Proposed Exemptions From Certain Prohibited Transaction Restrictions
Notice of proposed exemptions.
Citation: "86 FR 52209"
Page Number: "52209"
"Notices"
Agency: "
SUMMARY: This document contains notices of pendency before the
DATES: All interested persons are invited to submit written comments or requests for a hearing on the pending exemptions, unless otherwise stated in the Notice of Proposed Exemption, by
ADDRESSES: All written comments and requests for a hearing should be sent to the
SUPPLEMENTARY INFORMATION:
Comments In light of the current circumstances surrounding the COVID-19 pandemic caused by the novel coronavirus which may result in disruption to the receipt of comments by
Warning: All comments received will be included in the public record without change and may be made available online at http://www.regulations.gov, including any personal information provided, unless the comment includes information claimed to be confidential or other information whose disclosure is restricted by statute. If you submit a comment, EBSA recommends that you include your name and other contact information in the body of your comment, but DO NOT submit information that you consider to be confidential, or otherwise protected (such as
Notice to Interested Persons
Notice of the proposed exemptions will be provided to all interested persons in the manner agreed upon by the applicant and the Department, unless otherwise stated in the Notice of Proposed Exemption, within 15 days of the date of publication in the
The proposed exemptions were requested in applications filed pursuant to section 408(a) of the Act and/or section 4975(c)(2) of the Code, and in accordance with procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644,
FOOTNOTE 1 The Department has considered exemption applications received prior to
The applications contain representations with regard to the proposed exemptions which are summarized below. Interested persons are referred to the applications on file with the Department for a complete statement of the facts and representations.
Located in
[Application No. L-12008]
Proposed Exemption
The Department is considering granting an exemption under the authority of Section 408(a) of the Employee Retirement Security Act of 1974, as amended (ERISA or the Act) to the Phillips 66 Group Life Insurance Plan (the Plan). As described in more detail below, under the proposed exemption, the Plan would enter into an insurance contract with an unrelated A-rated insurance company (the Fronting Insurer) that would, in turn, enter into a reinsurance contract with
FOOTNOTE 2 This proposed exemption requires a qualified independent fiduciary to review the Reinsurance Arrangement to determine if
This proposed exemption also would require
FOOTNOTE 3 The Department notes that the Independent Fiduciary's annual written report is essential to the Department's tentative finding that this proposed exemption is, and will continue to be, in the interest and protective of the Plan and its participants and beneficiaries. The Independent Fiduciary must clearly, prudently and loyally determine whether
Summary of Facts and Representations /4/
FOOTNOTE 4 The Department notes that availability of this exemption is subject to the express condition that the material facts and representations contained in application L-12008 are true and complete, and accurately describe all material terms of the transactions covered by the exemption. If there is any material change in a transaction covered by the exemption, or in a material fact or representation described in the application, the exemption will cease to apply as of the date of such change. END FOOTNOTE
The Parties
1.
2. The Plan. The Plan is sponsored by
3.
4.
FOOTNOTE 5 On
The Prohibited Transaction Arrangement
4.
In general terms, the Plan would make premium payments to Zurich, and Zurich would make corresponding payments to Spirit in an amount less than the premiums it is paid by the Plan. The difference between the premiums the Plan pays Zurich and the amounts Zurich pays Spirit comprises Zurich's fee to Spirit. In return, Spirit would be responsible for administering the Plan participants' benefit claims filed with Zurich. The Reinsurance Agreement between Zurich and Spirit would be "indemnity only," which means that Zurich, as the Fronting Insurer, would maintain the responsibility to pay benefit claims to participants and beneficiaries in the event Spirit does not satisfy any of its contractual obligations to Zurich for any reason.
Benefit to
5. As noted in the Independent Fiduciary discussion below, Spirit (and
Department's Note: The Department developed this proposed exemption based on the Applicant's representation that
FOOTNOTE 6 This includes any benefit to
Benefit to the Plan
6. As discussed in further detail below,
Department's Note: Both the benefit to
Exemptive Relief and Analysis
7. ERISA Analysis.
8. ERISA section 406(a) prohibits a wide variety of transactions between plans and parties in interest. For example, ERISA section 406(a)(l)(D) prohibits a plan fiduciary from causing a plan to engage in a transaction that results in the transfer of plan assets to a party in interest. The Reinsurance Arrangement would violate ERISA section 406(a)(1)(D), because it would result in Plan premium payments (which are plan assets) being indirectly transferred to Spirit who is a party in interest with respect to the Plan.
9. ERISA section 406(b)(1) prohibits a fiduciary from dealing with plan assets for its own interest or own account, and ERISA section 406(b)(3) prohibits a fiduciary from receiving any consideration for the fiduciary's personal account from any party dealing with the plan in connection with a transaction involving the plan's assets. The Reinsurance Arrangement would violate ERISA sections 406(b)(1) and 406(b)(3), because the plan fiduciary would cause Plan premiums to be paid to Zurich with knowledge that the premiums ultimately would be paid to Spirit.
Description of Plan Benefit Enhancements
10. In order to satisfy the Primary Benefit Test,
a. The New Care Advocacy Service Benefit. Participants and beneficiaries of the Plan must receive a New Care Advocacy Service Benefit at no additional cost. The Applicant represents that under the New Care Advocacy Service, master's degree-level licensed social workers would seek out participants and beneficiaries in need of medical assistance, including those who have been diagnosed with a terminal or chronic illness and those managing a chronic condition that has confined them to their home or a rehabilitation center. Care Advocacy support services include providing participants with education and assistance regarding available community resources, scheduling and navigating doctor's appointments, completing forms, and coordinating care between doctors and specialists.
b. The Enhanced Funeral Concierge Service Benefit. The Plan currently provides a Funeral Concierge Service Benefit to participants. Under the conditions of the exemption,
c. The Enhanced Accelerated Death Benefit. The Plan currently provides an Accelerated Death Benefit that allows a terminally-ill participant with a life expectancy of 24 months or less to receive an accelerated life insurance benefit payment before death in an amount up to 50 percent of his or her total life insurance benefit amount. If this exemption is granted, the amount of the Plan's Accelerated Death Benefit would increase from 50 percent to 80 percent of a participant's life insurance benefit amount.
d. The Enhanced Accidental Death & Dismemberment Benefit. Under the Plan currently, if a participant suffers an injury resulting in Hemiplegia, the Plan will pay a benefit equal to 66 percent of the participant's incurred losses from such injury. If the exemption is granted, the Plan would increase this payment from 66 percent to 75 percent of the participant's incurred losses from such injury.
e. The New Accidental Death & Dismemberment Benefit. Currently, the Plan does not provide an additional benefit to a participant's beneficiary if the participant dies in an automobile accident while seated in an air bag-protected position after the air bag system deploys during an accident. If the exemption is granted, the Plan would pay an additional ten percent of the death benefit upon the occurrence of this event up to a maximum amount of
Further, the Plan currently does not cover costs associated with transporting a participant's body from his or her place of death to a mortuary near the participant's primary residence if the participant dies 100 miles or more from such residence. If this exemption is granted, the Plan would pay five percent of the AD&D policy coverage amount to cover the costs associated with transporting a deceased participant's body to a mortuary near his or her primary residence up to a maximum benefit amount of
Finally, the Plan currently does not cover medical costs incurred by a participant who suffers third degree burns. If this exemption is granted, the Plan would pay a percentage of the principal sum based on the body area(s) and the percentage of the body surface affected.
The Independent Fiduciary
11.
FOOTNOTE 7 ERISA section 410 provides, in part, that "except as provided in ERISA sections 405(b)(1) and 405(d), any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [meaning Part 4 of Title I of ERISA] shall be void as against public policy." END FOOTNOTE
12. Independent Fiduciary Analysis. In the course of conducting a preliminary assessment of the merits of the Reinsurance Arrangement,
FOOTNOTE 8 Given that, among other things, some of the documents reviewed by the Independent Fiduciary were draft documents and/or documents that are no longer current, this proposed exemption requires the Independent Fiduciary to: Review the terms of the exemption; obtain and review all current objective, reliable, third-party documentation necessary to make the determinations required of the Independent Fiduciary under the exemption; and confirm in writing that all of the exemption terms and conditions have been met (or, due to timing requirements, can reasonably be expected to be met consistent with the terms of this proposed exemption). The Independent Fiduciary must send this written confirmation to the
Based on the foregoing,
(a) Care Advocacy Service.
FOOTNOTE 9 Zurich's book of business indicates the take up is assessed through a pro-active review of claims reports to identify those individuals who may require assistance. Zurich then connects with those individuals to assess what types of service may be required. In addition, the employer's HR department may bring employees in need of such assistance to Zurich's attention. The service also is advertised at
FOOTNOTE 10 This research included data taken from: https://www.hopkinsmedicine.org/health/wellness-and-prevention/the-power-of-a-health-care-advocate; and https://www.verywellhealth.com/how-much-does-a-private-patient-advocate-cost-2614909. END FOOTNOTE
(b) Funeral Concierge Services.
(c) AD&D.
13. The Primary Benefit Test:
Department's Note. Even though
Further, the exemption requires the Independent Fiduciary to "look back" over successive five-year periods to determine whether the Primary Benefit Test has been met based on actual financial results and actual cost incurred by
14. Benefit Enhancements Adjustment. Before the end of a five-year period,
FOOTNOTE 11 If the Primary Benefit Test has not been met and
Department's Note. Notwithstanding a determination by the Independent Fiduciary that a Benefit Enhancement meets the terms of this exemption, the Department may propose to revoke or amend the exemption to the extent that, among other things, the Department determines that a Benefit Enhancement is not sufficiently protective or in the interest of the Plan and its participants and beneficiaries. Any failure by the Department to propose to modify or revoke the exemption is not an endorsement or conclusion by the Department that the conditions of the exemption were, in fact, met.
The Department's Findings
15. The Department has the authority under ERISA section 408(a) ERISA to grant exemptions from the prohibition transaction provisions of ERISA section 406 if the Department finds that the transaction is in the interest and protective of the rights of the affected plan and its participants and beneficiaries, and is administratively feasible. /12/ The Department's findings required under ERISA section 408(a) are discussed below.
FOOTNOTE 12 Specifically, ERISA section 408(a) provides that the Department may not grant an exemption unless it finds that the exemption is administratively feasible, in the interests of the plan and it participants and beneficiaries, and protective of the rights of the plan participants and beneficiaries. END FOOTNOTE
16. The Proposed Exemption is "Protective of the Plan." The Department has tentatively determined that the proposed exemption is protective of the rights of Plan participants and beneficiaries. In addition to the requirements described above, no commissions would be paid by the Plan with respect to the sale of any third party insurance contract and/or any reinsurance contract, and
The exemption would require
20. The Proposed Exemption is "In the Interest of the Plan." The Department has tentatively determined that the proposed exemption would be in the Plan's interest. Among other things, the Plan must receive the majority of the total benefit generated from the Reinsurance Arrangement, as verified by the Independent Fiduciary and reported to the Department.
21. The Proposed Exemption is "Administratively Feasible." The Department has tentatively determined that the proposed exemption would be administratively feasible, because the proposed reinsurance arrangement is subject to robust annual reviews by
22. Based on the conditions that are included in this proposed exemption, the Department has tentatively determined that the relief sought by the Applicant would satisfy the statutory requirements for an individual exemption under ERISA section 408(a).
Proposed Exemption
Section I. Definitions
(a) An "affiliate" of
(b) The term Benefit Enhancements means the following benefits, unless adjusted consistent with the terms of this proposed exemption:
(i) The New Care Advocacy Service Benefit. Under this new benefit, master's degree-level licensed social workers would proactively find participants needing specialized assistance, including those diagnosed with a terminal or chronic illness or who are managing a chronic condition that has confined them to their home or a rehabilitation center. Care Advocacy support service includes participant education and assistance with respect to available community resources, and assistance with scheduling and navigating doctor's appointments, completing forms, and coordinating care with doctors and specialists.
(ii) The Enhanced Funeral Concierge Service Benefit. Under this enhancement, the Plan would extend its existing Funeral Concierge Service Benefit to provide coverage for Plan participants' family members.
(iii) The Enhanced Accelerated Death Benefit. The Plan currently provides an Accelerated Death Benefit for a terminally-ill participants with life expectancy of 24 months or less to receive an accelerated life insurance benefit payment in advance of her death of up to 50 percent of the participant's total life insurance benefit amount. Under this enhancement, the amount of the Accelerated Death Benefit would increase to 80 percent of a participant's life insurance benefit.
(iv) The Enhanced Accidental Death & Dismemberment Benefit. The Plan currently provides that if a participant suffers an injury resulting in Hemiplegia, the Plan would pay such participant a benefit equal to 66 percent of the participant's incurred losses from such injury. Under this enhancement, the payment would increase to 75 percent of the participant's incurred losses from such injury.
(v) The New Accidental Death & Dismemberment Benefit. Under the current terms of the Plan, if a participant dies in an automobile accident while seated in an air bag-protected position and such air bag system deployed during the accident, the Plan would not pay any additional benefit to the participant. Under this enhancement, the Plan would provide a new benefit that pays ten percent of the principal sum, up to
Further, under the current terms of the Plan, if a participant dies 100 miles away from his or her primary place of residence, the Plan would not cover costs incurred to transport the participant's body from the place of death to a mortuary near the participant's primary residence. Under this enhancement, the Plan would provide a new benefit to participants covering up to five percent of the AD&D policy amount, up to a maximum of
(c) The term "control" means the power to exercise a controlling influence over the management or policies of a person other than an individual; and
(d) The term "Independent Fiduciary" means a person who:
(1) Is not
(2) Was not a fiduciary with respect to the Plan before its appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that:
(i) It is a fiduciary and has agreed not to participate in any decision with respect to any transaction in which it has an interest that might affect its best judgment as a fiduciary; and
(ii) Has appropriate technical training or experience to perform the services contemplated by the exemption;
(4) For purposes of this definition, no organization or individual may serve as Independent Fiduciary for any fiscal year if the gross income received by such organization or individual from
(5) No organization or individual that is an Independent Fiduciary and no partnership or corporation of which such organization or individual is an officer, director or ten percent or more partner or shareholder may acquire any property from, sell any property to, or borrow any funds from
(6) In the event a successor Independent Fiduciary is appointed to represent the interests of the Plan with respect to the subject transaction, no time should elapse between the resignation or termination of the former Independent Fiduciary and the appointment of the successor Independent Fiduciary.
Section II. Proposed Transactions
The exemption would provide relief from the prohibited transactions provisions of ERISA sections 406(a)(1)(A), (D), and 406(b)(1) and (b)(3), and the excise tax imposed by Code section 4975(a) and (b) (due to the operation of parallel prohibited transaction provisions contained in Code section 4975(c)(1)(A), (D), (E), and (F)) with respect to: (1) The reinsurance of risks; and (2) the receipt of premiums by Spirit in connection with insurance contracts sold by Zurich (or any successor Fronting Insurer) to provide Group Term Life and Accidental Death and Dismemberment benefits to Plan participants. In order to receive such relief, the conditions in Section III must be met in conformance with the definitions set forth in Section I.
Section III. Conditions
(a)
(b) For every dollar that
(c) The Independent Fiduciary must determine whether the Primary Benefit Test has been met with respect to each successive five-year period covered by the exemption. The Independent Fiduciary must report its determinations as part of the Independent Fiduciary's next annual report. For purposes of the initial five-year period, the Independent Fiduciary may test only the costs and benefits that inure to
(d)(1) If the Primary Benefit Test has not been met with respect to a five-year period,
(e)
(f) Spirit must:
(1) Be a party in interest with respect to the Plan based on its affiliation with
FOOTNOTE 13 Under ERISA section 3(14)(G), a corporation is a "party in interest" with respect to an employee benefit plan if 50 percent or more of the combined voting power of all classes of the corporation's stock entitled to vote, or the total value of shares of all classes of stock of the corporation, is owned by an employer any of whose employees are covered by the employee benefit plan. END FOOTNOTE
(2) Be licensed to sell insurance or conduct reinsurance operations in the
(3) Have obtained a Certificate of Authority from the insurance commissioner of
(4) Have undergone a financial examination (within the meaning of the law of its domiciliary State,
(4) Have undergone, and continue to undergo, an examination by an independent certified public accountant for its last completed taxable year immediately before the taxable year of the Reinsurance Arrangement covered by this exemption; and
(5) Be licensed to conduct reinsurance transactions by a state whose law requires that an actuarial review of reserves be conducted annually by an independent firm of actuaries and reported to the appropriate regulatory authority;
(g) In each year of coverage provided by a Fronting Insurer, the formulae used by the Fronting Insurer to calculate premiums will be similar to formulae used by other insurers providing comparable life insurance coverage under similar programs. Furthermore, the premium charges calculated in accordance with the formulae will be reasonable and comparable to the premiums charged by the Fronting Insurer and its competitors with the same or a better financial strength rating providing the same coverage under comparable programs;
(h) The Plan must pay no commissions with respect to the sale of such contracts or the Reinsurance Arrangement;
(i) The Fronting Insurer must have a financial strength rating of "A" or better from
(j) The Reinsurance Arrangement between Spirit and Zurich or any successor Fronting Insurer must be indemnity insurance only. The arrangement must not relieve a Fronting Insurer from any responsibility or liability to the Plan, including liability that would result if Spirit fails to meet any of its contractual obligations to Zurich or any successor Fronting Insurer under the Reinsurance Arrangement;
(k)
(l) The Independent Fiduciary must:
(1) In compliance with the fiduciary obligations of prudence and loyalty under ERISA Sections 404(a)(1)(A) and (B) (i) review the Reinsurance Arrangement and the terms of the exemption; (ii) obtain and review all current objective, reliable, third-party documentation necessary to make the determinations required of the Independent Fiduciary by the exemption; and (iii) confirm in writing that all of the exemption's terms and conditions have been met (or, due to timing requirements, can reasonably be expected to be met consistent with the terms of this proposed exemption) and send this confirmation to the
(2) Monitor, enforce and ensure compliance with all conditions of this exemption, in accordance with its obligations of prudence and loyalty under ERISA Sections 404(a)(1)(A) and (B), including all conditions and obligations imposed on any party dealing with the Plan, throughout the period during which Spirit's assets are directly or indirectly used in connection with a transaction covered by this exemption.
(3) Report any instance of non-compliance immediately to the
(4) Take all appropriate actions to safeguard the interests of the Plan;
(5) Review all contracts pertaining to the Reinsurance Arrangement, and any renewals of such contracts, to determine whether the requirements of this proposed exemption and the terms of Benefit Enhancements continue to be satisfied;
(6) Submit an annual Independent Fiduciary Report to the Department certifying under penalty of perjury whether each term and condition of the proposed exemption is met over the applicable period. Each report must be: (i) Completed within six months after the end of the twelve-month period to which it relates (the first twelve-month period would begin on the effective date of the exemption grant); and (ii) submitted to the Department within 60 days thereafter. The relevant report must include all of the objective data necessary to demonstrate that the Primary Benefit Test has been met;
(o) Neither Phillips 66 nor any related entity may use participant-related data or information generated by or derived from the Reinsurance Arrangement in a manner that benefits
(p) No amount of Spirit's reserves that are attributable to the Plan participants' contributions may be transferred to
(q) All the facts and representations set forth in the Summary of Facts and Representation must be true and accurate; and
(r) No party related to this exemption request has or will, indemnify the Independent Fiduciary, in whole or in part, for negligence and/or for any violation of state or federal law that may be attributable to the Independent Fiduciary in performing its duties under the captive reinsurance arrangement. In addition, no contract or instrument may purport to waive any liability under state or federal law for any such violations.
Effective Date: This proposed exemption would become effective on the date the Department publishes a grant notice in the
Notice to Interested Persons
Persons who may be interested in the publication of this notice in the
The Department must receive all written comments and requests for a hearing no later than forty-five (45) days after the date the Notice is published in the
All comments will be made available to the public.
Warning: Please do not include any personally identifiable information (such as your name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the internet and are retrievable by most internet search engines.
Further Information Contact: Mr.
Located in
[Application No. L-12021]
Proposed Exemption
The Department is considering granting an exemption under the authority of section 408(a) of the Employee Retirement Income Security Act of 1974, as amended (ERISA), and in accordance with the procedures set forth in 29 CFR part 2570, subpart B (76 FR 66637, 66644,
FOOTNOTE 14 The Department notes that the independent fiduciary's annual written report is essential to the Department's tentative finding that this proposed exemption is, and will continue to be, in the interest and protective of the Plan and its participants and beneficiaries. Each report must clearly, prudently, and loyally determine whether Comcast and its affiliates have complied with each term and condition of the exemption. The exemption's relief is conditioned on the independent fiduciary's compliance with this requirement. END FOOTNOTE
Summary of Facts and Representations /15/
FOOTNOTE 15 The Department notes that availability of this exemption, is subject to the express condition that the material facts and representations contained in application L-12021 are true and complete, and accurately describe all material terms of the transactions covered by the exemption. If there is any material change in a transaction covered by the exemption, or in a material fact or representation described in the application, the exemption will cease to apply to the covered transactions as of the date of such change. END FOOTNOTE
The Applicants
1. Comcast is an American telecommunications conglomerate headquartered in
2. Comcast sponsors the
3. The basic and optional (supplemental) life insurance benefits provided under the Life Insurance Component are insured by the
4. The Applicants are requesting an exemption that would permit One Belmont to reinsure the basic and optional (supplemental) life insurance provided under the Plan's Life Insurance Component. As described below, the proposed exemption is subject to a number of conditions, each of which must be verified by a qualified, independent fiduciary (the Independent Fiduciary). Among other things, the Independent Fiduciary must submit an annual report in which, in accordance with ERISA Sections 404(a)(1)(A) and (B), it prudently and loyally determines that the Applicants have met the terms of the exemption, including the requirement that the Plan's Dental Component has received all the financial benefits and cost savings associated with the reinsurance arrangement that would otherwise have gone to the Applicants.
5. The arrangement is expected to generate an annual financial benefit to Comcast. In particular, Comcast currently anticipates that the arrangement will result in
FOOTNOTE 16 According to the Applicants, Prudential has agreed to reduce the Plan's basic life insurance premiums by
FOOTNOTE 17 Based on the number of participants currently enrolled in the Plan's Dental Component, that amount currently translates to
6. Comcast states that reducing the premiums of the Plan's Dental Component would benefit a higher percentage of Plan participants than would benefit from reducing the premiums paid by Plan participants for supplemental life insurance. Comcast states that 85% of Plan participants participate in the Plan's Dental Component, while only 35% of Plan participants who contribute towards the supplemental life insurance offered by the Plan.
7. In no event may the reduction in the participants' portion of the Dental Component's premium be less than the amount that Comcast or any of its affiliates ultimately benefits from the captive reinsurance arrangement. Further, Comcast must continue to contribute no less than 60% of the Dental Component's premiums after the captive reinsurance arrangement takes effect.
8. If this proposed exemption is granted, Prudential will continue to be the "fronting" insurer for the basic and optional (supplemental) group term life insurance. Prudential will contract with One Belmont for One Belmont to provide reinsurance coverage for 90% of the risks insured with Prudential (up to
9. Comcast and its affiliates, including One Belmont, may not retain any profit, tax or other benefit from the captive reinsurance arrangement. If Comcast or any of its affiliates ultimately receive a tax, profit or other benefit in connection with the captive reinsurance arrangement, including any benefit arising from a further diversification of One Belmont's risks in connection with adding the Insurance Component's risks to One Belmont's other risks Comcast must ensure, and the Independent Fiduciary must verify, that participants in the Plan's Dental Component receive a corresponding dollar-for-dollar additional reduction to their portion of the premiums. For example, if Comcast's savings from the captive reinsurance arrangement for a year is
ERISA Analysis
11. Comcast is a party in interest with respect to the Plan pursuant to ERISA section 3(14)(C), because it is an employer whose employees are covered by the Plan. In addition, the captive reinsurer, One Belmont, is a party in interest with respect to the Plan pursuant to ERISA section 3(14)(G) because it is 100% owned by the Comcast. /18/
FOOTNOTE 18 Under ERISA section 3(14)(G), a corporation is a "party in interest" with respect to an employee benefit plan if 50% or more of the combined voting power of all classes of the corporation's stock entitled to vote, or the total value of shares of all classes of stock of the corporation, is owned by an employer any of whose employees are covered by the employee benefit plan. END FOOTNOTE
12. ERISA section 406(a) prohibits a wide variety of transactions between plans and parties in interest. For example, ERISA section 406(a)(l)(D) prohibits a plan fiduciary from causing a plan to engage in a transaction that results in the transfer of plan assets to a party in interest. The proposed captive reinsurance arrangement would violate ERISA section 406(a)(1)(D), because it would result in the Plan's premium payments (which are plan assets) being indirectly transferred to One Belmont, which is a party in interest with respect to the Plan.
13. ERISA section 406(b)(1) prohibits a fiduciary from dealing with plan assets for its own interest or own account. The proposed captive reinsurance arrangement would violate ERISA section 406(b)(1), because the plan fiduciary would cause the
14. Comcast must fund the reserves that will be established by One Belmont for the reinsurance arrangement. This amount is estimated to be
15. In connection with this exemption request, the Applicants engaged Milliman Actuarial Services (Milliman) to act as the independent fiduciary (the Independent Fiduciary) on behalf of the Plan to evaluate, and if appropriate, approve or reject the subject transactions. Milliman is responsible for the prudent and loyal review and analysis of the proposed transactions on the Plan's behalf and for providing a written opinion as to whether the arrangement complies with the Department's requirements for an administrative exemption. Milliman must have access to the captive insurance company's financial statements, which will show premiums, claims, reserves and other relevant financial items, and Milliman must use this information to determine ongoing savings and any other benefits to the Applicants that result from the reinsurance transaction. In addition, Milliman must: (1) Review all contracts (and any renewal of such contracts) of the reinsurance of risks and the receipt of premiums therefrom by One Belmont and determine that the requirements of the exemption continue to be satisfied; and (2) quantify (in dollars) all savings and other benefits that Comcast receives from the proposed captive reinsurance arrangement, and ensure that the Plan's participants receive a corresponding benefit, at Comcast's expense, in the manner described above.
16. Milliman represents that it has extensive experience overseeing captive reinsurance arrangements. Milliman represents that it does not have, and has not previously had, any relationship with any party in interest (including any affiliates thereof) engaging in the proposed transactions. Milliman does not have any financial interest with respect to their work as an independent fiduciary regarding this proposed transaction, or the captive reinsurance arrangement, apart from the express fees paid for their work as an independent fiduciary for the Plan. Gross income received by Milliman from Comcast, One Belmont, or Prudential for this fiscal year is less than 0.1% of Milliman's gross annual income from all sources. Under this exemption, the gross income Milliman receives from Comcast, One Belmont and Prudential in a fiscal year must not exceed two percent of Milliman's gross annual income from all sources for that year. As a condition of the exemption, neither Milliman nor any of its representatives will enter into any agreement or instrument that violates the prohibitions on exculpatory provisions in ERISA section 410 or the Department's regulation relating to indemnification of fiduciaries at 29 CFR 2509.75-4. /19/ Finally, Comcast and its related parties have not, and will not, indemnify Milliman, in whole or in part, for negligence and/or for any violations of state or federal law that may be attributable to Milliman performing its duties under the captive reinsurance arrangement. In addition, no contract or instrument may purport to waive any liability under state or federal law for any such violations.
FOOTNOTE 19 ERISA section 410 provides, in relevant part, that "except as provided in [ERISA] sections 405(b)(1) and 405(d), any provision in an agreement or instrument which purports to relieve a fiduciary from responsibility or liability for any responsibility, obligation, or duty under this part [meaning Part 4 of Title I of ERISA] shall be void as against public policy." END FOOTNOTE
17. In connection with the transactions that are the subject of this proposed exemption, Milliman represents that it has, among other things, in full accordance with its prudence and loyalty obligations under ERISA sections 404(a)(1)(A) and (B): (a) Reviewed a draft of Comcast's application for an administrative exemption that was submitted to the Department; (b) conferred with Comcast's representative to discuss the transactions involved in the reinsurance arrangement; (c) conducted such other due diligence reviews as were prudent to determine that the conditions of the proposed exemption would be met, including the premiums to be paid by the Life Insurance Component for the proposed coverage.
Department's Note. If the Department grants an exemption, Milliman's findings would not be current as of the exemption's effective date. Therefore, as a condition of the exemption, Milliman must engage in another analysis of the proposed transactions in full accordance with ERISA Section 404(a)(1)(A) and (B). As part of this analysis, Milliman must review the terms of the exemption and verify that it has concluded based on its review of all of the relevant documents and evidence that all of the exemption's terms and conditions have been met (or, due to timing requirements, can reasonably expected to be met consistent with the time requirements set forth in this proposed exemption)). Milliman must document the basis for its conclusions in a written report submitted to the
18. For the duration of the captive reinsurance arrangement, Milliman must: (a) Monitor, enforce and ensure compliance with all conditions of the exemption, including all conditions and obligations imposed on any party dealing with the Plan, throughout the period during which One Belmont's assets are directly or indirectly used in connection with a transaction covered by this exemption; (b) report any instance of non-compliance immediately to the
19. Additionally, Milliman must file annual certified reports to the Department, under penalty of perjury, confirming that all of the terms and conditions of the exemption have been met and explaining the bases for that conclusion.
20. In the initial year of this proposed transaction, there will be an immediate and objectively determined benefit in the form of reduced employee contributions for the Dental Component of the Plan in the amount of
21. In addition to the protections and conditions discussed above, this proposed exemption requires, and Milliman must verify that: (a) Neither the Plan nor any plan participant pays any commissions with respect to the direct insurance agreement between Comcast and Prudential and the reinsurance agreement between Prudential and One Belmont; (b) the formula used by Prudential, or any successor insurer, to calculate premiums will be similar to the formula used by other insurers providing comparable coverage under similar programs that are not captive reinsured; (c) the premium charged to the Life Insurance Component will be reasonable and comparable to the premiums charged by the insurer and its competitors with the same or a better financial strength rating providing the same coverage under comparable insurance programs that are not captive reinsured; (d) the Life Insurance Component will only contract with insurers with a financial strength rating of "A" or better from A. M. Best; (e) the Plan pays no more than adequate consideration with respect to insurance that is part of the captive reinsurance arrangement covered by the proposed exemption and (f) the captive reinsurance arrangement between the insurer and One Belmont will be indemnity reinsurance only (i.e., the Fronting Insurer will not be relieved of any liability to the Plan should the reinsurer be unable or unwilling for any reason to cover any liability arising from the reinsurance arrangement).
22. This proposed exemption expressly prohibits Comcast (or a related entity) from using any participant-related data or information that is generated by (or derived from) the proposed captive reinsurance arrangement in any manner that benefits Comcast or a related entity. Comcast may not reduce or offset any benefits provided to Plan participants and beneficiaries in connection with its implementation of the proposed captive reinsurance arrangement. Further, all expenses associated with the exemption and the exemption application, including any payment to the Independent Fiduciary, must be paid by Comcast and not the Plan.
The Department's Findings
23. The Department has the authority under ERISA section 408(a) to grant an exemption from the prohibition transaction provisions of ERISA section 406 if the Department finds that the transaction is in the interest and protective of the rights of the affected plan and its participants and beneficiaries, and is administratively feasible. /20/ The Department's findings required under ERISA section 408(a) with respect the proposed captive reinsurance arrangement are discussed below.
FOOTNOTE 20 Specifically, ERISA section 408(a) provides that the Secretary of Labor may not grant an exemption unless the Secretary finds that the exemption is administratively feasible, in the interests of the plan and it participants and beneficiaries, and protective of the rights of the plan participants and beneficiaries of such plan. END FOOTNOTE
24. The Proposed Exemption is "Administratively Feasible." The Department has tentatively determined that the proposed exemption would be administratively feasible, because the proposed captive reinsurance arrangement is subject to robust annual reviews by Milliman that must be filed with the
25. The Proposed Exemption is "In the Interests of the Plan." The Department has tentatively determined that the proposed exemption would be in the interest of the Plan because, among other things, 100% of the benefit to Comcast from the proposed captive reinsurance arrangement must be transferred to participants in the Plan's Dental Component by reducing their premiums in an amount equal to any and all cost savings and benefits Comcast derives from the proposed captive reinsurance arrangement. At no point during the proposed captive reinsurance arrangement will the aggregate benefit to the Plan's participants in the Dental Component be less than
26. The Proposed Exemption is "Protective of the Plan." The Department has tentatively determined that the proposed exemption is protective of the rights of the Plan participants and beneficiaries because, among other things: (a) The premium charged to the Life Insurance Component will be reasonable and comparable to the premiums charged by the insurer and its competitors with the same or a better financial strength rating providing the same coverage under comparable insurance programs that are not captive reinsured; (b) the Life Insurance Component will only contract with insurers with a financial strength rating of "A" or better from A. M. Best; (c) the Plan pays no more than adequate consideration with respect to insurance that is part of the captive reinsurance arrangement covered by the proposed exemption; and (d) the reinsurance arrangement between the insurer and One Belmont will be indemnity reinsurance only (i.e., the Fronting Insurer will not be relieved of any liability to the Plan should the reinsurer become unable or unwilling for any reason to cover any liability arising from the reinsurance arrangement).
Summary
27. Based on Comcast satisfying the conditions described above, the Department has tentatively determined that the relief sought by Comcast satisfies the statutory requirements for an exemption under ERISA section 408(a).
Proposed Exemption
The relief described in Section II of this proposed exemption is conditioned upon adherence to the material facts and representations described herein and as presented to the Department by Comcast, as well as satisfaction of the Definitions in Section I and the Conditions in Section III.
Section I. Definitions
(a) An "affiliate" of Comcast or One Belmont includes: (1) Any person who controls the person or is controlled by or under common control with Comcast or One Belmont; (2) Any officer, director, employee, relative, or partner in Comcast or One Belmont; and (3) Any corporation or partnership of which the person in (2) of this paragraph is an officer, director, partner, or employee;
(b) The term "control" means the power to exercise a controlling influence over the management or policies of a person other than an individual;
(c) The term "Independent Fiduciary" means a person who:
(1) Is not an affiliate of Comcast or One Belmont and does not hold an ownership interest in Comcast or One Belmont or their affiliates;
(2) Is not a fiduciary with respect to the Plan before its appointment to serve as the Independent Fiduciary;
(3) Has acknowledged in writing that it:
(i) Is a fiduciary with respect to the plan and has agreed not to participate in any decision regarding any transaction in which it has an interest that might affect its best judgment as a fiduciary; and
(ii) has appropriate technical training or experience to perform the services contemplated by the exemption;
(4) has not entered into any agreement or instrument that violates the prohibitions on exculpatory provisions in ERISA section 410 or the Department's regulation relating to indemnification of fiduciaries at 29 CFR 2509.75-4.
(5) For purposes of this definition, no organization or individual may serve as Independent Fiduciary for any fiscal year if the gross income received by such organization or individual from Comcast, One Belmont or their affiliates for that fiscal year exceeds two percent (2%) of such organization's or individual's gross income from all sources for the prior fiscal year. This provision also applies to a partnership or corporation of which such organization or individual is an officer, director, or 10 percent (10%) or more partner or shareholder, and includes as gross income amounts received as compensation for services provided as an independent fiduciary under any prohibited transaction exemption granted by the Department; and
(6) No organization or individual that is an Independent Fiduciary and no partnership or corporation of which such organization or individual is an officer, director or ten percent (10%) or more partner or shareholder may acquire any property from, sell any property to, or borrow any funds from Comcast or One Belmont or their affiliates while serving as an Independent Fiduciary. This prohibition will continue for a period of six months after: The party ceases to be an Independent Fiduciary; and/or the Independent Fiduciary negotiates any transaction on behalf of the Plan during the period that the organization or individual serves as an Independent Fiduciary.
Section II: Covered Transactions
If this proposed exemption is granted, the restrictions of ERISA sections 406(a)(1)(D) and 406(b)(1) will not apply to the reinsurance of risks and the receipt of premiums therefrom by
Section III. Conditions
(a) In the initial year and each subsequent year of the captive reinsurance arrangement, the participants' portion of the premium for the dental component of the Plan (the Dental Component) must be reduced by at least
(b) No commissions are paid by thePlan with respect to the direct sale of such contracts or the reinsurance thereof;
(c) In the initial year and in subsequent years of coverage provided by a Fronting Insurer, the formulae used by the Fronting Insurer to calculate premiums will be similar to formulae used by other insurers providing comparable life insurance coverage under similar programs that are not captive reinsured. Furthermore, the premium charges calculated in accordance with the formulae will be reasonable and will be comparable to the premiums charged by the Fronting Insurer and its competitors with the same or a better financial strength rating providing the same coverage under comparable programs that are not captive reinsured;
(d) Comcast is solely and fully responsible for funding One Belmont's reserves with respect to the reinsurance arrangement covered by this proposed exemption;
(e) One Belmont:
(1) Is a party in interest with respect to the Plan by reason of a stock or partnership affiliation with Comcast that is described in ERISA section 3(14)(E) or (G);
(2) Is licensed to sell insurance or conduct reinsurance operations in at least one State as such term is defined in ERISA section 3(10);
(3) Has obtained a Certificate of Authority from the state of
(4) (A) Has undergone and shall continue to undergo an examination by an independent certified public accountant for its last completed taxable year immediately before the taxable year of the reinsurance transaction covered by this exemption; or
(B) Has undergone a financial examination (within the meaning of the law of
(5) Is licensed to conduct reinsurance transactions under
(f) The Plan retained and will continue to retain an independent, qualified fiduciary or successor to such fiduciary, as defined in Section I(c), (the Independent Fiduciary) to analyze the transactions covered by this proposed exemption, and render an opinion that the requirements of this exemption have been satisfied;
(g) The Independent Fiduciary must, in full accordance with its obligations of prudence and loyalty under ERISA sections 404(a)(1)(A) and (B), review the terms of the exemption, engage in a prudent and loyal analysis of the covered transactions, and verify that based on its review of all relevant documents and evidence, it has concluded that all of the exemption's terms and conditions have been met (or can be reasonably be expected to be met consistent with the time requirements set forth in this proposed exemption). This conclusion must be documented in a written report submitted to the
(3) Monitor, enforce and ensure compliance with all conditions of this exemption, including all conditions and obligations imposed on any party dealing with the Plan, throughout the period during which One Belmont's assets are directly or indirectly used in connection with a transaction covered by this exemption;
(4) Report any instance of non-compliance immediately to the
(5) Monitor the transactions described in the exemption on a continuing basis, to ensure the transactions remain in the interest of the Plan;
(6) Take all appropriate actions to safeguard the interests of the Plan;
(7) Review all contracts pertaining to the Reinsurance Arrangement, and any renewals of such contracts, to determine whether the requirements of this proposed exemption continue to be satisfied;
(8) Determine that the Reinsurance Arrangement is in no way detrimental to the Plan and its participants and beneficiaries;
(9) Confirm that the Plan's Dental Component has received all the financial benefits and cost savings associated with the proposed captive reinsurance arrangement that otherwise would have been retained by Comcast or a party related to Comcast;
(10) Provide an annual report to the Department, under penalty of perjury, certifying that each term and condition of this exemption is satisfied and setting forth the bases for the certification. Each report must be: (i) Completed within six months after the end of the twelve month period to which it relates (the first twelve month period begins on the first day of the implementation of the captive reinsurance arrangement covered by this proposed exemption); and (ii) submitted to the Department within six months thereafter;
(h) Comcast and its related parties have not, and will not, indemnify the Independent Fiduciary, in whole or in part, for negligence and/or for any violations of state or federal law that may be attributable to the Independent Fiduciary in performing its duties under the captive reinsurance arrangement. In addition, no contract or instrument will purport to waive any liability under state or federal law for any such violations.
(i) Neither Comcast nor a related entity may use participant-related data or information generated by, or derived from, the Reinsurance Arrangement, in a manner that benefits Comcast or a related entity;
(j) All the facts and representations set forth in the Summary of Facts and Representation are true and accurate;
(k) Comcast will not offset or reduce any benefits provided to Plan participants and beneficiaries in connection with its implementation of the captive reinsurance arrangement;
(l) The Plan will only contract with a Fronting Insurer with a financial strength rating of "A" or better from
(m) The Plan pays no more than adequate consideration with respect to insurance that is part of the captive reinsurance arrangement covered by the proposed exemption;
(n) In the event a successor Independent Fiduciary is appointed to represent the interests of the Plan with respect to the subject transaction, no time shall elapse between the resignation or termination of the former Independent Fiduciary and the appointment of the successor Independent Fiduciary; and
(o) All expenses associated with the exemption and the exemption application, including any payment to the Independent Fiduciary, must be paid by Comcast and not the Plan.
Effective Date: The proposed exemption is effective as of the date a final exemption is published in the
Notice to Interested Persons
Persons who may be interested in the publication of this notice in the
The Department must receive all written comments and requests for a hearing no later than forty-five (45) days after publication date of the date of the Notice in the
All comments will be made available to the public.
Warning: Please do not include any personally identifiable information (such as your name, address, or other contact information) or confidential business information that you do not want publicly disclosed. All comments may be posted on the internet and are retrievable by most internet search engines.
Further Information Contact: Blessed Chuksorji-Keefe of the Department, telephone (202) 693-8567 (This is not a toll-free number.)
General Information
The attention of interested persons is directed to the following:
(1) The fact that a transaction is the subject of an exemption under section 408(a) of the Act and/or section 4975(c)(2) of the Code does not relieve a fiduciary or other party in interest or disqualified person from certain other provisions of the Act and/or the Code, including any prohibited transaction provisions to which the exemption does not apply and the general fiduciary responsibility provisions of section 404 of the Act, which, among other things, require a fiduciary to discharge his duties respecting the plan solely in the interest of the participants and beneficiaries of the plan and in a prudent fashion in accordance with section 404(a)(1)(b) of the Act; nor does it affect the requirement of section 401(a) of the Code that the plan must operate for the exclusive benefit of the employees of the employer maintaining the plan and their beneficiaries;
(2) Before an exemption may be granted under section 408(a) of the Act and/or section 4975(c)(2) of the Code, the Department must find that the exemption is administratively feasible, in the interests of the plan and of its participants and beneficiaries, and protective of the rights of participants and beneficiaries of the plan;
(3) The proposed exemptions, if granted, will be supplemental to, and not in derogation of, any other provisions of the Act and/or the Code, including statutory or administrative exemptions and transitional rules. Furthermore, the fact that a transaction is subject to an administrative or statutory exemption is not dispositive of whether the transaction is in fact a prohibited transaction; and
(4) The proposed exemptions, if granted, will be subject to the express condition that the material facts and representations contained in each application are true and complete, and that each application accurately describes all material terms of the transaction which is the subject of the exemption.
Signed at
Acting Director,
[FR Doc. 2021-20237 Filed 9-17-21;
BILLING CODE 4510-29-P
Rep. Doris O. Matsui (D-CA) News Release
LOCALLY EMPLOYED STAFF HEALTH INSURANCE SERVICES UNDER GLOBAL MEDICAL COVERAGE SOLICITATION AMENDMENT
Advisor News
- Economy performing better than expected, Morningstar says
- Advisors have more optimism post-election
- How to get people to share personal information
- Trump pick for Treasury: extending tax cuts the ‘most important’ issue
- Treasury Secretary nominee Scott Bessent says Trump tax cuts should not expire
More Advisor NewsAnnuity News
- Midland Advisory Focused on Growing Registered Investment Advisor Channel Presence
- Delaware Life Announces Suite of Innovative Fixed Index Annuities
- Allianz Life moves to strengthen annuity operations with own reinsurer
- Global Atlantic Announces New Registered Index-Linked Annuity
- AM Best Affirms Credit Ratings of Reinsurance Group of America, Incorporated and Subsidiaries
More Annuity NewsHealth/Employee Benefits News
- Study Data from Women’s Center Update Understanding of Managed Care (Defining Midwifery-led Care In the United States Using Concept Analysis): Managed Care
- Research from University of Connecticut Yields New Study Findings on Delirium (Emergency Department And Hospital Use Among Cognitively Vulnerable Medicare Advantage Enrollees): Nervous System Diseases and Conditions – Delirium
- UnitedHealth Group CEO acknowledges frustrations with US health care system
- How to find free or discounted health care at Minnesota hospitals
- State heallth agency issues first report on high-cost drugs, treatment
More Health/Employee Benefits NewsLife Insurance News
- AM Best Affirms Credit Ratings of Prudential Financial, Inc. and Its Life/Health Subsidiaries
- Symetra reaches $32.5 million settlement over cost-of-insurance charges
- Registration Statement – Specified Transactions (Form S-3)
- Symetra Names Christine Carlson Vice President, Stop Loss Claims
- Best’s Market Segment Report: AM Best Maintains Stable Outlook on India’s Non-Life Insurance Segment
More Life Insurance News