[Federal Register: March 13, 2008 (Volume 73, Number 50)]
[Notices]
[Page 13587-13588]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr13mr08-87]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Application No. D-11416, et al.]
Proposed Exemption Involving; Wholesale Electronic Supply
Employees Profit Sharing Plan and Trust
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 exemptions 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 45 days from the
date of publication of this Federal Register Notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5649,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No.--------, stated in each Notice of
Proposed Exemption. Interested persons are also invited to submit
comments and/or hearing requests to 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 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 15 days of the date of publication in the Federal Register. Such
notice shall include a copy of the notice of proposed exemption as
published in the Federal Register and shall inform interested persons
of their right to comment and to request a hearing (where appropriate).
SUPPLEMENTARY INFORMATION: The proposed 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.
Wholesale Electronic Supply Employees Profit Sharing Plan and Trust
(the Plan) Located in Dallas, TX
[Application No. D-11416]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and 4975(c)(2) of the Code, and
in accordance with the procedures set forth in 29 CFR Part 2570 Subpart
B (55 FR 32836, 32847, August 10, 1990). If the proposed exemption is
granted, the restrictions in sections 406(a)(1)(A), 406(a)(1)(D), and
406 (b)(1) and (b)(2) of the Act and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) and (c)(1)(D) through (E) of the Code, shall not apply to
the sale of a note (the Note) by the Plan to Levco Enterprises, Inc., a
party in interest with respect to the Plan, provided that the following
conditions are satisfied:
(a) The terms and conditions of the sale are at least as favorable
to the Plan as those that the Plan could obtain in an arm's length
transaction with an unrelated party;
(b) The Plan receives $45,750.00, the outstanding principal balance
of the Note;
(c) The sale is a one-time transaction for cash; and
(d) The Plan pays no commissions, costs, nor other expenses in
connection with the sale.
Summary of Facts and Representations
1. The Plan is a defined contribution, profit sharing plan. As of
June 30, 2006, the Plan had 21 participants and beneficiaries. As of
the same date, the Plan had total assets of $426,213, which are held by
Merrill Lynch. Resolutions approving and authorizing the complete
freeze and termination of the Plan, effective February 21, 2007, were
adopted by the Board of Directors of Wholesale Electronic Supply, Inc.,
the Plan sponsor. In connection with the termination of the Plan, an
application has been filed with the Internal Revenue Service (the
Service) for a favorable determination regarding the Plan's status as a
qualified plan under section 401(a) of the Code. Only after the Plan
obtains such a determination from the Service and the requested
exemption from the Department with respect to the Note is granted will
the Plan's trust be liquidated and all account balances distributed.
2. On February 24, 1987, the Plan sold a 6,315 sq. ft. tract of
unimproved land
[[Page 13588]]
in Dallas (the Flora Street Property), Texas to Savoy Properties Co.
(Savoy), an unrelated third party, in exchange for (i) a 5,400 sq. ft.
tract of unimproved land in Dallas, Texas, and (ii) the Note, secured
by the Deed of Trust for the sold property.\1\ The Note bears no
interest and is due and payable upon the earlier of (a) the
commencement of the development of the Flora Street Property, or (b)
the sale of the Flora Street Property by Savoy. The full face amount of
the Note remains outstanding and represents approximately 11 percent of
the Plan's assets. The trustee of the Plan, John N. Leedom, proposes
the sale of the Note to Levco Enterprises, Inc. (Levco); the Plan
sponsor owns 86% of the total value of shares of all classes of stock
of Levco, and both are located in Dallas, Texas. Mr. Leedom is also the
CEO of both the Plan sponsor and of Levco.
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\1\ The Department expresses no opinion herein as to whether the
acquisition and holding of the Note by the Plan as part of the
consideration in the 1987 exchange violated any of the provisions of
Part 4 of Title I in the Act.
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The applicant represents that, prior to the 1987 exchange, the
Savoy 5,400 sq. ft. tract was between two other tracts already owned by
the Plan, and the Plan owned a third separate 6,315 sq. ft. tract in
the vicinity. In order to enhance the value of the first two tracts by
joining them together as one contiguous property, the Plan trustee
approached Savoy about acquiring its 5,400 sq. ft. tract. Because the
transaction was sought by the Plan and because the Savoy tract had
special value to the Plan, Savoy was not a motivated seller and was
reluctant to pay an additional amount of cash in the exchange of its
property for the larger tract owned by the Plan. The Plan trustee,
however, determined that it was in the best interests of the Plan to
acquire the Savoy tract and agreed to the exchange, plus the receipt of
additional consideration in the form of the Note. According to the
applicant, the adjacency premium commanded by the Savoy tract was due
to the Plan's subsequent assemblage of a larger, contiguous piece of
property whose increase in value exceeded any risk associated with
holding the non-interest-bearing Note. According to the applicant, this
consolidated property was the sole real estate asset held by the Plan
and was sold in 2005 to an unrelated third party.
3. The Note was appraised by a qualified, independent appraiser
Stephen M. LaGrasta, MAI, with Yates-LaGrasta, Inc., located in
Houston, Texas. It is represented that Yates-LaGrasta, Inc. regularly
performs appraisals for institutional clients, including banks,
regulatory agencies, insurance companies, trusts, and state and federal
courts. Using a discounting process, Mr. LaGrasta opined that the fair
market value for the real estate lien Note was $5,623, as of February
20, 2007. The principal balance outstanding under the Note is
$45,750.00.
4. Levco will pay a purchase price of $45,750.00 for the Note. The
sale of the Note to Levco will be a one-time transaction for cash and
will provide the liquidity necessary to make final distributions to the
Plan's participants and beneficiaries. Levco is bearing the costs of
the exemption application and of notifying interested persons.
5. In summary, the applicant represents that the proposed
transaction satisfies the statutory criteria for an exemption under
section 408(a) of the Act for the following reasons:
(a) The terms and conditions of the sale will be at least as
favorable to the Plan as those that the Plan could obtain in an arm's
length transaction with an unrelated party;
(b) The Plan will receive $45,750.00, the outstanding principal
balance of the Note;
(c) The sale will be a one-time transaction for cash; and
(d) The Plan will pay no commissions, costs, nor other expenses in
connection with the sale.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons by first-class mail within 10
days of the publication of this notice in the Federal Register. Notice
to interested persons shall include a copy of this published Federal
Register notice and inform them of their right to comment. Comments
with respect to the proposed exemption are due within 40 days of the
publication of this notice in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Ms. Karin Weng of the Department,
telephone (202) 693-8557. (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 7th day of March, 2008.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. E8-4981 Filed 3-12-08; 8:45 am]
BILLING CODE 4510-29-P
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