Proposed Exemptions; Kimball International, Inc. Retirement Plan
(the Plan) et al. [Notices] [10/23/2001]
Proposed Exemptions; Kimball International, Inc. Retirement Plan
(the Plan) et al. [10/23/2001]
Volume 66, Number 205, Page 53635-53638
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Application No. D-10949, et al.]
Proposed Exemptions; Kimball International, Inc. Retirement Plan
(the Plan) et al.
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Notice of Proposed Exemptions.
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SUMMARY: This document contains notices of pendency before the
Department of Labor (the Department) of proposed exemptions from
certain of the prohibited transaction restrictions of the Employee
Retirement Income Security Act of 1974 (the Act) and/or the Internal
Revenue Code of 1986 (the Code).
Written Comments and Hearing Requests
All interested persons are invited to submit written comments or
request for a hearing on the pending exemptions, unless otherwise
stated in the Notice of Proposed Exemption, within 45 days from the
date of publication of this Federal Register notice. Comments and
requests for a hearing should state: (1) The name, address, and
telephone number of the person making the comment or request, and (2)
the nature of the person's interest in the exemption and the manner in
which the person would be adversely affected by the exemption. A
request for a hearing must also state the issues to be addressed and
include a general description of the evidence to be presented at the
hearing.
ADDRESSES: All written comments and request for a hearing (at least
three copies) should be sent to the Pension and Welfare Benefits
Administration, Office of Exemption Determinations, Room N-5649, U.S.
Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.
Attention: Application No. ____ , stated in each Notice of Proposed
Exemption. The applications for exemption and the comments received
will be available for public inspection in the Public Documents Room of
the Pension and Welfare Benefits Administration, U.S. Department of
Labor, Room N-1513, 200 Constitution Avenue, NW, Washington, DC 20210.
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all
interested persons in the manner agreed upon by the applicant and the
Department within 15 days of the date of publication in the Federal
Register. Such notice shall include a copy of the notice of proposed
exemption as published in the Federal Register and shall inform
interested persons of their right to comment and to request a hearing
(where appropriate).
SUPPLEMENTARY INFORMATION: The proposed exemptions were requested in
applications filed pursuant to section 408(a) of the Act and/or section
4975(c)(2) of the Code, and in accordance with procedures set forth in
29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990).
Effective December 31, 1978, section 102 of Reorganization Plan No. 4
of 1978, 5 U.S.C. App. 1 (1996), transferred the authority of the
Secretary of the Treasury to issue exemptions of the type requested to
the Secretary of Labor. Therefore, these notices of proposed exemption
are issued solely by the Department.
The applications contain representations with regard to the
proposed exemptions which are summarized below. Interested persons are
referred to the applications on file with the Department for a complete
statement of the facts and representations.
Kimball International, Inc. Retirement Plan (the Plan), Located in
Jasper, Indiana
[Application No. D-10949]
Proposed Exemption
The Department is considering granting an exemption under the
authority of section 408(a) of the Act and section 4975(c)(2) of the
Code and in accordance with the procedures set forth in 29 CFR part
2570, subpart B (55 FR 32836, 32847, August 10, 1990). If the exemption
is granted, the restrictions of sections 406(a), 406(b)(1) and (b)(2)
of the Act and the sanctions resulting from the application of section
4975 of the Code, by reason of section 4975(c)(1)(A) through (E) of the
Code, shall not apply to the proposed sale (the Sale) by the Plan of
stock (the Shares) of Springs Valley Bank & Trust Company (Springs
Valley) to Springs
[[Page 53636]]
Valley, the Trustee of the Plan and a party in interest with respect to
the Plan, provided that the following conditions are met:
(a) All terms and conditions of the Sale are at least as favorable
to the Plan as those obtainable in an arm's-length transaction with an
unrelated party;
(b) The Sale is a one-time transaction for cash;
(c) The fair market value of the Shares is determined by a
qualified, independent appraiser;
(d) The Plan does not pay any commissions, costs or other expenses
in connection with the Sale; and
(e) The Plan receives as consideration an amount that is no less
than the greater of: (1) the fair market value of the Shares as of the
date of the Sale or (2) $40 per Share.
Summary of Facts and Representations
1. The Kimball International, Inc. Retirement Plan (the Plan) is a
defined contribution plan within the meaning of ERISA Section 3(34),
permitting both before-tax (401(k)) participant contributions and
after-tax participant contributions. As of November 9, 2000, the Plan
covers approximately 7,400 participants and has Plan assets of
approximately $349,204,819.28. Approximately 1.66% ($5,796,800) of the
Plan assets are involved in the proposed transaction. The Trustee of
the Plan is Springs Valley.
2. Kimball International, Inc. (the Employer) is engaged in the
manufacture of pianos, office, hotel, restaurant, healthcare and
residential furniture and cabinets (in both wood and metal), and in the
design, engineering, manufacture, packaging and distribution of
electronic assemblies, circuit boards, multi-chip modules and
semiconductor components on a contract basis to customers in the
transportation, defense, aerospace, telecommunications, computer and
medical industries.
3. Prior to 1990 the Employer sponsored and maintained two separate
defined contribution profit sharing plans, the Kimball International,
Inc. Indirect Retirement Plan (established effective January 1, 1952)
covering the Employer's salaried employees; and the Kimball
International, Inc. Direct Retirement Plan (established effective July
1, 1968) covering the Employer's non-salaried employees. Effective July
1, 1990, those two separate plans were merged to form the Plan.
Subsequently, beginning March 1, 1994, the Employer incorporated a
401(k) feature within the Plan.
4. Springs Valley, as the Trustee of the Plan, has held the
authority to vote the securities in the Plan, including the Shares. The
Shares in the Plan were voted each year by an independent person,
Claude Taylor (Mr. Taylor), on behalf of Spring Valley as Trustee. Mr.
Taylor is not an employee of Spring Valley. He is a local resident of
French Lick, Indiana, and has been serving in this independent capacity
for over 20 years.
5. The Plan holds 144,920 Shares, having an estimated value of
$5,796,800 at June 30, 2000 (based on a private transaction at $40 per
share occurring in 2000), and representing approximately 19.5% of the
issued and outstanding Shares. The Employer, its significant
shareholders, and the Plan own in the aggregate approximately 38% of
the issued and outstanding Shares. The Shares were originally acquired
from Spring Valley by the Plan in three separate transactions prior to
the enactment of the Act\1\. The total cost of the shares to the Plan
was $319,547.88.
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\1\ The Department expresses no opinion herein as to whether the
holding of the Shares by the Plan violated any of the provisions of
Part 4 of Title I of the Act.
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6. The Shares are not publicly traded, and there is no ready market
for it. The Shares are valued annually by an independent, qualified,
appraiser, Professional Bank Services located in Louisville, Kentucky,
retained and paid by Spring Valley for the purpose of valuing such
stock in connection with the Springs Valley employees' stock option
plan. The method used in such valuation can briefly be described as
follows: (i) The appraisal is based on a valuation of the Plan's
minority interest in Springs Valley; (ii) an analysis of the bank's
market liquidity, regulatory and audit reports; and (iii) other such
summary information that is available and deemed appropriate. The Plan
uses that valuation for its purposes of valuing the Shares annually.
Professional Bank Services concluded that the fair market value of the
Shares is $40 per common share as of April 5, 2001.
7. With dividends reinvested, the compound rate of return of the
Shares has been 10.663% from 1984 through 1999. The Plan will receive
$5,796,800 resulting from the investment by the Plan in the Shares of
$319,547.88.
8. On July 1, 2001, the Employer amended the Plan to permit
participants to self-direct the investment of their Plan accounts. In
order to facilitate this process, and because of the illiquid nature of
the Shares, the continued investment in the Shares is incompatible with
Plan participant self-direction, and with the future distributions from
the Plan. As a result, the Plan now proposes to sell the Shares for the
greater of: (1) The fair market value of the Shares as of the date of
the Sale or (2) $40 per Share.
9. Before the Sale, the Shares will be transferred from Springs
Valley as trustee to an independent trustee also acting under the Plan.
That independent trustee will be the National Bank of Indianapolis (the
National Bank) located in Indianapolis, Indiana. The National Bank will
perform an independent review and fairness determination of the
appraisal process prior to the Sale to Springs Valley, which may
include obtaining a second independent appraisal.
10. The applicant represents that the proposed transaction is
administratively feasible, and in the best interest and protective of
the Plan. The transaction will be for cash and the Plan will pay no
costs or commissions associated with the sale, allowing the Plan to
divest itself of the Shares and reinvest the proceeds of the Sale in
assets that will be diversified and generate higher rates of return.
11. 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) All terms and conditions of the Sale are at least as favorable
to the Plan as those reasonably obtainable in an arm's-length
transaction with an unrelated party;
(b) The Sale is a one-time transaction for cash;
(c) The fair market value of the Shares is determined by a
qualified, independent, appraiser;
(d) The Plan does not pay any commissions, costs or other expenses
in connection with the Sale; and
(e) The Plan receives as consideration an amount that is no less
than the greater of: (1) the fair market value of the Shares as of the
date of the Sale or (2) $40 per Share.
Notice to Interested Persons: Notice of the proposed exemption
shall be given to all interested persons in the manner agreed upon by
the applicant and Department within 15 days of the date of publication
in the Federal Register. Comments and requests for a hearing are due
forty-five (45) days after publication of the notice in the Federal
Register.
For Further Information Contact: Khalif Ford of the Department,
telephone (202) 219-8883. (This is not a toll-free number).
[[Page 53637]]
Alaska United Food and Commercial Workers Health and Security Trust
Fund (the Plan) Located in Anchorage, Alaska
[Application No. L-10896]
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 section 406(a) of the Act shall not apply to the proposed purchase
by Plan participants and beneficiaries of prescription drugs from
Safeway, Inc. (Safeway), a party in interest with respect to the Plan,
provided the following conditions are satisfied: (a) The terms of the
transaction are at least as favorable to the Plan as those the Plan
could obtain in a similar transaction with an unrelated party; (b) any
decision by the Plan to enter into agreements governing the subject
purchases will be made by Plan fiduciaries independent of Safeway and
its wholly owned subsidiary, SMCrx; (c) at least 50% of the preferred
providers participating in the Preferred Provider Network (PPN)
involving Safeway are unrelated to Safeway or any other party in
interest with respect to the Plan; (d) Safeway will be treated no
differently than any other pharmacy participating in the PPN; and (e)
the transaction is not part of an agreement, arrangement or
understanding designed to benefit Safeway or any other party in
interest with respect to the Plan.
Effective Date: The proposed exemption, if granted, will be
effective as of August 1, 2000.
Summary of Facts and Representations
1. The Plan is a multi-employer welfare benefit plan, which has
been in existence since February 25, 1965. The Plan was established to
provide health and welfare benefits, including life, sickness, accident
and other benefits for Plan participants and their beneficiaries. The
Plan is directed by a six person board of trustees. The three trustees
representing labor are appointed by the United Food and Commercial
Workers Local Union 1496 (the Union). The three employer trustees are
appointed by contributing employers to the Plan, including Safeway,
which operates Safeway/Carr's grocery stores. The Plan currently has
approximately 2,916 participants and $8,687,702 in assets.
2. The applicant represents that the Plan had an existing
relationship with a Pharmacy Benefits Manager (PBM), a company called
PCS, that had not been satisfactory for an extended period of time. The
applicant states that PCS has an extensive network of participating
pharmacies but could not accommodate the needs of the Plan by
processing non-electronic (i.e., paper) claims. The failure of PCS to
process paper claims for the Plan placed the burden of processing such
claims on the Plan's third party administrator, Labor Trust Services of
Anchorage, Alaska.
3. After several attempts to rectify these problems with PCS, the
Plan's trustees decided to seek bids from other PBMs. The trustees
requested that the Plan's independent consultant, William M. Mercer,
Inc., of Seattle, Washington (Mercer), find and recommend an
alternative PBM at a competitive price, who would be better able to
adapt to the needs of the Plan. The trustees did not select the
entities to be considered in the PBM search.
4. Mercer considered four entities as possible PBMs for the Plan.
Requests for proposals had been sent to SysteMed (Merck-Medco), PCN and
SMCrx. PCS also provided an unsolicited bid. Mercer analyzed the bids
and recommended SMCrx as being the most able to fulfill the needs of
the Plan since its price was competitive and it would process the non-
electronic claims. The applicant represents that the trustees of the
Plan chose SMCrx based on the findings and recommendation of Mercer,
the Plan's independent consultant. Safeway's representative on the
Plan's board of trustees took no part in the discussion or voting on
the selection of SMCrx as the Plan's PBM.
5. SMCrx is a wholly-owned subsidiary of Safeway, which is a major
contributing employer to the Plan through its grocery stores in Alaska.
SMCrx has a separate board of directors and a separate corporate
headquarters from Safeway.
6. A PBM normally maintains an extensive system of participating
pharmacies in its preferred provider network (i.e., a PPN) throughout
the United States. The applicant states that SMCrx has a PPN comparable
to many of its competitors. However, SMCrx is smaller in size, and,
therefore, more willing to adjust its operations to the needs of the
Plan, including the processing of paper claims. The Plan does have a
mail order prescription option through SMCRx, which is an advantage to
the participants and beneficiaries. As a PBM, SMCrx negotiated
discounts with the drug manufacturers as well as the participating
pharmacies. These discounts will be passed on to the Plan and its
participants and beneficiaries. Unless the pharmacies meet the discount
standards of SMCrx, they do not participate in the PPN. SMCrx has a
nationwide network of participating pharmacies. The applicant states
that the discounts with the pharmacies are uniform, thereby avoiding
any favoritism.
7. Effective August 1, 2000, the Plan entered into an agreement
with SMCrx wherein SMCrx agreed to act as the PBM for the Plan.\2\ The
Plan will receive the same discounts on pharmaceutical drugs as all
other customers of SMCrx. The Plan will, through SMCrx, participate in
the PPN as well as benefit from SMCrx's ability to handle the paper
claims of participants and beneficiaries. SMCrx has agreed to a 30 day
cancellation clause in its contract for cause, and either party may
cancel the contract without cause by giving 60 days prior notice.
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\2\ The provision of services to a plan by a party in interest
with respect to the plan is a separate prohibited transaction under
section 406(a)(1)(C) of the Act. However, the provision of services
to a plan by a party in interest, which are necessary for the
operation of the plan, are statutorily exempt under section
408(b)(2) of the Act, if the conditions required therein are met.
The regulation promulgated by the Department which defines the scope
of the statutory exemption contained in section 408(b)(2) of the Act
states that no relief is provided for any arrangement for services
which would violate section 406(b) of the Act (see 29 CFR section
2550.408b-2).
Therefore, it should be noted that in this proposed exemption,
the Department is providing no relief beyond that provided by
section 408(b)(2) of the Act with respect to the provision of PBM
services by SCMrx to the Plan. In addition, the Department is
providing no opinion herein as to whether any service arrangements
between SMCrx and the Plan would meet the conditions of section
408(b)(2) of the Act and the regulations thereunder.
However, interested persons should review DOL Adv. Op. 99-09A
(May 21, 1999) for a discussion of issues relating to such service
arrangements.
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8. SMCrx has agreed to the following terms for a period of one
year:
(a) Custom Alaska Network
Brand Discount 11% off AWP \3\ or U&C \4\
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\3\ ``AWP'' stands for ``Average Wholesale Price.'' The AWP is
determined by SMCrx's utilization of the Medispan First Data Bank.
This data bank is the national drug pricing standard for determining
AWP. The AWP pricing is updated daily and automatically in SMCrxs
adjudication system. AWP represents the retail spread over wholesale
acquisition costs and is set by the manufacturers. Thus, the
applicant represents that it is objectively determined. The PBM also
utilizes HCFA-MAC pricing for generics. This is a nationally
recognized generic pricing standard which is updated monthly.
\4\ ``U&C'' stands for ``Usual and Customary.'' The discount
will be taken off either the AWP or the U&C price, whichever
produces the lowest price.
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Dispensing Fee $2.50/Rx
Generic Discount 25% off AWP or U&C
Dispensing Fee $2.50/Rx
Claims Processing:
Electronic $0.60 per claim
[[Page 53638]]
Paper $1.50 per claim
(b) Broad Network
Brand Discount 13% off AWP or U&C
Dispensing Fee $2.50/Rx
Generic Discount AWP--33%
Dispensing Fee $2.50/Rx
(c) Mail Order
Brand Discount 15% off AWP
Generic Discount 30% off AWP
Dispensing Fee $2.00/Rx
9. The Custom Network consists of participating pharmacies who file
claims electronically, while the Broad Network consists of all other
pharmacies in SMCRx's network. In each network, the Plan receives a
discount on the price of drugs. The SMCRx proposal provides the Plan
with the highest savings off AWP. However, there are ``paper'' claims
which are part of the Broad Network which must be processed by SMCRx.
There is no mandatory formulary arrangement. A voluntary formulary
arrangement exists where the Plan receives 60% of the manufacturer's
rebate.
10. Plan participants and beneficiaries may acquire their
prescription drugs through the PPN established by SMCrx. SMCrx will
adjudicate prescription claims that have been submitted to the PPN by
the covered individual and shall perform all claims-related processing
functions, not limited to determining the validity and the accuracy of
the claims submitted. SMCrx will then bill the Plan for the cost of
these services, which is agreed to by contract. SMCrx will receive a
monthly fee assessed on a per claim basis which will be paid for by the
Plan. SMCRx's performance and competitiveness are monitored by the
Plan's third party administrator, Labor Trust Services, Inc. (LTS), and
the Plan's consultant Mercer. Both Mercer and LTS are independent of
Safeway.
11. The Plan benefits by: (a) Receiving discounts through the
participating pharmacies; (b) receiving discounts from any
participating pharmaceutical company or manufacturer in the form of
lower costs to participants and beneficiaries; (c) the processing and
review of claims by professional management; and (d) the submissions of
reports regarding trends in the pharmaceutical/prescription industry.
The applicant represents that at least 50% of the preferred
providers participating in the PPN are, and will continue to be,
unrelated to Safeway or any other party in interest. All Plan decisions
to enter into agreements governing the subject purchases of
prescription drugs have been and will continue to be made by Plan
fiduciaries that are independent of Safeway and SMCrx. In this regard,
any fiduciary affiliated with Safeway or SMCrx has removed or will
remove himself or herself from all consideration by the Plan as to
whether to engage in the covered transactions. Finally, the applicant
states that the subject transactions are not part of an agreement,
arrangement or understanding designed to benefit a party in interest.
12. In summary, the applicant represents that the subject
transactions satisfy the criteria contained in section 408(a) of the
Act because: (a) The terms of the transactions are at least as
favorable to the Plan as those the Plan could obtain in similar
transactions with an unrelated party; (b) any decision by the Plan to
enter into agreements governing the subject purchases will be made by
Plan fiduciaries independent of Safeway and SMCrx; (c) at least 50% of
the preferred providers participating in the PPN are unrelated to
Safeway or any other party in interest; (d) Safeway will be treated no
differently than any other pharmacy participating in the PPN; and (e)
the transactions are not part of an agreement, arrangement or
understanding designed to benefit a party in interest.
For Further Information Contact: Gary H. Lefkowitz of the
Department, telephone (202) 219-8881. (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 17th day of October, 2001.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, Department of Labor.
[FR Doc. 01-26567 Filed 10-22-01; 8:45 am]
BILLING CODE 4510-29-P
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