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EBSA Notices

Proposed Exemptions From Certain Prohibited Transaction Restrictions   [9/26/2011]
[PDF]
Federal Register, Volume 76 Issue 186 (Monday, September 26, 2011)
[Federal Register Volume 76, Number 186 (Monday, September 26, 2011)]
[Notices]
[Pages 59434-59445]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-24656]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration


Proposed Exemptions From Certain Prohibited Transaction 
Restrictions

AGENCY: Employee Benefits Security 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

[[Page 59435]]

Act of 1974 (ERISA or the Act) and/or the Internal Revenue Code of 1986 
(the Code). This notice includes the following proposed exemptions: D-
11676 The Kemper Corporation Pension Plan (the Plan); L-11618 Oregon-
Washington Carpenters Employers Apprenticeship and Training Trust Fund 
(the Plan); and L-11647 R+L Carriers Shared Services, LLC

DATES: 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.

ADDRESSES: 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. 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, N.W., 
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 EBSA via e-mail or FAX. Any 
such comments or requests should be sent either by e-mail to: 
moffitt.betty@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 Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, N.W., 
Washington, DC 20210.
    Warning: If you submit written comments or hearing requests, do not 
include any personally-identifiable or confidential business 
information that you do not want to be publicly-disclosed. All comments 
and hearing requests are posted on the Internet exactly as they are 
received, and they can be retrieved by most Internet search engines. 
The Department will make no deletions, modifications or redactions to 
the comments or hearing requests received, as they are public records.

SUPPLEMENTARY INFORMATION:

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).
    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.

The Kemper Corporation Pension Plan (the Plan) Located in Chicago, 
Illinois

Exemption Application Number D-11676

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Employee Retirement Income Security 
Act of 1974 (ERISA or the Act) and section 4975(c)(2) of the Internal 
Revenue Code of 1986, as amended (the Code), and in accordance with the 
procedures set forth in 29 CFR part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990).\1\ If the proposed exemption is granted, the 
restrictions of section 406(a)(1)(A) and (D), and 406(b)(1) and (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), (D) and (E) of 
the Code, shall not apply, effective September 1, 2011, to the one-
time, in-kind contribution (the Contribution) of shares of the common 
stock of Intermec, Inc. (the Stock) to the Kemper Corporation Pension 
Plan (the Plan) \2\ by the Kemper Corporation (Kemper or the 
Applicant), a party in interest with respect to the Plan, provided that 
the following conditions are satisfied:
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    \1\ For purposes of this proposed exemption, references to 
section 406 of ERISA should be read to refer as well to the 
corresponding provisions of section 4975 of the Code.
    \2\ Prior to August 25, 2011, the Plan was known as the Unitrin, 
Inc. Pension Plan.
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    (a) The Applicant makes cash contributions to the Plan to the 
extent that the cumulative proceeds from the sale of the Stock at each 
contribution due date (determined under section 303(j) of the Act) are 
less than the cumulative cash contributions the Applicant would have 
been required to make to the Plan, in the absence of the Contribution. 
Such cash contributions shall be made until all of the Stock 
contributed to the Plan is sold;
    (b) The Applicant contributes to the Plan such cash amounts as are 
needed for the Plan to attain an Adjusted Funding Target Attainment 
Percentage (AFTAP) of at least 80% as of January 1, 2012, as determined 
by the Plan's actuary (the Actuary), without taking into account any 
unsold Stock as of April 1, 2012;
    (c) Solely for purposes of determining the Plan's minimum funding 
requirements, AFTAP and funding target attainment percentage, the 
Actuary will not count as a Plan asset any Stock that has not been 
liquidated as a contribution to the Plan;
    (d) For purposes of determining Plan contribution amounts, the 
Stock shall be considered a contribution only at the time it is sold, 
with the contribution amount being the lesser of the proceeds from the 
sale of the Stock, or the value of the Stock on the date of the 
Contribution as determined by the Independent Fiduciary described 
below;
    (e) The Stock represents no more than 20% of the fair market value 
of the total assets of the Plan at the time it is contributed to the 
Plan;
    (f) The Plan pays no commissions, costs or other expenses in 
connection with the contribution, holding or subsequent sale of the 
Stock and any such expenses paid by the Applicant are not treated as a 
contribution to the Plan;
    (g) The terms of the Contribution between the Plan and the 
Applicant are no less favorable to the Plan than terms negotiated at 
arm's length under similar circumstances between unrelated parties;
    (h) Fiduciary Counselors Inc. (the Independent Fiduciary) 
represents the

[[Page 59436]]

interests of the Plan, the participants and beneficiaries with respect 
to the Contribution;
    (i) The Independent Fiduciary determines that the Contribution is 
in the interests of the Plan and of its participants and beneficiaries 
and is protective of the rights of participants and beneficiaries of 
the Plan; and
    (j) The Independent Fiduciary monitors the transaction on a 
continuing basis and takes all appropriate actions to safeguard the 
interests of the Plan to ensure that the transaction remains in the 
interests of the Plan, and, if not, takes appropriate action available 
under the circumstances.
    Effective Date: If granted, this proposed exemption will be 
effective as of September 1, 2011.

Summary of Facts and Representations

    1. The Kemper Corporation \3\ (Kemper or the Applicant) is a 
diversified insurance holding company, with subsidiaries that 
principally provide life, automobile, homeowners and other insurance 
products for individuals. The Applicant reported total shareholders' 
equity of over $2.1 billion as of June 30, 2011 and its debt is rated 
investment grade by S&P, Moody's and Fitch. The Applicant is the 
sponsor and a named fiduciary of the Kemper Corporation Pension Plan 
(the Plan).
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    \3\ Prior to August 25, 2011, Kemper was known as Unitrin, Inc.
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    2. The Plan is a defined benefit pension plan that is tax-qualified 
under section 401(a) of the Code. As of January 1, 2011, the Plan had 
approximately 9,800 participants and beneficiaries. The fair market 
value of invested Plan assets as of June 30, 2011 was $360.9 million. 
The Plan's independent actuary, AON Hewitt (the Actuary) has determined 
that the Plan's Adjusted Funding Target Attainment Percentage (AFTAP) 
as of January 1, 2011 is 80%.
    3. The Kemper Corporation Master Retirement Trust (Master Trust) 
\4\ holds the assets of the Plan. The Plan's Investment Committee is 
the named fiduciary for Plan investments under the Master Trust. The 
Applicant serves as the Plan Administrator for the Plan. The Northern 
Trust Company serves as trustee of the Master Trust. The Investment 
Committee has the authority, under the terms of the Master Trust, to 
appoint one or more investment managers with respect to a portion or 
all of the Plan's assets.
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    \4\ Prior to August 25, 2011, the Master Trust was known as the 
Unitrin, Inc. Master Retirement Trust.
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    4. The Applicant has requested exemptive relief from the Department 
for the proposed one-time, in-kind contribution (the Contribution) of 
shares of the common stock of Intermec, Inc. (the Stock) to the Kemper 
Corporation Pension Plan (the Plan). The Contribution represents an in-
kind contribution to the Plan from the Applicant, a party in interest, 
that would, in the absence of the exemption proposed herein, violate 
section 406(a)(1)(A) and (D) and section 406(b)(1) and (b)(2) of the 
Act.
    5. All required minimum contributions for the 2011 Plan Year have 
been made to the Plan, except for a contribution in the amount of 
$5,093,876, which is due on September 15, 2012. Thus, the Contribution 
is not needed to satisfy a required minimum contribution by September 
15, 2011.\5\
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    \5\ The Applicant is not required to make any cash contributions 
to the Plan for the 2011 Plan Year until September 15, 2012, because 
the Plan has satisfied the quarterly contribution requirements 
through offsetting such contributions against its credit balance. 
The minimum required contribution for the 2011 Plan Year is 
$23,216,585, and the credit balances available to satisfy the 
minimum required contributions total $18,627,878. The difference of 
$4,588,707 is the amount of the required contribution due as of 
January 1, 2011, but, under section 303(j) of the Act, this amount 
is not required to be contributed to the Plan until September 15, 
2012. However, if the amount is contributed after January 1, 2011, 
it must be increased by interest. Thus, the adjusted minimum 
required contribution as of September 15, 2012 is $5,093,876.
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    6. The Applicant represents that the Contribution improves the 
benefit security of participants because it is substantially in excess 
of the contribution required for the 2011 Plan year and is being made 
one year in advance of the date the final contribution for the 2011 
Plan year is due. To provide added protection to the Plan and its 
participants, the Applicant has agreed to make cash contributions to 
the Plan to the extent that the cumulative proceeds from the sale of 
the Stock at each contribution due date (determined under section 
303(j) of the Act) are less than the cumulative cash contributions the 
Applicant would have been required to make to the Plan, in the absence 
of the Contribution. This commitment will remain in effect until all of 
the Stock contributed to the Plan has been sold.
    7. Trinity Universal Insurance Company (Trinity), a wholly owned 
subsidiary of the Applicant, owns 7,661,607 shares of the Stock, with 
an approximate fair market value of $56.47 million based upon the 
closing price of the Stock on August 31, 2011. The Applicant and its 
subsidiaries acquired the Stock on November 3, 1997 in connection with 
Western Atlas Inc.'s spin-off of Intermec, Inc. (formerly known as 
UNOVA Inc.) to the shareholders of Western Atlas. Intermec, Inc. 
(Intermec) is a publicly traded company listed on the New York Stock 
Exchange under the symbol ``IN.'' The Applicant proposes to acquire the 
Stock owned by Trinity and contribute it to the Plan. The Stock would 
represent approximately 13.5% of invested Plan assets (based on their 
fair market value as of June 30, 2011), on a pro forma basis, after 
taking into account the Contribution (based on the closing price of the 
Stock on August 31, 2011).
    8. The Investment Committee has appointed Fiduciary Counselors Inc. 
as the Independent Fiduciary to represent the Plan in connection with 
the proposed transaction. The Independent Fiduciary is an investment 
adviser, within the meaning of the Investment Advisers Act of 1940, 
which primarily acts as an independent fiduciary for employee benefit 
plans, such as the Plan. Fiduciary Counselors Inc. has represented that 
it is qualified to assume these responsibilities and is independent of 
the Applicant and its affiliates. The Independent Fiduciary is 
responsible for determining whether and on what terms the Stock should 
be contributed to the Plan; reviewing and approving the process for 
liquidating the Stock as quickly as is prudent, subject to the 
limitations hereafter described and its fiduciary obligations; and 
voting proxies and responding to tender offers with respect to the 
Stock. The Independent Fiduciary has determined that the contribution 
of the Stock to the Plan is in the interests of the Plan and its 
participants. The Independent Fiduciary represents that the 
Contribution will significantly improve the funding of the Plan, and 
that the Contribution is significantly in excess of required minimum 
funding.
    9. The Independent Fiduciary represents that Intermec is a global 
business that designs, develops, integrates sells and resells wired and 
wireless automated identification and data collection products and 
related services. As of July 3, 2011, Intermec's assets were $870 
million and liabilities totaled $414 million. Intermec's debt-to-equity 
ratio is just 17%. Intermec's operating profit from continuing 
operations since 2009 has been at the breakeven point, excluding 
additional restructuring and acquisition costs.
    10. The Stock is a marketable security that trades on the New York 
Stock Exchange. There are, however, limitations on how quickly the 
Stock can be liquidated because of Rule 144 of the Securities and 
Exchange Commission (Rule 144). Rule 144 limits the amount of Stock 
that the Applicant

[[Page 59437]]

and its affiliates may sell during any three-month period because the 
Applicant and its affiliates own more than 10% of Intermec's 
outstanding shares. The Applicant represents that after the 
Contribution, the Plan would be subject to Rule 144 because the Plan 
would own more than 10% of the outstanding stock of Intermec.\6\ 
Assuming that the current facts and circumstances and Rule 144 
requirements remain in effect, the Applicant estimates that Rule 144 
will limit the shares of Stock that may be sold by the Plan until early 
May, 2012. The Applicant further estimates that based upon the volume 
of Stock that the Applicant has been able to sell over the last several 
months, the Stock would likely be completely liquidated by the Plan by 
July, 2012.
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    \6\ See 17 CFR 230.144(a)(1)(iii).
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    10. The Independent Fiduciary has retained a valuation firm, 
Murray, Devine & Co., Inc., headquartered in Philadelphia, 
Pennsylvania, to advise it on whether a liquidity discount should be 
applied to the market value of the Stock. The Applicant has agreed to 
use the value of the Stock as determined by the Independent Fiduciary 
for the purpose of determining the amount of the Contribution for 
funding purposes.
    11. The Applicant represents that the Contribution is 
administratively feasible, in the interests of the Plan, its 
participants and beneficiaries and would be protective of the Plan and 
its participants and beneficiaries. The Applicant believes that the 
Contribution is administratively feasible because it is a one-time only 
Contribution that would require no further action by the Department. 
Moreover, the Plan will pay no fees, commissions or costs with respect 
to the Contribution or the sale of the Stock by the Plan.
    The Applicant states that the Contribution is in the interests of 
the participants and beneficiaries because the Contribution will 
increase the benefit security of the participants by adding assets to 
the Plan that are substantially in excess of the contribution amount 
under the minimum funding requirements. The in-kind Contribution is the 
stock of a well-established public company traded on the New York Stock 
Exchange so the Plan has a market to sell the Stock.
    The Applicant believes that the Contribution is protective of the 
Plan and its participants and beneficiaries because an Independent 
Fiduciary has been appointed to represent the Plan, its participants 
and beneficiaries. Any potential downside to the Contribution is 
addressed and effectively eliminated by:
    (a) The Applicant's commitment to make additional cash 
contributions to the Plan if the cumulative proceeds from the sale of 
the Stock at each contribution due date are less than the cumulative 
minimum amounts that would otherwise have been contributed to the Plan 
in cash, until all of the Stock is sold;
    (b) The Applicant's commitment to contribute such cash amounts as 
are needed for the Plan's AFTAP to be at least 80% as of January 1, 
2012, without taking into account any unsold Stock as of April 1, 2012; 
\7\ and
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    \7\ In determining the Plan's AFTAP, Kemper will only count 
Stock that has been liquidated as of April 1, 2012. This date is 
being used as a measurement for Stock sales because a determination 
must be made as of April 1, 2012 that the AFTAP is at least 80% to 
avoid the participants being subject to benefit restrictions. The 
Applicant represents that these benefit restrictions would affect a 
significant number of Plan participants. The Plan provides for 
elective lump sum distributions upon termination of employment for 
certain participants. The Applicant states that currently up to 650 
participants would be entitled to a lump sum distribution upon 
termination of employment (excluding participants whose benefits 
have a value of $5,000 or less and thus, would not be subject to 
benefit restrictions). In addition, certain participants have made 
employee contributions to the Plan which they are entitled to 
withdraw. If the benefit restrictions become applicable, the Plan's 
actuary estimates that approximately 92 participants would have the 
right to withdraw these contributions restricted.
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    (c) The Applicant's agreement to only count the Stock to the extent 
that it has been liquidated in determining the Plan's contributions, 
minimum funding requirements, the AFTAP and the funding target 
attainment percentage. This agreement means that the contribution of 
Stock serves as security for the obligation that the Applicant has to 
contribute cash to the Plan if the proceeds from sales of the Stock are 
not equal to what those cash contributions would have been.
    12. In summary, the Applicant represents that the Contribution will 
satisfy the statutory requirements for an exemption under section 
408(a) of the Act because:
    (a) The Applicant will make cash contributions to the Plan to the 
extent that the cumulative proceeds from the sale of the Stock at each 
contribution due date (determined under section 303(j) of the Act) are 
less than the cumulative cash contributions the Applicant would have 
been required to make to the Plan, in the absence of the Contribution. 
Such cash contributions shall be made until all of the Stock 
contributed to the Plan is sold;
    (b) The Applicant will contribute to the Plan such cash amounts as 
are needed for the Plan to attain an AFTAP of at least 80% as of 
January 1, 2012, as determined by the Actuary, without taking into 
account any unsold Stock as of April 1, 2012;
    (c) For purposes of determining the Plan's minimum funding 
requirements, AFTAP and funding target attainment percentage, the 
Actuary will not count as a Plan asset any Stock that has not been 
liquidated as a contribution to the Plan;
    (d) For purposes of determining Plan contribution amounts, the 
Stock shall be considered a contribution only at the time it is sold, 
with the contribution amount being the lesser of the proceeds from the 
sale of the Stock, or the value of the Stock on the date of the 
Contribution as determined by the Independent Fiduciary;
    (e) The Stock will represent no more than 20% of the fair market 
value of the total assets of the Plan at the time it is contributed to 
the Plan;
    (f) The Plan will pay no commissions, costs or other expenses in 
connection with the contribution, holding or subsequent sale of the 
Stock, and any such expenses paid by the Applicant will not be treated 
as a contribution to the Plan;
    (g) The terms of the Contribution between the Plan and the 
Applicant will be no less favorable to the Plan than terms negotiated 
at arm's length under similar circumstances between unrelated parties;
    (h) An Independent Fiduciary will represent the interests of the 
Plan, the participants and beneficiaries with respect to the 
Contribution;
    (i) The Independent Fiduciary will have determined that the 
Contribution is in the interests of the Plan and of its participants 
and beneficiaries and protective of the rights of participants and 
beneficiaries of the Plan;
    (j) The Independent Fiduciary intends to sell the Stock into the 
market as quickly as is prudent under the circumstances, subject to the 
limitations of SEC Rule 144 and the Independent Fiduciary's fiduciary 
responsibilities under ERISA; and
    (k) The Independent Fiduciary will monitor the transaction on a 
continuing basis and take all appropriate actions to safeguard the 
interests of the Plan to ensure that the transaction remains in the 
interests of the Plan, and, if not, take any appropriate actions 
available under the circumstances.

Notice to Interested Persons

    Notice of the proposed exemption will be given to interested 
persons within 5 days of the publication of the notice of proposed 
exemption in the

[[Page 59438]]

Federal Register. The notice will be given to interested persons by 
first class mail or by return receipt requested electronic mail. Such 
notice will contain a copy of the notice of proposed exemption, as 
published in the Federal Register, and 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 with respect to the pending exemption. Written 
comments and hearing requests are due within 35 days of the publication 
of the notice of proposed exemption in the Federal Register.
    For Further Information Contact: Gary H. Lefkowitz of the 
Department, telephone (202) 693-8546. (This is not a toll-free number.)

Oregon-Washington Carpenters Employers Apprenticeship and Training 
Trust Fund (the Plan or the Applicant) Located in Portland, Oregon

[Application No. L-11618]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990). If the proposed exemption is granted, the 
restrictions of sections 406(a)(1)(A) and (D) of the Act, shall not 
apply to the sale by the Plan of certain unimproved real property known 
as ``Tax Lot 300'' and ``Tax Lot 400'' (together, the Tax Lots or the 
Property), to the Pacific Northwest Regional Council of Carpenters (the 
Union), a party in interest with respect to the Plan, provided that the 
following conditions are satisfied:
    (a) The sale is a one-time transaction for cash;
    (b) At the time of the sale, the Plan receives the greater of 
either: (1) $390,000; or (2) the fair market value of the Property as 
established by a qualified, independent appraiser in an updated 
appraisal of such Property on the date of the sale;
    (c) The Plan pays no fees, commissions or other expenses associated 
with the sale;
    (d) The terms and conditions of the sale are at least as favorable 
to the Plan as those obtainable in an arm's length transaction with an 
unrelated third party;
    (e) The Plan trustees appointed by the Union (the Union Trustees) 
recuse themselves from discussions and voting with respect to the 
Plan's decision to enter into the proposed sale; and
    (f) The Plan trustees appointed by the employer associations (the 
Employer Trustees), who have no interest in the proposed sale, (1) 
determine, among other things, whether it is in the best interest of 
the Plan to proceed with the sale of the Property; (2) review and 
approve the methodology used in the appraisal that is being relied 
upon; and (3) ensure that such methodology is applied by the qualified, 
independent appraiser in determining the fair market value of the 
Property on the date of the sale.

Summary of Facts and Representations

The Parties

    1. The Plan is a multiemployer, Taft-Hartley trust fund. The Plan 
was established on December 28, 1965, and is now maintained, pursuant 
to a Plan Agreement between the Oregon-Columbia Chapter; the Associated 
General Contractors of America, Inc.; the Associated Wall and Ceiling 
Contractors of Oregon and Southwest Washington, Inc.; the Home Builders 
Association of Metropolitan Portland; the General & Concrete 
Contractors Association, Inc. (collectively, the Employers); and the 
Union. As of February 28, 2011, the Plan had total assets of 
$12,465,988.34. As of May 31, 2011, the Plan had approximately 4,122 
participants.
    2. The Plan is administered by a twelve member Board of Trustees, 
six of whom are appointed by the Employers and six of whom are 
appointed by the Union. The Trustees have ultimate fiduciary, 
operational, and investment discretion over the Plan's assets. The 
Plan's current Union Trustees are Gerald Auvil (Chairman of the Board 
of Trustees), Boyd Martin, Hank Mroczkowski, Ronald Robbins, Doug 
Tweedy, and Ben Embree. The Plan's current Employer Trustees are Jim 
McKune, Yasmine Branden, Jeff Herd, Gayland Looney (Secretary-
Treasurer), Lonnie Kronsteiner, and Doug McClain.
    Pursuant to the voting rules under the Plan Agreement and to avoid 
any self-dealing or conflict of interest issues, the Union Trustees are 
required to recuse themselves from discussions and voting with respect 
to the Plan's decision to enter into the proposed exemption transaction 
that is described herein.
    3. The Plan is headquartered in Portland, Oregon. It was created to 
provide training and education to member apprentices and journeymen who 
are construction carpenters, acoustical applicators, boat builders, 
bridge carpenters, cabinet makers, divers, dock and wharf carpenters, 
floor layers, gypsum drywall and system installers, insulation 
applicators, lathers, maintenance carpenters, millwright pile drivers, 
residential carpenters, scaffold erectors, and shipwright and tradeshow 
workers.
    The Union is headquartered in Kent, Washington, and it was 
chartered on January 1, 1996. Its geographic jurisdiction covers the 
States of Washington, Oregon, Idaho, Montana, and Wyoming. According to 
the Applicant, the Union's mission and purpose, include but are not 
limited to, promoting and protecting the interests of its membership, 
encouraging the apprenticeship system and higher standards of skill, 
and securing adequate pay for its membership's work.

The Property Acquisition

    4. On January 25, 2005, the Plan purchased the Property from an 
unrelated party, IBC Portland I, LLC of Evergreen, Colorado, in order 
to establish a training facility for its members. Prior to the 
acquisition, the Plan had been looking for a new training facility site 
and it had hired a commercial real estate consultant, Bruce J. Korter, 
CRE, Director, Real Estate for Washington Capital Management of 
Portland, Oregon, to assist the Board of Trustees with finding a 
suitable property. The Trustees had looked at many facilities and even 
considered purchasing a parcel of unimproved land on which to construct 
the training facility.
    The original purchase price of $4,200,000 \8\ included the subject 
Property, Tax Lot 500 and a building situated on Tax Lot 500. The 
building serves as the Plan's principal training facility (the Training 
Center).\9\
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    \8\ As a result of negotiations, the seller later agreed to 
accept a $100,000 reduction in the purchase price in exchange for 
several conditions of purchase, including paying for street 
improvements as they pertain to the property being purchased by the 
Plan. Thus, the modified purchase price was $4,100,000. The final 
cost to the Plan was $4,221,716.02, which included $121,716.02 of 
additional charges, including $94,351 for the 158th Ave. street 
improvements.
    \9\ The Property, Tax Lot 500 and the Training Center are 
collectively referred to herein as the ``Entire Property.''
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    The Property is located at NE 158th Avenue and NE Mason Street, 
Portland, Oregon. It consists of two parcels, Tax Lot 300, which is 
approximately 0.71 acres or 30,909 square feet of land, and Tax Lot 
400, which is approximately 0.92 acres or 40,030 square feet of land. 
Adjacent to the Property are Tax Lot 500 and the Training Center, which 
are located at 4424 NE 158th Avenue, Portland, Oregon. Tax Lot 500 
consists of approximately 4.64 acres or 202,118 square feet of land. 
Currently, the

[[Page 59439]]

Property is vacant and does not produce any income. The Union owns no 
real estate that is within close proximity to the Entire Property.
    The Plan financed the cost of the Training Center and Tax Lot 500 
with a $2,250,000, 20 year loan from AEGON USA Realty Advisors, Inc. 
(AEGON) of Cedar Rapids, Iowa, an unrelated party. The loan is secured 
by the Training Center and Tax Lot 500. It carries interest at the rate 
of 6.75% and requires monthly payments of $16,564.13 that include both 
principal and interest, commencing March 2005. The Plan paid the 
remaining $1,950,000 balance for the Training Center and Tax Lot 500 in 
cash.

Plan's Intentions Regarding the Property

    5. According to the Applicant, the Plan had the seller divide the 
Entire Property into three separate tax lots prior to the purchase. 
This action was meant to facilitate the Plan's future sale of either or 
both Tax Lots 300 and 400, should a decision be made to dispose of 
these parcels, and not to have such property serve as security for the 
AEGON loan.
    Also, according to the Applicant, the Plan's interest in the Entire 
Property prompted preliminary discussions about determining ways to 
finance the purchase. These discussions included the Union's purchase, 
from the seller, of one of the Tax Lots as a site for its new 
headquarters. In this regard, Mr. Korter, the real estate consultant, 
had suggested that the Plan apply for a loan for the Training Center, 
but not include the Property as security for such loan. Mr. Korter also 
suggested that the Union prepare a letter of intent to demonstrate its 
commitment to purchase one of the Tax Lots from the seller. However, no 
such letter of intent from the Union was ever forthcoming. (According 
to Jim McCune, an Employer Trustee, Mr. Korter believed the letter of 
intent was needed by the lender to approve the financing of the Entire 
Property.)
    The Plan was able to sell the property at which its training 
facility was previously located for $1 million. As a result, the Plan 
was able to obtaining financing without needing to have the Union or an 
unrelated party purchase Tax Lot 300 or Tax Lot 400 from the seller.
    Furthermore, the Applicant states that following the election of 
Doug Tweedy as the Union's Executive Secretary-Treasurer and CEO in 
August 2004, there was a complete changeover of Union personnel. The 
Applicant explains that there was nothing in the Plan's records 
relating to the acquisition of the Entire Property to indicate that the 
Union's new executive personnel had any interest in the Tax Lots for 
the Union's headquarters. In this regard, the Applicant explains that 
some time before May 2005, the Union's executive personnel began 
searching for property other than the Tax Lots as its headquarters. On 
May 21, 2005, the Union committed to purchase and renovating a building 
located at 1636 East Burnside Street, Portland, Oregon (the East 
Burnside Property) by approving the financing. The Applicant notes that 
the Union has maintained its offices at the East Burnside Property ever 
since.
    Thus, according to the Applicant, the possibility of the Union 
building its headquarters on the Property was not a consideration after 
the August 2004 election of Mr. Tweedy, which was well before the 
Entire Property was acquired by the Plan on January 25, 2005.

Plan's Use of the Property

    6. Since the time of acquisition, the Plan has used the Property 
for training purposes, including surveying and building layout. The 
Applicant states that one of the ideas being considered for the use of 
Tax Lot 300 and Tax Lot 400 is to provide parking spaces for 
apprentices and Training Center employees so that the present south 
side parking lot can be used to expand the Training Center.

Plan's Acquisition and Holding Costs Regarding the Property

    7. Because the Entire Property was listed for sale as a single 
parcel of land, the Applicant explains that there was no separate 
breakdown of the purchase price for Tax Lot 300, Tax Lot 400, Tax Lot 
500, and the Training Center. In an appraisal report dated August 13, 
2004 that was prepared on the Property for possible use as collateral 
for a federally-related loan transaction (see Representation 5), Tax 
Lot 300 was appraised at $154,660, as of July 19, 2004. In that same 
appraisal report, Tax Lot 400 was appraised at $200,155 as of July 19, 
2004.\10\
---------------------------------------------------------------------------

    \10\ In a separate appraisal report dated August 11, 2004, Mr. 
Hickok placed the fair market value of Tax Lot 500 and the Training 
Center at $4,000,000, also as of July 19, 2004. As noted previously, 
the original purchase price included the Entire Property.
---------------------------------------------------------------------------

    The appraisal was performed by Robert Hickok, MAI, MRICS, a 
qualified, independent appraiser affiliated with Integra Realty 
Resources, a real estate valuation and consulting firm located in 
Portland, Oregon. Mr. Hickok is also a Certified General Real Estate 
Appraiser and he is licensed in the States of Oregon and Washington. 
The Applicant represents that Mr. Hickok is a qualified, independent 
appraiser, and that less than 1% of his annual income is derived from 
the Applicant and its affiliates.
    Thus, due to the absence of an actual purchase price for the 
Property, the Applicant has estimated this price to be $147,760.06 for 
Tax Lot 300 and $194,198.94 for Tax Lot 400, as of January 25, 2005 
based on the allocation percentage the Tax Lot represented to the total 
appraised value of the Entire Property, as determined by Mr. Hickok in 
his July and August 2004 appraisals. The Applicant then applied each 
allocation percentage to the aggregate purchase price. Thus, the Plan's 
acquisition cost for the Property was $341,959.\11\
---------------------------------------------------------------------------

    \11\ Based on the Applicant's calculations, the acquisition 
costs for Tax Lot 300 and 400 were $147,760.06 (3.5% of the $154,600 
appraised value) and $194,198.94 (4.6% of the $200,155 appraised 
value), respectively. The acquisition cost for Tax Lot 500 and the 
Training Center was $3,879,757.02 (91.9% of the $4,000,000 appraised 
value).
---------------------------------------------------------------------------

    8. At the time of the purchase transaction, the Plan also paid half 
of the improvement costs on NE 158th Avenue, where the Property is 
located. The improvements that were made to NE 158th Avenue included 
the construction of curbs, gutters, and sidewalks, storm and sanitary 
sewers, water mains, and street pavement. Additionally, fire hydrants 
and trees were relocated and traffic control signage, pavement striping 
and marking, and permanent barricades were installed. The Plan's share 
of the improvement costs was approximately $94,351.
    Following the purchase transaction, the Plan has incurred 
maintenance costs associated with the Property and it has paid drainage 
taxes to Multnomah County, Oregon. Thus, the Plan's aggregate 
acquisition and holding costs incurred with respect to the Property 
between 2005 and 2010 is $363,486.51.
    A summary of the Plan's acquisition and holding costs as they 
relate to the Property for the period 2005-2010 is shown in the table 
below:

[[Page 59440]]



                                       Acquisition and Holding Costs for Tax Lots (TLs) 300 and 400 From 2005-2010
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                                           TL 300 and TL
            Property expenses                  2005            2006            2007            2008            2009            2010         400 totals
--------------------------------------------------------------------------------------------------------------------------------------------------------
TL 300 Acq. Cost *......................     $147,760.06  ..............  ..............  ..............  ..............  ..............     $147,760.06
TL 300 Maint. Costs **..................        1,352.58        1,352.58        1,352.58        1,352.58        1,352.58        1,352.58        8,115.48
TL 300 Taxes ***........................          253.01          211.33          221.93          234.20          237.26          253.28        1,411.01
                                         ---------------------------------------------------------------------------------------------------------------
    TL 300 Totals.......................     $149,365.65        1,563.91        1,574.51        1,586.78        1,589.84        1,605.86      157,286.55
--------------------------------------------------------------------------------------------------------------------------------------------------------
TL 400 Acq. Cost 111*...................     $194,198.94  ..............  ..............  ..............  ..............  ..............      194,198.94
TL 400 Maint. Costs **..................        1,752.00        1,752.00        1,752.00        1,752.00        1,752.00        1,752.00       10,512.00
TL 400 Taxes ***........................          327.67          330.88          171.85          209.80          218.09          230.73        1,489.02
                                         ---------------------------------------------------------------------------------------------------------------
    TL 400 Totals.......................     $196,278.61        2,082.88        1,923.85        1,961.80        1,970.09        1,982.73      206,199.96
--------------------------------------------------------------------------------------------------------------------------------------------------------
        TL 300 and TL 400 Totals........     $345,644.26        3,646.79        3,498.36        3,548.58        3,559.93        3,588.59      363,486.51
--------------------------------------------------------------------------------------------------------------------------------------------------------
* Maintenance Costs. The maintenance costs of $695/month were divided and allocated based on square footage of land (excluding the Training Center).
** Taxes. The 2005 through 2010 Multnomah County Property Tax assessments for Tax Lot 300 and Tax Lot 400 were used to calculate property taxes.
*** Insurance Costs. No insurance cost was allocated to Tax Lots 300 and 400 because, as explained by the Plan's insurance agent of record, Joseph P.
  Herrle, general liability insurance coverage extends automatically to any property that adjoins the Plan's business location (i.e., the Training
  Center Building) at no additional premium charge.

Request for Exemptive Relief

    9. The Applicant requests an individual exemption from the 
Department in order to sell the Property to the Union. The Union's 
objective in buying the Property is to construct its Oregon and 
Southwest Washington headquarters building. The Applicant represents 
that the sale of the Property is in the best interest of the Plan and 
its participants because: (a) The Plan has no apparent or immediate 
need or use for the Property; and (b) the Plan does not derive any 
income from the Property. The sale of the Property will allow the Plan 
to convert the Property to cash and will permit the Plan to then invest 
the cash in a vehicle more appropriate to the Plan's investment needs 
and to meet its commitments that require liquidity. If the Union 
constructs its headquarters on the Property it would be a convenience 
to the participants receiving training and education as they are 
represented by the Union.

Efforts to Sell the Property to Unrelated Parties

    10. The Applicant represents that it has not made efforts to sell 
the Property to unrelated third parties for the following reasons \12\:
---------------------------------------------------------------------------

    \12\ In the exemption application, the Applicant initially 
represented that the Trustees had not made any efforts to sell the 
Property to unrelated parties because at the time of the Plan's 
acquisition of the Entire Property, ``the Trustees foresaw that the 
Property would be a good location to build the Union headquarters 
because of its proximity to the Training Center.'' As noted above, 
the Applicant provided further information to the Department to 
support the Trustees' actual intentions regarding the Property. 
Notwithstanding the supporting documentation, the Department is 
still concerned that the Applicant's statement raises issues under 
the general standards of fiduciary conduct of section 404 of the Act 
and the prohibited transaction provisions of 406 of the Act with 
respect to the Plan's acquisition and holding of the Property. 
Accordingly, the Department is not passing on the prudence of the 
Plan's investment in the Property, nor is it providing exemptive 
relief herein from section 406 of the Act for any prohibited 
transactions that may have occurred during the Plan's acquisition 
and holding of such Property.
---------------------------------------------------------------------------

     Limited Use of the Property to Potential Purchasers. 
According to the Applicant, Tax Lot 300 and Tax Lot 400 are zoned 
``IG2, General Industrial 2,'' which permits various industrial uses. 
Because the Tax Lots are both less than one acre in size, which is not 
customary for industrial neighborhoods, only atypical small industrial 
buildings could potentially be built on the Property. The Applicant 
explains that there is currently limited demand for additional 
industrial development. The Applicant also explains that Mr. Hickok, 
the independent appraiser, determined that industrial use of the 
Property was not considered financially feasible because a newly-
developed use would not have a value commensurate with its cost. Since 
the Property is not appropriate for most industrial uses, the Applicant 
states that this limits the number of potential buyers and would likely 
result in a lower sale price for an industrial use other than the 
Union's office building use. Further, the Applicant indicates that 
there are currently four larger industrial buildings that remain unsold 
to the east of the Training Center and undeveloped land to the south of 
the Training Center.
     Inability of an Unrelated Purchaser to Receive Municipal 
Construction Approval or Have a Use Ancillary to the Training Center. 
According to the Applicant, an unrelated purchaser would not likely 
receive approval from the City of Portland to construct an office 
building on the Property. However, the Applicant believes that the 
Union would receive such approval because it represents the Plan 
participants being trained in the Training Center. In addition, the 
Applicant states that it is not expected that an unrelated purchaser's 
use of the Property would be ancillary to the Training Center as the 
Union's potential use.
     Cash Flow Problems Experienced by the Plan. The Applicant 
states that the Plan had a reduced cash flow in 2008 and 2009 due to 
the recession. As a result, there had been fewer jobs for carpenters 
and fewer contributions to the Plan. The Applicant explains that the 
need for apprentice and journeymen training has increased as labor 
agreements have increased their training requirements. The Applicant 
further explains that the Trustees recognized that Union headquarters 
building would be a complimentary and nonintrusive use to the Training 
Center and a convenience to the Plan participants receiving training, 
as they are represented by the Union. After Mr. Hickok completed his 
2009 appraisal of Property, the Applicant indicates that the Union 
commenced the process involved to purchase the Property from the Plan, 
following approval by the Employer Trustees of filing an

[[Page 59441]]

exemption application with the Department.
     Use of the Property that Does Not Impair the Training 
Center or the Safety of the Apprentices. Due to the proximity of the 
Property to the Training Center, the Applicant states that the Trustees 
must ensure that the Property is used in a manner that will not hinder 
the use, and the view of the Training Center from NE 158th Avenue. 
Additionally, the Applicant notes that because the apprentices are 
mainly young adults, the Trustees desire that the Property be used in a 
manner that does not compromise the safety of the apprentices or create 
liability issues for the Plan and the Training Center.

Recent Appraisals of the Property

    11. The Property was appraised by Mr. Hickok who, as noted in 
Representation 7, had initially valued the Property in 2004. Using the 
Sales Comparison Approach to valuation, Mr. Hickok placed the fair 
market value of Tax Lot 300 at $170,000 as of October 20, 2009 in an 
appraisal report dated November 12, 2009. In that same appraisal 
report, Mr. Hickok placed the fair market value of Tax Lot 400 at 
$220,000, for a combined total appraised value of $390,000 for the 
Property. Mr. Hickok explains that the Sales Comparison Approach to 
valuation was the only approach available for the valuation of the 
Property. The Cost Approach was not available because there are no 
improvements that contribute to the value of the Property. Mr. Hickok 
concluded that the Income Approach was not available because the 
Property is not likely to generate rental income in its current state.
    12. The Department requested a 1-2 page addendum to the 2009 
appraisal asking Mr. Hickok whether there had been a change in the fair 
market value of the Property since the date of the 2009 appraisal. On 
April 18, 2011, the Applicant's representative submitted a summary 
appraisal report, effective March 22, 2011. Using the Sales Comparison 
Approach to valuation in the updated appraisal, Mr. Hickok again placed 
the fair market value of Tax Lot 300 at $170,000, and Tax Lot 400 at 
$220,000. Thus, the Property had a combined total appraised value of 
$390,000 as of March 22, 2011.

Conditions of the Proposed Sale

    13. The Plan will pay no real estate commissions or other expenses 
associated with the sale. The Union will pay the Plan in cash, the 
greater of either: (a) $390,000 or (b) the fair market value of the 
Property, as established by a qualified, independent appraiser on the 
date of the transaction, as reflected in an updated appraisal of such 
Property.
    14. The Employer Trustees have determined, among other things, that 
it is in the best interest of the Plan to proceed with the sale of the 
Property. In addition, the Trustees have reviewed and approved the 
methodology used in the appraisal that is being relied upon, and they 
will ensure that such methodology is applied by the qualified 
independent appraiser in determining the fair market value of the 
Property on the date of the sale.

Summary

    15. In summary, it is represented that the proposed transaction 
will satisfy the statutory criteria for an exemption under section 
408(a) of the Act because:
    (a) The sale will be a one-time transaction for cash;
    (b) At the time of the sale, the Plan will receive the greater of 
either: (1) $390,000; or (2) the fair market value of the Property as 
established by a qualified, independent appraiser in an updated 
appraisal of such Property on the date of the sale;
    (c) The Plan will pay no fees, commissions or other expenses 
associated with the sale;
    (d) The terms and conditions of the sale will be at least as 
favorable to the Plan as those obtainable in an arm's length 
transaction with an unrelated third party;
    (e) The Union Trustees will recuse themselves from discussions and 
voting with respect to the Plan's decision to enter into the proposed 
sale; and
    (f) The Employer Trustees, who have no interest in the proposed 
sale will (1) determine, among other things, whether it is in the best 
interest of the Plan to proceed with the sale of the Property; (2) 
review and approve the methodology used in the appraisal that is being 
relied upon; and (3) ensure that such methodology is applied by the 
qualified, independent appraiser in determining the fair market value 
of the Property on the date of the sale.

Notice to Interested Persons

    Notice of the proposed exemption will be provided to the Employers 
and the Union within 15 days of the publication of the notice of 
proposed exemption in the Federal Register. The Plan will provide 
notice to interested persons by first-class mail. Such notice will 
contain a copy of the proposed exemption, as published in the Federal 
Register, and 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 and/or to request a hearing with 
respect to the proposed exemptions. Written comments and hearing 
requests are due within 45 days of the publication of the proposed 
exemption in the Federal Register.
    For Further Information Contact: Ms. Jan D. Broady of the 
Department at (202) 693-8556. (This is not a toll-free number).

R+L Carriers Shared Services, LLC, Located in Wilmington, Ohio

[Application No. L-11647]

Proposed Exemption

    The Department is considering granting an exemption under the 
authority of section 408(a) of the Act and in accordance with the 
procedures set forth in 29 CFR part 2570, subpart B (55 FR 32836, 
32847, August 10, 1990). If the exemption is granted, the restrictions 
of sections 406(a) and (b) of the Act shall not apply to the 
reinsurance of risks, and receipt of premiums related therefrom, by 
Royal Assurance, Inc. (Royal Assurance), in connection with insurance 
contracts sold by Unum Life Insurance Company of America (Unum), or any 
successor insurance company to Unum which is unrelated, to the R+L 
Carriers Shared Services, LLC to provide group life, short-term 
disability (STD), long-term disability (LTD), and Accidental Death and 
Dismemberment (AD&D) insurance benefits to employees of the R+L 
Companies \13\ under an employee welfare benefit plan (the Plan) 
\14\sponsored by the R+L Carriers

[[Page 59442]]

Shared Services, LLC, provided the following conditions are met:
---------------------------------------------------------------------------

    \13\ The individual related employers comprising the R+L 
Companies are: (1) R+L Carriers Shared Services, LLC; (2) Strategic 
Management, LLC; (3) Paramount Transportation Logistics Services, 
LLC; (4) R+L Carriers Payroll, LLC; (5) Paramount Labor Leasing 
Southern, LLC; (6) Paramount Labor Leasing Eastern, LLC; (7) 
Paramount Labor Leasing Southern, LLC; (8) Golden Ocala Management, 
Inc.; (9) Royal Resorts, LLC; (10) ABCO Transportation, Inc.; (11) 
Spirit Express Trucking, Inc.; (12) Royal Shell Property Management, 
Inc.; (13) Quality Quest Linen Service, Inc.; (14) Royal Shell 
Vacations, Inc.; (15) AFC LS, LLC; and (16) AFC Worldwide Express, 
Inc. The foregoing employers, along with the captive insurer, Royal 
Assurance, constitute the applicants requesting an individual 
exemption for the proposed transaction described herein.
    \14\ The applicants represent that Mr. Ralph ``Larry'' Roberts, 
Sr., the founder of the R+L Companies, is the owner (either 
directly, or indirectly through the combined voting interests of his 
spouse and his children) of 50 percent or more of the combined 
voting power of all classes of stock entitled to vote of each of the 
employers constituting the R+L Companies whose employees are covered 
under the Plan. Therefore, according to the applicants, Mr. Roberts 
is a party in interest with respect to the Plan for purposes of 
section 3(14)(E) of the Act. The applicants further represent that 
Mr. Roberts is the owner, either directly or indirectly, of 50 
percent or more of the combined voting power of all classes of stock 
entitled to vote of the captive, Royal Assurance; accordingly, the 
applicants represent that Royal Assurance is a party in interest 
with respect to the Plan for purposes of section 3(14)(G) of the 
Act. In this regard, the Department is providing no opinion herein 
as to whether Mr. Roberts is a party in interest with respect to the 
Plan for purposes of section 3(14)(E) of the Act; similarly, the 
Department is providing no opinion herein as to whether Royal 
Assurance is a party in interest with respect to the Plan for 
purposes of section 3(14)(G) of the Act.
---------------------------------------------------------------------------

    (a) Royal Assurance--
    (1) Is a party in interest with respect to the Plan by reason of a 
stock or partnership affiliation with R+L Carriers Shared Services LLC 
that is described in section 3(14)(E) or (G) of the Act;
    (2) Is licensed to sell insurance or conduct reinsurance operations 
in at least one State as defined in section 3(10) of the Act;
    (3) Has obtained a Certificate of Authority from the Director of 
the Department of Insurance of its domiciliary state which has neither 
been revoked nor suspended;
    (4)(A) Has undergone and shall continue to undergo an examination 
by an independent certified public accountant for its last completed 
taxable year immediately prior to the taxable year of the reinsurance 
transaction; or (B) Has undergone a financial examination (within the 
meaning of the law of its domiciliary State, Arizona) by the Director 
of the Arizona Department of Insurance within 5 years prior to the end 
of the year preceding the year in which the reinsurance transaction 
occurred; and
    (5) Is licensed to conduct reinsurance transactions by a State 
whose law requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (b) The Plan pays no more than adequate consideration for the 
insurance contracts;
    (c) No commissions are paid by the Plan with respect to the direct 
sale of such contracts or the reinsurance thereof;
    (d) In the initial year of any contract involving Royal Assurance, 
there will be an immediate and objectively determined benefit to the 
Plan's participants and beneficiaries in the form of increased 
benefits;
    (e) In subsequent years, the formula used to calculate premiums by 
Unum or any successor insurer will be similar to formulae used by other 
insurers providing comparable coverage under similar programs. 
Furthermore, the premium charge calculated in accordance with the 
formula will be reasonable and will be comparable to the premium 
charged by the insurer and its competitors with the same or a better 
rating providing the same coverage under comparable programs;
    (f) The Plan only contracts with insurers with a financial strength 
rating of ``A'' or better from A. M. Best Company (A. M. Best). The 
reinsurance arrangement between the insurer and Royal Assurance will be 
indemnity insurance only, i.e., the insurer will not be relieved of 
liability to the Plan should Royal Assurance be unable or unwilling to 
cover any liability arising from the reinsurance arrangement;
    (g) The Plan retains an independent fiduciary to analyze the 
transaction and render an opinion that the requirements of sections (a) 
through (f) have been satisfied. For purposes of the proposed 
exemption, the independent fiduciary is a person who:
    (1) Is not directly or indirectly, through one or more 
intermediaries, controlling, controlled by, or under common control 
with an applicant (this relationship hereinafter referred to as an 
affiliate);
    (2) Is not an officer, director, employee of, or partner in, Royal 
Assurance or any other applicant (or an affiliate of either);
    (3) Is not a corporation or partnership in which Royal Assurance or 
any other applicant has an ownership interest or is a partner;
    (4) Does not have an ownership interest in Royal Assurance, or any 
of the other applicants, or their Affiliates;
    (5) Is not a fiduciary with respect to the Plan prior to the 
appointment; and
    (6) Has acknowledged in writing acceptance of fiduciary 
responsibility and has agreed not to participate in any decision with 
respect to any transaction in which the independent Fiduciary has an 
interest that might affect its best judgment as a fiduciary.
    For purposes of this definition of an ``independent fiduciary,'' no 
organization or individual may serve as an independent fiduciary for 
any fiscal year if the gross income received by such organization or 
individual (or partnership or corporation of which such individual is 
an officer, director, or 10 percent or more partner or shareholder) 
from Royal Assurance, any other applicant, or their affiliates 
(including amounts received for services as independent fiduciary under 
any prohibited transaction exception granted by the Department) for 
that fiscal year exceeds one percent of that organization or 
individual's annual gross income from all sources for the prior fiscal 
year.
    In addition, no organization or individual who is an independent 
fiduciary, and no partnership or corporation of which such organization 
or individual is an officer, director, or 10 percent or more partner or 
shareholder, may acquire any property from, sell any property to, or 
borrow funds from Royal Assurance, any other applicant, or their 
affiliates during the period that such organization or individual 
serves as independent fiduciary, and continuing for a period of six 
months after such organization or individual ceases to be an 
independent fiduciary, or negotiates any such transaction during the 
period that such organization or individual serves as independent 
fiduciary.

Summary of Facts and Representations

    1. The R+L Companies comprise a group of enterprises, primarily 
focused on the trucking and transportation services industries, that 
are under common ownership. The R+L Companies are a major nationwide 
interstate motor carrier network providing ``less-than-truckload'' 
transportation services, i.e., partial-load shipments to one or more 
destinations, or full trailer-load shipments directed to multiple 
destinations. Today, the R+L Companies have approximately 9,000 
employees with operations extending to all 50 states, Canada, Puerto 
Rico and the Dominican Republic.
    2. Royal Assurance is a captive insurance company that was 
established for the purpose of insuring or reinsuring certain risks 
associated with the business operations of the R+L Companies, and that 
shares common ownership with the R+L Companies. The applicants 
represent that Royal Assurance has insured the R+L Companies' property 
and casualty risks, and also reinsured the employee benefit plans of 
the R+L Companies. The applicants further state that Royal Assurance 
was incorporated in Arizona on August 13, 2008. On December 3, 2008, 
the Director of the Arizona Department of Insurance granted Royal 
Assurance a Certificate of Authority to transact the business of a 
captive insurance company in the State of Arizona. The Certificate of 
Authority grants Royal Assurance the authority to transact the 
following kinds of insurance business within the State of Arizona: 
Casualty, Workers' Compensation, Property, Life Reinsurance, and 
Disability Reinsurance.
    3. The independent certified public accounting firm of Saslow 
Lufkin &

[[Page 59443]]

Buggy, LLP has served as Royal Assurance's auditor since its 
incorporation. Saslow Lufkin & Buggy, LLP currently examines Royal 
Assurance's reserves on an annual basis in connection with the employee 
benefit business to be reinsured by Royal Assurance to ensure that 
appropriate reserve levels are maintained. The applicants represent 
that, as of December 31, 2009 (the most recent date for which audited 
financial statements from Saslow Lufkin & Buggy, LLP are available), 
Royal Assurance disclosed approximately $335,719 in gross annual 
premiums and $1,349,327 in total assets (audited financial statements 
for Royal Assurance for calendar year 2010, according to the 
applicants, are not yet available).
    4. The R+L Carriers Shared Services, LLC Plan (the Plan) is 
maintained for employees of the R+L Companies. The Plan provides both 
basic and supplemental life and disability coverage. The Plan has 
historically insured with the Unum Life Insurance Company of America 
(``Unum''). However, pursuant to the transaction for which an exemption 
is being sought, Royal Assurance would now be utilized for the 
reinsurance of benefits and would make substantial improvements to the 
Plan in anticipation of that transaction.
    5. Specifically, the new benefits (at no additional cost or 
obligation to the participants) are as follows:
    (a) Accidental Death and Dismemberment Benefit--Upon grant of the 
exemption, the Plan would provide a completely new $10,000 AD&D 
benefit, in addition to the basic benefits that are currently available 
under the existing life insurance and disability coverages. The AD&D 
enhancement would pay the full $10,000 amount in the event of 
accidental death, in addition to the basic life insurance benefit and 
any additional life insurance benefit options selected by the 
participant. The new AD&D benefit would pay an enhanced benefit in 
accordance with a predetermined schedule for automobile-related deaths 
occurring while seatbelts and/or air bags are in use. Moreover, the new 
AD&D benefit would include a schedule of education benefits for 
qualified children in the event a Plan participant dies as a result of 
an accidental injury. Such benefits are in addition to any life 
insurance benefit that may be available. The new AD&D enhancement would 
also operate alongside any benefits that would otherwise be available 
under the Plan's existing LTD and/or STD coverages. Specifically, the 
AD&D enhancement would pay the full $10,000 amount in the event of 
grievous injury involving loss of both hands, both feet, or both eyes. 
The full $10,000 amount would also be payable in the event of the loss 
of two different appendages or organs, e.g., loss of a hand and a foot. 
One-half of the new benefit would be paid if a single organ or 
appendage were lost. These enhanced benefits would be available in 
addition to any available benefits under the LTD or STD coverages;
    (b) Short-Term Disability Benefit--Under this benefit enhancement, 
the current $150 maximum weekly benefit amount (under ``Option A'' of 
the STD program) would be increased to $175. Neither the amount of STD 
benefits, nor eligibility for such benefits, will be restricted or 
reduced as a result of this new enhancement;
    (c) Long-Term Disability Accelerated Death Benefit--The LTD benefit 
under the Plan will be enhanced by providing a new, previously 
unavailable, accelerated survivorship benefit to the beneficiaries of 
LTD-eligible employees. Under this benefit improvement, when an 
employee on LTD has a life expectancy of 6 months or less, the 
employee's beneficiaries will be eligible to receive a benefit payment 
equal to the LTD program's death benefit, i.e., 3 months of LTD benefit 
payments;
    (d) LTD Child Care Expense Benefit--Employees eligible for LTD 
benefits would be entitled to additional child care benefits under the 
LTD program. The enhanced expense allowance would be increased from the 
current level of $250 per month to $350 per month;
    (e) LTD Dependent/Elder Care Benefit--The enhanced LTD program 
would include additional benefits to cover the personal care costs of 
non-child dependents (e.g., elderly parents) during the period of the 
employee's disability. The enhanced expense allowance would be 
increased from the current level of $250 per month to $350 per month; 
and
    (f) LTD Worksite Modification Benefit--The enhanced LTD program 
would include a provision for an increase in the worksite modification 
benefit to $1,500 from the current $1,000 amount. The worksite 
modification benefit will defray the cost of workplace modifications 
that can enable a disabled employee to remain at work or return to 
work.
    6. The Plan's life and disability benefits are now insured by Unum, 
which currently has an ``A'' rating from A. M. Best. The applicants 
represent that if the Plan chooses another insurer in the future, that 
insurer will have a financial strength rating of ``A'' or better from 
A. M. Best. The applicants anticipate that, upon the granting of the 
exemption proposed herein, Unum will enter into reinsurance agreements 
with Royal Assurance.
    Unum will continue to insure the Plan, with the enhanced new 
benefits. However, Unum will reinsure up to 100% of the risk with Royal 
Assurance. The percentage of the risk to be insured will be specified 
in the reinsurance agreements between Unum and Royal Assurance. The 
reinsurance agreements between Unum and Royal Assurance will be 
indemnity reinsurance only, so that Unum will not be relieved of its 
liability to the Plan should Royal Assurance be unwilling or unable to 
cover any liability arising from the reinsurance arrangement.
    The Plan will pay no more than adequate consideration for the 
insurance contracts with Unum or any successor insurer. The formula 
used to calculate premiums by Unum or any successor insurer \15\ will 
be similar to formulae used by other insurers providing life insurance 
coverage under similar programs. Furthermore, the premium charge 
calculated in accordance with the formula will be reasonable and will 
be comparable to the premium charged by the insurer providing coverage 
under the Plan and its competitors with the same or a better rating 
providing the same coverage under comparable programs.
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    \15\ The applicants state that any successor insurer would be a 
legal reserve life insurance company with assets of such a size as 
to afford similar protection and responsibility.
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    7. In connection with this exemption request, Milliman, Inc. 
(Milliman) has been engaged as the independent fiduciary (Independent 
Fiduciary) on behalf of the Plan. Milliman is an international firm of 
consultants and actuaries with expertise in all facets of employee 
benefits, including insurance. William J. Thompson, FSA, MAAA (Mr. 
Thompson), a Principal and Consulting Actuary employed by Milliman, has 
represented Milliman for purposes of making the Independent Fiduciary 
representations. Milliman's consultants are frequently retained to 
advise corporations on the insurance arrangements underlying their 
benefit programs and have considerable expertise in the area of 
reinsurance and captive insurers.
    8. For purposes of demonstrating independence, the Independent 
Fiduciary has represented that:
    (a) It is not an Affiliate of Unum, Royal Assurance, or any of the 
other applicants;
    (b) Neither the Independent Fiduciary nor Mr. Thompson is an 
officer,

[[Page 59444]]

director, employee of, or partner in Unum, Royal Assurance, or any of 
the other applicants;
    (c) The Independent Fiduciary is not a corporation in which Unum, 
Royal Assurance, or any of the other applicants, has an ownership 
interest or is a partner;
    (d) The Independent Fiduciary does not have an ownership interest 
in Royal Assurance, any of the other applicants, or Unum, or in any 
Affiliate of those firms;
    (e) The Independent Fiduciary was not a fiduciary with respect to 
the Plan prior to its appointment for this transaction;
    (f) The Independent Fiduciary has acknowledged in writing its 
acceptance of fiduciary obligations and has agreed not to participate 
in any decision with respect to any transaction in which it has an 
interest that might affect their fiduciary duty;
    (g) The gross income received by the Independent Fiduciary and Mr. 
Thompson (both separately and combined) from Royal Assurance, the other 
applicants, Unum, or their Affiliates (including amounts received for 
services as Independent Fiduciary for representing the interests of the 
Plan with respect to the exemption transaction, for monitoring 
compliance with the terms and conditions of any administrative 
exemption granted by the Department, and for taking whatever actions 
may be necessary and appropriate to safeguard the interests of the Plan 
and its participants and beneficiaries), does not exceed one percent of 
the gross annual income of the Independent Fiduciary from all sources 
for the prior fiscal year; and
    (h) The Independent Fiduciary did not acquire any property from, 
sell property to, or borrow funds from, Royal Assurance, any of the 
other applicants, Unum, or their Affiliates.
    9. The Independent Fiduciary represents that Royal Assurance is 
licensed in the State of Arizona since December 3, 2008 to reinsure 
life and disability insurance business. The Independent Fiduciary 
confirmed that Royal Assurance has undergone an examination by Saslow 
Lufkin & Buggy, LLP, an independent certified public accountant, for 
its 2008 taxable year. The Independent Fiduciary reviewed their audited 
financial report and is satisfied that there are no issues to be 
resolved. In addition, the Independent Fiduciary had an opportunity to 
review the unaudited financial statements of Royal Assurance for the 
2009 taxable year, and found no evidence to contradict the view that 
the unaudited statements present fairly, in all material respects, the 
financial position of Royal Assurance as of December 31, 2009. The 
Independent Fiduciary further represents that future reserves will be 
reviewed by a qualified independent actuary approved by the State of 
Arizona.
    10. The Independent Fiduciary has concluded that, as a result of 
the reinsurance agreement described in representation 6, above, the 
Plan's risks will be 100% covered by Unum, a carrier with a current 
rating of ``A'' by A. M. Best, even if Royal Assurance were unable or 
unwilling to cover the Plans' liabilities it is assuming as a result of 
the reinsurance agreement. The Independent Fiduciary represents that it 
has reviewed the terms of the proposed reinsurance agreement between 
Unum and Royal Assurance, and has concurred that the agreement provides 
that Royal Assurance's risk would revert back to Unum at no further 
cost to the Plan should Royal Assurance be unable or unwilling to pay 
the benefits.
    11. The Independent Fiduciary has represented that it reviewed the 
Plan's benefits before the reinsurance transaction and the benefits to 
be implemented following the reinsurance transaction. After conducting 
this review, the Independent Fiduciary concluded that there would be an 
immediate benefit, in the form of the various benefit enhancements set 
forth above in Representation 5, to the Plan's participants from the 
reinsurance transaction. In reaching its conclusion, the Independent 
Fiduciary notes, inter alia, that the R+L Companies have represented 
that the benefit enhancements described in Representation 5 would be 
provided at no additional cost or obligation to employees covered by 
the Plan, and would cover all employees affected by the proposed 
transaction.
    12. The Independent Fiduciary has made the following 
representations concerning the determination of the initial premium to 
the Plan under the proposed arrangement. It concluded that the Plan is 
paying no more than adequate consideration for the Unum life and 
disability insurance contracts. In reaching this conclusion, the 
Independent Fiduciary noted that the current rates have been in place 
since 1998 for the disability program, and 2003 for the life program. 
As such, the Plan has accepted these rate levels as reasonable for 
several years, and the rates will not be increased upon implementation 
of the reinsurance transaction even though the benefits will be 
enhanced. The Independent Fiduciary reviewed documentation of 
historical claims and premium experience, as well as the current rate 
table. The Independent Fiduciary has stated that the retention being 
charged by the fronting carriers produces anticipated loss ratios for 
the life and disability business that are within typical marketplace 
levels for larger groups. The Independent Fiduciary also noted that, if 
full credibility was given to the life and disability experience of the 
R+L Companies, and using the carrier's anticipated loss ratios, the 
premium rates in recent years would be lower than the rates being 
charged. However, the Independent Fiduciary stated that, in its 
opinion, there is enough volatility in the life and LTD experience that 
the credibility being assigned to the business as a whole is 
reasonable.
    13. The current Independent Fidiciary, Milliman, will represent the 
interests of the Plan as the independent fiduciary at all times,\16\ 
will monitor compliance by the parties with the terms and conditions of 
the proposed reinsurance transaction, and will take whatever action is 
necessary and appropriate to safeguard the interests of the Plan and of 
its participants and beneficiaries.
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    \16\ In this regard, the applicants make the following 
representation regarding a successor independent fiduciary. 
Specifically, should it becomes necessary in the future to appoint a 
successor independent fiduciary to replace Milliman and Mr. 
Thompson, the Applicants will notify the Department sixty (60) days 
in advance of the appointment of the successor fiduciary. Any such 
successor will have the responsibilities, experience and 
independence similar to those of Milliman and Mr. Thompson.
---------------------------------------------------------------------------

    14. The applicants represent that the proposed reinsurance 
transaction will meet the following conditions of PTE 79-41 covering 
direct insurance transactions:
    (a) The applicants represent that Mr. Roberts is the owner, either 
directly or indirectly, of 50 percent or more of the combined voting 
power of all classes of stock entitled to vote of the captive, Royal 
Assurance; accordingly, the applicants represent that Royal Assurance 
is a party in interest with respect to the Plan for purposes of section 
3(14)(G) of the Act;
    (b) Royal Assurance is licensed to conduct reinsurance transactions 
by the State of Arizona. The law under which Royal Assurance is 
licensed requires that an actuarial review of reserves be conducted 
annually by an independent firm of actuaries and reported to the 
appropriate regulatory authority;
    (c) Royal Assurance has undergone an examination by the independent 
certified public accountant firm of Saslow Lufkin & Buggy, LLP for its 
last completed taxable year;

[[Page 59445]]

    (d) Royal Assurance has received a Certificate of Authority from 
its domiciliary state (Arizona), which has neither been revoked nor 
suspended;
    (e) The Plan will pay no more than adequate consideration for the 
insurance. In addition, in the initial year of the proposed reinsurance 
transaction, there will be an immediate and objectively determined 
benefit to the Plan's participants and beneficiaries in the form of 
increased benefits; and
    (f) No commissions will be paid by the Plan with respect to the 
reinsurance arrangement with Royal Assurance, as described herein.
    In addition, the Plan's interests will be represented by a 
qualified, Independent Fiduciary (i.e., Milliman or its successor), who 
has initially determined that the proposed reinsurance transactions 
will be in the interest of, and protective of, the Plan and its 
participants and beneficiaries. The Independent Fiduciary will also 
confirm on an annual basis that the Plan is paying a rate comparable to 
that which would be charged by a comparably-rated insurer for a program 
of the approximate size of the Plan with comparable claims experience.
    15. In summary, the applicants represent that the proposed 
reinsurance transactions will meet the criteria of section 408(a) of 
the Act because:
    (a) The Plan's participants and beneficiaries are afforded 
insurance protection by Unum, a carrier with a current rating of ``A'' 
from A. M. Best, at competitive market rates arrived at through arm's 
length negotiations;
    (b) Unum will enter into a reinsurance agreement with Royal 
Assurance, a sound, viable insurance company which has been in business 
since 2008;
    (c) The protections described in Representation 14, above, provided 
to the Plan and its participants and beneficiaries under the proposed 
reinsurance transactions are based on those required for direct 
insurance by a ``captive'' insurer, under the conditions of PTE 79-41 
(notwithstanding certain other requirements related to, among other 
things, the amount of gross premiums or annuity considerations received 
from customers who are not related to, or affiliated with the insurer); 
\17\
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    \17\ The proposal of this exemption should not be interpreted as 
an endorsement by the Department of the transactions described 
herein. The Department notes that the fiduciary responsibility 
provisions of Part 4 of Title I of the Act apply to the fiduciary's 
decision to engage in the reinsurance arrangement. Specifically, 
section 404(a)(1) of the Act requires, among other things, that a 
plan fiduciary act prudently, solely in the interest of the plan's 
participants and beneficiaries, and for the exclusive purpose of 
providing benefits to participants and beneficiaries when making 
investment decisions on behalf of the plan. In this regard, the 
Department is not providing any opinion as to whether a particular 
insurance or investment product, strategy or arrangement would be 
considered prudent or in the best interests of a plan, as required 
by section 404 of the Act. The determination of the prudence of a 
particular product or arrangement must be made by a plan fiduciary 
after appropriate consideration to those facts and circumstances 
that, given the scope of such fiduciary's investment duties, the 
fiduciary knows or should know are relevant to the particular 
product or arrangement involved, including the plan's potential 
exposure to losses and the role a particular insurance or investment 
product plays in that portion of the plan's investment portfolio 
with respect to which the fiduciary has investment duties and 
responsibilities (see 29 CFR 2550.404a-1).
---------------------------------------------------------------------------

    (d) The Independent Fiduciary has reviewed the proposed reinsurance 
transaction and has determined that the transaction is appropriate for, 
and in the interests of, the Plan and that there will be an immediate 
benefit to the Plan's participants as a result thereof by reason of an 
improvement in benefits under the terms of the Plan; and
    (e) The Independent Fiduciary will monitor compliance by the 
parties with the terms and conditions of the exemption, and will take 
whatever action is necessary and appropriate to safeguard the interests 
of the Plans and of their participants and beneficiaries.
    Notice To Interested Persons: A copy of this Notice of Proposed 
Exemption (the Notice) shall be provided to all interested persons via 
first-class mail within thirty (30) days of the date of publication of 
the Notice in the Federal Register. Comments and requests for a hearing 
are due no later than sixty (60) days after publication of the Notice 
in the Federal Register.
    For Further Information Contact: Mr. Gary Lefkowitz of the 
Department at (202) 693-8546. 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 21st day of August 2011.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security 
Administration, U.S. Department of Labor.
[FR Doc. 2011-24656 Filed 9-23-11; 8:45 am]
BILLING CODE 4510-29-P