Teledyne stock tender and the ERISA transition exemption

                  U.S. DEPARTMENT OF LABOR
              Pension and Welfare Benefit Programs
                    Washington, D.C. 20216

   JUN 30 1977

Leon E. Irish, Esq.
Caplin & Drysdale
[Recipient address omitted]                        OPINION 77-48
                                                        414(c)(5)
Dear Mr. Irish:

By letter dated August 13, 1976, on behalf of your clients,
Teledyne, Inc. and the trust established under the Master
Trust Agreement for Qualified Plans of Teledyne, Inc. Com-
panies (the Trust) you requested a ruling to the effect
that the disposition by the Trust to Teledyne, Inc. of
1,149,650 shares of Teledyne common stock on February 27,
1976, pursuant to a public tender offer, was exempt from
the prohibitions of sections 406 and 407(a) of the Employee
Retirement Income Security Act of 1974 (the Act) and from
    taxes imposed by sections 4975(a) and (b) of the In-
ternal Revenue Code of 1954 (the Code) by reason of sec-
tions 414(c)(5) and 2003(c)(2)(E) of the Act.

Information submitted in the request disclosed the fol-
lowing facts: Teledyne, Inc. is a publicly-held company
primarily engaged in the production and sale of various
specialty metal products. Its common stock is listed
and traded on the New York Stock Exchange and other
national securities exchanges. In 1969 Teledyne entered
into a Master Trust agreement creating a single trust
to hold the assets of the approximately 55 pension plans
maintained by Teledyne, its divisions, and its subsidi-
aries. Each of these 55 plans is qualified under section
401(a) of the Code and there are approximately 38,900
participants.

On February 27, 1976, the Trust owned 1,149,650 shares
of Teledyne common stock having an estimated value of
$45,986,000. Of these shares, 1,116,166 were acquired
by the Trust before June 30, 1974, and were held by the
Trust at all times thereafter until February 27, 1976.

                                                 OPINION 77-48




2


The remaining 33,484 shares were received as the Trust's
share of a 3 percent common stock dividend paid on May
26, 1975. This was represented to be a dividend of common
on common, nontaxable under section 305(a) of the Code.
All 1,149,650 shares were "qualifying employer securities"
as defined in section 407(d)(5) of the Act.

The fair market value of all Trust assets on February 27,
1976, was $186,512,000. In addition to the 1,149,650
shares of Teledyne common valued at $45,986,000, the Trust
held other qualifying employer securities and qualifying
employer real property worth $9,986,000. Together these
assets amounted to approximately 30% of the value of the
Trust's assets.

On February 9, 1976, Teledyne, Inc. made a public offer
to purchase up to 1,000,000 shares of its own common stock
for $40.00 cash per share, if the shares were tendered on
or before February 27, 1976. The company reserved the
right to accept a greater or lesser number of shares. A
total of 2,534,531 shares, including all 1,149,650 shares
owned by the Trust, were tendered pursuant to this offer.
Teledyne, Inc. accepted the tender of all 2,534,531 shares.
After the sale, Trust holdings of qualifying employer
securities and qualifying employer real property amounted
to slightly more than 5% of total Trust assets.

Under section 406(a)(1)(A) of the Act the sale or exchange
of property between a plan and a party in interest is a
prohibited transaction. Section 3(14)(C) of the Act de-
fines a party in interest as "an employer any of whose
employees are covered by such plan." On the basis of the
information contained in your request, it is clear that
Teledyne is a party in interest with respect to the Trust
and that the purchase of these shares by Teledyne from
the Trust in the public tender offer constituted a pro-
hibited transaction under section 406(a)(1)(A) of the Act.

                                                 OPINION 77-48




3


Section 414(c)(5) of the Act provides, however, that sec-
tion 406 of the Act shall not apply to the "sale . . . of
property which is owned by a plan on June 30, 1974, and
at all times thereafter, to a party in interest, if such
plan is required to dispose of such property in order
to comply with the provisions of section 407(a) . . .
and if the plan receives not less than adequate considera-
tion." You have requested a ruling that the February 27,
1976, sale meets the requirements of that section and
is, therefore, exempt from the prohibitions of section
406 of the Act.

The principal issues involved in your request relate to
section 407(a) of the Act and the question of what the
plan "is required to dispose of . . . in order to comply"
with that section. You have asked that we rule that sales
made prior to the December 31, 1984, date contained in
section 407(a)(3) of the Act are covered by the transi-
tional rule and further that the rule applies to the
entire transaction or "block sale" in cases as this one,
in which the plan's ownership of qualifying employer
securities after the sale is less than the 10 percent
limitation of section 407(a)(3).

Section 407(a)(3) does not require a plan to dispose of
qualifying employer securities or qualifying employer
real property only on December 31, 1984, or only on
December 31, 1979, to meet the requirements of section
407(a)(4). This position is consistent with the intent
of Congress as expressed in the Conference Committee
Report which states that the plan may dispose of enough
of its assets to bring its holdings to "no more than 10
percent of plan assets on or before December 31, 1984."
See H.R. Rep. No. 93-1280, 93d Cong., 2d Sess. 318 (1974).
Accordingly, it is the conclusion of the Department that
if a plan must dispose of a portion of a class of property
in order to comply with section 407(a) of the Act, then
on or before December 31, 1984, it may dispose of its
entire holdings of such property in one transaction in
reliance upon the exemption provided in section 414(c)(5)
of the Act.

                                             OPINION 77-48


4

Finally, we have concluded that for the purposes of section
414(c)(5) of the Act all 1,149,650 shares of Teledyne common,
including the 33,484 received as the Trust's share of the
nontaxable stock dividend in 1975, were owned by the plan
on June 30, 1974, and at all times thereafter. This
conclusion does not, however, represent an interpretation
of section 407(d)(8) of the Act.

Therefore, based solely on the information and represen-
tation contained in your request, we conclude that the sale
of all 1,149,650 shares of Teledyne common stock by the
Trust to Teledyne on February 27, 1976, was exempt from
the prohibitions contained in sections 406 and 407(a)
of the Act provided that the Trust received not less
than adequate consideration for the shares.

Section 3(18) of the Act defines the term "adequate con-
sideration" in the case of a security for which there is
a generally recognized market, and is traded on a national
securities exchange which is registered under section 6
of the Securities Exchange Act of 1934, as the price of the
security prevailing on such national securities exchange.
The determination as to whether in fact the price paid
is adequate consideration must be made by the plan trustees
or other plan fiduciaries in light of all the relevant
facts and circumstances. The Department will not issue
an opinion relating to whether certain consideration
constitutes adequate consideration. See ERISA Proc. 76-1,
Sec 5.02(a) (41 FR 36821, August 27, 1976).

Sincerely,


Fred W. Stuckwisch
Director
Office of Regulatory Standards
  and Exceptions