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DOCUMENT ID: [Application Nos. D-11082 & D-11109; D-11263; D-11449; and D-11460]
SUBJECT CATEGORY: Proposed Exemptions Involving; D-11082 & D-11109--Deutsche Bank, AG; D-11263--Banc One Investment Advisors Corporation and J.P. Morgan Investment Management Inc.; D-11449--Pileco, Inc. Employees Profit Sharing Plan; and D-11460--Mellon Bank N.A.
DOCUMENT 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).
All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, within 45 days from the date of publication of this Federal Register Notice. Comments and requests for a hearing should state: (1) The name, address, and telephone number of the person making the comment or request, and (2) the nature of the person's interest in the exemption and the manner in which the person would be adversely affected by the exemption. A request for a hearing must also state the issues to be addressed and include a general description of the evidence to be presented at the hearing.
SUMMARY: Labor Department, Employee Benefits Security Administration,
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.
Located in Germany, with Affiliates in New York, NY and Other Locations.
[Application Nos. D11082 and D11109]
The Department is considering granting an exemption under the
authority of section 408(a) of the Act (or ERISA) 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).\1 \
\1\ For purposes of this proposed exemption, references to
specific provisions of Title I of the Act, unless otherwise
specified, refer also to the corresponding provisions of the Code. Section I. Covered Transactions
If the proposed exemption is granted, the restrictions of sections
406(a)(1)(A) through (D) and 406(b)(1) and (b)(2) of the Act, and the
taxes imposed by section 4975(a) and (b) of Code, by reason of section
4975(c)(1)(A) through (E) of the Code, shall not apply to the following
foreign exchange transactions involving less developed currencies, that
are executed by Deutsche Bank or a current or future affiliate
(domestic or foreign) thereof that is a bank or brokerdealer, acting
as a local subcustodian in connection with a determination by Deutsche
Bank or its affiliates to invest the assets of a client plan, an in
house plan whose assets are invested in a separately managed account
with Deutsche Bank, or a pooled fund, in foreign securities, if the
conditions set forth in Sections II, III and IV below are met with respect to:
(1) A traderelated currency conversion, or
(2) An income item conversion.
Section II. General Conditions
(a) At the time the foreign exchange transaction is entered into,
the terms of the transaction are not less favorable to the client plan,
inhouse plan or pooled fund than the terms generally available in a
comparable arm's length foreign exchange transaction between unrelated parties.
(b) The exchange rate used for a particular foreign exchange
transaction does not deviate by more than 3 percent (above or below)
the interbank bid and asked rates for such currency at the time of the
transaction as displayed on an independent, nationallyrecognized
service that reports rates of exchange in the foreign currency market for such currency.
(c) The covered transactions are limited to those less developed
currencies in which a transaction is executed with Deutsche Bank or its
affiliate acting as local subcustodian at the direction of the global
custodian because the global custodian either does not make a market in
such currency, or otherwise determines to execute with the local
subcustodian because of market conditions, market restrictions, illiquidity of the currency or similar exigencies.
(d) Where a market is served by more than one subcustodian,
Deutsche Bank, as asset manager, has no decision making authority or
role, or otherwise makes no recommendations with respect to the global custodian's selection of the subcustodian.
(e) The foreign exchange transaction is executed by Deutsche Bank or its
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affiliate thereof acting as subcustodian at the direction of the global
custodian in the ordinary course of its business as global custodian.
(f) The decision to select Deutsche Bank or its affiliate as the
subcustodian is made by a global custodian which is unrelated to Deutsche Bank or any affiliate thereof.
(g) The selection of Deutsche Bank or its affiliate as subcustodian
and any foreign exchange transactions executed by Deutsche Bank or its
affiliate at the direction of the global custodian are not part of any
agreement, arrangement or understanding, written or otherwise, designed
to benefit Deutsche Bank, its affiliate or any other party in interest.
(h) Deutsche Bank or its affiliate appoints an independent
fiduciary to represent the interests of (1) an inhouse plan, or (2) plans investing in a large pooled fund.
(i) The decision to invest in a market and to select Deutsche Bank
or its affiliate as asset manager is part of an investment strategy
that is adopted by an independent fiduciary of a client plan, the
independent fiduciary of an inhouse plan, the independent fiduciary of
a large pooled fund, or the independent fiduciary of an unrelated pooled fund.
(j) On an annual basis, the percentage of assets of inhouse plans
and pooled funds for which Deutsche Bank and/or its affiliates select
the global custodian represent less than 20 percent of the total assets under custody by any such global custodian.
(k) Foreign affiliates of Deutsche Bank who engage in the covered transactions
(1) Agree to submit to the jurisdiction of the United States;
(2) Agree to appoint an agent for service of process in the United States, which may be an affiliate (the Process Agent);
(3) Consent to service of process on the Process Agent; (4) Agree that they may be sued in the United
States Courts in connection with the covered transactions described in this proposed exemption;
(5) Agree that any judgment on behalf of a plan or pooled fund may be collected in the United States from Deutsche Bank; and
(6) Agree to comply with, and be subject to, all relevant provisions of the Act.
(l) With respect to the covered transactions
(1) Deutsche Bank or its affiliate designates an individual
responsible for periodically (but no less frequently than on an annual
basis) reviewing a sample of such foreign exchange transactions to
determine whether the covered transactions have been executed in
accordance with the terms of this exemption. Such sample must include a
sufficient number of transactions to ensure that each affected currency is tested.
(2) Deutsche Bank or its affiliate provides such individual with
the records (which may be provided electronically) described in Section IV(a)(1)(7), on an annual basis.
(3) Such individual notifies Deutsche Bank or its affiliate, the
independent fiduciary of a client plan, the independent fiduciary of an
inhouse plan, the independent fiduciary of a large pooled fund, the
independent fiduciary of an unrelated pooled fund, or the receiving
fiduciary of a small pooled fund, of its findings in a written report
within 90 days after the period to which the periodic review relates.
Such report describes the steps performed by such individual during the
course of the review, the level of compliance by Deutsche Bank or its
affiliate with the terms and conditions of the exemption, and any
specific instances of noncompliance by Deutsche Bank or its affiliate with the terms and conditions of the exemption.
Section III. Notice Requirements
(a) At the time Deutsche Bank or its affiliate is retained as asset
manager, or prior to the initial investment of the plan's assets or
pooled fund's assets in any foreign investments that may require the
execution of a foreign exchange transaction by Deutsche Bank or its
affiliate as subcustodian, Deutsche Bank or its affiliate provides the
independent fiduciary of a client plan, the independent fiduciary of an
inhouse plan, the independent fiduciary of a large pooled fund, the
independent fiduciary of an unrelated pooled fund, or the receiving
fiduciary of a small pooled fund, a written notice (which may be effected electronically) that includes the following:
(1) The reasons why Deutsche Bank or its affiliate may consider a
particular market to be an appropriate investment for the plan or pooled fund.
(2) The factors considered by Deutsche Bank or its affiliate in its
selection of global custodian (if applicable) including: (i) the
identity of the global custodian; and (ii) a summary of the global
custodian's policies and procedures regarding the handling of foreign
exchange transactions for plans or pooled funds with respect to which
Deutsche Bank or its affiliate is a fiduciary and the factors that the
global custodian considers in its selection of a subcustodian.
(3) Notice that such foreign exchange transaction may be executed
by Deutsche Bank or its affiliate as subcustodian, at the direction of a global custodian.
(4) A list of the markets in which plans or pooled funds may invest
where Deutsche Bank or its affiliate serves as a subcustodian.
(5) A list of the markets where currency transactions are executed by a subcustodian, to the extent known.
(6) Notice that Deutsche Bank or its affiliate maintains records
(described in Section IV), and such records are reasonably available at
their customary location for examination in the U.S., during normal
business hours, by the responsible reviewing individual, the
independent fiduciary of a client plan, the independent fiduciary of an
inhouse plan, the independent fiduciary of a large pooled fund, the
independent fiduciary of an unrelated pooled fund, or the receiving
fiduciary of a small pooled fund, any participant or beneficiary of
such plan or pooled fund, or any duly authorized employee or representative of such participant or beneficiary.
(7) Copies of the notice of proposed exemption and the grant of final exemption with respect to the subject transactions.
(b) If the independent fiduciary fails to object in writing to
Deutsche Bank or its affiliate within 30 days following receipt of the
information described in section III(a) by such fiduciary, then such
fiduciary's authorization of the arrangement contemplated under this exemption shall be presumed.
(c) Deutsche Bank or its affiliate shall provide notification of
any changes to the information required by Section III, including, but
not limited to, the situation where Deutsche Bank or its affiliate
replaces the global custodian with another independent entity or where
there are changes in the markets in which currency transactions are
executed by the subcustodian. If the independent fiduciary fails to
object in writing to Deutsche Bank or its affiliate within 30 days
following disclosure of such changes, such fiduciary's approval of these changes shall be presumed.
Section IV. Recordkeeping Requirements
(a) Deutsche Bank or its affiliate maintains, or causes to be
maintained, for a period of six years from the date of the covered
transactions, the following records, as well as any records necessary to enable the persons described in paragraph (c) of this
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Section IV, to determine whether the conditions of this exemption have been met:
(1) The account name,
(2) The foreign exchange transaction execution date,
(3) The exchange rate,
(4) The high and low on Reuters or similar independent service on the date of the transaction,
(5) The identity of the foreign currency sold or purchased, (6) The amount of foreign currency sold or purchased,
(7) The amount of U.S. dollars exchanged, where the exchange is
between foreign currencies and U.S. dollars or the amount of foreign
currency exchanged, where the exchange is between two foreign currencies, and
(8) The annual report described in Section II(l).
(b) The following are exceptions to paragraph (a) of this Section
FOR FURTHER INFORMATION CONTACT Ms. Karen Lloyd of the Department, telephone (202) 6938554. (This is not a tollfree number.)
Pileco, Inc. Employees Profit Sharing Plan (the Plan) Located in Houston, Texas
[Application No. D11449]
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 of certain unimproved real
property (the Property) by the Plan to Pileco, Inc. (Pileco or the
Applicant), the sponsor of the Plan, and a party in interest with
respect to the Plan, provided that the following conditions are satisfied:
(a) The sale is a onetime transaction for cash;
(b) At the time of the sale, the Plan receives the greater of
either: (1) $280,000; or (2) the fair market value of the Property as
established by a qualified, independent appraiser in an updated appraisal of such Property;
(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; and
(e) The Plan trustee (1) Determines, among other things, whether it
is in the best interest of the Plan to proceed with the sale of the
Property; (2) reviews and approves the methodology used in the
appraisal that is being relied upon; and (3) ensures 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.
1. The Plan is a defined contribution profit sharing plan without a
401(k) feature. The Plan was effective as of October 1, 1974, and was
most recently restated effective May 8, 2004. As of September 30, 2006,
the Plan had a total of 27 participants, and approximately $2.99
million in total assets. The Plan's current trustee is Mr. Otto Kammerer,
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who is also the Chairman of the Board of Directors of Pileco, as well
as the Plan participant with the largest account balance. As of
September 30, 2006, Mr. Kammerer's Plan account comprised approximately 28% (or $837,200) of the Plan's total assets.
2. Pileco, which maintains its principal place of business in Houston, Texas, is primarily involved in the engineering, fabrication, sale, rental, and servicing of diesel pile hammers. Pileco is a wholly owned subsidiary of Bauer Mashinen, GmbH (Bauer), a corporation organized under the laws of the Federal Republic of Germany. Bauer is a multinational firm, headquartered in Schrobenhausen, Germany, that specializes in engineering, construction, and heavy equipment manufacturing.
3. On March 26, 1980, the Plan purchased the Property from Richard
and Christine Levinge, unrelated third parties, for $77,912.15. The
consideration was paid in cash. The Property is a vacant and unimproved
69,670 square foot parcel of land (consisting of 1.5994 acres) located
east of Madie Drive, and north of Berry Road in Houston, Texas (Harris
County). The Property is adjacent to other unimproved property that is
owned by Pileco. Mr. Kammerer, as the Plan trustee, made the original
decision to purchase the Property as a longterm growth investment for
the Plan.\21\ Since the time of acquisition, the Property has not been
an incomeproducing asset. Mr. Kammerer represents that all holding
costs that have been incurred with respect to the Property since its
acquisition in 1980, including, but not limited to: Property taxes,
liability insurance premiums, and expenses associated with securing the premises, have been paid in full by Pileco.
\21\ The Plan once owned another parcel of property that was
adjacent to the subject Property. This property was sold to Pileco
for $152,678, pursuant to the Department's expedited exemption procedure (See E00521; FAN 200612E, June 8, 2006).
4. The Property was originally appraised on September 22, 2006, by Stephen M. LaGrasta, MAI, who is an independent, statecertified real estate appraiser in the State of Texas. Mr. LaGrasta is a principal in the real estate appraisal firm of YatesLaGrasta, Inc. of Houston, Texas. In an appraisal report dated October 2, 2006, Mr. LaGrasta valued the Property using the Sales Comparison Approach. Mr. LaGrasta compared the Property to five other properties sold within close proximity to the Property between January 2005 and September 2006. He adjusted the sale price of the comparable properties based upon sales date, location, size and shape. Mr. LaGrasta determined that the fair market value of the Property was $140,000 as of September 22, 2006.
In his original appraisal, Mr. LaGrasta did not attribute any
special benefit to the value of the Property from Pileco's ownership of
the adjacent property due to a number of factors, including: (a) A
large amount of undeveloped land that is available in the area for
purchase; (b) the comparatively larger size of Pileco's neighboring
land in comparison to the size of the Property; (c) the less desirable
location of the Property in relation to Pileco's neighboring land; and
(d) the Property's lack of significant street frontage or other
qualities that make it attractive for purposes of commercial
development. Therefore, Mr. LaGrasta did not include any premium for assemblage value.\22\
\22\ ``Assemblage'' value reflects the willingness of a
purchaser to pay above market value for a parcel of property in
order to preserve such purchaser's interest in their present
holdings of other parcels which are adjacent to such property.
5. An updated appraisal of the Property was prepared by Mr. LaGrasta on January 21, 2008, and it reflects the current market conditions. The Property was again valued using the Sales Comparison Approach. Mr. LaGrasta compared the Property to three other similar properties sold within close proximity to the Property since March 2007. He adjusted the sales price of the comparable properties based upon the sales date, location, size and shape. Mr. LaGrasta determined that the fair market value of the Property was $270,000 as of January 21, 2008. Based on its current appraised value, the Property currently represents approximately 9% of the Plan's assets.
In the updated appraisal report, Mr. LaGrasta again stated that the subject Property does not enhance the value of the property currently owned by Pileco. He determined that the payment by Pileco of an adjacency premium for the Property is not supported because: (a) The Pileco tract has extensive frontage in its current configuration; (b) there is other land available in the mixed use area and scarcity would not be an issue; (c) the Pileco property is not hampered by size, visibility and street frontage; and (d) the Pilecoowned property can be easily developed without the addition of the subject Property. Further, Mr. LaGrasta pointed out that the addition of the Property would tend to lower the per square foot value of the combined tract due to doubling in size. Also, Mr. LaGrasta noted that the combined tract would still be irregularlyshaped, which could hamper development and make the site less functional.
6. The Applicant requests an individual exemption from the Department in order to purchase the Property from the Plan. The Applicant represents that the Property is being sold as part of a change in control in which 100% of the capital stock of Pileco was acquired on October 7, 2005 by Bauer, which was then unaffiliated with the preOctober 7, 2005 shareholders of Pileco. The Board of Directors of Pileco has approved the complete freeze and termination of the Plan coincident with the closing of such an acquisition. In connection with the termination of the Plan, an application will be filed with the Internal Revenue Service for a favorable determination regarding the Plan's status as a qualified plan. Once such determination is received, the Plan will be liquidated and all account balances under the Plan will be distributed. Thus, the proposed transaction is motivated, in part, by a need to increase the Plan's liquidity in anticipation of the distribution of participants' account balances.
7. It is also represented that the Plan has made efforts to sell the Property to unrelated third parties. To this end, the Plan listed the Property on the open market for a number of years at a listing price of $4.00 per square foot ($278,680). However, this listing price was not based on a professional appraisal of the Property. During the listing period, the Plan did not receive any offers from thirdparty purchasers to purchase the Property.
8. The Plan will pay no real estate commissions or other expenses
associated with the sale. Pileco will pay the Plan in cash, the greater
of either: (a) $280,000; \23\ 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.\24\ Further, the parties will enter into a real estate contract to evidence the proposed sale transaction.
\23\ Pileco proposes to pay the appraised fair market value of
the Property of $270,000, plus $10,000 which would be paid in full,
in cash, at a closing to be held within thirty (30) days of the
publication in the Federal Register of the notice granting the final exemption.
\24\ The Applicant represents that, to the best of its
knowledge, to the extent the amount paid by Pileco for the Property
exceeds its fair market value, such excess amount (if treated as an
employer contribution) will not cause the annual additions to the
Plan to exceed the limitations prescribed by section 415 of the Code.
9. As the Plan trustee, Mr. Kammerer, will determine, among other
things, whether it is in the best interest of the Plan to go forward
with the sale of the Property. In addition, Mr. Kammerer will review and approve the
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methodology used in the appraisal that is being relied upon, and he
will ensure that such methodology is applied by a qualified independent
appraiser in determining the fair market value of the Property on the date of the sale.
10. 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 proposed sale will be a onetime transaction for cash; (b) The Plan will receive the greater of either:
(i) $280,000; or (ii) the fair market value for the Property, as
established on the date of the sale by an independent, qualified appraiser in an updated appraisal of such Property;
(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; and
(e) The Plan trustee: (i) Will determine, among other things,
whether it is in the best interest of the Plan to proceed with the sale
of the Property; (ii) will review and approve the methodology used in
the appraisal that is being relied upon; and (iii) 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.
The Department of the Treasury has determined that if a transaction between a qualified employee benefit plan and its sponsoring employer (or affiliate thereof) results in the plan either paying less than or receiving more than fair market value, such excess may be considered to be a contribution by the sponsoring employer to the plan and, therefore, must be examined under applicable provisions of the Internal Revenue Code, including sections 401(a)(4), 404 and 415.
14 CFR Part 39 40 CFR Part 52 14 CFR Part 71 33 CFR Part 165 47 CFR Part 73 26 CFR Part 1 50 CFR Part 679 40 CFR Part 180 50 CFR Part 17 33 CFR Part 117 44 CFR Part 67 50 CFR Part 648 14 CFR Part 97 40 CFR Part 63 6 CFR Part 5 33 CFR Part 100 50 CFR Part 622 50 CFR Part 660 26 CFR Part 301 44 CFR Part 65 39 CFR Part 111 40 CFR Part 271 40 CFR Part 300 47 CFR Part 64 40 CFR Parts 52 and 81 50 CFR Part 665 39 CFR Part 3020 50 CFR Part 229 44 CFR Part 64 49 CFR Part 571