Grant of Individual Exemptions; EBPLife Insurance Company [Notices] [11/24/1997]
Grant of Individual Exemptions; EBPLife Insurance Company [11/24/1997]
Volume 62, Number 226, Page 62619-62622[DOCID:fr24no97-90]
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DEPARTMENT OF LABOR
Pension and Welfare Benefits Administration
[Prohibited Transaction Exemption 97-61; Exemption Application No. D-
09685, et al.]
Grant of Individual Exemptions; EBPLife Insurance Company
AGENCY: Pension and Welfare Benefits Administration, Labor.
ACTION: Grant of individual exemptions.
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SUMMARY: This document contains exemptions issued by the Department of
Labor (the Department) from certain of the prohibited transaction
restrictions of the Employee Retirement Income Security Act of 1974
(the Act) and/or the Internal Revenue Code of 1986 (the Code).
Notices were published in the Federal Register of the pendency
before the Department of proposals to grant such exemptions. The
notices set forth a summary of facts and representations contained in
each application for exemption and referred interested persons to the
respective applications for a complete statement of the facts and
representations. The applications have been available for public
inspection at the Department in Washington, D.C. The notices also
invited interested persons to submit comments on the requested
exemptions to the Department. In addition the notices stated that any
interested person might submit a written request that a public hearing
be held (where appropriate). The applicants have represented that they
have complied with the requirements of the notification to interested
persons. No public comments and no requests for a hearing, unless
otherwise stated, were received by the Department.
[[Page 62620]]
The notices of proposed exemption were issued and the exemptions
are being granted solely by the Department because, 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 proposed to the Secretary
of Labor.
Statutory Findings
In accordance with section 408(a) of the Act and/or section
4975(c)(2) of the Code and the procedures set forth in 29 CFR Part
2570, Subpart B (55 FR 32836, 32847, August 10, 1990) and based upon
the entire record, the Department makes the following findings:
(a) The exemptions are administratively feasible;
(b) They are in the interests of the plans and their participants
and beneficiaries; and
(c) They are protective of the rights of the participants and
beneficiaries of the plans.
EBPLife Insurance Company, Located in Minneapolis, Minnesota
[Prohibited Transaction Exemption 97-61, Application No. D-9685]
Exemption
Section I--Transaction
The restrictions of section 406(a) of the Act shall not apply,
effective from April 15, 1994, to July 1, 1997, to the reinsurance of
risks and the receipt of premiums therefrom by EBPLife Insurance
Company (EBPLife) in connection with certain stop-loss policies (the
Stop-Loss Policy or Stop-Loss Policies) issued by unrelated third party
insurance carriers (the Carriers or Carrier) to employers (the
Employers or Employer) any of whose employees were covered by various
employee welfare benefit plans (the Plans or Plan),<SUP>1</SUP> when at
the time EBPLife reinsured risks and received premiums, Affiliates of
EBPLife, as defined in paragraph (a) of section III below or the
predecessors of such Affiliates also provided non-discretionary
administrative services to such Plans for a fee, provided that the
conditions set forth in section II below were satisfied.
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\1\ The Department, herein, is not providing relief for
transactions involving any plans sponsored by EBPLife or its
affiliates (the Affiliates), as defined in paragraph (a) of section
III below, or any predecessors of such Affiliates. In this regard,
EBPLife represents that it may have issued stop-loss or other
insurance contracts in connection with welfare benefit plans that
covered employees of EBPLife, its Affiliates or predecessors of such
Affiliates. However, in all cases, EBPLife represents that it either
satisfies the requirements of the statutory exemption provided by
section 408(b)(5) of the Act, or it ensures that the insurance
contracts are not ``plan assets'' within the meaning of the Act.
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Section II--Conditions
This exemption is conditioned upon the adherence to the material
facts and representations described herein and upon the satisfaction of
the following requirements, as of the effective dates of this
exemption:
(a) Each transaction was effected by EBPLife in the ordinary course
of its business as an insurance company;
(b) The terms of each transaction were at least as favorable to the
Plans as those negotiated at arm's-length with unrelated third parties
under similar circumstances;
(c) The combined total of all fees and other consideration received
by EBPLife, its Affiliates, and predecessors of such Affiliates for the
provision of services to Employers and their Plans and in connection
with the purchase of insurance contracts was not in excess of
``reasonable compensation'' within the meaning of sections 408(b)(2)
and 408(c)(2) of the Act.
(d) EBPLife, its agents or Affiliates, or the predecessors to such
Affiliates have not served as: (1) trustees to any of the Plans (other
than as non-discretionary trustees, as defined in paragraph (f) in
section III below, who do not render investment advice with respect to
any of the assets of such Plans); (2) plan administrators, within the
meaning of section 3(16)(A) of the Act; (3) fiduciaries who are
expressly authorized in writing to manage, acquire, or dispose of the
assets of any of the Plans; or (4) employers any of whose employees are
covered by any of the Plans.
(e) EBPLife, its Affiliates, or the predecessors of such Affiliates
have not acted as fiduciaries in connection with the decision by the
Employer to purchase Stop-Loss Policies reinsured by EBPLife;
(f) As of the effective dates of this exemption, if an Employer
executed an agreement (the Administration Agreement) with the
Affiliates of EBPLife or with the predecessors of such Affiliates to
provide services to an Employer or Plan; and such Employer also
purchased or renewed a Stop-Loss Policy reinsured by EBPLife for the
purpose of funding a Plan, then the fiduciaries of such Plan (the Plan
Fiduciaries or Plan Fiduciary), as defined in paragraph (g) of section
III below, must have received prior to the decision which resulted in
the retention of Affiliates of EBPLife or the predecessors of such
Affiliates to provide services and stop-loss insurance reinsured by
EBPLife, a full and detailed written disclosure, including but not
limited to a copy of the Administration Agreement which, among other
things, disclosed whether EBPLife reinsured risk under a Stop-Loss
Policy issued to the Employer of such Plan and described all of the
services provided by EBPLife, its Affiliates, or the predecessors of
such Affiliates to such Plan or such Employer. Such disclosures have
been provided by EBPLife or its Affiliates or by the predecessors of
such Affiliates, in a form calculated to be understood by such Plan
Fiduciaries who have no special expertise in insurance.
(g)(1) As of the effective dates of this exemption, and prior to
the execution of a transaction described in this exemption, following
receipt of the disclosures, described in paragraph (f) of this section
II, the Plan Fiduciary, by signing the Administration Agreement,
acknowledged receipt of such disclosures and acknowledged that the
decision to engage in a transaction which is the subject of this
exemption was a decision made in a fiduciary capacity, and that such
Plan Fiduciary approved of the subject transaction.
(2) With respect to the renewal by Employers during the effective
period of this exemption of expired Stop-Loss Policies reinsured by
EBPLife where Affiliates of EBPLife or the predecessors of such
Affiliates were parties in interest with respect to a Plan by reason of
the provision of services to such Plan, the written disclosures
required under paragraph (f) of this section II need not have been
repeated, unless--
(A) More than three years had passed since such disclosures were
made with respect to the same kind of services provided by the
Affiliates of EBPLife or by predecessors of such Affiliates or the same
kind of reinsurance of the risk on the Stop-Loss Policies, or
(B) The reinsurance of the risk on such Stop-Loss Policies by
EBPLife or the receipt of compensation for services by Affiliates of
EBPLife or by predecessors of such Affiliates thereto was materially
different from that for which approval described in paragraph (g) of
this section II was obtained.
(h) The Plans have paid no commission with respect to the
reinsurance by EBPLife of the Stop-Loss Policies.
(i) Each of the Plan Fiduciaries have not received, directly or
indirectly (i.e. through any Affiliates), any compensation or other
consideration for his or her own personal account from EBPLife, any of
its Affiliates, any predecessors of such Affiliates, or other party
dealing with any of the Plans in
[[Page 62621]]
connection with a transaction described in this exemption.
(j) EBPLife and its Affiliates and any predecessors of such
Affiliates followed the standard claims processing practices regarding
any claims submitted with respect to benefits under any of the Plans
covered by any of the Stop-Loss Policies reinsured by EBPLife;
(k) The Employer had final authority regarding the payment or
nonpayment of any and all claims submitted with respect to benefits
under any of the Plans covered by the Stop-Loss Policies reinsured by
EBPLife;
(l) EBPLife or its Affiliates or the predecessors of such
Affiliates have made available upon request by the Employers of each of
the Plans at no additional charge full and detailed written reports
which detail any and all of the following information:
(1) The average turn-around time from the date that a claim was
initially received to the date that the claim was processed for
payment;
(2) The percentage of claims processed within the target period, as
set forth in the Administration Agreement;
(3) The average turn-around time from the date that a claim was
received to the date that a claim was actually paid; and
(4) A summary of pending claims that were received but not paid
accompanied by a code indicating the reason why each claim had not yet
been paid.
(m) Regarding its operations and reserves, EBPLife complied with
all applicable requirements of law and insurance regulations of the
State of Oklahoma, where it is domiciled and licensed to do business;
(n) EBPLife has been subject to a financial audit by the Department
of Insurance of the State of Oklahoma, where it is domiciled and
licensed to do business no less frequently than once every three years;
(o) The issuing Carriers of the Stop-Loss Policies are fully liable
for all claims covered by the Stop-Loss Policies in excess of the
applicable stop-loss limits under such Stop-Loss Policies;
(p) Where the Stop-Loss Policies are reinsured by EBPLife, EBPLife,
as reinsurer, is fully liable for the payments of claims under such
Stop-Loss Policies;
(q) Independent insurance consultants, who were unrelated to
EBPLife, its Affiliates, or to the predecessors of such Affiliates,
solicited bids for administrative services and/or Stop-Loss Policies on
behalf of Employers and served as brokers or agents to Employers with
respect to the purchase by Employers of Stop-Loss Policies reinsured by
EBPLife;
(r)(1) EBPLife or its Affiliates retain or the predecessors of such
Affiliates have retained for a period of six (6) years from the date of
any transaction covered by this exemption, the records necessary to
enable the persons, as described in paragraph (s) of this section II,
to determine whether the conditions of this exemption have been met.
Such records shall include, but not be limited to, the following
information:
(A) A copy of the information disclosed by EBPLife, its Affiliates,
or by the predecessors of such Affiliates to the Plan Fiduciaries,
pursuant to paragraph (f) of section II above;
(B) A copy of the Administration Agreement which discloses, among
other things, whether EBPLife reinsures risk under a Stop-Loss Policy
issued to an Employer;
(C) Any additional information or documents provided to any Plan
Fiduciary with respect to a transaction covered by this exemption;
(D) Evidence of the written acknowledgment of receipt of
disclosures by the Plan Fiduciary as described in paragraph (g) of this
section II.
(2) A prohibited transaction will not be deemed to have occurred
if, due to circumstances beyond the control of EBPLife, its Affiliates,
or the predecessors of such Affiliates, such records were or are lost
or destroyed prior to the end of the six (6) year period.
(3) No party in interest, other than EBPLife, its Affiliates, and
the predecessors of such Affiliates, shall be subject to the civil
penalty that may be assessed under section 502(i) of the Act, if the
records are not maintained, or are not available for examination as
required by paragraph (s) of this section II; and
(S)(1) Except as provided in paragraph (s)(2) of this section II
and notwithstanding any provisions of subsection (a)(2) and (b) of
section 504 of the Act, the records referred to in paragraph (r) of
section II above are unconditionally available for examination during
normal business hours by--
(A) Any duly authorized employee or representative of the
Department of Labor;
(B) Any fiduciary of each of the Plans or any duly authorized
employee or representative of such fiduciary; and
(C) Any Employer of Plan participants and beneficiaries, any
participant or beneficiary of the Plans or duly authorized employee or
representative of such participant or beneficiary; any employee
organization any of whose members are covered by a Plan.
(2) None of the persons described in paragraph (s)(1) (B) and (C)
of section II shall be authorized to examine trade secrets of EBPLife,
its Affiliates, or the predecessors of such Affiliates or commercial or
financial information which is privileged or confidential.
Section III--Definitions
For purposes of this exemption:
(a) An ``Affiliate'' or ``Affiliates'' of a person includes:
(1) Any person directly or indirectly through one or more
intermediaries, controlling, controlled by, or under common control
with the person;
(2) Any officer, director, employee, relative, or partner in any
such person; and
(3) Any corporation or partnership of which such person 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, ``relative,'' means a ``relative'' as that term is
defined in section 3(15) of the Act, or a brother, a sister, or a
spouse of a brother or a sister.
(e) The term ``non-discretionary services'' means custodial
services and services ancillary to custodial services, none of which
services are discretionary.
(f) The term ``non-discretionary trustee'' of a Plan means a
trustee whose powers and duties with respect to any assets of the Plan
are limited to (1) the provision of non-discretionary trust services,
as defined in paragraph (e) of this section III, to the Plan, and (2)
duties imposed on the trustee by any provision or provisions of the
Act.
(g) The term ``Plan Fiduciary'' or ``Plan Fiduciaries'' means a
person(s) who are independent of EBPLife, its Affiliates, and any
predecessors of such Affiliates, are sufficiently knowledgeable with
respect to administration, benefits, funding, and any matters related
thereto concerning such Plan, are capable of making an informed and
independent decision, and are responsible for executing the
Administration Agreement and for deciding to purchase or renew the
Stop-Loss Policies reinsured by EBPLife.
EFFECTIVE DATE: The exemption is effective, from April 15, 1994, to
July 1, 1997.
Written Comments
In the Notice, the Department invited all interested persons to
submit written comments and requests for a hearing on the proposed
exemption within 45 days
[[Page 62622]]
of the date of the publication of the Notice in the Federal Register on
July 11, 1997. All comments and requests for hearing were due by August
25, 1997. Subsequently, on two occasions the applicant requested
additional time within which to notify interested persons. Accordingly,
the Department agreed to extend the comment period to October 29, 1997.
As of the close of the extended comment period, the Department had
received no requests for hearing. However, the Department did receive a
comment letter from the applicant, EBPLife, dated September 3, 1997, in
which the applicant confirmed the July 1, 1997, sale by First Data
Corporation of its administrative service affiliate, First Health, to
an unrelated company. As a result of that sale, EBPLife no longer has
current plan sponsor clients with respect to which it, or its
Affiliates, provides both reinsurance and non-discretionary
administrative services. Accordingly, the Department has determined to
amend the effective date of the exemption to cover the period from
April 15, 1994, the date the application was filed, to July 1, 1997,
the date when the First Health was sold.
After full consideration and review of the entire record, including
the written comment filed by the applicant, the Department has
determined to grant the exemption, as modified and clarified above. The
comment submitted by the applicant to the Department has been included
as part of the public record of the exemption application. The complete
application file, including all supplemental submissions received by
the Department, is available for public inspection in the Public
Documents Room of the Pension Welfare Benefits Administration, Room N-
5638, U.S. Department of Labor, 200 Constitution Avenue NW.,
Washington, DC 20210.
For a complete statement of the facts and representations
supporting the Department's decision to grant this exemption refer to
the Notice published on July 11, 1997, 62 FR 37299.
FOR FURTHER INFORMATION CONTACT: Angelena C. Le Blanc of the
Department, telephone (202) 219-8883. (This is not a toll-free number.)
Franklin & Davis, P.C. Profit Sharing Plan (the Plan), Located in Troy,
Michigan
[Prohibited Transaction No. 97-62; Exemption Application No. D-10450]
Exemption
The sanctions resulting from the application of section 4975 of the
Code, by reason of section 4975(c)(1) (A) through (E) of the Code,
shall not apply to two loans (the Loans) totaling $229,000 to Franklin
& Davis, P.C. (F&D), the Plan's sponsor and a disqualified person with
respect to the Plan, by the individual account (the Account) of Bruce
W. Franklin (Mr. Franklin), provided the following conditions are
satisfied: (a) The terms of the Loans are at least as favorable to the
Plan as those obtainable in arm's-length transactions with an unrelated
party; (b) the Loans do not exceed 25% of the assets of the Account;
(c) the first Loan (Loan 1) is secured by a second mortgage on certain
real property which has been appraised by a qualified independent
appraiser to have a fair market value not less than 150% of the amount
of Loan 1 plus the balance of the first mortgage which it secures; (d)
the second Loan (Loan 2) is secured by certain securities which have a
fair market value not less than 200% of Loan 2; and (e) the fair market
value of the collateral remains at least equal to the percentages
described in conditions (c) and (d), above, throughout the duration of
the Loans.<SUP>2</SUP>
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\2\ Since Mr. Franklin is the sole owner of F&D and the only
participant in the Plan, there is no jurisdiction under Title I of
the Act pursuant to 29 CFR 2510.3-3(b). However, there is
jurisdiction under Title II of the Act pursuant to section 4975 of
the Code.
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For a more complete statement of the facts and representations
supporting the Department's decision to grant this exemption, refer to
the notice of proposed exemption published on October 2, 1997 at 62 FR
51692.
FOR FURTHER INFORMATION CONTACT: Gary H. Lefkowitz of the Department,
telephone (202) 219-8881. (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 to which the exemptions 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) These exemptions are supplemental to and not in derogation of,
any other provisions of the Act and/or the Code, including statutory or
administrative exemptions and transactional 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
(3) The availability of these exemptions is subject to the express
condition that the material facts and representations contained in each
application accurately describes all material terms of the transaction
which is the subject of the exemption.
Signed at Washington, D.C., this 19th day of November, 1997.
Ivan Strasfeld,
Director of Exemption Determinations, Pension and Welfare Benefits
Administration, U.S. Department of Labor.
[FR Doc. 97-30827 Filed 11-21-97; 8:45 am]
BILLING CODE 4510-29-P
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