Single employer property parcel in retirement plans

P/OPINION 77-16

                                                    407(d)(4)

                        January 11, 1977

Re:    (A)   Profit Sharing Plan
       (A)   Pension Plan and Trust
       (B)   Profit Sharing Plan

Dear           :

This is in response to your request for a determination
contained in the above-referenced applications for
exemption. In the applications, you inquire whether the
single parcel of real property jointly held by the (A)
Profit Sharing Plan and Trust, the (A) Pension Plan and
Trust, and the (B) Profit Sharing Plan (the Plans)
constitutes qualifying employer real property within the
meaning of section 407(d)(4) of the Employee Retirement
Income Security Act of 1974 (the Act). You further
inquire whether the continued holding and leasing of the
property by the Plans to (A) and (B) (the Employer) is
prohibited by section 406 or 407 of the Act or whether the
statutory exemption provided by section 408(e) of the Act
is available for the lease arrangement.

If a favorable determination is not obtained from the
Department of Labor (the Department) with respect to these
issues, you request an administrative exemption under
section 408(a) of the Act and section 4975(c)(2) of the
Internal Revenue Code of 1954 (the Code). Finally, if an
adverse determination is made with respect to the above
requests, you request that the Plans be allowed a period
in which to divest the subject real property.

Section 407(d)(4) of the Act defines the term “qualifying
employer real property” to include parcels of employer
real property if, among other things, a substantial number
of the parcels are dispersed geographically. Such
geographic dispersion must be sufficient so that adverse
economic conditions peculiar to one area would not
significantly affect the economic status of the plan as a
whole. See H.R. Rep. No. 93-1280, 93rd Cong., 2nd Sess.
318 (1974).

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P/OPINION   77-16

The applications submitted indicate that the only employer
real property held by the Plans is an interest in the
single parcel of property leased to the Employers. It is
the position of the Department that one parcel or
property, or an interest therein, would not meet the
requirements of geographic dispersion set forth in section
407(d)(4), and therefore, would not constitute qualifying
employer real property within the meaning of that section.

Section 406(a)(1)(A) of the Act prohibits a fiduciary with
respect to a plan from causing the plan to engage in a
transaction which he knows or should know constitutes a
direct or indirect leasing of property between a plan and
a party in interest. In addition, section 406(a)(2) of
the Act prohibits, in relevant part, a fiduciary from
permitting a plan to hold any employer real property if he
knows or should know that holding such real property
violates section 407(a) of the Act. Section 407(a) of the
Act prohibits, among other things, a plan from holding any
employer real property which is not qualifying employer
real property.

Section 408(e) of the Act provides a statutory exemption
from the prohibitions of sections 406 and 407 thereof for
the acquisition, sale or lease by a plan of qualifying
employer real property, if the conditions set forth
therein are met. The exemption for lease transactions is
available, however, only if the property held by the plan
is qualifying employer real property within the meaning of
section 407(d)(4) of the Act. Since the property leased
to the Employers is not qualifying employer real property,
the statutory exemption provided by section 408(e) would
not be available.

The Department has reviewed the above-referenced
applications for exemption from the prohibitions of
section 406 and 407(a} of the Act and from the taxes
imposed by section 4975(a) and (b) of the Code by reason
of section 4975(c)(1) of the Code and, on the basis of the
facts submitted and representations made, has determined
that it is unable to propose an exemption with respect to

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P/OPINION   77-16


the applications. Among the factors considered in our
tentative decision not to propose the requested exemptions
is the absence of independent safeguards for the protec-
tion of the plan participants and beneficiaries, the
apparent illiquidity of the investment, the inherent
conflict of interest involved in transactions of this type
and the administrative difficulty or monitoring abuses
which may occur in such transactions.

However, in view of the timing of the transaction and the
burden which may be incurred by the Plans if they are
required to immediately dispose of the property or termi-
nate the lease arrangements, you may wish to consider
filing a supplement to your request for a limited transi-
tional exemption to permit the disposition of the property
or termination of the leases within a relatively short
period of time which would include information in support
of the requested exemption and specify the minimum period
of time necessary to dispose of the property or terminate
the leases and the reasons therefor.

Section 5 of ERISA Proc. 75-1, (40 F.R. 18471, April 28,
1975) provides that an applicant is entitled to a
conference in Washington, D.C., in the event that the
Department contemplates not proposing the requested
exemption. If you desire a conference, please contact
Room C-4508, U.S. Department of Labor, 200 Constitution
Avenue, N.W., Washington, D.C. 20210, (202) 523-6855,
within 30 days from the date of this letter to arrange for
the time and place of the conference. The conference will
be a joint conference with representatives of both the
Department and the Internal Revenue Service. At the
conference you should be prepared to discuss any matter
which you believe will support a decision to publish the
requested exemptions for comment. Any information or
arguments that you want considered with regard to the
reference applications should be submitted in writing no
later than five days before the scheduled time and date of
the conference to the addresses set forth in section 4.01
of the ERISA Proc. 75-1, and Rev. Proc. 75-26.

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P/OPINION 77-16

In the event that you do not request a conference or
submit additional information in support of your
applications within 30 days from the date of this letter,
you will be notified that a final decision has been made
not to propose the requested exemptions and that the
application files have been closed.

Sincerely,