Application Nos. and Proposed Exemptions; D-11603-07, Chrysler Group LLC and Daimler AG; et al. |
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Topics: Chrysler LLC, Daimler AG
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Ivan Strasfeld
September 16, 2010
[Federal Register: September 16, 2010 (Volume 75, Number 179)]
[Notices]
[Page 56568-56578]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr16se10-94]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[D-11400; D-11585; D-11603-07]
Application Nos. and Proposed Exemptions; D-11400, Wasatch
Advisors, Inc.; D-11585, Retirement Plan for Employees of the
Rehabilitation Institute of Chicago (the Plan); D-11603-07, Chrysler
Group LLC and Daimler AG; et al.
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 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 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 requests for a hearing (at least
three copies) should be sent to the Employee Benefits Security
Administration (EBSA), Office of Exemption Determinations, Room N-5700,
U.S. Department of Labor, 200 Constitution Avenue, NW., Washington, DC
20210. Attention: Application No. --------, stated in each Notice of
Proposed Exemption. Interested persons are also
[[Page 56569]]
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, NW.,
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.
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.
Chrysler Group LLC and Daimler AG, Located in Auburn Hills, Michigan
and Stuttgart, Germany, Respectively
Exemption Application Number D-11603-07.
Proposed Exemption
The Department is considering granting an exemption under the
[[Page 56576]]
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974, as amended (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).\14\
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\14\ 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.
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Section I--Chrysler Group Transactions
If the proposed exemption is granted, the restrictions of sections
406(a)(1)(A) and 406(b)(1) and (2) of ERISA and the sanctions resulting
from the application of section 4975 of the Code, by reason of section
4975(c)(1)(A) and (E) of the Code, shall not apply to the contribution
(the Contribution) of notes issued by Daimler AG (the Daimler Notes) by
Chrysler Group LLC (Chrysler Group) to certain employee benefit plans
sponsored by the Chrysler Group (the Plans), provided that the
conditions set forth in section III have been met.
Section II--Daimler AG Transactions
If the proposed exemption is granted, the restrictions of section
406(a)(1)(A) and (B) of ERISA, and the sanctions resulting from the
application of section 4975 of the Code, by reason of section
4975(c)(1)(A) and (B) of the Code, shall not apply to the issuance by
Daimler of the Daimler Notes for purposes of the Contributions pursuant
to an agreement that was previously entered into while Daimler was a
party-in-interest to the Plans, provided that the condition set forth
in section IV is met.
Section III--Conditions Applicable to Section I
(a) The terms of each Contribution are consistent with the terms
set forth in a settlement agreement (the Settlement Agreement),
effective as of June 5, 2009, between/among CG Investment Group, LLC,
CG Investor, LLC, Chrysler Holding LLC, CARCO Intermediate HOLDCO I
LLC, Chrysler LLC, Daimler AG, Daimler North America Finance
Corporation, Daimler Investments US Corporation, and the Pension
Benefit Guaranty Corporation (the PBGC). Notwithstanding the above, and
also for purposes of condition (c) below, the terms of the
Contributions shall not be viewed as being inconsistent with the terms
of the Settlement Agreement solely because the Contributions take into
account the March 1, 2010 merger (the Merger) of the Global Engineering
Manufacturing Alliance UAW Pension Plan into the Pension Agreement
between Chrysler Group LLC and the UAW, which occurred after the
effective date of the Settlement Agreement;
(b) The fair market value of each Daimler Note will be determined
as of the date of the Contributions, by a qualified independent
appraiser;
(c) The fair market value of each Daimler Note contributed to a
Plan will represent an amount that equates to the amount contemplated
for such Plan under the Settlement Agreement;
(d) Each Daimler Note will represent not more than 20% of the total
fair market value of the Plan that receives such Note at the time of
its Contribution;
(e) Each Plan may immediately sell the Daimler Note it receives
pursuant to a Contribution, except that neither Chrysler Group nor any
of its affiliates or subsidiaries may be a party to such sale.
Notwithstanding the above, restrictions may be imposed on a Plan's
ability to sell its Daimler Note if such restrictions are required
under State or Federal securities laws or otherwise required by the
terms of such Daimler Note;
(f) The Plans do not waive any rights or claims in connection with
the Contributions;
(g) The Plans do not pay any fees, costs, or other charges in
connection with the Contributions; and
(h) Chrysler Group shall provide the PBGC with written evidence
that Chrysler Group: (1) Contributed the Daimler Notes to the Plans;
and (2) gave the Plans' trustee instructions regarding the allocation
of the Daimler Notes. Such written evidence must be provided within
five business days after the receipt by Chrysler Group of such Notes.
Section IV--Conditions Applicable to Section II
(a) Daimler's entering into the Daimler Notes is not part of an
arrangement, agreement, or understanding designed to benefit Daimler.
Effective Date: If granted, this proposed exemption will be
effective as of September 16, 2010.
Summary of Facts and Representations
1. The applicants are Chrysler Group LLC, (Chrysler Group) and
Daimler AG (Daimler). Chrysler Group is the entity that acquired
certain of the assets of Chrysler LLC (Chrysler LLC) on June 10, 2009
in a transaction approved by the United States Bankruptcy Court.
Chrysler Group sponsors various defined benefit plans (the Plans) which
cover employees of Chrysler Group and its affiliates.\15\ Chrysler
Group describes the Plans as: (1) The Chrysler Group LLC Pension Plan,
with 38,635 participants and beneficiaries and approximately
$2,712,643,000 in total assets as of April 14, 2010; (2) the JEEP
Corporation-UAW Retirement Income Plan, with 8,705 participants and
beneficiaries and approximately $774,824,500 in total assets as of
April 14, 2010; (3) the Pension Agreement between Chrysler Group and
the UAW, with 131,604 participants and beneficiaries and approximately
$11,600,000,000 in total asset as of April 14, 2010; and (4) the
American Motors Union Retirement Income Plan, with 10,496 participants
and beneficiaries and approximately $701,639,500 in total assets as of
April 14, 2010.
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\15\ Hereinafter, unless expressly stated otherwise, the term
``Chrysler Group'' shall mean Chrysler LLC (for events that occurred
prior to June 10, 2009) or Chrysler Group (for events that occur
after June 9, 2009).
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2. Daimler is an automotive manufacturer with its corporate
headquarters located in Stuttgart, Germany. Daimler states that, at the
time the arrangements described below were negotiated, agreed to, and
entered into, Daimler was a ``party in interest'' to the Plans, as such
term is defined in section 3(14) of ERISA. In this regard, during that
period, Daimler had a 19.9% ownership interest in Chrysler LLC: The
sponsor of the Plans.\16\
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\16\ The Applicants represent that, effective as of June 4,
2009, Daimler redeemed its interest in Chrysler LLC, and, as of that
date, Daimler was no longer a party in interest to the Plans.
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3. Chrysler Group and Daimler (collectively, the Applicants) state
that, on May 13, 2007, Daimler entered into an agreement with the PBGC
(the 2007 PBGC Agreement), whereby Daimler agreed to guarantee up to $1
billion of unfunded liabilities of the Plans if: (i) One or more of the
Plans were terminated in an involuntary or a distress termination; and
(ii) upon the occurrence of specified events, including certain
``change of control'' transactions. In a Binding Term Sheet dated April
27, 2009 (the Binding Term Sheet), the PBGC agreed to reduce the amount
of this guarantee to $200 million and, in connection therewith, Daimler
agreed to pay $600 million directly to the Plans.\17\ The Binding Term
Sheet provides that these payments are to be made in three equal
installments of $200 million each, with the second and third
installments to be made on the first and second anniversaries of the
date of a final settlement agreement. The Binding Term sheet provided
further that Chrysler LLC would have no right, title
[[Page 56577]]
or interest in the payments, which were intended to belong exclusively
and unconditionally to the Plans.
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\17\ The Applicants represent that Daimler also obtained
releases for certain claims that are not relevant to the
transactions described herein.
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4. Chrysler Group represents that, on June 5, 2009, Chrysler LLC
and various of its shareholders, Daimler and various of its affiliates,
incorporated the terms of the Binding Term Sheet into a settlement
agreement (the Settlement Agreement) with the Pension Benefit Guaranty
Corporation (the PBGC). Chrysler Group states that the Settlement
Agreement expressly supersedes the Binding Term Sheet. Under the terms
of the Settlement Agreement, the PBGC agreed to release Daimler from
its $1 billion guaranty and, in exchange, Daimler agreed to pay $600
million in three $200 million installments to Chrysler Group (the
Installment Payments).\18\ Chrysler Group represents that Daimler made
the first $200 million Installment Payment to Chrysler Group, in cash,
on June 15, 2009; and Chrysler Group, upon receipt of this payment,
immediately contributed $200 million in cash to the Plans. Chrysler
Group represents further that Daimler made a second $200 million
Installment Payment to Chrysler Group, in cash, on June 7, 2010; and
Chrysler Group, upon receipt of this payment, immediately contributed
$200 million in cash to the Plans. Chrysler Group represents that, to
date, of the $400 million in cash transferred from Chrysler Group by
the Plans: (1) The JEEP Corporation-UAW Retirement Income Plan received
approximately $62.8 million; (2) the Pension Agreement between Chrysler
Group and the UAW received approximately $327.2 million; and (3) the
American Motors Union Retirement Income Plan received approximately
$9.6 million. Chrysler Group represents that these amounts were
determined in accordance with the terms set forth in the Settlement
Agreement (after taking into account the merging two employee benefit
plans covered by the Settlement Agreement). Chrysler Group states that
such apportionment reflects the terms of the Settlement Agreement, and
takes into account, among other things, certain funding characteristics
of the Plans.
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\18\ Hereinafter, the term ``Chrysler Group'' shall refer also
to Chrysler LLC.
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5. The Settlement Agreement provides that the third Installment
Payment may be achieved in one of two ways: (1) In the form of a $200
million cash payment by Daimler to Chrysler Group by June 7, 2011 (the
Installment Due Date), after which Chrysler Group must immediately
transfer $200 million in cash to the Plans; or (2) by means of four
notes issued by Daimler (the Daimler Notes) and delivered to Chrysler
Group, pursuant to an arrangement whereby Chrysler is obligated to
immediately contribute the Notes (the Contributions) to the Plans.
6. Chrysler Group states that the Contributions could be viewed as
violating sections 406(a)(1)(A) and 406(b)(1) and (b)(2) of ERISA since
the Contributions would involve an in-kind contribution by Chrysler
Group to the Plans, which are defined benefit plans. In addition,
Daimler notes that, when the parties entered into the Binding Term
Sheet and negotiated the Settlement Agreement, Daimler was a party in
interest to the Plans. Daimler believes that its agreement to issue the
Daimler Notes as well as the actual entering into of the Daimler Notes
under an arrangement whereby the Daimler Notes will be Contributed by
Chrysler Group to the Plans, as such acts are contemplated by the
Binding Term Sheet and the Settlement Agreement, could therefore be
viewed as an impermissible extension of credit or sale or exchange in
violation of sections 406(a)(1)(A) and (B) of ERISA.
7. Chrysler Group views the deliverance of the Daimler Notes to
Chrysler Group for purposes of the Contributions as being more
beneficial to the Plans than the alternative, which is a cash payment
by Daimler to Chrysler Group on the Installment Due Date. In this
regard, Chrysler Group represents that, once a Daimler Note is
transferred by the Chrysler Group to a Plan, as is required under the
Settlement Agreement, the obligation under the Note would run directly
from Daimler to the Plan. Chrysler Group states that this arrangement
significantly reduces the ability of Chrysler Group's creditors to
reach the third Installment Payment. Additionally, once a Daimler Note
is transferred to a Plan, the Plan could immediately sell the Note to
parties other than Chrysler Group, subject to certain restrictions
required by applicable securities laws. Accordingly, a Plan may receive
the proceeds from the sale of a Daimler Note prior to the Installment
Due Date.
8. Chrysler Group represents that the Contributions would be
structured in a manner that is protective of the Plans. In this regard,
following a Contribution, a Daimler Note will represent not more than
20 percent of the total fair market value of each Plan that receives
such Note. Additionally, the Plans will not pay any fees, costs, or
other charges in connection with the Contributions. Chrysler Group
represents further that the fair market value of each Daimler Note will
be determined as of the date of the Contribution, by a qualified
independent appraiser. In this regard, Chrysler Group has selected
PriceWaterhouseCoopers (PWC) to determine the fair market value of the
Daimler Notes. Chrysler Group represents that PWC is independent of
Chrysler Group, having received less than one percent of its revenue
from Chrysler Group over the last two fiscal years. In addition,
Chrysler Group states that PWC anticipates receiving less than one
percent of its revenue from Chrysler Group during the current fiscal
year.
9. Chrysler Group states that the exemption, if granted, will be
administratively feasible because it involves a finite one-time
transaction, and Daimler has no ownership in or on-going relationship
with Chrysler Group or any of its affiliates. According to Chrysler
Group, the internal fiduciaries of the Plans would have no hesitation
to enforce the claims of the Plans in the unlikely event that Daimler
failed to make a payment on the Daimler Note, and the internal
fiduciaries would have no conflict of interest that could cloud their
judgment in this regard. Chrysler Group states also that the PBGC, as a
party to the Settlement Agreement, has the full right on its own
initiative to enforce the terms of the Settlement Agreement, including
the obligation of Daimler to make the third $200 million Installment
Payment to the Plans.
10. Chrysler Group represent that, in addition to the safeguards
described above, the Plans will not waive any rights or claims in
connection with the Contributions. With respect to the issuance by
Daimler of the Daimler Notes pursuant to an arrangement set forth while
Daimler was a party-in-interest to the Plans, Daimler states that
Daimler's entering into the Daimler Note will not be part of an
arrangement, agreement, or understanding designed to benefit Daimler.
11. Chrysler Group states that the proposed transactions meet the
requirements set forth in section 408(a) of ERISA since, among other
things:
(a) The terms of each Contribution will be consistent with the
terms of the Settlement Agreement, after taking into account the
Merger;
(b) The fair market value of each Daimler Note will be determined
as of the date of the Contribution, by a qualified independent
appraiser;
(c) The fair market value of each Daimler Note contributed to a
Plan will represent an amount that equates to the amount contemplated
for such Plan under the Settlement Agreement, after taking into account
the Merger;
(d) Each Daimler Note will represent not more than 20% of the total
fair
[[Page 56578]]
market value of the Plan that receives such Note at the time of the
Contribution;
(e) With only limited exceptions, each Plan may immediately sell
the Daimler Note it receives pursuant to a Contribution;
(f) The Plans will not waive any rights or claims in connection
with the Contributions;
(g) The Plans will not pay any fees, costs, or other charges in
connection with the Contributions; and
(h) Chrysler Group will provide the PBGC with written evidence that
Chrysler Group: (1) Contributed the Daimler Notes to the Plans; and (2)
gave the Plans' trustee instructions regarding the allocation of the
Daimler Notes. Such written evidence will be provided within five
business days after the receipt by Chrysler Group of such Notes.
12. Daimler states that the issuance by Daimler of the Daimler
Notes pursuant to the Settlement Agreement meets the requirements set
forth in section 408(a) of ERISA since Daimler's entering into the
Daimler Note will not be part of an arrangement, agreement, or
understanding designed to benefit Daimler.
Notice to Interested Persons
Chrysler Group requests that notice be provided by posting a copy
of the proposed exemption wherever employee notices are posted in the
work places. In addition, Chrysler Group represents that it will work
with the UAW, the union representing many of the participants in the
Plans, to post a copy of the notice in the union halls and arrange for
a copy of the proposal to be printed in the union newspapers. Chrysler
Group will also arrange for a copy of the proposed exemption to be
printed in the local newspapers covering the general vicinity of
Chrysler Group's current and closed plants and facilities. The notices
shall advise each recipient of the recipient's right to provide
comments to the Department and/or to request a hearing with respect to
the proposed exemption and the due date for any such comments/request.
Such notice will be completed within 60 days of the issuance of the
proposed exemption. Any written comments must be received by the
Department from interested persons within 75 days of the publication of
this proposed exemption in the Federal Register.
FOR FURTHER INFORMATION CONTACT: Chris Motta of the Department,
telephone (202) 693-8544. (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 10th of September 2010.
Ivan Strasfeld,
Director of Exemption Determinations, Employee Benefits Security
Administration, U.S. Department of Labor.
[FR Doc. 2010-23059 Filed 9-15-10; 8:45 am]
BILLING CODE 4510-29-P
This article was originally titled, "Application Nos. and Proposed Exemptions; D-11400, Wasatch Advisors, Inc.; D-11585, Retirement Plan for Employees of the Rehabilitation Institute of Chicago (the Plan); D-11603-07, Chrysler Group LLC and Daimler AG; et al." Non-automotive content removed.