fair 
market value of $26,000 per Share, as of December 31, 2000.
    An update to the Appraisal (the Update) was prepared by BAGI on 
April 5, 2002. The Update states that the fair market of the Shares was 
$32,000 per Share, as of December 31, 2001. Thus, the Plan's 17 Shares 
had a total fair market value of $544,000 as of that date.
    5. The applicant proposes that the Holding Company purchase the 
shares from the Plan in a one-time cash transaction. The Plan will pay 
no commissions or other expenses associated with the sale. The 
aggregate fair market value of the Shares will be determined by BAGI, 
an independent qualified appraiser, at the time of the transaction. In 
this regard, the Holding Company proposes to pay the Plan the greater 
of: (i) $32,000 per Share, which is the fair market value per share 
established by BAGI, as of December 31, 2001; or (ii) the fair market 
value of the Shares as established by a further update of the Appraisal 
at the time of the transaction.
    The applicant represents that the proposed transaction is in the 
best interest and protective of the Plan and its participants and 
beneficiaries. The sale of the Shares to the Holding Company will 
increase the liquidity and the diversification of the Plan's investment 
portfolio and allow the Plan to eliminate its employee stock ownership 
component.
    6. In summary, the applicant represents that the proposed 
transaction will satisfy the statutory criteria of section 408(a) of 
the Act and section 4975(c)(2) of the Code because:
    (a) The proposed sale will be a one-time cash transaction;
    (b) the Plan will receive the greater of (i) $32,000 per Share, as 
currently appraised by BAGI; or (ii) the current fair market value for 
the Shares, as established at the time of the sale by an independent 
qualified appraiser;
    (c) the Plan will pay no commissions or other expenses associated 
with the sale;
    (d) the sale will provide the Plan and its participants with more 
liquidity and an opportunity to increase their return with more 
diversified investments; and
    (e) only the assets in Stock Accounts within the Plan will be 
affected by the transaction.
    For Further Information Contact: Ekaterina A. Uzlyan of the 
Department at (202) 693-8540. (This is not a toll-free number.)

Louisville Electrical Joint Apprentice and Training Committee Trust 
Fund (the Fund) Located in Louisville, Kentucky

[Exemption Application No: L-10981]

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 procedures set forth in 29 C.F.R. Part 
2570, Subpart B (55 FR 32836, 32847, August 10, 1990). If the proposed 
exemption is granted, the restrictions of sections 406(a)(1)(A) through 
(D), 406(b)(1), and 406(b)(2) of the Act shall not apply to the 
purchase by the Fund of an interest in a condominium regime (the Condo) 
from the International Brotherhood of Electrical Workers (IBEW), Local 
369 Building Corporation (the Building Corporation), a party in 
interest with respect to the Fund; provided that, at the time the 
transaction is entered into, the following conditions are satisfied:
    (1) The purchase by the Fund of the interest in the Condo is a one-
time transaction for cash;
    (2) the Board of Trustees (the Trustees), acting as named fiduciary 
on behalf of the Fund, prior to entering the transaction, determine 
that the transaction is feasible, in the interest of the Fund, and 
protective of the participants and beneficiaries of the Fund;
    (3) an independent qualified fiduciary (the I/F) after analyzing 
the relevant terms of the transaction advises the Trustees that 
proceeding with the transaction would be in the interest of the Fund;
    (4) the purchase price paid by the Fund for the interest in the 
Condo is the lesser of: (a) the total amount actually expended by the 
Building Corporation in the construction of the north wing unit (the 
Unit) of the condominium building (the Condo Building), as documented 
in writing and approved by the I/F, plus the value of that portion of 
the land underlying such Unit, which is equivalent to the percentage of 
the square footage of such Unit to the total square footage in the 
Condo Building, plus the value of the same portion of any other common 
elements of the Condo; or (b) the fair market value of the Fund's 
interest in the Condo, as determined by an independent, qualified 
appraiser, as of the date of the transaction, provided that such value 
does not exceed $2,655,000, the fair market value of the Fund's 
interest in the Condo, as determined by such independent, qualified 
appraiser, as of December 11, 2001;
    (5) the terms of the transaction are no less favorable to the Fund 
than terms negotiated under similar circumstances at arm's length with 
unrelated third parties;
    (6) the Fund does not purchase the interest in the Condo or take 
possession of the Unit in the Condo Building until such Unit is 
substantially completed;
    (7) the Fund has not been, is not, and will not be a party to the 
construction financing loan or the permanent financing loan between the 
IBEW, Local Union 369 (the Local) and the Bank of Louisville (the 
Bank);
    (8) the Fund does not pay any commissions, sales fees, or other 
similar payments to any party as a result of the proposed transaction, 
and the costs incurred in connection with the purchase by the Fund at 
closing does not include, directly or indirectly, interest incurred by 
the Building Corporation on the construction financing loan or the 
permanent financing loan from the Bank;
    (9) under the terms of the loan agreement between the Bank and the 
Fund, the Bank in the event of a default by the Fund has recourse only 
against the interest in the Condo and not against the general assets of 
the Fund; and
    (10) under the terms of the loan agreement between the Bank and the 
Building Corporation, in the event of default by the Building 
Corporation, the Bank has no recourse against any assets of the Fund.

Summary of Facts and Representations

    1. The Fund is an employee benefit welfare plan located at 1021 
South Floyd Street (the Existing Facility) in Louisville, Kentucky. The 
Fund is maintained under a collective bargaining agreement between the 
Local and the Louisville Chapter, of the National Electrical 
Contractors Association (NECA). The Fund is designed to provide 
programs to recruit and train workers as electricians. In

[[Page 20840]]

addition, the Fund also provides continuing education and advanced 
training for electrical workers.
    Members of the Local are covered by the Fund. As of December 1, 
2000, there were 340 participants in the Fund.
    As of June 30, 2001, the Fund had cash and cash equivalents of 
$1,420,542 and a ``net worth'' of $2,056,940. An unaudited balance 
sheet of the Fund's assets prepared by William P. Schmitz (Mr. 
Schmitz), the Fund's independent accountant, indicated that the Fund 
had, as of December 31, 2001, $1,829,704 in cash and $2,656,242 in 
``net worth.''
    2. The Trustees have authority to invest the assets of the Fund. 
Among the eight (8) individuals who serve as Trustees, four (4) are 
management representatives and four (4) are labor representatives. Two 
(2) of the Trustees, Scott Pulliam and Steve Silliman (Mr. Silliman), 
also serve as officers of the Local.
    3. The Local is the sole shareholder of the Building Corporation, a 
Kentucky corporation. The Local and the Building Corporation are 
parties in interest with respect to the Fund, pursuant to section 
3(14)(D) and 3(14)(G) of the Act, respectively.
    4. The Building Corporation owns real estate (the Property) located 
at 4315 Preston Highway in Louisville, Kentucky. It is represented that 
this location offers immediate interstate access from the Louisville 
metropolitan area and has parking availability. The Property consists 
of an irregularly shaped level parcel of 3.09 acres of land. As of 
December 11, 2000, the Property was improved with two buildings. The 
first building, a two-story, 8,092 square foot concrete block structure 
(the Original Building) was used, as of December 11, 2000, for offices 
and meeting space for the Local. The second building, a 900 square foot 
concrete block garage (the Garage) located in the rear of the Property, 
was used, as of the same date, for storage by the Local. A sewage 
treatment plant was also located on the Property, as of December 11, 
2000.
    In 2001, the Building Corporation chose to expand the total square 
footage of the Original Building on the Property from 8,092 square feet 
to 53,353 square feet by adding a north and a south wing. Included in 
the site improvements to the Property are 110 striped parking spaces, 
asphalt cement paving, walks, lighting, and landscaping.
    To finance the expansion of the Original Building, the Building 
Corporation obtained in March 2001, a construction loan in the amount 
of $5.9 million dollars from the Bank. It is represented that the Fund 
is under no obligation to the Bank or the Union under the terms of this 
loan.
    5. It is represented that by March 15, 2002, the Building 
Corporation, as the developer of the Property, had filed documents 
establishing a condominium regime on the Property in accordance with 
Kentucky Horizontal Property law.\3\ Under the provisions of the 
Kentucky Horizontal Property Law,\4\ an owner of an interest in a 
condominium has the exclusive ownership of its unit and also has a 
right to share the common elements of the property with the owners of 
other units in the condominium. Except as otherwise provided, the 
common elements of a condominium include the underlying land, the 
foundations, main walls, roofs, halls, lobbies, stairways, entrances, 
exits, basements, yards, gardens, the installations of central 
services, and all other elements rationally of common use or necessary 
for upkeep and safety. It is represented that the amount of an 
ownership interest in a unit of a condominium is equivalent to the 
percentage representing the floor area of such individual unit to the 
total floor area of such condominium. It is further represented that 
this percentage is expressed at the time the condominium regime is 
established, is recorded with the county clerk, and cannot be altered 
without the agreement of all owners of the units of the condominium.
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    \3\ It is represented that Kentucky Horizontal Property Law, KRS 
381.805-381.910 creates a framework for developing and owning 
condominium units in the state of Kentucky.
    \4\ KRS 381.830.(1)(a).
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    It is represented that the Building Corporation, as the developer 
of the Property, chose to use a condominium regime, because a 
traditional approach to dividing the Property, as subsequently 
improved, would have taken too long and have been more expensive. In 
this regard, numerous local governmental approvals and variances would 
have been required. It is represented that such approvals and variances 
would have created a delay in construction and in occupancy.
    6. It is represented that the offices and union hall of the Local 
occupy the Original Building plus the south wing (32,079 square feet) 
of the Condo Building on the Property (approximately 60.13 percent 
(60.13%) of the total square footage in such building). The north wing 
(21,274 square feet) of the Condo Building on the Property 
(approximately 39.87 percent (39.87%) of the total square footage in 
such building) is intended to house the training facility and the 
administrative offices of the Fund.
    7. An administrative exemption has been requested that would permit 
the Fund to purchase from the Building Corporation an interest in the 
Condo. In this regard, it is represented that in purchasing the 
interest in the Condo, the Fund will acquire a real property interest 
in the north wing, the land underlying the north wing, and any other 
common elements of the Condo. The amount of the Fund's ownership 
interest in the land underlying the north wing and any other common 
elements of the Condo will be equivalent to the percentage 
(approximately 39.87%) representing the square footage of the north 
wing of the Condo Building (21,274 square feet) to the total square 
footage of such building (53,353 square feet). Further, it is 
represented that the Fund's ownership of the interest in the Condo will 
be recorded as a deed for real property with the Clerk of Jefferson 
County.
    8. It is represented that the proposed transaction is feasible in 
that the purchase of an interest in the Condo by the Fund is a one-time 
transaction for cash.
    In addition to the purchase price, with regard to the acquisition 
of an interest in the Condo, the Fund will be responsible for paying 
the cost of recording the deed, the charges of title examination and 
title policy, the state, county, school, and fire tax assessments, and 
any other obligations required under Kentucky law governing 
condominiums. However, the costs incurred in connection with the 
purchase by the Fund at closing may not include, directly or 
indirectly, interest incurred by the Building Corporation on the 
construction financing loan or the permanent financing loan from the 
Bank. Further, the Fund may not pay any commissions, sales fees, or 
other similar payments to any party as a result of the proposed 
transaction.
    It is represented that the Fund will be responsible for paying for 
its own electrical, gas, telephone, and water service on its Unit in 
the Condo Building. However, the Local and the Fund agree to base all 
cost-sharing for the common elements of the Condo on the percentage of 
each party's ownership interest in the Condo.
    9. 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 transaction. In this regard, the 
applicant agreed to hire an I/F to act on behalf of the Fund with 
respect to the acquisition by the Fund of the interest in the Condo. 
With regard

[[Page 20841]]

to the selection of the I/F, the Trustees received proposals from two 
(2) entities willing to serve as the I/F. Of the two candidates, the 
Trustees chose Independent Fiduciary Services, Inc. (IFS).
    10. Pursuant to an agreement (the Agreement), dated October 22, 
2001, the Trustees retained IFS to analyze relevant aspects of the 
proposed transaction and advise the Trustees, in the Trustees' capacity 
as the named fiduciary of the Fund, whether proceeding with the 
proposed transaction according to the proposed terms would be in the 
Fund's financial interest.
    Pursuant to the terms of the Agreement, IFS is responsible for 
considering, at a minimum: (a) The appraisal of the fully completed 
Property, and evaluating the sufficiency of the methodology of such 
appraisal and the reasonableness of the conclusions reached in such 
appraisal; (b) the Fund's financial statements and projections of 
future cash flows and the Fund's expected ability to financially 
support the transaction, subject to certain limitations; (c) the 
proposed purchase and sale agreement, the condominium agreement, and 
other documents regarding the proposed sale, ownership, and occupancy 
of the Property; provided that IFS shall consider such documents solely 
from an investment perspective and shall be entitled to confer with and 
rely upon counsel for the Fund (the Fund's Counsel) regarding legal 
matters; and (d) the Fund's financial and business analysis of whether 
to proceed with the transaction, compared to leasing comparable space 
or purchasing other comparable space. Further, IFS is responsible for 
providing the Trustees with advice and conclusions about the foregoing 
matters by way of a written report.
    It is represented that IFS is independent of the parties involved 
in the proposed transaction in that amounts paid or to be paid to IFS 
by the Fund in each of 2001 and 2002 are less than one percent (1%) of 
IFS's total revenues in each respective year. IFS confirms that it has 
registered as an investment adviser under the Investment Advisers Act 
of 1940 and acknowledges that with respect to its duties as set forth 
in the Agreement it is a fiduciary, as defined in section 3(21)(A)(ii) 
of the Act.
    It is represented that although IFS was retained as a fiduciary, 
the Trustees remain responsible, as named fiduciary for the Fund, for 
deciding whether, when, and on what terms to consummate the proposed 
transaction.\5\
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    \5\ The Department notes that the relief proposed herein, is 
conditioned upon the adherence by the Trustees to the material facts 
and representations set forth in the application file and upon 
compliance with the conditions, as set forth in this proposed 
exemption.
---------------------------------------------------------------------------

    IFS requested and has reviewed the following documents concerning 
the Fund and the proposed transaction: (a) The Prohibited Transaction 
Exemption Application, dated March 7, 2001; (b) the Department's 
response, dated March 26, 2001; (c) letters from the Fund's Counsel to 
the Department, dated April 27, May 30, and September 28, 2001; (d) the 
December 11, 2000, appraisal report prepared for the Bank by J. Michael 
Jones, MAI, and Jerome S. Cowens of J. Michael Jones and Associates, an 
independent, qualified real estate appraiser in Louisville, Kentucky 
(the Appraiser); (e) the December 11, 2001, appraisal report, prepared 
by the Appraiser and addressed to IFS, supplemented by a letter from 
the Appraiser to IFS, dated February 12, 2002; (f) the Construction/
Term Loan Agreement, dated March 1, 2001, between the Bank and the 
Building Corporation; (g) the draft undated Condominium Sales Contract 
between the Building Corporation and the Fund; (h) the draft 
Declaration or Master Deed under which the condominium regime would be 
managed; (i) the proposed term sheet for a loan between the Bank and 
the Fund and draft loan documents; (j) audited financial statements of 
the Fund, dated June 30, 2000, prepared by Buschenberger, Darst & 
Eggers, LLC., CPAs; and audited financial statements of the Fund, as of 
June 30, 2001, and an unaudited balance sheet and income statement of 
the Fund, dated December 31, 2001, prepared by Mr. Schmitz, the Fund's 
accountant; (k) a Forecasted Statement of Cash Flows, dated June 20, 
2001, prepared by Mr. Schmitz; and more detailed cash flow projections, 
dated February 12, 2002, prepared by Mr. Schmitz and the Fund's 
Counsel, further refined and tested by IFS; (l) layout drawings of 
existing and new structures, land, relationship to other structures and 
similar physical aspects; and (m) a breakdown of costs of construction 
prepared by Abel Construction Company (the General Contractor).
    In addition, IFS met in person or telephonically with: (a) The 
Fund's Counsel, Thomas J. Grady, Esq. of Segal, Stewart, Cutler, 
Lindsay, Janes, & Berry, PLLC; (b) the Fund's accountant, Mr. Schmitz; 
(c) the Bank lending officer, Edward L. Shannon, Senior VP of the Bank; 
(d) the Appraiser; (e) the business manager for the Local, Mr. 
Silliman; (f) the training director of the Fund, Steve Willinghurst; 
and (g) Ricky George (Mr. George) the Fund Chairman and one of the 
Trustees who represent the employers of electrical workers.
    11. It is represented that because the Fund's Existing Facility is 
landlocked and cannot be expanded to meet the growing need for training 
electrical workers, the Trustees considered three (3) alternatives: (1) 
Purchasing another property and renovating it; (2) building a new 
training facility; and (3) leasing additional space. With regard to the 
first alternative, the Trustees engaged the help of a commercial real 
estate agent, Walter Wagner, Jr. Co., to assist them in finding a 
property to purchase and renovate. After considering at least six (6) 
sites, the Trustees became more interested in the second alternative, 
building a new facility that would satisfy the specific requirements of 
the Fund. Recognizing the appeal of a ``one-stop'' campus environment 
for the entire membership, the Trustees believe that the Unit in the 
Condo Building with proximity to the Local's union hall and offices is 
too attractive an offer not to act upon.
    With regard to the third alternative, the leasing by the Fund of 
the amount of space it needs in the Condo Building or the leasing of 
such space in another property, the Trustees had a real estate 
professional prepare a draft lease based on an arm's length transaction 
between two commercial entities. It is represented that the rent of 
21,274 square feet of space equivalent to that in the north wing Unit 
of the Condo Building at a fair market rental rate of $14.00 per square 
foot would, over the course of 20 years, cost the Fund $5,956,800.
    Although evaluating alternatives to the proposed transactions is 
outside the scope of IFS's Agreement, IFS noted that the Fund's 
conclusion to buy rather than rent appears reasonable. In this regard, 
IFS noted that based on a rental value of $14.00 per square foot, as 
established by the Appraiser, if the Fund were to rent the Unit in the 
Condo Building (or a similar one assuming availability), the Fund would 
pay as much in rent over 8.5 years as it is paying to purchase the 
interest in the Condo. At the conclusion of the 8.5 years, IFS's notes 
that the Fund would then either have to continue paying rent or find 
another facility.
    12. The applicant maintains that the proposed transaction is in the 
interest of the participants and beneficiaries of the Fund in that the 
Fund will obtain the additional space needed to increase the number of 
training classes offered by the

[[Page 20842]]

Fund and to accommodate more students per class. In this regard, in the 
mid-1980's the Fund acquired the Existing Facility to provide training 
for 125 apprentices. Despite the fact that, in 1999, the Fund began 
scheduling day and evening classes to utilize the Existing Facility 
more efficiently, the space (6,200 square feet) in such facility is 
inadequate to provide apprenticeship training for the 488 individuals 
currently attending school.
    According to the applicant, there has been an increased demand for 
training that is expected to continue in the future. In this regard, an 
aging workforce and early retirements have contributed to a shortage of 
electrical workers and created a need for more trained apprentices. 
Further, in the last three (3) years, the number of refresher classes 
for experienced journeymen has doubled. In addition, due to the merger 
of several unions, the Fund's mission has evolved from providing 
training locally to providing training regionally. In this regard, the 
Fund now provides the sole training facility for IBEW electricians 
throughout 68 counties in Kentucky and 6 counties in southern Indiana.
    The increase demand for training has also increased the need for 
classroom space. In this regard, in 1999, the Fund registered two 
additional programs with the State of Kentucky, a residential 
electrical program and a telecommunications program. It is represented 
that each of these programs requires a dedicated amount of space to 
provide hands-on-training, and each will require additional space as 
the demand for workers in each industry grows.
    IFS represents that its responsibility does not include determining 
either the inadequacy of the Existing Facility or the adequacy of the 
new facility. However, as support for an assessment of whether the 
proposed transaction would be in the interest of the Fund's 
participants, IFS visited the Fund's Existing Facility. According to 
IFS, statements regarding the size, crowded conditions at the Existing 
Facility, lack of parking, and the condition of the neighborhood were 
confirmed by observation to reasonably support the conclusion of the 
Fund's Counsel about the Fund's needs. IFS also toured the fully 
constructed but as yet unoccupied new facility. According to IFS, 
statements made by the Fund's Counsel regarding the suitability of the 
new facility appear to be reasonable. In this regard, IFS states that 
the new facility is clean, spacious, and appears to be able to provide 
high quality classroom, lab and practical training venues to a 
considerably larger student body than the Existing Facility, as well as 
space to provide communication training.
    13. It is represented that the terms of the proposed transaction 
are on terms which are at least as favorable to the Fund as those which 
would have been negotiated at arm's length with an unrelated party. In 
this regard, it is represented that the purchase and sale agreement 
between the Fund and the Building Corporation will set the purchase 
price that the Fund will pay for an interest in the Condo. In this 
regard, the purchase price will be the lesser of: (a) The total amount 
actually expended by the Building Corporation in the construction of 
the Unit in the Condo Building, as documented in writing and approved 
by IFS, plus the value of that portion of the land underlying such 
Unit, which is equivalent to the percentage of the square footage of 
such Unit to the total square footage in the Condo Building, plus the 
value of the same portion of any other common elements of the Condo; or 
(b) the fair market value of the Fund's interest in the Condo, as 
determined by the Appraiser, as of the date of the transaction, 
provided that such value does not exceed $2,655,000, the fair market 
value of the Fund's interest in the Condo, as determined by the 
Appraiser, as of December 11, 2001.
    14. In this regard, on December 11, 2001, the Appraiser determined 
the fair market value of the Property, after the improvements were 
substantially completed. Specifically, the Appraiser established the 
fair market value of the north wing (i.e., the Fund's Unit in the Condo 
Building) and the south wing (i.e., the Local's unit in the Condo 
Building), ``as condominiums,'' to be $2,655,000, and $3,520,000, 
respectively. According to the Appraiser, condominiums are, rarely, if 
ever, the size of the units in the Condo Building which are the subject 
of this proposed exemption. In addition, the Appraiser noted in the 
appraisal report that the units in this case are atypical due to their 
multi-purpose usage which makes finding reasonable comparables 
extremely difficult. In establishing the value of the north wing and 
the south wing, as condominiums, the Appraiser gathered information in 
the general area of the subject on sales of smaller office condominiums 
(850 to 4,100 square feet) in the $85 to $120 per square foot range. In 
this regard, the Appraiser assigned $120 per square foot value to the 
north wing and $105 per square foot value to the Original Building plus 
the south wing. In assigning these values, the Appraiser considered the 
smaller size, the entirely new construction, and the higher degree of 
flexibility of use of the north wing making it more marketable and more 
valuable relative to the south wing, which though larger is less 
flexible because it includes both the renovated older structure and an 
auditorium.
    Based on its review of the appraisal report, a letter from the 
Appraiser, dated February 12, 2002, and discussions with the Appraiser, 
IFS concluded that the methodology used by the Appraiser is reasonable 
under the circumstances and that the fair market value of $2,655,000 
for the Unit, including its proportion of the underlying land, as 
documented in the appraisal report, is reasonable.
    15. It is represented that the entire cost of construction has been 
measured, allocated between the units, and certified as correct by the 
General Contractor. In this regard, it is represented that the total 
cost to construct the Fund's Unit in the Condo Building, including 
additional expenses allocated to the Fund's Unit, was $2,490,570.48. It 
is represented that, including the value of an undivided interest in 
the underlying land and other general common property, the total cost 
of the Unit is $2,771,863 (rounded).
    Accordingly, IFS represents that based on the ``lower of cost or 
market'' standard, the price to be paid for an interest in the Condo by 
the Fund is the fair market value of the Unit of $2,655,000, plus 
customary closing costs. According to IFS, closing costs could include 
simple interest on the price paid by the Fund from the date of the 
valuation by the Appraiser (December 11, 2001) to the date of the 
closing, at a rate not greater than the rate paid by the Building 
Corporation on the construction loan during such period. However, the 
Department has determined that as a condition of this exemption the 
costs incurred in connection with the purchase by the Fund at closing 
may not include, directly or indirectly, interest incurred by the 
Building Corporation on the construction financing loan or the 
permanent financing loan from the Bank.
    16. In order to finance the acquisition of the interest in the 
Condo, the Fund will obtain permanent financing from the Bank. It is 
represented that the Bank has approved a loan to the Fund of up to $2 
million and up to 20 years. In acquiring the interest in the Condo for 
$2,655,000, plus customary closing costs, the Fund intends to make a 
down payment in cash of no less than $1 million dollars; and therefore, 
expects to borrow approximately $1.7 million. It is intended that the 
Fund's down payment

[[Page 20843]]

on the purchase and the proceeds from the loan by the Bank to the Fund 
will be paid to the Building Corporation. The Building Corporation, in 
turn, will use the money it receives from the Fund to reduce the 
Building Corporation's outstanding indebtedness to the Bank.
    Pursuant to a request from the Trustees, the Bank has offered two 
sets of interest rates for the loan between the Bank and the Fund. The 
first interest rate involves a floating rate of prime plus zero, 
(currently represented to be 4.75%) reset daily with any change in the 
prime rate. Payout is calculated over 120 months (ten years) of level 
payments. The Fund's Counsel confirms that the loan to the Fund by the 
Bank will have level payments of principal and interest over 120 months 
and does not include any balloon payment by the Fund at the end of such 
period. In addition, the Fund would have the choice of increasing the 
monthly payment or increasing the term to cover any future upward 
changes in the rate.
    The second interest rate involves a rate fixed at the time of 
drawdown on the loan between the Bank and the Fund at the Federal Home 
Loan Bank five (5) year rate plus 200 basis points, (currently 
represented to be 7.00%). The rate would be reset on each fifth 
anniversary of such loan.
    The Fund has indicated that it wants to and expects to repay the 
loan early. In this regard, it is represented that in both interest 
rate scenarios discussed above, there is no prepayment penalty, 
provided the source of the funds to prepay is from contributions to or 
operations of the Fund (i.e., not a refinancing). The loan will be 
secured by the Unit, including rights to general common elements of the 
Condo, and by rents, if any, generated by such Unit, but not with liens 
on any other Fund property. It is represented that there is no cross 
collateral or cross defaults between the Fund's loan from the Bank and 
the Building Corporation's loan from the Bank.
    It is represented that the choice between the two pricing 
structures is a matter of cost and risk preference, and, pursuant to 
the Agreement, is within the responsibility and authority of the 
Trustees, not IFS. In this regard, it is represented that the Trustees 
reviewed these two offers and have decided to accept the variable rate.
    17. It is represented that the Fund has sufficient cash to make a 
monthly mortgage payment to the Bank and also to meet its ongoing 
obligation of providing training to participants. Because of the 
increase in employer contributions, it is represented that the Fund has 
a monthly net operating excess of approximately $70,000 dollars. It is 
represented that the contributions from employers after the current 
collective bargaining agreements expire on June 1, 2002, will be 
sufficient to meet all of the on-going obligations of the Fund. 
Furthermore, it is represented that even a decrease in employer 
contributions of 10 percent (10%) or 20 percent (20%) would not 
jeopardize operations of the Fund. In support of this representation, 
the applicant submitted a Forecast Statement of Cash Flows of the Fund, 
dated on June 20, 2001, prepared by Mr. Schmitz, the Fund's certified 
public accountant. Based on Mr. Schmitz's analysis, the applicant 
maintains that a decrease in employer contributions of 10 percent (10%) 
or even 20 percent (20%) by December 2001, would only reduce the Fund's 
monthly operating excess from approximately $70,000 dollars to 
approximately $63,583 and $48,380 dollars, respectively.
    It is represented that, in order to evaluate the ability of the 
Fund to own, finance and pay for an interest in the Condo, IFS reviewed 
the Fund's financial statements, and has defined, reviewed, and tested 
a projection of expected future cash flows of the Fund, dated February 
2, 2002, prepared by Mr. Schmitz. Based on its review, IFS has 
concluded that the Fund is highly likely to have sufficient net cash 
after paying all costs of maintaining the school and training the 
members to be able to make all necessary debt service payments to 
retire the debt within its terms and may also accumulate cash during 
the period of loan servicing.
    It is represented that the increase in the assets of the Fund is 
largely due to a negotiated increase in contributions from employers. 
Under the current collective bargaining agreement, the contribution 
rate to the Fund was one percent (1%) of the monthly labor payroll from 
June 1, 1999, until August 1, 1999. Then the contribution rate 
increased to 1.5 percent (1.5%) until June 1, 2000, when the rate 
further increased to 2.5 percent (2.5%). In addition, manhours 
increased from 2,059,668 in 1998, to 2,781,350 in 1999, to 3,190,710 in 
2000, and to 3,652,569 in 2001. To be conservative, IFS assumed 
2,921,000 manhours for 2001-2002, which is the average over the past 
four (4) years and a 20 percent (20%) reduction from the 2000-2001 
level. IFS also assumed only a one percent (1%) increase in manhours, 
far below the actual annual compound growth over the past 11 years of 
about 7.5 percent (7.5%).
    It is represented that the current contract expires June 1, 2002. 
IFS represents that both the Local and the employer representatives to 
the Fund expect that the new contract will maintain the current formula 
and the current 2.5 percent (2.5%) contribution rate to the Fund. In 
this regard, IFS has incorporated this into its base case and assumed a 
labor rate increase of two percent (2%) per year.
    IFS also reviewed the level and structure and nature of costs 
anticipated for the operation and maintenance of the Fund's Unit in the 
Condo and the school, as computed by the Fund's accountant. IFS notes 
that overall the majority of the costs of maintaining and operation the 
Unit are fixed on an annual basis. The costs of operating the school, 
other than semi-fixed instructors' salaries, tend to be variable with 
the number of students taught. IFS's assumptions, in this regard, were 
an annual 3 percent (3%) increase in personnel costs and five percent 
(5%) increase in operating costs. Accordingly, IFS conservatively 
assumed expenses increasing faster than revenues.
    Overall, IFS concluded that the Fund can reasonably be expected to 
make all payments of interest and principal on its loan to acquire the 
property, maintain the property, and meet its expected training 
obligations.
    18. As discussed in paragraph 5, above, the Fund's Counsel advised 
IFS that, consistent with Kentucky Horizontal Property Law, ownership 
of a condominium unit includes a proportional undivided interest in all 
the land within the condominium regime. According to IFS, this 
structure addresses the concern that the Fund would own only 
improvements and not land. In addition, IFS has addressed three (3) 
other areas of concern related to this ownership of the land: (1) the 
septic system; (2) the status of the Garage; and (3) the ongoing 
operating arrangements.
    With regard to the first concern, it is represented that the 
Original Building was serviced by a septic system. It is further 
represented that the Property, including the Original Building, is now 
served by city sanitary sewers. The Building Corporation has advised 
IFS that the septic system has been removed; and the site had been 
inspected and found free of contamination. Despite environmental 
considerations being outside the scope of IFS's contract, IFS has 
advised the Trustees to ask the Building Corporation to indemnify the 
Fund for any preexisting environmental problems. It is IFS's 
understanding that the Fund will receive that indemnity.
    With regard to the second concern, the Property includes an 
unheated

[[Page 20844]]

Garage used for storage. IFS represents that the Garage will be part of 
the common elements of the condominium regime.
    With regard to the third concern, based on IFS reading of the 
relevant law and advice from the Fund's Counsel, IFS understands that 
under the standard structure, the Local would have 60 percent (60%) of 
each vote, and could thus control every situation, and relegate the 
Fund to having no influence, control, or even input into the decisions 
of the Board of Directors (Directors) or the Council of Unit Owners 
(the Council). The Fund would be responsible for its proportionate 
share of all expenses, but would have no recourse other than the full 
arbitration process of an aggrieved owner.
    IFS has concluded that this situation would not be in the interest 
of the Fund. Accordingly, as the Kentucky Horizontal Property Law 
permits other arrangements by agreement, IFS has directed certain 
changes in the Declaration or Master Deed to provide the Fund with 
greater assured participation. In particular, IFS has directed and the 
Building Corporation has agreed that: (a) The formula for sharing 
expenses in accordance with respective percentages of undivided 
interest in the common elements of the Condo and facilities may not be 
changed by the Council; (b) a super majority of \2/3\rds of ownership 
interests, rather than a simple majority, is necessary to constitute a 
quorum; (c) rather than a majority of ownership interests being able to 
elect each of the Directors, the owner of the Local's unit will appoint 
two Directors and the owner of the Fund's Unit will appoint one; and 
(d) exceeding the annual budget increase caps requires a \2/3\rds vote 
of the ownership interests, rather than a simple majority.
    19. In conclusion, subject to certain caveats listed below, and 
subject to all of the terms of the Agreement, IFS finds that the 
purchase of the Unit at a price of $2,655,000, plus reasonable closing 
costs and legal fees, is in the interest of the Fund. IFS's conclusion 
is subject to the following caveats: (a) The changes in representation 
on the Council and the Directors are incorporated into the Declaration 
or Master Deed and the Council Bylaws; (b) the Fund's Counsel has 
reviewed and approved the Condominium Sale Contract, the Declaration or 
Master Deed, and all other documents pertaining to the proposed 
transaction; (c) the loan between the Bank and the Fund does not exceed 
$2 million in principal, and contains the basic rate, payment, and 
maturity structure described in IFS's report, dated March 13, 2001, and 
has been reviewed and approved by the Fund's Counsel; and (d) all legal 
and physical conditions normally evaluated in connection with a 
commercial real estate transaction (including but not limited to 
environmental, title, Americans with Disabilities Act) have been 
evaluated and the Fund's Counsel has determined that there are no 
material problems. With regard to caveat (a) above, the Fund's Counsel 
has filed with the Department a copy of the Master Deed and a draft of 
the Bylaws containing the changes required by IFS in its March 13, 
2002, report. Further, the Fund's Counsel has represented that caveats 
(b), (c), and (d) above have been satisfied.
    20. In summary, the applicant represents that the proposed 
transaction meets the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The purchase of an interest in the Condo by the Fund is a one-
time transaction for cash;
    (b) the Trustees, acting as named fiduciary on behalf of the Fund, 
prior to entering the transaction, will determine that the transaction 
is feasible, in the interest of the Fund, and protective of the 
participants and beneficiaries of the Fund;
    (c) the proposed transaction will not be entered until IFS, after 
analyzing the relevant terms of such transaction, has advised the 
Trustees that proceeding with such transaction would be in the interest 
of the Fund;
    (d) the purchase price paid by the Fund for the interest in the 
Condo is the lesser of: (a) The total amount actually expended by the 
Building Corporation in the construction of the Unit in the Condo 
Building, as documented in writing and approved by IFS, plus the value 
of that portion of the land underlying such Unit, which is equivalent 
to the percentage of the square footage of such Unit to the total 
square footage in the Condo Building, plus the value of the same 
portion of any other common elements of the Condo; or (b) the fair 
market value of the Fund's interest in the Condo, as determined by the 
Appraiser, as of the date of the transaction, provided that such value 
does not exceed $2,655,000, the fair market value of the Fund's 
interest in the Condo, as determined by such Appraiser, as of December 
11, 2001;
    (e) the Fund will not pay any commissions, sales fees, or other 
similar payments to any party as a result of the proposed transaction, 
and the costs incurred in connection with the purchase by the Fund at 
closing will not include, directly or indirectly, interest incurred by 
the Building Corporation on the construction financing loan or the 
permanent financing loan from the Bank;
    (f) the terms of the transaction are no less favorable to the Fund 
than terms negotiated under similar circumstances at arm's length with 
unrelated third parties;
    (g) the Fund will not purchase the interest in the Condo or take 
possession of the Unit in the Condo Building until such Unit is 
substantially completed;
    (h) the Fund has not been, is not, and will not be a party to the 
construction financing loan or the permanent financing loan between the 
Building Corporation and the Bank;
    (i) under the terms of the loan agreement between the Bank and the 
Fund, the Bank, in the event of a default by the Fund, has recourse 
only against the interest in the Condo and not against the general 
assets of the Fund; and
    (j) under the terms of the loan agreement between the Bank and the 
Building Corporation, in the event of default by the Building 
Corporation, the Bank has no recourse against any assets of the Fund.

Notice to Interested Persons

    Those persons who may be interested in the publication in the 
Federal Register of the Notice of Proposed Exemption (the Notice) 
include Mr. George, the Chairman of the Fund, and each participant in 
the Fund.
    It is represented that these two classes of interested persons will 
be notified through different methods. In this regard, notification 
will be provided within seven (7) calendar days of the date of 
publication of the Notice in the Federal Register, to all participants 
in the Fund by posting on the general bulletin board at the Existing 
Facility and by posting at the union hall. Such postings will contain a 
copy of the Notice, as it appears in the Federal Register on the date 
of publication, plus a copy of the supplemental statement (the 
Supplemental Statement), as required, pursuant to 29 CFR 2570.43(b)(2), 
which will advise interested persons of their right to comment and to 
request a hearing.
    It is represented that notification will also be provided to Mr. 
George by first class mail, postage prepaid, return receipt requested 
within seven (7) calendar days of the date of publication of the Notice 
in the Federal Register. Such mailing will contain a copy of the 
Notice, as it appears in the Federal Register on the date of 
publication, plus a copy of the Supplemental Statement, as required, 
pursuant to 29 CFR

[[Page 20845]]

2570.43(b)(2), which will advise Mr. George of his right, as Chairman 
of the Fund, to comment and to request a hearing.
    The Department must receive all written comments and requests for a 
hearing no later than thirty (30) days from the later of: (1) The date 
a copy of the Notice and a copy the Supplemental Statement were posted 
at the Existing Facility and the union hall; or (2) the date Mr. George 
receives a copy of the Notice and a copy of the Supplemental Statement 
in the mail.

FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the Department, 
telephone (202) 693-8551 (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 19th day of April, 2002.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits 
Administration, U.S. Department of Labor.
[FR Doc. 02-10321 Filed 4-25-02; 8:45 am]
BILLING CODE 4510-29-P