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EBSA Notices

Proposed Exemptions Involving; General Motors Corporation and Its Wholly-Owned Subsidiaries (Together GM)   [7/23/2008]
[PDF]
FR Doc E8-16713
[Federal Register: July 23, 2008 (Volume 73, Number 142)]
[Notices]               
[Page 42828-42834]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr23jy08-75]                         

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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. L-11407]

 
Proposed Exemptions Involving; General Motors Corporation and Its 
Wholly-Owned Subsidiaries (Together GM)

AGENCY:  Employee Benefits Security Administration, Labor.

ACTION: Notice of Proposed Exemption.

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SUMMARY: This document contains a notice of pendency before the 
Department of Labor (the Department) of proposed exemption from certain 
of the prohibited transaction restrictions of the Employee Retirement 
Income Security Act of 1974 (ERISA or 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 exemption, unless otherwise 
stated in the Notice of Proposed Exemption, within 60 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 Employee Benefits Security 
Administration (EBSA), Office of Exemption Determinations, Room N-5700, 
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC 
20210. Attention: Application No. L-11407, stated in the Notice of 
Proposed Exemption. Interested persons are also invited to submit 
comments and/or hearing requests to EBSA via E-mail or

[[Page 42829]]

FAX. Any such comments or requests should be sent either by E-mail to: 
GM-DCVEBA@dol.gov, or by FAX to (202) 219-0204 by the end of the 
scheduled comment period. The application for exemption and the 
comments received will be available for public inspection in the Public 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to all interested 
persons in the manner agreed upon by the applicant and the Department 
within 30 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 exemption was requested in an 
application 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, this notice of proposed exemption is 
issued solely by the Department.
    The application contains representations with regard to the 
proposed exemption which is summarized below. Interested persons are 
referred to the application on file with the Department for a complete 
statement of the facts and representations.

General Motors Corporation and Its Wholly-Owned Subsidiaries (Together, 
GM) Located in Detroit, MI [Application No. L-11407]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act (or ERISA) and in accordance 
with the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 
32836, 32847, August 10, 1990).\1\
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    \1\ Because the Independent Health Care Trust for UAW Retirees 
of General Motors Corporation (the DC VEBA) is not qualified under 
section 401 of the Code, there is no jurisdiction under Title II of 
the Act pursuant to section 4975 of the Code. However, there is 
jurisdiction under Title I of the Act.
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Section I. Covered Transactions

    If the exemption is granted, the restrictions of sections 
406(a)(1)(B), 406(a)(1)(D), and 406(b)(1) and (b)(2) of the Act shall 
not apply, effective December 16, 2005, to: (1) Monthly cash advances 
to GM by the DC VEBA to reimburse GM for the estimated mitigation of 
certain health care expenses (the Mitigation) and for the payment of 
dental expenses incurred by participants in the DC VEBA; and (2) an 
annual ``true up'' of the Mitigation payments and dental expenses 
against the actual expenses incurred, with the result that (a) if GM 
has been underpaid by the DC VEBA, GM receives the balance outstanding 
from the DC VEBA with interest, or (b) if the DC VEBA has overpaid GM, 
GM reimburses the DC VEBA for the amount overpaid, with interest.

Section II. Conditions

    This proposed exemption is conditioned upon adherence to the 
material facts and representations described herein and upon 
satisfaction of the following conditions:
    (a) A committee (the Committee), acting as a fiduciary independent 
of GM, has represented and will continue to represent the DC VEBA and 
its participants and beneficiaries for all purposes with respect to the 
Mitigation process.
    (b) The Committee for the DC VEBA has discharged and will continue 
to discharge its duties consistent with the terms of the DC VEBA and 
the DC VEBA Settlement Agreement.
    (c) The Committee and actuaries retained by the Committee have 
reviewed and approved and will continue to review and approve the 
estimation process involved in the Mitigation, which results in the 
monthly Mitigation amount paid to GM.
    (d) Outside auditors retained by the Committee, along with an 
administrative company that is partly owned by the DC VEBA, will audit 
the calculation of the true up to determine whether there are any 
differences between the estimated Mitigation and actual Mitigation 
amounts and make such information available to GM.
    (e) GM has provided and will continue to provide various reports 
and records to the Committee concerning the Mitigation and dental care 
reimbursements, which are and will continue to be subject to review and 
audit by the Committee.
    (f) The terms of the transactions are no less favorable and will 
continue to be no less favorable to the DC VEBA than the terms 
negotiated at arm's length under similar circumstances between 
unrelated third parties.
    (g) The interest rate applied to any true up payments is a 
reasonable rate, as set forth in the DC VEBA Settlement Agreement, and 
will continue to be a reasonable rate that runs from the beginning of 
the year being trued up and does and will continue to not present a 
windfall or detriment to either party.
    (h) The DC VEBA has not incurred and will continue not to incur any 
fees, costs or other charges (other than those described in the DC VEBA 
and the DC VEBA Settlement Agreement) as a result of the covered 
transactions described herein.
    (i) GM and the Committee have maintained and will continue to 
maintain for a period of six years from the date of any of the covered 
transactions, any and all records necessary to enable the persons 
described in paragraph (j) below to determine whether conditions of 
this exemption have been and will continue to be met, except that (1) a 
prohibited transaction will not be considered to have occurred if, due 
to circumstances beyond the control of GM or the Committee, the records 
are lost or destroyed prior to the end of the six-year period, and (2) 
no party in interest other than GM or the Committee shall be subject to 
the civil penalty that may be assessed under section 502(i) of the Act 
if the records are not maintained, or are not available for examination 
as required by paragraph (j) below.
    (j)(1) Except as provided in section (2) of this paragraph and 
notwithstanding any provisions of subsections (a)(2) and (b) of section 
504 of the Act, the records referred to in paragraph (i) above have 
been or will be unconditionally available at their customary location 
during normal business hours to:
    (A) Any duly authorized employee representative of the Department;
    (B) The UAW or any duly authorized representative of the UAW;
    (C) GM or any duly authorized representative of GM; and
    (D) Any participant or beneficiary of the DC VEBA, or any duly 
authorized representative of such participant or beneficiary.
    (2) None of the persons described above in subparagraphs (1)(B) or 
(D) of this paragraph (j) is authorized to examine the trade secrets of 
GM, or commercial or financial information that is privileged or 
confidential.

[[Page 42830]]

Section III. Definitions

    For purposes of this proposed exemption, the term--
    (a) ``GM'' means General Motors Corporation and its wholly owned 
subsidiaries.
    (b) ``Affiliate'' means:
    (1) Any person directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with such other person;
    (2) Any officer, director, or partner, employee or relative (as 
defined in section 3(15) of the Act) of such other person; or
    (3) Any corporation, partnership or other entity of which such 
other person is an officer, director or partner. (For purposes of this 
definition, the term ``control'' means the power to exercise a 
controlling influence over the management or policies of a person other 
than an individual.)
    (c) ``Class Members'' mean all persons other than active employees 
who, as of the ratification date of the GM-UAW Memorandum of 
Understanding, November 11, 2005 (the Ratification Date) were (1) GM/
UAW hourly employees who had retired from GM with eligibility for the 
General Motors Health Care Program for Hourly Employees (the Original 
Plan) as in effect prior to the Ratification Date or (2) the spouses, 
surviving spouses and dependents of GM/UAW hourly employees, who, as of 
the Ratification Date, were eligible for post-retirement or surviving 
spouse health care coverage under the Original Plan as a consequence of 
a GM/UAW hourly employee's retirement from GM or death prior to 
retirement.
    (d) ``Committee'' means the seven individuals, consisting of two 
classes: (1) the United Auto Workers Class (UAW) with three members, 
and (2) the Public Class with four members, who act as the named 
fiduciary and administrator of the DC VEBA.
    (e) ``Court'' or ``Michigan District Court'' means the United 
States District Court for the Eastern District of Michigan.
    (f) ``DC VEBA'' means the Independent Health Care Trust for UAW 
Retirees of General Motors Corporation.
    (g) ``DC VEBA Settlement Agreement'' means the agreement, dated 
December 16, 2005, which was entered into between GM, the UAW, and 
Class Representatives, on behalf of a Class of plaintiffs in the Henry 
case (2006 WL 891151 (E.D. Mi. March 31, 2006)), aff'd 2007 WL 2239208, 
(6th Cir. August 7, 2007).
    (h) ``Mitigation'' means the reduction of retirees' monthly 
contributions, annual deductibles, and other retirees' out-of-pocket 
costs to the extent payments from the DC VEBA are made, as directed by 
the Committee, to GM and/or to providers, insurance carriers and other 
agreed-upon entities.
    (i) ``OPEB'' means Other Post-Employment Benefits. The OPEB 
Valuation is an actuarially developed annual valuation of a company's 
post employment benefit obligations, other than for pension and other 
retirement income plans. The OPEB Valuation is based on a set of 
uniform financial reporting standards promulgated by the Financial 
Accounting Standards Board and embodied in Financial Accounting 
Standard 106, as revised from time to time. The types of benefits 
addressed in an OPEB Valuation typically are retiree healthcare 
(medical, dental, vision, hearing) life insurance, tuition assistance, 
day care, legal services, and the like.
    (j) ``Shares'' or ``Stock'' refers to shares of common stock of 
reorganized GM, par value $.01 per share.
    (k) ``UAW'' means the International Union, United Automobile, 
Aerospace and Agricultural Implement Workers of America or the United 
Auto Workers, if shortened.
    (l) ``VEBA'' means a voluntary employees' beneficiary association.
    Effective Date: If granted, this proposed exemption will be 
effective as of December 16, 2005.

Summary of Facts and Representations

The Applicant

    1. GM is primarily engaged in automotive production and marketing, 
and financing and insurance operations. GM designs, manufactures, and 
markets vehicles worldwide, and it has its largest operating presence 
in North America. As of June 30, 2007, GM had approximately 118,539 
active employees in the United States, of whom approximately 81,689 are 
represented by the UAW and other unions. Approximately 717,432 retirees 
and dependents in the U.S. receive GM retiree health benefits in whole 
or in part. GM maintains its headquarters in Detroit, Michigan. As of 
December 31, 2006, GM had total assets on its consolidated balance 
sheet of $186.192 billion.

The DC VEBA Settlement Agreement and GM's Negotiations

    2. The DC VEBA Settlement Agreement, dated December 16, 2005, was 
entered into between GM, the UAW, and Class Representatives, on behalf 
of a Class of plaintiffs (i.e., the Class Members), in the Henry case 
(2006 WL 891151 (E.D. Mi. March 31, 2006)), aff'd 2007 WL 2239208, (6th 
Cir. August 7, 2007). The case was brought in a declaratory judgment 
motion to contest whether GM had the right to unilaterally modify 
hourly retiree welfare benefits under its existing GM retiree plans. 
The DC VEBA Settlement Agreement was approved by the Michigan District 
Court in an opinion dated March 31, 2006.
    3. Throughout much of 2005, GM and the UAW engaged in extended 
discussions concerning the impact of rising health care costs on GM's 
financial condition. During these discussions, GM asserted that it had 
the right to unilaterally modify and/or terminate the health care 
benefits applicable to its hourly retirees and that, if no agreement 
was reached to address GM's health care burden, GM would act 
unilaterally. The UAW disagreed with GM's position and asserted that 
the benefits were vested and that GM did not have the right to modify 
or terminate such benefits.
    4. The UAW, the Class Representatives and Class Counsel reviewed 
GM's current and projected financial condition and, as a result, 
concluded that, among other things, a significant reduction in GM's 
retiree health care costs under the existing plans would substantially 
improve its financial condition. Without such an improvement, the 
ability of GM to provide health care benefits over the long term to 
Class Members at or near the level provided by the DC VEBA Settlement 
Agreement would be placed in doubt. All parties believed that a 
settlement would be advantageous.

The DC VEBA

    5. The DC VEBA was created on December 16, 2005 as a result of the 
DC VEBA Settlement Agreement. Under its terms, GM is required to make 
certain contributions--both mandatory and contingent--to the DC VEBA, 
which is controlled by an independent seven member Committee. In April 
2006, GM contributed $1 billion to the DC VEBA. The DC VEBA has been 
established through a trust agreement between State Street Bank and 
Trust Company (the Trustee) and GM. The DC VEBA does not replace any 
existing welfare plans that are sponsored by GM for the retirees. The 
DC VEBA also intends to qualify as a ``voluntary employees' beneficiary 
association'' within the meaning of section 501(c)(9) of the Code. As 
of August 31, 2007, the DC VEBA had total assets of $1.74 billion. 
Fidelity Investments operates a call center, administers eligibility 
requirements, and handles certain other

[[Page 42831]]

administrative tasks on behalf of the DC VEBA.
    6. The objective of the DC VEBA is to mitigate the financial impact 
of certain modifications in health care benefits on the Class Members. 
If GM's financial condition and operating results improve, and as more 
fully described below, additional contributions to the DC VEBA that 
relate to appreciation of GM common stock, profit sharing payments and 
increases in GM's regular quarterly cash dividend will increase the DC 
VEBA funds available and thereby further lessen the adverse impact of 
these health care modifications on Class Members.

The Committee

    7. The DC VEBA is administered by the Committee, all of whose 
members are independent of GM. GM has no appointment power, and the 
Committee functions independently of GM. The Committee acts as the 
named fiduciary and administrator of the DC VEBA, and appoints the 
Trustee and all investment managers of the DC VEBA's assets.
    The Committee is comprised of seven individuals, consisting of two 
classes, the ``UAW Class'' with three members, and the ``Public Class'' 
with four members. Robert Naftaly, one of the members of the Public 
Class, serves as the Chair of the Committee. The Public Class members 
of the Committee were appointed by the Court when it approved the DC 
VEBA Settlement Agreement. The UAW Class members were appointed by the 
UAW.
    No member of the Committee may be an affiliate of GM, including a 
current or former officer, director or salaried employee of GM. No 
member of the Public Class may be an active employee or retiree of the 
UAW, nor may any member of the Public Class have any financial or 
institutional relationship with GM or the Committee that the Committee, 
in its sole discretion, determines to be material.
    8. The members of the UAW Class serve at the discretion of the UAW 
and may be removed or replaced, and a successor designated, at any time 
by written notice by the President of the UAW to the members of the 
Committee. The members of the Public Class serve terms of four years. 
In the event of a vacancy in the Public Class, whether by expiration of 
a term, resignation, removal, incapacity, death or otherwise of a 
Public Class member, the Public Class will elect a new member of the 
Public Class by majority vote of the continuing Public Class members, 
excluding such member vacating his or her seat. A Public Class member 
can be removed by the affirmative vote of any five other members of the 
Committee at any time. The Committee Chair serves for a term of two 
years, and may be removed from office. Any successor Committee Chair 
will be elected by a majority vote of the Committee as a whole then in 
office.

Mitigation

    9. The DC VEBA will provide Mitigation for monthly contributions by 
retirees to health care, deductibles, out of pocket maximums, and some 
co-insurance required under GM's existing plans. The initial levels of 
Mitigation are set forth in the DC VEBA Settlement Agreement, and may 
be modified later by the Committee in accordance with the terms of the 
Settlement Agreement and the Trust Agreement for the DC VEBA.
    10. The initial Mitigation levels provide for Mitigation of monthly 
retiree contributions to a maximum of $10 per individual and $21 per 
family. Initial Mitigation limits deductibles to an annual maximum of 
$150 per individual subject to an aggregate $300 per family. Initial 
Mitigation caps out-of-pocket costs at $250 per individual per year and 
$500 per family per year for in network services, and $500 per 
individual per year and $1,000 per family per year for out of network 
benefits. In effect, the Mitigation provides a significant benefit to 
retired GM participants of the DC VEBA who would otherwise be required 
to make these payments out of pocket.

Mitigation Process

    11. The Mitigation process involves GM initially providing payment 
for the health care services that the DC VEBA or the participants would 
otherwise be responsible for paying and then being reimbursed for the 
cost by the DC VEBA. The process operates as follows:

    No later than May 1 of the year prior to the year for which 
Mitigation is to be provided, the Committee will inform GM of the 
Mitigation levels for the following year. By September 1 of the 
prior year, GM will provide a preliminary estimate of the Mitigation 
amount and the basis for such estimate, along with supporting 
documentation to the Committee. The Committee then has until October 
15 to notify GM that it agrees to the Mitigation level. In January 
of the following year, GM must provide the Committee with a 
preliminary estimate of monthly amounts owed by the DC VEBA for the 
year, which amounts will be paid monthly to GM, unless disputed by 
the Committee. After the OPEB valuation in January, but no later 
than February 1 of the Mitigation year, GM must provide a final 
estimated annual Mitigation amount for the Mitigation year, along 
with the basis for the estimate and supporting documentation. If 
this final estimate differs from the preliminary estimate by more 
than 5%, GM will update the monthly installment amounts.
    By September 1 of each Mitigation year, GM will provide the 
Committee with a report prepared by its actuaries containing the 
actual annual Mitigation amount paid by GM in the prior year, and 
the amount of any true up for the prior year.
    The prior year actual Mitigation will be developed consistent 
with the OPEB valuation process, and will represent incurred claims 
data with actuarially developed completion factors. Actual incurred 
claims and Mitigation will then be calculated. Any true up amounts 
owed to either party will be paid by October 1 of the year following 
the year in which Mitigation took place.
    If there is a dispute as to the amount of the true up payment, 
undisputed amounts will be paid and the parties will enter into a 
dispute procedure set forth in the DC VEBA Settlement Agreement 
involving independent parties, including outside auditors retained 
by the Committee along with an administrative company this is 
partially owned by the DC VEBA. Such information will be made 
available to GM. Interest for any late payments or any underpayments 
will be paid at the OPEB discount rate.\2\ The interest rate will 
run from the beginning of the year being trued up.\3\ In addition, 
GM is required to provide detailed quarterly reports to the 
Committee concerning the Mitigation process.
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    \2\ The OPEB Discount Rate is a rate used to discount projected 
future OPEB benefits payment cash flows to determine the present 
value of the OPEB obligation. The OPEB discount rate is established 
as of the annual valuation date, pursuant to FASB accounting 
guidelines.
    \3\ Because interest is calculated at the beginning of the year, 
the principal on which the January interest is calculated would be 
1/12 of the total true up for the year, for February, it would be 2/
12 of the total true up for the year, for March, it would be 3/12 of 
the total true up for the year, until December, the last month of 
the year, where the time period fraction would be 12/12. If payment 
is not made by that date, interest is calculated for each additional 
month until payment is made based on 2/12 of the total true up 
amount for the year in question.

    The Mitigation process does not apply to dental care expenses. 
These costs have been handled differently. The DC VEBA Settlement 
Agreement contemplated that GM would continue to provide 100% of dental 
care to retirees until December 31, 2006 but that the costs of such 
dental care after the Effective Date would be paid in the form of 
monthly reimbursements to GM by the DC VEBA. In this regard, GM 
invoiced the Committee and the DC VEBA made monthly reimbursements to 
GM until December 31, 2006, at which time, such reimbursements ceased.
    Between June 30, 2006 and September 16, 2007, the DC VEBA made 
reimbursement payments to GM for both health care and dental expenses 
of approximately $355,334,463.50 and

[[Page 42832]]

$100,258,523.56,\4\ respectively. On October 1, 2007, GM made a true up 
payment to the DC VEBA in the amount of $17,934,072.46, plus 
$1,126,156.83 in interest (total: $19,060,229.29). The DC VEBA has 
questioned GM's calculations with respect to a small portion of the 
actual Mitigation and if the DC VEBA prevails, GM will make an 
additional, small true up payment.
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    \4\ All dental reimbursements made by the DC VEBA to GM during 
2007 represent GM's dental costs attributable to the period ending 
December 31, 2006.
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Funding Arrangements for the DC VEBA

    12. In addition to the Mitigation process, GM is required to fund 
the DC VEBA. As noted above, in April 2006, GM contributed $1 billion 
to the DC VEBA. Also, GM is required to make cash contributions to the 
DC VEBA based on the increase in the notional value of eight (8) 
million Shares of GM common stock. This Contribution Obligation is a 
means of measuring the amount GM must contribute to the DC VEBA. It is 
not a contract right that has been transferred to the DC VEBA. The 
contributions are staged over time, as determined by the Committee, and 
are based on the increase in trading price of a GM Share over the 
trading price on October 14, 2005 (or $26.75 per Share).
    The Contribution Obligation will ultimately be settled only in cash 
by its termination date in 2011. The Contribution Obligation will not 
carry voting or dividend rights and it is not transferable. Further, 
the Contribution Obligation will be adjusted upon the occurrence of 
certain ``dilution events.'' \5\ Finally, the amount of cash payments 
under the Contribution Obligation will be readily determinable pursuant 
to a fixed formula. Therefore, no independent valuation will be 
required. The actual calculation will be made by the Committee.
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    \5\ A dilution event is any merger, reorganization, 
consolidation, exchange offer, asset spin-off, stock split, reverse 
stock split, extraordinary dividend, or other change in GM's 
corporate structure on or after the Ratification Date (November 11, 
2005) that dilutes any class of GM stock.
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Administrative Exemptive Relief

    13. GM requests an administrative exemption from the Department 
with respect to: (a) Monthly cash advances to GM by the DC VEBA to 
reimburse GM for the estimated Mitigation of certain health care 
expenses and for the payment of dental expenses incurred by 
participants in the DC VEBA; and (b) an annual ``true up'' of the 
Mitigation payments and dental expenses. In this regard, if GM has been 
underpaid by the DC VEBA, it would receive the balance outstanding from 
the DC VEBA, with interest. Conversely, if the DC VEBA has overpaid GM, 
GM would reimburse the DC VEBA for the amount overpaid, with interest. 
GM explains, and the Department concurs with GM's analysis, that the 
Mitigation and the payments made for dental expenses would violate 
sections 406(a)(1)(B), 406(a)(1)(D), and 406(b) of the Act because the 
reimbursements with interest could be deemed to constitute the lending 
of money or extension of credit between the DC VEBA and GM, a party in 
interest, in violation of section 406(a)(1)(B) of the Act, or could be 
viewed as the use by or for the benefit of a party in interest of plan 
assets in violation of section 406(a)(1)(D). In addition, the covered 
transactions would result in a prohibited act of self-dealing on the 
part of GM in violation of section 406(b)(1) and (b)(2) of the Act. If 
granted, the exemption would be effective as of December 16, 2005.
    The Department is not providing exemptive relief herein with 
respect to the Contribution Obligation because, in the view of the 
Department, the Contribution Obligation is merely a contractual 
provision evidenced in the DC VEBA Settlement Agreement which is 
designed to determine the amount of additional cash contributions that 
must be made to the DC VEBA.\6\
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    \6\ The Department further believes that the Contribution 
obligation is not an ``employer security'' within the meaning of 
section 407(d)(1) of the Act. Since it appears that the Contribution 
Obligation does not result in the acquisition or holding by the DC 
VEBA of an ``employer security,'' the Department has not proposed 
separate exemptive relief herein with respect to such obligation.
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Rationale for Exemptive Relief

    14. Without an administrative exemption, GM states that the DC VEBA 
would be required to establish a costly administrative scheme to 
reimburse participants in the DC VEBA. In this regard, GM retirees' 
would be charged the full costs of the contributions, co-pays and 
deductibles. These retirees would then have to apply for reimbursement 
payments, via a claim form, from the DC VEBA.\7\
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    \7\ For example, the DC VEBA would need to have claims examiners 
ready to receive this claim, review it, request additional 
information if necessary, and finally pay the retiree the money 
(probably through a paper check). If the same retiree had additional 
medical services later in the year, more claims would be sent to the 
DC VEBA for additional reimbursement. In addition to claim 
examiners, the DC VEBA would need to have customer service 
representatives ready to answer questions regarding retiree claim 
submissions, filing deadlines, missing documentation or lost checks. 
The financial benefit of the Mitigation would be received by the 
retiree only if he or she filed a proper claim for reimbursement and 
would be delayed pending completion of the claim submission process.
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    15. Under the Mitigation process, the hourly medical carriers set 
up their claim systems to administer claims using the net value (after 
the DC VEBA offset) for all cost sharing elements of the Modified Plan, 
as applicable to retirees, and receive payment through the system set 
up for the Mitigation process.\8\
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    \8\ For example, assume that a retiree's first medical service 
of the year had an associated reimbursement amount of $200. Since 
under the Mitigation process the medical careers have set up a $150 
deductible in their claims system, and since the reimbursement 
associated with this medical service is $50 more than the 
deductible, GM would pay $50 (ignoring, for purposes of this 
example, the 10% co-payment applicable after the deductible) for 
this service, and the retiree would be required to pay the provider 
the remaining $150 owed. In this example, since the retiree payment 
of $150 equals the net deductible of $150, the DC VEBA does not owe 
the retiree anything related to this medical service. Nevertheless, 
since GM paid the incremental $50 owed for this service, the DC VEBA 
owes GM the incremental $50.
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    Thus, there is no need for the DC VEBA to hire claims examiners or 
customer service representatives, as under the other alternative. The 
selected approach will reduce the administrative cost of providing 
reimbursement by the DC VEBA since the DC VEBA will only have to deal 
with GM to pay its health care reimbursement, instead of dealing 
directly with hundreds of thousands of retirees. The Mitigation process 
also makes it much more likely that Mitigation of all appropriate 
amounts will take place because it reduces the possibility that 
individual retirees will fail to file for reimbursement, fail to 
document legitimate health care expenses (due to lost paperwork, 
untimely filing, lost mail, etc.), or can not mentally or physically 
follow the administrative steps necessary to receive reimbursement 
directly from the DC VEBA.
    16. Records relating to participants and beneficiaries will be 
retained by GM, its contractor, or Blue Cross Blue Shield Michigan 
(BCBSM). GM's contractor will reprocess, on an unmitigated basis, the 
claims that BCBSM processed on a mitigated basis on behalf of GM, and 
then GM or its contractor will determine the true up amount. Outside 
auditors retained by the Committee will audit the calculation and make 
their findings available to GM. However, all of the records will be 
maintained at GM, BCBSM or GM's contractor.

Termination of the DC VEBA

    17. Ultimately, the DC VEBA will be terminated and its assets 
transferred to a new VEBA (the New VEBA). However, several steps will 
occur before this happens. Currently, these steps are

[[Page 42833]]

described in a Memorandum of Understanding on Post-Retirement Medical 
Care, agreed to by GM and the UAW (MOU, September 26, 2007) as part of 
recent collective bargaining that culminated in a new, 4-year national 
labor agreement.\9\ The covered group (the Covered Group) under the new 
retiree health care plan and funded by the New VEBA will consist of (a) 
all class members from the Henry case; (b) all future retirees, as 
defined in the Henry settlement who are retired as of September 14, 
2007; (c) all active GM UAW-represented employees who are on the rolls 
and have attained seniority as of September 14, 2007 and who retire 
with eligibility for Retiree Medical Benefits pursuant to the 
eligibility provisions of the 2003 GM-UAW National Agreement; (d) 
certain Delphi UAW retirees and active employees eligible to receive 
retiree medical benefits from GM; and (e) certain UAW retirees and 
active employees of other GM closed or divested operations who are 
eligible to receive retiree medical benefits from GM; as well as (f) 
eligible surviving spouses and dependents of those in the Covered 
Group.
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    \9\ Eventually, the terms of the MOU will be embodied in a 
settlement agreement for the New VEBA (the new VEBA Settlement 
Agreement).
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    In the negotiations leading to the MOU, GM advised the UAW of its 
intent to terminate the DC VEBA Settlement Agreement in accordance with 
its terms in 2011 and exercise its right to terminate or modify retiree 
health coverage for all UAW retirees and their dependents, and the UAW 
reasserted its position that post-retirement medical coverage for 
current UAW retirees is vested and unalterable.
    18. The MOU defines the ``Implementation Date'' (the beginning of 
coverage and operations) for the New VEBA. It is the later of January 
1, 2010, or the date on which any appeals from, or challenges to, an 
order of the Michigan District Court approving settlement on a class-
wide basis applicable to the Covered Group of any litigation arising 
over the terms of the MOU and the final settlement documentation, have 
been exhausted or when applicable periods during which such appeal or 
challenge must be brought have expired; if (a) the Approval Order has 
not been disapproved or modified, and (b) GM is reasonably satisfied by 
its discussions with the staff from the U.S. Securities and Exchange 
Commission that the desired accounting treatment with regard to OPEB 
will be obtained.
    19. With regard to the DC VEBA, the MOU states that the New VEBA 
Settlement Agreement \10\ will provide that the Approval Order will 
require that: (a) The DC VEBA Committee shall amend the DC VEBA to 
permit the transfer of its assets to, and the assumption of its 
liabilities by, the New VEBA; (b) the Committee shall instruct the DC 
VEBA Trustee to transfer the entire balance of its assets to the New 
VEBA; and (c) the DC VEBA be terminated after its assets are 
transferred to the New VEBA. It also states that the Approval Order 
will provide that on the Implementation Date the New VEBA shall assume 
all GM responsibilities and liabilities for the provision of retiree 
medical benefits for the Covered Group for claims incurred on or after 
the Implementation Date, as well as all responsibilities and 
liabilities of the DC VEBA on that Date. Thus, GM's obligations under 
the DC VEBA Settlement Agreement will cease on the Implementation Date 
(although there may be one or more subsequent true ups). In addition, 
if the Implementation Date occurs before the date on which the ``Third 
Contribution'' is due to be made to the DC VEBA, the MOU provides that 
GM shall make that contribution to the New VEBA. Finally, the MOU 
provides that it is subject to satisfaction of several conditions \11\ 
and shall terminate if those conditions are not satisfied by December 
31, 2011 (or such later date as GM and the UAW may agree upon).
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    \10\ On October 26, 2007, the UAW and the Henry class filed a 
new class action (E.D. Mich. 2:07-cv-14074-RHC-VMM), in the Michigan 
District Court challenging GM's assertion that it will be free to 
terminate retiree health coverage for UAW retirees, at the latest, 
on and after September 14, 2011. In a Scheduling Order dated 
November 21, 2007, Judge Cleland scheduled a status call for January 
31, 2008, the filing of a motion for provisional class certification 
by February 11, 2008, and a fairness hearing on a proposed 
settlement for June 3, 2008.
    \11\ Chief among these conditions are that: (a) The Approval 
Order has been issued and the time for an appeal from or a challenge 
to the Approval Order has expired; and (b) GM is reasonably 
satisfied that it will obtain favorable accounting treatment on the 
OPEB issue.
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    20. In summary, GM represents that the transactions have satisfied 
and will continue to satisfy the statutory criteria for an exemption 
under section 408(a) of the Act because:
    (a) The Committee has represented and will continue to represent 
the DC VEBA and its participants and beneficiaries for all purposes 
with respect to the Mitigation.
    (b) The Committee for the DC VEBA has discharged and will continue 
to discharge its duties consistent with the terms of the DC VEBA and 
the DC VEBA Settlement Agreement.
    (c) The Committee and actuaries retained by the Committee have 
reviewed and approved and will continue to review and approve the 
estimation process involved in the Mitigation, which results in the 
monthly Mitigation amount paid to GM.
    (d) Outside auditors retained by the Committee, along with an 
administrative company that is partly owned by the DC VEBA, will audit 
the calculation of the true up to determine whether there is any 
difference between the estimated Mitigation and actual Mitigation 
amounts and make such information available to GM.
    (e) GM has provided and will continue to provide various reports 
and records to the Committee concerning the Mitigation and dental care 
reimbursements, which are and will continue to be subject to review and 
audit by the Committee.
    (f) The terms of the transactions have been no less favorable and 
will continue to be no less favorable to the DC VEBA than the terms 
negotiated at arm's length under similar circumstances between 
unrelated third parties.
    (g) The interest rate applied to any true up payments will be a 
reasonable rate that runs from the beginning of the year being trued up 
and does not or will not present a windfall or detriment to either 
party.
    (h) The DC VEBA has not incurred and will continue not to incur any 
fees, costs or other charges (other than those described in the DC VEBA 
and the DC VEBA Settlement Agreement) as a result of the transactions.
    (i) GM and the Committee have maintained and will continue to 
maintain for a period of six years from the date of any of the covered 
transactions, the records necessary to enable certain persons, such as 
the UAW, DC VEBA participants, GM or any authorized employee or 
representative of the Department, to determine whether the terms and 
conditions of this exemption have been met.

Notice To Interested Persons

    GM will provide notice of the proposed exemption to interested 
persons within 30 days of the publication of the notice of proposed 
exemption in the Federal Register. Such notice will be provided to 
interested persons by first-class mail and will include a copy of the 
notice of proposed exemption as published in the Federal Register as 
well as a supplemental statement, as required pursuant to 29 CFR 
2570.43(b)(2). The supplemental statement will inform interested 
persons of their right to comment on and/or to request a hearing. 
Comments and requests for a hearing with respect to the

[[Page 42834]]

proposed exemption are due within 60 days of the publication of this 
pendency notice in the Federal Register.

    If you decide to submit written comments to the Department, your 
comments should be limited to the transactions described in the 
exemption proposed by the Department. However, if you have concerns 
about benefits or any other matter, you should contact the 
appropriate office at GM for further assistance.

FOR FURTHER INFORMATION CONTACT: Mrs. Blessed Chuksorji-Keefe of the 
Department by E-mail at GM-DCVEBA@dol.gov or at telephone number (202) 
693-8553. (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 exemption, 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 exemption, 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 16th day of July, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department Of Labor.
[FR Doc. E8-16713 Filed 7-22-08; 8:45 am]

BILLING CODE 4510-29-P