Partnership interests and party in interest status

U.S. DEPARTMENT OF LABOR
               LABOR-MANAGEMENT SERVICES ADMINISTRATION
                 Administrator of Pension and Welfare Benefit Programs
                                Washington, D.C. 20216




                                                                         OPINION 75-147

NOV 4 1975                                                               3(14)

Metropolitan Life Insurance Company
One Madison Avenue
New York, New York 10010

Attention:    Gerard J. Talbot, Esq.
              Vice President, Tax Counsel

Gentlemen :

By letter dated June 10, 1975, and as supplemented by a
letter dated June 26, 1975, submitted by Mr. John M. Vine,
the authorized representative of the May Department Stores,
you requested a ruling from the Department of Labor as
to your status under section 3(14) of the Employee Retire-
ment Income Security Act of 1974 and section 4975(e)(2)
of the Internal Revenue Code with respect to the May De-
partment Stores Company Employees Retirement Plan. By
letter dated August 11, 1975, supplemented by letter dated
October 16, 1975, the Internal Revenue Service was also
asked to rule with respect to the same issues raised
before the Department of Labor.

You and Mr. Vine have represented in your letters and in
the documents enclosed therein that the facts set forth be-
low are pertinent to our consideration of the proposed
transaction. The May Department Stores Company (May)
maintains the May Department Stores Company Employee Re-
tirement Plan (the Plan) for its employees and the em-
ployees of certain subsidiaries of May. The Plan, covering
some 55,000 participants, is a trusteed plan qualified un-
der section 401(a) of the Internal Revenue Code. Partici-
pants in the Plan include employees of the May Stores
Shopping Centers, Inc. (Shopping Centers), a wholly owned
subsidiary of May.
                                                    OPINION 75-147
2

The May retirement plan currently has all of its plan
assets, amounting to approximately $100,000,000, held and
invested directly in trust. Under the terms of the Plan
and trust, May may exercise substantial control over the
investments made by the trust. May proposes to have sub-
stantially all of the plan assets transferred to Metro-
politan Life Insurance Company (Metropolitan) under two
group companion contracts issued to the trustee of the
Plan. Under one contract, Metropolitan will agree to pay
to the trustee the principal amount paid to Metropolitan
in 20 annual installments together with interest thereon
at a rate of approximately 9.3%. Under the second con-
tract the trustee will have the right to purchase annuities
on individual retirees at any time. A third separate ac-
count group contract providing for liquidation of plan
assets transferred to Metropolitan in kind will also be
used if the transfer from the trust is made partly or en-
tirely in kind rather than completely in cash. Funds
derived from liquidation of such assets will then be trans
ferred to the general account contracts.

On June 1, 1973, Metropolitan and Shopping Centers entered
into a partnership for the purpose of acquiring, developing,
operating and managing certain residential and commercial
real property in Los Angeles, California, under the part-
nership name Parklabrea Associates. Part of the property
involved, consisting of apartment buildings and related
commercial facilities, was owned by Metropolitan and the
adjoining property, consisting of the May Company depart-
ment store and related commercial facilities, was owned by
May. Each partner contributed $3,500,000 in cash to the
partnership. The partnership then purchased the property
owned by Metropolitan for $60,000,000 ($6,000,000 in cash
and $54,000,000 in an installment promissory note secured
by a purchase money deed of trust to Metropolitan), and the
property owned by May for $10,000,000 ($1,000,000 in cash
and $9,000,000 in an installment promissory note secured
by a purchase money deed of trust to May).

The partnership agreement provides for allocation of prof-
its and losses between Metropolitan and Shopping Centers on
a 73%-27% basis until such time as the partnership has made
cash distributions to the partners totalling $20,500,000,
at which time profits and losses thereafter will be allo-
cated between the partners on a 50%-50% basis. At this
time cash distibutions of $1,250,000 to the partners have
occurred. In the event of termination and dissolution of
                                                    OPINION 75-147
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the partnership, proceeds of liquidation or sale shall
be distributed in the same percentages as cash distribu-
tion. Thus, proceeds of liquidation would be distributed
on a 73%-27% basis until $20,500,000 has been distributed,
at which time distributions in excess of that amount will
be distributed on a 50%-50% basis. The parties expect
that cash distributions totalling $20,500,000 will not occur
for a number of years in the future, and would modify the
agreement prior thereto to avoid having Shopping Centers
acquire a 50% capital or profits interest if such interest
would cause a prohibited transaction to occur, or take
other steps to avoid the prohibited transaction.

The partnership agreement also provides that the partners
may agree to make additional improvements to the partner-
ship property, in which event the capital contributions
for, profit and loss ratio with respect to, and cash dis-
tributions with respect to such additional improvements
will be on a 50%-50% basis, and at the option of either
partner a new partnership will be formed for such purpose.
The parties have not agreed to make any additional improve-
ments and would modify the agreement to avoid having Shopping
Centers acquire a 50% capital or profits interest if such
interest would result in a prohibited transaction, or take
other steps to avoid the prohibited transaction.

The partnership (Parklabrea Associates) has no employees
and thus has no employees covered under the Plan. The
partnership properties are managed by Parklabrea Manage-
ment, Inc. (a subsidiary of Shopping Centers) pursuant to
a management agreement with the partnership. There are
approximately 50 employees working for Parklabrea Manage-
ment, Inc., who are Plan participants, and an additional
50 employees of Shopping Centers who are Plan participants,
out of approximately 55,000 employees covered by the May
retirement plan.

Based upon the foregoing facts you have requested the fol-
lowing rulings from the Department of Labor:

1. That Parklabrea Associates is not a party in interest
with respect to the Plan within the meaning of section
3(14)(G) of the Act solely by reason of the fact that
Shopping Centers will at some later date acquire a 50%
interest in Parklabrea Associates; and
                                                        OPINION 75-147
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2. That Metropolitan is not a party in interest with
respect to the Plan within the meaning of section 3(14)(I)
of the Act solely because of its ownership of in excess
of 10% of the capital or profits of Parklabrea Associates.

Section 3(14) of the Act provides that the term party in
interest means, as to an employee benefit plan –

     (A)    a fiduciary (including, but not limited to, any
            administrator, officer, trustee, or custodian),
            counsel, or employee of such employee benefit plan;

     (B)    a person providing services to such plan;

     (C)    an employer any of whose employees are covered
            by such plan;

     (D)    an employee organization any of whose members
            are covered by such plan;

     (E)    an owner, direct or indirect, of 50 percent or
            more of –

            (i)   the combined voting power of all classes
                  of stock entitled to vote or the total
                  value of shares of all classes of stock of
                  a corporation,

           (ii)   the capital interest or the profits in-
                  terest of a partnership, or

       (iii)      the beneficial interest of a trust or unin-
                  corporated enterprise,

     which is an employer or an employee organization de-
     scribed in subparagraph (C) or (D);

     (F)    a relative (as defined in paragraph (15)) of any
            individual described in subparagraph (A), (B),
            (C), or (E);

     (G)    a corporation, partnership, or trust or estate
            of which (or in which) 50 percent or more of --

             (i) the combined voting power of all classes
                 of stock entitled to vote or the total value
                 of shares of all classes of stock of such cor-
                 poration,

            (ii) the capital interest or profits interest of
                 such partnership, or
                                                      OPINION 75-147
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           (iii) the beneficial interest of such trust or es-
                 tate,

     is owned directly or indirectly, or held by persons
     described in subparagraph (A), (B), (C), (D) or (E);

     (H)    an employee, officer, director (or an individual
            having powers or responsibilities similar to
            those of officers or directors), or a 10 percent
            or more shareholder directly or indirectly, of
            a person described in subparagraph (B), (C),
            (D), (E), or (G), or of the employee benefit
            plan; or

     (I)    a 10 percent or more (directly or indirectly
            in capital or profits) partner or joint venturer
            of a person described in subparagraph (B), (C),
            (D), (E), or (G).

            The Secretary, after consultation and coordina-
            tion with the Secretary of the Treasury, may by
            regulation prescribe a percentage lower than
            50 percent for subparagraph (E) and (G) and
            lower than 10 percent for subparagraph (H) or
            (I). The Secretary may prescribe regulations
            for determining the ownership (direct or indi-
            rect) of profits and beneficial interests, and
            the manner in which indirect stockholdings are
            taken into account.

It should be noted that under subparagraph (C) both May
and Shopping Centers are parties in interest, since they
are employers with employees covered under the May re-
tirement plan.

As to ruling request (1), we conclude that Parklabrea
Associates is not a party in interest with respect to
the Plan within the meaning of section 3(14)(G) of the
Act solely by reason of the fact that Shopping Centers
will at some later date acquire a 50% interest in the
Parklabrea Associates. We note that this ruling is
limited solely to section 3(14)(G) of the Act and it is
based on the assumption that Shopping Centers is not in
fact a 50% partner.
                                                    OPINION 75-147
6

With respect to ruling request (2), we conclude that
Metropolitan is not a party in interest with respect to
the Plan within the meaning of section 3(14)(I) of the
Act solely because it owns in excess of 10% of the capital
or profits of Parklabrea Associates, if Parklabrea Asso-
ciates is presently not a person described in section
3(14)(C), (D), (E), or (G) of the Act.

For purposes of this ruling we are assuming but not ruling
that Parklabrea Associates does not exercise or retain
the right to exercise the direction and control over
those individuals who perform services for Parklabrea
Associates pursuant to its contract with Parklabrea Man-
agement, Inc., which would be necessary to establish the
relationship of employer and employee.

Finally, we emphasize that our consideration of the trans-
action proposed in your letter does not relate to any pro-
visions of the Act not discussed herein. Thus, for example,
we are not hereby rendering any opinion with respect to
the prudence of the proposed transaction under section
404(a) of the Act, or with respect to whether Metropoli-
tan or Parklabrea Associates is a party in interest with
respect to the Plan for any reason not discussed in this
letter.

Sincerely,




JAMES D. HUTCHINSON
Administrator