The labor situation is Start Printed Page 49797stable. 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, (5) The availability of this exemption is subject to the express condition that the material facts and representations contained in the application are true and complete and accurately describe all material terms of the transactions, which are the subjects of the exemption. 4. The Independent Fiduciary negotiated the survival of the representations and warranties in general for 24 months after the Closing Date and indefinitely with respect to those relating to Northwest's ownership of the Pinnacle Stock and Pinnacle's ownership of the outstanding shares of Pinnacle Airlines, Inc. prior to the Initial Contribution; Northwest's ownership of the Pinnacle Stock prior to any subsequent Contribution; and Northwest's and NWA's representation that the contemplated transactions do not violate or result in a default under any of their material contracts, including without limitation, the Credit Agreement. Fiduciary Counselors' duties also include the discretionary authority to manage the Pinnacle Stock as investment manager. Without modifications to the pilot collective bargaining agreement, the Proposed Exemption contemplated that the other two Plans would receive a contribution of Pinnacle Stock in an amount equal to the maximum amount permitted under section 407(a)(2) of ERISA, while the Pilot Plan would receive no contributions of Pinnacle Stock. The purpose of collateral would be to protect the Plans from declines in the value of Pinnacle Stock and secure the Put Option accorded to the Plans. Northwest's presence in international markets has helped offset the losses in the U.S. domestic market. Finally, Fiduciary Counselors requests that in Section III. Moreover, in connection with the Omnibus Agreement entered into between Fiduciary Counselors and Northwest, Fiduciary Counselors negotiated for limitations on Northwest's ability to unilaterally amend or terminate the ASA. In addition, under the Agreements, the trustee of each plan was given a one time Special Conversion Option that, if elected, resulted in the relevant trusts receiving Common Stock at the rate of 1.9096 shares of Common Stock for each share of the Series C Preferred Stock that they would have otherwise received. Similarly, U.S. Airways did not reject its ASA with its regional airline partners Mesa and Chautauqua. Lastly, the Department notes that the above described responsibilities to be undertaken by the Independent Fiduciary are material factors in the Department's determination to grant a final exemption. Northwest notes that quarterly valuations were contemplated in the Application, but a change to annual valuations was made when Northwest and Fiduciary Counselors agreed to the Term Sheet. are not part of the published document itself. Northwest states that, in this regard, some refinements were made to the provisions of the Term Sheet when the parties negotiated and entered into the final Omnibus Agreement (executed on January 15, 2003). Northwest represents that the final terms of the Omnibus Agreement reflect the fact that Fiduciary Counselors has represented the Plans' interests. 68 FR 49792 - Northwest Airlines Pension Plan for Salaried Employees (Salaried Plan), the Northwest Airlines Pension Plan for Pilot Employees (Pilot Plan), and the Northwest Airlines Pension Plan for Contract Employees (Contract Plan) (Collectively, the Plans), Located in Eagan, MN Alternatively, Northwest may arrange for the stock to be purchased by a third party. The Independent Fiduciary must investigate the facts and assumptions underlying the appraisals to ensure that stock contributions are not valued at more than fair market value. Minnesota law would not restrict the repurchase of Pinnacle stock by Northwest, a Minnesota corporation, which issued the Put Option. The Department has determined that it would be appropriate to modify the definition of independent fiduciary as follows: (3) the annual gross revenue received by such fiduciary, during any year of its engagement, from Northwest and its affiliates exceeds 5 percent (5%) of the independent fiduciary's annual gross revenue from all sources for its prior tax year.. In addition to determining the value of Pinnacle Stock at the time of a proposed contribution, the Independent Fiduciary will provide an annual written valuation of the per share value of all Pinnacle Stock held by the Plans as of each December 31 and at any time the Independent Fiduciary exercises the Put Option described below. Date: This exemption is effective as of January 15, 2003. The details of the Pinnacle Stock contribution were provided in the March 3, 2003 letter. The Proposed Exemption included specific conditions that ensure that the independent fiduciary is free from conflicts of interest. The ASA was revised to provide that the acquisition or disposition of shares of Pinnacle Stock pursuant to the terms of the Omnibus Agreement does not constitute a Change of Control (as defined in the ASA). Pursuant to its engagement letter with Northwest, the scope of Fiduciary Counselors' engagement includes determining whether to accept the Contribution on behalf of the Plans, and if so, to value the Pinnacle Stock for Plan funding purposes. Fiduciary Counselors, AIC and Eclat also noted that some of the information used by Eclat for the January 15, 2003 Valuation was not available during the initial valuation in the Eclat Report. With PBGC's consent, Eclat was subsequently retained by the Independent Fiduciary to value the Pinnacle Common Stock. In this case, the Omnibus Agreement provides the Plans with a Put Option that allows Fiduciary Counselors at any time to put Pinnacle Stock back to Northwest at the greater of the price at the time the stock was contributed or the price at the time of the put. This site displays a prototype of a Web 2.0 version of the daily In addition, section 404(a)(1)(C) requires that fiduciaries diversify plan investments so as to minimize the risk of large losses, unless under the circumstances it is clearly prudent not to do so. Comments: Commenters expressed a concern that the contribution of Pinnacle Stock involves a conflict of interest on the part of Northwest. Counts are subject to sampling, reprocessing and revision (up or down) throughout the day. 01/18/2023, 159 These markup elements allow the user to see how the document follows the [3] In valuing the Pinnacle shares, it was necessary to assign a value, not only to Pinnacle, but also to the Put Option. One of the strengths of the Northwest network is that the airline has the least exposure of any major carrier to low-cost carriers in the industry. The target margin will be reset after 2008 based on historical and expected operating costs. Eclat used the Black-Scholes option-pricing model to determine the value of the Put Option. More frequent notice will be required based on Northwest's liquidity and the value of the Pinnacle Stock contributed to the Plans. Northwest Airlines, Inc. In addition, the Independent Fiduciary negotiated the right to engage an investment banker on behalf of the Plans in an IPO, at Northwest's expense. By permitting the contribution of Pinnacle Stock, Northwest is able to preserve needed cash so that it can withstand several years of losses. An Initial Contribution was made in the amount of $41,149,911. Page 53 of 61. QDRO Preparation for NORTHWEST AIRLINES PENSION PLAN FOR . Northwest asserts that it couldn't make this representation if there were restrictions that limited its ability to honor the Put Option or other aspects of the Omnibus Agreement and this representation was the product of the negotiations between the Independent Fiduciary and Northwest (as noted above). Prior to valuing the put option, Eclat's estimate of the value of Pinnacle was $333,436,072, after application of an illiquidity discount of 15% and a minority discount of 5%. No commissions, fees, costs, charges or other expenses will be borne by the Independent Fiduciary or the Plans in connection with any acquisition, holding or disposition of Pinnacle shares to or from the Plans, other than the underwriters' discount or other broker-dealer fees or commissions charged in any sale of such shares. the material on FederalRegister.gov is accurately displayed, consistent with (This is not a toll-free number.). [7] Registration rights and Plan director's rights preserve the value of the Pinnacle Stock while held by the Plans. The Delaware law does not apply to the repurchase of Pinnacle Stock, which is not treated as NWA Corp.'s own stock. (i) The Plans incur no fees, costs or other charges as a result of their participation in any of the transactions described herein. regulatory information on FederalRegister.gov with the objective of From a fiduciary standpoint, Independent Fiduciary was required to determine whether the terms it negotiated in the Omnibus Agreement and its decision whether to accept the Contribution were prudent, for the benefit of, and in the interest of, Plan participants and their beneficiaries. On August 1, 2003, in response to the Department's questions concerning the legal restrictions that prevented Northwest from repurchasing the Series C Preferred Stock and whether these legal restrictions were tied to Northwest's financial condition, Northwest explained that in making the Series C stock repurchase decision, the board of NWA Corp. was subject to a Delaware law that applies only to NWA Corp.'s repurchase of its own stock. You are here: . Northwest noted that the Omnibus Agreement added certain valuation details that expand the discussion of the Right of First Refusal at 68 FR 2586. The March 5 Comment noted that due to the firm's recent name change, the reference to Jones, Day, Reavis & Pogue in the first column of the Proposed Exemption at 68 FR 2584 should be changed to Jones Day. 5. Accordingly, this final exemption is issued solely by the Department. Northwest Airlines Freezes Pension Plans September 9, 2005 (PLANSPONSOR.com) - Northwest Airlines has frozen two pension plans that cover salaried employees, Business Insurance reports. (d) A statement of the stock's value, the methodologies used in determining the value, the reasons for the valuation in light of the methodologies, and the reasons that the appraiser chose to apply particular valuation methods rather than others. In addition, Pinnacle has an independent Board of Directors with one member appointed by Fiduciary Counselors, and the Fiduciary Counselors-appointed Board member is entitled to special voting rights on certain matters. Fiduciary Counselors and Eclat represent that Eclat was originally retained by PBGC to value Pinnacle and to evaluate the financial viability of Northwest. Subject to the further conditions and restrictions set forth in the Omnibus Agreement, the Plans may transfer the Pinnacle Stock prior to July 1, 2006, (1) only in the event of an IPO or sale to a third party initiated by Northwest, (2) by exercise of the Put Option (as described below), or (3) because of an Early Termination Event (including a breach of the Omnibus Agreement by Northwest or Pinnacle which is not cured timely or Northwest's failure to honor the Put Option). For purposes of this requirement, the term employer real property means real property leased to, and the term employer securities means securities issued by, an employer any of whose employees are covered by the Plans or by an affiliate of such employer; and. Northwest will no longer guarantee a minimum operating margin in 2008. The Pinnacle Stock contributed to the Pilot Plan will be held in a separate, segregated subaccount of the Master Trust and held for the exclusive benefit of the Pilot Plan. Through reduced employment levels and other cost-cutting measures, Northwest has been able to minimize the ongoing impact of reduced revenue levels, which the Independent Fiduciary believes are likely a permanent change in the industry. In doing so, Fiduciary Counselors' legal obligations run exclusively to the Plans, not to Northwest. In no circumstance, however, may the parties treat Pinnacle Stock previously contributed to the Plans as if it had a higher value than was attributed to it at the time of the original contribution. In accordance with section 408(a) of the Act and section 4975(c)(2) of the Code and the procedures set forth in 29 CFR Part 2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon the entire record, the Department finds that the exemption is: (b) In the interests of the plans and their participants and beneficiaries; and. Northwest stated that it would not. documents in the last year, by the International Trade Commission Northwest replied that Northwest does not manage Pinnacle. A comprehensive set of representations and warranties relating to both Pinnacle, Northwest and its affiliates. Additionally, Northwest notes that the Letter Agreement between Northwest and ALPA relating to a voluntary contribution of Pinnacle Stock would provide ALPA with a role in reviewing and approving the termination, and any replacement, of the independent fiduciary. on NARA's archives.gov. As with the Term Sheet, the final Omnibus Agreement provides that the Deferral shall be shortened if Pinnacle Stock is publicly traded. Federal Register. Open for Comment, Rules of Practice and Procedure; Adjusting Civil Money Penalties for Inflation, Economic Sanctions & Foreign Assets Control, Revised Definition of Waters of the United States, Certain Preserved Mushrooms From France Determination, Energy Conservation Program: Test Procedure for Dishwashers, Prior Label Approval System: Expansion of Generic Label Approval, Rate Adjustments for Indian Irrigation Projects, Establishing the President's Advisory Council on African Diaspora Engagement in the United States, Employee Benefits Security Administration, Valuation in Connection With the Right of First Refusal, Fiduciary Counselors March 5, 2003 Comment, Fiduciary Counselors and Eclat April 25, 2003 Submissions, The Eclat Report and the January 15, 2003 Valuation, Negotiation of the Term Sheet and Omnibus Agreement, The Independent Fiduciary's Determinations, Airline Industry and Northwest Financial Condition, Collateral for Pinnacle Stock Contribution, Northwest May 20 and June 10, 2003 Comment Letters, Fiduciary Counselors' July 11, 2003 Submission, Change of Affiliation of Fiduciary Counselors, Termination of the Independent Fiduciary Agreement, Northwest and ALPA Agreement Regarding Pinnacle Stock, August 6, 2003 Northwest and Independent Fiduciary Response, Enhanced Communication with Plan Participants, https://www.federalregister.gov/d/03-21162, MODS: Government Publishing Office metadata, Current Liability using 6.65% interest rate (IRC 412(l)), Market Value of Assets (with PY02 accrued contributions), Actuarial Value of Assets (with PY02 accrued contributions). documents in the last year, by the Energy Department The Department notes that the appointment of an independent fiduciary to represent the interests of the Plans with respect to the transactions that are the subject of the exemption request was a material factor in its determination to propose exemptive relief. The third expert then determines which of the two assessed values should be assigned to such non-cash consideration. Equally important, Fiduciary Counselors negotiated for special rights associated with the Plans' acquisition of Pinnacle Stock that limit the risks associated with Pinnacle Stock. Northwest represents that it will make any such contributions in cash. The Independent Fiduciary and its advisors reviewed various documents relevant to the Contribution, including without limitation, Northwest's certificate of incorporation; Northwest's corporate bylaws; the certificate of incorporation of Pinnacle; the Master Trust agreement pursuant to which the Plan assets are currently held and managed; audited financial statements of the Plans for 2000 and 2001; the current Plan documents; the Plans' annual reports on Forms 5500 for 2000 and 2001; other information provided by Northwest regarding the Plans' assets (including the Plans' investment guidelines and portfolio composition); a statement prepared by the Plans' actuaries of the Plans' liquidity needs to pay benefits and administrative expenses in the near future and the sources of funds (other than the Pinnacle Stock) available to satisfy such liquidity needs; and certain of Pinnacle's collective bargaining agreements. The Proposed Exemption contemplates both voluntary and required contributions to the Northwest Plans, as did the Application filed by Northwest on November 6, 2002 and the Omnibus Agreement. The Initial Contribution was comprised of 1,819,833 shares valued at $22.61 per share. This voluntary contribution will eliminate the funding requirements under the Code and ERISA for the 2003 Plan Year that would otherwise be payable with respect to the Pilot Plan. App. The Put Option is exercisable at any time by the Plan. Any remaining Pinnacle stock will then be contributed to the Contract Plan. In valuing Pinnacle Stock, the Independent Fiduciary specifically applied a 15% liquidity discount and a 5% discount to take into account that, for some period, the Plans would be a minority shareholder. If the markets return, substantial upside will benefit the Plans. The description of Northwest's right of first refusal with respect to Pinnacle Stock is accurate; however, if the Plans negotiate the sale of Pinnacle Stock to a third party for non-cash consideration, the Omnibus Agreement includes a specific valuation mechanism with respect to such consideration. 702 King Farm Boulevard, Suite 400, Rockville, MD 20850 / +1 212-944-4455 / issgovernance.comAMR Under Pressure to Preserve Pensions . The IF Report states that under the ASA, Northwest has committed 95 regional jet aircraft financed by Bombardier to be delivered to Pinnacle by December 31, 2004. Northwest also provided more detail about the final terms of the transactions as agreed to by Northwest and the Plans' independent fiduciary, Aon Fiduciary Counselors, Inc. (Fiduciary Counselors or Independent Fiduciary). In this environment, it is necessary to maintain high liquidity reserves to ensure the viability of the airline and protect the long-term interests of the pension plans and plan participants. 3. that agencies use to create their documents. If the Pinnacle Stock is publicly traded, the Plans will receive the greater of (i) the Floor Price, or (ii) the average closing price for the stock on the public market for the 10 trading days preceding the exercise date or, if greater, the closing price on the day before the Put Option closing date. Start Printed Page 49808. In addition, U.S. Airways has recently signed an agreement with Mesa for more regional aircraft. (j) A description of all of the factors taken into account in making the valuation, including any restrictions, understandings, agreements or obligations limiting the Plans' ability to dispose of the stock. The Plan is a defined benefit pension plan for the benefit of certain union-represented employees. how long to keep medicare statements after death; The IF Report states that Eclat's clients come from almost every sector of the aviation industryairports, airlines, labor organizations and aerospace/aeronautics corporations. This value was further discounted by 4.48%, to Start Printed Page 49799$318,498,136, to reflect Northwest's ability to delay payment on the put for up to 6 months. A provision providing that the exercise price of any options on Pinnacle Stock granted to its executive employees under its stock incentive plan at the time of an IPO would be at the greater of the value of the stock at the time it was contributed to the Plans or the IPO price. of the issuing agency. Based on input from AIC, Eclat then applied a 15 percent liquidity discount and a 5 percent minority discount. Federal Register issue. northwest airlines pension plan phone number. In addition, the Independent Fiduciary reviewed a number of other documents, including SEC Form S-1 filed with the Securities Exchange Commission on February 25, 2002 registering shares of Pinnacle Stock for an IPO and the Airline Services Agreement dated March 1, 2002. In this regard, as long as the Plans hold at least 5 percent of the Pinnacle Stock, the Plans will have the right to designate one nominee to Pinnacle's board of directors, and Northwest will vote the Series A Preferred Share held by it in favor of such designee. The terms of the ASA and related agreements are more favorable to Pinnacle than an arm's length transaction between unrelated parties, and substantially determine and enhance the value of Pinnacle. 01/18/2023, 823 3. The changes incorporated into the Omnibus Agreement were requested and approved by Fiduciary Counselors. Director, Office of Exemption Determinations, Employee Benefits Security Administration, Department of Labor. All transactions involving the Plans in connection with the contribution of Pinnacle shares will be no less favorable to the Plans than arm's length transactions involving unrelated parties. The IF Report represents that, in the January 15, 2003 Valuation, Eclat determined that the net equity value (before discounts) of Pinnacle was $412,923,928.00. Hours of Operation: 8:00 a.m. - 5:00 p.m. PST. Here, they assert, the purpose of the exemption, to provide the Plans with a valuable security while maintaining Northwest's liquidity, would be undermined if assets were required to be used as collateral in connection with contributions of Pinnacle Stock. Until the Series C stock is repurchased, each share will accrue a 12% per year dividend on the $46.96 per share buy back price. Press "1" to indicate that the employee number is all numeric. 612-726-3774. Fiduciary Counselors sent additional information to the Department on July 11, 2003. At the conclusion of these deliberations, it was clear that the legal restrictions applicable to stock buy backs under Delaware Law did not permit Northwest to proceed at this time with the buy back of the Series C Preferred Stock. Any change to the ASA, including any early termination of the ASA by Pinnacle, must be approved by a majority of Pinnacle's independent directors, which majority must include the director designated by the Plans. documents in the last year, 1401 Select the item (s) you need from this menu. The Independent Fiduciary must ensure that all of the conditions above are satisfied with respect to any past contributions of Pinnacle Stock, as well as any future contributions. Plan Name. Without modification to the pilot collective bargaining agreement, the Proposed Exemption contemplated that the Salaried and Contract Plans could hold Pinnacle Stock equal up to 10% of each Plan's assets. the Federal Register. Northwest Retirement Plans, Inc. 541-776-4080 FAX: 541-772-1129 OFFICE: 3235 Hillcrest Park Drive, Suite 100 in Medford, OR 97504 Northwest Retirement Plans: We are a third party administrator (TPA) of Qualified Retirement Plans for employers. For complete information about, and access to, our official publications Northwest instructed State Street Bank to establish an Investment Fund in connection with the Plans' Master Trust. An additional provision that would prohibit Northwest from using its rights under the Series A Preferred Share to block a Transfer of Pinnacle Stock following an Early Termination Event. Defined Benefit Master Trust : C/O Delta Air Lines, Inc., 1030 Delta Boulevard, Atlanta, US-GA, 30354, US: 2012-12-18: Delta Pilots Disability and Survivorship Plan : C/O Delta Air Lines, Inc., 1030 Delta Boulevard, Atlanta, US-GA, 30354, US: 2012-12-04: Northwest Airlines Pension Plan for Salaried Employees If you have questions on any of the material or the enrollment process, please contact the Northwest Retiree Service Center at 1-866-305-1042. If the Pinnacle Stock is not publicly traded, the Plans will receive the. Start Printed Page 49801. For the reasons set forth below, the Independent Fiduciary has concluded that it is prudent for the Plans to accept the Contribution and that the Contribution is in the interest of the Plans and their participants and beneficiaries: Transfer restrictions on Pinnacle Stock held by the Plans are reasonable in light of the Put Option. This document has been published in the Federal Register. It is the view of the Department that acceptance of an in-kind contribution is a fiduciary act subject to section 404 of ERISA. 01/18/2023, 202 Indeed, the January 15, 2003 Valuation indicates that the Plans could receive a 20 percent IPO premium in connection with the Pinnacle Stock investment. (g) a description of the nature of Pinnacle's business and history. The Independent Fiduciary negotiated further powers with respect to the Plan director, including the right to object to Business Combinations involving Northwest's affiliates. At that time, the Pilot Plan did not participate in the Pinnacle Stock Investment Fund.[4]. Once Pinnacle Stock is publicly traded, the Put Option will be suspended if all of the remaining shares of Pinnacle Stock held by the Plans have a market value not less than 110% of the Floor Price and such shares are freely tradable. Northwest explained that the Omnibus Agreement granted the Plans additional rights in order to protect their interest in the Pinnacle Stock. Any transaction involving Northwest outside the ordinary course of business that involves more than $2 million and any ordinary course transaction that involves more than $5 million must be approved by a majority of the independent directors. See Omnibus Agreement at section 7.3. Pinnacle Stock in that amount was transferred to State Street Bank, the trustee for the Northwest Master Trust for Defined Benefit Plans that holds the assets of all of the Northwest Plans (the Master Trust). These negotiations resulted in agreements (Agreements) between Northwest and each of its unions under which Northwest would contribute to the Employee Stock Plan a newly created, special class of stock (the Series C Preferred Stock) in an amount that would equal the monetary value of certain wage and other concessions agreed to by the unions. on The Independent Fiduciary must prudently determine the fair market value of the Pinnacle Stock as of the date it is contributed to the Plans. While every effort has been made to ensure that better and aid in comparing the online edition to the print edition. Eclat determined that Pinnacle and Northwest are healthy companies, even in light of current economic conditions in the airline industry. Northwest will obtain an amendment of the Omnibus Agreement so that the Independent Fiduciary will have first priority to sell Pinnacle Stock in an initial public offering, if certain conditions exist. To exercise the Put Option, the Independent Fiduciary must provide written notice to Northwest of its election to put to Northwest any or all of the shares of Pinnacle Stock then held by the Plans. The Application has been available for public inspection at the Department in Washington, DC. Section 7.2(b) of the Omnibus Agreement requires only that the appointment of a new CEO be approved by a majority of Pinnacle's board (excluding the Northwest Director), and does not make reference to the compensation of Pinnacle's CEO. In determining the fair market value of the Pinnacle Stock, the Independent Fiduciary obtains an appraisal from an independent qualified appraiser selected by the Independent Fiduciary, and ensures that the appraisal and the Independent Fiduciary's analysis of the appraisal are consistent with sound principles of valuation and with the elements described by the Department in the Preamble to this final exemption in the section entitled Duties of the Independent Fiduciary; (g) The terms of (1) the Put Option granted by Northwest; (2) any exercise of the Put Option by the Plans; and (3) any sale of the Pinnacle Stock by the Plans to Northwest other than through the exercise of the Put Option will be in accordance with the terms set forth in the Term Sheet and the Omnibus Agreement; (h) Immediately after each contribution, employer securities and employer real property, including the Pinnacle Stock, will represent no more than 10 percent (10%) of the value of each Plan's assets. The Department notes that the Preamble to the Proposed Exemption stated that either party may terminate the Independent Fiduciary Agreement for any reason upon 60 days notice and that the Agreement may be terminated immediately for cause.
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