[Federal Register Volume 62, Number 226 (Monday, November 24, 1997)]
[Notices]
[Pages 62619-62622]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-30827]


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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),1 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.2
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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