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Secretary of Labor Thomas E. Perez

EBSA (Formerly PWBA) Federal Register Notice

Amendment to Prohibited Transaction Exemption 92-6 (PTE 92-6) Involving the Transfer of Individual Life Insurance Contracts and Annuities from Employee Benefit Plans to Plan Participants, Certain Beneficiaries of Plan Participants, Personal Trusts, [09/03/2002]

[PDF Version]

Volume 67, Number 170, Page 56313-56315

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DEPARTMENT OF LABOR

Pension and Welfare Benefits Administration

[Application Number D-10786]

 
Amendment to Prohibited Transaction Exemption 92-6 (PTE 92-6) 
Involving the Transfer of Individual Life Insurance Contracts and 
Annuities from Employee Benefit Plans to Plan Participants, Certain 
Beneficiaries of Plan Participants, Personal Trusts, Employers and 
Other Employee Benefit Plans

AGENCY: Pension and Welfare Benefits Administration, U.S. Department of 
Labor.

ACTION: Adoption of Amendment to PTE 92-6.

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SUMMARY: This document amends PTE 92-6, a class exemption that enables 
an employee benefit plan to sell individual life insurance contracts 
and annuities to: (1) A plan participant insured under such policies; 
(2) a relative of such insured participant who is the beneficiary under 
the contract; (3) an employer any of whose employees are covered by the 
plan; or (4) another employee benefit plan, for the cash surrender 
value of the contract, provided certain conditions are met. The 
amendment affects, among others, certain participants, beneficiaries 
and

[[Page 56314]]

fiduciaries of plans engaged in the described transactions.

DATES: The amendment is effective February 12, 1992.

FOR FURTHER INFORMATION CONTACT: Mr. Gary H. Lefkowitz, Office of 
Exemption Determinations, Pension and Welfare Benefits Administration, 
U.S. Department of Labor, (202) 693-8540. (This is not a toll-free 
number).

SUPPLEMENTARY INFORMATION: On May 10, 2002, notice was published in the 
Federal Register (67 FR 31835) of the pendency before the Department of 
a proposed amendment to PTE 92-6 (57 FR 5189, February 12, 1992), which 
amended Prohibited Transaction Exemption 77-8 (PTE 77-8)(42 FR 31574, 
June 21, 1977). PTE 92-6 provides an exemption from the restrictions of 
section 406(a) and 406(b)(1) and (b)(2) of the Employee Retirement 
Income Security Act of 1974 (ERISA or the Act) and from the taxes 
imposed by section 4975(a) and (b) of the Internal Revenue Code of 1986 
(the Code), by reason of section 4975(c)(1)(A) through (E) of the Code.
    The amendment to PTE 92-6 adopted by this notice was requested in 
an exemption application filed by the Chicago, Illinois law firm of 
Sonnenschein, Nath & Rosenthal on behalf of the General American Life 
Group (the Applicant). The Department is adopting the amendment 
pursuant to section 408(a) of ERISA and section 4975(c)(2) of the Code, 
and in accordance with the procedures set forth in 29 CFR Part 2570, 
Subpart B (55 FR 32836, 32847, August 10, 1990).\1\
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    \1\ Section 102 of the Reorganization Plan No. 4 of 1978 (5 
U.S.C. App. 1 [1996]) generally transferred the authority of the 
Secretary of the Treasury to issue administrative exemptions under 
section 4975 of the Code to the Secretary of Labor.
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    For the sake of convenience, the entire text of PTE 92-6, as 
amended, has been reprinted with this notice.

A. Description of the Exemption

    Section I of PTE 92-6 permits the sale of an individual life 
insurance or annuity contract by an employee benefit plan to: (1) A 
plan participant; (2) a relative of such insured participant who is the 
beneficiary under the contract; (3) an employer any of whose employees 
are covered by the plan; or (4) another employee benefit plan, if: (a) 
such participant is the insured under the contract; (b) such relative 
is a ``relative'' as defined in section 3(15) of the Act (or a ``member 
of the family'' as defined in section 4975(e)(6) of the Code), or is a 
brother or sister of the insured (or a spouse of such brother or 
sister), and the beneficiary under the contract; (c) the contract 
would, but for the sale, be surrendered by the plan; (d) with respect 
to sales of the policy to the employer, a relative of the insured or 
another plan, the participant insured under the policy is first 
informed of the proposed sale and is given the opportunity to purchase 
such contract from the plan, and delivers a written document to the 
plan stating that he or she elects not to purchase the policy and 
consents to the sale by the plan of such policy to such employer, 
relative or other plan; (e) the amount received by the plan as 
consideration for the sale is at least equal to the amount necessary to 
put the plan in the same cash position as it would have been had it 
retained the contract, surrendered it, and made any distribution owing 
to the participant on his vested interest under the plan; and (f) with 
regard to any plan which is an employee welfare benefit plan, such plan 
must not, with respect to such sale, discriminate in form or in 
operation in favor of plan participants who are officers, shareholders 
or highly compensated employees. Section II of PTE 92-6 amended PTE 77-
8 to provide that the relief for transactions described in part I would 
be available, effective October 22, 1986, for plan participants who are 
owner-employees (as defined in section 401(c)(3) of the Code) or 
shareholder-employees (as defined in section 1379 of the Internal 
Revenue Code of 1954 as in effect on the day before the date of 
enactment of the Subchapter S Revision Act of 1982), if the conditions 
set forth in part I are met.
    The Department, at the request of the Applicant, has amended PTE 
92-6 in order to expand the coverage of the exemption to include the 
sale by an employee benefit plan (the Plan) of an individual life 
insurance or annuity contract to a personal or private trust (the 
Trust) established by or for the benefit of an individual who is a 
participant in the Plan and the insured under the policy, or by or for 
the benefit of one or more relatives (as defined in Section I(2) of PTE 
92-6) of the participant.\2\ The amendment is effective February 12, 
1992.
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    \2\ Section 406(a)(1)(A) of the Act prohibits a direct or 
indirect sale or exchange of any property between a Plan and a party 
in interest. Section 406(a)(1)(D) of the Act prohibits a transfer 
to, or use by or for the benefit of, a party in interest, of any 
assets of the Plan. In most cases, the participant will be a party 
in interest with respect to the Plan under section 3(14)(H) of the 
Act, as an employee of an employer any of whose employees are 
covered by the Plan. In some cases, the participant or relative will 
also be a party in interest under section 3(14)(A) or (E) as a 
fiduciary of the Plan, or as an owner of 50% or more of the employer 
maintaining the Plan. The Trust would be a party in interest under 
section 3(14)(G) of the Act if 50% or more of the beneficial 
interest of such Trust is owned or held by persons described in 
section 3(14)(A) or (E) of the Act.
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B. Written Comments and Hearing Requests

    The notice of pendency gave interested persons an opportunity to 
comment or to request a hearing on the proposed amendment. No requests 
for a hearing were received.
    The Department received one comment letter with respect to the 
notice of proposed amendment. The comment letter strongly supported the 
Department's amendment to PTE 92-6, but also requested that the 
Department clarify two points with respect to PTE 92-6.
    The comment letter first requested that the Department confirm the 
commentator's interpretation that, in a participant directed defined 
contribution plan, when a life insurance policy is sold at the 
participant's direction, the requirement of condition I(3) has been 
satisfied that ``the contract would, but for the sale, be surrendered 
by the plan.'' The Department agrees that, in the case of a participant 
in a defined contribution plan that provides for participant direction, 
if the participant has discretion and control of his/her account in the 
plan, and has exercised that authority, without being subject to any 
undue influence, in accordance with plan provisions for individually-
directed investment of participant accounts, to sell a life insurance 
contract in compliance with the conditions of PTE 92-6, the requirement 
of condition I(3) of the exemption would be satisfied.
    The comment letter also requested that the Department confirm its 
interpretation set out in Advisory Opinion 98-07A (issued September 24, 
1998) to the effect that PTE 92-6 applies to a policy that insures both 
the participant's life and the life of another individual in whom the 
participant has an insurable interest. In Advisory Opinion 98-07A, the 
Department concluded that, to the extent state law and pertinent plan 
provisions permit the acquisition and holding of an individual life 
insurance contract covering the life of the participant and the 
participant's spouse, that such a contract would constitute ``an 
individual life insurance contract'' for purposes of PTE 92-6. The 
Department confirms that PTE 92-6 applies to life insurance contracts 
that cover the life of the participant and the participant's spouse. 
However, since the Department does not have sufficient information 
concerning contracts covering the life of the participant and the life 
of another individual in whom the participant has

[[Page 56315]]

an insurable interest, other than the participant's spouse, it is 
unable to conclude that PTE 92-6 would apply to such contracts.

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 ERISA and section 4975(c)(2) of the Code does 
not relieve a fiduciary, or other party in interest or disqualified 
person with respect to a plan, from certain other provisions of ERISA 
and the Code, including any prohibited transaction provisions to which 
the exemption does not apply and the general fiduciary responsibility 
provisions of section 404 of ERISA which require, among other things, 
that a fiduciary discharge his or her duties respecting the plan solely 
in the interests of the participants and beneficiaries of the plan; 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) This exemption does not extend to transactions prohibited under 
section 406(b)(3) of the Act or section 4975(c)(1)(F) of the Code;
    (3) In accordance with section 408(a) of ERISA and 4975(c)(2) of 
the Code, the Department makes the following determinations:
    (i) The amendment set forth herein is administratively feasible;
    (ii) The amendment set forth herein is in the interests of plans 
and of their participants and beneficiaries; and
    (iii) The amendment set forth herein is protective of the rights of 
participants and beneficiaries of plans;
    (4) The amendment is applicable to a particular transaction only if 
the transaction satisfies the conditions specified in the exemption; 
and
    (5) The amendment is supplemental to, and not in derogation of, any 
other provisions of ERISA and 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.

Exemption

    Accordingly, PTE 92-6 is amended under the authority of section 
408(a) of the Act and section 4975(c)(2) of the Code and in accordance 
with the procedures set forth in 29 CFR 2570, Subpart B (55 FR 32836, 
32847, August 10, 1990), as set forth below:
    I(a). Effective January 1, 1975, the restrictions of sections 
406(a), 406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) 
through (E) of the Code, shall not apply to the sale of an individual 
life insurance or annuity contract by an employee benefit plan to: (1) 
A participant under such plan; (2) a relative of a participant under 
such plan; (3) an employer any of whose employees are covered by the 
plan; or (4) another employee benefit plan, provided that the 
conditions in section II are met.
    I(b). Effective February 12, 1992, the restrictions of sections 
406(a), 406(b)(1) and 406(b)(2) of the Act, and the taxes imposed by 
section 4975(a) and (b) of the Code, by reason of section 4975(c)(1)(A) 
through (E) of the Code, shall not apply to the sale of an individual 
life insurance or annuity contract by an employee benefit plan to a 
trust established by or for the benefit of one or more of the persons 
described in (1) or (2) of section I(a) above, provided that the 
conditions in section II are met.
    II. (a) Such participant is the insured under the contract;
    (b) such relative is a ``relative'' as defined in section 3(15) of 
the Act (or a ``member of the family'' as defined in section 4975(e)(6) 
of the Code), or is a brother or sister of the insured (or a spouse of 
such brother or sister), and such relative or trust is the beneficiary 
under the contract;
    (c) the contract would, but for the sale, be surrendered by the 
plan;
    (d) with respect to sales of the policy to the employer, a relative 
of the insured, a trust, or another plan, the participant insured under 
the policy is first informed of the proposed sale and is given the 
opportunity to purchase such contract from the plan, and delivers a 
written document to the plan stating that he or she elects not to 
purchase the policy and consents to the sale by the plan of such policy 
to such employer, relative, trust or other plan;
    (e) the amount received by the plan as consideration for the sale 
is at least equal to the amount necessary to put the plan in the same 
cash position as it would have been had it retained the contract, 
surrendered it, and made any distribution owing to the participant on 
his vested interest under the plan; and
    (f) with regard to any plan which is an employee welfare benefit 
plan, such plan must not, with respect to such sale, discriminate in 
form or in operation in favor of plan participants who are officers, 
shareholders or highly compensated employees.
    III. Effective October 22, 1986, the exemption provided for 
transactions described in part I is available for plan participants who 
are owner-employees (as defined in section 401(c)(3) of the Code) or 
shareholder-employees as defined in section 1379 of the Internal 
Revenue Code of 1954 as in effect on the day before the date of 
enactment of the Subchapter S Revision Act of 1982) if the conditions 
set forth in part II are met.

    Signed at Washington, DC, this 28th day of August, 2002.
Ivan L. Strasfeld,
Director, Office of Exemption Determinations, Pension and Welfare 
Benefits Administration, Department of Labor.
[FR Doc. 02-22376 Filed 8-30-02; 8:45 am]
BILLING CODE 4510-29-P