Notice of Proposed Individual Exemption Involving General Motors Corporation, Located in Detroit, MI, 47963-47974 [E9-22485]

Agencies

• Employee Benefits Security Administration
• DEPARTMENT OF LABOR

[Federal Register Volume 74, Number 180 (Friday, September 18, 2009)]
[Notices]
[Pages 47963-47974]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-22485]


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DEPARTMENT OF LABOR

Employee Benefits Security Administration

[Application No. L-11568]


Notice of Proposed Individual Exemption Involving General Motors 
Corporation, Located in Detroit, MI

AGENCY: Employee Benefits Security Administration, U.S. Department of 
Labor.

ACTION: Notice of proposed individual exemption.

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    This document contains a notice of pendency before the Department 
of Labor (the Department) of a proposed individual exemption from 
certain prohibited transaction restrictions of the Employee Retirement 
Income Security Act of 1974 (the Act or ERISA). The transactions 
involve the UAW General Motors Company Retiree Medical Benefits Plan 
(the New GM VEBA Plan) and its associated UAW Retiree Medical Benefits 
Trust (the VEBA Trust) (collectively the VEBA).\1\ The proposed 
exemption, if granted, would affect the VEBA, its participants and 
beneficiaries.
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    \1\ Because the New GM VEBA Plan will not be qualified under 
section 401 of the Internal Revenue Code of 1986, there is no 
jurisdiction under Title II of the Act pursuant to section 4975 of 
the Code. However, there is jurisdiction under Title I of the Act.

DATES: Effective Date: If granted, this proposed exemption will be 
effective as of July 10, 2009.
    Written comments and requests for a public hearing on the proposed 
exemption should be submitted to the Department within 45 days from the 
date of publication of this Federal Register Notice.

ADDRESSES: All written comments and requests for a public hearing 
concerning the proposed exemption should be sent to the Office of 
Exemption Determinations, Employee Benefits Security Administration, 
Room N-5700, U.S. Department of Labor, 200 Constitution Avenue, NW., 
Washington DC 20210, Attention: Application No. L-11568. Interested 
persons are also invited to submit comments and/or hearing requests to 
EBSA via e-mail or FAX. Any such comments or requests should be sent 
either by e-mail to: gm@dol.gov, or by FAX to (202) 219-0204 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 
Documents Room of the Employee Benefits Security Administration, U.S. 
Department of Labor, Room N-1513, 200 Constitution Avenue, NW., 
Washington, DC 20210.

FOR FURTHER INFORMATION CONTACT: Karen E. Lloyd, Office of Exemption 
Determinations, Employee Benefits Security Administration, U.S. 
Department of Labor, telephone (202) 693-8547. (This is not a toll-free 
number.)

SUPPLEMENTARY INFORMATION: This document contains a notice of proposed 
individual exemption from the restrictions of sections 406(a)(1)(A), 
406(a)(1)(B), 406(a)(1)(D), 406(a)(1)(E), 406(a)(2), 406(b)(1), 
406(b)(2), and 407(a) of ERISA. The proposed exemption has been 
requested in an application filed by General Motors Corporation 
pursuant to section 408(a) of ERISA and in accordance with the 
procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836, August 10, 
1990). Effective December 31, 1978, section 102 of Reorganization Plan 
No. 4 of 1978, (43 FR 47713, October 17, 1978) transferred the 
authority of the Secretary of the Treasury to issue exemptions of the 
type requested to the Secretary of Labor. Accordingly, this proposed 
exemption is being issued solely by the Department.

Summary of Facts and Representations \2\

The Applicant

    Prior to its bankruptcy filing on June 1, 2009, General Motors 
Corporation (Old GM) and its subsidiaries were engaged primarily in the 
worldwide development, production, and marketing of cars, trucks, and 
related parts. Old GM had its largest operating presence in North 
America. As of March 31, 2009, Old GM had total assets on its 
consolidated balance sheet of $82,290,000,000 and liabilities of 
$172,810,000,000.
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    \2\ The Summary of Facts and Representations is based on the 
Applicant's representations and does not reflect the views of the 
Department.
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    By motion filed June 1, 2009, in In re General Motors Corporation, 
\3\ Old GM sought approval for the sale of substantially all of its 
assets to a purchaser sponsored by the United States Department of the 
Treasury (U.S. Treasury). On July 10, 2009, following approval of the 
U.S. Bankruptcy Court for the Southern District of New York, certain 
assets and liabilities of Old GM were sold to General Motors Company 
(New GM).\4\ New GM maintains its headquarters in Detroit, MI, and 
employs 235,000 people throughout the world.
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    \3\ No. 09-50026 (Bankr. S.D.N.Y.).
    \4\ Following the asset sale, Old GM was renamed Motors 
Liquidation Company. For the operations, assets and liabilities that 
were not transferred to New GM, the chapter 11 bankruptcy proceeding 
will continue in order to resolve creditors' claims and wind down 
those operations in an orderly way.
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Background

    Throughout much of 2005, Old GM and the International Union, United 
Automobile, Aerospace and Agricultural Implement Workers of America 
(UAW) engaged in extended discussions concerning the impact of rising 
health care costs on Old GM's financial condition. During these 
discussions, Old GM asserted that it had the right to unilaterally 
modify the retiree health benefits under the General Motors Health Care 
Program for Hourly Employees (``Old GM Plan'') and that, if no 
agreement was reached to address the economic burden of its retiree 
health obligation, Old GM would do so unilaterally. The UAW disagreed 
with Old GM's position and asserted that retiree benefits were vested 
and that Old GM did not have the right to modify them unilaterally. The 
UAW and a class of retirees (``Class'') sued Old GM over this issue, 
and after an extensive review by the UAW and class counsel (Class 
Counsel) of Old GM's ability to continue providing retiree health care 
benefits, the parties entered into a settlement

[[Page 47964]]

agreement, providing for, among other things, the institution of co-
pays and deductibles under the Old GM Plan. UAW et al. v. General 
Motors Corp., No. 05-CV-73991, 2006 WL 891151 (E.D. Mich. Mar. 31, 
2006), aff'd Int'l Union, UAW v. General Motors Corp., 497 F.3d 615 
(6th Cir. 2006) (``Henry I'').
    By its terms, however, the Henry I settlement agreement provided 
only a temporary and limited solution. The settlement agreement imposed 
new, cost-sharing requirements on UAW-hourly retirees, and required Old 
GM to make certain payments to a voluntary employees' beneficiary 
association trust (``Mitigation VEBA'') controlled by a committee 
independent of Old GM, which would act as a funding source to mitigate 
the impact of these cost-sharing provisions on retirees. The settlement 
agreement was to remain in effect until at least September 14, 2011, 
after which either Old GM or the UAW could terminate the agreement and 
reassert its original position regarding Old GM's ability to 
unilaterally modify and/or terminate retiree health care benefits. If 
not terminated, the settlement agreement would remain in effect 
indefinitely.
    In 2007, during labor negotiations concerning a new national 
collective bargaining agreement for UAW-represented employees, Old GM 
advised the UAW that it planned to terminate the Henry I settlement 
agreement in accordance with its terms in 2011, and exercise its right 
to unilaterally terminate and/or modify the Old GM Plan's retiree 
coverage for UAW retirees and their dependents, if Old GM's preference 
for a mutual agreement could not be attained. In response, the UAW 
reasserted its legal position that post-retirement medical coverage for 
current UAW retirees under the Old GM Plan is vested and unalterable, 
but agreed to enter into discussions to see if a solution acceptable to 
all parties could be negotiated.
    On September 26, 2007, the UAW and the Class sued Old GM in the 
United States District Court for the Eastern District of Michigan, 
again challenging Old GM's right to unilaterally modify and/or 
terminate retiree health benefits. Int'l Union, UAW, et al. v. General 
Motors Corp., No. 07-cv-14074 (E.D. Mich. Sept. 26, 2007) (``Henry 
II''). Also, on that day, Old GM and the UAW agreed to a memorandum of 
understanding regarding post-retirement medical benefits.
    On February 21, 2008, the Henry II parties agreed on a detailed 
settlement to effectuate the September 2007 memorandum of understanding 
(``Henry II Settlement Agreement''). The Henry II Settlement Agreement 
provided that on the later of January 1, 2010, or final court approval 
of the Settlement Agreement, Old GM would terminate retiree coverage 
under the Old GM Plan for the Class and an additional group of 
employees and retirees known as the ``Covered Group,'' and would 
transfer certain assets to the New GM VEBA Plan to provide the Class 
and Covered Group with post-retirement medical benefits. The VEBA Trust 
was to receive assets from a number of sources including: funds that 
were then in the Mitigation VEBA and in the VEBA that supports the Old 
GM Plan (``the Internal VEBA''), cash from Old GM and Old GM issued 
notes.
    After a fairness hearing, the Henry II Settlement Agreement was 
approved by the District Court on July 31, 2008, as fair, reasonable, 
and adequate. See Int'l Union, UAW, et al. v. General Motors Corp., No. 
07-cv-14074, 2008 WL 2968408 (E.D. Mich. July 31, 2008). No appeal of 
the court's order approving the settlement was taken.
    The Henry II Settlement Agreement fully resolved the parties' 
dispute regarding post-retirement health benefits and replaced the 
Henry I settlement agreement. Under the new agreement, Old GM's 
obligation to provide post-retirement medical benefits to the Class and 
Covered Group would be terminated. The New GM VEBA Plan would be 
established and maintained not by Old GM, but by an employees' 
beneficiary association consisting of the population covered by the New 
GM VEBA Plan and administered by an independent committee 
(``Committee''). The New GM VEBA Plan, to be funded exclusively through 
the VEBA Trust, would be solely responsible for the payment of post-
retirement medical benefits to members of the Class and Covered Group 
on and after January 1, 2010.
    Since final approval of the Henry II Settlement Agreement by the 
court on July 31, 2008, Old GM's financial position deteriorated 
significantly due to a steep and unanticipated decline in revenue 
caused by a dramatic drop in the market for new motor vehicles. As a 
consequence, Old GM petitioned the Federal government for emergency 
financial assistance, which resulted in a Loan and Security Agreement 
dated December 31, 2008, between Old GM and the U.S. Treasury (``2008 
Loan Agreement''). The 2008 Loan Agreement required Old GM to present, 
by March 31, 2009, a certification and report detailing, among other 
things, the progress made by Old GM and its subsidiaries in 
implementing a restructuring plan that included (a) modification of 
labor contracts, (b) modification of Old GM's obligations to the New GM 
VEBA Plan, and (c) a bond exchange offer with its creditors. Failure to 
reach the preceding agreements, to the satisfaction of the President's 
designee, would cause the 2008 Loan to become due and payable within 30 
days.
    On March 31, 2009, Old GM entered into amendments to the 2008 Loan 
Agreement that extended the deadline to June 1, 2009. Between March 31, 
2009, and June 1, 2009, Old GM drew additional government aid. On June 
1, 2009, Old GM filed for bankruptcy protection.

Bankruptcy

    Given Old GM's financial situation, the bankruptcy, and the need to 
meet the requirements of the 2008 Loan Agreement, Old GM, the UAW, 
Class Counsel, and the U.S. Treasury agreed that Old GM and the UAW 
would enter into another agreement, known as the Modified Settlement 
Agreement, and seek approval of the Modified Settlement Agreement from 
the bankruptcy court. The Modified Settlement Agreement governed the 
provision of post-retirement medical benefits to the Class and the 
Covered Group by the new company (i.e., New GM) that was anticipated to 
purchase certain assets of Old GM as part of the bankruptcy action.
    On July 5, 2009, the bankruptcy court approved a sale under Section 
363 of Title 11 of the U.S. Code by which New GM succeeded to certain 
assets and liabilities of Old GM (``Section 363 Sale''). The bankruptcy 
court also approved the Modified Settlement Agreement. The Section 363 
Sale closed, and the Modified Settlement Agreement was executed, on 
July 10, 2009.
    Effective as of the Section 363 Sale, New GM has the following 
capitalization:
    Common Equity: The outstanding common stock of New GM (New GM 
Common Stock) (without giving effect to the warrants described below) 
is allocated as follows:
     60.8% (304,131,356 shares) to the U.S. Treasury \5\
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    \5\ The Applicant's position is that the U.S. Treasury's 
ownership of more than 50% of New GM should not result in the U.S. 
Treasury being considered a party in interest to the New GM VEBA 
Plan under section 3(14)(E) of ERISA. Section 3(14)(E) states that a 
party in interest means, as to an employee benefit plan, ``an owner, 
direct or indirect, of 50 percent or more of * * * the combined 
voting power of all classes of stock entitled to vote or the total 
value of shares of all classes of stock of a corporation * * * which 
is an employer,'' any of whose employees are covered by such plan. 
In the Applicant's view, Congress did not intend the party in 
interest definition to include the government of the United States 
or a Cabinet Department of its Executive Branch. In the Department's 
view, section 3(14) does not apply to the U.S. Treasury in 
connection with its ownership interest in New GM because a contrary 
interpretation would conflict with section 514(d) of ERISA. That 
section provides, in part, that ``[n]othing in [title I] shall be 
construed to alter, amend, modify, invalidate, impair, or supersede 
any law of the United States * * *'' If the U.S. Treasury were to be 
a party in interest with respect to a plan subject to ERISA, then 
ERISA would prohibit almost any transaction between that plan and 
the Federal government arising under a federal statutory framework 
other than ERISA. Accordingly, the Department concurs with the 
Applicant's conclusion that the U.S. Treasury is not a party in 
interest under ERISA.

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[[Page 47965]]

     11.7% (58,368,644 shares) to the Canadian and Ontario 
governments (collectively)
     17.5% (87,500,000 shares) to the New GM VEBA Plan
     10% (50,000,000 shares) to Old GM
    Perpetual Preferred Stock: Single issue of $9.0 billion cumulative 
perpetual preferred stock with a 9% dividend per annum (``Series A''), 
consisting of:
     $2.1 billion issued to the U.S. Treasury
     $0.4 billion issued to the Canadian and Ontario 
governments (collectively)
     $6.5 billion issued to the New GM VEBA Plan
    Debt: Approximately $17.3 billion estimated total consolidated debt 
(excluding debt related to Old GM's automotive supplier financing 
program and warranty program), each in a separate issue, including 
approximately:
     $6.7 billion owed to the U.S. Treasury
     $1.3 billion owed to the Canadian and Ontario governments 
(collectively)
     $2.5 billion owed to the New GM VEBA Plan
     $6.8 billion of other, primarily international debt, but 
excluding Europe
    Warrants: Separate issues of warrants will be allocated as follows:
     To Old GM: Warrants to acquire 45,454,545 newly issued 
shares of New GM Common Stock, exercisable at any time prior to the 
seventh anniversary of issuance, with an exercise price set at $30.00 
per share.
     To Old GM: Warrants to acquire 45,454,545 newly issued 
shares of New GM Common Stock, exercisable at any time prior to the 
tenth anniversary of issuance, with an exercise price set at $55.00 per 
share.
     To the New GM VEBA Plan: Warrants to acquire 15,151,515 
newly issued shares of New GM Common Stock, exercisable at any time 
prior to December 31, 2015, with an exercise price set at $126.92 per 
share.

New GM VEBA Plan and VEBA Trust

    The UAW General Motors Company Retirees Employees' Beneficiary 
Association (``General Motors Company Retirees EBA''), acting through 
the Committee, will establish and maintain the New GM VEBA Plan, 
subject to ERISA, to provide retiree health benefits to the Class and 
Covered Group after the Implementation Date, which will be December 31, 
2009. Prior to the Section 363 Sale, the Old GM Plan provided retiree 
health benefits to the Class and the Covered Group; following the 
closing of the Section 363 Sale, the General Motors Company Plan (``New 
GM Plan'') assumed provision of the benefits with respect to claims 
incurred on or before the Implementation Date. The New GM VEBA Plan 
will be responsible for benefit claims incurred after the 
Implementation Date.\6\
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    \6\ As of the date of the bankruptcy filing, approximately 
751,700 hourly retirees and dependents in the U.S. received retiree 
health benefits from Old GM. Of this total, approximately 699,000 
are hourly retirees and spouses, surviving spouses and eligible 
dependents represented by the UAW. Additionally, approximately 
78,000 UAW-represented active employees had attained seniority as of 
September 14, 2007, and will, upon retirement, be covered by the New 
GM VEBA Plan.
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    Beginning with claims incurred on and after the later of (i) July 
1, 2009, or (ii) receipt of necessary bankruptcy court approval, the 
Old GM Plan will be amended and/or implemented to reflect certain 
benefit changes set forth in Exhibit F of the Modified Settlement 
Agreement. After the Implementation Date, the Committee will have sole 
responsibility to determine the scope and level of retiree health 
benefits available to the Class and Covered Group under the New GM VEBA 
Plan. The Committee may raise or lower the level of retiree health care 
benefits available to the Class and Covered Group. In exercising its 
authority over benefit design, the Committee shall be guided by the 
principle that the New GM VEBA Plan should provide substantial health 
benefits for the duration of the lives of all participants and 
beneficiaries in the New GM VEBA Plan.
    The General Motors Company Retirees EBA, along with the UAW 
Chrysler Retirees Employees' Beneficiary Association and the UAW Ford 
Retirees Employees' Beneficiary Association, each acting through the 
Committee, established the VEBA Trust on October 16, 2008. The VEBA 
Trust will be the funding source for the New GM VEBA Plan. The VEBA 
Trust is the subject of a trust agreement between the trustee and the 
Committee, acting on behalf of the respective EBAs. The VEBA Trust is 
intended to be tax-exempt under section 501(c)(9) of the Internal 
Revenue Code, as amended, and, as a trust holding assets of plans 
subject to ERISA, will itself be subject to ERISA's fiduciary 
responsibility standards.
    The VEBA Trust will have three separate retiree accounts, designed 
to segregate payments attributable to GM, Ford, and Chrysler, pursuant 
to the terms of each company's settlement agreement with the UAW and 
each respective class. Each retiree account will be a separate, 
dedicated account, to be used for the sole purpose of funding benefits 
provided under the separate plans providing health benefits to the 
retirees of GM, Ford and Chrysler, and defraying the reasonable 
expenses of each plan. Each retiree account will contain a separate 
sub-account maintained to hold any employer security. Assets from one 
retiree account may not offset the liabilities or defray the expenses 
attributable to another retiree account. The VEBA Trust was structured 
in this way to allow for the pooled investment of assets and to provide 
economies of scale to the respective plans' investments, while 
maintaining a separate plan for each of the three retiree classes. 
Unless the Committee decides to establish segregated investment 
vehicles for specific separate retiree accounts, the assets of the 
separate retiree accounts, other than any employer security sub-
account, will be invested on a pooled basis within the VEBA Trust.
    Under the terms of the Modified Settlement Agreement, the assets 
New GM transfers or causes to be transferred to the New GM VEBA Plan 
will be credited to the GM retiree account in the VEBA Trust (the 
``General Motors Company Separate Retiree Account''). The transferred 
assets and remittances of, or attributable to, the GM UAW retirees will 
be professionally managed and reinvested and will pay benefits and New 
GM VEBA Plan expenses under the New GM VEBA Plan. The transferred 
securities issued by New GM will be held in a separate sub-account (the 
``General Motors Company Employer Security Sub-Account'') of the 
General Motors Company Separate Retiree Account and will be managed by 
an independent fiduciary.

The Committee

    The Committee acts as the plan administrator and named fiduciary 
with respect to the New GM VEBA Plan, and appoints the trustee, the 
independent fiduciary and all investment managers of the VEBA Trust's 
assets. The Committee is comprised of eleven

[[Page 47966]]

individuals, consisting of two groups: Six Independent Members and five 
UAW Members. The initial Independent Members were approved by the 
district court in Henry II and the UAW Members were appointed by the 
UAW. The Modified Settlement Agreement maintains these appointments. 
Neither Old GM nor New GM has any appointment power, and the Committee 
will function completely independently of both. No member of the 
Committee may be a current or former officer, director or employee of 
Old GM, New GM, Ford, Chrysler, or Chrysler Group, with the following 
exceptions: (i) A retiree who was represented by the UAW in his or her 
employment with either Old GM, New GM, Ford, Chrysler, or Chrysler 
Group, may be a UAW Member of the Committee, and (ii) an employee of 
Old GM, New GM, Ford, Chrysler, or Chrysler Group who is on leave from 
the company and is represented by the UAW, may be a UAW Member of the 
Committee. None of the Independent Members nor any of their family 
members, employers or partners may have any financial or institutional 
relationship with either Old GM, New GM, Ford, Chrysler, or Chrysler 
Group if such relationship could reasonably be expected to impair such 
Independent Member's exercise of independent judgment.
    The UAW Members serve at the discretion of the UAW International 
President and may be removed or replaced, and a successor designated, 
at any time by written notice by the UAW International President to the 
Committee. Independent Members serve for a term of three years, except 
two of the initial Independent Members will have an initial term of two 
years, and another two will have an initial term of one year. 
Independent Members may serve more than one term. An Independent Member 
will serve on the Committee until expiration of his or her term, or his 
or her death, incapacity to serve, resignation or removal. An 
Independent Member may be removed or replaced, and a successor 
designated, at any time by an affirmative vote of nine of the other 
members of the Committee. In the event of a vacancy in the group of 
Independent Members, whether by expiration of a term, resignation, 
removal, incapacity, or death, a successor Independent Member will be 
elected by the affirmative vote of nine members. If a successor 
Independent Member is not appointed within a reasonable time after a 
vacancy, an arbitrator may be appointed, upon application of any 
member, to appoint a successor Independent Member to the Committee.
    A majority of the members of the Committee then in office shall 
constitute a quorum for the purpose of transacting any business; 
provided that at least one Independent Member and one UAW Member are 
present. Each Member of the Committee present at the meeting shall have 
one vote. Generally, actions of the Committee shall be by majority vote 
of the entire Committee, provided that at least one Independent Member 
and one Union Member must be a Member in the majority for any Committee 
action to take effect.
    The Committee will select a chair from among its members. The term 
of the chair will continue until he or she ceases to be a member, 
resigns as chair or is replaced as chair with another member by 
majority vote among the remaining members.

Old GM and New GM Role

    Neither Old GM nor New GM will have any role in the governance, 
management and operations of the New GM VEBA Plan. Old GM and New GM 
will not be fiduciaries or have any ability to appoint any member of 
the Committee, and the Committee is not authorized to act for Old GM or 
New GM and is not an agent or representative of Old GM or New GM for 
any purpose.
    Pursuant to the Modified Settlement Agreement, New GM will 
cooperate with the UAW and the Committee and at the Committee's request 
will undertake reasonable actions to assist the Committee in the 
orderly transition of responsibility for administration of retiree 
medical benefits from the Old GM Plan, or New GM Plan, as applicable, 
to the New GM VEBA Plan. Such cooperation may include assisting the 
Committee in educational efforts and other communications to the Class 
and Covered Group so that they understand the terms of the New GM VEBA 
Plan and the shift of coverage for the Class and Covered Group from the 
Old GM Plan, or New GM Plan, as applicable, to the New GM VEBA Plan, 
and understand the claims submission process and any other initial 
administrative changes undertaken by the Committee. At the Committee's 
request and as permitted by law, New GM will furnish to the Committee 
such information and will provide such cooperation as may be reasonably 
necessary to permit the Committee to effectively administer the New GM 
VEBA Plan. At the request of the Committee, and subject to 
reimbursement for reasonable costs, New GM will continue to perform the 
necessary eligibility work for a reasonable period of time, not to 
exceed 90 days after the Implementation Date, in order to allow the 
Committee to establish and test the eligibility database. New GM will 
also assist the Committee in transitioning benefit provider contracts 
to the New GM VEBA Plan.
    To the extent permitted by law, New GM will allow pension plan 
participants to voluntarily authorize the withholding of required 
contributions under the New GM VEBA Plan from pension benefits, and, to 
the extent reasonably practical, crediting such amounts to the General 
Motors Company Separate Retiree Account of the VEBA Trust on a monthly 
basis (the Contribution Withholding). A pension plan participant may 
elect or withdraw consent for the Contribution Withholding at any time 
by providing 45 days written notice to the plan administrator of the 
General Motors Hourly-Rate Employees Pension Plan or such shorter 
period as may be required by law. New GM also will cooperate with the 
Committee to make provision for the VEBA Trust payments of the covered 
benefit related to Medicare Part B premiums to be incorporated into the 
monthly New GM pension checks for eligible retirees and surviving 
spouses participating in the New GM VEBA Plan (the Part B Payment).
    The New GM VEBA Plan will be responsible for the payment of 
reasonable costs associated with New GM's administration of payment of 
the Contribution Withholdings and the Part B Payment. The Applicant 
asserts that, to the extent these payments are prohibited transactions, 
the statutory exemption for the provision of services provided by 
section 408(b)(2) of ERISA provides relief from the prohibited 
transaction restrictions of section 406(a) of ERISA.
    ERISA section 408(b)(2) provides relief for the ``[c]ontracting or 
making reasonable arrangements with a party in interest for office 
space, or legal, accounting or other services necessary for the 
establishment or operation of the plan, if no more than reasonable 
compensation is paid therefor.'' Under the Department's regulations, a 
service is necessary for the establishment or operation of a plan if 
the service is ``appropriate and helpful to the plan obtaining the 
service in carrying out the purposes for which the plan is established 
or maintained.'' 29 CFR section 2550.408(b)(2).
    According to the Applicant, the Contribution Withholding is helpful 
to the New GM VEBA Plan as it reduces expenses associated with 
processing of participant contributions and

[[Page 47967]]

investigating delinquent contributions. This service is also helpful to 
participants as it assures that contributions are received on time, and 
without the need to mail a check monthly to the New GM VEBA Plan. 
Accordingly, the Contribution Withholding is appropriate and helpful to 
the New GM VEBA Plan in carrying out its purpose because it reduces 
expenses and aids in making sure participants receive benefits without 
interruption.
    With respect to the Part B Payment, the Applicant states that it is 
appropriate and helpful to the New GM VEBA Plan as it allows the New GM 
VEBA Plan to take advantage of an existing system in order to 
incorporate a defined, monthly payment to participants into pension 
checks that participants are already receiving. This obviates the need 
for the New GM VEBA Plan to develop its own distribution system and 
undertake the expense of mailing monthly checks to all participants. 
Accordingly, the Part B Payment also reduces expenses of the New GM 
VEBA Plan, which helps conserve the amount of resources available to 
provide benefits.
    The Applicant further represents that the costs of the Contribution 
Withholding and the Part B Payment have not yet been determined. 
However, the Committee will be subject to ERISA's fiduciary 
responsibility rules when determining the cost structure, and the 
Modified Settlement Agreement states that both services will only be 
provided to the extent permitted by law, and a cost that is not 
reasonable would not permitted by law.
    In the Department's view, relief under section 408(b)(2) would be 
available for these services provided the conditions of that exemption 
are satisfied. Ultimately it is the responsibility of the Committee to 
determine whether the services provided by New GM satisfy all of the 
conditions set forth in the statutory exemption and pertinent 
regulations.

Payments to the New GM VEBA Plan

    As described more fully below, under the Modified Settlement 
Agreement, New GM transferred to the New GM VEBA Plan (i) New GM Common 
Stock representing 17.5% of New GM's common equity, (ii) New GM 
preferred stock with a value of $6.5 billion, (iii) a note for $2.5 
billion, (iv) warrants entitling the New GM VEBA Plan to acquire an 
additional 2.5% of New GM Common Stock, and (v) all of the assets in 
the ``UAW-Related Account'' of the Internal VEBA.\7\ Additionally, as 
contemplated by section 12.C. of the Modified Settlement Agreement, the 
approval order in the bankruptcy case directed that the assets in the 
Mitigation VEBA be transferred to the New GM VEBA Plan.
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    \7\ Pursuant to the Henry II Settlement Agreement, the Internal 
VEBA was divided into two bookkeeping accounts effective January 1, 
2008; one with assets equal to the value of the Internal VEBA as of 
December 31, 2007, multiplied by the percentage of Old GM's hourly 
OPEB liability as of December 31, 2007, attributable to UAW 
represented employees, retirees, their eligible spouses, surviving 
spouses and dependents (the ``UAW-Related Account''), and the other 
account of the remaining assets, attributable to non-UAW represented 
individuals.
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Common Stock

    As of the closing of the Section 363 Sale, New GM issued 87,500,000 
shares of New GM Common Stock, representing 17.5% of its common stock, 
to the New GM VEBA Plan. The New GM Common Stock will be held in the 
General Motors Company Employer Security Sub-Account in the General 
Motors Company Separate Retiree Account of the VEBA Trust. Any exercise 
of warrants after the Section 363 Sale will dilute all stock holders 
ratably. The New GM Common Stock will be transferable, in whole or in 
part, at any time subject to certain conditions that are contained in 
the Stockholders Agreement by and among New GM, the U.S. Treasury, the 
New GM VEBA Plan, and the governments of Canada and Ontario 
(``Canada'') (``Stockholders Agreement''). Pursuant to the Stockholders 
Agreement and the Equity Registration Rights Agreement by and among New 
GM, the U.S. Treasury, Canada, the New GM VEBA Plan and Old GM (the 
Registration Rights Agreement), the New GM VEBA Plan will have demand, 
shelf, and piggyback registration rights with respect to the New GM 
Common Stock that are substantially consistent with the registration 
rights that are held by the U.S. Treasury, Canada and the Old GM 
unsecured creditors.

Preferred Stock

    As of the closing of the Section 363 Sale, New GM transferred to 
the New GM VEBA Plan $6.5 billion of Series A cumulative perpetual 
preferred stock (``Preferred Stock''). The Preferred Stock is from the 
same series of preferred stock that was issued to the U.S. Treasury and 
Canada. The Preferred Stock will be held in the General Motors Company 
Employer Security Sub-Account in the General Motors Company Separate 
Retiree Account of the VEBA Trust. The Preferred Stock will be 
transferable, in whole or in part, at any time subject to certain 
conditions that are contained in the Stockholders Agreement. The 
Preferred Stock carries a 9% dividend rate per annum, and is payable 
quarterly in cash if, as, and when declared by New GM's Board. Each 
share of Preferred Stock will have a liquidation preference of $25. The 
Preferred Stock is not callable prior to December 31, 2014. The 
redemption price must be paid in cash.
    The Preferred Stock will be senior to the New GM Common Stock and 
future preferred equity but junior to all existing and future debt. The 
New GM VEBA Plan will have demand, shelf, and piggyback registration 
rights with respect to the Preferred Stock that are substantially 
consistent with its registration rights with respect to the New GM 
Common Stock. The Preferred Stock has no voting rights, except under 
the following circumstances, in which case the independent fiduciary 
will vote the shares. If dividends payable on the Series A preferred 
stock have not been paid for an aggregate of six quarters, the holders 
of the Series A preferred stock have the right, as a class, to elect 
two newly created directorships of New GM. In addition, a two-thirds 
majority vote of the Series A preferred stock is necessary to authorize 
the issuance of shares senior or pari passu to Series A preferred 
stock, amend the terms of Series A preferred stock, or approve a share 
exchange or reclassification of the Series A preferred stock or merger 
or consolidation involving New GM.

The Note

    As of the closing of the Section 363 Sale, New GM issued to the New 
GM VEBA Plan a note (``Note'') with a principal amount of $2.5 billion. 
The Note will be payable in cash in three equal installments. Each 
payment will be in the amount of $1.384 billion and will be made on 
July 15 of the years 2013, 2015, and 2017. The Note is transferable at 
any time in whole or in part, subject to certain limited exceptions.
    The Note ranks pari passu with notes that were issued to the U.S. 
Treasury and Canada in the aggregate principal amount of $8.0 billion. 
The New GM VEBA Plan will not have registration rights regarding the 
Note; however, if the notes issued to the U.S. Treasury and Canada are 
registered or registration rights are extended with respect to such 
notes, then the New GM VEBA Plan will have demand, shelf, and piggyback 
registration rights pertaining to the Note that are no less favorable 
than those pertaining to the U.S. Treasury or Canada notes. Other terms 
of the Note

[[Page 47968]]

are no less favorable than the terms of the U.S. Treasury or Canada 
notes. The Note will be subordinate to any exit financing, including 
the U.S. Treasury delayed draw term loan, revolver or any other third 
party exit financing entered into with the consent of the U.S. 
Treasury.

Warrants

    As of the closing of the Section 363 Sale, New GM transferred to 
the New GM VEBA Plan warrants to acquire 15,151,515 shares of New GM 
Common Stock representing 2.5% of its common equity on a fully diluted 
basis (``Warrants''). The Warrants will be held by the General Motors 
Company Employer Security Sub-Account in the General Motors Company 
Separate Retiree Account of the VEBA Trust, as will any New GM Common 
Stock acquired by exercise of the Warrants. The Warrants will be 
transferable, in whole or in part, at any time subject to certain 
conditions that are contained in the Stockholders Agreement. The strike 
price will be set at $126.92 per share representing a $75 billion 
equity value of New GM. The expiration date for the Warrants will be 
December 31, 2015.
    The Warrants will contain other terms which the Applicant 
represents are typical for securities of this type, including anti-
dilution, and partial and cashless exercise provisions. The New GM VEBA 
Plan has registration rights with respect to the Warrants (and the New 
GM Common Stock underlying the Warrants) that are consistent with its 
registration rights with respect to the New GM Common Stock and the 
Preferred Stock.

Transfer of Assets From UAW-Related Account of the Internal VEBA

    The Internal VEBA is the General Motors Welfare Benefit Trust that 
is maintained by Old GM as a source of funding for various retiree 
welfare benefit plans, including the Old GM Plan. Pursuant to the Henry 
II Settlement Agreement, the Internal VEBA was divided into two 
bookkeeping accounts effective January 1, 2008: the UAW-Related 
Account, as described above in footnote 7, and the other account of the 
remaining assets, attributable to non-UAW represented individuals. As 
of March 31, 2009, the UAW-Related Account had an estimated asset value 
of approximately $9.4 billion.
    Until the UAW-Related Account is transferred to the VEBA Trust, the 
assets of the Internal VEBA will continue to be invested under the 
existing investment policy, with investment returns, net of expenses, 
applied proportionally to the value of the UAW-Related Account. The 
appropriate New GM Plan fiduciary will direct the trustee of the 
Internal VEBA to transfer the UAW-Related Account to the VEBA Trust 
within 10 days after the Implementation Date. At the time of transfer, 
pursuant to the Modified Settlement Agreement, an amount equal to the 
UAW-Related Account's share of expenses (to the extent permitted by 
ERISA) will be retained within the Internal VEBA to pay such expenses. 
After payment of these expenses is completed, a reconciliation of the 
amount retained and the actual expenses will be performed. The Internal 
VEBA will then pay the VEBA Trust for any amount over withheld, or the 
VEBA Trust will pay the Internal VEBA for any amount under withheld (a 
``true-up'').

Transfer of Assets, Via the Bankruptcy Approval Order, From the 
Mitigation VEBA

    The Mitigation VEBA was created in connection with the settlement 
in Henry I, and was established through a trust agreement between State 
Street Bank and Trust Company and Old GM. The Mitigation VEBA was 
intended to be a source of ``mitigation'' payments to Old GM Plan 
participants to lessen the impact of the new cost-sharing provisions 
implemented under the Henry I settlement agreement.\8\ As of April 30, 
2009, the Mitigation VEBA had an estimated asset value of $1.025 
billion. Until the assets and liabilities of the Mitigation VEBA are 
transferred to the VEBA Trust, its value will be affected by certain 
additional contributions and by income (including investment returns) 
offset by mitigation payments and expenses. Pursuant to the Modified 
Settlement Agreement, the Mitigation VEBA assets will be transferred to 
the New GM VEBA Plan within 15 days after the Implementation Date, and 
the Mitigation VEBA will be terminated.
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    \8\ The Mitigation VEBA is the subject of Prohibited Transaction 
Exemption 2009-03, 74 FR 3645 (Jan. 21, 2009), which provided relief 
for certain cash advances and ``true ups'' between GM and the 
Mitigation VEBA related to administration of the Mitigation VEBA.
---------------------------------------------------------------------------

Covered Transactions

    The Applicant seeks exemptive relief for two sets of transactions. 
The first set of transactions involves the transfer by New GM to the 
New GM VEBA Plan of the securities described above, and the second set 
of transactions involves asset transfers to and from the New GM VEBA 
Plan necessitated by the transition of benefit payment responsibility 
from one plan to another, or due to mistaken deposits into the New GM 
VEBA Plan.
    With respect to the transfer of New GM securities to the New GM 
VEBA Plan, the Applicant states that, following months of negotiations 
involving the UAW, Class Counsel, Old GM, the U.S. Treasury, and other 
Old GM debt holders, the transaction embodies the only feasible 
mechanism to ensure that assets are dedicated to, and held in the New 
GM VEBA Plan solely for use as retiree health care benefits (and 
related reasonable expenses). Class Counsel supported the Applicant's 
request for exemptive relief described herein.
1. Transfer of New GM Securities
    The Applicant requests relief from sections 406(a)(1)(E), 
406(a)(2), and 407(a) of ERISA for the acquisition and holding by the 
New GM VEBA Plan of the New GM Common Stock, the Preferred Stock, the 
Note and the Warrants (the Securities). Additionally, the Department 
has proposed relief from section 406(a)(1)(A) for the disposition of 
the Securities, in the event that the Securities are sold in a 
transaction involving a party in interest.
    Section 406(a)(1)(E) prohibits a fiduciary from causing a plan to 
engage in a transaction, if he knows or should know that such 
transaction constitutes the direct or indirect acquisition, on behalf 
of a plan, of any employer security in violation of section 407(a). 
Section 406(a)(2) prohibits a fiduciary who has authority or discretion 
to control or manage the assets of a plan from permitting the plan to 
hold any employer security if he knows or should know that holding such 
security violates section 407(a).
    Section 407(a)(1) states that a plan may not acquire or hold any 
``employer security'' that is not a ``qualifying employer security.'' 
Section 407(a)(2) states that a plan may not acquire any qualifying 
employer security (or qualifying employer real property) if immediately 
after such acquisition the aggregate fair market value of employer 
securities (and employer real property) held by the plan exceeds 10 
percent of the fair market value of the assets of the plan.
    According to the Applicants, when the New GM VEBA Plan acquired the 
New GM Common Stock, the Preferred Stock, the Note and the Warrants, 
each asset might not have been a ``qualifying employer security'' 
within the meaning of section 407(d)(5) and therefore the acquisition 
of each would not be permitted under section 406(a). Additionally, the 
Applicants note that even if the New GM Common Stock, the

[[Page 47969]]

Preferred Stock, the Note and the Warrants were considered qualifying 
employer securities, the aggregate fair market value of employer 
securities held by the New GM VEBA Plan would exceed the 10 percent 
limitation in section 407(a)(2). Finally, Applicants request relief 
from the provisions of sections 406(a)(1)(E), 406(a)(2) and 407(a) for 
the future exercise of the Warrants by the New GM VEBA Plan. When, and 
if, the New GM VEBA Plan's Warrants are exercised, New GM Common Stock 
will be acquired and may not constitute a qualifying employer security 
within the meaning of section 407(d)(5), and, immediately after the 
acquisition of the New GM Common Stock due to the exercise of the 
Warrants, the aggregate fair market value of employer securities held 
by the New GM VEBA Plan may exceed 10 percent of the fair market value 
of its assets.
    Section 406(a)(1)(A) prohibits the sale, exchange or leasing of any 
property between a plan and a party in interest. The Department is 
proposing relief from that provision in the event the Securities are 
disposed of in a transaction with a party in interest.
2. Transition Payments
Benefit Payments and Reimbursements
    The Applicant requests exemptive relief from the prohibitions of 
sections 406(a)(1)(B) and 406(a)(1)(D) of ERISA for certain payments 
and reimbursements between Old GM, New GM, the Old GM Plan, the New GM 
Plan and the New GM VEBA Plan.
    ERISA section 406(a)(1)(B) prohibits a fiduciary from causing a 
plan to engage in a transaction if he knows or should know that such 
transaction constitutes a direct or indirect lending of money or other 
extension of credit between a plan and a party in interest. ERISA 
section 406(a)(1)(D) prohibits a fiduciary from causing a plan to 
engage in a transaction if he knows or should know that such 
transaction constitutes a direct or indirect transfer to, or use by or 
for the benefit of, a party in interest, of any assets of the plan.
    Prior to the Section 363 Sale, the Old GM Plan provided benefits 
to, among others, individuals who ultimately will be covered by the New 
GM VEBA Plan. The New GM Plan currently provides benefits to most of 
these same individuals from the date of the Section 363 Sale until the 
Implementation Date of the New GM VEBA Plan. The New GM VEBA Plan will 
have sole responsibility and be the exclusive source of funds for the 
payment of retiree medical benefits to the Class and Covered Group, 
with respect to benefit claims incurred after the Implementation Date.
    Under certain circumstances connected to the transition, Old GM, 
New GM, the Old GM Plan, the New GM Plan, and the New GM VEBA Plan may 
arguably extend credit or transfer plan assets to one another in order 
to pay benefit claims that are the legal responsibility of another one 
of those five parties (the ``Responsible Party'').\9\ The Applicant 
asserts that mispayments and reimbursements are likely to occur in the 
normal course due to the administrative realities of health care 
payments and the shifting of plan responsibilities between multiple 
plans in a short period of time.
---------------------------------------------------------------------------

    \9\ Under section 5A of the Modified Settlement Agreement, 
claims incurred on or before the Implementation Date will be paid by 
Old GM or New GM, as applicable, in accordance with the New GM Plan.
---------------------------------------------------------------------------

    The Applicant provides the following examples of transactions that 
would require relief under the requested exemption. A UAW retiree is 
incorrectly classified as an IUE-CWA retiree and is receiving retiree 
medical benefits in accordance with the New GM Plan, paid directly by 
New GM. The misclassification is discovered on September 1, 2010, and 
the New GM VEBA Plan reimburses New GM for the payments relating to 
claims incurred on or after January 1, 2010. Or, a member of the 
Covered Group receives medical care on December 28, 2009, thereby 
incurring a claim under the New GM Plan. However, in April of 2010, the 
claim is presented to and paid by the New GM VEBA Plan. The New GM VEBA 
Plan would be reimbursed by the New GM Plan.
    In such event, the Responsible Party will reimburse the payor for 
such benefits, plus interest. According to the Applicant, payment by a 
payor of benefits for claims incurred after benefit responsibility has 
been transferred arguably is an extension of credit between the payor 
and the Responsible Party that is prohibited under section 
406(a)(1)(B). Payment by the Responsible Party to the payor as 
reimbursement for these paid claims arguably is a transfer of plan 
assets to a party in interest that is prohibited under 406(a)(1)(D).
Deposits by Mistake
    The Applicant likewise seeks relief from section 406(a)(1)(D) of 
ERISA for return of mistaken payments to the New GM VEBA Plan, with 
interest.
    Under the last paragraph of section 12 of the Modified Settlement 
Agreement, any deposit made to the New GM VEBA Plan by mistake will be 
returned (with earnings) within 30 days of notice to the Committee of 
the mistake, to the extent permitted by law. The Applicant is concerned 
that this could be viewed as involving a prohibited transfer of plan 
assets to a party in interest. Accordingly the Applicant requests 
exemptive relief for this transaction.
    Conditions Related to the Transfer of New GM Securities to the New 
GM VEBA Plan: The Independent Fiduciary
    Pursuant to the trust agreement of the VEBA Trust, the Committee 
will appoint an independent fiduciary to manage the General Motors 
Company Employer Security Sub-Account (``Independent Fiduciary''). The 
Independent Fiduciary will be a ``named fiduciary'' and ``investment 
manager'' as both terms are defined in ERISA, with complete discretion 
regarding the holding, ongoing management, and disposition of any New 
GM security (i.e., the New GM Common Stock, Preferred Stock, Note and 
Warrants) acquired and held by the New GM VEBA Plan.
    The Independent Fiduciary does not have discretion with respect to 
certain other aspects of the Securities. First, because the New GM VEBA 
Plan acquired the Securities by virtue of the Section 363 Sale, the 
Independent Fiduciary had no discretion regarding the acquisition of 
the Securities. Additionally, under the Stockholders Agreement, the New 
GM Common Stock held by the New GM VEBA Plan must be voted in the same 
proportion as votes cast by other stockholders. Therefore, the 
Independent Fiduciary will have no responsibility for the voting of the 
New GM Common Stock.
    The Independent Fiduciary must be independent of and unrelated to 
Old GM, New GM, the UAW and the Committee. This will not be the case if 
(1) such fiduciary directly or indirectly controls, is controlled by, 
or is under common control with Old GM, New GM, the UAW, the Committee 
or their affiliates, (2) such fiduciary directly or indirectly receives 
any compensation or other consideration from Old GM, New GM, the UAW or 
any Committee member in his or her individual capacity in connection 
with any transaction described in this exemption (except that an 
independent fiduciary may receive compensation from the Committee or 
the New GM VEBA Plan for services provided to the New GM VEBA Plan in 
connection with the transactions discussed herein if the amount or 
payment of such compensation is not contingent upon or in any way 
affected by the independent fiduciary's ultimate decision), and (3)

[[Page 47970]]

the annual gross revenue received by the fiduciary, in any fiscal year, 
from Old GM, New GM, the UAW or a member of the Committee in his or her 
individual capacity, exceeds 3% of the fiduciary's annual gross revenue 
from all sources (for federal income tax purposes) for its prior tax 
year.\10\
---------------------------------------------------------------------------

    \10\ The Department notes that candidates for the position of 
Independent Fiduciary to the New GM VEBA Plan may be affiliated with 
entities that provide services to Old GM, New GM, Ford, Chrysler or 
Chrysler Group or their affiliates. It is the responsibility of the 
Committee to determine whether such affiliations are likely to 
affect the judgment of the candidate in performing its services as 
Independent Fiduciary.
---------------------------------------------------------------------------

    The Independent Fiduciary may be removed by the Committee on 30 
days written notice only for cause.\11\ The removal will be effective 
as specified in the written notice, provided that the Independent 
Fiduciary has been given notice of the appointment of a successor 
independent fiduciary. No successor will be appointed in the event the 
New GM VEBA Plan ceases to hold any employer security. In the event 
that the New GM VEBA Plan subsequently acquires or holds an employer 
security and no appointment of a successor independent fiduciary has 
been made, any court of competent jurisdiction may, upon application by 
the retiring independent fiduciary, appoint a successor after such 
notice to the Committee and the retiring independent fiduciary.
---------------------------------------------------------------------------

    \11\ Cause is defined in the Independent Fiduciary Agreement as: 
(i) Any disqualifying event described in ERISA section 411; (ii) 
Determination by any court, arbitrator or government regulatory body 
that the Independent Fiduciary has violated any civil or criminal 
law (including, but not limited to, securities, antitrust or ERISA) 
in connection with the performance of its responsibilities to the 
VEBA Trust. For purposes of avoidance of doubt in connection with 
this and the subsequent subparagraph, a ``determination'' shall mean 
any written judgment, order or decree; court-approved settlement; 
arbitration award; or enforcement action of a government regulatory 
body or SRO, in the form of a written sanction, claim, demand or 
opinion, whether or not appealable; (iii) Determination by any 
court, arbitrator or government regulatory body that the Independent 
Fiduciary has materially breached the terms of its engagement, 
whether or not appealable; (iv) Any action by the Independent 
Fiduciary that results in imposition of a civil or criminal 
sanction, any prohibited transaction excise tax, or any civil 
judgment or award of damages, on the VEBA Trust, the Committee, the 
trustee, or their respective employees, officers directors or owners 
(whether or not subject to indemnity by the Independent Fiduciary, 
an insurer, or any other person); (v) Termination, resignation, or 
death of the Independent Fiduciary principal or officer assigned to 
serve as the relationship principal with respect to the VEBA Trust, 
or the inability of such person to perform his or her duties for a 
continuous period of more than 30 days; (vi) Any change of ownership 
of the Independent Fiduciary that constitutes an ``assignment'' of 
the Independent Fiduciary's contract with the VEBA Trust, within the 
meaning of the Investment Advisers Act; (vii) Failure of the 
Independent Fiduciary to qualify as an ``investment manager'' within 
the meaning of ERISA section 3(38); (viii) Any change in the 
clientele, business or ownership of the Independent Fiduciary that 
results in an actual conflict of interest; (ix) Failure of the 
Independent Fiduciary to take into account the legitimate needs of 
the VEBA Trust for liquidity to pay benefits; (x) Violation of any 
conditions imposed on the Independent Fiduciary under the terms of 
the prohibited transaction exemption issued by the Department; (xi) 
Any other action or inaction of the Independent Fiduciary that the 
Committee determines to be a material breach of the Independent 
Fiduciary's agreement or any law, or is likely to result in an 
irreconcilable conflict; (xii) Any circumstance that leads the 
Committee to reasonably conclude that the termination of the 
Independent Fiduciary and replacement by a successor Independent 
Fiduciary is in the financial interest of the VEBA Trust, provided 
that the Committee documents the reasons for the termination.
---------------------------------------------------------------------------

    The Committee delegated to a subcommittee (i.e., three Committee 
members) the responsibility to retain an Independent Fiduciary on 
behalf of the New GM VEBA Plan. The subcommittee initially determined 
to proceed with the assumption that the interests of each plan whose 
assets are held by the VEBA Trust would be best served by seeking to 
retain a single qualified Independent Fiduciary to represent all three 
plans (providing health benefits, respectively, to retirees of 
Chrysler, GM and Ford). However, the subcommittee recognizes the 
possibility that engaging multiple Independent Fiduciaries may turn out 
to be the better option.
    The subcommittee intends, as part of the interview process for 
potential candidates for the Independent Fiduciary appointment, to 
question the candidates on the nature and likelihood of potential 
conflicts of interest, the appropriate means of monitoring and 
communicating actual or potential conflicts, including whether the 
candidates currently have formal conflict monitoring procedures, and 
mechanisms for dealing with actual or potential conflicts as they are 
identified. After reviewing the candidates' qualifications, capacity to 
represent all three plans, willingness to do so, and other relevant 
factors, in consultation with counsel, the subcommittee anticipates 
making a final determination as to whether to hire one Independent 
Fiduciary or multiple Independent Fiduciaries.
    The subcommittee will work with the Independent Fiduciary 
candidate(s) to develop procedures to identify, minimize and address 
conflicts of interest as they arise. Specifically, in the event that a 
single Independent Fiduciary is appointed, the subcommittee will engage 
a ``conflicts monitor'' to (i) develop a process for identifying 
potential conflicts, (ii) to regularly review the Independent Fiduciary 
reports, investment banker reports, and public information regarding 
the companies, to identify the presence of factors that could lead to a 
conflict, and (iii) further question the Independent Fiduciary when 
appropriate.
    Additionally, the subcommittee will be prepared to replace the 
Independent Fiduciary in the event of an actual and irreconcilable 
conflict of interest.
    Finally, the subcommittee will require the Independent Fiduciary to 
adopt a written policy regarding conflicts of interest. Such policy 
will require that, as part of the Independent Fiduciary's periodic 
reporting to the Committee, the Independent Fiduciary includes a 
discussion of actual or potential conflicts identified by the 
Independent Fiduciary and options for avoiding or resolving the 
conflict.
    A separate investment bank will be retained with respect to each of 
the three plans comprising the VEBA Trust. The investment bank's 
initial recommendations would be made solely with the goal of 
maximizing the returns for the single plan that owns the securities for 
which the investment bank is responsible. If the Independent Fiduciary 
deviated from such initial recommendations, it would find it necessary 
to explain why it deviated from a recommendation; additionally, such a 
deviation would be a way for the Committee or its designee to flag 
possible conflicts of interest in advance. Any contract between the 
Independent Fiduciary and an investment banker will include an 
acknowledgement by the investment banker that the investment banker's 
ultimate client is an ERISA plan.
    The Independent Fiduciary will comply with the following additional 
conditions. The Independent Fiduciary will authorize the trustee of the 
New GM VEBA Plan to dispose of the New GM Common Stock (including 
shares of New GM Common Stock acquired pursuant to exercise of the 
Warrants), the Preferred Stock, the Note, or exercise the Warrants, 
only after the Independent Fiduciary determines, at the time of the 
transaction, that the transaction is feasible, in the interest of the 
New GM VEBA Plan, and protective of the participants and beneficiaries 
of the New GM VEBA Plan.
    The Independent Fiduciary will negotiate and approve on behalf of 
the New GM VEBA Plan any transactions between the New GM VEBA Plan and 
any party in interest involving the Securities that may be necessary in 
connection with the subject transactions (including but not limited to 
the registration of the securities contributed to the New GM VEBA 
Plan).

[[Page 47971]]

    The Independent Fiduciary will discharge its duties consistent with 
the terms of the New GM VEBA Plan, the trust agreement, the Independent 
Fiduciary's agreement, and any other documents governing the employer 
securities, such as the Registration Rights Agreement.
    The New GM VEBA Plan may not incur any fees, costs or other charges 
(other than described in the trust agreement and the Modified 
Settlement Agreement) as a result of the transactions exempted herein.
    The terms of any transaction exempted herein must be no less 
favorable to the New GM VEBA Plan than the terms negotiated at arms' 
length under similar circumstances between unrelated parties.
Conditions Related to Transition Payments
    The conditions for reimbursements of mispayments require the 
following procedure for audit and reconciling payments. The Applicants 
state that given the rapidity of the shifts in responsibility from the 
Old GM Plan to the New GM Plan, and from the New GM Plan to the New GM 
VEBA Plan, it is unlikely that any review will be undertaken until at 
least three months following the Implementation Date.
    The Committee and an independent third party administrator of the 
New GM VEBA Plan will review benefit payments paid during the 
transition period and determine the dollar amount of any mispayments 
made, subject to the review and approval of the New GM VEBA Plan's 
independent auditor. The results of this review will be made available 
to Old GM and New GM.
    Old GM and New GM will perform similar reviews with respect to the 
Old GM Plan and the New GM Plan. Old GM and New GM will provide the 
results of their reviews to the Committee.
    Interest on any reimbursed mispayment will accrue from the date of 
the mispayment to the date of the reimbursement. Interest will be 
determined using the applicable OPEB discount rate. The OPEB discount 
rate is a rate used to discount projected future OPEB benefits payment 
cash flows to determine the present value of the OPEB obligation.\12\ 
The rate is developed by New GM's Treasurer's office, working in 
conjunction with New GM's independent auditor, Deloitte & Touche. The 
discount rate's validity is attested to by Deloitte & Touche, and is 
disclosed in New GM's annual 10K filing with the Securities and 
Exchange Commission.
---------------------------------------------------------------------------

    \12\ OPEB means Other Post-Employment Benefits, and typically 
includes retiree healthcare benefits, life insurance, tuition 
assistance, day care, legal services and the like.
---------------------------------------------------------------------------

    If there is a dispute as to the amount of the mispayment and/or 
reimbursement, undisputed amounts will be paid and the parties will 
enter into a dispute procedure set forth in section 26D of the Modified 
Settlement Agreement. Specifically, the parties exchange written 
notices concerning the dispute and, within 21 days, meet and attempt to 
resolve the dispute. If the parties are unable to resolve the dispute 
within 30 days of the meeting, either party can demand arbitration.
    In the case of a mistaken deposit to the New GM VEBA Plan, New GM 
would make a claim to the Committee regarding the specific deposit or 
transfer made in error or made in an amount greater than that to which 
the New GM VEBA Plan was entitled. The claim must be made within the 
Verification Time Period, which is defined as follows in Section VI(r) 
of the proposed exemption.

    The term ``Verif