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Proposed Exemption for Certain Prohibited Transaction Restrictions: United Automobile, Aerospace and Agricultural Implement Workers of America (the UAW or the Applicant) Located in Detroit, Michigan Publication: Federal Register Agency: Employee Benefits Security Administration Byline: George Christopher Cosby Date: 24 August 2023 Subjects: American Government  , Labor
Topic: UAW |
[Federal Register Volume 88, Number 163 (Thursday, August 24, 2023)]
[Notices]
[Pages 57970-57975]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2023-18231]
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DEPARTMENT OF LABOR
Employee Benefits Security Administration
[Exemption Application No. L-12016]
Proposed Exemption for Certain Prohibited Transaction
Restrictions: United Automobile, Aerospace and Agricultural Implement
Workers of America (the UAW or the Applicant) Located in Detroit,
Michigan
AGENCY: Employee Benefits Security Administration, Labor.
ACTION: Notice of proposed exemption.
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SUMMARY: This document provides notice of the pendency before the
Department of Labor (the Department) of a proposed individual exemption
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). This proposed exemption would
permit the receipt of a note by the UAW Retiree VEBA, as defined below,
from the UAW, and the receipt of collateral on the note by the Retiree
VEBA in connection with a court-approved settlement agreement.
DATES: Comments due: Written comments and requests for a public hearing
on the proposed exemption should be submitted to the Department by
October 10, 2023.
Exemption date: If granted, this proposed exemption will be in
effect on the date that the grant notice is published in the Federal
Register.
ADDRESSES: All written comments and requests for a hearing should be
submitted to the Employee Benefits Security Administration (EBSA),
Office of Exemption Determinations, Attention: Application No. L-12016
via email to e-OED@dol.gov or online through http://www.regulations.gov. Any such comments or requests should be sent by
the end of the scheduled comment period. The application for exemption
and the comments received will be available for public inspection in
the Public Disclosure Room of the Employee Benefits Security
Administration, U.S. Department of Labor, Room N-1515, 200 Constitution
Avenue NW Washington, DC 20210. See SUPPLEMENTARY INFORMATION below for
additional information regarding comments.
FOR FURTHER INFORMATION CONTACT: Ms. Anna Vaughan of the Department,
telephone (202) 693-8565. (This is not a toll-free number.)
SUPPLEMENTARY INFORMATION:
Comments: Persons are encouraged to submit all comments
electronically and not to follow with paper copies. Comments should
state the nature of the person's interest in the proposed exemption and
how the person would be adversely affected by the exemption, if
granted. Any person who may be adversely affected by an exemption can
request a hearing on the exemption. A request for a hearing must state:
(1) the name, address, telephone number, and email address of the
person making the request; (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; and (3) a statement of the issues to be
addressed and a general description of the evidence to be presented at
the hearing. The Department will grant a request for a hearing made in
accordance with the requirements above where a hearing is necessary to
fully explore material factual issues identified by the person
requesting the hearing. A notice of such hearing shall be published by
the Department in the Federal Register. The Department may decline to
hold a hearing if: (1) the request for the hearing does not meet the
requirements above; (2) the only issues identified for exploration at
the hearing are matters of law; or (3) the factual issues identified
can be fully explored through the submission of evidence in written
(including electronic) form.
Warning: All comments received will be included in the public
record without change and may be made available online at http://www.regulations.gov, including any personal information provided,
unless the comment includes information claimed to be confidential or
other information whose disclosure is restricted by statute. If you
submit a comment, EBSA recommends that you include your name and other
contact information in the body of your comment, but DO NOT submit
information that you consider to be confidential, or otherwise
protected (such as a Social Security number or an unlisted phone
number) or confidential business information that you do not want
publicly disclosed. However, if EBSA cannot read your comment due to
technical difficulties and cannot contact you for clarification, EBSA
might not be able to consider your comment.
Additionally, the http://www.regulations.gov website is an
``anonymous access'' system, which means EBSA will not know your
identity or contact information unless you provide it in the body of
your comment. If you send an email directly to EBSA without going
through http://www.regulations.gov, your email address will be
automatically captured and included as part of the comment that is
placed in the public record and made available on the internet.
Proposed Exemption
The Department is proposing to grant an exemption under the
authority of section 408(a) of the Employee Retirement Income Security
Act of 1974 (ERISA) as amended. As described in more detail below, the
UAW is required to make certain contributions to the UAW Retirees
Health Care Plan (the Retiree Plan) pursuant to a court-approved
settlement agreement. The Retiree Plan is funded through the UAW
Retirees Health Care Trust (together with the Retiree Plan, the Retiree
VEBA). The exemption would permit
[[Page 57971]]
the receipt of a Note by the Retiree VEBA from the UAW, and the receipt
of collateral on the Note by the Retiree VEBA from the UAW. The
collateralized Note is intended to help ensure that the Retiree VEBA
receives all the contributions it is due from the UAW pursuant to the
settlement agreement. This proposed exemption would not affect or
reduce the amount or types of benefits offered under the Retiree VEBA.
Summary of Facts and Representations 1
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\1\ The Department notes that availability of this exemption, is
subject to the express condition that the material facts and
representations contained in application L-12016 are true and
complete, and accurately describe all material terms of the
transactions covered by the exemption. If there is any material
change in a transaction covered by the exemption, or in a material
fact or representation described in the application, the exemption
will cease to apply as of the date of such change.
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The UAW
1. The UAW is a labor union with approximately 669 active
employees, as of November 1, 2021. As of December 31, 2022, the UAW had
total assets of $1,129,835,327.
The Union Supporting Parties
2. The UAW represents that to control the steadily increasing
financial burden of certain UAW-sponsored retiree health programs (the
UAW Retiree Health Programs), the UAW engaged in discussions with the
Office of Professional Employees International Union Local 494 (OPEIU
Local 494), the UAW Staff Council of International Representatives (UAW
Staff Council), and other unions (together, the Union Supporting
Parties) before 2013. These discussions led to negotiated changes
regarding future benefits for then-current employees, future retirees,
and new hires. The UAW represents that these negotiated changes were
inadequate to resolve the serious financial difficulties posed by the
increasing cost of providing retiree health care. Therefore, in 2013,
the UAW announced additional unilateral modifications to the UAW
Retiree Health Programs that were implemented without agreement with
current retirees or the unions that represented those retirees.
3. According to the UAW, the Union Supporting Parties ultimately
objected to these unilateral modifications and subsequently entered
into extensive negotiations with the UAW. The negotiations led to a
June 2014 Memorandum of Understanding (the MOU) that set out detailed
terms and conditions for the creation and funding of a Retiree VEBA and
the payment of retiree health benefits to the participants and
beneficiaries previously covered under the UAW Retiree Health Programs.
The MOU was conditioned upon the negotiation and court approval of a
final settlement agreement.
Court-Approved Settlement Agreement
4. In May 2014, the Union Supporting Parties and three individuals
who were seeking to represent the UAW's retirees and current and former
unrepresented employees eligible for current and future benefits from
the UAW Retiree Health Programs filed a class action challenging the
UAW's 2013 unilateral modifications to the UAW Retiree Health
Programs.\2\ Subsequent negotiations among all the parties resulted in
a settlement agreement (the Settlement Agreement), which refined and
amplified the basic agreements set out in the June 2014 MOU. The Court
issued a final order approving the Settlement Agreement on November 6,
2015, and the UAW Retiree Health Programs were subsequently terminated
on or about December 17, 2015.\3\
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\2\ This case was filed on December 22, 2014, in the United
States District Court for the Eastern District of Michigan (the
Court). See Office and Professional Employees International Union
Local 494, et al v. United Automobile, Aerospace, and Agricultural
Implement Workers of America, Civil Action No. 2:14-cv-14868-DPH-EAS
(E.D. Michigan).
\3\ The UAW Retiree Health Programs included all UAW-sponsored
programs that provided eligible retirees with post-employment
medical benefits (including hospital, surgical, medical,
prescription drugs, vision, dental, hearing, Medicare Part B
reimbursement, and any other reimbursement or expenditure with
respect to such benefits) under the terms of applicable collective
bargaining agreements, benefit plans and programs, pension plan
documents, letters of agreement and understandings, and documents
reflecting terms of employment with the UAW.
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Funding the Retiree VEBA
5. Pursuant to the Settlement Agreement, the UAW committed to
contributing approximately $354.5 million to the Retiree VEBA.\4\ On
December 17 and December 23, 2015, the UAW contributed a total of
$240,730,693.06 to the Retiree VEBA. Under the terms of the Settlement
Agreement, the UAW thereafter owed $134,720,000 to the Retiree VEBA.\5\
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\4\ Specifically, the payment obligation of the UAW to the VEBA
equals: (1) $346,000,000, adjusted to reflect the final number of
participants and their coverage code and claims paid by the UAW from
January 1, 2013, through the implementation date of the Settlement
Agreement, plus interest on that adjusted amount, and (2) $8,500,000
to fund administrative expenses.
\5\ This amount reflected the difference between the UAW's
initial contribution amount and the UAW's final total contribution
commitment (adjusted as set forth in footnote 4).
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The Note
6. The parties to the Settlement Agreement negotiated certain
protections for the participants and beneficiaries of the Retiree
VEBA.\6\ The protections include a note (the Note), to be issued by the
UAW in favor of the Retiree VEBA if this exemption is granted. The Note
will have a principal amount of $134,720,000, a 15-year term, an
interest rate of 5.5% per year, and require the UAW to make sixty (60)
equal quarterly installment payments to the Retiree VEBA according to
the amortization schedule provided by UAW's actuary.
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\6\ The Applicant notes that the protections that are the
subject of this exemption do not become an enforceable part of the
Settlement Agreement unless the Department grants this proposed
exemption.
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7. The Note must reflect all of the terms set forth in the
Settlement Agreement regarding the UAW's contribution obligations,
including the conditions and rights regarding ``acceleration'' and
``default.'' \7\ If the UAW defaults in making any installment payment,
or upon a reorganization of the UAW, or upon the sale of any real
estate of the UAW or of its closed locals (or its or their building
corporations), the Retiree VEBA will have the right to declare an
acceleration of all, or a portion of, the UAW's unpaid contribution
commitment.\8\ In addition, if the UAW violates the debt limitation
and/or subordination requirements of the Settlement Agreement,\9\ the
Retiree
[[Page 57972]]
VEBA will have the right to declare the full outstanding principal
amount of the UAW's contribution commitment immediately due and
payable, with interest.
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\7\ Under the terms of the Settlement Agreement, a default
occurs when a failure to make payment of any installment when due
under the Installment Payment Obligation, as defined below, is not
cured on or within sixty (60) days after the scheduled due date.
\8\ With respect to the term ``close affiliates,'' the Applicant
states that Section 6(d) of the Settlement agreement provides that
the acceleration provision applies upon the sale of ``any real
estate formerly owned by closed UAW Locals or their building
corporations'' (in addition to upon the sale of any real estate
formerly owned by the UAW or its building corporation).
\9\ Limitations on new debt: The UAW shall not incur new
indebtedness for borrowed money (except for debt subordinated to
that of the New VEBA) while the Installment Payment Obligation
remains outstanding, except for: (a) short-term (12 months or less)
lines of credit or similar credit facilities, in amounts consistent
with past UAW practice, incurred for the purpose of strike support;
(b) debt incurred in a cumulative amount not to exceed $10 million,
escalated at five percent annually from the Final Effective Date;
(c) debt incurred to pay minimum required contributions under
Section 430 of the Internal Revenue Code, contributions required to
prevent the application of limits on benefits and benefit accruals
under Section 436 of the Internal Revenue Code, or contributions
required to avoid the filing requirements (``4010 filings'') as
specified by ERISA section 4010. The UAW shall notify the New VEBA
in writing in the event that the UAW incurs any new indebtedness
which exceeds the limitations described in this paragraph.
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The Mortgage
8. The Note is collateralized by a mortgage lien (the Mortgage
Lien), which is a first priority security interest on the Black Lake
Property (including any present or future rents or securities deposited
thereunder).\10\ The Black Lake Property is located in Onaway, MI
49765, and consists of nine improved parcels of real property. As
reported on the UAW's Form LM-2, the value of the Black Lake Property
for the year 2022 was $107,015,388.
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\10\ All persons or entities who have or may acquire an interest
in the Black Lake Property must have notice of, and be bound by, the
terms of the Note. No party will be entitled to any rights
thereunder without the written consent of the Retiree VEBA.
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9. Under the terms of the Settlement Agreement, the UAW is
responsible for paying all taxes levied or assessed with respect to the
Black Lake Property through its wholly owned subsidiary, the Union
Building Corporation (the UBC), and the UAW must maintain property
insurance on the Black Lake Property. If the UAW, through the UBC,
seeks to sell the Black Lake Property, or any portion thereof: (a) the
sale must be for a purchase price not less than the appraised value
established by an independent professional real estate valuation
firm,\11\ within 30 days of a purchase agreement for the sale of such
homesite and surrounding land; and (b) the Independent Members may not
release the Retiree VEBA's Mortgage Lien on the Black Lake Property
unless and until the UAW makes all the commitments necessary to allow
the Independent Members to conclude, consistent with their duties under
ERISA section 404(a), that the sale of such property does not
materially increase the risk borne by the Retiree VEBA. Such
commitments may include the pre-payment of a portion of the installment
payment obligation or the provision of alternative collateral.
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\11\ As noted below, the exemption requires a valuation of the
Black Lake Property by a Qualified Independent Appraiser if and when
the Black Lake Property is transferred to the Retiree VEBA.
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10. The UAW must contribute 100% of the net proceeds from the sale
of all or any portion of the Black Lake Property, to the Retiree VEBA
(i.e., the amount of proceeds from the sale of the property that
exceeds the costs associated with the property).\12\
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\12\ The Applicant represents that Cabin No. 4 at the Black Lake
Property, along with an immediately adjacent parcel, were listed by
Thomas Duke Realtors and sold in 2021 for $1,100,000, to a party
independent of the UAW. No amount was due to the Retiree VEBA
because there were no net proceeds from the sale.
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The Royalty Security
11. The Note is further collateralized by the Royalty Security set
forth in a security agreement between the UAW and the Retiree VEBA,
dated December 8, 2014 (the Security Agreement). Under the Security
Agreement, the UAW must immediately assign a first priority security
interest to the Retiree VEBA equal to 30% of the Royalty Security
received or receivable from time to time from the UAW's member credit
card program, upon an uncured default on the UAW's installment payment
obligation.
As reported on the UAW's Form LM-2, the value of the credit card
royalty payments for the year 2022 was $405,732.
12. The terms of the Note, Mortgage Lien, and Royalty Security may
not be modified during the duration of the UAW's obligation to the
Retiree VEBA.
The Committee
13. The Retiree VEBA is controlled by an eight-member committee
(the Committee) that acts as the named fiduciary of the Retiree VEBA
and has the authority to determine the retiree health benefits that are
provided under the Retiree VEBA. The Committee is composed of: four
Independent Members; \13\ one member appointed by the UAW; and three
members appointed by Unions whose eligible retirees have, or will have,
health care benefits through the Retiree VEBA (the Union-Appointed
Members).\14\ With respect to the Committee's Union-appointed Members,
two are appointed by UAW Staff Council and one is appointed by OPEIU
Local 494. The Committee Chair is (i) chosen by the Committee members
and required to be one of the Independent Members and (ii) given two
votes (except with respect to the selection of a successor Chair).\15\
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\13\ Section 1.07 of the UAW Retirees Health Care Trust
agreement (the Trust Agreement) defines an Independent Member as
``[a]n individual person who serves as a member of the Committee and
is not an officer or employee of the UAW or the Unions and does not
have any other relationship with the UAW or the Unions that would
compromise his or her independence, who satisfies the requirements
of Section 9.01 of the Trust Agreement, and whose experience in such
fields, without limitation, as health care, employee benefits, asset
management, human resources, labor relations, economics, law,
accounting or actuarial science indicates a capacity to fulfill the
powers and duties of Article IX in the manner described in Section
10.11, and wherever practicable, helps to provide a range of
relevant experience to the Committee.''
\14\ The Applicant states that, as of July 21, 2023, the current
Independent Members of the Committee are Gary Petroni, Gary Mann,
Jessica Gubing, and Francine Parker, (Committee Chair), and the non-
Independent Members are James King (appointed by Staff Council),
Scott Andrews (appointed by Staff Council), Janice Caruso (appointed
by OPEIU), and Renee Turner Baily (appointed by UAW).
\15\ The initial Chair of the Committee was selected by the UAW
and the Union Supporting Parties and designated in the final
approval order entered by the Court. See the Settlement Agreement,
Section 4(B), Doc. 19-1, Pg 20 of 82. Court Order, Doc. 38, Pg 33 of
35.
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14. Of the Committee's initial four Independent Members, three were
previously approved by the Court in connection with the Settlement
Agreement. The Committee's Independent Members are selected and
thereafter retain their position after receiving a majority of the
votes cast by the other Committee members. The votes are allocated
three each to the other Independent Members (including the Chair) and
the UAW-appointed member and one each to the OPEIU Local 494-appointed
member and the two UAW Staff Council-appointed members.\16\ Therefore,
the vote of the UAW-appointed member is not required for the selection
of a successor Independent Member. In the event of a vacancy in an
Independent Member position, the other Independent Members, the UAW-
appointed member, and the other non-independent members (voting as
described in Section 9.05(a) of the Trust Agreement), shall select the
successor Independent Member.''
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\16\ Trust Agreement, Section 9.05(a).
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15. Each Independent Member serves a three-year term, and the terms
are staggered. Because the terms are staggered, the Committee votes on
at least one member position every year. Vacancies are filled by the
Committee pursuant to the voting rules set forth in the Trust
Agreement.
16. The Independent Members have sole and exclusive control over
the Note, the Mortgage Lien, and the Royalty Security, in order to
foreclose or realize on the Black Lake Property and the Royalty
Security upon an uncured default on the UAW's installment obligation.
17. No one other than the Independent Members, or their delegate,
may make any decisions with respect to the Collateral.
18. The Department notes that the Independent Members must exercise
their duties with respect to such instruments prudently and solely in
the interests of the participants and beneficiaries of the Retiree
VEBA, consistent with their fiduciary duties under ERISA section 404.
[[Page 57973]]
Exemption Request and ERISA Analysis
19. The Applicant seeks an exemption so that the Retiree VEBA may:
(1) acquire and hold the Note, Mortgage Lien, and Royalty Security; and
(2) as needed, exercise its rights granted under the Note, Mortgage
Lien, and Royalty Security. An exemption is necessary because these
proposed transactions would violate various provisions of ERISA.
Specifically, ERISA section 406(a)(1)(A) prohibits a plan fiduciary
from engaging in any sale or exchange of property between the plan and
a ``party in interest.'' ERISA section 3(14)(D) defines the term
``party in interest'' to include an employee organization any of whose
members are covered by such plan. Thus, the UAW is a party in interest
with respect to the Retiree VEBA, because it is an employee
organization whose members are covered by the Retiree VEBA.
20. The acquisition of the Note by the Retirement VEBA from the UAW
would constitute an exchange between the Retiree VEBA and a party in
interest that would violate ERISA section 406(a)(1)(A).
21. ERISA section 406(a)(1)(B) prohibits loans or extensions of
credit between a plan and a party in interest. A Note issued by the UAW
and held by the Retiree VEBA would represent an extension of credit
that violates ERISA section 406(a)(1)(B).
22. ERISA sections 406(a)(1)(E) and 407(a) prohibit a fiduciary
from acquiring or holding on behalf of a plan an employer security or
any employer real property that is not a ``qualifying employer
security'' or ``qualifying employer real property,'' as defined by
ERISA section 407(d)(5). The Note and Royalty Security may be
characterized as a ``security'' issued by the UAW that is not stock, a
marketable obligation, or an interest in a publicly traded partnership,
and the Mortgage Lien might be characterized as an interest in
``employer real property'' that does not satisfy the requirements of
ERISA section 407(d)(4) (geographic dispersion, suitable for more than
one use, etc.). Therefore, the acquisition of the Note and the Royalty
Security by the Retiree VEBA from the UAW may violate ERISA sections
406(a)(1)(E) and 407(a).
Conditions of the Proposed Exemption
23. The requirements of this proposed exemption include all of the
material terms of the Note and the Collateral, as embedded in the
Settlement Agreement, which were approved by the Court. The Independent
Members must represent the Retiree VEBA for all purposes with respect
to the Covered Transactions and ensure that each exemption condition is
met, consistent with their fiduciary duties under ERISA section 404.
24. The Retiree VEBA must develop written policies and procedures
designed to ensure that the Independent Members prudently monitor the
UAW's payment obligation to the Retiree VEBA and the UAW's marketing
and/or sale of all or a portion of the Black Lake Property. In
addition, as soon as reasonably possible following any date the UAW
defaults on its payment obligation (and also fails to correct such
default), and as needed or as required thereafter, the Independent
Members must engage a Qualified Independent Appraiser to value the
Note, Mortgage Lien, and/or the Royalty Security, consistent with their
fiduciary duties under ERISA section 404. The Independent Members must
also ensure that the Retiree VEBA receives all that it is due under the
terms of the Settlement Agreement from the sale of any of the
Collateral, in a timely fashion, in order to offset the outstanding
principal balance due under the Note.
25. On an annual basis, beginning on the date this exemption is
granted, the Committee Chairperson must provide the Department with a
written certification that the Chairperson monitored the Note, the
Collateral, the Security Agreement, and the terms of this exemption,
consistent with their fiduciary duties under ERISA section 404. The
certification must be provided within 30 days of the end of the period
to which it relates.
26. In the event the UAW defaults on the Installment Payment
Obligation, the Committee Chairperson must submit a written report to
the Department providing: (1) a certification that each condition of
the exemption has been met; (2) a complete description of any
foreclosure and liquidation transactions; (3) all documentation
necessary to demonstrate that all relevant conditions applicable to the
transaction(s) have been met; and (4) if the Retiree VEBA does not
foreclose on the Collateral, a complete explanation of the Independent
Members' rationale for not taking such action. The report must be
submitted to the Department no later than 90 days following a default
on the Installment Payment Obligation.
Statutory Findings
27. The Proposed Exemption is ``Administratively Feasible.''
The Department has tentatively determined that the proposed
exemption is administratively feasible because, among other things, the
exemption stems from, and is consistent with, a Settlement Agreement
that was approved by the Court as being appropriate and fair. The
exemption also requires oversight and monitoring by the Committee
Chairperson, who is independent of the UAW, and a detailed report to
the Department if the Retiree VEBA forecloses on the Collateral.
28. The Proposed Exemption is ``In the Interest of the Retiree
VEBA.''
After reviewing the exemption application, as required by ERISA
section 408(a), the Department has tentatively determined that the
proposed exemption is in the interest of the Retiree VEBA because,
among other things, the Covered Transactions would provide the Retiree
VEBA with additional authority to enforce the UAW's contribution
promises, increasing the likelihood that the Retiree VEBA's funding
will be sufficient to achieve its intended purpose of providing
lifetime retiree health benefits to its participants and beneficiaries.
It is the Department's understanding that, if this exemption is not
granted the sole consequence to the Retiree VEBA is that the Retiree
VEBA will lose the security of the Note and the Collateral, and the
Settlement Agreement would not otherwise be affected.
29. The Proposed Exemption is ``Protective of the Retiree VEBA.''
The Department has tentatively determined that the proposed exemption
is protective of the rights of the Retiree VEBA's participants and
beneficiaries because, among other things, the Covered Transactions are
limited in scope and tailored for the exclusive purposes of providing
the Independent Members with direct legal rights to enforce the UAW's
contribution promises under the Note, Mortgage Lien, and Royalty
Security.
Notice to Interested Persons
Notice of the proposed exemption will be provided to all interested
persons within fifteen (15) days of the publication of the notice of
proposed five-year exemption in the Federal Register. The notice will
be provided to all interested persons in the manner approved by the
Department and will contain the documents described therein and a
supplemental statement, as required pursuant to 29 CFR 2570.43(a)(2).
The supplemental statement will inform interested persons of their
right to comment on and to request a hearing with respect to the
pending exemption. All written comments and/or requests for a hearing
must be received by the Department within forty-five (45) days of the
date of
[[Page 57974]]
publication of this proposed five-year exemption in the Federal
Register. All comments will be made available to the public.
Warning: If you submit a comment, EBSA recommends that you include
your name and other contact information in the body of your comment,
but DO NOT submit information that you consider to be confidential, or
otherwise protected (such as Social Security number or an unlisted
phone number) or confidential business information that you do not want
publicly disclosed. All comments may be posted on the internet and can
be retrieved by most internet search engines.
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 ERISA section 408(a) and/or Code section 4975(c)(2) does not
relieve a fiduciary or other party in interest or disqualified person
from certain other provisions of ERISA and/or the Code, including any
prohibited transaction provisions to which the exemption does not apply
and the general fiduciary responsibility provisions of ERISA section
404, which, among other things, require a fiduciary to discharge their
duties respecting the plan solely in the interest of the participants
and beneficiaries of the plan and in a prudent fashion in accordance
with ERISA section 404(a)(1)(B); nor does it affect the requirement of
Code section 401(a) 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 ERISA section 408(a)
and/or Code section 4975(c)(2), 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 exemption would be supplemental to, and not in
derogation of, any other provisions of ERISA 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 exemption would be subject to the express
condition that the material facts and representations contained in the
application are true and complete at all times and that the application
accurately describes all material terms of the transactions which are
the subject of the exemption.
Proposed Exemption
Based on the facts and representations set forth in the
application, the Department is proposing to grant an exemption under
the authority of ERISA section 408(a) and in accordance with its
exemption procedure regulation \17\ as follows:
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\17\ 29 CFR part 2570, subpart B (76 FR 66637, 66644, October
27, 2011).
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Section I. Definitions
(a) The term ``Black Lake Property'' means a parcel of real
property owned by the UAW situated in the Township of Waverly, County
of Cheboygan, State of Michigan, as described in detail in Exhibit A to
the Mortgage Lien.
(b) The term ``Committee'' means the eight-member committee that
controls and acts as the named fiduciary of the Retiree VEBA. One
Committee member is appointed by the UAW. The remaining Committee
members are four Independent Members, and three members who are
appointed by the Unions whose eligible retirees have, or will have,
health care benefits through the Retiree VEBA (the Union-appointed
Members). The Committee Chair: is chosen by the members of the
Committee; is required to be one of the Independent Members; and is
given two votes (except with respect to the selection of a successor
Chair).
(c) The term ``Court'' means the United States District Court for
the Eastern District of Michigan.
(d) The term ``Final Effective Date'' means the date on which any
appeals from, or other challenges to (i) an order obtained from the
Court approving and incorporating the Settlement Agreement in all
respects on a class-wide basis as set forth in Section 15(b) of the
Settlement Agreement and (ii) a final order entered by the Court
certifying the Litigation as a non-opt out class action, with the class
defined in Section 1 of the Settlement Agreement.
(e) The term ``Independent Members'' means four individuals on the
Committee designated as independent members. An Independent Member may
not be an officer or employee of the UAW or the other Unions or have
any other relationship with the UAW or the other Unions that would
compromise his or her independence.
(f) The term ``Implementation Date'' means the date that is ten
days after the Final Effective Date.
(g) The term ``Installment Payment Obligation'' means the payment
of an amount, as described in Section 6(C)(iii) of the Settlement
Agreement, to the Retiree VEBA in equal installment payments over a
term of fifteen (15) years, at an interest rate of 5.5% per annum
beginning on the Implementation Date, compounded quarterly, reduced by
2 basis points for each $1 million in accelerated payments made by the
UAW.
(h) The term ``Litigation'' means Office and Professional Employees
International Union Local 494, et al v. United Automobile, Aerospace,
and Agricultural Implement Workers of America, Civil Action No. 2:14-
cv-14868-DPH-EAS (E.D. Michigan).
(i) The term ``Mortgage Lien'' means a first mortgage lien granted
by the UAW on the Black Lake Property to secure payment of the Note.
(j) The term ``Note'' means a note issued by the UAW consistent
with the terms of the Settlement Agreement.
(k) The term ``Qualified Independent Appraiser'' means any
individual or entity with appropriate training, experience, and
facilities to provide a qualified appraisal report on behalf of the
Retiree VEBA regarding the particular asset or property appraised in
the report, that is independent of and unrelated to any party in
interest engaging in the exemption transaction and its affiliates.\18\
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\18\ The Qualified Independent Appraiser must meet the
requirements described at 29 CFR 2570.31(i) at 76 FR 66645 (October
27, 2011). Specialized statements from the Qualified Independent
Appraiser must meet the requirements of 29 CFR 2570.34(c) at 76 FR
66647 (October 27, 2011).
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(l) The term ``Retiree Plan'' means UAW Retirees Health Care Plan.
(m) The term ``Retiree VEBA'' means the UAW Retirees Health Care
Trust together with the Retiree Plan.
(n) The term ``Royalty Security'' means a first priority security
interest in 30% of future credit card royalties and/or other fees or
amounts payable to the UAW under various licensing agreements to which
the UAW is a party in connection with its member credit card programs.
(o) The term ``Settlement Agreement'' means the settlement
agreement that followed the Litigation.
(p) The term ``UAW'' means United Automobile, Aerospace and
Agricultural Implement Workers of America.
(q) The term ``UBC'' means the Union Building Corporation, a
Michigan nonprofit corporation that is wholly owned by the UAW.
(r) The term ``Unions'' means, collectively, the following unions:
the
[[Page 57975]]
UAW; Staff Council of International Representatives; Office and
Professional Employees International Union, Local Union 494;
International Union, Security, Police and Fire Professionals of America
Amalgamated Local 119; Staff Lawyers Union; and the Newspaper Guild/
Communications Workers of America Local 34022.
Section II. Covered Transactions
If the proposed exemption is granted, the restrictions of ERISA
sections 406(a)(1)(A), 406(a)(1)(B), 406(a)(1)(E), and 407(a) shall not
apply effective as of the date a final exemption is published in the
Federal Register, to:
(a) The acquisition by the Retiree VEBA of: (1) the Note; (2) the
Mortgage Lien; and (3) the Royalty Security to secure payment of the
Note;
(b) the holding by the Retiree VEBA of the Note, Mortgage Lien, and
Royalty Security; and
(c) the exercise by the Retiree VEBA of the rights granted under
the Note, Mortgage Lien, and Royalty Security.
Section III. Conditions
(a) The terms of the Note, the Mortgage Lien and the Royalty
Security are consistent with the terms of the Settlement Agreement that
was approved by the United States District Court for the Eastern
District of Michigan on November 6, 2015, after the Court found the
Settlement Agreement to be appropriate and fair to the Retiree VEBA.
(b) The Independent Members represent the Retiree VEBA for all
purposes with respect to the Covered Transactions and ensure that each
exemption condition is met consistent with their fiduciary duties under
ERISA section 404;
(c) The Independent Members have sole and exclusive control over
the Note, the Mortgage Lien, and the Royalty Security, in order to
foreclose or realize on the Black Lake Property and the Royalty
Security (collectively, the Collateral) upon an uncured default on the
UAW's installment obligation.
(d) The UAW immediately assigns a first priority security interest
to the Retiree VEBA equal to 30% of the Royalty Security received or
receivable from time to time from the UAW's member credit card program,
upon an uncured default on the UAW's installment payment obligation.
(e) If the UAW seeks to sell all or a portion of the Black Lake
property, the Independent Members will not release the Retiree VEBA's
Mortgage Lien on the Black Lake Property unless and until the UAW makes
all the commitments necessary to allow the Independent Members to
conclude, consistent with their duties under ERISA section 404(a), that
the sale of such property does not materially increase the risk borne
by the Retiree VEBA. Such commitments may include the pre-payment of a
portion of the installment payment obligation or the provision of
alternative collateral.
(f) Any proceeds from the sale of the Black Lake Property by the
UAW, or from the Royalty Security, as required by the Settlement
Agreement and Security Agreement, during the period during which the
UAW owes installment payments to the Retiree VEBA (and up to the total
amount of indebtedness), must be immediately paid to the Retiree VEBA
to offset the outstanding principal balance due under the Note.
(g) The UAW, through the UBC, remains responsible for the payment
of all taxes levied or assessed with respect to the Black Lake
Property, and the UAW, through the UBC, must maintain property
insurance on the Black Lake Property at all times.
(h) All persons or entities who have or may acquire an interest in
the Black Lake Property must have notice of and be bound by the terms
of the Note. No party will be entitled to any rights thereunder without
the written consent of the Retiree VEBA.
(i) The terms of the Note, Mortgage Lien, and Royalty Security may
not be modified during the duration of the UAW's obligation to the
Retiree VEBA.
(j) The Retiree VEBA must prudently develop written policies and
procedures designed to ensure that the Independent Members prudently
monitor the UAW's payment obligation to the Retiree VEBA, as well as
the UAW's marketing and/or sale of all or a portion of the Black Lake
Property.
(k) The Independent Members must engage a Qualified Independent
Appraiser to value the Note, Mortgage Lien, and Royalty Security as
soon as reasonably possible following the date the UAW defaults on its
payment obligation and fails to correct such default, and as needed or
as required thereafter as determined by the Independent Members
consistent with their fiduciary duties under ERISA, with the fees of
such Qualified Independent Appraiser to be paid by the Retiree VEBA.
(l) Annually on the first day after the date this exemption is
granted, the Committee Chairperson must provide the Department with a
signed certification attesting that the Independent Members monitored
the Note, the Collateral, the Security Agreement, and the terms of this
exemption consistent with their fiduciary duties under ERISA section
404. The first certification must include the written policies
described in condition (j). The certification must be provided within
30 days after the end of the period to which it relates.
(m) In the event the UAW defaults on the Installment Payment
Obligation the Committee Chairperson must submit a written report to
the Department providing: (1) a certification that each condition of
the exemption has been met; (2) a complete description of any
foreclosure and liquidation transactions; (3) all documentation
necessary to demonstrate that all relevant conditions applicable to the
transaction(s) have been met; and (4) if the Retiree VEBA does not
foreclose on the Collateral, a complete explanation of the Independent
Members' rationale for not taking such action. The report must be
submitted no later than 90 days following the date the UAW defaults on
its Installment Payment Obligation.
Exemption date: If granted, this proposed exemption will be in
effect on the date that the grant notice is published in the Federal
Register.
Signed at Washington, DC, this 17th day of August, 2023.
George Christopher Cosby,
Director, Office of Exemption Determinations, Employee Benefits
Security Administration, U.S. Department of Labor.
[FR Doc. 2023-18231 Filed 8-23-23; 8:45 am]
BILLING CODE 4510-29-P