Single parcel leased by plan to related company

P/OPINION 76-14



                                                   3(14)
                                                   406
                                                   407✓
                                                   408

                         March 17, 1976
Dear          :

This is in response to your letter of July 2, 1975 wherein
you requested a ruling relative to a proposed transaction
involving the construction of a building by the [company #1]
Inc. profit sharing plan and the leasing of the building to
[company #2] Inc. Your letter also indicated that
        owned 566 of the 600 outstanding shares each of [#l]
Inc. and [#2]       Inc. You offered the opinion that
"...the proposed lease of the proposed building would cause
the real estate to be classified as qualifying real property,
which includes real property leased by the plan to an employer
of employees covered by the plan, since its improvements are
suitable or readily adaptable to more than one use."

Section 406(a)(l) of the Employee Retirement Income Security
Act (ERISA) prohibits certain transactions, whether direct
or indirect between a plan and a party in interest. Because
of the relationship between the plan, [#1]         Inc.
and [#2]     Inc., it appears that the latter is a party
in interest with respect to the plan pursuant to section
3(14) (G) of ERISA. Accordingly, the proposed leasing of
the building to [#2]     Inc. would be a prohibited transaction
under section 406(a)(l)(a).

Section 408(e) would exempt the proposed leasing from the
prohibitions of section 406 provided that the conditions under
section 408(e) are satisfied. That section however is
applicable to qualifying employer real property which is
defined under section 407(d)(4) of the ERISA as follows:

       (4) The term qualifying employer real property means
            parcels of employer real property

           (A) if a substantial number of the parcels are
           dispersed geographically;

           (B) if each parcel of real property and the
           improvements thereon are suitable (or
           adaptable without excessive cost) for more
           than one use;
   P/OPINION 76-14



             (C) even if all such real property is leased
              to one lessee (which may be an employer
              or an affiliate of an employer) and

             (D) if the acquisition and retention of such
              property comply with the provisions of
              this part (other than section 404(a)(l)(b)
              to the extent that it requires diversification,
              and sections 404(a)(1)(c), 406 and subsection (a)
              of the section).
Based on the facts as submitted and our examination of the
law, the real property involved in the proposed transaction
appears to be employer real property as defined in section
407(d)(2) but is not qualifying employer real property as
defined in section 407(d)(4). Specifically, the real property
described herein fails to satisfy the requirement that
qualifying employer real property relates to parcels (plural)
of employer real property. In your particular case, a parcel
(singular) of real property rather than parcels (plural) is
involved. Accordingly, under section 407(d)(4)(A), these
parcels must be geographically dispersed in substantial numbers.
In your case, geographic dispersion in substantial numbers is
an impossibility since a single parcel of real property is
involved.

Although the definition of qualifying employer real property
is presently under consideration for possible revision, at
the present time the law dictates that the real property
described herein would not be qualifying employer real
property but instead would be employer real property. Thus,
the provisions of 408(e) would not be applicable to the
proposed transaction and would not exempt the transaction
from the prohibitions of section 406.
Please excuse the delay in answering the question raised in
your letter. Administrative duties associated with the
implementation of the ERISA unfortunately have been the
cause of this late response.
Sincerely,